Cobrum Capital Trading Pty Ltd v Hanson and Matthews
[2010] VCC 627
•18 June 2010
| IN THE COUNTY COURT OF VICTORIA | Revised |
Not Restricted
AT MELBOURNE
CIVIL DIVISION
COMMERCIAL LIST
Case No. CI-08-03731
| COBRUM CAPITALTRADING PTY LTD | Plaintiff |
| (ACN 122 517 953) | |
| v | |
| WILLIAM GEOFFREY HANSON | First Defendant |
| and | |
| NEIL MICHAEL MATTHEWS | Second Defendant |
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| JUDGE: | HIS HONOUR JUDGE GINNANE |
| WHERE HELD: | Melbourne |
| DATE OF HEARING: | 22 and 25 January 2010 |
| DATE OF JUDGMENT: | 18 June 2010 |
| CASE MAY BE CITED AS: | Cobrum Capital Trading Pty Ltd v Hanson & Matthews |
| MEDIUM NEUTRAL CITATION: | [2010] VCC 0627 |
REASONS FOR JUDGMENT
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Catchwords: CONTRACT - guarantee – whether offer to guarantee accepted – whether terms of guarantee established – whether note or memorandum of guarantee – whether debt within the terms of guarantee – Instruments Act 1958, s.126.
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| APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr D J Crennan | Middletons |
| For the Defendants | Mr R G Craig | Thomson Playford Cutlers |
| HIS HONOUR: |
1 The plaintiff, Cobrum Capital Trading Pty Ltd (“Cobrum”) was a del credere agent.
2 The defendants were directors of Stereo Direct Pty Ltd (“Stereo”) which sold car audio systems. On 21 May 2008, Stereo was placed into liquidation.
3 Cobrum sues the defendants, alleging that they signed a guarantee dated 14 May 2007 of monies owing by Stereo to the plaintiff. The amount claimed pursuant to that guarantee is the sum of $388,945.66.
4 Cobrum offered to provide services as a del credere agent in respect of both the sale and purchase of goods. This case concerns the latter service, which involved Cobrum purchasing materials from manufacturers or suppliers and selling them to Stereo. Cobrum would pay the manufacturer or supplier and invoice Stereo with a price including a margin. Stereo would pay Cobrum on agreed terms, normally 30 days.
The Application for Credit and the Guarantee
5 The document upon which the plaintiff sues, to which I will refer as “the guarantee”, states as follows:
“We, the persons listed below under the heading ‘Guarantors’ being directors and/or shareholders and/or persons having a director (sic) or indirect interest in the financial affairs of the Applicant hereby:
(a) acknowledge that we have read and understood the contents and effect of this Application and its Terms; and (b) request CCT to accept this Application and to commence selling Products to the Applicant subject to and upon the Terms. In consideration of CCT accepting this Application at our express request, we the persons listed below under the heading ‘Guarantors’ hereby jointly and severally by our execution of this Application:
1. unconditionally and irrevocably guarantee CCT the due and punctual service and performance of the Terms by the Applicant and the due payment by the Applicant of the price payable by the Applicant to CCT for any and all Products which are hereafter sold by CCT to the Applicant; and
2. unconditionally and irrevocably agree to indemnify and to hold CCT indemnified to the fullest extent for and against any and all loss or damage which CCT may sustain or suffer by reason of any breach, default or failure on the part of the Applicant in the due and punctual performance of the Applicant’s obligations under the Terms and in particular, any failure by the Applicant to duly pay to CCT the price payable by the applicant to CCT for any products which are hereafter sold by CCT to the Applicant”.
6 The guarantee was signed by both defendants.
7 There is no issue that the goods were delivered, or about the price that Stereo agreed to pay Cobrum for them. The dispute is whether the defendants are liable to pay that price under the guarantee.
8 The guarantee was part of a larger document, which contained a nine-page Section B, entitled “Application for Credit”. Two pages of that Section B were entitled “Request for Credit” and included the guarantee, which I have set out above. That Request for Credit stated:
“TO: Cobrum Capital Trading
The Applicant Stereo Direct Pty Ltd (‘the Applicant’) desires to purchase
goods and/or services (hereinafter collectively referred to as ‘Products’)
from Cobrum Capital Trading (‘CCT’) on credit on CCT’s Terms and
Conditions of Trade (‘the Terms’) which are annexed to or endorsed on
the reverse side of this Application.
This Application may be accepted or rejected by CCT without assigning
any reason therefore (sic).
In order for CCT to consider this Application, the Applicant has
completed this Application and given full and truthful responses to all
questions and requests for information herein contained or made. CCT
shall receive and hold all information supplied herein by the Applicant as
strictly confidential.
In the event that CCT accepts this Application:
1) CCT shall give written notice of that acceptance to the Applicant;2) any and all sales of Products by CCT to the Applicant after the date of that acceptance shall be affected subject to and upon the Terms;
3) No Orders from the Applicant for Products shall be received or considered by CCT unless such Orders are signed by a person who is designated by the Applicant as being authorised by the Applicant to sign such Orders for and on behalf of the Applicant;
4) The Applicant undertakes to pay all accounts on the due date and acknowledge that if the account becomes overdue, it is automatically suspended until brought within the trading terms;
5) The Applicant understands that credit may be withdrawn should the authorised credit limit be exceeded;
6) The Applicant agrees to pay all interest that will be charged on overdue balances in accordance with the terms and that interest will be charged from the date of purchase until the date of payment;
7) The directors and guarantors of the Applicant understand the terms and accept personal liability to pay all overdue balances including the interest charged on those overdue balances;
8) I William Geoffrey Hanson certify that I am authorised to sign this Credit Application form on behalf of Stereo Direct Pty Ltd and that the information given is true and correct to the best of my knowledge and until the Applicant advises CCT to the contrary, the following persons, whose full names and sample signatures hereunder, are and shall remain authorised by the Applicant to sign and place Orders for Products for and on behalf of the Applicant with CCT.”
9 The guarantee then followed. The plaintiff sued on that guarantee. No separate reliance was placed on the terms of Clause 7 of the Application for Credit, which are set out in the previous paragraph.
10 The Application for Credit also contained two pages under the heading “Privacy Protection of Information”. One paragraph of that part of the document was as follows:
“Authority to provide information to guarantors.
I/We authorise YOU to provide to the Guarantor/s named herein any information relating to My/Our credit worthiness, credit standing, credit history or credit capacity for the purpose of considering whether to act as a guarantor of the proposed facility or in the event that the application is approved.”
11 On the next page was a declaration relating to the whole of the Application, signed by both of the defendants, which stated:
“We declare and understand that:
•
I/We have read and understood the particulars in the previous page headed ‘Privacy and protection of information’ forming part of this Request and declare them to be understood and acceptable.
•
The representations contained in this Request are true and correct and have been made to Cobrum Trading Pty Ltd (CCT) to enable it to determine whether or not to enter a Trading Agreement with me/us or to induce CCT to offer me/us credit.
•
We authorise CCT to make any other enquiries they consider relevant to this request.
• This Request does not constitute an offer or acceptance of credit. •
The representations made by me in this Request will not constitute part of any contract for a trading facility or a loan that may come into existence between YOU and me/us.
•
I/We authorise YOU and any of your agents or related bodies corporate and the officers of such corporations to freely exchange credit or other information concerning my/our business affairs and the financial condition of this company.
To give and receive from my/our agent and/or accountant/solicitor named below, personal and/or commercial information about me/us in connection with my/our application for trading facility including credit or, as the case may be, my/our offer to guarantee the within application, the processing acceptance and subsequent management of the facility or finance provided.”
12 The Application for Credit included sections providing business particulars of Stereo, which stated that the amount of credit required was $300,000, details of Stereo’s bank, trade referees and details of the defendants, under the typed sentence:
“Please list full name and residential address of Directors, Partners and
Guarantors of and in the business.”
13 The defendants signed the Application and Request for Credit, including the guarantee, dated it 14 May 2007, and sent it to the chief executive officer of Cobrum, Mr I Paterson.
14 There was no direct proof that Cobrum’s Terms and Conditions of Trade were attached to the Request for Credit or the guarantee despite references to them in both those documents. Mr W Hanson, the first defendant, was called as a witness and said he had no recollection of seeing any such Terms.
The Events On and After 28 May 2007
15 By an attachment to an email of 28 May 2007, Mr Paterson sent to Mr Matthews a document described as a Letter of Offer. The covering email stated:
“Here is the letter as expected. I have had a very frustrating day with interruptions and I am still working on the Trading Deed. I hope to get it through to you tonight.
In the meantime here is confirmation of the facility, I hope it meets with your satisfaction. We did indicate a discount (commission) rate of around 4%, but we have got it down to 3.25%.
Talk to you tomorrow.”
16 The attached Letter of Offer was addressed to “the directors, Stereo Direct Pty Ltd”, and bore the heading “Cobrum Capital Trading Pty Ltd (‘Cobrum’) – LETTER OF OFFER”. It stated, in relevant parts:
“Dear Neil and Bill,
Subject to the Terms and Conditions contained herein, we have great pleasure in making this offer to establish a trading facility with you.
This Cobrum trading facility will be provided to Stereo Direct Pty Ltd (ACN 118 407 891), who in this letter and in all future documentation required by Cobrum is referred to as the Principal.
1. CONDITIONS PRECEDENT
1.1 Completion of all required documentation as set out in item 9
below.1.2 Obtaining credit limits and endorsements from our underwriters
(Done).1.3 A pre-trading ‘due diligence’ review of your business processes
(Principally Completed).1.4
Payment of the commitment fee referred to herein along with receipt of the signed acceptance offer ($4,000 Commitment Fee Paid).
2. OFFER
Cobrum will:
2.1
Purchase goods or services (product) from the Principal for on- sale to ‘acceptable customers’ and make payment to the Principal within 72 hours the amount as per the Settlement rate as set out below.
2.2
Cobrum will (subject to the Principal obtaining an acceptable trading credit limit approval from our underwriter (Done) and subject to the Principal selling goods and services to Cobrum as per 2.1 above provide raw material purchasing inventory facilities of up to 85% of your supplier’s cost including GST, less Cobrum’s buying commission.
. . .
4. COBRUM DISCOUNT COSTS
The cash discount required by Cobrum is as follows:
4.1
A once only establishment fee equal to 1% of the total value of the initial debtors ledger acquired by Cobrum of $5,000.00 if there are no debtors initially required. This will be charged on top of the standard Sales Settlement Discount and will be deducted from the first settlement amount paid by Cobrum.
4.2 Sale Settlement Discount – (a) 3.25% of total sales in the relevant month
4.3 Raw Material / Inventory Purchasing – (a) The greater of .5% of the approved credit limit or $1,000.00 to establish the facility; and
(b) 3.25% of the gross value of all purchases in the relevant month. 5. PAYMENT OF POST COLLECTION REBATE (‘Margin’)
The 15% of the relevant month which was initially charged by Cobrum as a margin and not paid with the sale settlements, will be paid to the principal as a collection ‘rebate’ within ten (10) working days following the end of the month in which it is received by Cobrum from the debtors (approved buyers) and verified by our Account Managers as being the total (aggregate) amount received as payment for that relevant month’s sales. For example:
Relevant month No collection No rebate Month 1 No collection No rebate Month 2 85% collection No rebate Month 3 95% collection 10% rebate Month 4 100% collection 5% rebate 15%.”
17 Clause 9 of the letter is entitled “DOCUMENTATION” and states:
“9.1 The Principal agrees that this trading facility will be formally
documented and will include:9.1.1 Cobrum Trading Deed, Guarantee, and Deed Annexures.
9.1.2 Cobrum Terms and Conditions of Trade. 9.1.3 This Letter of Offer. 9.1.4 Cobrum Operations and Credit Procedures Manual. If any dispute or conflict arises between the wording and meaning of the above 4 documents, then the order that they are listed above is the order of priority between the 4 documents for the purpose of resolving any dispute or conflict.
9.2
Definitions in Cobrum Terms and Conditions and Trade Deed Annexures apply throughout this letter where the context permits.
9.3
The Principal will procure a Guarantee from Stereo Direct Pty Ltd and any other relevant parties prior to implementing an Inventory Purchasing facility or as directed by Cobrum’s underwriters.
. . . 11. VARIATION AND ADVERSE CHANGE In accordance with Cobrum’s standard operating and credit procedures manual Cobrum reserves the right to vary the conditions of this offer prior to settlement. Cobrum also reserves the right to completely withdraw and refuse to settle this proposed facility and any sales and/or raw material purchases pursuant to the Cobrum Facility should any matter arise which in Cobrum’s sole opinion, could prejudice Cobrum’s interests or affect the successful conclusion of this offer.”
18 It appears that page 5 of the Letter of Offer contained a pre-prepared letter of acceptance for Stereo to execute addressed to Mr Paterson, which stated in its first paragraph:
“Stereo Direct Pty Ltd (the Principal), accepts the offer of the trading facility referred to in this letter and agrees to be bound by the conditions stated in this offer. The Principal hereby authorises Cobrum to commence preparation of all required documentation. The Principal understands that any other direct expenses incurred by Cobrum are to be paid by the Principal.”
19 Later, on 28 May 2007, Mr Paterson sent a further email to Mr Matthews with an attachment described as “Cobrum Draft Trading Deed.doc, Request for Purchase – Annexure ‘H’doc”. The covering email stated:
“This is the Trading Deed for your review and discussion.
NB in this ‘Deed’ document a reference to a ‘Supplier’ is a reference to Stereo Direct, because it is written principally as a document were (sic) ‘you’ are selling product to us, therefore you are our Supplier. It becomes self evident as you read it.
Clause 19 and thereon relates to us purchasing product and selling it to you, and this product is referred to as ‘materials’ in the deed. The suppliers of the materials are referred to as ‘manufacturers’. Therefore Bosche (sic) is a manufacturer as referred to therein, but it could also apply to any manufacturer that you buy from such as ‘Earthquake’.
Also include (sic) is a ‘Request’ form which is our standard order form used for material purchases when we are providing 100% of the purchase cost by adding a margin to that cost. We discussed this aspect of our system but we will go over it again on Wednesday.
The deed also refers to Annexures ‘A to K’. These are standard templates and although they are referred to in the deed, they may or may not be used. I will bring all of them with me on Wednesday so we can go over them and we will determine then what will be included and what will not be. And in what form they will be included.”
20 The Trading Deed is a lengthy document. The recitals to it include the following:
“A. Cobrum is a company duly incorporated pursuant to the laws of
and registered in the State of Victoria.B. The Supplier:
(i)
is a company duly incorporated pursuant to the laws of and registered in the State or Territory specified in Item 4 of the Schedule; and
(ii) carries on business as:
(a) a manufacturer and/or supplier of products of the type described in Item 5(a) of the Schedule; and/or (b) a supplier and/or provider of services of the type described in Item 5(b) of the Schedule; and (iii) for the purposes of carrying on its business, from time to time uses and requires to purchase goods and/or materials and/or services and/or credit facilities (hereinafter collectively referred to as ‘Materials’);
C.
The Supplier’s standard trading terms and conditions require purchasers of the Supplier’s products and services (hereinafter collectively referred to as ‘Products’) to pay the Supplier for the Products within the time which is specified in Item 6 of the Schedule;
D.
The Supplier desires to increase and improve its cash flow and financial liquidity by expediting its receipt of payments for Products which it sells;
E.
Cobrum has, at the request of the Supplier, agreed to enter into this deed and thereafter carry on a business which will involve Cobrum:
(i) purchasing Products from the Supplier; and (ii)
on-selling Products purchased from the Supplier directly to the selected customers; and
(iii)
trading under the registered name and style which is described in item 7 of the Schedule (‘Name’); and
(iv)
purchasing Materials from the manufacturers and/or suppliers and/or providers of Materials (hereinafter collectively referred to as ‘Manufacturers’) and on-selling the Materials to the supplier.
F.
Cobrum’s Terms and Conditions of Trade (‘Terms’) are set out in Annexure ‘I’ to this deed.”
21 The Deed dealt with two situations: the second of which applied in this case, where Cobrum, the del credere agent, purchased goods on behalf of Stereo.
22 That situation is dealt with in Clause 19, which contains the mechanism that underpinned the transactions which led to the debts, which are alleged to be due under the guarantee signed by the defendants. Clause 19 states:
“(a) During the currency of this deed, the Supplier may request
Cobrum to:
(i) purchase Materials from Manufacturers; and (ii)
on-sell, to the Supplier, Materials, purchased by Cobrum from Manufacturers,
by delivering a written request therefore (“Request”) to Cobrum; (b) Any Request delivered by the Supplier to Cobrum shall:
(i) specify the Materials; and (ii) specify the Manufacturers; and (iii)
specify the total price which the Supplier is prepared to pay Cobrum for the Materials therein specified (“Materials price”); and
(iv)
specify the date by which the Supplier requires Cobrum to supply the Materials to the Supplier; and
(v) be in the form or to the effect of annexure “H” to this deed; (c)
Cobrum may accede to any Request by delivering to the Supplier a written notice signifying and recording its consent to comply with the Request (“acceptance notice”), but Cobrum and the Supplier agree, acknowledge and declare that Cobrum shall be entitled, in its absolute and unfettered discretion and without assigning any reason therefore, to refuse to accede to any Request;
(d)
In the event that Cobrum delivers an acceptance notice to the Supplier:
(i)
subject to the Manufacturer delivering the Materials to Cobrum, Cobrum shall deliver the Materials which form the subject matter of that acceptance notice (“relevant Materials”) to the Supplier by no later than 3 days after the delivery date specified in the Request to which the acceptance notice relates; and
(ii)
the relevant Materials shall, as and from the moment when Cobrum enters into its contract to purchase the relevant Materials from the Manufacturer, be solely at the risk of the Supplier.
(e)
The Materials price shall, unless specified in Item 12 of the Schedule, be and become payable by the Supplier to Cobrum immediately upon the delivery of the relevant Materials by Cobrum to the Supplier.”
23 The Trading Deed provided for, and annexed to it was, a guarantee to be provided by Stereo. Also attached to the Deed was an acknowledgment by Stereo, stating:
“The guarantor whose name and address is set forth above hereby:
(i) Acknowledges that the Guarantee secures the payment of all monies owing from time to time by the Supplier to Cobrum pursuant to the Deed as varied or extended.
(ii) Acknowledges that we have had the opportunity to seek independent legal and financial advice concerning the obligations under the Guarantee.
(iii) Acknowledges the terms of the charge over our real estate created by the Guarantee.”
24 Stereo executed the Company Guarantee.
25 On 29 May 2007, Mr Paterson sent an email to Mr Matthews, stating:
“The attached is our standard terms that we use. You will note that they
form a large part of the deed in reference to ‘materials’ purchasing.”
26 It appears that the attachment included a document entitled “the Terms and Conditions of the Trade” (“the Terms”), which stated, in relevant parts:
“1. Any written Order delivered by the Purchaser to (here insert the name of the Supplier) shall be deemed to be an offer made by the Purchaser to purchase the goods and/or services which are specified in the Order (hereinafter collectively referred to as ‘the Products’) from Cobrum Capital Trading (‘Cobrum’) for the price herein specified (‘the price’) and on the terms and conditions hereinafter set forth (‘the offer’).
. . .
3. (a)
The Purchaser shall, in addition to the price, pay to Cobrum all taxes (including GST) and other duties, and any delivery costs, storage charges and insurance premiums referable to the Products;
(b)
Any GST payable in respect of the Products shall be charged by Cobrum to and be payable to Cobrum by the Purchaser unless the Purchaser is exempted from the payment of GST and provides to Cobrum:
(i) a registered ABN number; or (ii) a GST exemption certificate; and (iii)
such other evidence as Cobrum may require in order to determine whether the Purchaser is exempt from the payment of GST for the products.
4. The price and all other sums payable by the Purchaser to Cobrum pursuant to paragraph 3(a) hereof shall:
(a)
be paid by the Purchaser to Cobrum within 30 days of the date of the Purchaser being invoiced therefor by Cobrum; and
(b)
be paid by the Purchaser to Cobrum clear and without any deduction, retention, withholding or set-off of whatever nature; and
(c)
be paid by the Purchaser by a cheque drawn payable to and in favour of Cobrum as payee and marked ‘Not negotiable – Account payee Only’; and only be deemed to have been paid by the Purchaser to Cobrum once:
(i)
any cheque received by Cobrum from the Purchaser has been met upon presentation and the proceeds thereof credited to Cobrum’s account; or
(ii)
Cobrum has furnished to the Purchaser a written acknowledgement of receipt of payment.
. . . .”
27 On 30 May 2007, Mr Paterson sent a further email to Mr Matthews with attachments entitled “Trading Deed Annexures.doc Cobrum Mortgage Debenture.doc PROMISSORY NOTE.doc”. The email stated:
“Neil,
These are the annexure templates that we will attach to the Deed as I mentioned. I will go over them with you when I arrive. Some of them are actually irrelevant in your situation, and the Debenture is an example only, we do NOT take a Debenture over the business.”
28 Attached to the email were various annexures. One was Annexure H, which contained a pro forma request to Cobrum to purchase materials. There was uncertainty and debate about whether Annexure I, which was described in the Recital to the Trading Deed as “Cobrum’s Terms and Conditions of Trade”, was part of the attachments to the email.
29 Mr Paterson sent a further email to Mr Matthews on 30 May 2007 with a Personal Guarantee as an attachment. The covering email stated:
“Neil,
I’m sorry but I forgot to attach this doc. to the previous email. Again this is for discussion.
I’m on the way now.”
30 The attached instruction sheet for completing the guarantee stated:
“…
2 All Directors of the Company MUST SIGN and each signature is to be numbered.”
31 The defendants did not sign that Permanent Guarantee.
Conduct of the Trial
32 The only witness at the trial was the first defendant, Mr Hanson. Many documents were tendered. Many of the issues requiring determination arose from some uncertainty about which documents had been provided to the defendants and when they had been provided.
Evidence of Mr Hanson
33 Mr Hanson was a director of Stereo it seems from February 2006 and was engaged in sales and marketing. He did not receive or recollect seeing a copy of Cobrum’s Terms and Conditions of Trade, which were said to be annexed to or endorsed on the reverse side of the Request for Credit. Mr Matthews was involved in administration. He did not recollect reading the Request for Credit document, but would have understood that the relevant pages were a guarantee. He did not recollect seeing the transaction documents.
The Transactions giving rise to the Alleged Debts
34 It is next necessary to refer to the documentation relating to the two transactions that are alleged to have created the debt sued on in this proceeding.
The First Transaction
35 The first transaction is evidenced by a document entitled “REQUEST FOR GOODS AND/OR SERVICES” dated 9 December 2007. That document, states:
“The Buyer requests Cobrum to purchase the Goods and/or Services (referred to as Product) which is hereafter described, from the supplier hereafter named, and to thereafter sell and deliver the Product to the Buyer by the date which is hereafter specified.
The Buyer accepts Cobrum’s Terms and Conditions of Trade and offers to pay Cobrum the Total sum which is hereafter specified for the Product.
A) Description of Product: …………Inv # STD 5945............................ B) Supplier of Product: ……Associated Marketing Group ……………. C) Required Delivery Date: ………………………………………………. D) The Total Sum to be paid by the Buyer to Cobrum for the Product (the ‘Final Selling Price’) is:
1. The sum of $ 193,348.77. being the sum previously quoted by the Supplier to Cobrum for the Product (‘the Wholesale Price’); plus, 2. A sum equivalent to 22.32 % of the Wholesale Price which is $ 43,163.49. 3. The Final Selling Price is $ 236,512.26 (i.e. the sum of 1 & 2 above). The Buyer notes and acknowledges that this Request is not binding upon Cobrum unless Cobrum delivers to the Buyer an Invoice showing the Final Selling Price which is the total sum of this request and for which the Buyer assumes liability for payment thereof.”
36 The terms of this Request differed from the format of Annexure H to the draft Trading Deed. That part of the price listed as D2 appears to be the “margin” referred to in Mr Patterson’s second email of 28 May 2007 and in clause 5 of the letter of offer.
37 The second document which is said to evidence the first transaction is a Bill of Exchange dated 11 December 2007 for the amount of $260,163.49. The final document said to evidence the first transaction is a document dated 11 December 2007 headed “Acknowledgment of Delivery”, which contains a clause stating:
“4.
as inducement for us to pay the full amount in accordance with clause 3 above Cobrum is prepared to discount the ‘Final Selling Price’ by 15% and subject to Cobrum’s receipt of the aforesaid payment within that 30 days the discount will be deducted from that ‘Price’.”
The Second Transaction
38 In the case of the second transaction, the Request for Goods and/or Services is dated 29 January 2008. The Bill of Exchange and Acknowledgment of Delivery bears the same date. The terms of the Request for Goods and/or Services took the same format as in the first transaction.
The Parties’ Submissions
39 The defendants relied generally in respect of their defences on the statement of Mason ACJ, Wilson, Brennan and Dawson JJ. in Ankar Pty Ltd v National Westminster Finance (Australia) Ltd:[1]
“At law, as in equity, the traditional view is that the liability of the surety is strictissimi juris and that ambiguous contractual provisions should be construed in favour of the surety. … “
[1] (1987) 162 CLR 549, at 561.
40 In Chan v Cresdon Pty Ltd, four members of the High Court described this as “as settled principle governing the interpretation of contracts of guarantee”.[2] As I have stated, the issue is whether the defendants were liable under the guarantee for the sums claimed. The defences raised by the defendants relied in part on basic principles of offer and acceptance in contract law.
[2] (1989) 168 CLR 242, at 256 and Andar Transport Pty Ltd v Brambles Ltd (2004) 217 CLR 424, at 433.
41 There was debate whether the two obligations contained in the first clause of the guarantee should be read disjunctively or conjunctively, with the plaintiff supporting the former and the defendants supporting the latter. I would adopt a disjunctive reading but, because of the way I have decided the case, nothing turns on this issue.
42 The defendants in substance relied on three defences.
The First Defence
43 The first point raised by the defendants was that the document of 14 May 2007 was an offer to guarantee rather than a binding guarantee.
44 The defendants submitted that the Request for Credit was never accepted and was the subject of a counter-offer by the plaintiff in the letter of offer of 28 May 2007. They drew attention to the wording which opens that letter, being “we have great pleasure in making this offer to establish a trading facility with you”. They also pointed to the reference in the privacy protection section of the Application for Credit to an “offer of guarantee”.
45 They further noted that the Request for Credit stated:
“In the event that CCT accepts this Application:
CCT shall give written notice of that acceptance to the Applicant.”
46 The defendants also submitted that significance was to be attached to the opening paragraph of the Terms and Conditions of Trade, which stated:
“Any written Order delivered by the Purchaser to (herein insert the name of the Supplier) shall be deemed to be an offer made by the Purchaser to purchase the goods and/or services which are specified in the Order (hereinafter collectively referred to as ‘the Products’) from Cobrum Trading (‘Cobrum’) for the price specified (‘the price’) under the terms and conditions hereinafter set forth (‘the offer’).”
47 The defendants referred to the New South Wales Court of Appeal decision in Brambles Holdings v Bathurst City Council[3] as to the extent to which subsequent conduct could be relevant to show if a contract had been entered into. They submitted that the subsequent conduct in this case was inconsistent with a formal contract of guarantee having been created. They submitted that the draft Personal Guarantee would not have been sent on 30 May 2007 if a binding guarantee had already been created.
[3] (2001) 53 NSWLR 153.
48 The plaintiff’s case relied on the terms of the guarantee of 14 May 2007 and, in particular, that part of Clause 1 of the guarantee which referred to the “due payment by the Applicant of the price payable by the Applicant to CCT for any and all Products which are hereafter sold by CCT to the Applicant”. The plaintiff submitted that the letter of offer of 28 May 2007 was an acceptance of the Application and Request for Credit and that it was always implicit that further documentation would be entered into setting out the terms on which credit was to be granted.
49 According to basic principle, a contract is created as a result of an offer made by one person and unconditional acceptance of that offer by the other person, which is communicated to the first person. A second means, where no acceptance communicated to the offeror is required, is where the offer provides expressly or impliedly for acceptance to be communicated in a particular manner, so that acceptance is deemed to be communicated when that manner is adopted, whether or not the communication is actually received, e.g. an acceptance by post if the offer is made by post.[4]
[4] This paragraph is based on the summary of the law in Northstate Carpet Mills Pty Ltd v BR Industries Pty Ltd [2006] NSWSC 1057 at [17], which in turn relies on Latec Finance Pty Ltd v Knight [1969] 2 NSWLR 79.
50 A further means of acceptance was discussed in Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd,[5] where McHugh JA (with whom Samuels JA agreed), said:
A more accurate statement is that where an offeree with a reasonable opportunity to reject the offer of goods or services takes the benefit of them under circumstances which indicate that they were to be paid for in accordance with the offer, it is open to a tribunal of fact to hold that the offer as accepted according to its terms. A useful analogy is to be found in the ‘ticket cases’ where an offeree, who has or ought to have knowledge of the terms of a contract of carriage or bailment, is generally bound unless he raises objection. (citations omitted)
The ultimate issue is whether a reasonable bystander would regard the conduct of the offeree, including his silence, as signalling to the offeror that his offer had been accepted.”
[5] (1988) 14 NSWLR 523, at 535 and see Kriketos v Livischitz [2009] NSWCA 96; Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153; Dalgety Australia Ltd v Harris [1977] 1 NSWLR 324 and Sorby v Gordon (1874) 30 LT 528, and O’Donovan and Phillips ‘The Modern Contract of Guarantee’ (3rd ed.) pages 36-37.
51 The position of a signed guarantee sent to a potential financier requires some separate consideration. In the Full Court of the Supreme Court of Queensland in Luck v Ilka,[6] Stanley J, with whom Philp and Mack JJ agreed, stated:
“In my opinion in the circumstances of this case, the alleged distinction between a guarantee and an offer to guarantee, and the non- communication of acceptance of the offer, are unimportant. Considered as a mere offer to guarantee, Exhibit Ex.2 is the type of offer which becomes sufficient evidence for the guarantee when a loan has been made in accordance with its terms. In Reuss v Picksley (1866) LR1Exch 342, at p.352, the Court said:
‘… but we may usefully consider two classes of contracts. One class includes cases where a proposal is made which may or may not be acted upon. The most ordinary example is a guarantee, which by s.4 of the Statute must be in writing. The creditors may supply goods to the person whose credit is guaranteed or not, as he pleases: but if he does supply then the surety is bound except in places like Mozley v Tinkler, where on the true construction of the guarantee, which was in the form of a letter to the plaintiffs, it was held that notice of the acceptance should have been given.’”
[6] [1951] St R Qd 281, at 286
52 The letter of 28 May 2007 contained a counter-offer, or perhaps simply an offer. It offered or demanded additional terms to those identified in the Request for Credit or the Terms or Conditions of Trade. This is not surprising, as the initial document was an Application and Request for Credit, which was then followed by an Offer of Credit in the letter of 28 May 2007.
53 The business relationship between the plaintiff and the defendants involved the following steps. I use the language of the Application for Credit and defer, for the moment, the argument about the unavailability of the Terms and Conditions of Trade:
(1) Stereo desired to purchase goods from, or through, Cobrum on credit. (2) Cobrum said that it would give written notice of acceptance of the Request for Credit.
(3)
Any sales of products by Cobrum to the applicant after the date of the acceptance were to be effected subject to and upon Cobrum’s Terms and Conditions of Trade.
(4) The defendants acknowledged that they had read and understood the
contents of the Application and its Terms.(5) The guarantee was given in consideration of Cobrum accepting the
Application and Request for Credit.
(7) Cobrum offered, or counter-offered, a credit or trading, which was
accepted and established.
54 I consider that the guarantee of 14 May 2007 depended for its application to any transaction to the acceptance of the Application and Request for Credit. I do not consider that the Application and Request was accepted on the Terms offered. Rather a new offer was made and accepted and led to the creation of the Trading Deed dated 6 June 2007.
55 Cobrum did grant credit; it did so following a counter-offer contained in the letter of 28 May 2007, which was accepted by the execution of the Trading Deed. It did not accept “this Application” made on the basis of the Terms and Conditions of Trade. Rather, it offered credit on the basis of the more extensive terms and obligations created by the Trading Deed, which offer Stereo accepted. All of the features of the Letter of Offer of Credit and the following documents indicate that a new offer was being made. These features include the contents of the letter of 28 May 2007 including the pre - prepared acceptance document, which formed part of it and the recitals to the Trading Deed.
56 In my opinion, the recital to the Application and Request for Credit, in particular the words ‘in consideration of CCT accepting this Application” limited the operation of the guarantee to circumstances where the Application and Request were accepted. It is not a guarantee of general application of the kind considered in Luck v IIka, but a guarantee given in consideration of an event that did not occur. I consider that the guarantee did not have application to the transactions because the offer contained in the Application and Request for Credit was not accepted, but a counter-offer was made. I therefore find that the guarantee of 14 May 2007 did not apply to the debts on which the plaintiff sues.
57 This is not a case, as can sometimes occur, where a recital in a guarantee can be affected by terms of the guarantee itself. Nor is it a case where the Application and Request for Credit and the later Trading Deed can be considered as one transaction for the purposes of determining when offer and acceptance occurred.
58 I therefore accept the defendants’ first defence. The proceeding cannot succeed.
59 Despite this conclusion for the sake of completeness, I will proceed to consider the other defences raised by the defendants.
The Second Defence
60 The second defence, which is related to the first, is the that the terms of the guarantee could not be proved, because the Terms and Conditions of Trade, which are the “Terms” referred to in the Request for Credit and the guarantee, had not been identified or proved to have been provided to the defendants either before, or at the time that they signed the guarantee. The defendants relied on the requirements of the Statute of Frauds (Instruments Act 1958 s.126 (1)).[7]
[7] The defendants relied on Tiverton Estates Ltd v Wearwell Ltd [1975] Ch 146.
61 The Terms were not “annexed to or endorsed on the reverse side of this Application” as the wording of the Request for Credit suggested.
62 The plaintiff submitted that the Court should find that the Terms were provided to the defendants for a combination of the following reasons:
(i) First, because the defendants had discovered them. (ii) Second, because the declaration in the Request for Credit states that the defendants had read and understood them. (iii) It should be inferred from (i) and (ii) that a copy of the Terms was in the hands of the defendants as at 14 May 2007.
63 The plaintiff submitted that I should draw the inference that the defendants had read the Request for Credit carefully, including the acknowledgment that they had read and understood the contents and effect of the Application and the Terms. The defendants were directors of a closely-held company and I should not accept that they had not read the Terms, having acknowledged that they had.
64 I have referred to the evidence of Mr Hanson previously, where he swore that he had not read the Terms. Mr Matthews, the second defendant, who was the other director of Stereo, was not called as a witness. The plaintiff submitted that I should take into account the defendants’ failure to call Mr Matthews without explanation.
65 I infer from Mr Patterson’s email of 29 May 2007 to Mr Matthews, that the attachment to it contained the Terms and Conditions of Trade referred to in the Request for Credit. Mr Paterson identified the attachment to his email as “our standard terms that we use”. I infer that the document tendered in evidence as part of the Court Book, was a copy of those Terms.
66 The defendants argued that there would have been no need for Mr Paterson to send a copy of the Terms as an attachment to his email of 29 May 2007 if they were already in the defendants’ possession.
67 Because these were “standard terms”, I conclude that they were available before the Trading Deed was signed, if the defendants had wished to read them. However, I am not prepared to find that the Terms were in the possession of the defendants as at 14 May 2007.
68 The defendants argued that there was no evidence that these Terms had been provided to the defendants at the time that they signed the guarantee and that this was required if the Terms in order for the Terms to be relied on. The defendants referred to the following passage in the current Australian edition of Cheshire and Fifoot’s ‘Law of Contract’:
“A reference in a written offer to attached terms may be sufficient to incorporate the terms in question even if they are not in fact attached, if they have been previously communicated.”[8]
[8] 9th ed p.427, citing Walker v Citigroup Global Markets Australia Pty Ltd (2006) 233 ALR 687, at [76].
69 I do not accept this submission of the defendants. A similar argument was considered by the Court of Appeal in Maxitherm Boilers Pty Ltd v Pacific Dunlop Insurances Pty Ltd,[9] where Ormiston JA stated:
“… Where terms are explicitly referred to by an offeror, it can be rare that an apparent acceptance by the offeree should not carry with it the offeree's assent to the whole of the terms described, but I would agree that, where a term is so onerous or is otherwise of a kind such as to suggest that it might not reasonably be expected to be part of the terms of the contract, the issue is whether the accepting party can reasonably be taken to have assented to the particular term. …”[10]
Buchanan JA stated:
“The original quotation incorporated Maxitherm's standard terms. A reasonable reader of the quotation would have concluded that Maxitherm intended to contract in accordance with certain conditions, and that those conditions, which were not contained in the body of the quotation, could be identified. I do not think that the failure to attach the terms would be reasonably taken to countermand the words ‘subject to conditions of tender’. However, even if the absence of attached terms might have been taken to mean that Maxitherm did not intend to contract according to any ‘conditions of tender’, that impression could not have survived the confirming fax, for that document stated in type, not print, that the offer was ‘... based on our standard terms and conditions as per previous quotation ...’.”
[9] [1998] 4 VR 559.
[10] (supra) at 561.
Callaway JA expressed similar views.[11]
[11] (supra) at 562 see also Metal Roofing and Cladding Pty Ltd v Amcor Trading Pty Ltd [1999] QCA 472.
70 I consider that it was sufficient that the Terms were available on 14 May 2007, even though it has not been proved that a copy of them was in the possession of the defendants.
71 I also consider that the principles concerning the reading of documents together to provide a note or memorandum to satisfy the Statute of Frauds require the rejection of the defendants’ submission. O’Donovan and Phillips state:
“Moreover, a deed which refers to a guarantee as an attached document may be read together with the guarantee even if the latter is detached and then signed by the defendant who has not seen the deed.”[12]
[12] O’Donovan and Phillips ‘The Modern Contract of Guarantee’ (3rd ed.) pp.80-81 and online ed. para 3.850.
72 This quotation reflects the principle that the need for written evidence of a guarantee can be satisfied by several documents read together if they are connected, provided the document signed by the party to be charged contains an express or implied reference to another document which contains the necessary terms.[13]
[13] (supra).
73 I consider that the guarantee and the Terms can be read together so as to provide a memorandum or note of the agreement that satisfies s.126 (1) of the Instruments Act.
74 I would therefore not have accepted the defendants’ second defence.
The Third Defence
75 The third issue raised by the defendants’ submissions is whether the guarantee can apply to obligations created by the Trading Deed.
76 The plaintiff relied on the wide words of the guarantee:
“The price payable by the Applicant to CCT for any and all Products
which are hereafter sold by the CCT to the Applicant”.
77 The plaintiff also argued that the Application and Request for Credit should be read together with subsequent documents, including the letter of 28 May 2007 and the Trading Deed. The defendants signing the guarantee were directors of Stereo and knew what liabilities Stereo was going to undertake. The Request for Credit was the first of a number of documents that were of relevance.
78 The defendants argued that the debts claimed arose under the Trading Deed, which post-dated the guarantee and were not obligations envisaged by it. The Terms of Trade relied on referred to a price specified therein, but no such price was identified and the Trading Deed contained a different price. It was argued that there could be no guarantee of a non-existent price.
79 The defendants relied on the statement of Deane J, in Ankar Pty Ltd v National Westminster Finance (Australia) Ltd,[14] as follows:
“The reference to a ‘departure’ by the creditor from his contract with the surety constituting an ‘alteration in the surety’s obligations’ is a reflection of the fact that the obligations of a surety are strictly confined to what he has undertaken in the contract which constitutes him a surety; ‘he (is bound)…merely’ to ‘the letter of his engagement’: see per Lord Westbury L.C.; Blest v Brown.”
[14] (supra).
80 In Chan v Cresdon Pty Ltd,[15] Mason CJ, Brennan, Deane and McHugh JJ, stated:
“But even if it be assumed that specific performance would be awarded in favour of the respondent, that is not enough, in our opinion to establish liability on the part of the appellants as guarantors. What they guaranteed was the ‘obligations [of Sarcourt] under this lease’, that is the instrument of lease in its character as a lease. In our view, only a lease at law would meet this description for the purposes of the guarantee.”[16]
[15] (1989) 168 CLR 242.
[16] (supra) at p.256.
81 Their Honours then quoted the passage from Ankar Pty Ltd v National Westminster Finance (Australia) Ltd that I have set out above.
82 In addition, the defendants relied on the High Court decision in Dan v Barclays Australia Ltd[17] and the Court of Appeal decision in Camberfield Pty Ltd v Klapanis.[18]
[17] (1983) 57 ALJR 442.
[18] [2004] VSCA 104, at [3], and [13 -26] and see also GE Commercial Corp (Australia) Pty Ltd v ACN 089 812 813 Pty Ltd [2008] WASC 205.
83 O’Donovan and Phillips say of the authorities on this issue:
“Where there are a number of principal transactions and the guarantee is embodied in one of them, the ambit of the guarantee is not by that fact alone restricted to the obligations arising from the agreement. The guarantee and all the agreements must be read together to determine the proper scope of the guarantor’s liability.
In the case of a guarantee referring to a particular transaction or arrangement, the guarantor will not be liable for the principal debtor’s default in respect of a different transaction.”[19]
[19] O’Donovan and Phillips, ‘The Modern Contract of Guarantee’ (online ed.) paragraph 5.400.
84 The defendants’ case is that the plaintiff has not established that the guarantee of 14 May 2007 envisaged a liability under the Trading Deed which was not then in existence. They point, in particular, to the fact that the guarantee was given as part of a request by them to Cobrum to accept their Request for Credit and to commence selling product to the applicant subject to and upon the Terms. The Terms referred to in the guarantee are said to be the Terms referred to in the opening words of the Request for Credit which, as stated above, provided:
“The Applicant Stereo Direct Pty Ltd (the Applicant) desires to purchase goods and/or services (hereinafter collectively referred to as ‘Products’) from Cobrum Trading ‘CCT’ on credit on CCT’s Terms and Conditions of Trade (‘the Terms’) which are annexed to or endorsed on the reverse side of this application.”
85 The defendants further submitted that the price payable under the guarantee, or the subject of the guarantee, was for a price provided for in those Terms and not a price calculated in accordance with a quite different pricing methodology contained in the Trading Deed.
86 The defendants argued that I should infer that the materials or goods were delivered under the Trading Deed, because the documentation, particularly with respect to price, referred to forms that were mentioned in the Trading Deed.
87 There were detailed price mechanisms in the Trading Deed which found no counterpart in the Terms, which contained no pricing mechanism. For instance, the provision for a price discount when payment is made on time in clause 19 (e) and paragraph 13 (a) of the Schedule of the Trading Deed. The Rebate of the purchase price on payment of the totality of the Inventory Price, which is referred to in Clause 19(g), and provided for by Item 13 of the Schedule, was another feature of the Trading Deed, as was the obligation to pay taxes duties and costs which are required by clause 19(h). There was also no reference in the Terms to the “margin” namely to that part of the additional price component calculated as a percentage of the wholesale price and designated as D2 in the Request For Goods and/or Services Form.
88 This submission highlights that the Terms contained no provision for the calculation of the price of the materials to be purchased.
89 It is important to bear in mind that the two transactions creating the debt were each initiated by a Request for Goods and/or Services, which stated:
“The Buyer requests Cobrum to purchase the Goods and/or Services (referred to as the Product) which is hereafter described, from the Supplier hereafter named, and to thereafter sell and deliver the Product to the Buyer by the date which is hereafter specified.
The Buyer accepts Cobrum’s Terms and Conditions of Trade and offers to pay Cobrum the Total sum which is hereafter specified for the Product.”
90 The debts arose because of the two requests and the acceptance of those requests of Cobrum. The Trading Facility envisaged that such requests would be made and contained terms applicable to them, but the debts were created pursuant to the acceptance of the requests.
91 The issue for me to determine in considering this third defence is what obligation did the defendants undertake in the guarantee of 14 May 2007? Did it extend to debts incurred as a result of credit supplied under the Trading Deed? I obviously answer these questions on the basis that, contrary to my conclusion in respect of the first defence, that the Application and Request for Credit and the Guarantee of 14 May 2007 were accepted.
92 I do not consider that this case is to be resolved by an application of the principle that a surety is only bound in respect of debts owing under transactions guaranteed. The guarantee of 14 May 2007 was general, both as to the goods supplied and as to the price. The fact that the price was to be later negotiated, or to be calculated in accordance with another deed, does not alter this conclusion. A generally worded guarantee to pay the price of goods supplied will often operate on prices calculated, or negotiated, after the guarantee is signed. That feature of the guarantee does not attract the principle referred to by Deane J. in Ankar’s Case.[20]
[20] (supra)
93 I do not consider that the fact that the Trading Deed and its Annexures had features which were not contained in the Terms is decisive. Save in limited respects, e.g. the payment of GST and charges and costs, the Terms did not purport to fix or regulate the price on which materials would be supplied. That was left to be dealt with by other means. It could have been left entirely to be dealt with through an order by order negotiation. The mechanism to regulate prices was largely dealt with in the Trading Deed, but the prices themselves were not. However the presence of pricing mechanisms in the Trading Deed did not mean that obligations created applying them were outside the obligations undertaken under the guarantee.
94 I would therefore not have accepted the defendants’ third defence.
Conclusion
95 Because I have accepted the defendants’ first defence the proceeding must be dismissed.
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