Fortron Automotive Treatments Pty Ltd v Eurotime Holdings Pty Ltd & Ors - [2001] WASCA 275

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

TITLE OF COURT : THE FULL COURT (WA)

CITATION: FORTRON AUTOMOTIVE TREATMENTS PTY LTD -v- EUROTIME HOLDINGS PTY LTD & ORS [2001] WASCA 275

CORAM: MALCOLM CJ
STEYTLER J
WHEELER J

HEARD: 8 AUGUST 2001

DELIVERED : 8 AUGUST 2001

PUBLISHED : 12 SEPTEMBER 2001

FILE NO/S: FUL 176 of 2000

BETWEEN: FORTRON AUTOMOTIVE TREATMENTS PTY LTD
Appellant
AND
EUROTIME HOLDINGS PTY LTD
First Respondent
ANTON VUKNIC
Second Respondent
ROGER JOHN MORRIS
Third Respondent

Catchwords:

Contract of guarantee - Credit agreement - Construction - Turns on own facts

Legislation:

Nil

Result:

Appeal allowed

Category: B

Representation:

Counsel:

Appellant:     Mr G Rabe
First Respondent           :     No appearance
Second Respondent      :     No appearance
Third Respondent          :     Mr S Watters & Mr A Prime

Solicitors:

Appellant:     Stables Scott
First Respondent           :     No appearance
Second Respondent      :     No appearance
Third Respondent          :     McCallum Donovan Sweeney

Case(s) referred to in judgment(s):

Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549

Case(s) also cited:

Blest v Brown (1892) 4 De GF & J 367
Bond v HongKong Bank of Australia (1991) 25 NSWLR 286
Brown v Aimers [1934] NZLR 414
Burns v Trade Credits Ltd (1981) 34 ALR 459
Cambridge Credit Corporation Limited v Lombard Australia Limited (1977) 136 CLR 608
City Corp Limited (1985) 4 NSWLR 1
Corumo Holdings Pty Ltd v C Itoh Ltd (1991) 24 NSWLR 370
Davies v Stainbank (1854) 6 De GM & G 679
Fletcher Organisation Pty Ltd v Crocus Investments Pty Ltd [1988] 2 Qd R 517
Glynn v Margetson & Co [1893] AC 351
Hancock v Williams (1942) 42 SR (NSW) 252
Howell v Jones (1834) 1 Cr M & R 97
Mercantile Bank of Sydney v Taylor (1891) 12 LR (NSW) 252
Morris v Baron & Co [1981] AC 1
National Bank of New Zealand v West [1978] 2 NZLR (CA) 451
Pan Foods Company Importers & Distributors Pty Ltd v Australia and New Zealand Banking Group Ltd (2000) 170 ALR 579
Samuell v Howarth (1817) 3 MER 272
Suisse Atlantique Societe d'Armement Maritime SA v NV Rotterdamsche Kolen Centrale [1967] 1 AC 361
Tallerman & Co Pty Ltd v Nathan's Mercandise (Vict) Pty Ltd (1957) 98 CLR 93
Tricontinental Corporation Ltd v HDFI Ltd, unreported; CA (NSW); 18 December 1990
United Dominions Trust (Jamaica) Ltd v Shoucair [1969] 1 AC 340
Ward v National Bank of New Zealand (1883) 8 App Cas 755
Williams v Frayne (1937) 58 CLR 710

MALCOLM CJ: At the conclusion of the argument of this appeal on 8 August 2001 the Court ordered that this appeal should be allowed; that so much of the judgment of the learned Commissioner in the District Court by which it was ordered that:
(1)the appellant's claim against the third respondent be dismissed;
(2)the appellant pay the third respondent's costs of the action to be taxed be set aside, and that in lieu thereof:
"(1)there be judgment for the appellant against the third respondent in the sum of $179,792.01;
(2)the third respondent pay to the appellant the appellant's costs of the action in proceeding against the third respondent be taxed on a party and party basis up to 29 March 2000, such costs to include the costs of administering interrogatories against the third respondent;
(3)there be liberty to the appellant to apply for an order for costs on an indemnity basis from 30 March 2000;
(4)the costs payable by the third respondent include the costs of administering interrogatories against the third respondent;
(5)the third respondent pay the appellant's costs of the appeal to be taxed;
(6)the third respondent have liberty to apply in respect of the contribution notice."
It was then indicated that the reasons for making those orders would be published later. I have had the benefit of reading in draft the reasons to be published by Wheeler J. I agree with those reasons and have nothing I wish to add.
STEYTLER J: I have had the advantage of reading the reasons for decision of Wheeler J. They reflect my own reasons for joining in the orders of the Court made on 8 August 2001.
WHEELER J: These are my reasons for joining in orders of the Court made on 8 August 2001. Those orders were that part of the judgment of the learned Commissioner whereby the learned Commissioner ordered that:

(1)the appellant's claim against the third respondent be dismissed; and
(2)the appellant pay the third respondent's costs of the action to be taxed;

be set aside.

In lieu thereof it was ordered that:
"(1)there be judgment for the appellant against the third respondent in the sum of $179,792.01;
(2)the third respondent pay to the appellant the appellant's costs of the action in proceeding against the third respondent be taxed on a party and party basis up to 29 March 2000, such costs to include the costs of administering interrogatories against the third respondent;
(3)there be liberty to the appellant to apply for an order for costs on an indemnity basis from 30 March 2000;
(4)the costs payable by the third respondent include the costs of administering interrogatories against the third respondent;
(5)the third respondent pay the appellant's costs of the appeal to be taxed;
(6)the third respondent have liberty to apply in respect of the contribution notice."
This is an appeal from a judgment of the District Court of Western Australia. The appellant ("Fortron") made a claim against the first respondent ("Eurotime") at trial for payment of goods sold and delivered pursuant to contracts dated 4 July 1995 ("the July contract") and 19 February 1996 ("the February contract"). The terms of the July contract required Eurotime to pay for the invoiced cost of goods no later than 31 October 1995. Only $40,000 was paid, leaving approximately $49,000 due and payable by the date of the February contract. The February contract required Fortron to supply further goods to Eurotime on condition that all arrears due under the July contract would be paid by Eurotime within 120 days of the further goods being picked up by Eurotime's shippers and that the invoiced cost of the further goods were also to be paid for by Eurotime within 120 days of the further goods being picked up by Eurotime's shippers.
The principal issue at trial was whether the third respondent ("Morris"), who was the company secretary of Eurotime from approximately mid‑1994 to mid‑1995 was liable for the amounts outstanding under the July and February contracts pursuant to the terms of a guarantee signed by him on 23 December 1994. The guarantee is to be found at the foot of the face side of a credit application made by Eurotime and submitted to Fortron, with the "terms and conditions of agreement to provide credit" set out on the reverse of that document. The guarantee reads in its entirety as follows:
"GUARANTEE
In consideration of THE SUPPLIER at our request as directors of the Customer agreeing to grant it credit trading facilities, we the abovenamed and undersigned directors do HEREBY jointly and severally and irrevocably guarantee (by way of continuing security) the payment to THE SUPPLIER by the Customer of all monies now or at any time in the future due and owing in respect of goods sold or services rendered by THE SUPPLIER and we jointly and severally agree to be bound by the 'Terms and Conditions of Agreement to Provide Credit' next following and declare that THE SUPPLIER may make claim against us as if we were the principal debtors and not guarantors/sureties of the Customer.
In witness whereof the Customer as Applicant and the Director(s) as Applicant and Guarantor(s) have executed this document as a deed…."
The only one of the terms and conditions of the agreement to provide credit which was suggested by either party to be relevant was cl 6 which relevantly read:
"6.THE FOLLOWING TERMS SHALL APPLY ONCE CREDIT HAS BEEN GRANTED -
(a)…
(b)UNLESS OTHERWISE STATED THE TERMS OF PAYMENT SHALL BE NETT 30 DAYS FROM THE DATE OF THE INVOICE;"
Morris denied liability under the guarantee on a number of grounds. Only one is relevant to the appeal, that being whether he was discharged from liability under the guarantee as a consequence of what were pleaded as variations of the credit terms. It was asserted that Fortron varied the credit terms without Morris' knowledge or consent by agreeing to an extension of credit beyond 30 days from the date of invoice.
The learned Commissioner in the District Court reached the view that cl 6(b) contemplated that:
"The terms of payment shall be 30 days from the date of subsequent invoice unless otherwise stated at the time the agreement to provide credit and guarantee was executed".
It was his view that the agreement to provide credit did not contemplate the formation of a new contract to provide credit on each subsequent occasion when the appellant agreed to supply goods to the first defendant, and it is clear that he regarded an agreement to supply goods other than on 30 days credit as in each case a "new contract". The learned Commissioner then referred to Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549 as authority for the proposition that when a creditor agrees to a variation of the principal contract, or to an extension of time within which the debtor may comply with that contract, without the consent of the surety, the surety will be discharged (unless the alteration is unsubstantial and not prejudicial to the surety).
It is submitted on behalf of the appellant that the principle applied by the learned Commissioner was correctly expressed, but that his construction of the credit agreement was in error. In particular, it is submitted, in my view correctly, that it appears that the learned Commissioner confused the concept of a variation of the credit agreement with the concept of a variation of the separate supply agreements which appear to be contemplated by the credit agreement itself, and pursuant to which goods were supplied under the July and February contracts. In effect, the appellant submits that the words "unless otherwise stated" mean unless otherwise stated by the supplier in relation to the supply of particular goods.
The respondents' submission is that the words "unless otherwise stated" must be read as meaning "unless otherwise stated in the credit agreement itself." This seems to have been the view taken by the learned Commissioner. There are a number of reasons for rejecting that interpretation. The first is one which appears from the form of the agreement itself. The face is completely covered with the provisions of the credit application and guarantee, whilst on the back the closely typed terms and conditions of the agreement to provide credit are immediately followed by the words "INTERNAL USE ONLY" and underneath that are a number of lines prefaced with the words "OFFICE COMMENTS". There is a portion of blank paper at the foot of that page. There appears however, to be no convenient place within the credit agreement itself at which any terms could be "otherwise stated".
More importantly, there is in the context of a commercial agreement such as this, no reason to suppose that such a construction was intended, or could serve the interest of any party. The agreement is an agreement for the protection of the supplier who is extending credit, and in that context it would be logical to understand the clause as meaning that unless otherwise stated by the supplier, the 30 day terms would apply. The agreement contemplates that the supplier may supply goods or services on any number of occasions, and the commercial desirability of ensuring that there is some flexibility in the terms of supply and the terms of payment can readily be appreciated, as can the desirability of having a default provision.
In my view, the agreement to provide credit by cl 6(b) contemplates that there may be separate supply agreements entered into between the customer and the supplier in which the supplier may state what the terms of payment shall be. Those agreements would not be variations of the agreement to provide credit, but would be separate agreements expressly contemplated by it. If one of those agreements provided for extended credit terms, as it is alleged the July contract did, that would be consistent with the agreement to provide credit, rather than being a variation of it. If the February contract, as is alleged, varied the terms of the July contract, that variation would then be a variation of that separate supply agreement and not a variation of the agreement to provide credit itself.
It is only if there were a variation of the agreement to provide credit that the principles relied upon by the respondent would come into operation. Because of the view which I have reached on this point, it is unnecessary to consider whether the alleged variations were for the benefit of Morris, or any of the other matters raised in this appeal, which only arise if the extended terms allowed by the two supply agreements to which I have referred, amounted to variations of the credit agreement itself.