Harcroft Lighting Pty Ltd v Simon & Igor Galpern
[2007] NSWDC 269
•10 December 2007
CITATION: Harcroft Lighting Pty Ltd v Simon & Igor Galpern [2007] NSWDC 269 HEARING DATE(S): 17/09/07 - 18/09/07
JUDGMENT DATE:
10 December 2007JURISDICTION: Civil JUDGMENT OF: Rolfe DCJ DECISION: 1. Verdict for the Plaintiff against the Defendants in the amount of $160,892.10.; 2. Cross-Claim dismissed. CATCHWORDS: Claim under Guarantee - Extension of Credit provided by Plaintiff to Debtor - Terms and Conditions of Contract between Plaintiff and Debtor varied - Application of Surety Discharge Rule - Contracts Review Act 1980 (NSW) considerations LEGISLATION CITED: Contracts Review Act 1980 (NSW)
Civil Procedure Act 2005CASES CITED: Ankar v National Westminster Finance (Aust) Ltd (1987) 162 CLR 549
Ryledar Pty Ltd & Anor v Euphoric Pty Ltd (2007) NSW CA 65
Holmes v Brunskill (1877) 3QBD 495
Hancock v Williams (1942) 42 SR (NSW) 252 at 255
Wardens and Commonality of the Mystery of the Mercer of the City of London v New Hampshire Insurance (1992) 2 Lloyds LR 365
Commonwealth Bank of Australia v McArthur (2003) VSC 31 at 198 and 199
Duffy Bros Fruit Market (Campbelltown) Pty Ltd v Gumland Property Holdings Pty Ltd (2007) NSWCA 7 at para 218PARTIES: Harcroft Lighting Pty Ltd (Plaintiff)
Simon Galpern (1st Defendant)
Igor Galpern (2nd Defendant)FILE NUMBER(S): 453/07 COUNSEL: P Newton (Plaintiff)
R J Carruthers (1st & 2nd Defendants)
JUDGMENT
1 The plaintiff supplies lighting and electrical goods and equipment and is owed $160,892.10 by Galpern Electrics Pty Limited, (the Debtor) for goods supplied during the period 12 September 2006 to 23 November 2006.
2 The Debtor was incorporated in 1978 and after that date conducted the business of electrical contracting work. By and large the work was done in relation to commercial premises.
3 The 1st defendant, Simon Galpern and his brother, the 2nd defendant, Igor Galpern, have been the sole directors and shareholders of the Debtor since its incorporation.
4 The 1st defendant said that sometime during 2000 he had a number of discussions with Terry Nelson, a manager employed by the plaintiff, about the possibility of the Debtor purchasing goods from the plaintiff. During those discussions Mr Nelson told the 1st defendant that he could give the Debtor “much better prices and services” (presumably) than other suppliers (exhibit 6, para 1). The 1st defendant said that the Debtor decided to then make its purchases from the plaintiff, as a result of which, he spoke again with Mr Nelson and they had the following conversation (exhibit 1, para 7):
Nelson: “You will have to fill out a credit application. I will send it to you and you will need to fax it back to me.”
1st Defendant: “Okay.”
Nelson: “We will just start you out with a low credit limit of about $20,000.”
5 The plaintiff then sent the Debtor a credit application and form of Guarantee. The Guarantee had not been mentioned during the discussion with Mr Nelson. Nevertheless, on 27 October 2000 the 1st defendant filled out the credit application and the Guarantee document and wrote in each of his and his brother’s details as guarantors. In his evidence the 1st defendant acknowledged that he signed the credit application as the authorised signatory of the Debtor in his capacity as a director and that he signed the Guarantee as one of the guarantors. The 2nd defendant signed the Guarantee on 27 October 2000 and in his evidence he acknowledged that he signed the document in that capacity. Both signatures were witnessed by a clerk working in the Debtor’s office.
6 The application for credit and the Guarantee document are located at tab 8 of exhibit A, being the plaintiff’s tender bundle. After the 1st defendant had signed the application for credit and both defendants had signed the Guarantee, the 1st defendant faxed the documentation to Mr Nelson, following which the plaintiff sent its letter to the Debtor dated 28 October 2000 (exhibit A, tab 9) informing the Debtor that the plaintiff had approved a 30 day credit account with a credit limit of $25,000.
7 The plaintiff’s letter of 28 October 2000 was prepared by Mrs Spurway, the plaintiff’s credit controller. In her affidavit of 29 June 2007, Mrs Spurway said that she followed the usual mailing procedure when she sent the letter to the Debtor as follows (exhibit D, para 3):
“Based upon my review of the letter to Galpern Electrics Pty Ltd dated 28 October, 2000 and the mailing procedure, I believe that on or about 28 October 2000 I typed a letter to Galpern Electrics Pty Ltd dated 28 October 2000, a copy of which is annexure ‘A’ to this affidavit. I believe that I printed two copies of the letter. I believe that I signed one copy and placed with the signed letter the plaintiff’s Trading Terms and Conditions of Sale. I believe that I then placed the signed letter together with the plaintiff’s then current Trading Terms and Conditions of Sale in an envelope which was addressed to the Manager Galpern Electrics Pty Limited, Unit 21/17-21 Bowden Street, Alexandria NSW 2015. I believe that the envelope containing the signed letter and the plaintiff’s then Trading Terms and Conditions of sale were sent by pre paid post.”
8 Mrs Spurway was not cross-examined and I accept her evidence.
9 On 25 October 2004 the plaintiff revised its general terms and conditions of sale. In that respect, in his affidavit of 5 July 2007 (exhibit C), Graham Young, the chief financial controller of the plaintiff, said that prior to and since October 2000 the plaintiff has kept at its premises its general terms and conditions of sale. When those terms and conditions of sale have been varied, the plaintiff follows a standard procedure. First, the plaintiff prints on its computer system pro-forma letters and envelopes addressed to each of its customers who have a credit account. Secondly, an employee of the plaintiff places each letter containing a copy of the revised general terms and conditions of sale in the envelope. Thirdly, the envelope is then posted and sent to the customer by pre-paid post.
10 On 25 October 2004 the plaintiff revised its general terms and conditions of sale. The evidence establishes that the plaintiff followed the procedure which Mr Young gave evidence about. Accordingly, on 25 October 2004, the plaintiff sent to customers with a credit limit, including the Debtor, its pro-forma letter dated 25 October 2004, attaching the revised general terms and conditions of sale. Copies of the documents which were sent to these customers, including the Debtor, are located at tab 18 of exhibit A.
11 Although the 1st defendant said he had not seen the plaintiff’s terms and conditions before the affidavit evidence of the plaintiff in these proceedings was served on the defendants, I am satisfied that the Debtor received the plaintiff’s original terms and conditions of sale and its revised terms and conditions of sale. I accept the uncontroverted evidence of Mr Young as to the procedure adopted by the plaintiff in maintaining its terms and conditions of sale and informing its customers of any revision of those terms and conditions. I am satisfied that the plaintiff followed its standard procedure on 25 October 2004. The inference drawn by the Court therefore is that the Debtor received the revised terms and conditions of sale in the normal course of the post.
12 The defendants do not dispute that the plaintiff supplied the goods to the Debtor at its request, which were valued at $160,892.10 and that the Debtor owed this amount to the plaintiff.
13 In paragraph 12 of his affidavit sworn 10 May 2007 (exhibit B), Mr Young set out the procedure adopted by the plaintiff concerning orders placed for goods supplied by the plaintiff to its customers. Based on Mr Young’s uncontroverted evidence of this procedure and taking into account the documentary evidence, namely, the quotations and emails contained in exhibit A (specifically those referred to in paras 26, 31, 32, 33, 34, 35 and 37 of the plaintiff’s chronology), I am comfortably satisfied that the goods supplied by the plaintiff to the Debtor were supplied by the plaintiff adopting the following procedure:
(a) The Debtor submitted an order for electrical goods to the plaintiff.
(b) The plaintiff then sent the Debtor a quotation for the supply of the goods in the order.
(c) The Debtor accepted the quotation by email.
(e) The ordered items were delivered to the premises required by the Debtor on its original order.(d) The plaintiff then supplied the goods with an invoice issued to the Debtor which specified the items it had ordered and the price payable.
14 I am comfortably satisfied that upon acceptance of each of the quotations which make up the debt of $160,892.10, the Debtor became bound in each case to comply with the plaintiff’s revised general terms and conditions of sale.
15 In his evidence in chief (exhibits 1, 2 & 4) the 1st defendant said he did not seek legal advice before he signed the plaintiff’s Guarantee. At the time he said he believed that the Guarantee provided for him to Guarantee the Debtor’s debt up to a $20,000 credit limit only. He said that if he had been made aware that the Guarantee was unlimited he would never have agreed to sign it. However, it was not suggested that anything that the plaintiff said or did induced the 1st defendant to form his belief. Moreover, the letter from the plaintiff to the Debtor of 28 October 2000 made it clear that the credit limit at that point was $25,000, subject to the terms and conditions of sale attached.
16 The 1st defendant agreed in cross-examination that the Debtor had been trading since 1978, that he had dealt with solicitors in relation to being appointed as a trustee for the Galpern Property Trust, that since 1990 the Debtor had applied for numerous credit accounts with other electrical suppliers, that he had seen applications for credit accounts from other suppliers, that his habit was to read them and that it was not uncommon for those suppliers to require guarantees from the defendants. The 1st defendant agreed that he and the 2nd defendant had signed a number of such guarantees in favour of certain suppliers and that they had been discerning in doing so. Between 1990 and October 2000, the 1st defendant said he had read and signed over 100 credit applications and at least 10 personal guarantees. He agreed that the 2nd defendant had signed a similar number of guarantees as well.
17 The 1st defendant agreed he had read the plaintiff’s credit application and Guarantee before signing them.
18 The 1st defendant agreed that up until November 2006 (after the debt was incurred) he regularly saw and read monthly statements of account from the plaintiff to the defendant. He acknowledged he was always interested in the amount of credit that was being provided by the plaintiff. The 1st defendant informed the Court that the Debtor had ordered $100,000 worth of equipment from the plaintiff to enable the Debtor to undertake a large job on a new Big W store at Mittagong. The 1st defendant acknowledged that the plaintiff had supplied the goods the subject of the orders. The 1st defendant also said that he was always involved in the approval and payment of invoices from the Debtor’s suppliers, including the plaintiff.
19 The 2nd defendant said in his evidence in chief (exhibits 3, 5 & 6) that he had never seen the plaintiff’s terms and conditions. The 2nd defendant said that he too had a discussion with Mr Nelson in which Mr Nelson offered better prices than what the Debtor could achieve through wholesalers. During one of a number of discussions with Mr Nelson, the 2nd defendant said Mr Nelson said to him (para 8, exhibit 5):
“Since you are a new customer we can’t afford to give you too much credit. I think $10,000 will be enough to start.”
20 The 2nd defendant recalled signing the plaintiff’s Guarantee and faxing back to the plaintiff the credit application, which had been executed by the 1st defendant, and the Guarantee which both the defendants had signed. The 2nd defendant said that he did not seek legal advice about the Guarantee and believed he was guaranteeing a $10,000 credit limit which he had discussed with Mr Nelson. Again, it was not suggested that anything the plaintiff said or did induced the 1st defendant to form his belief.
21 The 2nd defendant said that in March/April 2001 he had a further discussion with Mr Nelson during which Mr Nelson told him that the credit limit would have to be increased to $20,000. In this respect the 2nd defendant said he did not believe the Guarantee he had signed extended beyond that amount. Had he known that it did he would not have signed it. Again, it was not suggested that anything the plaintiff said or did induced the 2nd defendant to form his belief.
22 In cross-examination the 2nd defendant agreed that he too had received and read numerous applications for credit from various suppliers of the Debtor and that he had also received guarantees which he had read and signed. The 2nd defendant agreed that, along with the 1st defendant, he had provided more than 10 personal guarantees to suppliers of the Debtor. In the case of the plaintiff, the 2nd defendant agreed he was ready, willing and able to sign the Guarantee which it provided to him to sign and which he signed.
23 The 2nd defendant informed the Court that he was involved in ordering goods from the plaintiff. In particular, he considered the plaintiff’s quotes and, if they were acceptable from the Debtor’s point of view, the 2nd defendant placed the order with the plaintiff. In this respect the 2nd defendant was always aware of the fact that the Debtor’s orders on the plaintiff exceeded $20,000, especially because of the Big W job at Mittagong. The 2nd defendant said he approved of the fact that the Debtor often owed the plaintiff amounts well in excess of $20,000.
24 The 2nd defendant acknowledged that he had purchased an investment property before October 2000, that he received legal advice about the transaction, that he had received financial advice from his accountant, that he was involved in establishing the Galpern Property Trust, that he and his brother had been a director of at least three companies, and that he and his brother always discussed the level of debt that the Debtor had incurred.
25 Mr R J Carruthers of counsel appeared for the defendants. Mr Carruthers relied on his undated written submissions which were handed up in Court on 18 September 2007.
26 The defendants submitted that what they guaranteed was payment for the supply of goods within the credit limit. They submitted that Clause 1 of the Guarantee (tab 8A, exhibit A) should be read against the background of the discussions that each of the defendants had with Mr Nelson and in light of the provisions contained in the Application for Credit and the plaintiff’s Trading Terms and Conditions of Sale in October 2000.
27 Whilst it is true that the High Court has made it clear that in construing a contract of suretyship it is permissible for the Court to look at the general setting in which the contract came into existence (Ankar v National Westminster Finance (Aust) Ltd (1987) 162 CLR 549; Ryledar Pty Ltd & Anor v Euphoric Pty Ltd (2007) NSW CA 65), the surrounding circumstances in this case, concerning Mr Nelson, do not support the defendants’ submission or assist the Court in construing Clause 1. This is because there is no evidence to support any assertion that, arising out of the discussions, the parties’ intention was to limit the Guarantee. The discussions which each of the defendants had with Mr Nelson related to credit limits of the Debtor, not the defendants’ prospective liability under a guarantee. The Guarantee was not mentioned during these discussions.
28 Under Clauses 1 & 2 of the Guarantee, the defendants agreed with the plaintiff as follows:
2. That this agreement shall constitute a continuing Guarantee to you for the whole debt which shall be contracted by the said debtor with you in respect of goods or services supply or to be supplied to it as aforesaid.”“1. To be answerable and responsible to you for the due payment by the said debtor for all such goods and services as you may heretofore have supplied or which you may hereafter or from time to time at its request supply to it notwithstanding. I/We shall not have notice of any neglect or omission on its part to pay for such goods and services according to the terms agreed on between you and it.
29 The defendants submitted that the words in Clause 1 of the Guarantee referring to “the terms agreed on between you and it” must be the terms and conditions acknowledged in paragraph 10 of the Debtor’s Application for Credit. I accept this submission.
30 Next, the defendants referred to the expression “refuse further credit” in Clause 4 of the Guarantee. Under Clause 4 the defendants agreed:
“You may at any time or times at you absolute discretion and without giving any notice whatsoever to us refuse further credit or supplies of goods or services to the said debtor and grant to it or any drawers accepted or endorsers of bills of exchange promissory notices or other securities received by you from it or on which it may be liable to you any time or other indulgence and compound with it or them respectively without discharging or impairing our liability under this guarantee.”
31 Accordingly, the defendants submitted that Clause 1 of the Guarantee, when read in light of the above, must be construed so as to limit their guarantee to the supply of goods, (a) within a credit limit and (b) pursuant to the plaintiff’s terms and conditions. They submitted that there was nothing in the Guarantee or Credit Application or letter approving the credit limit at $25,000 as at 28 October 2000 (tab 9, exhibit A) or terms and conditions which permitted the plaintiff to unilaterally increase the amount of credit afforded to the Debtor or to vary the terms and conditions.
32 The defendants’ primary submission therefore was that, by increasing the Debtor’s credit limit way beyond $25,000 the security discharge rule applied, that is to say there was a departure from the terms of the Guarantee by the plaintiff without the defendants’ consent which operated to discharge the defendants from their liability as sureties: Holmes v Brunskill (1877) 3QBD 495. Putting it another way, by allowing the Debtor to exceed the credit limit, the nature of the defendants’ risk altered entirely and so the guarantee was discharged entirely: Hancock v Williams (1942) 42 SR (NSW) 252 at 255.
33 The Court rejects the defendants’ submission because the surety discharge rule does not apply in this case.
34 First of all, there was no departure from the terms of the Guarantee. This is because it would be incorrect to read Clause 1 as limiting the Guarantee to the supply of goods within a specific credit limit. Clause 1 does not say that. Rather, Clause 1 provides for an unlimited liability on the part of the defendants for the due payment by the Debtor for all goods and services already supplied to it by the plaintiff or which were supplied by the plaintiff to the Debtor after the Guarantee was given to the plaintiff by the defendants. Clause 1 is clear and unambiguous in its meaning. This meaning is reinforced by the provisions of Clause 2, by which the Guarantee is constituted a continuing Guarantee for the whole debt contracted by the Debtor with the plaintiff from time to time.
35 As noted, the Guarantee incorporated the plaintiff’s standard terms and conditions. There is nothing in the 2000 edition of the plaintiff’s terms and conditions or the revised terms and conditions which advances the defendants’ submission. To the contrary, those terms and conditions in no way limited the amount of credit that the plaintiff could give the Debtor.
36 Although it is true that, at the time the defendants executed their Guarantee, the plaintiff agreed to provide the Debtor with credit up to a limit of $25,000, there is nothing in the Guarantee which connects the defendants’ liability to such an amount, or, more to the point, restricts the plaintiff’s entitlement to grant credit to the Debtor or which required the defendants’ consent before such credit extension was granted. To the contrary, particularly in light of Clause 1, the plaintiff’s ability to allow further credit to the Debtor was within the scope of the Guarantee. In such circumstances, the surety discharge rule has no application: see for example, Wardens and Commonality of the Mystery of the Mercer of the City of London v New Hampshire Insurance (1992) 2 Lloyds LR 365; Commonwealth Bank of Australia v McArthur (2003) VSC31 at [198] and [199] and Duffy Bros Fruit Market (Campbelltown) Pty Ltd v Gumland Property Holdings Pty Ltd (2007) NSWCA 7 at para 218.
37 The next submission made by counsel for the defendants was that the surety discharge rule applied because the plaintiff left out of its revised terms and conditions a “retention of title” clause. The submission was based on Clause 14 of the 2000 terms and conditions:
“14. Retention of Title
The ownership of the products supplied does not pass to the purchaser until the purchaser has discharged all outstanding indebtedness (whether in respect of the products supplied or otherwise) to the seller whatsoever or until such time as the purchaser sells the products to its customers in the ordinary course of business.
Until payment in full of such indebtedness has been made, the purchaser acknowledges and agrees that:
(i) The products supplied are held by the purchaser in a fiduciary capacity as bailee to be sold by it as agent for and on behalf of the seller.
(iii) If the products supplied or part thereof have been sold by the purchaser to its customers prior to payment in full of the outstanding indebtedness of the purchaser, then the debts of the purchaser arising from such on-sales shall be the property of the seller and shall be held on a fiduciary basis separately for its account and not mixed with the purchaser’s other moneys, debts or property and be payable immediately without demand. The seller has the right to trace the proceeds of any such sales in accordance with equitable principles.”(ii) The purchaser shall if directed by the seller store the products supplied marked in such a way that it is clear that they are the property of the seller but all costs of storage (whether or not storage is at the direction of the seller) shall be to the account of the purchaser.
The plaintiff’s revised terms and conditions did not include a clause precisely in the terms of Clause 14 but they did include a clause to similar effect as follows:
“2.3. If the Buyer fails to pay for the goods on the due date then, even though the seller reserves title to those goods supplied to the buyer and without prejudice to any other rights and remedies the seller may have, the seller may sue the buyer for the price of the goods as a liquidated sum.”
38 In my opinion, the replacement of Clause 14 in the 2000 terms and conditions by the inclusion of Clause 2.3 in the revised terms and conditions was nothing more than a variation to the terms and conditions of a kind which was insubstantial. In addition, since the electrical products supplied to the Debtor were used by it in the ordinary course of its business, there has been no prejudice to the defendants as guarantors. In either case, the surety discharge rule does not apply, as the authorities referred to make clear.
39 As a fallback, the defendants sought to rely on s 7 of the Contracts Review Act 1980 (NSW) and pleaded that the guarantee was unjust for the reasons set out in paragraph 11 of their Amended Defence and paragraph 1 of their Cross-Claim.
40 The factors relied on by the defendants in seeking relief under the Act are set out in paragraph 38 of Mr Carruthers’ submissions.
41 The Court is not persuaded that this is a case where the relief sought ought be granted. The defendants were experienced businessmen who knew what they were doing. They were very familiar with guarantees and had provided suppliers of the Debtor with at least 10 guarantees. They knew how, when and where to get legal advice. They made a deliberate choice not to do so in this case. No pressure was placed on the defendants to provide a guarantee and their discussions with Mr Nelson have no bearing on the relief sought.
42 Accordingly, the orders of the Court are:
1. Verdict for the plaintiff against the defendants in the amount of $160,892.10.
3. Direct that the exhibits be returned.2. Cross-Claim dismissed.
43 The plaintiff is entitled to interest pursuant to s 100 of the Civil Procedure Act 2005. I will stand the matter down so the parties can do the calculations and judgment can then be entered.
44 Costs on the ordinary basis should follow the event but I will entertain submissions if the parties wish to be heard.
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