Higginbottom v Ford Credit Australia Ltd
[1998] VSC 116
•16 October 1998
SUPREME COURT OF VICTORIA
CAUSES JURISDICTION
Not Restricted
No.6489 of 1998
ROBERT HIGGINBOTTOM Plaintiff v FORD CREDIT AUSTRALIA LTD Defendant ---
JUDGE: Harper J. WHERE HELD: Melbourne DATE OF HEARING: 16 October 1998 DATE OF JUDGMENT: 16 October 1998 CASE MAY BE CITED AS: Robert Higginbottom v. Ford Credit Australia Ltd MEDIA NEUTRAL CITATION: [1998] VSC 116 APPEAL - Appeal from a magistrate - Guarantee - Car lease - Whether lessor obtained best price it could reasonably obtain for repossessed vehicle - Whether or not auction open to the public.
APPEARANCES: Counsel Solicitors For the Appellant Mr M. Morrison Peter Cahill For the Respondent Mr J. Nixon Corrs Chambers Westgarth HIS HONOUR:
The appellant, Robert Arden Higginbottom, is the guarantor of Gilro-ERG Pty Ltd which, on 14 May 1994, entered into an arrangement known as a "finance lease" with the respondent Ford Credit Australia Ltd. The subject of the lease was a 1994 Ford Fairlane Ghia sedan motor car. The term of the lease was 48 months, and rental instalments were payable each month in the total sum (including stamp duty) of $822.27. The residual value of the vehicle was fixed by the lease at $17,906.
The respondent claims that as at 19 September 1997, the lessee owed the sum of $9,767.06 to the respondent "pursuant to the terms of the agreement"; see the respondent's complaint as filed in the Magistrates' Court at Melbourne. On that day (19 September 1997) the respondent issued a complaint in the Magistrates' Court at Melbourne claiming that sum from the appellant as guarantor. The complaint alleged that the appellant -
"entered into [a] guarantee and indemnity dated 14 May 1994 ... pursuant to which the [appellant] guaranteed the due and punctual performance of the obligations of [Gilro-ERG] to the plaintiff under the terms of the agreement."
The guarantee and indemnity were signed by Mr Higginbottom and another guarantor on 14 May 1994. It provides by clause 1 that the guarantor guarantees to the lessor as a separate and independent obligation the due and punctual payment by the lessee of all money from time to time payable by the lessee to the lessor under the agreement. The guarantee also provides by clause 5 that the guarantor's liability under the guarantee shall not be affected by any claim or right, set-off or cross-claim which the lessee may have or claim to have against the lessor on any account whatsoever, nor shall the guarantor be entitled to (and each guarantor waives) any set-off against the lessor.
The appellant filed a defence to the Magistrates' Court proceedings. In its amended form, it acknowledges the appellant's signature to the guarantee and indemnity, alleges that the car was, on 17 July 1995, sold by the respondent for $32,500, and further alleges that in doing so, the respondent acted in breach of a duty owed to the appellant to sell the car for not less than its true value. This breach was alleged to amount to a breach of good faith.
The proceeding came on for hearing before Mr Lance Martin, Magistrate. His Worship found for the respondent and ordered the appellant to pay the sum of $8,181.69 together with interest ($702) and costs ($3,473).
The appellant now appeals from that decision. By order of Master Evans, made on 14 July 1998, the questions of law which arise on the appeal -
"are whether or not the learned Magistrate erred in law in deciding as
he must have done that -(i) the respondent did not bear the onus of proving that it has obtained the best price it could reasonably obtain from the appellant's vehicle;
(ii) the appellant bore the onus of proving that it had not done so."
These questions are premised on the basis that the issue to be decided by His Worship was not whether the respondent owed a duty of good faith, and, if so, whether that duty had been breached, but whether the respondent was precluded by the terms of the lease from making its claim at all.
Despite the defence taken by the appellant in his pleading, it is I think clear that the case which the defendant sought to make out at trial turned upon the applicability of clause 9.2 of the finance lease itself to the facts of the case. That clause provides as follows -
"If upon the vehicle being duly received into the lessor's possession it is disposed of by the lessor for the best price the lessor can reasonably obtain at the time, and the net proceeds of such disposal ... are less than the residual value, the lessee undertakes to pay to the lessor ... by way of indemnity for the capital loss so sustained the amount of such deficiency ... if such net proceeds exceed the residual value the excess shall be set off against the recoverable amount and any other moneys payable by the lessee hereunder."
The expression "recoverable amount" is defined in clause 9.1. That definition is not relevant for present purposes.
The respondent clearly understood that the case before His Worship was not about an alleged breach of an alleged duty of good faith. This necessarily follows once one accepts the respondent's own evidence to be found in paragraph 19 of an affidavit sworn on the respondent's behalf by Anthea Jane Nicoll on 18 August 1998. Ms Nicoll there deposes to the fact that in his final address to His Worship, counsel for the respondent made in substance the following submissions: (a), that the issue was not whether the best price was obtained for the vehicle, but whether the best price was reasonably obtained at the time given the circumstances; (b), that in this case the best price was reasonably obtained and that the method used was the method used by other dealers and was common to the industry; and (c), that a public auction, even on the evidence given by an expert witness called on behalf of the appellant, was a reasonable method of sale.
Other submissions were also made but none of these touched upon issues of good faith.
In my opinion, the effect of clause 9.2 properly construed is to require that in any calculation of the amount to be paid by one party to the other on termination of the lease, that sum which equals the best price reasonably obtainable for the vehicle at the time must be taken into account. Very often, of course, when that calculation is properly made, there will remain an amount owing by the lessee to the lessor. Occasionally there will be an amount payable by the lessor to the lessee. In this case, the appellant sought to establish before His Worship that the respondent did not dispose of the car for the best price reasonably obtainable at the time, or at least that the respondent had not proved (the burden being on the respondent) that it had obtained such price. Its failure to do so led, according to the appellant, to the result that the claim must fail.
In finding for the respondent, the Magistrate held that in essence the appellant was seeking to rely upon an alleged failure by the respondent to mitigate its loss. That being so, the burden was on the appellant to call evidence on the basis of which that contention might be made out. His Worship relied upon the following passage from Goldburg v. Shell Oil Australia Ltd (1990) 95 ALR 711 at 714, where the Full Court of the Federal Court said:
"In our view there is a clear conceptual difference which the learned primary judge understood and applied between the measure of damages and a plaintiff's duty to mitigate damages properly measured ... The onus remains on the plaintiff to prove, according to the appropriate measure, that he has suffered loss. An example of a plaintiff's failure to discharge that onus is provided [and here Their Honours cited a case from Western Australia]. If the defendant contends that the loss proved by the plaintiff could have been minimised or avoided altogether by the taking of some step which the plaintiff could reasonably have taken but did not take, the onus is on the defendant to make out that contention on the evidence."
In my opinion, this approach is not that which the proper construction of clause 9.2 dictates. In my view, the undertaking about which that clause speaks is not enforceable against the lessee until the lessor has established on the balance of probabilities that the subject of the lease has been disposed of for the best price which the lessor can reasonably obtain at the time.
The next question is whether, even if I have correctly construed clause 9.2, the appellant can rely upon that construction. He, of course, is not a party to the contract of which clause 9 forms a part; and it is settled that a guarantor under a guarantee which makes him liable without more for the full indebtedness of the debtor, cannot rely upon a cross-claim for damages which may be available to the principal debtor as against the creditor in reduction of, or as a defence to, his liability under the guarantee: see Indrisie v. General Credits Limited (1985) VR 251.
I am not, however, here concerned with a cross-claim for damages. I am concerned with a guarantee by which the appellant guarantees the due and punctual payment by the lessee of all money from time to time payable by the lessee. In my opinion, for the reasons I have already given, the lessee's undertaking is not enforceable against him and the deficiency referred to in clause 9.2 is not payable by him until the lessor has proved that it has obtained the best price reasonably obtainable. Since the appellant has only guaranteed payment of all money from time to time payable by the lessee, the guarantee does not cover an amount not proved to have been calculated in accordance with the lease.
The question then becomes whether the Magistrate in fact found that the respondent had disposed of the Fairlane for the best price reasonably obtainable at the time. Any sale of the vehicle at a properly advertised and conducted public auction for the price for which the vehicle was knocked down would be such a sale. There was evidence before the Magistrate upon which he could have concluded, on the balance of probabilities, that such a sale took place. On the other hand, the state of the evidence is such that His Worship might, with equal justification, have held that the respondent did not realise the best price reasonably obtainable - or at least that the respondent had not proved the contrary to the requisite standard of proof. My difficulty is that I find it impossible on a careful reading of His Worship's reasons to know whether or not His Worship came to a conclusion which supported the appellant or the respondent. In these circumstances, the only course open to me is, I think, to send the matter back to the Magistrate with a request that he explicitly determine whether or not he has been satisfied, on the balance of probabilities, that the respondent has obtained the best price reasonably obtainable for the vehicle in question. As I say, it is, on the evidence as disclosed in the material before me, open to His Worship to find for either the appellant or the respondent on that factual issue. It is not a finding which, as it seems to me, I ought to make; it is one peculiarly within the province of the Magistrate, and one which in my view is best left to him. Had I been able to discern from His Worship's reasons which finding His Worship had in fact made, I would be content to adopt that finding. Because I am not, having read His Worship's reasons, in a position to know to what conclusion His Worship came on this point, it seems to me appropriate that he should be asked to clarify that aspect of his decision.
(Discussion as to costs ensured).
I think I should determine the question of costs now. It seems to me that the appellant was justified in bringing the appeal, partly because in my opinion the Magistrate erred in his consideration of the question of the burden of proof, and also because it seems to me that His Worship's reasons were not expressed with such clarity as enabled the parties to understand how it was that the Magistrate came to his decision. On that basis, it seems to me that the appellant is entitled to the appellant's costs of the appeal, but you are certainly entitled to the indemnity certificate which I will grant. The orders then will be that the appeal is allowed, the matter is remitted to the Magistrates' Court at Melbourne to be dealt with in accordance with the reasons which I have just expressed. There will be a further order that the costs of the appeal be paid by the respondent to the appellant. I will grant an indemnity certificate to the respondent pursuant to the Appeal Costs Act. I think it's section 13.
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