Lisciandro v Official Trustee in Bankruptcy

[1996] FCA 727

CATCHWORDS

BANKRUPTCY - appeal against decision dismissing application to set aside trustee’s admission of a proof of debt arising out of a guarantee provided by the appellant in support of a credit application by the company of which he was a director, on grounds that the guarantee was unenforceable.

GUARANTEE - enforceability - unconscionable transaction - whether creditor put on inquiry as to whether guarantor in position of disadvantage.

GUARANTEE - enforceability - whether person procuring guarantor’s signature is acting as the agent of the creditor - whether procurer’s conduct attributable to corporate creditor under s 84(2) the Trade Practices Act.

GUARANTEE - construction - permissible to insert words obviously omitted in order to prevent absurdity and give effect to mutual intentions of the parties to the instrument.

APPEAL - application to adduce further evidence - whether a party will be permitted to depart from the way that party deliberately elected to conduct proceedings at first instance - whether the further evidence would in any event have produced a different result if tendered at the initial hearing.

Bankruptcy Act 1966 (Cth) - ss 99(1)
Federal Court of Australia Act 1976 (Cth) - s 27
Trade Practices Act 1974 (Cth) - ss 84(2), 87

Cases Considered

Alderton v Prudential Assurance Co Ltd (1993) 41 FCR 435
Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549
Bank of Credit and Commercial International SA v Aboody [1990] 1 QB 923
Barclays Bank Plc v O'Brien [1994] 1 AC 180
Blest v Brown (1862) 4 De G F & J 367
Bradley West Solicitors Nominee Co Ltd v Keeman [1994] 2 NZLR 111
Burke v State Bank of New South Wales Limited (1994) 37 NSWLR 53
Caltex Oil (Australia) Pty Ltd v Alderton and Knox [1964-1965] NSWR 456
Chaplin & Co Ltd v Brammall [1908] 1 KB 233
CIBC Mortgages Plc v Pitt [1994] 1 AC 200

Commercial Bank of Australia v Amadio (1982-3) 151 CLR 447
Contractors Bonding Ltd v Snee [1992] 2 NZLR 157 (CA)
Eshelby v Federated European Bank Ltd [1932] 1 KB 254

Ex parte Whelan [1986] 1 Qd R 500
Fitzgerald v Masters (1956) 95 CLR 420
Garcia v National Australia Bank Ltd (1993) 5 BPR 97,426
Hart v O’Connor [1985] 1 AC 1000
HG & R Nominees Pty Ltd v Fava (1995) V Conv R 54-322
International  Harvester Co of Australia Pty Ltd v Carrigan’s Hazeldene Pastoral Co (1958) 100 CLR 644
Kingsworth Trust Ltd v Bell [1986] 1 WLR 19
Louth v Diprose (1992) 175 CLR 621
Maddestra v Penfolds Wines Pty Ltd (1993) 44 FCR 303
Makhoul v Barnes (1995) 60 FCR 572
Mercantile Credits Ltd v Harry [1969] 2 NSWR 248
Midland Bank v Sheppherd [1988] 3 All ER 17
Randall v GR Client Mortgages Pty Ltd (Supreme Court of Victoria, Court of Appeal, unreported, 2 August 1995)
Re Harris (1930) 2 ABC 77
Relwood Pty Ltd v Manning Homes Pty Ltd [1990] 1 Qd R 481
Toronto Dominion Bank v Wong (1985) 65 BCLR 243 (CA)
Trade Practices Commission v Queensland Aggregates Pty Ltd [No 2] (1982) 61 FLR 52
Trade Practices Commission v Sun Alliance Australia Ltd (1994) ATPR 41-268
Turnbull & Co v Duval [1902] AC 429
University of Wollongong v Metwally (No. 2) (1985) 59 ALJR 481
Walplan Pty Ltd v Wallace (1994) ATPR 41,286
Water Board v Moustakas (1988) 180 CLR 491

Case Not Followed

Challenge Bank Limited v Pandya (1993) 60 SASR 330

CONO LISCIANDRO v OFFICIAL TRUSTEE IN BANKRUPTCY
QG 31 of 1996

RYAN, DRUMMOND AND COOPER JJ
BRISBANE
16 AUGUST 1996

IN THE FEDERAL COURT OF AUSTRALIA     )          No. QG 31 of 1996
QUEENSLAND DISTRICT REGISTRY              )
GENERAL DIVISION  )

ON APPEAL FROM A JUDGE
  OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:   CONO LISCIANDRO

Appellant

AND:             OFFICIAL TRUSTEE IN BANKRUPTCY

Respondent

MINUTES OF ORDERS

JUDGES MAKING ORDER:         Ryan, Drummond and Cooper JJ
DATE OF ORDER:  16 August 1996
WHERE MADE:  Brisbane

THE COURT ORDERS THAT:

The appeal is dismissed.

The appellant bankrupt pay Alminco Pty Ltd’s costs of and incidental to the application to extend time to apply for leave to appeal, the application for leave to appeal, and the appeal.

1.  The Official Trustee’s costs of the application to extend time to apply for leave to appeal, the application for leave to appeal, and the appeal (if any) be paid out of the appellant’s bankrupt estate.

NOTE:           Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA     )          No. QG 31 of 1996
QUEENSLAND DISTRICT REGISTRY              )
GENERAL DIVISION  )

ON APPEAL FROM A JUDGE
  OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:CONO LISCIANDRO

Appellant

AND:OFFICIAL TRUSTEE IN BANKRUPTCY

Respondent

Coram:          Ryan, Drummond and Cooper JJ
Place:            Brisbane
Date:              16 August 1996

REASONS FOR JUDGMENT

RYAN AND DRUMMOND JJ:

This is an appeal from an order of a judge of the Court (Kiefel J), who dismissed an application by the appellant bankrupt pursuant to s 99(1) the Bankruptcy Act 1966 (Cth) to set aside the decision of the Official Trustee in Bankruptcy admitting to proof a debt claimed to be due by the appellant to Alminco Pty Ltd under a guarantee.  The Official Trustee undertook to abide the order of the Court; opposition to the appeal comes only from Alminco.

The appellant contends that Alminco's claim on the guarantee should never have been admitted to proof because the guarantee was not enforceable against him.  Guarantees in identical terms were given to Alminco in respect of the indebtedness of a company, "TAG Industries Pty Ltd T/A Maintenance Programmes Engineering", by the appellant, a Mr Tagliapietra and a Mr Radford; the guarantee each signed was incorporated in an application for credit terms of trade lodged by Mr Radford on behalf of TAG Industries with Alminco.  In this credit application, each of these three persons was described as a director of TAG Industries.  Kiefel J found that the appellant, who has a limited command of English, executed the guarantee without knowing what it was he was signing; he did this at the request of Mr Radford, a friend of his, to accommodate Mr Radford, who wanted to set up TAG Industries as a vehicle for his expanding business.  Mr Radford had operated this business for some years under the name "Maintenance Programmes Engineering".  He was an undischarged bankrupt and it was for this reason that he asked the appellant and Mr Tagliapietra to be directors of the new company.  Kiefel J found that it was as a result of misrepresentations made to the appellant by Mr Radford concerning the guarantee, combined with the abuse by Mr Radford of the friendship and trust placed in him by the appellant, that the latter executed the guarantee.

Her Honour held that in so far as the appellant's challenge to the guarantee depended on whether the principle in Commercial Bank of Australia v Amadio (1982-3) 151 CLR 447 applied to the circumstances of the case, there was nothing to show that Alminco had any knowledge of Mr Lisciandro's position of disadvantage vis-a-vis Mr Radford and that there was nothing in the circumstances of
the case known to Alminco to put it on inquiry as to Mr Lisciandro's circumstances or as to his understanding of the transaction involving the guarantee.  Her Honour also rejected an argument, based on the decision of King CJ in Challenge Bank Limited v Pandya (1993) 60 SASR 330, that Alminco was bound by Mr Radford's conduct in inducing Mr Lisciandro to execute the guarantee because, in that respect, he acted as Alminco's agent. The appellant, at first instance, also unsuccessfully sought to fix Alminco with responsibility for Mr Radford's misconduct in reliance on s 84(2) the Trade Practices Act 1974 (Cth), by applying for an order under s 87 avoiding the guarantee.

On the hearing of the appeal, the appellant sought to adduce further evidence pursuant to s 27 the Federal Court of Australia Act 1976 (Cth).  Counsel for the respondent did not object to this Court receiving certain documentary exhibits, which included the credit application containing the guarantee, and which had been handed to Kiefel J in the course of submissions, although not formally put in evidence.  However, counsel for the respondent otherwise objected to the reception of the further evidence.

The reason for the application to adduce further evidence lies in the procedure the appellant and Alminco agreed upon as that to be followed in the proceedings before Kiefel J, a procedure which her Honour described as "not altogether satisfactory".  The appellant's challenge to the enforceability of the guarantee had been fully litigated in a District Court trial between the appellant and Alminco.  But, after hearing all the evidence the parties wished to put before him, the
District Court judge dismissed the application on the ground that that Court had no power to adjudicate on the matter since it was stayed by force of the Bankruptcy Act 1966 (Cth), the appellant by that time having become bankrupt on his own petition.  In the proceedings before Kiefel J, the parties agreed to proceed on the basis of the transcript of evidence in the District Court; the witnesses in those proceedings confirmed the correctness of the facts stated by them and recorded in the transcript or, where the witness did not appear, the relevant transcript was put in evidence without objection.  There was no cross-examination.  As her Honour observed, the course adopted by the parties made it impossible for her to make findings in respect of the creditworthiness of critical witnesses and left important questions unexplained.  It was in these circumstances that, after a detailed examination of the evidence before her, Kiefel J came to her decision adverse to the appellant.

Counsel for the appellant submitted that the further evidence would establish two matters:  it would show first, that the appellant did not participate in the business that incurred the debts the subject of the guarantee, which was, in truth, Mr Radford's own business and secondly, it would establish circumstances demonstrating that Alminco should have been put on inquiry, which would have revealed the appellant's disadvantaged position.  It was not suggested that any of this further evidence had been unavailable to the appellant so as to preclude him from tendering it in the proceedings at first instance.

At the hearing of the appeal, we rejected the tender of the further evidence.  It is appropriate to state our reasons for so ruling.

It is apparent from the affidavit filed on behalf of the applicant in support of this application that the procedure followed below in arguing the case on the transcript of the evidence in the District Court proceedings was adopted as a result of a considered decision by the legal representatives of the parties, including counsel who then appeared for the appellant.  As a matter of general principle, it will be a rare case in which a party is permitted, on appeal, to depart from the way that party deliberately elected to conduct proceedings at first instance.  It is enough to refer to the statement by the High Court in University of Wollongong v Metwally (No. 2) (1985) 59 ALJR 481 at 483. That the principle is equally applicable to proceedings in bankruptcy cannot be doubted: see Makhoul v Barnes (1995) 60 FCR 572.

Moreover, if the further evidence had been before the primary judge, it would not have affected her Honour's decision.  Counsel for the appellant acknowledged that the first category of further evidence to which we have referred was relevant only to the relationship between the appellant and Mr Radford, a matter fully exposed in evidence at the hearing, and that the criticism he wished to direct at her Honour's judgment in this regard could therefore be made without reference to the further evidence.  The second category of further evidence was summarised by counsel as being directed to the action Alminco took to make checks with respect to TAG Industries, as an applicant for credit trading terms, before granting those terms to it and taking the guarantee from the appellant.  The further evidence in that category does not go beyond showing that one officer of Alminco, Mr Wilkinson, when handing the relevant credit application to the Alminco officer responsible for making credit checks, had speculated about whether the appellant and Mr Tagliapietra had bought
out Mr Radford's business.  It was said that Alminco realised the importance of making checks in connection with TAG Industries' application for credit terms, that some check had been done but that the only document which survived a fire at its offices and remained in Alminco's hands was the credit application itself to which we have referred.  There was evidence in the proceedings at first instance that Alminco had made some unspecified checks on TAG Industries in connection with this application for credit terms.  The evidence did not show whether Alminco had also made enquiries about the directors, ie, the guarantors, who included the applicant:  her Honour refers to that in her reasons.  However, no attempt has been made by the appellant to gather any evidence that might tend to establish just what checks were, in fact, made and what they would have revealed.  Given this, it is impossible to say that the further evidence, had it been before Kiefel J, might have led to a different result.  The evidence that an officer of Alminco speculated on whether the appellant had bought out Mr Radford is incapable of supporting the contrary proposition:  that evidence merely reinforces what her Honour had to say to the effect that Alminco knew nothing of the appellant's personal circumstances save that he was a director of the company TAG Industries and that he had, in that sense, an interest in the company which was seeking extended terms of trade.  No attempt was made to show why such speculation ought to have put Alminco on inquiry which might have revealed to it the appellant's position of disadvantage.

That the further evidence would not have produced a different result, had it been tendered at the primary hearing, explains why it is wholly inappropriate to allow the appellant to resile from the election, by his counsel, to conduct his case in
the way he did.  It also provides a separate reason, sufficient of itself, to justify the rejection of the proffered evidence.  Maddestra v Penfolds Wines Pty Ltd (1993) 44 FCR 303 was an appeal against the making of a sequestration order, in which the appellant bankrupt sought to tender further evidence, which had been available to him at the trial. A Full Court of this Court rejected the tender, saying, at 304-305:

"In Totterdell [v Nelson (1990) 25 FCR 523], this Court considered, but did not rule on the proposition that the principle governing the reception of further evidence on appeal, which is stated in cases such as Greater Wollongong City Council v Cowan (1955) 93 CLR 435, does not necessarily govern the reception of additional evidence in bankruptcy appeals because their outcome will directly affect the rights of creditors who are not parties to the proceedings and will also concern the public interest in the administration of the bankruptcy law. Even if the principle referred to in Totterdell v Nelson is applicable in appeals in bankruptcy cases, it cannot in our opinion free the party putting the further evidence forward from the obligation to show that it is of such cogency that, if it had been adduced at the initial hearing, it would in all likelihood have led to a different result."

The appellant's argument, in support of the various grounds of appeal, proceeded by grouping a number of these grounds together.  Essentially, the appellant challenged the decision below on five bases.

The first was that Kiefel J ought to have found that Mr Radford had no authority to bind TAG Industries to pay the debts in respect of which the appellant gave the guarantee.  This issue was not raised in the pleadings in the District Court (which were before her Honour) or in the hearing in that Court, the transcript of which was also before her Honour; nor was it raised at the hearing before Kiefel J herself.  This argument faces formidable difficulties, in view of the fact that the credit application
made in the name of TAG Industries Pty Ltd and which described the appellant, Mr Tagliapietra and Mr Radford as directors, was signed by each and identified Mr Radford's position as "Contracts/Purchasing Officer".  By signing this document, it can be said that the appellant held Mr Radford out as occupying a position in which he had ostensible authority to incur the debts in question.  But this issue is such that if it had been raised earlier, it would very likely have resulted in further evidence being adduced on the point.  It is therefore too late, for that reason, to raise that issue now.  See Water Board v Moustakas (1988) 180 CLR 491 at 497.

Next, the appellant challenged her Honour's finding that there was nothing in the circumstances to put Alminco on inquiry as to the appellant's own position.  Counsel relied on the fact that Alminco had, for some time, dealt with Mr Radford, who, it knew, traded as "Maintenance Programmes Engineering"; that it was when Mr Radford asked to be moved from a cash to a credit trading basis and Alminco required him to lodge a formal credit application that Alminco learned, for the first time, from the information contained in the completed application of the existence of TAG Industries Pty Ltd and of the appellant and that thereafter, Alminco continued to invoice "Maintenance Programmes Engineering", as it had done previously, rather than TAG Industries.  Counsel's argument was that this set of factual circumstances was sufficient to fix Alminco with constructive notice of the appellant's position of disadvantage vis-a-vis Mr Radford so as to prevent it enforcing the guarantee against him.  As we have said, her Honour disposed of this issue by applying the principle in Amadio.  Her Honour said:

"[T]he proper inquiry posed in Amadio will in a given case require simply a finding of fact, namely whether it is such that the possibility that something untoward may have occurred or which can be said to alert a creditor to the particular circumstances of the party to sign the security, is raised.  The fact that someone has a motive to obtain a guarantee or other security might not itself be sufficient if, for example, the other parties to provide security also have an interest in obtaining the funds.  It may be quite different however if that party has no known connection with the business or account of the principal debtor so as to alert them to the risk, or where it can be seen to be clearly contrary to their interests to do so.

In the present case Alminco could not be said to have known of any financial difficulties experienced by Mr Radford or that he was unlikely to be able to meet payments on the account.  It knew little of his background.  It knew nothing of Mr Lisciandro's personal circumstances, save that he was a director of the company TAG Industries, as in fact he was, and that he had in that sense an interest in the company.  It knew nothing of the trust he placed in Mr Radford nor indeed of any relationship between Mr Radford and Mr Lisciandro save for the business relationship appearing from the information provided.  It made no enquiry, but there was in my view nothing apparent from the circumstances to raise a question as to Mr Lisciandro's circumstances or understanding of the transaction.  Whilst it would obviously be desirable if creditors made enquiries as a matter of course I do not understand the law to have proceeded to the point where it is required in all cases before a security document obtained can be enforced."

We can detect no error in her Honour's approach.  There is nothing in Amadio that lends support for the view, implicit in the appellant's argument, that whenever a third party provides security for another, the person taking the security is, for that reason alone, put on inquiry with regard to the circumstances in which the third party decided to accommodate the person for whose benefit the third party gave the security.  This is not in any event a case in which a debtor produces to the creditor a security provided by a third party in circumstances in which the creditor knows or ought to know that the third party will derive no personal advantage from the provision

of the security, a factor that can be relevant, in appropriate circumstances, to whether the creditor is put on inquiry as to why the third party came to provide the security.  The material in Alminco's possession showed that the appellant had given his guarantee to procure a benefit sought by the company of which the appellant was a director, as were Mr Radford and Mr Tagliapietra, who each gave similar guarantees.  Mr Radford's business, which traded as "Maintenance Programmes Engineering", had dealt with Alminco for some years, purchasing materials from it on a cash basis.  Alminco only became aware of TAG Industries and of the appellant as one of its directors when, in response to a request by Mr Radford for his business to be granted 30 day terms of trade, it required the credit application to be completed.  The circumstances in which Alminco acquired this knowledge do not include any unusual feature sufficient to put Alminco on inquiry as to how Mr Radford came to procure the appellant's signature to the guarantee.  There was, instead, an entirely unremarkable explanation for that on the face of the credit application containing the executed guarantee, having regard to the circumstances in which that application had been produced:  the appellant gave the guarantee because he was a director of TAG Industries and that was one of the conditions Alminco required to be satisfied by that company before it would grant the extended terms of trade that had been newly sought.  Nor can the appellant get any assistance from the fact that, after provision of the guarantees, Alminco continued, as before, to invoice "Maintenance Programmes Engineering", rather than TAG Industries:  the credit application by TAG Industries describes it as "T/A [trading as] Maintenance Programmes Engineering".

The appellant next challenged her Honour's rejection of the attack on the guarantee based on the decision of King CJ in Challenge Bank Limited v Pandya, supra.  Her Honour referred to Santow J's refusal to follow Pandya in Burke v State Bank of New South Wales Limited (1994) 37 NSWLR 53 and said:

"Given the statements of principle in Amadio it seems to me, with respect, that there is no room for, nor the need for additional rules to apply in particular types of cases."

In Pandya, King CJ said at 343:

"The Court will not enforce a guarantee at the suit of creditor if it can be shown that the creditor entrusted the task of obtaining the alleged debtor's signature to the relevant document to someone who, as the creditor knew or ought to have known, was in a position to influence the debtor or had a motive for or interest in ensuring the execution of the document, and who procured the signature of the debtor by means of undue influence or by means of fraudulent misrepresentation."

In reaching this conclusion, King CJ relied upon statements in a number of English cases and justified the principle by observing, first, that a creditor should be liable for the misconduct of the person who procures the guarantee, where the creditor entrusts that person with the task of procuring the security knowing that he has a motive for, or interest in, securing the signature of the guarantor.  Secondly, where a creditor leaves the task of procuring the signature to a guarantee to another, "the law ought to impose a duty of care on the creditor to ensure that that other does not have a motive for or interest in securing the signature".

King CJ's view that it was the known interest of the person entrusted with the task of securing the signature of the guarantor that was critical in determining whether the creditor should bear responsibility for that person's actions is, in our opinion, inconsistent with Amadio in so far as it focuses on what is known by the creditor of the position of the person who procures the guarantee, whereas Amadio requires attention to be focused on what is (or ought to be) known by the creditor of the circumstances of the person who provides the guarantee.  Moreover, the decision in Pandya was given prior to the decision of the House of Lords in Barclays Bank Plc v O'Brien [1994] 1 AC 180 which, as her Honour observed, adopted a principle for resolving questions like the present similar to that adopted in Amadio.  The House of Lords there disapproved of the line of cases relied on by King CJ, in which this sort of problem has been resolved by the development of rules providing special protection for limited classes of persons.  The House also disapproved of statements in various English cases that fixed the creditor with knowledge of misconduct on the part of the person who procured the third party security on the basis of an artificial concept of agency.  The decision in Barclays Bank Plc v O'Brien, supra, based as it is on an equitable principle of general application, is inconsistent with the approach of King CJ in Pandya, who found justification for the rule he there formulated in the two special considerations we have referred to.  Pandya has not been followed in Australia, but has, instead, been the subject of reservations in those authorities in which it has been considered: see Burke v State Bank of New South Wales Limited, supra; HG & R Nominees Pty Ltd v Fava, a decision of JD Phillips J, reported in (1995) V Conv R 54-322, particularly at 66,184-5 and Randall v GR Client Mortgages Pty Ltd (Brooking, JD  Phillips & Charles JJA, unreported, 2 August 1995).  In our opinion, her Honour was
right in refusing to apply King CJ's statement of principle in Pandya in favour of the appellant.

It is unnecessary to decide whether the question of the enforceability of third party securities can, in Australia, ever be governed by the principle applied by the House of Lords in Barclays Bank Plc v O'Brien, supra, or whether the decision of the High Court in Amadio governs such questions, to the exclusion of other principles.  Even if it is open to the appellant to challenge the enforceability of a guarantee given by him, in reliance on Barclays Bank Plc v O'Brien, supra, that challenge must fail.  In that case, Lord Browne-Wilkinson, giving the judgment with which the other members of the House agreed, said the answer to the question whether a guarantee given by a wife for her husband's debts was enforceable by the creditor against her depended upon the application of general equitable principles relating to notice which govern whether equity will allow a later right to prevail over an earlier right, viz, on whether the known facts are such as to indicate the possibility of an adverse claim, something that is sufficient to put a third party on inquiry (see pp 195 and 197).  We have referred to the limited actual knowledge that Alminco had of the appellant's position when, in reliance on the guarantees that he, Mr Radford and Mr Tagliapietra had provided, it extended credit terms of trade to TAG Industries Pty Ltd.  For the reasons we have already given, there is nothing in the facts that were known to Alminco that should have led it to enquire whether the appellant may have had a good claim as against Mr Radford to avoid liability on his guarantee.  Paraphrasing the words of the House of Lords in CIBC Mortgages Plc v Pitt [1994] 1 AC 200 at 211, a judgment delivered the same day as that in Barclays Bank Plc v O'Brien, supra, on the facts known to Alminco, the appellant gave his joint and several guarantee as a director of TAG Industries, as did the other persons identified to
Alminco as his co-directors; there was nothing in the circumstances known to Alminco to indicate to it that this was anything other than a normal transaction in which a company was seeking credit terms of trade from Alminco, in return for which the directors were prepared to meet Alminco's requirement to offer their personal guarantees.

Next, it was argued that Mr Radford had acted as Alminco's agent in obtaining the guarantee from the appellant so that it followed, from general principles of agency, that Alminco was fixed with liability for Mr Radford's misconduct in procuring the guarantee.  The appellant relied on Alderton v Prudential Assurance Co Ltd (1993) 41 FCR 435 at 446. This was a case in which Heerey J held that the person who procured the third party security was, in effect, expressly authorised by the creditor to undertake that task on the creditor's behalf: the person procuring the security was thus the actual agent of the creditor to obtain it. In procuring the appellant's guarantee, Mr Radford was not doing anything for or on behalf of Alminco; nor was he doing anything to advance Alminco's interests. So far as Alminco was aware, what he was doing was confined to advancing the interests of TAG Industries Pty Ltd. TAG Industries could only get what it wanted from Alminco if it produced its directors' guarantees. The appellant pointed to the fact that, prior to the events in question, Mr Radford had been appointed by Alminco as its "service agent for North Queensland" for certain of its products. This appointment as Alminco's "service agent" did not invest Mr Radford with any authority, actual or ostensible, to act on behalf of Alminco in procuring the appellant's guarantee. Although Mr Radford had been called
Alminco's "service agent", his appointment did not bring into existence any relationship of principal and agent in the true sense, but rather was it, as Kiefel J held:  "in the nature of a licence permitting him to use Alminco's parts and equipment in his business since they were often in demand by his customers".

Next, it was contended that Kiefel J had erred in failing to apply s 84(2) the Trade Practices Act 1974 (Cth) to render Alminco responsible for Mr Radford's misleading and deceptive conduct in procuring the guarantee from the appellant.  The appellant relied on Trade Practices Commission v Sun Alliance Australia Ltd (1994) ATPR 41-286, which is, as are the cases to which her Honour referred, authority for the proposition that s 84(2) was intended to extend, and not merely reflect, the common law. Her Honour recognised the possibility that, by force of the sub-section, the conduct of someone like Mr Radford, who was associated in business with Alminco, but who was not authorised as its agent for the purposes in question, could still render the company liable. However, as her Honour also recognised, that would only be so if that person's conduct could be said to have been "engaged in on behalf of" the company or "at the direction or with the consent or agreement of" a servant of the company, such as Mr Watkinson, Alminco's service manager, with whom Mr Radford had the discussions about extended terms of trade for his business. In rejecting the appellant's reliance on s 84(2) in the proceedings before her, Kiefel J said:

"In the present case Alminco was dealing with Mr Radford as it would with any potential purchaser.  It was not asking him or directing him to pursue its own activities in the supply of equipment.  Rather, as a potential purchaser on credit, it required him to fulfil certain conditions.
From that point it was up to him to fulfil them or not, if he wished his company to transact business on that basis with Alminco.  In reality he was acting for them in the course of TAG's business or his own affairs and activities in obtaining the guarantees."

This conclusion is, in our respectful opinion, plainly correct on the facts of this case.

Finally, the appellant contended that Kiefel J wrongly gave the benefit of the ill-drawn guarantee to the creditor.  The guarantee is in these terms:

"Guarantees

I/We, whose name/s appear in the Schedule herein being the Proprietor(s)/Director(s) of TAG INDUSTRIES PTY LTD (the customer) request Alminco Pty Ltd to enter into agreement with the Customer to supply goods and materials from time to time and in consideration of Alminco /* the due payment by the Customer of all monies which the Customer may be liable to pay you on any account whatever and the punctual performance of all obligations under any such services, sale of goods and materials provided and in the event of any default by the Customer, I/We shall be deemed to become there upon the principal debtor(s) to Alminco Pty Ltd.  The granting of time or any other indulgence to the Customer will not affect liability hereunder and this guarantee shall not be limited to the amount of credit limit requested by the Customer."

It is apparent that words have been omitted where Kiefel J inserted the symbol "/*".  The appellant submitted, as he did at first instance, that, properly construed, the guarantee does not provide for the liability on the part of the appellant for which Alminco contended and that words such as "... so supplying/ we hereby guarantee" would need to be inserted at the point indicated to achieve that.  It was further submitted that it was not open to the Court, by any process of
construction, to read the guarantee as including such words because if it were to do that, the Court would be supplying the critical promise which was the foundation of Alminco's case against the appellant.  The appellant referred to the principle that "the liability of the surety is strictissimi juris and that ambiguous contractual provisions should be construed in favour of the surety":  Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549 at 561.

But it is well-established that it is permissible, in construing an instrument, to insert words obviously omitted in order to prevent absurdity and to give effect to the mutual intentions of the parties to the instrument, where that intent clearly appears either from the words of the instrument or from those words read against the background of the surrounding circumstances to which reference can be had in construing the instrument.  See Fitzgerald v Masters (1956) 95 CLR 420 at 426-7; Maddestra v Penfolds Wines Pty Ltd, supra, at 306 and Ex parte Whelan [1986] 1 Qd R 500 at 502-3.

A reading of the credit application in which the form of guarantee signed by the appellant is incorporated, shows beyond any doubt that the instrument executed by the appellant was offered as his guarantee, jointly and severally with the other "proprietors/directors" of TAG Industries Pty Ltd, of the due payment to Alminco by TAG Industries Pty Ltd of all moneys it may be liable to pay to Alminco; this guarantee was given in the context of an application on behalf of TAG Industries Pty Ltd to be granted 30 day credit terms of trade with Alminco, up to a maximum of $40,000 credit per month.  Given this, the guarantee can properly be construed as
including words like those suggested by counsel for the appellant to give effect to the clear intention of the parties to the transaction, as reflected in the words used in the instrument of guarantee, in the context of the credit application in which the guarantee appears.

So construed, there is no substance in the other arguments to the effect that the promise made by the appellant in the latter part of the guarantee to assume the obligation of Alminco to pay if that company defaulted is too uncertain to be enforceable.  The argument, even if otherwise well-founded, assumes that the omitted words cannot be supplied by an orthodox process of construction.

We would therefore dismiss the appeal.

We agree, for the reasons given by Cooper J in his judgment which we have read in draft, that the order as to costs should be that which his Honour proposes.

I certify that this and the preceding 17
pages are a true copy of the reasons for
judgment herein of the Honourable
Justice Ryan and the Honourable
Justice Drummond.

Associate:
Date:  16 August 1996

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION

On appeal from a Judge of the
Federal Court of Australia

No QG 31 of 1996

BETWEEN:

CONO LISCIANDRO

Appellant

AND:

THE OFFICIAL TRUSTEE IN BANKRUPTCY

Respondent

CORAM:  Ryan, Drummond and Cooper JJ
PLACE:  Brisbane
DATE:  16 August 1996

REASONS FOR JUDGMENT

Cooper  J

I have had the advantage of reading the reasons of Ryan and Drummond JJ in draft.  The material facts appear there and it is unnecessary for me to repeat them save where necessary to set the context for my own reasons. 

In March 1992 the appellant co-signed a credit application and guarantee addressed to a company Alminco Pty Ltd (“Alminco”).  The credit application on its face was made on behalf of a company, TAG Industries Pty Ltd (“TAG”), trading as Maintenance Programmes Engineering.  The appellant was shown as a director of the company and described as its Senior Sales Manager.  Marino Tagliapietra and Terry Radford were stated as being respectively, the Senior Maintenance Manager and the Contracts/Purchasing Officer,
and were also stated to be directors.  The application, on the second page, stated in part :-

“DATE INCORPORATED:  T RADFORD T/A MAINTENANCE PROGRAMMES ENGINEERING TRADING FOR 8 YEARS.  TAG INDUSTRIES INCORPORATED ON 21/02/92.  MAINTENANCE PROGRAMMES ENGINEERING PURCHASED BY TAG INDUSTRIES FROM T RADFORD ON 21.02.92.”

In fact, Radford was an undischarged bankrupt and was not a director of TAG.

Alminco supplied goods on credit to TAG.  However, TAG ultimately defaulted on payment and Alminco moved to exercise its rights against the sureties including the appellant.  This led to proceedings being filed on or about 2 June 1993 in the District Court at Mackay, Queensland by Alminco against the guarantors.  The trial of the matter took place on 16 December 1995.

On 21 October 1994 a sequestration order was made against the appellant on his own petition.  Because of the appellant’s status as a bankrupt the District Court judge who heard the trial concluded that the action was stayed.  In consequence, no judgment was given on the merits as to Alminco’s right to recover against the appellant under the guarantee.

On 16 May 1995 the Official Trustee in Bankruptcy (“the Official Trustee”) advised the appellant that the claim of Alminco had been admitted as a debt of $106,337.80 in his bankrupt estate.  The appellant applied to the court for an order that the proof of debt be expunged (s 99(1) Bankruptcy Act 1966 (Cth)). The application was heard by Kiefel J who dismissed the application. The appellant appeals by leave against the order dismissing the application.

Kiefel J found that the appellant executed the guarantee document in reliance upon the assurances of Radford that it would not cost the appellant anything and because he was not told the true nature and effect of the document. Such conduct, her Honour held, was misleading and deceptive within the meaning of s 52 of the Trade Practices Act 1974 (Cth). Her Honour also found that because of “his illiteracy and trust of Radford combined with misrepresentations, both positive and by omission” the appellant was placed in a special situation of disadvantage of the type discussed in Commercial Bank of Australia v Amadio (1983) 151 CLR 447.

The principal issues before her Honour, and on this appeal, were :-

(a)Whether Alminco was affected by the wrongful advantage taken of the appellant’s situation by Radford.

(b)Whether Alminco had knowledge, actual or constructive, of the appellant’s circumstances.

(c)Whether Radford was the agent of Alminco in obtaining the appellant’s execution of the guarantee and thereby bound by Radford’s conduct.

(d)Whether by s 84(2) of the Trade Practices Act 1974 (Cth) the misleading and deceptive conduct of Radford was deemed to be conduct engaged in by Alminco.

(e)Whether the guarantee was, as a matter of construction, enforceable against the appellant.

Issues (a), (b) and (c)
  The appellant submits that Alminco cannot retain the benefit of the guarantee
because :-

(a)It would be unconscionable for Alminco to enforce the guarantee because of the wrongful conduct of Radford in procuring the appellant’s signature to it.

(b)Alminco entrusted the task of obtaining the appellant’s signature to the guarantee to Radford who Alminco knew “had a motive for or interest in ensuring the execution of the document” and who procured the signature by misleading and deceptive conduct and/or misrepresentation.

(c)Radford was the agent of Alminco in obtaining the signature of the appellant and it was bound by his knowledge of the appellant’s special disability and his conduct in obtaining the signature to the guarantee.

(d)Alminco had constructive or imputed knowledge of the appellant’s circumstances and the circumstances in which the signature of the appellant to the guarantee was procured.

To succeed on the first submission the appellant must show some unconscionable conduct on the part of Alminco or something in the circumstances of the execution of the guarantee which makes retention and enforcement of the benefit of the guarantee by it unconscionable.  “What is necessary for the application of the principle is exploitation by one party of another’s position of disadvantage in such a manner that the former could not in good conscience retain the benefit of the bargain” (per Dawson J in Amadio at 489; see also Louth v Diprose (1992) 175 CLR 621 at 626, 630, 638). That equity requires that it is the conscience of the party receiving the benefit of the transactions which must be affected was made clear in the opinion of the Privy Council in Hart v O’Connor [1985] 1 AC 1000 at 1024. There, Lord Brightman said :-

“In the opinion of their Lordships it is perfectly plain that historically a court of equity did not restrain a suit at law on the ground of ‘unfairness’ unless the conscience of the plaintiff was in some way affected.  This might be because of actual fraud (which the courts of common law would equally have remedied) or constructive fraud, ie conduct which falls below the standards demanded by equity, traditionally considered under its more common manifestations of undue influence, abuse of confidence, unconscionable bargains and frauds on a power.  (cf Snell’s Principles of Equity, 27th ed (1973), pp 545 et seq).  An unconscionable bargain in this context would be a bargain of an improvident character made by a poor or ignorant person acting without independent advice which cannot be shown to be a fair and reasonable transaction.  ‘Fraud’ in its equitable context does not mean, or is not confined to, deceit;  ‘it means an unconscientious use of the power arising out of these circumstances and conditions’ of the contracting parties;  Earl of Aylesford v Morris (1873) LR 8 Ch App 484, 491.  It is victimisation, which can consist either of the active extortion of a benefit or the passive acceptance of a benefit in unconscionable circumstances.”

In these circumstances the focus is on the conduct of the party who seeks to take the benefit of the transaction.  Although the knowledge of that party as to the circumstances of the other party or the circumstances in which the transaction was concluded is a consideration, and an important one, in determining whether or not it would be unconscientious to retain the benefit of the transaction, it is not the only one.  I agree with Richardson J in Contractors Bonding Ltd v Snee [1992] 2 NZLR 157 (CA) where his Honour said (at 174) :-

“The focus must be on the conduct of those alleged to have acted unconscionably.  While any apparent unfairness of the bargain is a factor for consideration it is not the touchstone.  An unconscionability inquiry involves an assessment of all the circumstances of the particular case.  Whether the complainants were under a special disadvantage or disability;  whether they had independent advice;  whether the terms of the contract were significantly more favourable to one party than the other;  whether any special disadvantage or disability of one party was known or ought to have been known by the other and whether one applied unfair means or pressure to obtain the other’s assent, are obvious matters for inquiry.  But it is not sensible to speculate on other matters or what conjunction of factors may or may not be considered material in a particular case.  At the end of the day equity will intervene to deprive parties of their contractual rights where they have unconscionably obtained benefits or have accepted benefits in
unconscionable circumstances.  That is where they would be acting unconscientiously in receiving or retaining their bargain.”

If the circumstances of a particular case show that one party to the transaction in question was in a position of special disadvantage or disability, the logical next step is to determine what knowledge, if any, the party taking the benefit of the transaction had of the disability or the possibility of such a disability (Amadio at 466, 477, 485).

The fact that Radford engaged in wrongful conduct to obtain the signature of the appellant to the guarantee is not sufficient, without more, to make out a case of unconscionability because, without more, there is nothing which affects the conscience of Alminco in retaining and enforcing the benefit of the bargain (Amadio at 477; Contractors Bonding Ltd v Snee at 174 - 175, 176, 183; Garcia v National Australia Bank Ltd (1993) 5 BPR 97,426 at 12011 - 12012. In these circumstances, the appellant does not succeed on the first submission.

I turn now to the second and third submissions.

The appellant submitted that Alminco left it to TAG or Radford, who had a motive for securing the execution of the document, to obtain the signature.  In so doing, it is submitted, Alminco thereby constituted Radford as its agent.  Because of the agency, it is submitted, Alminco was fixed with notice of Radford’s knowledge and his conduct.  This submission is based upon certain statements of King CJ in Challenge Bank Ltd v Pandya (1993) 60 SASR 330. The Chief Justice there said (at 343) :-

“... The Court will not enforce a guarantee at the suit of a creditor if it can be shown that the creditor entrusted the task of obtaining the alleged debtor’s signature to the relevant document to someone who, as the creditor knew or ought to have known, was in a position to influence the debtor or had a motive for or interest in ensuring the execution of the document, and who procured the signature of the debtor by means of undue influence or by means of fraudulent misrepresentation.”

The words “or had a motive for or interest in ensuring the execution of the document” and including constructive or actual knowledge of that fact as part of the rule, are additions to the formulation of Neill LJ in Midland Bank v Sheppherd [1988] 3 All ER 17 at 22. The formulation of Neill LJ, with whom Balcombe LJ agreed, was based upon the judgment of Dillon LJ in Kingsworth Trust Ltd v Bell [1986] 1 WLR 19 at 123 - 124 which was itself based upon the decisions in Turnbull & Co v Duval [1902] AC 429 and Chaplin & Co Ltd v Brammall [1908] 1 KB 233. The whole line of authority was based on the supposition that the debtor who obtained the third party guarantee was the agent of the creditor (principal) to obtain the signature. The additional words inserted by King CJ in the formulation of Neill LJ were taken from the judgment of the English Court of Appeal in Bank of Credit and Commercial International SA v Aboody [1990] 1 QB 923. In that case, after affirming that the statement of Dillon LJ in Kingsworth Trust Ltd v Bell at 123 - 124 represented a correct statement of the agency principal in the circumstances in issue, Slade LJ said (at 972 - 973) :-

“Miss Williamson, for the bank, submitted that agency only was insufficient to found liability;  there must also be notice on the part of the creditor that undue influence would or might have been exercised.  We know of no basis in principle for this submission and we reject it.  Whilst it might at first sight appear to be supported by certain dicta in some of the cases cited to us, a careful perusal of those cases shows either that agency and notice were relied on in the alternative, or that the fact that the creditor entrusted the procurement of the execution of the guarantee to someone (the debtor) with a motive for ensuring its execution was one of the factors from which notice might be inferred.”

The notion that to leave a debtor or proposed debtor to obtain the signature of a third party guarantor is enough, without more, to create the debtor an agent of the creditor and thereby bind the creditor with the knowledge of the debtor and the consequences of the debtor’s conduct has been rejected in Canada, New Zealand, United Kingdom and Australia (see Toronto Dominion Bank v Wong (1985) 65 BCLR 243 (CA) at 249;  Contractors Bonding Ltd v Snee at 172, 175, 183; Barclays Bank Pty Ltd v O’Brien [1994] 1 AC 181 (HL) at 194 - 195; H G & R Nominees Pty Ltd v Fava (1995) V Conv R 54-522 at 66,183 - 66,185; Randall v G R Client Mortgages Pty Ltd (unreported, Supreme Court of Victoria, Court of Appeal, 2 August 1995, Brooking, J D Phillips and Charles JJA at 19 - 20).

If the appellant seeks to contend that Radford was the agent of Alminco, then he must, in accordance with the general principles of agency law, show either an appointment in fact or a holding out (Contractors Bonding Ltd v Snee at 172 - 175; H G & R Nominees Pty Ltd v Fava at 66,184).

The evidence in the present case goes no further than that TAG was forwarded an application for credit for completion and return if it wished Alminco to supply goods to it on thirty day credit terms.  In completing the form and obtaining the appellant’s signature, Radford was acting on behalf of TAG in its interests as completion and return of the document were necessary if the trading terms were to be extended to TAG. In that situation, Radford was not acting as agent for Alminco (Toronto Dominion Bank v Wong at 249;  Barclays Bank v O’Brien at 194;  Contractors Bonding Ltd v Snee at 172, H G & R Nominees Pty Ltd v Fava at 66,183).

Nor does the fact that Alminco described Radford in the letter of 24 January 1992 as “our service agent in North Queensland” assist the appellant.  The letter in full stated :-

“MR TERRY RADFORD proprietor of MAINTENANCE PROGRAMME ENGINEERING in Mackay is duly appointed as our service agent in North Queensland for the ‘ALMINCO’ ‘GOPHER’ roofbolter and ‘CUB’ borer.  MR RADFORD has been given comprehensive training on service and maintenance on the above items used in North Queensland coal mines at our workshop.”

As was said by the High Court (Dixon CJ, McTiernan, Williams, Fullagar and Taylor JJ) in International Harvester Co of Australia Pty Ltd v Carrigan’s Hazeldene Pastoral Co (1958) 100 CLR 644 at 652 :-

“... For almost a century cases have appeared from time to time in the law reports illustrating the fact that the word ‘agent’ is often used in business as meaning one who has no principal but who in his own account offers for sale some particular article having a special name:  see for example Wheeler and Wilson v Shakespear (1869) 39 LJ Ch 36.

Agency is a word used in the law to connote an authority or capacity in one person to create legal relations between a person occupying the position of principal and third parties.  But in the business world its significance is by no means thus restricted. ... But as Lord Herschell said in a much quoted observation ‘No word is more commonly and constantly abused than the word “agent”.  A person may be spoken of as an “agent”, and no doubt in the popular sense of the word may properly be said to be an “agent”, although when it is attempted to suggest that he is an “agent” under such circumstances as create the legal obligations attaching to agency that use of the word is only misleading’:  Kennedy v De Trafford (1897) AC 180, at p 188.”

The appellant makes out no basis that Radford was the agent of Alminco. 

It remains to consider whether Alminco had actual or constructive notice of
either the conduct of Radford in procuring the signature of the appellant to the guarantee or the appellant’s position of special disability.

As to the state of Alminco’s knowledge, Kiefel J found :-

“In the present case Alminco could not be said to have known of any financial difficulties experienced by Mr Radford or that he was unlikely to be able to meet payments on the account.  It knew little of his background.  It knew nothing of Mr Lisciandro’s personal circumstances, save that he was a director of the company TAG Industries, as in fact he was, and that he had in that sense an interest in the company.  It knew nothing of the trust he placed in Mr Radford nor indeed of any relationship between Mr Radford and Mr Lisciandro save for the business relationship appearing from the information provided.  It made no enquiry, but there was in my view nothing apparent from the circumstances to raise a question as to Mr Lisciandro’s circumstances or understanding of the transaction.  Whilst it would obviously be desirable if creditors made enquiries as a matter of course I do not understand the law to have proceeded to the point where it is required in all cases before a security document obtained can be enforced.”

The appellant does not challenge the factual findings of her Honour set out above save as to whether there were facts apparent to Alminco sufficient to raise a question as to the appellant’s circumstances or understanding of the transaction.

The facts which the appellant submits should have put Alminco on inquiry as to the appellant’s situation, broadly speaking, were that in January 1992 Alminco was dealing with Radford as an individual whom it trained and to whom it gave the “agency” letter dated 24 January 1992.  However, from 21 February 1992 that situation changed and TAG commenced to deal with Alminco, which fact became known by Alminco, at the latest, when it received the completed application for a thirty day credit account in the name of TAG in March 1992.  It was at that time that Alminco first became aware of the appellant and his
association with TAG.  The circumstances in which the change of relationship occurred, the existence of persons other than Radford being associated with the business, and the fact that a credit check was carried out prior to the granting of the credit, it is submitted, put Alminco on inquiry as to the appellant’s circumstances.

Before it can be said that Alminco was put on inquiry, the appellant must show that the facts as known to Alminco were such as would raise in the mind of any reasonable person a very real question as to the appellant’s ability to make a judgment as to what was in his interests.  In Amadio, Mason J stated the relevant principle (at 467) :-

“... In Owen and Gutch v Homan (1853) 4 HLC at p 1035 (10 ER at p 767), Lord Cranworth LC said:

‘ ... it may safely be stated that if the dealings are such as fairly to lead a reasonable man to believe that fraud must have been used in order to obtain’ [the concurrence of the surety], ‘he is bound to make inquiry, and cannot shelter himself under the plea that he was not called on to ask, and did not ask, any questions on the subject.  In some cases wilful ignorance is not to be distinguished in its equitable consequences from knowledge.’

The principle there stated applies with equal force to this case.  The concept of fraud in equity is not limited to common law deceit;  it extends to conduct of the kind engaged in by the respondents’ son when he took advantage of the confidence and reliance reposed in him to induce his parents to enter into a transaction in order to serve his ends, thereby depriving them of the ability to make a judgment as to what is in their interests.

As we have seen, if A having actual knowledge that B occupies a situation of special disadvantage in relation to an intended transaction, so that B cannot make a judgment as to what is in his own interests, takes unfair advantage of his (A’s) superior bargaining power or position by entering into that transaction, his conduct in so doing is unconscionable.  And if, instead of having actual knowledge of that situation, A is aware of the possibility that that situation may exist or is aware of facts that would raise that possibility in the mind of any reasonable person, the result will be the same.”

(See also Gibbs CJ at 458 - 459, Deane J, with whom Wilson J agreed, at 479;  Dawson J at
485 - 486).

The endorsement on the credit application that TAG had acquired the business previously carried on by Radford and that Radford, the appellant and Tagliapietra were interested in the company and directors of it ex facie would bespeak to a reasonable person that through an ordinary commercial transaction a company in which the appellant held the position of director and sales manager was the successor to Radford’s business.  The company sought a line of credit in accordance with Alminco’s pro forma application which provided for “TERMS NET CASH 30 DAYS” and to support the line of credit, directors’ personal guarantees were required and offered.  There is nothing unreal or out of the ordinary in those circumstances.  Nor can it be said that a credit check would have shown that Radford was not in fact a director of TAG.  There was simply no evidence of what checks were undertaken, what information was received and whether or not that information disclosed or would have disclosed that Radford was not a director of TAG.  On the evidence adduced, Radford sought from Watkinson of Alminco thirty day credit terms. Watkinson was a sales engineer.  He raised the matter with Sadler, the manager of Alminco, who instructed Watkinson to send out the requisite application form.  The form was sent in blank for Radford to complete and return if he wished to obtain the credit terms.  Radford received no instructions as to how the document was to be completed or executed.  The application details were all inserted by Radford and the document executed without reference to Alminco.  It was faxed back to Alminco from the office of TAG and acted upon thereafter to supply goods on credit.  These are ordinary everyday business occurrences.  There is nothing in them which would lead a reasonable person to believe that the appellant was in a position of special disability in respect of the proposed transaction and that Radford would wrongly take
advantage of that disability to procure the appellant’s agreement.

Without some additional relevant circumstances, neither the fact that a creditor entrusts the procurement of the execution of a guarantee by a third party to a debtor who has a motive or interest in its being executed, nor the fact that a guarantee is provided by the debtor from a person unknown to the creditor and who, on the material before the creditor, is not in an apparent emotional or influential relationship with the debtor, would objectively give rise to a belief in the mind of any reasonable person that the third party was a person in a position of special disability in respect of the transaction and that the debtor would wrongfully take unfair advantage of that disability to procure the guarantee, or that such was a reasonable possibility.  Neither of these situations satisfies the test for imputed constructive knowledge as stated in Amadio.  Nor does the test stated by King CJ in Challenge Bank v Pandya, if it is intended as an example of the circumstances in which notice is imputed, satisfy the test as laid down in Amadio.

In summary, the appellant fails to show that it would be unconscionable for Alminco to take the benefit of the guarantee.  The appellant has not shown that Alminco had any knowledge, whether actual or imputed, of the special disability of the appellant or the wrongful conduct of Radford.  The material relied upon by the appellant does not justify a finding that Radford acted as agent of Alminco to procure the guarantee from the appellant for Alminco.  Each of the submissions made by the appellant on issues (a), (b) and (c) fails.  These grounds of appeal therefore fail.

Issue (d)
For the appellant to succeed in the contention that s 84(2) of the Trade Practices Act 1974 (Cth) makes Alminco responsible for the conduct of Radford there must be a finding that Radford engaged in the misleading and deceptive conduct found by Kiefel J “on behalf of Alminco”. The finding that Radford was acting as agent and on behalf of TAG in seeking the credit, filling in the application form and procuring the directors’ guarantees in support of the application, is against any finding that he was at that time acting on behalf of Alminco. TAG wished to obtain goods on credit. In an everyday commercial context it took, by Radford, the first step necessary for Alminco to agree to the proposal, namely return of a completed application form to Alminco. On the facts which occurred Radford did nothing on behalf of Alminco and no basis has been shown for disturbing the finding of Kiefel J to that effect.

The observations referred to by the appellant in Trade Practices Commission v Queensland Aggregates Pty Ltd [No 2] (1982) 61 FLR 52 at 66, Walplan Pty Ltd v Wallace (1985) 8 FCR 27 at 37 and Trade Practices Commission v Sun Alliance Australia Ltd (1994) ATPR 41,286 at 41,847 - 41,848 as to the width of s 84(2) do not, on the facts of this case, make what occurred conduct engaged in on behalf of Alminco.

Issue (e)
  The appellant contends that the form of the guarantee is ambiguous and that it must be strictly construed in favour of the appellant (Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549 at 561). So construed, it is submitted, the document contains no statement of promise or obligation on the part of the appellant
sufficient to constitute an enforceable obligation on his part to pay any particular sum on any particular occasion.  It is submitted that Kiefel J erred by including a new term in the document which had the effect of providing the promise which was previously lacking.

True it is that contracts of guarantee are strictly construed in favour of the surety.  This is because the surety receives “no benefit or consideration” (Blest v Brown (1862) 4 De G F & J 367 at 376; see also Eshelby v Federated European Bank Ltd [1932] 1 KB 254 at 266 - 267). In practice, that means that a contract of guarantee “must be construed with reasonable and proper strictness as with every contract and that a surety is bound only according to the precise meaning and effect of the written agreement he has entered into”. (Relwood Pty Ltd v Manning Homes Pty Ltd [1990] 1 Qd R 481 at 487 per Lee J, with whom Macrossan CJ and Thomas J agreed; see also Mercantile Credits Ltd v Harry [1969] 2 NSWR 248). That does not mean that the ordinary rules as to construction of documents do not apply. Thus, in an appropriate case, the instrument of guarantee may be construed and carried into effect and enforced disregarding any meaningless provision. In Caltex Oil (Australia) Pty Ltd v Alderton and Knox [1964 - 1965] NSWR 456 (FC), Ferguson J, with whom Walsh J agreed, said (at 457 - 458) :-

“... It was said that unless violence be done to the words used, the document is a limited guarantee in which the amount of the limit does not appear;  and, further, that being a guarantee it should be construed strictly, to the intent that no liability should be found to be imposed that does not appear clearly to be imposed.  It was contended that the form of guarantee used was one appropriate to a limited guarantee and that the failure to insert in the appropriate place a limiting amount, rendered it void for uncertainty.

There does not appear to be any authority directly in point and those to which the Court was referred are of very little assistance.  The question is whether the real intention of the parties can be gathered from the language used.  In Gwyn v Neath Canal Navigation Co  (1868), LR 3 Exch 209, at p 215, Kelly, CB, thus stated the rule:  ‘The result of all the authorities is, that when a court of law can clearly collect from the language within the four corners of the
deed, or instrument in writing, the real intentions of the parties, they are bound to give effect to it by supplying anything necessarily to be inferred from the terms used, and by rejecting as superfluous whatever is repugnant to the intention so discerned.’

If the real intention of the parties can be gathered from the language used the guarantee is valid and enforceable.”

(See also Bradley West Solicitors Nominee Co Ltd v Keeman [1994] 2 NZLR 111 at 116 - 117).

Here the document is an application by TAG to Alminco for credit terms of up to $40,000 per month to be paid net cash thirty days.  So much of the document as is headed “Guarantee” forms part of the credit application and is to be read with it.  The heading “Guarantee” carries the concept that one or more persons will answer for any default of a third party in the discharge of an obligation due to that person’s obligee.  In the context of this application the obligation is prima facie the payment of money due net thirty days in respect of any credit given by Alminco to TAG. 

The first sentence of the guarantee section of the application is a request to Alminco by the three persons named at the bottom of the page to agree with TAG, the named “customer”, to supply goods and materials.  The phrase “and in consideration of Alminco” is incomplete.  However, it is obvious that the intention is that the consideration for the guarantee is to be the agreement to supply or supply by Alminco to TAG of goods and services from time to time.  Consideration need not be expressed on the face of the guarantee (s 56(2) Property Law Act 1974 (Qld)) although it may be so expressed. Therefore, the phrase can either be severed or added to by the insertion of the words “doing so”.

The phrase which contains the words “... the due payment by the customer ... ” is incomplete.  If it is deleted, the following would appear after the words constituting the request :-

“ ... and in the event of default by the Customer, we shall be deemed to become thereupon the principal debtor(s) to Alminco Pty.  The granting of time or any other indulgence to the Customer will not effect liability hereunder and this guarantee will not be limited to the amount of credit limit requested by Customer.”

So read, the obligation being undertaken is that of a debtor to Alminco in respect of money due for goods and material supplied by Alminco to TAG on credit.  The obligation being undertaken is that of a surety under a guarantee.  The alternative method of reading the instrument is to insert the word “guarantee” before the words “the due payment by the Customer of all monies which the Customer may be liable to pay to you ...” In either case, the obligation undertaken is, at a minimum, the payment of money due by TAG as a debtor to Alminco for goods and services supplied on credit.

Such a process of construction does not supply the promise by the appellant.  The obligation undertaken is patently obvious in the words remaining after the meaningless portion is ignored.  Likewise, the subject matter of the promise is also clear.  Kiefel J was correct in the view that the instrument took “effect as a guarantee by the applicant of TAG’s obligation to pay monies due by it to Alminco arising upon default”.  There is no substance to this ground of appeal.

Others Matters
  The appellant sought to rely upon further evidence not called on the hearing
before Kiefel J at first instance. At that time, a forensic decision was taken simply to tender the transcript of the proceedings in the District Court. There was no oral evidence and no cross-examination of witnesses before Kiefel J. The appellant made a conscious decision as to the conduct of the proceedings at first instance, the material which was sought to be tendered on the appeal was available to the appellant at the time of the application to her Honour, and upon examination, the content of the material is not such as to support a finding that Alminco was aware of the conduct of Radford or of the special disability of the appellant in relation to the giving of the guarantee. In those circumstances it is not a case where the exercise of a discretion under s 27 of the Federal Court of Australia Act 1976 (Cth) is justified (Makhoul v Barnes (1995) 60 FCR 572 at 576 - 577) and the court so ruled on the hearing of the appeal.

The appellant also sought on the appeal to argue that Radford was not authorised by TAG to obtain goods from and pledge the credit of TAG with Alminco.  This issue was never litigated before Kiefel J.  It was neither an issue before her Honour nor the District Court.  The question of Radford’s authority has not been factually or legally explored at any stage.  It is impossible to say that all possible relevant evidence is before the court and that this court on appeal can make the necessary findings of fact from the District Court transcript.  Further, counsel for Alminco does not concede that no further relevant evidence could be called.  It is too late to seek to avoid liability under the guarantee by now making a challenge to the authority of Radford to incur the principal debt.  In any event, as concerns Alminco, the description of Radford in the credit application as “CONTRACTS/ PURCHASING OFFICER” creates almost insuperable difficulties to the appellant making out the argument that Radford did not have at least ostensible authority to purchase on credit
from Alminco.

Conclusion
  I agree with Ryan and Drummond JJ that the appeal should be dismissed.

Costs
  The Official Trustee in Bankruptcy at the commencement of the appeal gave an undertaking to abide the order of the court and was given leave to withdraw.  The substance of the appeal has been argued by the appellant and Alminco.  Alminco submits that it should be paid its costs of the appeal and the application for leave to appeal out of the appellant’s bankrupt estate.  The basis of the submission is the contention that for all practical purposes, Alminco stood in the shoes of the Official Trustee on the appeal and that ordinarily, the Official Trustee would, by order of the court, recoup his costs and expenses from the appellant’s estate.

Alminco was obliged to resist the application if it wished to receive a dividend in respect of the claimed debt.  It is entitled to its costs against the appellant of the application to extend the time to apply for leave to appeal and on the application for leave itself.  It is also entitled to its costs of the appeal against him.

Should it be further ordered that Alminco have its costs out of the estate? The discretionary power to award costs on an application to expunge a proof of debt admitted by a trustee is contained in s 99(2) of the Bankruptcy Act. I do not accept the submission that Alminco stood in the shoes of the Official Trustee. Alminco contested the proceedings in its
own interest.  It has not done so for the benefit of the creditors generally. Alminco’s success has been of no benefit to the creditors generally, to the estate or to the Official Trustee’s administration of it.  In those circumstances there is no basis to exercise a discretion in favour of the order sought (Re Harris (1930) 2 ABC 77 at 78). Alminco’s costs should be paid by the appellant and not out of his bankrupt estate.

The Official Trustee has acted reasonably in respect of the matter of the proof and by leaving it to Alminco to resist the relief sought by the appellant.  The Official Trustee should have his costs of the application to extend the time to apply for leave to appeal, the application for leave itself and of the appeal (if any) paid out of the appellant’s bankrupt estate.

I certify that this and the preceding nineteen (19) pages are a true copy of the reasons for judgment of his Honour Justice Cooper.

Date:16 August 1996

Associate

Counsel for the appellant:  Mr N Samios

Solicitor for the appellant:  Bill Cooper & Associates

Counsel for the respondent, the
  Official Trustee in Bankruptcy:  Mr A G Bennett

Solicitors for the respondent, the
  Official Trustee in Bankruptcy:  Bennett & Philp

Counsel for Alminco Pty Ltd:  Mr R I Hanger QC

Solicitors for Alminco Pty Ltd:  Hawthorne Cuppaidge & Badgery

Date of Hearing:  23 April 1996