Hanson Construction Materials Pty Ltd v Saliba - [2018] SADC 50

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil: Application)
HANSON CONSTRUCTION MATERIALS PTY LTD v SALIBA AND ANOR
[2018] SADC 50
Judgment of His Honour Judge Rice
18 May 2018
CONTRACTS - BUILDING, ENGINEERING AND RELATED CONTRACTS - THE CONTRACT
The plaintiff supplies products to the building industry.
The defendants are in partnership and operate a concreting business.
For a period of about 15 months the defendants were joined in the partnership by a son. During that time the son placed orders with the plaintiff. After the period of fifteen months the son ceased to be in partnership with his parents and established his own account with the plaintiff. Over three years later the son placed orders on the account of the parents. The orders were filled but the defendants refused to pay. The claim is based on that unpaid amount.
The plaintiff relies upon a clause in the Credit Contract that includes these words '...In addition, the Customer will be liable for all transactions involving the Customers credit account, including fraudulent use of that account by the Customer or its employee'.
Held: Claim dismissed.
The construction of the clause sought by the plaintiff is too broad. Such a broad construction would include a use of the account by strangers or even an administrative error in debiting the account with an order of another customer.
The clause should be limited to transactions of the customer in the ordinary course of business plus fraudulent transactions by the customer or its employee.
Toll (FGCT) PTY Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; WIN Corporation Pty Ltd v Nine Network Australia Pty Ltd Supreme Court NSW 28/04/2016, considered.

HANSON CONSTRUCTION MATERIALS PTY LTD v SALIBA AND ANOR
[2018] SADC 50
Introduction

This is an action in debt to recover the amount of $19,842.86 for building and construction materials ordered on the account of the defendants. It is also sought to enforce a charge over the land of the defendants, plus the recovery of associated legal costs.
The parties have very much narrowed the issues in dispute but, before coming to those issues, a summary of the facts is necessary.
The plaintiff supplies products to the building industry. The defendants carry on a concreting business in partnership. From 30 September 2010 until January 2012, their son, Andrew Saliba, was a partner in the business of the defendants. From 11 October 2010 to 14 December 2011, Andrew placed some 38 orders on the account of the defendants. The payment for these orders is not in issue.
On 17 January 2012 the plaintiff was advised by the first defendant, Mario Saliba, that his son, Andrew, was no longer in the partnership. The first defendant asked to keep the same account number (122624) and keep the same ABN number. In December, 2011, Andrew Saliba, had established a separate account with the plaintiff for his separate business.
In July and August 2015, Andrew Saliba ordered products using the defendants’ account. It is not disputed that the products were supplied and that the unpaid invoices amounted to $19,842.68. It is the debt generated by the unpaid invoices that is the subject of this action.
It is noted that it is also agreed that if the plaintiff succeeds in this action, it is entitled to a charge over the defendants’ land. A caveat was lodged on 14 October 2015.
The issue for determination is contained in the ‘Statement of Agreed Facts and Issues in Dispute’ in the following terms:
The issue for determination by the Court on which the outcome of this action is
Whether, on being advised on 17 January 2012 by the First Defendant that the Andrew Saliba was no longer a partner of the Defendants, the Defendants ceased to be liable for products ordered on their account by Andrew Saliba (Defendants’ position), or whether clause 14 of the General Credit Terms which provides ‘…In addition the Customer will be liable for all transactions involving the Customer’s credit account, including fraudulent use of that account by the Customer or its employees’ means that the Defendants remain liable (Plaintiff’s position).
Agreed Facts in more detail
As at 21 May 2010, the defendants were trading together in partnership under the name M & R Saliba Concrete (the ‘First Partnership’). On or about the 21 May 2010 the First Partnership entered into a written agreement with the plaintiff whereby the plaintiff would supply the First Partnership with trade credit (the ‘First Credit Agreement’). The terms of the First Credit Agreement were set out in an Application for Commercial Credit signed by the first defendant on behalf of the First Partnership, on 21 May 2010 (‘First Application’), which included the plaintiff’s General Credit Terms.
As mentioned, the account number associated with the First Credit Agreement, was 122624.
As at 20 September 2010, the defendants and their son, Andrew Saliba, were trading in partnership as Saliba Concrete Specialist (‘Second Partnership’). The terms of the Second Credit Agreement were set out in an Application for Commercial Credit signed by the first defendant on behalf of the Second Partnership on 30 September 2010 (‘Second Application’), which included the plaintiff’s General Credit Terms.
During the period from 11 October 2010 to 14 December 2011, Andrew Saliba placed 38 separate telephone orders on account of the Second Partnership.[1] These orders were filled by the plaintiff and for which it was paid.
[1] Exhibit P3.
On or about 30 November 2011 Andrew Saliba was trading as Adelaide Concrete Specialist. On or about that same date he entered into an agreement in writing with the plaintiff whereby the plaintiff would supply him with trade credit. On 9 January 2012 the plaintiff sent Andrew Saliba a letter informing him that his credit limit was $30,000.
On 17 January 2012 the first defendant informed the plaintiff by telephone that Andrew Saliba had ‘dropped out’ of the partnership and that the defendants would resume trading through the first partnership, keeping the same account number and with the same ABN.
It is also an agreed fact that the plaintiff generated a file note of 17 January 2012 evidencing that conversation.
It is convenient at this stage to include the terms of the note:
‘170112 SGA Father (Mario) rang son has dropped out of partnership now just Mario and Rita Saliba same ABN as previous partnership. Would like to keep same account number. Updated as requested.’
This note and topic were the subject of evidence to which reference will be made later in these reasons.
On or about 27 January 2012, the First Partnership entered into an agreement in writing with the plaintiff whereby the plaintiff would supply the First Partnership with trade credit (the third credit agreement).
The terms of the Third Credit Agreement were set out in an Application for Commercial Credit signed by the first defendant on behalf of the first partnership on 27 January 2012 (the third application) which included the plaintiff’s General Credit Terms.
The first defendant signed each of the first, second and third applications.
The account number associated with each of the First Credit Agreement, the Second Credit Agreement and the Third Credit Agreement, was 122624.
On 26 February 2013 the plaintiff sent Andrew Saliba a further email informing him that the plaintiff would not be fulfilling an order which had been placed, until his account had been brought back within terms.
Between 6 July 2015 and 15 August 2015, Andrew Saliba placed phone orders worth $19,842.58 (inclusive of GST), which the plaintiff accepted, fulfilled and invoiced. These orders were placed on the account of the defendants. As mentioned, these invoices remain unpaid by the first partnership and are the debt the subject of this action.
The defendants are the owners, as joint tenants, of the whole of the land in CT 5257 Folio 174. As note, the plaintiff lodged a caveat over this land on 14 October 2015.
The issues in dispute are framed a little differently than recited earlier in these reasons:
Whether the communication of 17 January 2012 was a communication to the Plaintiff that Andrew Saliba could no longer use the Account, or whether it was a communication simply that he was no longer a partner.
Whether by reason of the 17 January 2012 communication the Defendants are not liable for orders placed on the Account by Andrew Saliba, or whether, by reason of the General Credit Terms, they are liable (regardless of whether Andrew Saliba had any actual or apparent authority).
Some terms of the General Credit Terms also need to be noted.
Clause 6 of these Terms provides for a charge over the land of the defendants.
Clause 14 is as follows:
‘The Customer must pay to Hanson any costs, charges and expenses (including all stamp duty and legal fees) incurred by Hanson in connection with the entry into these Terms, the exercise or attempted exercise of any power right or remedy under these Terms, and the failure of the Customer to comply with these Terms. In addition the Customer will be liable for all transactions involving the Customer’s credit account, including fraudulent use of that account by the Customer or its employees.
This clause is said by the plaintiff to provide the basis for the primary cause of action as well as the claim for costs.
Evidence from the parties
The plaintiff called one witness, Mr Clive Sanders, who had the dual role of the national functional manager for credit as well as the credit manager for the western region which includes Western Australia and South Australia. Two affidavits by Mr Sanders were tendered through him[2]. Mr Sanders was also recalled without objection.
[2] Exhibits P1 and P2.
The defendants called only one witness, the first defendant, Mr Mario Saliba.
Evidence of Mr Sanders
I have already referred to Mr Sanders’ dual role. As national functional manager, his role is essentially to do with processes and systems. As credit manager for Western Australia and South Australia he oversees the function of approving accounts and collection of monies.
Mr Sanders explained that upon opening an account and an application for credit being granted, the plaintiff does not keep a record or list of people that are authorised or not authorised to use that account. It does not form part of the application itself. He went on to explain that by virtue of the nature of the industry contractors, can work for different home builders or organisations which have different accounts with the plaintiff. He said a lot of people are using a lot of different accounts during the course of conducting their business and the users of accounts may change on a daily basis.[3]
[3] T11, T14, T23, T27-T29.
Further, Mr Sanders explained that it was impractical for the plaintiff, once an order was placed, to contact the customer to check whether the order was authorised. He said the plaintiff had never adopted such a practise and it was not normal industry practise to do so.[4] He said very few customers protected their accounts with a PIN or password.[5]
[4] T14.
[5] T10-T12, T23-T24.
Importantly Mr Sanders said that invoices were sent out by the plaintiff approximately three to seven days after the delivery. There was no challenge to this aspect of his evidence.
Mr Sanders also said that the plaintiff had a procedure for keeping a record of telephone conversations with customers, about their account. He said the only record of the plaintiff in relation to the July 2015 invoices being disputed, was a note dated 9 September 2015.[6] That note is in the following terms:
‘122625 M & R Saliba Concrete
090925 SN 8.31am WST S/W Mario to collect July invs. He doesn’t want it on his acc. I have emld him a password EML. He gave me Andrew (son) No (4000 066 651) as he said he would pay off acc. I said if he doesn’t make payment today he will go on stop’.
[6] Ex P2, Exhibit CAS-3.
That note, in conjunction with the note of 17 January 2012 (reproduced earlier), are the only notes in the plaintiff’s system dealing with the question of whether Andrew Saliba can or cannot use his parents’ account.[7]
[7] T13.
Mr Sanders confirmed that by January 2012, Andrew Saliba was no longer part of Saliba Concrete Specialists business and that he was then trading under Adelaide Concrete Specialists. An application for Commercial Credit by Andrew Saliba was approved on 9 January 2012. A credit limit of $30,000 was imposed on the account. The account was given a new account number of 163095[8]. It appears that one hundred and twenty seven invoices were generated on the Adelaide Concrete Specialist account. Andrew Saliba was experiencing difficulty making payments on those invoices and was put on a payment plan March 2013.[9]
[8] T18, Ex D4.
[9] Exhibit D4.
A summary of all of the transactions between the plaintiff and Andrew Saliba trading as Adelaide Concrete Specialist (and using account number 163095) is contained in Exhibit D5.
The transactions span the period 21 January 2012 to about March 2013, although the exhibit is not entirely clear. At about mid-March 2013, there was an outstanding balance of $45,525.98. Evidence suggests he was then put on a ‘cash-on-delivery’ basis.
Exhibit D5 indicates all outstanding amounts were paid by the end of 2014.
Evidence of Mario Saliba
Mr Mario Saliba gave evidence and his affidavit of 14 January 2016, subject to objectionable parts, became Exhibit D6. (The objections are discussed at pp.33-35 of the trial evidence).
Mr Saliba said he had been in the concrete industry since 1990. He confirmed that he had been (with his wife) in partnership with their son, Andrew, but the business relationship broke down and the partnership split up. Mr Saliba said he had dealings with the plaintiff’s representative, a Mr David Moore, for years and told him that Andrew was no longer part of the partnership.
Mr Saliba also said that he told Mr Moore that Andrew ‘no longer he is allowed to put any orders on my account’.[10] He said he told Mr Moore that in December of what must have been 2011. He said that by a note dated 30 January 2012 he paid 50% of the December statement for the partnership business, leaving it to Andrew to pay the remaining 50%, which he apparently did.[11]
[10] T36.
[11] See Exhibit P1, page 59, T36-37.
Mr Saliba said to place an order with the plaintiff he would ring its office in Brisbane with details and who is responsible for it. He said, leaving his Andrew to one side, his other two sons could place orders on his Mr Saliba Senior’s, account. He authorised his other sons, as part of their businesses, to use his account, he would receive the invoice and they would pay him their respective amounts. However, Mr Saliba said he actually placed the orders with the plaintiff.[12]
[12] T38.
Mr Saliba said he first became aware in 2015 that orders were placed for which he said he was not responsible. He said that apparently Andrew placed the orders and that he, Mr Saliba, refused to pay those amounts.
In cross-examination Mr Saliba was challenged concerning his earlier evidence that he told Mr Moore (from Hanson) that Andrew was no longer allowed to put any orders on the account. Mr Saliba maintained that he did but his affidavit, dated 14 January 2016, Exhibit D6, makes no mention of such a conversation. The affidavit, in paragraph 3, refers to advice in January, 2012 that the partnership of Saliba Concrete Specialists, including Andrew, had ceased. However, it fails to mention any conversation whereby Mr Moore was told that Andrew can no longer place orders on the account.[13]
[13] T40.
Mr Saliba seemed to have been saying that when he advised Hanson’s that Andrew was no longer part of the partnership and the original (first) partnership in effect resumed, Andrew’s signature not being there ‘…would automatically be taken into consideration’.[14] I take that to mean that Hanson’s should know from that that Andrew could no longer place orders.
[14] T41.
A similar challenge was made putting the contents of the Defence.[15]
[15] T41.
Mr Saliba maintained there was such a conversation with Mr Moore. At the same time he agreed it was on important conversation. He said he probably forgot to put it in there.[16]
[16] T42.
Mr Saliba also agreed that his other two sons had placed orders on his (Mr Saliba’s) account, but he said that required his permission.[17]
[17] T42-43.
There was also cross-examination of Mr Saliba to the effect that he did not speak to Hanson Constructions about Andrew’s invoices until early September 2015, at which time he changed the password to his account.[18]
[18] T43-45.
Mr Saliba also agreed that he did not raise any assertion in his affidavit, D6, or defence, that he not receive invoices for orders that related to Andrew that must have appeared on his account.[19] The case for the plaintiff is that invoices for orders placed by Andrew were sent to the address of the defendants within days of the order being filled, and that no dispute was raised until September 2015, by which time all the disputed orders had been filled.
[19] T45.
Finally, Mr Sanders was recalled and said that Hanson would not continue to supply produce if there was a suggestion that there was an unauthorised use of the account by Andrew.[20]
[20] T53.
Plaintiff’s submissions
The plaintiff submits that there was not conversation in December 2011 where Mr Saliba told Mr Moore (of Hanson’s) that Andrew was no longer permitted to place an order on the account of Mr Saliba. It was submitted that the defence pleaded a conversation whereby Hanson was notified that the partnership with Andrew of Saliba Concrete Specialists, had ceased, but nothing further. In a similar vein it was submitted that in Mr Saliba’s affidavit he deposes to the January 2012 conversation without the added assertion that Mr Moore was expressly told that Andrew could no longer place an order on the account of Mr Saliba.
The plaintiff contends that, in accordance with the evidence of Mr Sanders, the invoices now the subject of dispute were sent out by the plaintiff within three to seven days after deliver. Further, it was contended that any evidence from Mr Saliba that he did not receive the invoices, should not be accepted. It was submitted that the file note of 9 September 2015 reflects when the particular invoices were raised with Hanson.
As to the interpretation the General Credit Terms, the plaintiff contends that the defendants are liable ‘…for all transactions involving the Customer’s credit account, including fraudulent use of that account by the Customer or its employees’, that is, that those words should be given a broad construction consistent with their clear commercial intent as would be understood by a reasonable business person.
In relation to costs, it was submitted that there being no ambiguity in the meaning of Clause 14, an entitlement to costs means the actual costs, that is, on an indemnity basis. It was recognised, however, that the court still had an overriding discretion as to costs.
As noted earlier, it is also agreed that if the plaintiff succeeds in this action it is entitled to a charge over the defendant’s land (T6, and Clause 6 of the General Credit Terms). A caveat was lodged on 14 October 2015.
The defendant’s submissions
It was submitted on behalf of the defendants that the question of the disputed conversation between Mr Saliba and Mr Moore, should not be resolved against the defendants because it does appear in his affidavit. It was submitted that Mr Saliba’s response to that criticism should be accepted, namely that he had included whatever he thought was relevant and had not seen the affidavit of Mr Sanders.

The defendants also make the point that the plaintiff did not try to make out a case whereby the plaintiff was relying upon ostensible authority. In my view the facts of the case do not support such an approach.
It was submitted that any dispute as to the terms of any conversation between Mr Moore and Mr Saliba in January 2012 was of no great moment.
In relation to the question whether Mr Saliba raised with Hanson the disputed invoices as soon as he found out about them, it was submitted there was no inconsistency with the affidavit. Mr Saliba said he raised the matter with Hanson when he received the account.
As to the interpretation of the contract, it was submitted on behalf of the defendants that the authorities to which the plaintiff refers do not support such a broad interpretation as is advanced here. It was submitted that on the approach of the plaintiff, the customer is liable for all transactions involving the customer’s credit account. It was submitted that the clause means that the customer is liable for legitimate transactions involving the customer’s credit account and, to the extent it is liable for fraudulent transactions, it is liable for fraudent use by a customer or its employee.
Discussion
As to the factual disputes, it is only the first that calls for determination by me. I find that in January 2012, any conversation between Mr Moore and Mr Saliba did not include Mr Saliba saying that Andrew was no longer permitted to place an order on the account of Mr Saliba. Not only did the defence plead no such conversation, but Mr Saliba’s affidavit did not refer to such a conversation. In the context of this case, Mr Saliba must have realised that was an important conversation, especially as it was asserted that there was a conversation whereby Hanson was notified that the partnership with Andrew had come to an end. The preparation of Mr Saliba’s affidavit would have involved, as a matter of necessity, a full exploration of any conversation on that topic.
Concerning the receipt by Mr Saliba of the disputed invoices, I have no doubt he would have received those invoices in the normal course of business within a week of them being filled. Those invoices would have been included in the accounts for July and August that would probably have arrived in early September, the first complaint about the disputed invoices taking place on 9 September 2015. I am not sure that I need to make any additional finding. It makes little or no difference to the resolution of the contractual issues in this case.
The authorities relied upon by the plaintiff are uncontroversial. If a party signs a document, that party is bound by its terms irrespective of whether that party had read the document.
In Toll (FGCT) Pty Limited v Alphapharm Pty Limited and Others,[21] the High Court re-iterated the principle of objectivity by which the rights and liabilities of the parties to a contract are determined. It said:
It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other part to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances know to the parties, and the purpose and object of the transaction.
[21] Toll (FGCT) Pty Ltd Alphapharm Pty Ltd (2004) 219 CLR 165 at para 40.
Not only must contracts be ready objectively, they must be ready commercially. This has also been made clear in the reasonably recant case of Electricity Generation Corporation v Woodside Energy Ltd:[22]
Both Verve and the Sellers recognised that this Court has reaffirmed the objective approach to be adopted in determining the rights and liabilities of parties to a contract. The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean (58). That approach is not unfamiliar (59). As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract (60). Appreciation of the commercial purpose or objects if facilitated by an understanding ‘of the genesis of the transaction, the background, the context [and] the market in which the parties are operating’ (61). As Arden LJ observed in Re Golden Key Ltd (62), unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption ‘that the parties … intended to produce a commercial result’. A commercial contract is to be construed so as to avoid it ‘making commercial nonsense or working commercial inconvenience’.
[22] Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640 at para 35 (see also WIN Corporation Pty Ltd v Nine Network Australia Pty Ltd S. Ct. NSW 28/04/2016.
The plaintiff submits there is no ambiguity in the wording of Clause 14 and that the normal objective and commercial reading of that clause is that the defendants are liable for ‘all transactions’ on their account. It was submitted there was no ambiguity in the words of the clause.
The defendants argues for an interpretation of the clause that narrows its meaning. It was argued that the defendants are liable for all non-fraudulent use of their account, plus the fraudulent use of the account by the customer or its employees. In support of that approach it was argued that the liability of the customer ‘…for all transactions involving the customer’s credit account’, did not need further words because those words automatically picked up a fraudulent use of the account. On that basis it was argued that the additional words ‘… including fraudulent use of that account by the customer or its employees’ were superfluous. The defendants argued for a construction which gave all the words work to do, rather than a construction which leaves the end of the sentence as unnecessary.
Further, the defendants argue that the broad construction advanced by the plaintiff is not consistent with the commercial purpose of the clause. The defendants argue that it cannot have been intended that any use of the credit account becomes their liability. For example, another builder completely unconnected with the defendants, could simply ring up an order for delivery of cement and charge it to the defendants. To my mind to make the defendants financially liable in that or similar situations is not consistent with the commercial purpose and intent of the clause.
As mentioned, the defendants submit that the clause must be read as meaning that they are liable for all non-fraudulent use of their account, plus the fraudulent use of the account by the customer or its employees. It is agreed that the use of the account was not by the customer and Andrew was not their employee.
As can be seen, there is a real ambiguity in the meaning of the clause. It could mean that the defendants are liable if strangers use the credit account or a former employee, who knows the procedures, uses it.
The contra proferentem rule is a general rule of construction that should be applied here. Its application is not limited only to an ambiguous clause, although there is abundant ambiguity here.
There is the additional ambiguity as to what is meant by the word ‘transactions’. On its face you would expect that it means what could be described as a normal use of the credit account in the normal course of business. However, it could potentially mean a debit to the account by a rogue employee of the plaintiff or simply a mistaken debit which should have shown against another customer. Other examples abound and re-inforce the view that the clause should not be construed as the plaintiff contends.
Conclusion
The clause should not be interpreted in the manner contended by the plaintiff. The clause should be limited to transactions of the customer in the ordinary course of business plus fraudulent transactions by the customer or its employee.
In my view the facts of this case do not come within a narrow interpretation of this clause. The defendants, as of 17 January 2012, cease to be liable for products ordered on their account by Andrew Saliba.
I find for the defendants and the action is dismissed.
I will hear the counsel on the question of costs and the caveat.