Fielders Australia Pty Ltd v Delta Engineering Co Pty Ltd & Anor - [2005] SADC 36

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
FIELDERS AUSTRALIA PTY LTD v DELTA ENGINEERING CO PTY LTD & ANOR
Judgment of His Honour Judge Kitchen
4 May 2005
GUARANTEE AND INDEMNITY - THE CONTRACT OF GUARANTEE - CONSTRUCTION AND EFFECT
First defendant applied to plaintiff for supply of goods on credit - written application - form of application included on the reverse side terms and conditions of sale within which was a paragraph by which "I'We guarantee" the purchase price of goods supplied - second defendant director of first - front of form provided for application to be signed by an authorised signatory on applicant's behalf and instructed that all partners and directors were to read and acknowledge "terms and conditions of sale and sign guarantee overleaf" - second defendant signed front of form as authorised signatory and signed where provided on reverse side - Held: second defendant bound as surety by the guarantee.

FIELDERS AUSTRALIA PTY LTD v DELTA ENGINEERING CO PTY LTD & ANOR
[2005] SADC 36

The plaintiff’s action is brought to recover the sum of $298,344.44. Against the first defendant that sum is claimed as the price of goods sold and delivered by the plaintiff to the first defendant. The claim against the second defendant (to whom I will refer as Mr Hallion) is to enforce the terms of a guarantee allegedly given by Mr Hallion to the plaintiff for the due payment of the price.
The first defendant was placed in liquidation after these proceedings were commenced. The action against it is stayed by force of the Corporations Law.
The plaintiff was formerly named Exosteel Holdings Pty Ltd. In about May 2000 it acquired the steel supply businesses of Hills Industries Pty Ltd, trading as Woodroffe Building Products (Woodroffe), and Fielders Roofing Pty Ltd which traded as Cowells Steel (Cowells). This is not an exact summary of the plaintiff’s position in May 2000 but it is a sufficient description, for the purposes of this case, to reflect the understanding of Mr Charles Degabriele (Mr Degabriele) of what occurred in about May 2000. Mr Degabriele is the national credit manager of the plaintiff which trades in most states of Australia.
The amount of the debt claimed in these proceedings is not in dispute. Mr Hallion’s case is that the document (exhibit P1) on which the plaintiff relies in proof of the case against him, was signed by him as a director of the first defendant only for the purpose of the first defendant obtaining the supply of goods from the plaintiff on credit, and insofar as the document includes words purporting to provide to the plaintiff a guarantee by Mr Hallion it is incapable of being construed, and given effect to, as a guarantee binding upon Mr Hallion.
Before his appointment as national credit manager of the plaintiff Mr Degabriele held the same position with Cowells. Upon the merging of the Cowells and Woodroffe businesses into the plaintiff, Mr Degabriele was appointed to his present position. One of his duties was to standardise the credit arrangements with customers inherited with the two businesses on acquisition. In the case of Woodroffe customers, they were required to complete an application for credit in the form of the document exhibit P1. The application forms were either delivered to customers by a representative of the plaintiff, and the appropriate signatures obtained, or they were posted to the customer. In the case of the first defendant the form was, more likely than not, posted to it. It was Mr Degabriele’s understanding that when the application form was delivered to a customer by the plaintiff’s representative the representative was to tell the customer “about the guarantee on the back”, and sign as a witness to the signatories.
The form exhibit P1 is a single sheet of paper, with printing on both sides. The front side of the document bears the name Woodroffe Building Products followed, in bold print by the words “Application for credit” below the plaintiff’s (former) name and then there are several panels in which the customers name and other information is to be inserted including in the case of a sole trader, partnership or company the customer’s trading name and registered business name and the names and addresses of the proprietor(s) or the directors of the customer. At the foot of the page there is a discrete panel within which are the words
“The Customer applies for and the Guarantors (if applicable) request Exosteel to open a Credit Account in the name of the Customer and to supply goods to the Customer and the Customer agrees to be bound by the Terms and Conditions of Sale overleaf”
below which there is provision for signature against the words “Authorised signature”, and the words (in bold capitals)
“All partners and directors to read and acknowledge terms and conditions of sale and sign guarantee overleaf”.
On the reverse side of the page under the heading “Terms and conditions of sale” there are nine numbered paragraphs (some divided into subparagraphs) with headings, the first paragraph of which (headed “Definitions”) includes “Customer means the customer identified in the application for credit.” Paragraph 8 is headed “Appendix A - Guarantee”; except that it uses the word “Buyer” (without definition) where the word “customer” was in my view clearly intended to occur, the parties agree that the terms of the paragraph are wide enough to oblige a person, bound as a guarantor by the paragraph, to answer to the plaintiff as a surety for the price of goods supplied by the plaintiff to the customer. At the foot of the page there is provision to insert the date followed by “Sole trader and all partners and directors to complete”, below which there is space for the signatures of the subscriber and the witness.
Mr Hallion, with his brothers Michael and David and a Mr John Brice were directors of a group of companies which included the first defendant. Mr Hallion said that the group was in the steel business and in the case of the first defendant it manufactured sheds and garages. The first defendant and others in the group purchased steel products from Woodroffe and Cowells. Mr Hallion became aware of the acquisition, in the year 2000, of Woodroffe and Cowells by the plaintiff.
In the year 2000, sometime after May of that year, Mr Hallion acquired all the shares in the first defendant, the other directors resigned and Mr Hallion continued as the sole director. Mr Degabriele learned of that change in the directors of the first defendant. Mr Hallion said his former co-directors sent a letter to all the first defendant’s suppliers giving notice of the change of directors. During the ensuing months, to in the month of December 2000, trading between the plaintiff and the first defendant continued upon whatever arrangements had previously been in place. No evidence was adduced concerning those trading terms.
Mr Hallion’s evidence is that his brother Mr David Hallion brought the document exhibit P1 to him for his signature as a credit application to Woodroffe because of the change in the first defendant’s directors; he said his brother David had written in the information required by the several panels in the form. Mr Hallion said he signed the form both on the front and reverse sides without reading it, and David Hallion signed as a witness; the document is dated 11 December 2000.
Paragraph 8 of the terms and conditions is divided into ten sub-paragraphs; subparagraph 8.1 provides
“I/we guarantee the due payment by the Buyer to Exosteel Holdings Pty Ltd A.C.N. 091 954 442 of the whole of the purchase price of any goods now or in the future supplied to such Buyer by Exosteel”.
The remaining sub-paragraphs make provision, commonly found in guarantees, to for example preserve the force of the guarantee, and the rights and the priority of the plaintiff’s rights against the guarantor. Paragraph 8.4 reads
“‘Exosteel’ shall be at liberty to regard me/us as the principal debtor and shall not be obligated to take action first against the Buyer or make demand first against such Buyer”
and paragraph 8.10 reads
“I/we confirm that I/we have had full and ample opportunity prior to the execution hereof to obtain independent legal advice as to the extent and implications of the guarantee hereby given and I/we execute this security accordingly”.
The plaintiff’s Statement of Claim is brief. Paragraphs 1 and 2 plead the incorporation of the plaintiff, that its business is the supply of steel, and related products, and that on 11 December 2000 the first defendant applied to the plaintiff to be supplied with goods on credit. It is alleged in paragraph 3 that on the same date Mr Hallion executed a guarantee agreeing to guarantee to the plaintiff the due payment of the price of goods supplied by the plaintiff to the defendant on credit. Paragraphs 4 and 5 allege that the plaintiff supplied goods to the first defendant on credit between December 2002 and April 2003 for the price of $298,344.44 which the first defendant failed to pay and which the plaintiff claims from both the first defendant and Mr Hallion.
By the Defence filed by him Mr Hallion pleads:
“(1) [Mr Hallion] admits the allegations at paragraphs 1 and 2 of the statement of claim.
(2) Insofar as any allegations against [Mr Hallion] are contained at paragraph 4 or 5 of the statement of claim, [Mr Hallion] denies those allegations.”
In the absence of fraud or misrepresentation a person is bound by a writing to which he has put his signature whether he has read its contents or chosen to leave them unread: L’Estrange v F Graucob Ltd [1934] 2KB 394. Mr Hallion does not allege fraud or misrepresentation – his case is that exhibit P1 is ambiguous and the ambiguity should be construed against the plaintiff. Put more specifically, the defence is that Mr Hallion signed exhibit P1 only as the person authorised by the first defendant to enter into contracts on its behalf and he did not sign it in his personal capacity.
I add, although it is apparent from his filed defence, that Mr Hallion does not rely on the plea of non est factum, or allege any misleading or deceptive conduct on the plaintiff’s part. Mr Hallion said that he could not read or write, but when pressed he agreed that given time he could read through and understand most but not all of the words in exhibit P1. He also said he had not intended to sign a guarantee and had he known exhibit P1 included a guarantee he would not have signed it. Both of these matters are irrelevant to the question of the proper construction of the document; although it is legitimate in the course of construing a document to have regard, where appropriate, to subject matter and surrounding circumstances, the primary rule is that the intention of the parties to a contract wholly in writing is to be gathered from the four corners of the contract: Allen v Carbone (1975) 132 CLR 528 at 531. In my opinion Mr Hallion’s literacy skills and his intention when he signed exhibit P1 are not legitimate matters to which the Court may have any regard as part of the surrounding circumstances. The construction of exhibit P1 is to be determined by what a reasonable person in the position of the plaintiff would have understood the document to mean: Pacific Carriers Ltd v BNP Paribas (2004) 208 ALR 213 at 221 (para 22).
Mr Hallion points to the following factors in support of the submission he makes:
·    the word “guarantee” does not appear, prominently, or otherwise, on the front of exhibit P1 except within the last panel;
·    all partners or directors of the applicant customer are directed to read and sign the reverse side of exhibit P1. The reverse side however, requires a sole trader, all partners or all directors to sign. As a sole trader cannot be a guarantor of his or her debts contracted with the plaintiff, the only reason the identified persons are required to sign the reverse side of exhibit P1 is in the capacity of the applicant (in the case of a sole trader) or in the capacity of a partner or director of the applicant, and not in that person’s personal capacity, to acknowledge the terms and conditions as binding upon the customer;
·    there are no words, in the space provided for a signature on the reverse side of exhibit P1, to identify the signatory as a guarantor, therefore the capacity in which a person signed on the face of the form is the same capacity in which the reverse side was signed;
·    that the word “buyer” in paragraph 8 is not defined;
·    paragraph 8 (in which appears the guarantee the plaintiff relies on) is prominently headed “Appendix A - Guarantee”; it is argued those words convey to the ordinary reader that an additional document (an appendix) will or may be generated by the plaintiff and presented for signature by the guarantor, and that this construction is reinforced by the words “the Guarantors (if applicable)…” appearing in the signature panel on the face of the document, and the use in paragraph 8 of the word “Buyer”, not “Customer” as defined.
The signature panel on the front of the form requires the authorised signatory to indicate, by marking the appropriate box, whether he or she signs as a sole trader, a partner, a director or the holder of an employee position and in the latter case (as I interpret the form) to insert the description of that position. The authorised signatory therefore may not be the sole trader or a partner or a director of the applicant, in which case that signatory is not required to sign the reverse side of the form.
If the applicant is a sole trader, the sole trader must either sign the face of the form or a signatory authorised by him must sign on his behalf. The instructions on the front of the form do not require the sole trader to sign the reverse side. If the applicant is a partnership or a corporation, the names and addresses of all partners and all directors must be provided, and whether the face of the form is signed by a partner or a director or by another authorised signatory all partners and directors are directed by the words in the panel, where the application is signed, to read and acknowledge the terms and conditions of sale and sign the guarantee on the reverse side. That direction is part of the panel by which the applicant customer “and the Guarantors (if applicable)…” request the opening of a credit account in the name of the customer, and the supply of goods to the customer and the customer agrees to be bound by the terms and conditions on the reverse side.
To this point, in my opinion, there is no confusion, or ambiguity, in the form. The sole trader who provides the information required by, and signs, the front of the form, either personally or by an authorised signatory, would justifiably understand that the task of the application is complete and the form could be dispatched to the plaintiff. Members of partnership applicants and directors of corporate applicants, however, are required to inter alia sign the guarantee on the reverse side of the form; if that is not done the application is incomplete.
On turning to the reverse side of the form, a member of a partnership or a director of a corporation does so with the knowledge that it contains, or purports to contain, a guarantee which must be signed, and the terms and conditions of sale which must be read and acknowledged.
Each of the ten paragraphs on the reverse side of the form is designated by a numeral, and a heading in bold print of a size which is uniform for each paragraph; in the case of paragraph 8 the heading is “Appendix A – Guarantee”. The intended signatory - partner or director - who has or should have read the front of the form knows the reverse side includes a guarantee. The submission is that notwithstanding such knowledge the intending signatory does not know, or clearly know or understand, that by signing the page he is executing a guarantee in the terms of paragraph 8, because the paragraph heading includes the words “Appendix A …”, the place for signature appears below the words “sole trader and all partners and directors must complete” and therefore the ordinary prudent reader would interpret those two factors to negate there being a guarantee of immediate affect; in particular it is submitted the requirement for a sole trader to sign is consistent with the signatory simply acknowledging as the customer the terms and conditions of sale and not personally contracting as surety for the customer’s debts.
It is to be observed that all partners of the customer applicant are also required to sign the “guarantee overleaf”. As in the case of a sole trader, the concept of a partner being required to guarantee the debts of the applicant is unusual – each partner is jointly liable for the debts contracted by the partnership – however paragraph 8 includes (at 8.6) a provision that the guarantee “will not be affected by any change in constitution of the Buyer…”; the draftsman of the paragraph may have been seeking (whether successfully or not is another matter) to make a partner liable under the guarantee for debts contracted after his or her retirement. That may also explain why sole traders are required to sign the reverse side of the form, in which the guarantee is to be found; it is sought to make the sole trader liable, under the guarantee, for the debts of the business incurred after he or she has disposed of the business to another.
Counsel for Mr Hallion referred to Ankar Pty Ltd v National Westminster Finance(Australia) Ltd (1987) 70 ALR 641 at 648 for the principle that “the liability of the surety is strictissimi juris and that ambiguous contractual provisions should be construed in favour of the surety”. That case concerned whether the surety of a lessee was released from liability under the guarantee by a breach of the terms of the guarantee by the lessor. In the present case there is no allegation of breach by the plaintiff, and it is common ground that if by his signature on the reverse page of exhibit P1 Mr Hallion contracted with the plaintiff in terms of paragraph 8 then he is liable to the plaintiff upon its claim against him.
The purpose of the signature by partners or directors on the reverse side of exhibit P1 is clear; it was to comply with the direction included in the last panel on the front of the form. That the space provided on the reverse of the form does not describe the signatory as a “guarantor” does not in my opinion detract from the purpose of and the capacity in which such a person signs – it is to acknowledge the terms and conditions of sale and to enter into the guarantee comprised in paragraph 8. True it is that a sole trader is required to sign and that is inconsistent with the direction in the last panel on the front of the form, but merely that the signature of a sole trader is required does not in my opinion change what a reasonable reader would understand a partner or director to be subscribing to namely (but not solely) the guarantee in paragraph 8. The reasonable reader would know, from the words “Guarantors (if applicable)” in the last panel on the front of the form, that guarantors may or may not be parties to the purpose of the document but it is clear enough in my view that such a reader would understand that all members of a partnership and all directors of a corporation applying for credit are required to sign the “guarantee overleaf”.
The heading to paragraph 8 (“Appendix A – Guarantee”) might give the reasonable reader pause, but having read what appears in that paragraph it is apparent in my opinion that the paragraph constitutes an immediate guarantee upon the signing of the page on which in appears; I do not accept the submission that the heading of the paragraph can be reasonably read to merely be setting out the terms of a guarantee which may or may not be produced for signature either contemporaneously with exhibit P1 or at some time later.

The form of exhibit P1 does suffer from some lack of precision, but in my opinion a reasonably careful reading of it would not leave the reader with any doubt about the effect of the signature on the reverse side of it by, in particular, a director.
As I noted earlier in these reasons, paragraph 8 uses the word “buyer” whereas the rest of the document uses the word “customer”. In my opinion the identity of the “business”, the debts of which are the subject of the guarantee is plain in the context of the document as a whole. In my view the reasonable reader would be in no doubt that he or she upon signing the reverse side of the document as a director of the applicant was engaging to be surety for the debts of the applicant for credit in respect of goods supplied by the plaintiff to that applicant on credit.
I find that the defendant Mr Hallion is liable, as guarantor of the first defendant, for the plaintiff’s claim in the sum of $298,344.44.
Exhibit P1 provides for interest on overdue amounts at the rate of 2% per month. Counsel for the plaintiff abandoned the claim for interest at that rate, seeking interest at commercial rates. By s.39 District Court Act interest on a liquidated claim is to run from when the liability to pay the amount of the claim fell due to the date of judgment. This is a liquidated claim. I do not know in what tranches the debt accrued, or on what dates other than that the whole was incurred between December 2002 and April 2003. The originating proceedings were issued on 15 April 2003. I will allow interest from that date. The appropriate rate I think should be 6.5%. In lieu of interest I fix a lump sum of $38,785.
There will be judgment for the plaintiff against the defendant Mr Hallion in the sum of $337,129.44.
I will hear the parties on the question of costs.