Ge Commercial Corporation (Australia) Pty Ltd v ACN 089 812 813 Pty Ltd
[2008] WASC 205
•25 SEPTEMBER 2008
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL
CITATION: GE COMMERCIAL CORPORATION (AUSTRALIA) PTY LTD -v- ACN 089 812 813 PTY LTD [2008] WASC 205
CORAM: TEMPLEMAN J
HEARD: 10-12 SEPTEMBER 2008
DELIVERED : 25 SEPTEMBER 2008
FILE NO/S: CIV 1258 of 2007
BETWEEN: GE COMMERCIAL CORPORATION (AUSTRALIA) PTY LTD (ACN 009 974 747)
Plaintiff
AND
ACN 089 812 813 PTY LTD
First DefendantGARY JOHN GEARY
Second DefendantWENDY MICHELLE GEARY
Third DefendantJOHN CHARLES GEARY
Fourth Defendant
Catchwords:
Contract - Guarantee of floor plan sales - Floor plan founded on two successive bailment agreements - True construction of bailment agreement and guarantee - Commercial purposes of the two agreements - First agreement containing all moneys clause - Guarantee not executed for second agreement - Whether first agreement sufficient to bind guarantor to second agreement - Whether first agreement replaced by second agreement - Whether unsubstantial variation by second agreement
Evidence - Assessment of loss - Hearsay evidence overcome by business records - Other business records missing elements of a calculation - Whether proof of outcome of calculation
Evidence - Nonappearance by first and second defendants - Whether case proved
Legislation:
Nil
Result:
Guarantee discharged
Action dismissed against all defendants
Category: B
Representation:
Counsel:
Plaintiff: Mr P G Clifford
First Defendant : No appearance
Second Defendant : No appearance
Third Defendant : No appearance
Fourth Defendant : Mr D R Williams QC
Solicitors:
Plaintiff: Lawton Gillon
First Defendant : No appearance
Second Defendant : No appearance
Third Defendant : No appearance
Fourth Defendant : Haydn Robinson
Case(s) referred to in judgment(s):
Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549
Commonwealth Bank of Australia v McArthur [2003] VSC 31
Dan v Barclays Australia Ltd (1983) 46 ALR 437
Federal Commissioner of Taxation v Sara Lee Household and Body Care (Australia) Pty Ltd (2000) 201 CLR 520
Re Bankrupt Estate of Murphy; Donnelly v Commonwealth Bank of Australia Ltd (1996) 140 ALR 46
St George Bank Ltd v McTaggart [2007] WASC 150
TEMPLEMAN J:
Background
The plaintiff company carries on business as a financier. In June 2000, it provided a credit facility in an amount of $220,000 to the first defendant, to enable that company to carry on business as a retailer of Kawasaki motorcycles.
The essence of the arrangement (commonly known as a floor plan) was a Retail Bailment Agreement made between the plaintiff and the first defendant on 19 June 2000 (the first bailment agreement). By cl 2 of that agreement, the first defendant could request the plaintiff to purchase motorcycles, which would then be bailed to the first defendant for the purpose of re‑sale.
As at June 2000, the second, third and fourth defendants were directors of the first defendant, as was Melvyn Meredith Cross.
As a condition of entering into the floor plan arrangement, the plaintiff required some of the first defendant's directors to guarantee the first defendant's obligations. The fourth defendant and Mr Cross did so, also on 19 June 2000. They each executed a document prepared by the plaintiff and entitled 'Secured Guarantee'.
In June 2002, the amount of the credit facility was increased to $460,000. The fourth defendant signed an acknowledgment that his guarantee extended to the additional facility.
It is common ground that the fourth defendant ceased acting as a director of the first defendant on 22 December 2004.
On 28 June 2005, the plaintiff and the first defendant entered into a further Bailment Agreement (the second bailment agreement).
The first defendant's obligations under the second bailment agreement were guaranteed by the second and third defendants, but not by the fourth defendant. He contends that his guarantee was discharged by reason of the plaintiff and the first defendant entering into the second bailment agreement.
The plaintiff alleges that as at 5 January 2007, 43 motorcycles, having a total value of $452,188.47, had been bailed to the first defendant and that:
•the first defendant had sold some of the motorcycles but had not paid the plaintiff;
•some of the motorcycles had disappeared from the first defendant's premises and had not been paid for; and
•some of the motorcycles had been repossessed by the plaintiff and sold at a loss.
The plaintiff claims that as a result, the first defendant was in breach of both the first and second bailment agreements and that this caused loss to the plaintiff amounting to $232,655.92.
The plaintiff claimed this amount, and interest, against each of the defendants on a number of bases. However, the plaintiff does not pursue its claim against the third defendant, who is now bankrupt.
The first, second and third defendants filed a common defence to the plaintiff's claim. It was prepared by solicitors who are no longer acting for them and who have been removed from the record. The second defendant did not appear in person at the trial.
In these circumstances, the plaintiff seeks judgment against the first and second defendants under O 34 r 2 of the Rules of the Supreme Court 1971 (WA).
The fourth defendant has defended the claim against him on a number of grounds: and he has a counterclaim. I shall deal first with the case against the fourth defendant and his counterclaim, before turning to consider the position of the first and second defendants.
The case against the fourth defendant
The issue which is fundamental to the claim against the fourth defendant is the true construction of the guarantee. As will be seen, the fourth defendant guaranteed the due payment of 'all moneys' due from the first defendant to the plaintiff. The plaintiff categorises this provision as an 'all moneys' clause. It submits that the correct approach to the construction of such clauses is that set out by Hill J in Re Bankrupt Estate of Murphy; Donnelly v Commonwealth Bank of Australia Ltd (1996) 140 ALR 46:
(1)There is no principle of law that an all moneys clause should be read down merely because it is to be found in a document prepared by a bank. In particular there is no contra proferentem rule to be adopted; cf Hall v Westpac Banking Corp (1987) 4 BPR 9578.
(2)A bank mortgage is traditionally drawn to cover a multitude of possible situations and intended to secure the bank as effectively as possible. The question is whether the situation falls within the contemplation of the clause as written.
(3)Particularly, notions of fairness, justice or reasonableness are matters relevant to questions which might arise under the Contracts Review Act, or in equity where unconscionability is suggested. They are not notions as such relevant to the question of construction.
(4)An all moneys clause is to be construed having regard to the context in which the mortgage came to be executed and by reference to the commercial purpose it was intended to serve. But otherwise the intention of the parties is to be ascertained from the language which they have used (54 ‑ 55).
Hill J said he understood those principles to be the accepted law in New South Wales. I accept them to be applicable in this jurisdiction. They were applied by Newnes J in St George Bank Ltd v McTaggart [2007] WASC 150 [26]. However, it seems to me, with respect, that principles (2) and (4) are to the same effect. They are both concerned with questions of construction.
Although the principles are said to be referable to mortgages, the plaintiff submits (and I accept) that they are applicable equally to guarantees.
The fourth defendant complains about the way in which the case has been prosecuted against him; particularly having regard to discovery. The plaintiff was still giving discovery on the eve of the trial and (as a result of evidence emerging in the cross‑examination of its only witness) during the trial itself. This is clearly unacceptable. However, the fourth defendant does not raise any defence of the kind contemplated by principle (3), which therefore needs no further mention.
It will be convenient to commence with a consideration of principle (4) and the context in which the guarantee came to be executed. The relevant facts, which are not in dispute, are as follows. I take them from the evidence of Shane Kingsley Smith, the National Sales Director of the plaintiff, who was the only witness called on its behalf.
At some time shortly before 19 June 2000, the first defendant applied to the plaintiff for a wholesale credit facility for the purchase of new Kawasaki motorcycles with a credit limit of $250,000. The application form is in evidence (TB 1). It is not clear who completed the application. It is not signed. The fourth defendant denies in his defence that he had any part in it. I note that Mr Cross' middle name is misspelt on the application, suggesting that he did not complete it. If it was not completed by the fourth defendant or Mr Cross, then it is likely to have been completed by the second defendant. Nothing turns on this for present purposes. However, the hypothesis is supported by the letter dated 19 June 2000 from the plaintiff to the second defendant in which the plaintiff informed him that the application for a floor plan facility had been approved, albeit for a credit limit of $220,000.
The letter stipulated that the facility was to be used for the purchase of new Kawasaki motorcycles and was to be subject to a number of conditions which were to be met before the facility would be opened. The conditions included:
•Bailment Agreement to be executed and returned to our office.
•Secured Guarantee and Acknowledgment to be executed and returned to our office.
Also on 19 June 2000, the first defendant executed the first bailment agreement (TB 5) and the fourth defendant executed a guarantee (TB 9), as did Mr Cross.
The first bailment agreement recites that the first defendant (there described as Bailee) was engaged or intended to engage in the business of buying and selling 'Equipment exclusively by retail'.
By cl 1.3, 'Equipment' was defined to mean:
goods of various types for which Bailee seeks [the plaintiff's] approval to purchase and which are to be bailed by Bailee under this Agreement and which include any replacements of, alteration or addition to, including any accessories, tyres, tools or other goods supplied with or attached to the Equipment and, within limits set by [the plaintiff] from time to time, any trade‑in against sales.
The plaintiff contends that this provision permitted the first defendant to deal in second‑hand motorcycles. However, I do not accept that contention because it is inconsistent with the application for the credit facility and the approval: and there is no evidence that (at least until June 2002) the plaintiff set any limit on the extent to which the first defendant could deal in motorcycles which had been traded in.
The guarantee executed by the fourth defendant recited that he had requested the plaintiff 'to enter into commercial transactions' with the first defendant under which it would incur liabilities to the plaintiff.
Clause 1 of the guarantee provided that:
[The fourth defendant] hereby guarantees to [the plaintiff] the due payment of all moneys that may now be due and payable or may hereafter become due and payable by [the first defendant] to [the plaintiff] and the due and punctual performance by [the first defendant] of all its obligations pursuant to the said commercial transactions.
In his defence, the fourth defendant contends that because the term 'commercial transactions' is not defined, the guarantee is void for uncertainty. However, this defence was effectively abandoned by senior counsel for the fourth defendant during the trial. Counsel submitted that the guarantee would be uncertain if it stood alone. But he accepted that it did not stand alone. It was executed apparently contemporaneously with the first bailment agreement: and its execution was a condition of the plaintiff's agreement to implement the floor plan arrangements.
In my view, these considerations provide the context in which the guarantee came to be executed and they identify the commercial purpose it was intended to serve: see the fourth of the principles set out above. That is to say, the apparent commercial purpose of the guarantee was to secure the due payment of all moneys which might become due to the plaintiff under the first bailment agreement and the performance by the first defendant of all its obligations pursuant to those transactions.
The plaintiff contends for a different construction: that cl 1 of the guarantee should be construed as having two limbs. First, a guarantee of the due payment of all moneys that might be or become due and payable by the first defendant to the plaintiff at any time and in any circumstances; and secondly (as a separate obligation) a guarantee of the due and punctual performance by the first defendant of all its obligations 'pursuant to the said commercial transactions'.
The plaintiff contends that this is not an absurd result. However, in my view, if that was the intended construction, cl 1 would have been punctuated in such a way as to make it clear. The lack of punctuation does not support that construction.
More significantly, in my view, the plaintiff's construction is inconsistent with the commercial purpose of the guarantee. The parties entered into the floor plan arrangements, including the first bailment agreement and the guarantee, for the purpose of enabling the first defendant to carry on the business of retail selling of new Kawasaki motorcycles. I accept the submission of senior counsel for the fourth defendant, that the identification of the commercial purpose of a guarantee could well result in a limitation on what would otherwise be very wide terms.
It might be said that cl 1 was ambiguous. However, that would not assist the plaintiff. As the majority of the High Court said in Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549:
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 (561).
I do not think that the first of the principles stated by Hill J conflicts with this approach, which applies only where there is ambiguity.
It will be recalled that one of the conditions the plaintiff required to be satisfied for opening the credit facility was the execution of an 'Acknowledgment'.
The fourth defendant executed an acknowledgment prepared by the plaintiff, on 19 June 2000. The acknowledgment contained the following provision:
I understand that the guarantee applies to all moneys due to you by [the first defendant] whether under the documents listed in Item 3 of the Schedule ('Facility Documents') or otherwise. I am aware that the guarantee is not limited to any amount or any period of time and includes all moneys now owing to you or which later become due to you.
The plaintiff submits that this acknowledgment may be used as an aid to the construction of the guarantee. I do not accept that submission. In my view, in construing a document, the parties' subjective understanding of its effect is irrelevant. Although it might provide a basis for an estoppel, such as an estoppel by convention, that is not the way the plaintiff has put its case against the fourth defendant.
On 6 June 2002, the plaintiff wrote to the second defendant to inform him that the first defendant's credit limit had been increased to $460,000, including $40,000 in respect of 'Direct Line Used Motorcycles'.
It appears from the letter that the trading terms offered to the first defendant in relation to the increased facility, differed from those under which the first defendant had been operating previously.
One of the conditions relating to the approval was an acknowledgment by the fourth defendant.
A document entitled 'Acknowledgment of Guarantor of Further Liability' was apparently executed by the fourth defendant. The document is undated but acknowledges that the additional facilities referred to in item 3 of the schedule to the document were to be provided by the plaintiff to the fourth defendant. Item 3 of the schedule referred only to:
Increased Facility, Total Facility now $460,000.
There is no evidence that the fourth defendant was informed either that the increased facility included a provision for the purchase of used motorcycles or that the trading terms had been changed. However, nothing turns on this: neither the plaintiff nor the fourth defendant refers to these matters in their respective pleadings.
For completeness, I note that in November 2003, with the fourth defendant's consent, Mr Cross was released from his guarantee.
The second bailment agreement
On 28 June 2005, the plaintiff and the first defendant entered into a second bailment agreement (TB 35). It was a much more substantial document than the first bailment agreement: eight pages containing 20 clauses as against four pages and 13 clauses.
As I have noted above, the first bailment agreement was described as a retail bailment agreement. It recited that the first defendant was engaged or intended to engage in the business of buying and selling equipment exclusively by retail. However, the second bailment agreement recited that the first defendant was engaged or intended to engage in the business of buying and selling Equipment. In other words, it was not confined to retail sales. Nor was it confined to new motorcycles. This is confirmed by the definition of 'Equipment'. Whereas the first bailment agreement defined equipment to include trade‑ins against sales 'within limits set by [the plaintiff]', the second bailment agreement contained no such restriction: it referred to:
Trade‑in purchased by [the plaintiff] under clause 6.
Clause 6 contained a series of provisions applicable when the first defendant accepted any equipment as a trade‑in. In those circumstances, the first defendant was required to hold the relevant trade‑in on trust for the plaintiff and itself; to sell the relevant trade‑in and account immediately to the plaintiff: cl 6.2.
If the first defendant wanted to place the trade‑in on bailment under the agreement, it was required to offer to sell the trade‑in to the plaintiff: cl 6.3. There were then, in cl 6.4, cl 6.5 and cl 6.6, provisions applicable to circumstances in which the plaintiff elected to make such a purchase. The first bailment agreement does not contain these provisions: it does not appear to contemplate the purchase of trade‑ins by the plaintiff.
In Ankar Pty Ltd v National Westminster Finance (Australia) Ltd, the majority of the High Court tacitly approved a principle, long established in English law, which their Honours set out as follows:
According to the English cases, the principle applies so as to discharge the surety when conduct on the part of the creditor has the effect of altering the surety's rights, unless the alteration is unsubstantial and not prejudicial to the surety. The rule does not permit the courts to inquire into the effect of the alteration. The consequence is that, to hold the surety to its bargain, the creditor must show that the nature of the alteration can be beneficial to the surety only or that by its nature it cannot in any circumstances increase the surety's risk, eg, a reduction in the debtor's debt or in the interest payable by the surety. The mere possibility of detriment is enough to bring about the discharge of the surety (559 ‑ 560).
In its original statement of claim, the plaintiff contended that the second bailment agreement replaced the first. Mr Smith's evidence, which I accept, was that he gave instructions for a further bailment agreement to be obtained from the first defendant and a further secured guarantee to be obtained from the second and third defendants. Mr Smith did so because the plaintiff could not locate the original of the first bailment agreement or of the second and third defendant's guarantee.
On that basis, the plaintiff's intention (and, I infer that of the first defendant) was to substitute the second bailment agreement for the first. As Wilson and Dawson JJ said in Dan v Barclays Australia Ltd (1983) 46 ALR 437:
… a substituted contract … in order to operate, must necessarily rescind the contract which is varied (448).
Their Honours were clearly using the term 'rescind' to refer to a termination, rather than an amendment: see the discussion in Cheshire & Fifoot's Law of Contract (9th Aust ed) par 21.9.
The whole tenor of the second bailment agreement suggests that it was intended to stand alone. It makes frequent reference to obligations arising 'under this agreement'.
If the correct analysis is that the second bailment replaced the first, the commercial purpose served by the fourth defendant's guarantee would have come to an end, and the guarantee would therefore be discharged.
Mr Smith's evidence, which I accept was that some time before January 2007 but after the execution of the second bailment agreement, the plaintiff located the originals of the necessary documents.
Shortly before the trial the plaintiff sought, and was granted, leave to amend its statement of claim to allege that the second bailment agreement constituted 'a further basis' on which the plaintiff continued to provide financial arrangements to the first defendant. In short, having found the original documents, the plaintiff now contends that both the first and second bailment agreements were operative. As counsel for the plaintiff put it in the course of his argument:
The second bailment agreement did not replace the first. It was simply in addition to it.
However, the intention of the parties when they entered into the second bailment agreement cannot be determined by reference to subsequent events. The original intention is supported by the fact that the plaintiff made its demands of the first defendant by reference to the second bailment agreement only (TB 106). Further, the plaintiff served a notice of termination of the second bailment agreement. The notice made no reference to the first bailment agreement (TB 111).
In Federal Commissioner of Taxation v Sara Lee Household and Body Care (Australia) Pty Ltd (2000) 201 CLR 520, the majority of the High Court said:
When the parties to an existing contract enter into a further contract by which they vary the original contract, then, by hypothesis, they have made two contracts. For one reason or another, it may be material to determine whether the effect of the second contract is to bring an end to the first contract and replace it with the second, or whether the effect is to leave the first contract standing, subject to the alteration [22].
If, therefore, the correct analysis is not that the second bailment agreement replaced the first, it must have effected a variation. The High Court did not contemplate a situation in which two contracts could co‑exist. When that proposition was put to counsel for the plaintiff, he submitted that there was an alteration of the terms of the first bailment agreement, but the original floor plan remained (ts 83). Counsel submitted that this conclusion was supported by cl 18.6 of the second bailment agreement. This provides that the plaintiff's rights and remedies under that agreement are in addition to other rights and remedies 'given by law independently of this agreement'.
In my view, 'given by law', means by common law or statute: not by some other agreement between the parties. Clause 18.6 does not, therefore, assist the plaintiff.
For those reasons I do not accept that the original floor plan remained in place despite the existence of the second bailment agreement. The bailment agreements are at the heart of the floor plan arrangement. If the second bailment agreement effected a variation of the first, then, unless its terms differed from the first in a way that was 'unsubstantial', the floor plan arrangements must have changed.
If the principle set out by the High Court in Ankar is applicable here, the onus is on the plaintiff to demonstrate that the differences are 'unsubstantial'. It has not sought to do so beyond saying, as counsel put it:
It is still related to motorcycles and the structure is the same (ts 83).
In my view, that is an inadequate demonstration. The result is, on the application of Ankar, that the fourth defendant's guarantee is discharged.
The plaintiff's answer to this conclusion is that the principle set out in Ankar does not apply where, as here, there is an 'all moneys' guarantee.
I have referred above to two decisions relied on by the plaintiff in this context: Re Bankrupt Estate of Murphy and St George Bank Ltd v McTaggart. In each of those cases, 'all moneys' provisions in mortgages were held to be sufficiently wide to secure the respective mortgagee banks against losses resulting from the fraudulent activities of the principal debtors. However, neither case involved a variation of the contract between the bank and the principal debtor.
In Commonwealth Bank of Australia v McArthur [2003] VSC 31, Dodds‑Streeton J was required to construe a widely drawn 'all moneys' clause in a mortgage in the nature of a guarantee granted to the plaintiff bank. It was contended by the mortgagor that there had been a variation in the terms on which the bank had advanced money to the principal debtor, such as to make applicable the Ankar principle, with the result that the mortgage was discharged.
Dodds‑Streeton J noted that the mortgage in question made express provision for the bank's right to vary advances and accommodation. However, her Honour held that the alleged variation was in fact
an independent agreement on different terms, albeit for the same principal sum, which is within the scope of the 'all moneys' clause of the [bank] mortgage [202].
Because there was no variation of the principal contract, it followed that there could be no discharge of the mortgagor's obligations under the mortgage. Dodds‑Streeton J concluded the part of her judgment under the heading 'Variation of Principal Contract' by saying:
I have not been referred to any authority which deals expressly with the scope of the legitimate role of the 'special principle' of variation in the context of 'all moneys' guarantees. The special principle appears to have no legitimate application to 'all moneys' guarantees. It is, however, unnecessary to determine such issues, given that I consider that the letter of 13 September 1999 set out the terms of an independent agreement which was itself within the ambit of the 'all moneys' mortgage [204].
In my view, this decision does not detract from the principles of construction set out by Hill J in Re Bankrupt Estate of Murphy: and in particular, the need to construe the guarantee by reference to its context and the commercial purpose it was intended to serve. In the present case, I consider that the commercial purpose was to secure the payment of all moneys which might be due from the first defendant to the plaintiff under the first bailment agreement. The context in which the second bailment agreement was executed was the loss of the first bailment agreement: a replacement was required. The first bailment agreement was either discharged by the second, or varied. If the latter, the plaintiff has not demonstrated that the variation was 'unsubstantial'. The result, on either basis, is that the fourth defendant's guarantee must be discharged.
Quantum
If I am wrong in relation to liability, it is necessary to consider the quantum of the plaintiff's claim.
The plaintiff's pleaded case is that as at 5 January 2007, 43 motorcycles were subject to the terms of the bailment agreements. However, on the view I take, they were subject to the terms of the second bailment agreement.
The plaintiff claims that the total amount payable by the first defendant for these 43 motorcycles was $452,188.47, including GST. Particulars are given in which each of the motorcycles is identified by its model number, serial/chassis number and description. The amount payable for each machine and the 'Trust Receipt No' are set out.
The trust receipt is the name given by the plaintiff to the document by which the first defendant was notified of the price it was required to pay. As Mr Smith said in his evidence, a trust receipt 'could be called a notice of purchase' (ts 42).
All of the trust receipts are in evidence, as part of the trial bundle. They are clearly business records and therefore admissible as such.
The terms on which the plaintiff bailed motorcycles to the first defendant under the second bailment agreement, included an agreement by the first defendant to pay bailment fees. These fees were to accrue in respect of each motorcycle bailed, from the date on which the bailment commenced and were to accrue on a daily basis, being payable monthly in arrears: cl 4.1.
Mr Smith's evidence was that the plaintiff had an agreement with Kawasaki Motors whereby the plaintiff would pay a discounted price for a motorcycle in return for providing 'interest‑free periods for the dealers to floor plan that inventory' (ts 46). As I understand it, this means that Kawasaki Motors would, in effect, be paying part of the bailment fee which would otherwise be payable by the first defendant.
However, the plaintiff would nevertheless charge the first defendant the full invoice price for the particular motorcycle, not the discounted amount. Mr Smith said, and I accept, that dealers are not privy to the financial agreement between Kawasaki Motors and the plaintiff.
It was submitted by senior counsel for the fourth defendant that, as guarantor, the fourth defendant should not be required to pay the amount of the discount arising under an agreement between the plaintiff and Kawasaki Motors about which he had no knowledge. However, as I understand the arrangement, the effect on the first defendant is cost neutral. That is to say, the discount allowed by Kawasaki Motors is equivalent to a bailment fee which the first defendant would otherwise be obliged to pay.
In any event, I see nothing in the bailment agreement which would restrict the plaintiff to charging the first defendant the exact price it paid to Kawasaki Motors.
The first defendant would sometimes sell a motorcycle at a price lower than the amount shown on the trust receipt, the difference being a promotional rebate given by the first defendant to its customer. Where the amounts of these promotional rebates have been paid to the plaintiff, the amount due has been reduced. Mr Smith's evidence was that the promotional rebates amounted to $28,389.44.
Having examined the relevant trust receipts and credit notes, I accept Mr Smith's evidence. I therefore find that the amount outstanding for the 43 motorcycles is $452,188.47 as pleaded.
The plaintiff gives credit in the sum of $103,657.19. I accept Mr Smith's evidence that this was the total of two security deposits held by the plaintiff, and the accrued interest.
The plaintiff alleges that the first defendant attempted to pay for a number of the motorcycles by direct debits but that the payments were dishonoured. This is evidenced by the relevant daily statements sent to the plaintiff by its banker, Westpac. The statements are in evidence. I accept them as accurate business records.
The plaintiff alleges further, that some 15 motorcycles either disappeared from the first defendant's premises or were sold by the first defendant, in which case, the first defendant did not pay the proceeds of sale to the plaintiff.
Mr Smith had no direct knowledge of these matters. He said in his evidence that on about 5 January 2007, Blair Morris, an employee of the plaintiff, carried out a floor check of the motorcycles at the first defendant's premises. Mr Smith said that Mr Morris is no longer employed by the plaintiff. He said he had made enquiries with an existing staff member as to Mr Morris' whereabouts. From those enquiries, Mr Smith believed that Mr Morris is currently living in England.
In my view, this evidence does not satisfy the criteria set out in s 79C(2) of the Evidence Act 1906 (WA) so as to make admissible Mr Smith's statement about these matters.
However, the plaintiff's document entitled 'Floor Check Detail' is in evidence. It relates to a floor check carried out on 5 January 2007, apparently at the first defendant's premises, by B Morris, who I accept as being the Blair Morris referred to in Mr Smith's evidence.
The floor check report which forms part of the document, identifies 15 motorcycles as having a status 'S'. This code represents motorcycles which are 'Sold, no payment collected' (TB 60 ‑ 66).
I accept this document as an accurate business record. I therefore find that the motorcycles said to have been missing, or sold without payment being made to the plaintiff, were all in the latter category.
Mr Smith's evidence was that on or about 11 January 2007, Simon Munrowd‑Harris, the then state manager of the plaintiff's Western Australian branch, decided to repossess the plaintiff's motorcycles which were remaining at the first defendant's premises.
Again, this is hearsay evidence. However, there are documents in the trial bundle which evidence the sale of the motorcycles identified as having been repossessed. I accept these documents as proof that the amounts said to have been received by the plaintiff were actually received, these amounts being $135,370.99 in total.
Mr Smith gave some further hearsay evidence about the poor condition of some of the motorcycles, and the resulting effect on their value. This evidence is inadmissible. It is not, however, necessary to receive it as part of the plaintiff's case. The relevant and uncontested evidence is that the plaintiff received the total sum of $135,370.99 for 15 motorcycles.
The plaintiff claims the sum of $2,112 as repossession fees. This is the amount of an invoice dated 11 January 2007 from Recommended Towing Service to the plaintiff. The invoice relates to the repossession of 15 motorcycles from the first defendant's premises, as authorised by Mr Morris. I accept the invoice as a business record in an amount the plaintiff was entitled to charge the first defendant pursuant to cl 14.3 of the second bailment agreement.
As I have noted above, the plaintiff charged the first defendant a bailment fee pursuant to cl 4 of the second bailment agreement. The total amount claimed by the plaintiff under this head is $17,383.63. The bailment fees are the subject of monthly invoices for the period from 1 January 2007 to 31 October 2007 (TB 85, 101, 112, 125, 128, 132, 136, 145, 148 and 153). Each invoice is supported by a schedule setting out, in relation to each motorcycle, the number of days for which the bailment fee is said to be payable and the charge rate. This is expressed as a percentage of the amount owed in relation to the motorcycle. The bailment charge is calculated by multiplying the principal sum by the annual percentage, adjusting for the relevant number of days and adding GST.
Although these documents are business records, there are no source documents in evidence. That is to say, there are no documents from which it is possible to verify the days for which bailment fees were charged.
In the course of his cross‑examination, Mr Smith said that the running account between the plaintiff and the first defendant was online, as part of the first defendant's EPAL inventory management system. Mr Smith said that:
At any one time we can pick up for a particular time all the units that are on the floor plan, how much charges are owing at any one time.
It is clear that the plaintiff did not give discovery of the running account. That may have been due to a misunderstanding. Mr Smith said:
We believe we have produced the documents that are necessary to prove the claim under a solicitor's advice (ts 50).
When asked whether he could produce the running account, Mr Smith said he was sure that if that was necessary, it could be produced. However, it emerged subsequently, and was accepted by senior counsel for the fourth defendant, that the plaintiff would be unable to produce those documents (ts 66).
In these circumstances, I am not persuaded that the plaintiff has proved its case in relation to the bailment fees of $17,383.63.
It follows, that if I had found the fourth defendant liable on his guarantee, I would have assessed the amount of that liability to be as follows:
Amount claimed $452,188.47 Plus repossession fees $2,112.00 Less security deposit realisation $103,657.19 Less amount received from sale of repossessed motorcycles $135,370.99 TOTAL $215,272.29
The fourth defendant's counterclaim
The fourth defendant counterclaims for the removal of caveat H514237 which the plaintiff registered against the title to his property, as it was entitled to do under cl 7(2) of the fourth defendant's guarantee.
Given my conclusion that the fourth defendant is discharged from his guarantee, it follows that the plaintiff is no longer entitled to maintain its caveat, which should therefore be removed.
The claim against the first and second defendants
In par 9 of its statement of claim, the plaintiff alleges:
9.On or about 28 June 2005 the Plaintiff and the First Defendant became parties to a second bailment agreement ('Second Bailment Agreement') which replaced the First Bailment Agreement and from 28 June 2005 the Second Bailment Agreement constituted the basis upon which the Plaintiff continued providing financial arrangements to the First Defendant in relation to the purchase by the First Defendant of Equipment for resale.
In par 7(a) of the defence of the first, second and third defendants, those defendants pleaded:
7.As to paragraph 9 of the Statement of Claim:
(a)pending the production by the Plaintiff for inspection of the Second Bailment Agreement the Defendants do not admit that on or about 28 June 2005 the Plaintiff and the First Defendant became parties to the Second Bailment Agreement.
In par 12 of its statement of claim, the plaintiff pleads:
12.By a Deed of Secured Guarantee made in writing between the Plaintiff and the Second and Third Defendants, signed by the Second and Third Defendants on or about 28 June 2005 (the 'Second Guarantee'), the Second and Third Defendants unconditionally and irrevocably guaranteed to the Plaintiff that the First Defendant would pay to the Plaintiff all amounts payable by the First Defendant to the Plaintiff and the due and punctual performance by the First Defendant of all its obligations under the commercial transactions with the Plaintiff (clause 1).
In par 10 of their defence, the defendants plead:
10.Pending the production by the Plaintiff for inspection of the Second Guarantee the Defendants do not admit the allegations in paragraph 12 of the Statement of Claim.
The position of a plaintiff when a trial proceeds in the absence of a defendant is summarised in Seaman on Civil Procedure in Western Australia at [34.2.3]:
If the defendant does not appear at the trial the plaintiff must prove his or her claim so far as the burden of proof rests upon him or her, and is confined to relief clearly pleaded: Stone v Smith (1887) 35 Ch D 188 at 190.
It was agreed between the plaintiff and the fourth defendant that the trial could proceed against him on the basis of copy documents. That agreement does not assist the plaintiff to prove its case against the other defendants. It follows, that for the plaintiff to succeed it would have to produce the original of the second bailment agreement and prove that it had been duly executed on behalf of the first defendant. It would then have to produce the guarantee given by the second and third defendants, and prove that it had been duly executed by the second defendant.
The plaintiff has not produced any of this evidence. It has not, therefore, made out its case against the first or second defendants.
The plaintiff has pleaded a further case against the first, second and third defendants, based on allegedly false representations which are said to have constituted misleading and deceptive conduct contrary to s 52 of the Trade Practices Act 1974 (Cth) or s 10 of the Fair Trading Act 1987 (WA). This aspect of the claim was not addressed by counsel for the plaintiff and no evidence was adduced in relation to it.
Had the plaintiff proved its case, the first and second defendants would also be liable for the amount of $215,272.29: the first defendant under the second bailment agreement, and the second defendant under the guarantee he (and the third defendant) executed on 28 June 2005.
But for the above reasons, the claim against the first and second defendants must be dismissed also.
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