De Lage Landen P/L v HBO EMTB Holdings P/L

[2018] NSWDC 116

District Court

New South Wales

Medium Neutral Citation:

De Lage Landen P/L v HBO EMTB Holdings P/L [2018] NSWDC 116

Hearing dates:

7 September 2017, 12 & 13 April 2018

Date of orders:

04 May 2018

Decision date:

04 May 2018

Jurisdiction:

Civil

Before:

Judge Levy SC

Decision:

1. Verdict and judgment for the plaintiff in the sum of $264,405.58;

 

2. The defendant is to pay the plaintiff’s costs on the ordinary basis unless otherwise ordered;

 

3. The exhibits may be returned;

 4. Liberty to apply on 7 days’ notice if further or other orders are required.

Catchwords:

CONTRACT – guarantee – alleged contractual mistake – application of objective theory of contract – whether agreement is avoided due to common mistake or on any other argued ground

Cases Cited:

Deloitte Services Pty Ltd v HBO EMTB Interiors (NSW) Pty Ltd (In Liquidation) [2016] NSWSC 1597
Ermogenous v The Greek Orthodox Community of South Australia [2002] HCA 8; (2002) 209 CLR 95
Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298
Secure Parking Pty Ltd v Woollahra Municipal Council (No 2) [2017] NSWCA 51

Texts Cited:

JW Carter, E Peden & GJ Tolhurst, Contract Law in Australia, 5th ed (2007)

Category:

Principal judgment

Parties:

De Lage Landen Pty Limited (Plaintiff)
HBO EMTB Holdings Pty Limited (Defendant)

Representation:

Counsel:
Mr L Fermanis – 7 September 2017; Mr D Krochmalik – 12 & 13 April 2018 (Plaintiff)
Mr T Tzovaras (Solicitor) (Defendant)

  Solicitors:
Holman Webb (Plaintiff)
Tzovaras Legal (Defendant)

File Number(s):

2016/367199

Publication restriction:

None

Judgment

Table of Contents

Nature of case	[1] – [2]
Background, parties, third parties	[3] – [8]
Agreement and default	[9] – [15]
Evidence overview	[16] – [18]
Credit	[19] – [25]
Issues in dispute	[26]
Legal principles	[27] – [28]
Submissions of the parties	[29] – [35]
Plaintiff’s submissions	[30]
Defendant’s submissions	[31] – [35]
Consideration of the issues and findings on those issues	[36] – [47]
Objective intention of the parties and asserted estoppel	[37] – [40]
Whether there was consensus ad idem	[41] – [44]
Whether consideration passed between the parties	[45] – [47]
Disposition	[48]
Costs	[49]
Orders	[50]

Nature of case

1. This is a claim brought by the plaintiff, Microsoft Financing, trading as De Lage Landen Pty Limited, in its capacity as a lender of monies, seeking recovery of a debt claimed to be owing by the defendant, HBO EMTB Holdings Pty Limited, pursuant to a guarantee agreement. The borrower of the monies loaned by the plaintiff defaulted in the agreed repayment programme.

2. Despite having signed the guarantee agreement, the defendant, the guarantor for the loan, now seeks to challenge the validity of the guarantee and seeks to avoid the enforceability of that guarantee on the ground of an alleged contractual mistake by asserting a misapprehension as to the identity of the contracting parties.

Background, parties, third parties

3. De Lage Landen Pty Limited (“DLL”), loaned monies to a company named HBO EMTB Services Company Pty Ltd (the borrower). That borrower, which is not a party to the proceedings, made several repayment instalments on the loan, and then defaulted in making further payments.

4. Before providing the borrower with the subject loan, the plaintiff required a guarantee for that loan from a parent company of the borrower. A selection of emails between the plaintiff’s employees, Mr Bartnicki and Mr Cordoba was tendered showing the course of those negotiations. Those persons did not give evidence in the proceedings. That guarantee was ostensibly provided by the defendant. The plaintiff now seeks from the defendant, as guarantor, the balance of the monies owing, which with interest, totals an amount of $264,405.58.

5. Mr Kevin Fitzgerald is a Director of both the borrower company and the guarantor company. His directorships span some 72 companies. He is the person who signed the guarantee on behalf of the defendant.

6. At the relevant time Mr Fitzgerald was an experienced businessman who had considerable commercial acumen, and who made and implemented business decisions through complex corporate arrangements. That much is plain from his evidence and from the financial arrangements which form the basis for this case.

7. There are two groups of companies relevant to these proceedings, including Hong Kong and Singaporean companies. The first group is headed by Chai Consulting Ltd (Hong Kong), the holding company for HBO EMTB Holdings Company Pty Ltd, which is in turn the holding company for HBO EMTB Services Company Pty Ltd, the borrower. The second group is headed by Polmaze Pty Ltd, which, between 24 June 2013 and 13 December 2016, was the holding company of the defendant company, HBO EMTB Holdings Pty Limited.

8. The HBO EMTB short form component of those corporate names is a shortening of the extended name Hoadley, Budge, Olphert + Edwards, Madigan, Torzillo Briggs: T73.13 – T73.16.

Agreement and default

9. In light of those complicated corporate arrangements, it was neither unusual nor surprising that the plaintiff, as a lender, required a guarantee for the loan in question.

10. On 12 March 2015, the plaintiff entered into a Master Instalment Payment Agreement with the borrower (described as the Obligor) being the customer to whom the plaintiff advanced finance to acquire software products and services. Although the print on the tendered copy of that document was so small that an A3 enlarged copy was required (MFI “2”), it was not suggested that the signatories to that document did not understand what they were signing.

11. That agreement described the defendant, HBO EMTB Holdings Pty Limited, as the guarantor. Mr Fitzgerald signed the agreement on behalf of the “Obligor”, HBO Services, on page 8 of that document, and under the heading “Guarantor: HBO EMTB Holdings Pty Limited CAN 105 229 338”. I am left in no doubt that at the time Mr Fitzgerald signed the guarantee document, he knew that he was signing a binding guarantee for the loan in question.

12. Clause 43 of the agreement comprised the guarantee and indemnity clause. It is an unambiguous, complex, but effective clause. In addition to providing the plaintiff a guarantee and indemnity in respect of the amount loaned, it also covered questions of interest, costs and other expenses, reinstatement and protection of rights, suspension of guarantor’s rights, the manner in which the plaintiff may exercise its rights, and the defendant’s acknowledgment of its obligations and responsibilities concerning its awareness of the financial position of the borrower.

13. The last page of the agreement contains a Director’s Declaration. An enlarged copy of that declaration, which was signed by Mr Fitzgerald, is as follows:

[Signature redacted]

14. The quantification of the terms and the monetary effect of that agreement are not in dispute. The total amount payable to the plaintiff by the borrower was $313,909.20. That amount was agreed to be repaid in 12 equal monthly instalments of $25,159.10. The borrower made three monthly payments on 20 March 2015, 20 April 2015 and 19 June 2015, and then defaulted in making any further payments.

15. On 15 September 2015, consequent upon the financial position of the borrower company, administrators were appointed for that company. Despite demands made by the plaintiff under the guarantee, the plaintiff company has received no further payments from any other entity, leaving an unpaid balance of $233,118.94 with interest calculated to 12 April 2018 in the sum of $31,286.64, hence the plaintiff’s call upon the guarantee agreement. That call remains unanswered, except that the defendant in these proceedings now seeks to avoid that guarantee.

Evidence overview

16. The hearing took place on 12 and 13 April 2018. The plaintiff, relied upon affidavits from Mr Peter Piccoli, a portfolio manager, sworn 30 March 2017, and its accounts manager, Ms Maria Sortino, sworn 31 July 2017 and 5 April 2018, Ms Katy McCudden, a person from its sales department, sworn 5 April 2018. Ms Sortino also gave oral evidence.

17. The documents surrounding the underlying loan transaction, and the execution of the guarantee comprise a series of emails. The parties tendered a Court Book that contained the relevant contractual and explanatory documentation: Exhibit “C”.

18. The only witness the defendant called to give oral evidence was Mr Fitzgerald, who was cross-examined on his affidavit, which was sworn on 17 May 2017.

Credit

19. The plaintiff challenged the credibility and the reliability of the evidence of Mr Fitzgerald. His evidence was crucial to the question of whether or not the inclusion of the name of the defendant was a naming mistake as to the identity of the guarantor.

20. The plaintiff submitted that Mr Fitzgerald’s evidence should not be accepted unless otherwise corroborated: T80.32. The plaintiff further submitted that he was an argumentative witness who, by his brusque and defensive remarks, sought to avoid questions asked of him in cross-examination: T80.35 – T80.48.

21. In defence of Mr Fitzgerald’s credit as a witness, it was submitted that whilst some of his answers could be taken as amounting to speeches advocating the defendant’s position in the litigation, he was simply seeking, in some instances, to provide complete answers, and at other times he was taking a short or selective approach, and was not seeking to mislead: T98.5 – T98.31. I do not accept that submission.

22. I considered Mr Fitzgerald to be a combative witness who sought to avoid answering questions. He did not provide a straight-forward answer to a question calling for disclosure of his own financial links to the HBO EMTB group of companies. His answers in that regard were avoidant and evasive: T81.2 – T81.46.

23. In his answers to questions in cross-examination, Mr Fitzgerald refused to make appropriate concessions: T82.15 – T82.29. He was overly inclusive and combative in his answers. Furthermore, he gave a gratuitous answer to the effect that a previous decision of the Supreme Court in other proceedings which had criticised his evidence, had been appealed. That answer was a mischaracterisation, if not misleading, as the original result of that case was not disturbed: T81.43.

24. Although I was referred to the credit findings in that case (Deloitte Services Pty Ltd v HBO EMTB Interiors (NSW) Pty Ltd (In Liquidation) [2016] NSWSC 1597 at paragraphs [20] and [21]), I do not consider it to be appropriate that reliance be placed upon that material for credit findings in this case.

25. However, and for the reasons outlined above, I do not accept Mr Fitzgerald’s uncorroborated evidence on matters in dispute between the parties.

Issues in dispute

26. The issues in dispute are embodied in the following formulations.

1. Did the parties objectively intend that the guarantor under the agreement was to be the defendant, or was the inclusion of the defendant’s name in the agreement as a guarantor, a mistake, so that the defendant should be held not bound by the agreement;

2. Was there an absence of mutual assent or consensus ad idem between the plaintiff and the defendant companies at the time the agreement was executed;

3. If the answers to (1) and (2) above are answered in the affirmative, is the defendant nonetheless estopped from asserting that it has no liability to the plaintiff under the guarantee;

4. Was the guarantee which was incorporated into the agreement unsupported by consideration such that on a true construction of the document, the guarantee is not enforceable against the defendant company even though it was purportedly signed by Mr Fitzgerald on behalf of the defendant.

Legal principles

27. For a convenient summary of the applicable legal principles, I was referred to the text comprising Chapter 20, Contractual Mistake, Contract Law in Australia, 5th Ed, (2007), JW Carter, E Peden, GJ Tolhurst, and the discussion contained therein concerning the classification of the contractual complications of common mistake, mutual mistake and unilateral mistake: pp 429, 454, 455.

28. It was common ground that the objective theory of contract should be applied to construing the loan agreement and the related guarantee agreement in this case. This requires an objective approach to the circumstances in which the relevant events occurred, without looking at the uncommunicated or subjective reservation or intention harboured by one party to determine whether the parties intended to conclude a binding contract: Secure Parking Pty Ltd v Woollahra Municipal Council [2016] NSWCA 154, at [13], following Ermogenous v The Greek Orthodox Community of South Australia [2002] HCA 8; (2002) 209 CLR 95, at [24] – [25].

Submissions of the parties

29. At this point it is convenient to review the salient features of the submissions of the parties.

Plaintiff’s submissions

30. The plaintiff submitted that the guarantee signed on behalf of the defendant was valid and enforceable. In essence, the plaintiff’s contentions are that the defences relied upon must fail because, in applying the applicable principles identified above: there was no relevant mistake; the parties intended to enter into legal relations; the agreement was supported by consideration with the result that the defendant should be found liable under the guarantee that was signed on its behalf by Mr Fitzgerald.

Defendant’s submissions

31. In contrast, the defendant submitted that a subjective test should be applied to identify the intention of the parties when intending to enter into legal relations: T95.46 – T95.49. The defendant argued this was not a case of mistake, whether or not it was sought to be classified as being a common or a mutual mistake: T92.10.

32. Instead, the defendant argued that there should be a finding that there was no intention on the part of the defendant to enter into legal relations with the plaintiff, and therefore, it was argued, any consideration or application of the principles of the objective theory of contract concerning mutual mistake, are irrelevant to the outcome in this case: Exhibit “C”, Tab 15; T92.28 – T92.35.

33. The defendant advanced that argument on the basis that Mr Fitzgerald’s signing of the agreement did not occur in the context of mutual assent, as both parties were not ad idem so, it was argued, the objective test had no application in this case: T93.9 – T93.23.

34. The defendant further argued that absent evidence from key actors from the “plaintiff’s camp” in the lead up to the execution of the underlying transaction, namely Mr Bartnicki and Mr Cordoba, who were referred to in the pre-contractual email exchanges that were tendered, an adverse inference should be drawn against the plaintiff on the issue of the intention of the parties as to which entity was intended to be the guarantor for the loan: T94.30 – T94.35; Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298.

35. In my view, as was indicated to the parties at the time of oral argument when that matter was raised, no such adverse inferences arise. The email communications of those persons were in evidence and I do not accept that it was necessary for the plaintiff to call those persons as witnesses to clarify any issue: T94.30 – T96.43.

Consideration of the issues and findings on those issues

36. I now turn to consider and record my findings on the identified issues in dispute.

Objective intention of the parties and asserted estoppel

37. The defendant sought a finding that when one objectively looks at the subjective intention of the parties, the conclusion should be that the defendant company was mistakenly named as guarantor: T96.8. I do not accept that submission.

38. In undertaking the suggested exercise, objectively, it was tolerably clear that the plaintiff, as the lender, required a guarantee for the loan, and in response the borrower procured a guarantee entity from a company within its array of connected companies. It is similarly clear that Mr Fitzgerald was the relevant person who, as a director, had actual and ostensible authority to bind the proffered guarantor company pursuant to the terms of the guarantee.

39. The plaintiff, as the lender, was entitled to accept the proffered guarantor without undertaking further inquiries in the nature of due diligence to determine the nature of the defendant’s name and existential status in the complex corporate holding company arrangements.

40. In not undertaking that type of due diligence inquiry, the plaintiff was taking a commercial risk as to the guarantor’s status. The fact that the plaintiff took that risk does not mean it is now estopped from relying on what was represented in the documentation, namely that the defendant, as named, would be the guarantor for the loan in question. No relevant estoppel arises.

Whether there was consensus ad idem

41. The defendant argued that the defendant was not a parent company of the borrower, and was instead, a holding company of another entity, which must therefore mean that the parties were not ad idem, and that there was no intention to enter into legal relations: T97.48 – T98.3.

42. That submission is dependent upon the acceptance of the evidence of Mr Fitzgerald on the question of intention to enter into legal relations. I do not accept his evidence concerning his explanation of the circumstances. He was an experienced businessman who knew he was signing a guarantee for a loan, and that the plaintiff required that guarantee as a condition for granting the loan.

43. I do not accept that Mr Fitzgerald thought he was signing the agreement in question on the mistaken belief that he was doing so on behalf of another company other than the defendant, but in respect of which he was also a director.

44. I find that there was an intention on behalf of the plaintiff and the defendant companies to enter into legal relations and that intention was evidenced and perfected by the fact of Mr Fitzgerald’s signature to the agreement.

Whether consideration passed between the parties

45. The defendant argued that the agreement, particularly the acknowledgment within clause 43(1) of the agreement, did not constitute consideration because there was no request from the defendant to the plaintiff to provide finance to the borrowing company: T98.50 – T91.4. Consequently, the defendant argued, that the guarantee was not binding and was not enforceable.

46. I do not accept that submission because it is plain that in the transaction, consideration flowed between the parties in that the loan was sought by the company, and plainly would not have been granted by the plaintiff if there was no guarantee, irrespective of whether the guarantor was a parent company of the borrower company.

47. The consideration was the satisfaction of the mutual interests of the defendant and the plaintiff in the transaction. The guarantee itself was sufficient consideration. There was mutuality of interest between the guarantor and the lender respectively in that the loan was forthcoming, and there was a guarantee as to its performance in the form of repayment by instalments, of the balance, with interest, including in the event of default on the part of the borrower.

Disposition

48. The plaintiff has established its entitlement to a verdict in its favour in the amount of $233,118.94, with pre-judgment interest in the amount of $31,286.64. There must therefore be a judgment in its favour in the amount of $264,405.58.

Costs

49. As the plaintiff has succeeded in obtaining a judgment in its favour, it should have an order that the defendant should pay its costs of the proceedings on the ordinary basis unless a party can show an entitlement to some other costs order, for which there should be liberty to apply.

Orders

50. I make the following orders:

1. Verdict and judgment for the plaintiff in the sum of $264,405.58;

2. The defendant is to pay the plaintiff’s costs on the ordinary basis unless otherwise ordered;

3. The exhibits may be returned;

1. Liberty to apply on 7 days’ notice if further or other orders are required.

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Decision last updated: 04 May 2018