Kantfield Pty Ltd v Johnson
[2016] FCA 1588
•23 December 2016
FEDERAL COURT OF AUSTRALIA
Kantfield Pty Ltd v Johnson [2016] FCA 1588
File number: VID 101 of 2015 Judge: BEACH J Date of judgment: 23 December 2016 Catchwords: CONTRACTS – supply of plastic resins to manufacturer of plastic products – whether directors of manufacturer liable under guarantee and indemnity – whether subsequent guarantee and indemnity replaced earlier guarantee and indemnity – imprest arrangement – whether imprest debt owed under the guarantee and indemnity Dates of hearing: 20, 21 December 2016 Registry: Victoria Division: General Division National Practice Area: Commercial and Corporations Sub-area: Commercial Contracts, Banking, Finance and Insurance Category: Catchwords Number of paragraphs: 95 Counsel for the Applicant: Mr B Ryde Solicitors for the Applicant: MST Lawyers Counsel for the First Respondent: The first respondent appeared in person Counsel for the Second Respondent: The second respondent appeared in person ORDERS
VID 101 of 2015 BETWEEN: KANTFIELD PTY LTD
Applicant
AND: NORMAN JOHNSON
First Respondent
PETER WAKELAM
Second Respondent
JUDGE:
BEACH J
DATE OF ORDER:
23 DECEMBER 2016
OTHER MATTERS:
The applicant is to file and serve within 21 days of this order an affidavit verifying the amount of costs incurred up to 17 June 2016.THE COURT ORDERS THAT:
1.There be judgment against the first respondent in the sum of $252,303 together with statutory interest to the date hereof in the sum of $40,828.16.
2.The first respondent pay the applicant’s costs of and incidental to this proceeding including reserved costs, to be taxed in default of agreement, with such costs to be paid on an indemnity basis after 11am on 21 June 2016.
3.There be judgment against the second respondent in the sum of $106,321 together with statutory interest to the date hereof in the sum of $17,200.
4.The second respondent pay 50% of the applicant’s costs of and incidental to this proceeding including reserved costs, to be taxed in default of agreement, with such costs to be paid on an indemnity basis after 11am on 21 June 2016.
5.There be a stay of orders 1 to 4 for a period of 45 days from the date hereof.
6.Liberty to apply.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
(revised from transcript)BEACH J:
The applicant (Kantfield) trades under the name of “Martogg & Company” (Martogg). Martogg is a supplier of compounded plastic resins which it typically sells to commercial customers for the manufacture of plastic products via moulding process.
The first respondent (Johnson) was a director of Palamont Rotor (Australia) Pty Ltd (Palamont) and Gerizim Enterprises Pty Ltd (Gerizim) during all relevant times. The second respondent (Wakelam) was a director of Palamont between 22 January 2001 and 21 October 2013 and a director of Gerizim between 1 September 1987 and 6 November 2014.
Palamont carried on the business of the design, engineering and manufacture of high end plastic products including furniture and architectural fittings, and products for commercial application in the automotive, marine, mining and farming industries. Palamont and its related entities form the “Palamont Group”. Gerizim is the holding company of Palamont.
This proceeding relates to orders made by Palamont for the supply by Martogg of a particular type of compound plastic called Microlene. Kantfield has made claims against Johnson and Wakelam in respect of certain unpaid invoices for the supply of Microlene during the period between 14 May 2013 and 20 October 2014. Kantfield seeks the sum of $252,303.00 against the respondents pursuant to guarantees entered into by the parties. Further, Kantfield claims damages against Johnson only under the Australian Consumer Law for misleading or deceptive conduct.
BACKGROUND
Palamont purchased plastic resins from Martogg. Those resins were used in the manufacture of Palamont’s products.
On 21 February 2013, Martogg offered to provide an “imprest” arrangement, whereby in respect of the first $150,000 worth of Microlene supplied, payment would not be required until the business relationship between Martogg and Palamont came to an end (the imprest arrangement).
According to the respondents, Palamont had been reluctant to source plastic resins from Martogg because Martogg had a slow lead time for the supply of product. Palamont’s business needed to manufacture products in hundreds of different colours on a short lead time. Therefore, if Martogg was Palamont’s supplier, Palamont would have needed to carry a much larger inventory to cover the range of colours, which was undesirable.
The respondents say that in order to secure Palamont’s business, Martogg offered to provide an imprest arrangement for the accrual of a debt owing to it up to the value of $150,000, for which Palamont would not be obliged to pay until it ceased its relationship with Martogg. In April 2013, Palamont decided to appoint Martogg as its exclusive resin supplier.
According to the two witnesses for Kantfield, the concept of an imprest account was a novel arrangement to Martogg. Palamont had such an arrangement with its supplier at the time, ICO, which allowed goods to be supplied to Palamont whilst the debt would accrue and would not be payable until the business relationship ended. Kantfield says that Johnson told its representatives that in order for Martogg to become Palamont’s primary supplier, an imprest arrangement was necessary. Kantfield says that they understood that Martogg would not become Palamont’s primary supplier unless such an imprest arrangement was in place.
The respondents claim that the imprest arrangement was entered into for the benefit of the Palamont Group, and therefore the imprest amount would accrue for debts owed by the trading entities of the Palamont Group.
On 7 May 2013, Martogg entered into an agreement with Palamont to supply Microlene on credit pursuant to certain terms of trade (the first credit agreement).
Also on 7 May 2013, Martogg entered into a deed of guarantee and indemnity with Johnson and Wakelam (the first deed of guarantee and indemnity), under which Johnson and Wakelem (jointly and severally) agreed to guarantee and indemnify Martogg any money owed by Palamont to Martogg under the first credit agreement. Relevantly, cl 3 of the deed of guarantee and indemnity provided:
To guarantee to Martogg the due and punctual payment of all money presently owing or any money that may be owing in the future by [Palamont] and if applicable [Wakelam and Johnson] in respect of the cost of Goods or services or collateral (including inventory) supplied by Martogg to [Palamont] and any other sums payable by Palamont and/or [Wakelam or Johnson] to Martogg pursuant to Martogg’s this Deed [sic] and/or Terms and Conditions of Trade (collectively called “guaranteed and secured money”).
Further, cl 9 of the deed of guarantee and indemnity provided:
Agrees as a separate severable and additional covenant and obligation to indemnify and keep indemnified Martogg from and against all losses, costs, charges and expenses whatsoever that Martogg may suffer or incur in relation to the supply of Goods or services and perfection of security interest(s) under the PPSA (if and when applicable) in relation to this Deed with [Palamont] and/or [Wakelam and Johnson] and further agrees that each of the provisions contained in this Deed that applies or is capable of application to this Deed when it is construed as an indemnity will apply to the indemnity given by [Wakelam and Johnson].
Further, clauses 10(e)(i) and 10(e)(iii) provided as follows.
This Deed is valid and enforceable against [Wakelam and Johnson] and the liability hereunder of [Wakelam and Johnson] continues and may be enforced by Martogg notwithstanding:
(i) that no steps or proceedings have been taken against [Palamont]; or
[…]
(iii) the death or bankruptcy or winding up of [Palamont].
On 14 May 2013, Martogg commenced supplying Microlene to Palamont and Palamont Rotor (Queensland) Pty Ltd (Palamont Queensland).
From 14 May 2013 to 7 June 2013, Martogg supplied Palamont with approximately $106,321 worth of Microlene. During that same period, it had also supplied Palamont Queensland with approximately $43,679 worth of Microlene such that by 24 June 2013, the imprest account balance had reached the value of $150,000. In accordance with the imprest arrangement, Martogg sent a number of invoices totalling $150,000 in respect of the supply of product to Palamont from 14 May 2013 to 7 June 2013, but Martogg did not require any payment and no payments were made. After Palamont had ordered product to the value of the imprest sum of $150,000, any subsequent invoices were paid by Palamont in the usual way.
On 11 March 2014, Palamont Queensland was placed in liquidation.
The respondents allege that in mid-June 2014, Martogg agreed to release Wakelam from the first deed of guarantee and indemnity dated 7 May 2013 and to transfer from Palamont to Gerizim the liability to repay the imprest amount of $150,000. The respondents allege that the parties agreed that Wakelam would be released from his guarantee insofar as it related to debts incurred by Palamont after the execution of a replacement guarantee. What was discussed by the parties at this time is a key subject of contention.
On 19 June 2014, a meeting took place at Palamont’s offices in Dandenong. In attendance was Johnson, Wayne Speirs (Speirs), Martogg’s Company Secretary and Group Finance Manager, Travis Sutton (Sutton), Martogg’s National Sales Manager, and David Inall, General Manager of the APS Safari Group (Safari), who was then a key client of Palamont (the 19 June 2014 meeting). The purpose of the meeting was to discuss Palamont’s delays in paying its invoices. At the meeting, it was agreed that Safari would make a payment of $121,000 directly to Martogg. That payment was ultimately made by Safari. Further, Johnson mentioned at this meeting that Palamont’s assets were held by Gerizim, and it was agreed that Gerizim would also provide a guarantee and indemnity in respect of Palamont’s obligations to Martogg.
Kantfield alleges that Johnson made representations at the 19 June 2014 meeting to the effect that Palamont was profitable and that Gerizim had the wherewithal to meet Palamont’s then and future liabilities.
After the 19 June 2014 meeting, Inall sent Speirs an email which stated that Safari would make a payment of $120,000 directly to Martogg’s account on 30 June 2014.
On 30 June 2014, a further meeting was held between Speirs, Sutton and Johnson (the 30 June 2014 meeting). At this meeting, Martogg entered into a further agreement with Palamont to supply Microlene on credit pursuant to certain terms of trade (the second credit agreement). Martogg also entered into a deed of guarantee and indemnity (the second deed of guarantee and indemnity), under which Johnson and Gerizim agreed to guarantee and indemnify Martogg in respect of sums owed by Palamont to Martogg.
Most of the relevant clauses of the second deed of guarantee and indemnity are identical to those set out above in relation to the first deed of guarantee and indemnity, except that the references to “Wakelam and Johnson” should be read as references to “Gerizim and Johnson”, and there was some minor modification to one of the costs provisions.
The respondents say that the second deed of guarantee and indemnity was intended to be a replacement guarantee which was discussed by the parties on 19 June 2014. They say that any product supplied after 30 June 2014 was to be covered by the second credit agreement and the second deed of guarantee and indemnity.
Kantfield alleges that at the 30 June 2014 meeting, Johnson stated that Palamont was in a profitable position and that once Safari had made the outstanding payments to Palamont, Martogg would be paid and the account would be back in order.
I will return later to the detail of what was said at both the 19 June 2014 meeting and the 30 June 2014 meeting as the representations allegedly made by Johnson in those meetings are the fulcrum of Kantfield’s misleading or deceptive conduct case.
After 28 July 2014, Palamont did not pay Martogg invoices relating to the period from 28 July 2014 to 20 October 2014 (a total of approximately $222,853).
On 28 October 2014, Johnson sent an email to Speirs regarding the balance in the imprest account. The text of the email is as follows:
Wayne
This is to confirm that Martogg group supplied the Palamont group of $150000 line of credit held in trust and we acknowledge that this debt is outstanding and the debt is held in Gerizim pty ltd
Norman Johnson
On 4 December 2014, Palamont went into voluntary administration and on 17 December 2014, Gerizim went into voluntary administration.
On 18 December 2014, Martogg collected from Palamont’s premises Microlene which Martogg had supplied but which was not used by Palamont. It is alleged that the invoiced value of the Microlene retrieved from Palamont was in the amount of $76,871. The collection of the goods was taken by Martogg in accordance with the retention of title provisions in the second credit agreement.
On 20 January 2015, Palamont was placed into liquidation and on 5 February 2015, Gerizim was placed into liquidation.
THE CLAIMS - OVERVIEW
Kantfield now claims against Johnson and Wakelam, jointly and severally, the amount of $252,303, being the value of unpaid invoices ($329,174) minus the value of retrieved goods ($76,871). Kantfield’s claim is pursuant to the first deed of guarantee and indemnity and the second deed of guarantee and indemnity.
Kantfield contends that the second deed of guarantee and indemnity was in addition to and not in substitution of the first deed of guarantee and indemnity. It also says that the full amount claimed is owing under both guarantees and against both respondents. Let me address the respondents’ contentions in answer to this.
The respondents contend that the amount of $150,000 owed under the imprest arrangement was not covered by the first deed of guarantee and indemnity. They claim that the imprest arrangement was an entirely separate arrangement to the first credit agreement. Further, they contend that the imprest arrangement was made with the Palamont Group and not Palamont alone. They point to the fact that a portion of the imprest account sum was in respect of the supply of Microlene to Palamont Queensland. The respondents contend that any claim for the $150,000 sum under the imprest arrangement can only be made against the Palamont Group. Moreover, they contend that any relevant liability had been assigned to Gerizim.
The respondents also contend that the second deed of guarantee and indemnity was a “replacement guarantee” and that Wakelam is not liable for any of Palamont’s debts accrued after 30 June 2014. They contend that the first deed of guarantee and indemnity does not cover the same.
Kantfield’s misleading or deceptive conduct claim rests upon various representations allegedly made by Johnson during the 19 June 2014 meeting and the 30 June 2014 meeting. Kantfield alleges that prior to Martogg entering into the agreements on 30 June 2014, Johnson made the following representations, which it is alleged, were misleading or deceptive.
(a)First, Johnson represented that the financial position of Palamont had “never been better” and Palamont was profitable.
(b)Second, Johnson said that Gerizim’s financial position was secure and if Palamont was unable to pay outstanding amounts to Martogg, Gerizim would be in a position to do so.
(c)Third, Johnson said that given Gerizim’s financial position, in order to secure any amounts owed by Palamont to Martogg, Martogg just needed a guarantee from Gerizim.
Kantfield says that the representations were misleading or deceptive, or were likely to mislead or deceive, in contravention of section 18 of the Australian Consumer Law because of the following reasons:
(a)First, Palamont was not profitable.
(b)Second, the financial position of Gerizim was not secure and Gerizim was not in a position to pay the outstanding liabilities of Palamont, as it was insolvent from at least 30 June 2014.
(c)Third, the guarantee from Gerizim was not effective to secure and ensure payment of the amounts owed to Martogg by Palamont.
JUNE MEETINGS
It is now convenient to set out the different version of events in respect of the 19 June 2014 meeting and the 30 June 2014 meeting.
Kantfield’s position
Sutton and Speirs gave evidence on behalf of Kantfield about the 19 June 2014 meeting.
Speirs says that at the 19 June 2014 meeting, he raised his concerns with Johnson about the late payment of invoices. Johnson told Speirs and Sutton that Palamont’s delays in making payment were due to the failure of its major customer, Safari, to make payments to Palamont on time. Inall of Safari was present at the meeting at this time. Inall explained that Safari had over-ordered significantly, and this had been the major reason for its inability to pay Palamont on time, but Safari was in position to make payment of the outstanding amounts it owed to Palamont. Further, Johnson said that Safari was Palamont’s biggest customer, and that Palamont had always used any revenue from Safari to pay for its raw materials bill. Inall said that Safari would pay the amount that it owed to Palamont directly into Martogg’s account on 30 June 2014. Kantfield accepted Inall’s offer, at which point, Inall left the meeting.
At this point, without Inall present in the meeting room, Johnson reassured Speirs and Sutton of Palamont’s profitability. Johnson explained that Palamont had undergone a restructure of its manufacturing and pricing and it was now operating profitably. Palamont no longer manufactured for small margins and it had revised its business model to ensure that the Martogg account would be paid on time in the future. Further, it is said that Johnson stated that Palamont had changed suppliers in China and this was providing major costs savings to the business and making it profitable.
Speirs told Johnson that he was concerned with Martogg’s exposure to Palamont and that he perceived Palamont to be a high credit risk. Speirs says that the purpose of the 19 June 2014 meeting was to seek a solution to reduce the debt owed to Martogg and to reduce Martogg’s exposure. Speirs says that Johnson offered a solution involving the provision of additional security to Martogg in the form of a guarantee from Gerizim. Johnson explained to Speirs and Sutton that Gerizim held Palamont’s assets as Palamont was merely a trading entity, and Gerizim would be able to cover Palamont’s debt to Martogg if Palamont were to become insolvent. Speirs was satisfied with Johnson’s offer as it was a means to mitigate the perceived high credit risk of Palamont.
Speirs asserts that in his view at the time of the 19 June 2014 meeting, the second deed of guarantee and indemnity was not a “replacement guarantee” such that it was a substitute for the first deed of guarantee and indemnity. Relatedly, Speirs says that the execution of the second deed of guarantee and indemnity did not release Wakelam from the first deed of guarantee and indemnity. Rather, the second deed of guarantee and indemnity sat alongside the first deed of guarantee and indemnity such that from 30 June 2014, Gerizim became a guarantor together with Wakelam and Johnson. Speirs says there was no discussion at all in the 19 June 2014 meeting about the second deed of guarantee and indemnity releasing Wakelam from the first deed of guarantee and indemnity. Further, Speirs says that at the 19 June 2014 meeting, there was no discussion about Wakelam providing a new guarantee because in his view, Wakelam had already provided a guarantee.
Speirs also asserts that if Palamont did not provide further security in the form of the guarantee from Gerizim, Martogg would have ceased its supply arrangement with Palamont.
As to the 30 June 2014 meeting, Speirs says that Johnson again stated that Palamont was in a profitable position and that once Safari had made the outstanding payments to it, Martogg would be paid. Speirs also said that he was satisfied with Johnson’s representations that Palamont and Gerizim were in a healthy financial position, and that if he knew the true position, he would not have continued to trade with Palamont.
The respondents’ position
Johnson says that at the 19 June 2014 meeting, Speirs said that Martogg required a new credit agreement and guarantee as the existing agreements had been entered into by the Palamont Group, which included Palamont Queensland, the subsidiary which had been placed into liquidation. Johnson also mentioned at the meeting that as Wakelam was no longer a director of any trading entity of Palamont and would not give a guarantee, Johnson would be content to provide a guarantee. But Johnson denies that he had offered to Speirs and Sutton that an additional guarantee be given; he claims that Martogg had asked for that additional guarantee.
Johnson explained to Speirs and Sutton that the Palamont Group’s assets were held by Gerizim and that the trading entities did not hold significant assets. Speirs agreed that a guarantee from Gerizim would be preferable.
Johnson says that he was under the impression that the second deed of guarantee and indemnity replaced the first deed of guarantee and indemnity, with the effect that from 30 June 2014, the relevant guarantors were only Gerizim and Johnson.
Johnson says that when he was satisfied that Gerizim would provide a guarantee, he wanted to check whether Wakelam would be willing to sign the guarantee on behalf of Gerizim. At that time, Wakelam was still a director of Gerizim. Johnson says that he temporarily left the meeting room to discuss the matter with Wakelam who also agreed that Gerizim would provide the guarantee. Johnson then returned to the meeting room and told Sutton and Speirs that Wakelam agreed that Gerizim would replace him (Wakelam) as the guarantor of the credit facility with Martogg.
There was some dispute between the parties as to when Johnson left the meeting room to discuss these matters with Wakelam. Johnson says that it was in the middle of his discussions with Sutton and Speirs when he temporarily left the meeting room to speak to Wakelam, whereas Speirs asserts that those discussions with Wakelam occurred after the meeting when Johnson provided Speirs and Sutton a tour of Palamont’s plant in Dandenong. Wakelam agreed with Johnson’s recollection of events.
Wakelam gave evidence that he was under the impression that the second deed of guarantee and indemnity replaced the first deed of guarantee of indemnity. Wakelam’s view was consistent with Johnson’s. Wakelam considered that the first deed of guarantee and indemnity ceased to have any operative effect once the second deed of guarantee and indemnity was executed. Wakelam deposed that he had thought that his personal guarantee in the first deed of guarantee and indemnity would be “transform[ed]” into a corporate guarantee from Gerizim. Wakelam said that he was approaching retirement so it made sense for him to relinquish the personal guarantee he had given under the first deed of guarantee and indemnity, and for further debts to be covered by another person or entity instead. His view as at 19 June 2014 was that he would remain liable for all debts to Martogg up until 30 June 2014 and that from 30 June 2014, all debts to Martogg would be covered by the second guarantee and indemnity only.
Johnson also deposed that because of the uncertainty about how much of the $150,000 imprest sum was owed by Palamont Queensland, and how much was owed by Palamont, and given that the imprest arrangement had been for the benefit of the group as a whole, the entire debt should be owed by Gerizim. Johnson maintained at trial that he mentioned to Speirs and Sutton at the 19 June 2014 meeting that the $150,000 imprest sum would be “transferred” to Gerizim so that Gerizim would become the principal debtor in respect of that sum. Johnson says that Sutton and Speirs agreed to that arrangement. Speirs and Sutton deny that there was any discussion of the kind. Kantfield says that there is no direct evidence showing such an assignment of debt.
ANALYSIS
Various issues have been raised by the respondents and it is convenient to deal with each in turn.
The primary question before considering the claims under the guarantees is whether Palamont, as the principal debtor, was liable to Martogg in the amount of $329,174 under the relevant outstanding invoices (numbering 30 in total).
The respondents have raised various arguments which it is convenient to deal with in turn.
First, the respondents have asserted that, as the entity identified on Martogg’s invoices was Palamont Rotor Pty Ltd, rather than Palamont, that there was no liability in Palamont. I reject this argument. At the relevant times, Palamont Rotor Pty Ltd had been deregistered. Moreover, the assertion is inconsistent with the parties’ dealings that goods were supplied by Martogg to Palamont. The credit applications referred to Palamont. Further, Palamont ordered the relevant goods from Martogg. Moreover, the very terms of Palamont’s orders indicate as much.
Second, in relation to the imprest arrangement concerning $150,000, the parties are not in dispute as to the existence of, and key terms of, the imprest arrangement. As the evidence reveals, this was an oral agreement which was reached between Sutton and Johnson with the key term being that the first $150,000 of goods delivered to Palamont were not due to be paid until the business relationship between Martogg and Palamont came to an end.
I should note at this point that a part of Palamont’s case was to the effect that this liability had somehow been transferred to Gerizim and that, accordingly:
(a)Palamont was not liable for the same; and
(b)neither of the respondents were liable under the guarantees in relation to the outstanding invoices represented by the $150,000 or covered by the imprest account.
But apart from Johnson’s evidence (see his affidavit of 16 April 2016 at [14]) which I do not accept on this aspect, there is no evidence of any agreement between Palamont and Martogg to transfer the imprest debt from Palamont to Gerizim. No such agreement, or even discussion relating to this, is apparent from Speirs’ handwritten notes taken during and after the meeting. Further, after 30 June 2014, Gerizim was a guarantor for Palamont’s liabilities to Martogg. Accordingly, for there to be an agreement to transfer a debt into the name of an entity who is a guarantor of that same debt is counter-intuitive. Now the respondents have said that Johnson’s email dated 28 October 2014 and Speirs’ failure to respond demonstrates that the imprest debt was owed by Gerizim. I reject that submission. I accept Speirs’ evidence in cross-examination that he did not see it as important enough to respond to this email. Finally, the report by Gerizim’s administrators dated 23 January 2015 is of little probative value on this question.
Further, Speirs did not demand repayment of the imprest sum until after Palamont was placed in voluntary administration.
Further on this aspect, Johnson sought to submit that somehow Palamont had made a demand for the imprest sum at an earlier point. Now true it is that some of the earlier documentation of Palamont and Speirs made reference to an earlier payment plan for the $150,000, but it would seem that this merely records or responds to a suggestion of a payment plan unilaterally proposed by Palamont/Johnson.
Finally, it was said that the imprest sum was not covered by the first deed of guarantee and indemnity. That is incorrect. The guarantee covered the unpaid invoices constituting the imprest sum.
In summary, it is my view that:
(a)the imprest sum now claimed (that is, $106,326.45 of the $150,000) became due and owing by Palamont after its business relationship with Martogg ceased on 4 December 2014;
(b)the imprest sum and the relevant liability had not been transferred to Gerizim; and
(c)the imprest sum was a liability secured by the first deed of guarantee and indemnity provided by both Johnson and Wakelam.
The second primary question is Johnson’s liability under the two guarantees.
In my view, there is little doubt that Johnson is liable for the full amount claimed.
First, he is liable for the imprest sum under the first deed of guarantee and indemnity. As I have said, I reject the argument that this liability was transferred from Palamont to Gerizim.
On this aspect, I should deal with another point. Johnson made the submission that later payments made by Palamont should somehow be set off against earlier invoices and, accordingly, the invoices covered by the imprest sum should be deemed to have been paid leaving no liability for the imprest sum. I reject this argument. The imprest sum was never due for payment until the business relationship ceased. Johnson’s assertion is inconsistent with that reality. Further, in any event, the later payments made by Palamont were, pursuant to the arrangements between the parties, specifically allocated to other specific invoices not covered by the imprest sum.
There is a related point that I should also deal with at this point. In December 2014, Martogg retrieved goods to a value of $76,871 from Palamont; the quantification of that value is not in issue. Kantfield, in its calculations, has allowed a set off of that sum against the post-June 2014 invoices. I agree with that approach. It would be misconceived to set off that value against the imprest sum. The goods retrieved in December 2014, I can readily infer, were goods supplied to Palamont and invoiced after 30 June 2014. They have nothing to do with the goods supplied in early to mid-2013 that gave rise to the imprest sum.
Second, Johnson is liable under the second deed of guarantee and indemnity for the post-June 2014 invoice amounts which remain outstanding, less the set off amount of $76,871.
In summary, there will be judgment against Johnson under his guarantees for the sum of $252,303, being the total amount less the set off together with statutory interest from the date of filing to the present of $40,828.16. The amount of $252,303 is calculated by taking the total amount of $329,174 (being the imprest sum of $106,321 plus the post-June 2014 invoice amounts of $222,853 outstanding) and deducting the value of the retrieved goods of $76,871.
The third primary question to deal with at this point relates to the claims made against Johnson for contraventions of the Australian Consumer Law, whether as a principal or as an accessory.
In one sense I do not need to deal with these claims given my findings against Johnson and that I have adjudged him liable for the full amount claimed under the guarantees.
But if it is necessary to do so, I would make the following principal findings on the evidence:
(a)First, on any view, I do not consider that Johnson would be principally liable. On any view, he could only have accessorial liability at most.
(b)Second, I consider that Johnson made, on behalf of Palamont, the representations as pleaded, but that Martogg only relied upon the representation that the financial position of Gerizim was secure and that if Palamont was unable to pay outstanding amounts to Martogg, Gerizim would be in a position to do so.
(c)Third, in relation to such a representation concerning Gerizim, such a representation was both a statement of opinion and a representation as to a future matter.
(d)Fourth, Palamont and Johnson have not discharged the onus of demonstrating that reasonable grounds were held for the same.
(e)Fifth, Martogg’s reliance on what I would describe as the Gerizim representation was constituted by the entry into of the second credit application, the taking of the two new guarantees and the post-June 2014 supplies.
(f)Sixth, in my view, Johnson was “involved in” Palamont’s contraventions. His knowledge and participation are demonstrated from the recitation of the evidence that I have set out earlier.
(g)Seventh, Kantfield’s measure of damages on this alternative claim has not been properly analysed by Kantfield. I do not accept its method of quantification set out in [19] and [20] of its final written submissions. On any view, it must be less than the “total outstanding sum of $252,303” for the reasons that I discussed with counsel. I will not make a quantification, but grant liberty to apply to Kantfield to further agitate that question if it ever becomes necessary to do so.
The fourth primary question relates to the liability of Wakelam.
Before discussing the first deed of guarantee and indemnity, it is necessary to turn to an evidentiary issue.
Wakelam only belatedly gave evidence at trial in terms of a short meeting of several minutes that he said that he had with Johnson when Johnson, so it was said, stepped out of his meeting with Speirs and Sutton at their meeting on 19 June 2014.
Having listened carefully to the evidence of all four witnesses as to their versions of events of what occurred on 19 June 2014, I have no reason to doubt the reliability of the versions given by Speirs and Sutton. Their versions also accord with the commercial probabilities and the contemporaneous documentation.
In one sense, I do not need to elaborate in detail. But let me make these points. First, Wakelam was not present at the discussions between the other three individuals. Accordingly, whatever his state of mind and what he thought he discussed separately with Johnson cannot carry the day in terms of the ambit and scope of his liability under the first deed of guarantee and indemnity. Second, there are various imperfections in Johnson’s affidavit concerning the 19 June 2014 events which he appears to have accepted in cross-examination. That justifies me in placing less value on his evidence in terms of its reliability than the versions given by the Martogg representatives. Indeed, Johnson’s evidence had a tendency to try and exculpate Wakelam from his liability under the first deed of guarantee and indemnity, although it did not to a large extent assist Johnson personally, except to the extent of trying to shift the imprest sum liability from Palamont to Gerizim. But to be clear, I do not accept Johnson’s version of events as set out in [12] to [14] of his affidavit to the extent of any inconsistency with the versions given by Speirs and Sutton. I also do not accept Wakelam’s account of his two to three minute conversation with Johnson. It is more probable that this took place after the formal meeting with the Martogg representatives had concluded.
Let me return to the question of Wakelam’s liability under the first deed of guarantee and indemnity and make the following observations.
First, there is little doubt that Wakelam’s liability under the first deed of guarantee and indemnity was not discharged as such by the June 2014 events and the new credit application entered into by Palamont and the new guarantees given by Gerizim and Johnson.
Second, the imprest sum liability was embraced by the first deed of guarantee and indemnity and continued to be embraced thereby notwithstanding that it only became payable on 4 December 2014 when the business relationship between Martogg and Palamont terminated.
Third, the difficult issue in the case is whether, notwithstanding the breadth of the first deed of guarantee and indemnity, it extended to debts incurred by Palamont after 30 June 2014. Kantfield has relied upon the breadth of the first guarantee to so contend.
Not without some hesitation, in my view, by reason of the events of June 2014 and the new documentation (being the second credit application and the new guarantees), Wakelam’s liability under the first guarantee did not thereafter extend to the new supplies and invoices rendered after June 2014. I say this for the following reasons and based upon the objectively ascertained facts and circumstances, regardless of Speirs’ and Sutton’s subjective intentions and what they thought they were doing.
First, even if factually a similar supply relationship continued between Martogg and Palamont after June 2014 as before June 2014, the legal relationship for the extension of credit after June 2014 occurred under a new agreement. So, after June 2014 liability and debts of Palamont were incurred under a new agreement with Martogg.
Second, as part of these new legal arrangements, a new guarantee was obtained from Gerizim and a replacement guarantee was obtained from Johnson with some, albeit minor, alteration from his original guarantee.
Third, no new guarantee was obtained from Wakelam.
Fourth, Speirs’ contemporaneous notes referred to a “new a/c app”, suggesting some perceived need for the same, and not just because the printed pro forma had a form of typed guarantee. Indeed, a further note of Speirs referred at point 2 that:
Need a new guarantee signed & new application.
It was also appreciated in the same note that at or by that time, Wakelam was no longer a director of Palamont. No new guarantee was obtained from Wakelam, although a new guarantee was obtained from Johnson (with a variation).
Fifth, let me now turn to the first deed of guarantee and indemnity. Notwithstanding its apparent width in relation to continuing supplies, its contextual setting was in relation to supplies contemplated by the arrangement governed by the first credit application. Such a characterisation is consistent with all of the objectively ascertainable facts. It is also consistent with what occurred objectively in June 2014. If otherwise, there would have been no need for a second credit application and a new guarantee by Johnson in addition to the guarantee newly given by Gerizim.
Further, the first guarantee was given in consideration for the grant of credit given to Palamont under the first credit application. Again, that points to the contextual setting that I have suggested.
In summary, in my view the first deed of guarantee and indemnity was limited to the type of principal transactions that I have identified, namely, transactions embraced in and contemplated by the first credit application.
Finally, another way to look at the matter is to consider and conclude that upon entry into of the second credit application, the first credit application was terminated in relation to future transactions. Accordingly, the first guarantee was discharged, although any accrued rights or liabilities thereunder to that point in time were preserved. The discharge occurred as a matter of law flowing from the termination of the then principal arrangement under the first credit application.
In summary, in my view, Wakelam’s liability under the first guarantee does not include outstanding amounts from the post-June 2014 supplies as rendered in the post-June 2014 invoices. But it does include the imprest sum.
Accordingly, there will be judgment against Wakelam in the sum of $106,321 together with statutory interest to the date hereof in the sum of $17,200.
I will make orders accordingly.
I certify that the preceding ninety-five (95) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Beach. Associate:
Dated: 23 January 2017
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