Landmark Operations Ltd v Temaru Holdings Pty Ltd - [2014] SADC 142

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
LANDMARK OPERATIONS LTD v TEMARU HOLDINGS PTY LTD AND ANOR
[2014] SADC 142
Judgment of His Honour Judge Barrett
27 August 2014
GUARANTEE AND INDEMNITY - THE CONTRACT OF GUARANTEE - CONSIDERATION - GENERALLY
ESTOPPEL
The second defendant executed an application for credit and a guarantee in respect of purchases by the first defendant from the plaintiff rural services provider. He believed the documents related only to the purchase of merchandise as distinct from livestock and livestock services. He wrote "merchandise" several times on the documents. The plaintiff asserts that the guarantee relates to all moneys owing by the second defendant, including for purchase of livestock. Further, the plaintiff asserts that a consent judgment against the first defendant estops the second defendant from denying liability under the guarantee.
Held: The guarantee is enforceable only in respect of merchandise purchased from the plaintiff's store. The consent judgment does not estop the second defendant.
Sale of Goods Act 1896 , referred to.
Toll (FGCT) Limited v Alphapharm Pty Ltd (2004) 219 CLR 165; Electricity Generation Corporation (trading as Verve Energy) v Woodside energy Ltd and Ors (2014) 306 ALR 25 and [2014] HCA 7; Crane Distribution Limited v Minichelli [2013] NSWSC 1611 (6 November 2013); Renwall Fabrics Ltd v CMR of Stamp Duties; Kimberly Pastoral Co Ltd (1979) BC8221224, considered.

LANDMARK OPERATIONS LTD v TEMARU HOLDINGS PTY LTD AND ANOR
[2014] SADC 142

The plaintiff is a company which provided rural services to Temaru Holdings Pty Ltd, the first defendant of which the second defendant, Mr Toop, was sole director and shareholder. The services provided included the sale of livestock, the provision of goods and services associated with livestock, and the sale of merchandise from the plaintiff’s storefront in Meningie.
The first defendant consented to judgment against it for $673,627.68 in respect of sales of livestock, and, inter alia, about $27,000 for the transport of livestock. The plaintiff sues the second defendant on a personal guarantee which it claims relates both to livestock and merchandise purchases by the first defendant.
The second defendant, Mr Toop, denies liability under the guarantee. He says that he did not understand that the agreement he signed was in fact a personal guarantee for the first defendant’s purchases, or alternatively, at the very least, he believed from representations made by the plaintiff’s employee, that the document related only to purchases of merchandise from the store. It is not disputed that he has paid for all purchases of such merchandise. Merchandise, he submits, should be interpreted to mean items bought from the Meningie shop and should not include the $27,000 for transport of livestock, an item which appears erroneously on the merchandise account. That sum remains unpaid. Items appearing appropriately on the merchandise account have been paid for. The case turns then on the enforceability of the guarantee against the second defendant.
Issues at trial
Counsel for the parties have helpfully provided a statement of the issues for determination at trial. I adapt their statement and identify the issues as follows:
Does the consent judgement against the first defendant give rise to an issue estoppel or res judicata against the second defendant?
Did the plaintiff promise or represent that the application, terms and guarantee signed by him were for opening a credit account for merchandise purchases only?
What is the objective meaning of the handwritten amendments to the terms and guarantee?
Did the terms of the application, terms and guarantee override the handwritten terms?
What was “merchandise” in the context of the terms?
If the livestock transport is not properly part of the merchandise account, is anything owing on the merchandise account?
Background
In about 2002 the first defendant purchased a former dairy farm of about 3,000 acres at Meningie. The second defendant, Mr Toop, proposed subdividing the property but in the meantime he ran it as a cattle business. He would buy and sell substantial numbers of cattle using the services of stock agents, some of whom were employed by the plaintiff. Annual sales of cattle by the first defendant were of the order of $3 million. Stock agents’ commissions were between 5 and 7 per cent. The business was operated in the name of the first defendant.
The purchases of stock through stock agents employed by the plaintiff were made on credit. Payment for such purposes was made by the first defendant relatively quickly, within 7 to 14 days of an invoice being rendered. The sums involved in those transactions were quite substantial.
In addition to transactions for the sale and purchase of livestock the first defendant would purchase from the plaintiff’s Meningie shop items of merchandise for use on the farm. The sums involved in these transactions were relatively modest, of the order of $1,000 per month. These purchases were also made on credit. However payment for merchandise was made some 30 days after receipt of the invoice.
Although the terms of trade for the livestock on the one hand, and the merchandise on the other were different, there was only one account with the plaintiff for both classes of purchase until November 2008.
At the trial the plaintiff presented its case by the tendering of documentary exhibits. For the defence, the second defendant, Mr Toop, gave evidence and the defendant called a former employee of the plaintiff, Ms Renee Davy. Ms Davy was manager of the plaintiff’s Meningie branch office from about 2006. Her duties related largely to the sale of merchandise from the shop, but it appears that she did some at least of the bookwork relating to the livestock sales. She was not involved in the actual livestock sales herself. That work was done by the stock agents.
In about November 2008 it is common ground between the parties that the plaintiff sought to separate customers’ accounts dealing with livestock and merchandise. Henceforth customers would have one account for livestock and a separate account for merchandise, although the terms of trade would remain as they had been for each, that is, 7 to 14 days for livestock purchases and 30 days for the merchandise.
In November 2008 Ms Davy received instructions from the plaintiff’s head office to set up separate accounts for customers. Following that instruction Ms Davy contacted Mr Toop and told him that henceforth he would have to open a new account in order to continue making purchases of merchandise on credit. He would have to fill out an application for credit for that purpose.
I found Ms Davy to be an honest and reliable witness. Counsel for the plaintiff does not suggest otherwise. I am satisfied that she had not read or understood the legal effect of the agreement she was instructed to ask customers to sign in order for them to open the new credit account for merchandise. In her evidence she explained how she came to raise the topic with Mr Toop. She said that he was a few days overdue in paying a livestock account. She told him that if he did not open a new merchandise account, any overdue payment of a livestock invoice would prevent him from purchasing merchandise on credit. That is despite the terms of trade for merchandise being longer (30 days as opposed to 7-14 days).
On 30 November 2008, Mr Toop went into the Meningie office to open the new merchandise account.
The agreement
The agreement is a four page document entitled (on the first page) “Application for commercial credit”. Mr Toop filled it out and signed it himself. On the first page Mr Toop entered Temaru Holdings Pty Ltd as the customer and set out contact and other details of that company. Just above his signature on the first page is a heading in capital letters “DECLARATION FOR THE UNIFORM CREDIT CODE”. Under that heading, in small print, is a warning that the signatory might lose his protection under the Consumer Credit Code.
There appears on the second page, in small print, information relating to credit information and privacy. Mr Toop has signed in a box underneath the privacy clause. There follows on page two a box containing the application which has three paragraphs, and then a further box with details of the directors of the company. In paragraph two of the first box there is a line asking for the estimated monthly purchases. Mr Toop filled in “$3,000 – maximum”. In the line below that there is a question about the product to be purchased. Alongside that Mr Toop entered “Merchandise”.
On page three there are twenty-one clauses in small print under the heading “General Credit Terms”. The only passage of relevance in the determination of this case is clause 21 which defines various terms in the agreement. Sub-paragraph (e) says:
“Products” means all goods supplied by Landmark to the customer.
The plaintiff submits that this definition is sufficient to include the provision by the plaintiff to the defendants of the service of the transportation of cattle. I will return to that topic later.
Below the twenty-one clauses on page three is a box filled in and signed by Mr Toop signifying his agreement to the general credit terms set out above that. Below that box Mr Toop has written the following:
No supplies are to be made unless order number and signature for goods supplied. No excess on credit limit unless PG Toop personally approves purchase. This account for merchandise purchases only.
Mr Toop said that he wrote in those terms to stipulate that:
No goods should be supplied unless someone signed for them.
No goods should be supplied which would cause the account to exceed the agreed credit limit unless Mr Toop himself approved the purchase. That, he said, was to limit the purchases that could be made by his employees.
The account was to be for merchandise purchases only, and not, for example, for livestock.
Page 4 is headed “Guarantee and Indemnity”. There follows a prologue and twelve clauses in small print. The prologue and clause 1 read as follows:
In consideration of Landmark agreeing at the request of the customer named in the Application for Commercial Credit of which this Guarantee forms part (“Customer”) to sell goods or give credit to the Customer each person named as guarantor in the Schedule (“Guarantee”) in favour of Landmark in the following terms:
1Guarantee
The Guarantor unconditionally and irrevocably guarantees to Landmark the due and punctual payment of the Guaranteed Moneys and agrees:
(a)    To pay an amount equal to the Guaranteed Moneys from time to time owing and whether or not any prior demand is made;
(b)   Any statement signed by a Landmark director, secretary, manager or authorised representative certifying the amount of Guaranteed Moneys or the money owing by the Guarantor under his Guarantee is, in the absence of manifest error, binding and conclusive on and against the Guarantor;
(c)    This Guarantee is a continuing guarantee and remains in full force and effect until all the Guaranteed Moneys are paid or satisfied in full and is in addition to, and not prejudiced or affected by any other security or guarantee held by Landmark for the payment of Guaranteed Moneys.
(d)   The liabilities of the Guarantor and the rights of Landmark under this Guarantee are not affected by anything which might otherwise affected them at law or in equity; and
(e)    If any payment by the Guarantor under this Guarantee or by the Customer is avoided, set aside, ordered to be refunded or reduced rendered unenforceable by any laws relating to bankruptcy, insolvency or liquidation, hat payment will be taken not to have been made and Landmark is entitled to recover from the Guarantor the value of that payment as if the payment had never been made. This clause continues after this Guarantee is discharged.
Beneath the twelve clauses this passage appears:
I have read and understood this document. I have not relied on anything said to me by the Customer or Landmark as to what it means or what its effect may be.

SIGNED by each Guarantor in the presence of the witnesses named below.
Beneath that is a Schedule for the guarantor (so described in the Schedule) to sign. Mr Toop signed the Schedule. Below the Schedule is the date filled in by Mr Toop. Then this passage appears:
IMPORTANT NOTICE: This is an important document. It may require you to pay someone’ else’s debt. You should ensure that you read and understand the terms of this Guarantee. If necessary, seek independent legal advice.
Below that Mr Toop has written:
NOTE: Conditions of Trade.
Thus the “important notice” appears immediately under the date filled in by Mr Toop and immediately above the note written in by him.
Execution of the guarantee
Mr Toop and Ms Davy both say that Mr Toop was in the Landmark office in Meningie for 20 to 30 minutes filling in the forms. Mr Toop says he has no recollection of Ms Davy ever mentioning the word “guarantee”.[1] Nevertheless he knew what a guarantee was.[2] He said he was uncomfortable with giving personal guarantees.[3] He had previously given personal guarantees to banks for loans[4] but he said not for other credit providers.[5] However he was presented in cross-examination with a guarantee he had executed for a company called Hino Financial Services. He acknowledged the transaction and said he regarded that company as a bank.[6] He said he did not recall reading “Guarantee” in the documents he signed. He said he did not read critical passages in the documents. He trusted Ms Davy and signed because she had explained to him that head office required accounts for livestock and merchandise to be kept separate.
[1]    T199.
[2]    T74.
[3]    T74.
[4]    T163.
[5]    T162.
[6]    T164.
I found Mr Toop to be a generally honest and reliable witness. He spoke in moderate terms. He conceded propositions adversely put to him in cross-examination. He was, I find, an experienced businessman, accustomed to taking part in business transactions involving substantial sums of money.
I accept that Mr Toop’s principal attention in executing the documents on 30 November 2008 was in obtaining credit for the purchase of merchandise – effectively applying to the plaintiff for a credit account for the purchase of merchandise. That said, I think he must have been conscious of executing a personal guarantee for his company’s credit. However uncomfortable he might have been in offering a personal guarantee to a non bank credit provider, he must nevertheless have known that that is what he was doing. The words on page 4 of the agreement make that clear at several points.
The High Court has held that a person’s signature will ordinarily be taken to be binding, particularly where the signature appears adjacent to relevant cautions. In Toll (FGCT) Limited v Alphapharm Pty Ltd (2004) 219 CLR 165 at [45] the court said:
It should not be overlooked that to sign a document known and intended to affect legal relations is an act which itself ordinarily conveys a representation to a reasonable reader of the document. The representation is that the person who signs either has read and approved the contents of the document or is willing to take the chance of being bound by those contents, as Latham CJ put it, whatever they might be. That representation is even stronger where the signature appears below a perfectly legible written request to read the document before signing it.
Mr Toop’s commercial experience, the business-like nature of the transaction and the words of the documents, particularly page 4, the guarantee, make it clear, in my view, that he should be held to the terms of the guarantee. However it is the meaning of those terms which must be gleaned. What was he guaranteeing? Was he guaranteeing the purchase of merchandise, but not livestock? If that is so, what goods or services are included in the term “merchandise”? Is he to be held responsible for items appearing on the merchandise account even if they were put there erroneously?
The meaning of the guarantee
The meaning of the terms of a commercial contract is to be determined by reference to what a reasonable business person would have understood those terms to mean. In Electricity Generation Corporation (trading as Verve Energy) v Woodside Energy Ltd and Ors (2014) 306 ALR 25 and [2014] HCA 7 at [35] the plurality judges said:
Both Verve and the Sellers recognised that this Court has reaffirmed the objective approach to be adopted in determining the rights and liabilities of parties to a contract. The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding "of the genesis of the transaction, the background, the context [and] the market in which the parties are operating". As Arden LJ observed in Re Golden Key Ltd, unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption "that the parties ... intended to produce a commercial result". A commercial contract is to be construed so as to avoid it "making commercial nonsense or working commercial inconvenience.
The plaintiff submits that the words of the agreement cannot reasonably be read to mean that the application for credit, or the guarantee, were limited to purchases of goods from the plaintiff’s shop. The plaintiff submits that Mr Toop’s liability arises in several possible ways as follows:
The guarantee expressly relates to all moneys payable to the plaintiff. Paragraph 1 of the guarantee begins:
The guarantor unconditionally and irrevocably guarantees to Landmark the due and punctual payment of the Guaranteed Moneys ... “Guaranteed Moneys” is defined in paragraph 11 to mean “all moneys which are, will or maybe at any time in the future, owing or payable to by the customer for any reason whatsoever. It includes, without limitation, money by ay of principal, interest, fees, costs, indemnities, charges, duties or expenses or payment of liquidated damages ...
(the quote “All Moneys” liability.
If, contrary to the plaintiff’s primary submission, the guarantee is limited to purchases of merchandise, then merchandise is to be interpreted to include livestock. Although merchandise is a word used by Mr Toop and Ms Davy, and was written into the agreement by Mr Toop, the word should not be interpreted narrowly to exclude livestock. (The “all goods” liability).
If, contrary to the plaintiff’s primary submission, the guarantee is limited to purchases recorded on the merchandise account, then the guarantee applies to the $27,000 for livestock which was recorded on that account. That is even if the transaction was erroneously so recorded by the plaintiff’s staff (the merchandise account liability).
Alternatively to the foregoing paragraph, Mr Toop’s liability for the livestock transport item extends at the very least to $3,000, the limit he placed on items placed on that account (the “limited merchandise account” liability).
I reject the plaintiff’s primary submission that Mr Toop is liable to the plaintiff for all moneys it advanced to the defendant company. I explain why.
I have already referred to the principle of construction of a commercial agreement that the meaning of the contract is to be determined by what a reasonable business person would have understood them to mean. However that does not assist greatly in determining what is meant by what I describe as the “all moneys” part of the guarantee. The words themselves are reasonably clear. The question focuses instead on what is to be made of Mr Toop’s apparent inattention to those words when he signed the guarantee and what is to be made of his insistence that the document relates only to merchandise. I say “insistence” because Mr Toop took the trouble to make hand written addenda to the document.

Ms Davy agrees that in the words exchanged by them the understanding was that the document related to just merchandise. But Mr Toop did not rely on the spoken words alone. Each of the addenda that he made seeks, in my view, to limit the document to the purchase of merchandise. That is consistent with what both witnesses say was the whole point of their meeting on 30 November 2008. Ms Davy was telling Mr Toop that her employers required there to be a separation between purchases of livestock on the one hand and merchandise on the other. A new account had to be opened for merchandise. Credit would be extended for the purchase of merchandise, but unlike livestock, there would be a limit to that credit. No limit was ever fixed to the credit for the purchase of livestock. Mr Toop specifically nominated $3,000 as the limit on merchandise.
It is pertinent to note that at the plaintiff’s head office someone unilaterally changed that figure to $30,000. There was no subsequent communication between the plaintiff and the defendants about that change. The document that Mr Toop signed had specified a credit limit of $3,000.
Mr Toop’s first addendum to the document is at the top of page 1. He has written “Merchandise account” under the typed heading “Application for commercial credit”.
He filled out paragraph 2 on page 2 nominating $3,000 as the maximum estimated monthly purchases. In the following line he specified “merchandise” as the product to be purchased. The second line might fairly be said not to be an addendum. He was specifically invited to nominate the product, but the word “maximum” after $3,000 in the first line is an addendum.
At the bottom of page 3 Mr Toop has stipulated that the account was for “merchandise purchases only” and he has inserted conditions relating to how purchases are to be authorised.
His notation at the bottom page 4 is not so clear. It simply says “Note: Conditions of trade”. However that note may be read as his notation on the guarantee page that the earlier notes regarding the conditions of trade should apply to the guarantee.
Mr Toop said in evidence that he would never have given a personal guarantee for the purchase of livestock. He could choose which stock agents to engage for that purpose. He did not always engage the plaintiff’s stock agents. However no other agents had ever sought a guarantee. He did not believe that the plaintiff’s agents were doing so, but if he had thought that they were doing so he would have dealt with those who did not. I accept his evidence on that topic.
I think that Mr Toop was taking active steps in his completion of the document to make up for his inattention to the details of the small print. All numbered paragraphs of the guarantee are in fact in small print.
In Crane Distribution Limited v Minichelli [2013] NSWSC 1611 (6 November 2013) Lindsay J has discussed the construction of a guarantee. His Honour was there construing the import of a party signing a single page which was part of a larger guarantee document which had already been signed. That case did not involve the addition of terms of the sort seen in this present case.
Lindsay J posed the question of how the objective test is to be applied. He did so in these terms at paragraph 75:
In colloquial terms, objectively what would a reasonable person think he was doing when he signed the second set of documentation?
His Honour held that the signatory had bound himself to the guarantee. But there were two significant differences between that case and this. His Honour specifically put aside any suggestion that there was in that case an allegation that the relevant clauses would not reasonably be taken to have been brought to the attention of the signatory.[7] In the present case the “all moneys” provisions would not have been obvious to Mr Toop.
[7] See paragraph 79(2).
Further, his Honour found that the signatory had “voluntary assumed the risk of any inattention given by him to the document he signed”.[8] In the present case Mr Toop has taken positive steps to avoid the risks of his admitted inattention. I think that case is distinguishable.
[8] See [90].
It is significant to note that upon the signed documents being sent to the plaintiff’s head office there was no further communication on the topic. The plaintiff gave no indication of being unwilling to accept the handwritten addenda which, on their face, seek to limit the agreement to the purchase of merchandise. The only thing the plaintiff did was to unilaterally increase the limit from $3,000 to $30,000. It might be noted that it is not suggested that even a limit of $30,000 would have been sufficient for the defendant company’s purchases of livestock, but it was more than sufficient for the purchases of merchandise from the store. Those purchases continued to be of the order of $1,000 per month, with the exception of $27,000 item for livestock transport, but that item raises other questions.
I find that the application for commercial credit and the attached guarantee relate only to the purchase of merchandise, and do not make Mr Toop liable to the plaintiff under the guarantee for all moneys owing to the plaintiff.
What is merchandise?
There are several bases upon which the plaintiff submits merchandise should be held to include livestock and livestock transport. One basis is that the consent judgment against the first defendant estops the second defendant from suggesting otherwise. I will deal with that question separately.
Another basis is that the word “merchandise” may reasonably be interpreted to include livestock and related matters. Mr Rowley drew my attention to the Queensland case of Renwall Fabrics Ltd v CMR of Stamp duties; Kimberly Pastoral Co Ltd (1979) BC8221224 where Campbell J recited that that State’s Sale of Goods Act define “goods” to include all chattels personal, and that therefore includes livestock.[9] In my view a legislative definition cannot be used to interpret a contractual term.
[9] See p 6.
Mr Rowley further submitted that it is not permissible in construing the meaning of an agreement to go beyond the words of that agreement unless there are special circumstances, including misrepresentation. The words in the document are clear, he submits.
I think it is all too plain from the dispute between the parties that the words alone are not clear. It is not clear that “merchandise” written into the agreement several times, includes livestock, even less so in the case of the transport of livestock. In my view it is necessary to have regard to the circumstances which gave rise to the addition of the word “merchandise”. The High Court has approved recourse to such assistance. In Toll v Alphapharms supra, the court said at [40]:
The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That normally requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction.
A highly relevant circumstance is thus the purpose of the transaction. The very purpose of the parties entering this agreement was to keep separate the purchase of merchandise and livestock. That purpose was in fact the plaintiff’s purpose. The plaintiff took the initiative. For his part Mr Toop was willing to fall in with the plaintiff’s purpose, but plainly only on the understanding that the new line of credit was for the purpose of purchasing merchandise only. He insisted on inserting that word in the documents. He placed limits on those purchases. He proposed a limit of $3,000 and he laid down conditions of authorisation. “Merchandise” was his word. It does not appear elsewhere in the plaintiff’s form. The word was in common usage by Mr Toop and Ms Davy on the day Mr Toop signed the documents. I find that they both understood that the new arrangement was to apply to merchandise from the shop as distinct from livestock. I do not believe that Ms Davy misrepresented the agreement. On the contrary, she carried out her employers instructions as best she understood them. However it is equally clear that Ms Davy’s words in carrying out those instructions induced Mr Toop into signing the documents, albeit on his own terms.
I find that the agreement, including particularly the guarantee, relates to merchandise purchased from the store only, and does not relate to the purchase or transport of livestock.
Further, I find it plain that the entry of the invoice for livestock transport on to the merchandise account was an error by the plaintiff’s staff and does not make the guarantee apply to it. That account was never intended to be for livestock transport. Quite apart from the other considerations I have already referred to, Mr Toop’s insertion of the $3,000 credit limit adds to the reasons why that is so.
Issue Estoppel/Res Judicata
I do not accept that the consent judgment entered in this court against the first defendant[10] operates as an issue estoppel or res judicata denying the second defendant’s assertion that he is not liable under the guarantee.
[10] Exhibit P1 tab 33.
The judgment sum of $673,627.68 is for monies owed by the first defendant to the plaintiff for livestock, and it includes the $27,000 for livestock transport, the item erroneously entered on the merchandise account. The consent judgment means no more than that the first defendant accepts liability for the livestock transport item. It says nothing about the correctness of that item appearing of the merchandise account. The first defendant accepted liability for that item. The second defendant’s liability depends separately upon the enforceability against him of the guarantee. The consent judgment does not affect that enforceability.
Conclusions
I find that the guarantee signed by the second defendant is enforceable in respect of only purchases of merchandise from the store.
I find that the guarantee is not enforceable in respect of livestock or the transport of livestock.
I find that the consent judgment entered against the first defendant does not act as an issue estoppel or res judicata in respect of the second defendant.
I dismiss the claims of the plaintiff.