L&H Group (a limited partnership) v Karac Electrics Pty Ltd

[2014] VCC 1791

IN THE COUNTY COURT OF VICTORIA Revised
(Not) Restricted

AT MELBOURNE

COMMERCIAL LIST
GENERAL DIVISION

Case No. CI-13-05496

L&H GROUP (a limited partnership)	Plaintiff
v.
KARAC ELECTRICS PTY LTD & ANOR	Defendants

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JUDGE:	His Honour Judge Anderson
WHERE HELD:	Melbourne
DATE OF HEARING:	28 & 29 October 2014
DATE OF JUDGMENT:	7 November 2014
CASE MAY BE CITED AS:	L&H Group (a limited partnership) v. Karac Electrics Pty Ltd & Anor
MEDIUM NEUTRAL CITATION:	[2014] VCC 1791

REASONS FOR JUDGMENT

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Catchwords:             Guarantee – Application for credit – Director signing form on behalf of corporate applicant – Whether document included a guarantee by the director – Alleged representation that guarantee would not be enforced inducing execution of credit application – Whether guarantee enforceable.         

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr M. Lapirow	Davies Moloney
For the Defendant	Defendant in person

HIS HONOUR:

1L&H Group is an electrical supplies wholesaler. Mr Joe Karac is the sole director and shareholder of Karac Electrics Pty Ltd (“Karac Electrics”). Mr Karac had been trading as an electrical contractor for many years. He and his companies have dealt with many wholesalers of electrical products.    

2In August 2011, Mr Karac, on behalf of Karac Electrics made an application for credit to L&H Group. This involved completing L&H Group’s application form with certain information including contact details, trade references and some details of the size and nature of the business of Karac Electrics.

3The application form is dated 17 August 2011 and was signed by Mr Karac as a “director” of Karac Electrics. The signature was witnessed by Mr Jim Whaley, L&H Group’s Branch Manager at Mulgrave.

4The application contained terms and conditions and a section headed, “Guarantee and Indemnity”. L&H Group relied upon the document, and the subsequent actions of the parties, as constituting a guarantee by Mr Karac of “the payment of all debts and monetary liabilities” of Karac Electrics to L&H Group.

5Mr Karac contended that L&H Group should not be permitted to rely on the agreement to provide credit, or the guarantee and indemnity, by reason of the circumstances in which the application for credit form was signed by Mr Karac, and particularly, “representations” alleged to have been made by Mr Whaley to Mr Karac at that time.

Application to adjourn the trial

6The matter was set down for trial commencing on 28 October 2014 by order made 19 May 2014. The writ had been issued on 24 October 2013. Mr Karac filed an appearance on behalf of Karac Electrics and himself on 27 November 2013 and a defence (which he was only permitted to file on his own behalf) on 6 December 2013. Solicitors, ICA Lawyers, went on the record for both defendants on 10 January 2014.

7On 28 October 2014, when the trial was called on, Mr Innis Cull of ICA Lawyers announced his appearance for the defendants. Mr Cull informed the Court that his client had not put the firm in funds for the trial and as a consequence, ICA Lawyers would be seeking leave of the Court pursuant to Rule 20.03 for leave to file a Notice of Ceasing to Act as the defendants’ solicitors.

8Mr Cull also asked that the matter be stood down for a short period so that he might pursue settlement discussions with plaintiff’s counsel, Mr Lapirow. Time was allowed, although the dispute did not resolve.

9Mr Cull then proceeded with an application for the adjournment of the trial. He informed me that he did not believe his client was in a fit mental state to represent himself at the trial. Mr Cull said that, although his client had been prepared to use his financial resources to settle matters with L&H Group, the defendants would, if the trial were adjourned, be represented by counsel when the matter proceeded.

10I asked Mr Cull about the defences to the plaintiff’s claim. Mr Cull referred to the defences based upon representations by Mr Whaley. A discussion ensued as to whether there might need to be an amendment to the defences to expand upon the pleading relating to the representations. During the discussion, it was made clear that if any amendment to the defences were sought, that an application would not be entertained without a clear articulation of the proposed amendment, preferably in a written document.

11After hearing submissions, I indicated that I would proceed with the trial on 29 October 2014. When the matter was called on that day, Mr Cull appeared and renewed his application for leave to withdraw. He indicated that although he and Mr Karac had spent some hours with counsel the previous day, Mr Karac had not taken the necessary steps to enable counsel to be briefed at the trial.

12Mr Cull indicated that he had a commitment in another Court and could not appear for the defendants at the trial. However, he said, Mr Karac was prepared to appear at the trial on his own behalf. Mr Karac confirmed this, and that he had no objection to leave being granted for the solicitors to file a Notice of Ceasing to Act.

13Mr Cull withdrew and I granted leave for Mr Karac to represent Karac Electrics at the trial.

Issues to be determined at the trial

14L&H Group’s claim against Karac Electrics was for the balance owing under the credit trading account, after taking into account payments made. These included regular payments totalling $57,500 made by Mr Karac since the issue of the proceedings, and a further $6,000 paid shortly prior to that.

15The defence filed by Mr Karac on 5 December 2013, appeared to admit both the credit agreement and the guarantee. In response to paragraph 2 of the statement of claim, that alleged an agreement on about 17 August 2011 between L&H Group and Karac Electrics “to supply electrical goods”, the defence pleaded, “I accept for $20,000 per month as per credit application”.

16In relation to the guarantee, paragraph 4 of the statement of claim reads “On or about 17 August 2011 Joe Karac (hereafter referred to as ‘the guarantor’) offered to guarantee the debts of the company to induce the plaintiff to give the company credit. The guarantor’s offer was accepted”. The defence stated, “I accept for the amount of $20,000 as per credit application”.

17The defence dated 5 December 2013, raised other matters as follows:

a.Mr Karac did not accept that the amount owing to L&H Group was $119,092.65, but “should be $77,547.70 less $15,000 paid to date” (paragraph 6);

b.the correct amount owing “should be $62,547.70”;

c.the interest calculation was incorrect;

d.the defendants had paid $1,500 a week to L&H Group pursuant to a “payment scheme” they had submitted, with the total of $15,000 having been paid to date.

18The defence of Karac Electrics and the amended defence of Mr Karac filed by their solicitors on 10 January 2014, were in similar form. The defences:

a.denied the agreement; and the guarantee (by Mr Karac);

b.alleged that Mr Karac signed the application for credit on behalf of Karac Electrics relying upon what was said to him by Mr Whaley in a conversation at the premises of Karac Electrics in Clayton South on 17 August 2011;

c.alleged that on the basis of what Mr Whaley said, Karac Electrics agreed to order electrical goods from L&H Group on the basis that “the price of the electrical goods proposed by [L&H Group] was better than the price [Karac Electrics] would pay for the same goods from its alternative suppliers”;

d.alleged that when Mr Whaley handed him the application form, Mr Karac said, “I don’t understand any of this shit”, or words to that effect, and Mr Whaley replied, “I don’t understand it either. It was written by the lawyers who are the only ones who can understand it. It has a personal guarantee but don’t worry, it is not going to bother us and they’ve [referring to L&H] never used it for their good customers” or words to that effect;

e.alleged that the “representations” by Mr Whaley constituted an estoppel or unconscionable conduct which would prevent L&H Group relying upon the agreement or the guarantee;

f.admitted that L&H Group had “supplied electrical goods to [Karac Electrics] from time to time”;

g.“in the absence of the particulars and calculations of the sum” claimed, denied L&H Group’s monetary claim.

19The amended defences failed to raise or repeat:

a.any allegation that the agreement or the guarantee was limited to a particular sum, such as $20,000;

b.did not raise specific matters of dispute as to how the amount claimed by L&H Group was made up or calculated.

20This discrepancy had relevance at the trial when Mr Karac sought to refer to the following matters:

a.assertions made in communications after the issue of the proceeding, apparently commencing with an email dated 11 November 2013 from Mr Karac to L&H Group, that the amount claimed included “overcharging” and other cross-claims or set-offs totalling $41,859.05 (excluding GST). This, it was alleged, resulted in a net amount owing to L&H Group by Karac Electrics in November 2013 of $77,547.70;

b.the increase of the credit limit by L&H Group to Karac Electrics to $55,000 in September 2012.

21I refused to allow Mr Karac to lead evidence relating to the alleged items of overcharging referred to in the email. In my view, those were positive matters of defence which the defendants had chosen not to pursue in the defences filed in January 2014. I also considered the plaintiff could not reasonably have been expected to meet these issues at the trial, although L&H Group had apparently investigated and rejected the claims for credits at the time they were submitted to L&H Group shortly after the proceeding was issued.

22It was clear from the calculations in the email dated 11 November 2013, that the $77,547.70 admitted in the original defence was the difference between the amount of $123,592.65 L&H Group claimed as owing in the statement dated 3 October 2013 and the disputed items in the email which totalled $46,044.95.

23These items comprised:

a.goods allegedly not delivered, or the incorrect goods delivered;

b.the cost of installing incorrect goods delivered;

c.overcharging where the amount charged was more than the quoted amount;

d.costs incurred consequential upon the late delivery of goods.

24I did permit limited cross-examination by Mr Karac on these issues and the tender of certain documents by him. Some documents, such as the letter of offer to increase the credit limit to $55,000 in September 2012, I allowed to be tendered absolutely. Other documents, I only permitted to be tendered so that they could be later identified.

The execution of the application for credit

25Mr Karac and Mr Whaley had known each other since the mid-1980s. Mr Whaley had worked for other electrical suppliers, and Mr Karac’s companies had been customers of those other suppliers. In about August 2011, Mr Whaley took up employment with L&H Group as its Branch manager at Mulgrave. He visited the premises of Karac Electric, without prior warning, and spoke with Mr Karac.

26Mr Whaley said that on that day he sought to obtain Karac Electrics as an account customer of L&H Group. He said he left an application for credit form with Mr Karac for completion and called back on another occasion to pick up the form.

27There was some confusion as to the sequence of events. Mr Whaley said that there were two relevant meetings:

a.the first, when he dropped off the form and had a conversation with Mr Karac;

b.a second meeting when he witnessed Mr Karac signing the form and took the form away.

28Mr Karac suggested that the events referred to by Mr Whaley had occurred at the same meeting but that there had been a further meeting at Karac Electrics’ premises when Mr Whaley had attended with a second representative of L&H Group. Mr Karac alleged that on the second occasion, Mr Whaley had repeated some of the relevant statements to him, particularly as to the effect of the guarantee and the reliance that would be placed on it by L&H Group.

29I consider that both Mr Karac and Mr Whaley had an imperfect recollection of the events surrounding the signing of the application for credit. Generally, Mr Whaley was prepared to concede that many of the matters alleged by Mr Karac had been discussed between them.

30Mr Lapirow took Mr Whaley through each of the statements referred to in paragraph 2 and the particulars of that paragraph in the defences. In summary, Mr Whaley agreed with the allegations save as follows:

a.as to paragraph (d), Mr Whaley said that he would not have then handed the document to Mr Karac as he already had it;

b.as to paragraph (e), Mr Whaley had no belief as to Mr Karac’s understanding of the document and he did not recall Mr Karac saying, “‘I don’t understand any of this shit’ or words to that effect”;

c.as to paragraph (f), Mr Whaley could not recall saying any of the words alleged, namely that, “‘I don’t understand it either, it was written by the lawyers who are the only ones who can understand it. It has a personal guarantee but don’t worry, it is not going to bother us and they’ve (referring to L&H) never used it for their good customers’ or words to that effect”.

31Mr Whaley agreed that he “gave no further explanation of the application for credit and did not alert Karac to the terms [upon] which the plaintiff now seeks to rely”. Mr Whaley said he took the application form with him back to the L&H Group office.

32Mr Karac said in evidence that in August 2011, Mr Whaley had come to Karac Electrics’ office without prior warning. Mr Karac said “I don’t remember a lot of it”. Mr Whaley had handed him the application form. Mr Karac said, “I do remember asking him, ‘Do you understand any of this shit?’ and he just laughed and said, ‘Nah, probably not’. I said, ‘Cos I don’t’. He said, ‘Nah, don’t worry, it is what companies do to open up an account and to get paid’. At no time did he mention to me or explain to me what the terms and conditions were and at no time did he tell me that I was putting my personal property on the line as a guarantee”.

33Mr Karac said that, on a later occasion, Mr Whaley came to the office with another person. Mr Karac wanted to increase Karac Electrics’ credit limit. Mr Whaley and the other person wanted “to see my books”, which Mr Karac refused. Mr Karac said that he again asked about the document and said, “I don’t understand any of this shit”.

34Mr Karac said that, “Even then, I was not made aware of or explained properly what the terms and conditions were of the application form. He said something, and I could be wrong as far as how he said it but he inferred to me that, whether he knew or not he came across to me to say, ‘Well, I don’t either, it’s one of those things that you just have to do, you know, it’s what everybody does, what all the wholesalers do’”.

35Mr Karac said that Mr Whaley had left the application form for him. Mr Karac’s wife filled it out and Mr Karac signed the form. It is likely that this evidence related to the earlier occasion in August 2011, when the original application form was completed and signed.

36Mr Karac was taken in cross-examination to paragraph 4 of the earlier defence he had drafted himself, where he appeared to admit the guarantee. Mr Karac said that when he signed the application form, he “didn’t know it was a guarantee”. He believed it was an application for credit. He said the first application for credit with a guarantee that he had seen, was with L&H Group.

37In re-examination, Mr Karac said that when he prepared the original defence, he was told he needed to fill it out, but was not given legal advice on how to do that or the consequences. Mr Karac said that, in the defence he drafted, he “gave the same answer to paragraph 4 [of the statement of claim] as for paragraph 2 because he thought it was the same matter”.

38Mr Karac gave evidence that he was disappointed that L&H Group had brought the action against him as he had “tried to do the honourable thing” and that, “never did I complain about not having this debt. My complaint was, yes it’s a debt but it’s not as much as you say”. He believed that L&H Group, “did not have the information of these credits I have been asking for”, to which he considered Karac Electrics was entitled.

39He said he had told his legal people, “I don’t want to fight this claim for not paying but for what it represents as far as the wrong amount; everything else as far as that I agree with, yes”. Mr Karac said that, “by trying to save money, I have got myself into further problems”.

Conclusions

40It is clear from the evidence that Karac Electrics has, since about the time the proceeding was issued, regularly paid significant sums each week in reduction of the amount claimed by L&H Group.

41Mr Karac gave evidence that he and Karac Electrics had been subject to a number of personal and financial difficulties which have affected their business. Mr Karac’s wife has serious health issues, Mr Karac’s brother (with whom Mr Karac operated his businesses over many years) recently died and two major creditors of Karac Electrics have failed to pay large sums owing to the company.

42These circumstances have apparently made it very difficult for the company to continue operating (for example, credit is not available from suppliers, and electrical supplies must be purchased in cash).

43However, I must consider the issues raised by the pleadings in accordance with the relevant evidence and the applicable legal principles.

44The principal defence to the claim relates to the alleged “representations” by Mr Whaley, which it is said induced Karac Electrics to enter into the agreement and execute the document. As a consequence of the representations, Mr Karac asserts that both the agreement and the guarantee should not be enforced.

45In my view, this defence must fail because the defendants have not established that the critical representation, as pleaded in paragraph (f) of the defence, was made.

46Paragraph (f) states that Mr Whaley said words to the effect of, “I don’t understand [the application for credit] either. It was written by the lawyers who are the only ones who can understand it. It has a personal guarantee but don’t worry, it is not going to bother us and they’ve (referring to L&H) never used it for their good customers”.  

47Mr Karac’s evidence was that, when he signed the application form, Mr Whaley said that, “it was what companies do to open up an account and to get paid”. Later, when Mr Karac had applied to increase Karac Electrics’ credit limit, Mr Whaley said that the credit application (including the guarantee) was “one of those things that you just have to do, you know, it’s what everybody does, what all the wholesalers do”. Mr Karac’s complaint seemed to be that Mr Whaley either did not, or was not able to, explain the document to him. Nevertheless, Mr Karac signed the document and bound himself and his company, to its terms.

48The matters alleged to have been said by Mr Whaley on the later occasion were not put to him in cross-examination by Mr Karac. However, it is unlikely, in my view, that Mr Karac relied upon anything Mr Whaley said, as the reason for signing the application for credit form. It is more probable that he was prepared to do whatever was necessary to obtain credit for Karac Electrics.

49Mr Karac had the opportunity to read the document himself or to have others read and explain the document to him. Instead, Mr Karac signed the application form and returned it to Mr Whaley. Later, Mr Karac applied for an extension of the credit limit and continued to order goods on credit in circumstances where he must have realised that there was a liability for an increasing sum.

50The guarantee is in my view enforceable against Mr Karac. The relevant parts of the credit application, under the heading “Guarantee and Indemnity” read as follows:

Where the Applicant is a company, the Seller offers to take an undertaking from the person (or persons) signing this application on behalf of the Applicant (“the Guarantors”) jointly and severally (in the case of more than one person signing this application on behalf of the Applicant) to guarantee the payment of all debts and monetary liabilities of the Applicant which may be owing now or from time to time in the future by the Applicant to the Seller (“the Debt”) and undertake to pay the full amount of the Debt on demand by the Seller if the Applicant is late in paying any part of the Debt.

…for the purpose of securing any credit facilities provided to the Applicant, [the Guarantors] charge all real and personal property owned by them, for an amount equal to any amount that the Applicant owes to the Seller from time to time under the credit facility or otherwise and will execute any necessary documents for this purpose. The obligations of the Guarantors under this guarantee and indemnity are principal and continuing obligations and are not released, discharged or otherwise affected by any variation of the terms upon which products are supplied by the Seller and paid for by the Applicant or any other act, omission, matter or thing whatsoever.

51During the course of trading, following the execution of the application for credit:

a.goods were ordered by Karac Electrics, usually after the company obtained a quotation from L&H Group;

b.Karac Electrics made payments in relation to the account;

c.on occasions, the credit limit was increased, upon application by Mr Karac on behalf of Karac Electrics.

52I consider that I should accept the evidence of the plaintiff’s witness, Mr Bakes, supported by L& H Group’s internal documents, in preference to the denials by Mr Karac, that the account limit was increased beyond $55,000 to $100,000.

53In any event, as Mr Karac said in evidence, “We wouldn’t knock back any delivery, even if it goes over the credit limit”. In circumstances where regular monthly statements were sent to Karac Electrics, this was not something which was likely to occur without the company being aware that credit purchases were being made which would incur an obligation to pay for the goods delivered.

54The quantum of L&H Group’s claim was proved by the production of books of account, including monthly statements sent to Karac Electrics. Although Mr Karac suggested that Karac Electrics had paid $6,000 more to L&H Group than it had allowed, I am not satisfied that this was the case.

55The $6,000 was taken into account in the calculation of the October 2013 statement, which showed the amount owing as $117,592.65 rather than the sum of $123,592.65 shown on the interim statement dated 3 October 2013.

56In the circumstances, L&H Group is entitled to judgment. I will give judgment for the plaintiff against the defendants that the defendants pay to the plaintiff the sum of $66,092.62.

57I will hear the parties further on the question of interest and costs.

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Certificate

I certify that these 10 pages are a true copy of the reasons for decision of His Honour Judge Anderson delivered on 7 November 2014.

Dated: 7 November 2014

Catherine Kusiak

Associate to His Honour Judge Anderson