OneSteel Pty Ltd v Brassil
[2005] VSC 401
•10 October 2005
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. 7288 of 2003
| ONESTEEL TRADING PTY LTD (ABN 50 007 519 646) | Plaintiff |
| v | |
| GREGORY JAMES BRASSIL | Defendant |
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JUDGE: | HARGRAVE J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 29 September 2005 | |
DATE OF JUDGMENT: | 10 October 2005 | |
CASE MAY BE CITED AS: | OneSteel Pty Ltd v Brassil | |
MEDIUM NEUTRAL CITATION: | [2005] VSC 401 | |
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Contract – whether offer of guarantee accepted by creditor – whether guarantee extended to debts incurred prior to giving of the guarantee.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr M.W. Wise | Brand Partners |
| For the Defendant | Mr A. Flower | Chiodo Madafferi |
HIS HONOUR:
Introduction
The plaintiff is a manufacturer and distributor of steel products used in the construction, manufacturing, housing, mining and agricultural industries. Blue Frame Buildings Pty Ltd (in liquidation) (“Blue Frame”) is a company which, whilst it traded, conducted a business which included the fabrication of metal clad buildings for industrial, commercial and rural applications. The defendant is and was at all relevant times a director of Blue Frame and, I infer, the ultimate beneficial owner of all or a majority of the shares in Blue Frame.
The issues in the proceeding are straightforward. The plaintiff claims against the defendant the sum of $678,076.70 pursuant to an instrument of guarantee and indemnity executed by the defendant in respect of the debts of Blue Frame. Blue Frame is in liquidation.
In his further amended defence, the defendant put the plaintiff to its proof in respect of the indebtedness of Blue Frame. There was no issue at trial that this had been proved.
The defendant raises two defences. First, the defendant alleges that there is no guarantee in existence, because his counter-offer to guarantee the indebtedness of Blue Frame on terms which differed from the plaintiff’s standard form guarantee was rejected by the plaintiff. Secondly, if the guarantee did come into existence, the defendant contends that, upon its proper construction, the guarantee only applies to debts incurred by Blue Frame after the signing of the guarantee, or alternatively after the acceptance by the plaintiff of the defendant’s counter-offer to guarantee the indebtedness of Blue Frame on terms which differed from the plaintiff’s standard form guarantee. If this second defence is established, the amount of the plaintiff’s claim would be significantly reduced, as it includes claims in respect of the indebtedness of Blue Frame incurred prior to the execution of the guarantee.
There were some other issues pleaded in the final form of the pleadings, which have been abandoned. First, the plaintiff claimed interest on the principal sum owed by Blue Frame at a rate specified in the terms of trading between it and Blue Frame. In argument, this contractual claim to interest was abandoned and replaced with a claim to interest pursuant to statute. The defendant did not object to this. Secondly, in its reply, the plaintiff contended that the defendant was estopped from alleging that the guarantee was in effect at all material times. This estoppel was pleaded as based upon a convention between the parties that the trading between the plaintiff and Blue Frame proceeded on the assumption that the guarantee was in existence and was binding. No submissions were directed towards this issue in final address.
Finally, on the question of pleadings, I note that there are material inconsistencies between the way in which the defendant’s principal defence, that no guarantee came into existence, was pleaded in the original defence, the amended defence and the further amended defence. These inconsistencies may become relevant in determining the factual controversy which arises on the evidence.
Facts
Until its liquidation, Blue Frame had a lengthy trading history with the plaintiff. The plaintiff supplied metal products to Blue Frame pursuant to credit arrangements described as a “Metalcard Account”. The terms of the Metalcard Account included provision for a credit limit. Blue Frame commenced trading its Metalcard Account in 1988 with a credit limit of $75,000. As its business expanded, so did its credit limit. By January 2003, the Blue Frame credit limit was $600,000. At this time, Blue Frame was undergoing rapid expansion of its business, from the fabrication and erection of agricultural sheds and small to medium sized factories and warehouses, to include large commercial buildings for city developers. In this context, Blue Frame was having difficulty in trading with the plaintiff under its credit limit. Accordingly, a decision was made by the defendant and the financial controller of Blue Frame, Brian Hoskin, to approach the plaintiff and seek an increase in the Blue Frame credit limit from $600,000 to $1M.
The plaintiff referred the Blue Frame request for an increased credit limit to QBE Insurance (Australia) Ltd (“QBE”). This was in the context of QBE providing insurance cover to the plaintiff for losses arising where a customer becomes insolvent. As a result, Mr Hoskin met with Mr Lemans of QBE to discuss the financial position of Blue Frame and its plans for the future. During these conversations, Mr Lemans expressed concern about the Blue Frame trading history and was reluctant to approve an increase in the Blue Frame credit limit. However, Mr Lemans said that QBE would consider approving an increase in the Blue Frame credit limit if the defendant provided a director’s guarantee of the obligations of Blue Frame in respect of its Metalcard Account with the plaintiff.
The defendant was initially reluctant to provide a guarantee. Notwithstanding this, a copy of the plaintiff’s standard form guarantee was provided to Hoskin by the plaintiff’s Shepparton branch manager, Brett Connelly, in early March 2003.
In an e-mail from Mr Connelly to Suzi O’Connor, the plaintiff’s Victorian and Tasmania credit manager, dated 6 March 2003, Mr Connelly informed Ms O’Connor that he had been provided with a listing of the defendant’s personal assets. Mr Connelly said in his e-mail that he was forwarding this list of the defendant’s assets to QBE. Mr Connelly concluded his e-mail by stating that the defendant “has advised that he will not sign the guarantee unless we confirm to him a one million dollar credit limit”.
On 27 March 2003, prior to the approval by either the plaintiff or QBE of any increase in the Blue Frame credit limit, Mr Hoskin and the defendant sat down with the plaintiff’s standard form of guarantee which had been provided to Mr Hoskin by Mr Connelly on 6 March 2003. Mr Hoskin described what occurred in the following terms:
“Prior to 27 March 2003 Mr Brassil received a standard form Deed of Guarantee and Indemnity from OneSteel. Mr Brassil and I sat down with the document to ascertain whether it was acceptable for him to sign. I was particularly concerned to have clause 9 of the standard form document which provided for a Power of Attorney deleted. Mr Brassil wanted the document amended to provide for a 12 month limit. After consideration of all matters handwritten amendments were made to the standard form document. The changes were made by me, it is my handwriting on the document. Mr Brassil signed the document. I witnessed his signature. Mr Brassil also initialled the amendments to the documents (sic).
The signed document was then returned to OneSteel. Subsequently I had a conversation with Mr Connolly by telephone. He asked me what all the changes to the document were. I informed him that the changes had been made on careful consideration by myself and Mr Brassil and the amended document was the only basis upon which we were prepared to agree to a guarantee. Mr Connolly told me that he would present the document to OneSteel’s management but that in his view it would be unlikely to be accepted in its amended form.
I also told him that we would continue to trade with OneSteel on the same basis as before pending final agreement upon the guarantee.”
I will hereafter refer to the guarantee signed by the defendant, with handwritten amendments, as “the guarantee”.
Following the return of the guarantee to OneSteel, QBE continued its consideration of the Blue Frame application for an increase in its credit limit. By this stage, it was clear that QBE would not approve any increase unless Mr Brassil provided a guarantee. On behalf of the plaintiff, the matter was handled by Ms O’Connor, who did two things.
First, she sent a copy of the guarantee to the insurance broker acting for the plaintiff in its dealings with QBE. This was forwarded to Mr Lemans. The response of QBE was that it refused to make any comment on the validity of the guarantee. The e-mail advice from QBE in this regard stated:
“... we cannot comment on the validity of the g’tee. As you will be aware endorsements are made subject to an effective g’tee which must stand up in court. Please refer to g’tee clause on endorsements. We can say that if the g’tee expires after 12 mths then so will our endorsement unless they reapply for one without the g’tee before expiry. With respect to deletion of point 9 OneSteel should seek independent legal advice as to its effect on the g’tee as a whole.”
When this e-mail from QBE was forwarded to Ms O’Connor by the broker, the broker stated to Ms O’Conner:
“Please find QBE’s response below. As any Guarantee is a legally binding document, QBE will not comment on the validity of such. We suggest that you seek appropriate legal advice.”
Second, as a result of the above, Ms O’Connor sought legal advice as to the effect of the handwritten amendments to the guarantee on its enforceability. That legal advice was provided by e-mail from Chris Wilson, a partner of Brand Partners, on 10 April 2003. In his e-mail, Mr Wilson stated:
“I have reviewed the hand amended guarantee provided by Gregory Brassil.
Firstly, the two hand amendments do not operate to defeat the guarantee (i.e. render it useless).
The first amendment has the effect of limiting the guarantee to 12 months and so Gregory will not be liable for debts incurred by the customer after 26 March 2004. There is also scope for it to be argued that the guarantee operates for only a 12 month period – meaning that Gregory might not be liable for debts incurred by the customer prior to the date of signing. Our advice on this is that the guarantee ought to be re-signed and not limited to 12 months. The main reason for this is that the commercial reality very often is that the guarantee is not revisited in 12 months and so a new guarantee is not put in place (leaving you exposed).
In relation to the second-hand amendment, this is not so vital. Its deletion does not reduce the guarantor’s liability under the guarantee but makes enforcement harder.
My advice would be to have the guarantee re-signed with no time limitation but if he insists on the power of attorney being deleted then you may choose to accept this.” (Emphasis added.)
Ms O’Connor’s evidence concerning the e-mail advice from Mr Wilson was that Mr Wilson had advised that, notwithstanding the handwritten amendments, the guarantee was valid and enforceable and that she did not understand Mr Wilson’s advice to raise any “significant issue”. She said that she was happy to accept the guarantee on the basis that it was a valid and enforceable guarantee. On this basis, Ms O’Connor forwarded the e-mail from Mr Wilson to QBE for final sign-off.
Ms O’Connor was cross-examined as to her actions in deciding to accept the guarantee, notwithstanding the issue raised by Mr Wilson and his advice to have the guarantee re-signed with no time limitation. It was put to her that, on her evidence, she decided to take the risk and proceed with the guarantee including handwritten amendments, thus exposing OneSteel to the risk that it may lose a large amount of money. Ms O’Connor said that she did not appreciate this risk at the time. She said that she thought she understood the advice clearly at the time, although conceded that, reading the advice now, she can see that it is “a little ambiguous”.
On 17 April 2003, QBE gave approval to the plaintiff to increase the credit limit of Blue Frame on its Metalcard Account from $600,000 to $800,000. On or about this day, the increased limit was entered in the plaintiff’s computer system for Metalcard Accounts. This had the result that the revised $800,000 credit limit appeared on all monthly statements issued to Blue Frame from that time. Although the April and May 2003 statements for the Blue Frame Metalcard Account were not retained, and are not in evidence, a computer-generated archived copy of the June 2003 statement shows that the $800,000 credit limit was included on that statement. Further, historical enquiries of the plaintiff’s computer system for its Metalcard Accounts show that the $800,000 credit limit was entered into the computer system by 30 April 2003.
Following the approval of QBE to the increased credit limit, and the recording of this increase in the plaintiff’s computer system, Ms O’Connor and her staff made numerous attempts to contact Mr Hoskin to advise him that the guarantee had been accepted and that the Blue Frame credit limit had been increased to $800,000. In the meantime, Blue Frame continued to trade above its previous credit limit of $600,000. By the end of April 2003, its debit balance was $752,736.43.
On 2 May 2003, Ms O’Connor finally spoke with Mr Hoskin on the telephone (“the 2 May conversation”). The content of this conversation is critical to the determination of the principal issue in the proceeding. Ms O’Connor says that she informed Mr Hoskin that the guarantee had been accepted and of the increase in the credit limit to $800,000. Mr Hoskin agrees that he was informed of the increase in the credit limit to $800,000, and that he accepted it either expressly or by his silence, but denies that Ms O’Connor told him that the guarantee had been accepted by the plaintiff. According to Mr Hoskin, Ms O’Connor said that, because of the handwritten alterations to the guarantee, a replacement guarantee needed to be signed. It is common ground that no replacement guarantee was ever put forward for signature by the defendant.
The evidence of Ms O’Connor concerning the 2 May conversation was as follows:
“I advised Mr Hoskin that we sought legal advice with respect to the amendments of the guarantee, the legal opinion came through that the amendments did not invalidate the guarantee and therefore it was accepted by OneSteel. I advised him that the insurer QBE therefore approved the credit facility of $800,000 and that I had increased the credit facility to $800,000 and that trading would recommence as a result.”
At the time, trading had not been suspended and, following a question from me to Ms O’Connor, she appeared to indicate that the Blue Frame account was still operating. She was not cross-examined about this aspect of her evidence. In cross-examination, Ms O’Connor otherwise gave a consistent version of the conversation with Mr Hoskin.
Ms O’Connor could not recall any comment made by Mr Hoskin in response to her advice that the guarantee had been accepted and the credit facility increased to $800,000.
Mr Hoskin’s evidence about the 2 May conversation was in the following terms:
“She indicated to me that she was prepared to give Blue Frame Buildings a credit, extension of credit to $800,000 based on a guarantee signed by Greg, however... she needed - there were some, because of the alterations that were contained within the document there needs to be a reproduction, a new document signed.
What did you say to her? --- I said, I basically said ok.
Was anything further said during that conversation? --- Not really, no, it wasn’t a long conversation.”
As with Ms O’Connor, Mr Hoskin stuck to his version of the 2 May conversation in cross-examination.
There was nothing about the demeanour of Ms O’Connor and Mr Hoskin as witnesses to cause me to prefer the evidence of one over the other. I must resolve the issue as to what was said during the 2 May conversation by reference to the probabilities, based on other objective evidence. Before turning to this issue, I will complete the chronological narrative of events.
Following the 2 May conversation, Blue Frame traded above the $600,000 credit limit which had previously applied. On 31 May 2003, it had a debit balance in its Metalcard Account of $754,944.83. By 30 June 2003 this balance had reduced to $740,373.28 and, by 31 July it had reduced even further to $678,076.70. It appears that the level of trading decreased over this period, as Blue Frame experienced increasing financial difficulty.
On 14 August 2003, Blue Frame went into liquidation with the debit balance in its Metalcard Account standing at $678,076.70.
Did a Binding Guarantee Come into Existence?
Although the evidence would support a finding that the defendant’s counter-offer of the guarantee was conditional upon an increase in the Blue Frame credit limit to $1M, Mr Flower, who appeared for the defendant, expressly conceded in final address that such a case had not been pleaded and that it was no part of the defendant’s case that no guarantee came into existence because the credit limit was only increased to $800,000.
Mr Flower submitted, quite properly in my view, that such an argument was not open to the defendant in circumstances where Mr Hoskin either accepted, or did not object to, the $800,000 increase in the credit limit and Blue Frame subsequently utilised the increased credit limit.
It follows that the issue as to whether the guarantee is binding and enforceable depends upon my findings as to the content of the 2 May conversation. On balance, I prefer the evidence of Ms O’Connor to that of Mr Hoskin as to the content of the 2 May conversation. I am of this view for the following reasons.
In paragraph 1 his original defence dated 8 December 2003, the defendant pleaded:
“The defendant made a counter-offer by way of changes to the guarantee and the plaintiff never communicated to the defendant its acceptance of the defendant’s counter-offer.”
No particulars of this defence were given. In particular, there was no reference to the 2 May conversation.
In the amended defence dated 22 June 2004, the defendant pleaded:
“8.The defendant denies that any contract of guarantee or indemnity was concluded between the parties either in the terms alleged in paragraphs 8 and 9 of the statement of claim or upon any terms. The plaintiff did not accept the defendant’s offer of the guarantee and indemnity on the terms set out in the defendant’s guarantee and indemnity but sought to introduce additional terms. This constituted a counter-offer which was never accepted by the defendant. Alternatively, the defendant did not accept the plaintiff’s request for a guarantee and indemnity on the terms set out in the plaintiff’s guarantee and indemnity but sought to introduce additional terms, which the plaintiff did not accept.
particulars
In or about early 2003 the plaintiff requested the defendant to provide a guarantee. The request was oral and was made during a telephone conversation with the defendant by Brett Connolly on behalf of the plaintiff in early 2003.
The plaintiff forwarded its standard form of guarantee and indemnity to the defendant.
The defendant informed the plaintiff that he would only agree to guarantee the principal debtor’s new debts and that he would limit his liability under the guarantee for 12 months. This conversation was oral and was constituted by a telephone conversation by the defendant to Brett Connolly on behalf of the plaintiff in about March 2003.
The defendant made the amendments to the plaintiff’s standard form of guarantee, dated it 27 March 2003 and forwarded it to the plaintiff, a copy of which is in the possession of the defendant’s solicitors where it may be inspected by prior arrangement during normal business hours.
After it received the guarantee, the plaintiff contacted the defendant and informed him that the guarantee was not accepted by the plaintiff because of the amendments which the defendant had made to its standard form of guarantee and that the defendant would be required to sign another guarantee. The defendant informed the plaintiff that he would not be signing any other guarantee and that his guarantee was withdrawn. This conversation were oral and was made during a telephone conversation between the defendant and Brett Connolly on behalf of the plaintiff in late March or early April 2003.
The plaintiff on several occasions thereafter informed the defendant that he would have to sign a new guarantee as the plaintiff did not accept his amendments to its standard form of guarantee and on each occasion on which this issue was raised the defendant refused to agree to signing any new guarantee. These conversations were oral and were constituted by telephone conversations between the defendant and Brett Connolly on behalf of the plaintiff between about April and June 2003.”
It is apparent that the amended defence is based upon paragraph 3(f) of an affidavit in opposition to summons for final judgment sworn by the defendant in May 2004. In that paragraph, the defendant swore:
“(f)After returning the Guarantee to the Plaintiff, Brett Connolly contacted me and the Guarantee was not accepted by the Plaintiff because of the amendments which I made to their standard form of Guarantee and that I would be required to sign another Guarantee. I told Brett Connolly that I would not be signing any further documentation and that my Guarantee was withdrawn, and if the Plaintiff wanted to continue dealing with Blue Frame I would not be signing any other Guarantee. Brett Connolly on several occasions thereafter told me that I would have to sign a new guarantee as the Plaintiff did not accept my amendments to the Guarantee and each time the issue was raised I refused to agree to signing any new Guarantee and as far as I was concerned I had withdrawn my Guarantee to the Plaintiff.”
At the commencement of the trial, I gave the defendant leave to file in court a further amended defence, notice of which had been given less than one week previously. In paragraph 8 of the further amended defence, the defendant raised, for the first time, a defence based upon the 2 May conversation. Paragraph 8 of the further amended defence reads as follows:
“8.He denies that any contract of guarantee or indemnity was concluded between the parties either in the terms alleged in paragraphs 8 and 9 of the Statement of Claim or at all. The plaintiff did not accept the defendant’s offer of guarantee and indemnity on the terms set out in the guarantee document provided by the defendant to the plaintiff.
Particulars
In or about early 2003 the plaintiff requested the defendant to provide a guarantee. The request was oral and was made during a telephone conversation between the defendant and Brett Connolly on behalf of the plaintiff, alternatively between Brett Connolly and Brian Hoskin on behalf of the defendant.
The plaintiff forwarded its standard form of guarantee and indemnity to the defendant.
The defendant made handwritten amendments to the plaintiff’s standard form of guarantee, dated it 27 March 2003 and handed the amended document to Mr Brett Connolly an employee of the plaintiff and told him that he would not sign a guarantee in any other form save for the amended documents. In early May 2003 Suzi O’Connor an employee of the plaintiff telephoned Brian Hoskin and informed Mr Hoskin that she had obtained legal advice that the guarantee was enforceable in its amended form but that a new document would have to be prepared incorporating the changes and re-executed. Thereafter no amended document was provided to the defendant.” (Original underlining.)
As can be seen, the defendant’s defence has shifted from one based upon conversations involving the defendant himself, to a defence based upon the 2 May conversation between Ms O’Connor and Mr Hoskin. As I have said, that defence was not pleaded until about one week before trial.
The defendant gave evidence. He explained the change in the defence on the basis that he believes that, at the time he swore paragraph 3(f) of his affidavit in opposition to a summary judgment application, he then recalled the matters referred to therein. However, with the lapse of time and the stress involved consequent upon the liquidation of Blue Frame, the defendant says that he no longer recalls any of the matters set out in paragraph 3(f) of his affidavit sworn in May 2004.
Mr Hoskin said that he informed the plaintiff of the 2 May conversation on that day or very soon afterwards. He acknowledged that it was an important conversation. The plaintiff has no recollection of this occurring.
Obviously enough, the above factors cause me to view the late defence based on the 2 May conversation with suspicion.
There is also reason to question the version of the 2 May conversation given by Ms O’Connor. As I have said, on 10 April 2003, she received legal advice to have the guarantee re-signed with no time limitation. She did not do so. She said in evidence that she understood the legal advice to mean that the guarantee was enforceable, notwithstanding the handwritten amendments, although the handwritten amendments might make enforcement of the guarantee more difficult. Accordingly, she determined not to seek to have the guarantee re-signed. Ms O’Connor described her decision to not accept the legal advice to have the guarantee re-signed in her witness statement:
“In light of the legal advice received by Brand Partners, I did not consider the amendments made by Brassil to be a significant issue. It is not unusual for OneSteel’s customers to provide personal guarantees which are limited to operate for a certain period of time. Therefore, I was happy to accept the guarantee as amended by Brassil on the basis that it was a valid and enforceable guarantee, even though it purported to expire in 12 months’ time.”
I was initially very concerned about the improbability of a responsible, and apparently efficient, credit manager such as Ms O’Connor determining to reject legal advice on the basis of her own reasoning, as described in her witness statement. Counsel for the defendant described this approach by Ms O’Connor as “cavalier”. I agree. However, on balance, I accept Ms O’Connor’s evidence in this regard.
Ms O’Connor impressed me as an efficient credit manager who, if she had determined to accept the legal advice given to her, would have proceeded to ensure that it was given effect. This would have involved her contacting the defendant or Mr Hoskin and informing him of the plaintiff’s requirement for a new guarantee to be signed without any time limitation. It would then have been Ms O’Connor’s task to ensure that a new form of guarantee was provided to the defendant for signature, and was signed by the defendant, before allowing Blue Frame to trade above the existing credit limit of $600,000. The fact that this did not occur makes it more probable, in my view, that the 2 May conversation was in the terms related by Ms O’Connor in her evidence. Ms O’Connor’s version of the conversation required no further action to be taken. No further action was taken. Mr Hoskin’s version of the conversation required, prior to Blue Frame being able to utilise the increased credit limit, for a new guarantee to be provided to Mr Brassil for signature and signed by him. This did not occur. However, Blue Frame did utilise the increased credit limit after this time.
I find that the counter-offer of the guarantee was accepted by Ms O’Connor in the 2 May conversation. Accordingly, the guarantee is binding and enforceable.
Further to the above, it was argued on behalf of the plaintiff that, even if I accept the evidence of Mr Hoskin as to the 2 May conversation, a guarantee nevertheless came into existence, for two reasons. First, reliance was placed upon Masters v Cameron[1]. In that case, the High Court considered whether an agreement which was expressed to be “subject to the preparation of a formal contract” was immediately binding. In the joint judgment of Dixon CJ, McTiernan and Kitto JJ, it was stated[2]:
“Where parties who have been in negotiation reach agreement upon terms of a contractual nature and also agree that the matter of their negotiation shall be dealt with by a formal contract, the case may belong to any of three classes. It may be one in which the parties have reached finality in arranging all the terms of their bargain and intend to be immediately bound to the performance of those terms, but at the same time propose to have the terms restated in a form which will be fuller or more precise but not different in effect. Or, secondly, it may be a case in which the parties have completely agreed upon all the terms of their bargain and intend no departure from or addition to that which their agreed terms express or imply, but nevertheless have made performance of one or more of the terms conditional upon the execution of a formal document. Or, thirdly, the case may be one in which the intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract.”
[1](1954) 91 CLR 353.
[2](1954) 91 CLR 353 at 360.
It was submitted on behalf of the plaintiff that, even if I accept the evidence of Mr Hoskin as to the 2 May conversation, I should find that this is a case in the first category as discussed in the above quoted passage. This submission was based upon a characterisation of the evidence of Mr Hoskin by counsel for the plaintiff in his written submissions, in the following terms:
“The parties had agreed on all terms but the agreement was to be reduced to a further typed document in exactly the same terms as in the document already signed by Brassil... On Hoskin’s version the document was to be retyped verbatim. No further negotiation. No further explication of the terms.” (Original emphasis.)
I do not accept this characterisation of the evidence given by Mr Hoskin. The effect of his evidence was that Ms O’Connor required the defendant to execute the plaintiff’s standard form of guarantee. Although he put it inelegantly in his evidence, my clear impression was that the effect of the statements made by Ms O’Connor to him was that the handwritten additions to the plaintiff’s standard form of guarantee were not acceptable to the plaintiff, and “a new document” needed to be signed. The reference in the evidence of Mr Hoskin to there needing to be “a reproduction” is not, in my view, to be understood as a reference to the guarantee being re-typed, including handwritten amendments, and then re-signed by the defendant. There would be no point in such an exercise being undertaken.
Secondly, it was submitted on behalf of the plaintiff that, even if I accept Mr Hoskin’s version of the 2 May conversation, it does not matter because the plaintiff had already accepted the counter-offer of the guarantee containing the handwritten additions. This submission was based upon the fact that, whilst the counter-offer of the guarantee was still open for acceptance, the plaintiff accepted it by allowing Blue Frame to trade in April 2003 well over its existing credit limit of $600,000. As I have said, by the end of April 2003, the debit balance of Blue Frame on its Metalcard Account was $752,736.43.
In this regard, reliance was placed upon Dalgety Australia Ltd v Harris[3]. In that case, the Court of Appeal in New South Wales considered whether an offer of a guarantee had been accepted by the conduct of the creditor in continuing to supply livestock to the principal debtor, in circumstances where the creditor had threatened to withdraw the concessional terms which the principal debtor enjoyed in its trading with the creditor, unless the guarantors provided the guarantee. The Court of Appeal held that the conduct of the creditor in continuing to supply livestock to the principal debtor was not, without more, capable of constituting acceptance of the offer of the guarantee. Glass JA said[4]:
“Where the evidence establishes a course of dealing between the offeree and a third party which precedes the offer and follows it without alteration, the basis for inferring a causal connection between the offer and subsequent dealing may be entirely lacking. I think it is impossible, without more, to infer that the sales of livestock by the plaintiff to the company were influenced by the intervening offer of the defendants. The hypothesis that the offeree acted as it did because of the offer enjoys no more probability than the hypothesis than it would have so acted in any event...” (Citations omitted.)
[3][1977] 1 NSWLR 324.
[4][1977] 1 NSWLR 324 at 328; at 330 per Samuels JA agreeing.
However, in the result, the Court of Appeal did find that the offer of the guarantee had been accepted. This argument was based upon the opening words of the guarantee in question, which provided that the consideration for the guarantee was the creditor agreeing, at the request of the guarantor, to sell livestock to the principal debtor. That being the case, the mere existence of the guarantee in those terms, followed by the supply of livestock to the principal debtor, provided the foundation for the inference that the offer of the guarantee had been accepted.
In my view, if I accepted the evidence of Mr Hoskin over that of Ms O’Connor in relation to the 2 May conversation, the decision in Dalgety Australia v Harris would be of no assistance to the plaintiff. As I have said, my view of the evidence of Mr Hoskin is that he recalls, in substance, that Ms O’Connor informed him that the handwritten alterations to the plaintiff’s standard form of guarantee were not acceptable to the plaintiff. If I was to accept this version of the 2 May conversation, I would be bound to find that there was an express rejection by the plaintiff of the defendant’s counter-offer of the guarantee. In these circumstances, it would not be permissible for me to imply that there had been a previous acceptance of the counter-offer constituted by the plaintiff continuing to trade with Blue Frame and allowing Blue Frame to trade at levels above the pre-existing credit limit. However, as I have found that the evidence of Ms O’Connor about the 2 May conversation is to be preferred, it is unnecessary for me to make a finding on this issue.
Construction of the Guarantee
As I have said, the defendant relied upon a further defence in the event that the Court finds, as I have done, that the guarantee is legally binding. It was argued on behalf of the defendant that, on a proper construction of the guarantee, the defendant did not guarantee the debts of Blue Frame to OneSteel which were incurred prior to the defendant signing the guarantee on 27 March 2003. As a further alternative, it was argued that, on a proper construction of the guarantee, the defendant did not guarantee any debts of Blue Frame existing prior to 2 May 2003 when the offer of the guarantee was accepted by OneSteel.
I reject the arguments put on behalf of the defendant in relation to this issue. In my view, the express terms of the guarantee provide that the defendant must guarantee all of the indebtedness of Blue Frame to the plaintiff for goods and services supplied by the plaintiff to Blue Frame. There is no temporal limit.
The relevant provisions of the guarantee are contained in cll. 1 and 2. By those clauses, the defendant agrees:
“1.To guarantee to OneSteel the due and punctual payment by the Customer for all goods, materials and/or services that may have been supplied or may in the future be supplied from time to time to the Customer and to indemnify OneSteel for the payment by the Customer of all money which is now payable or may in the future become payable by the Customer to OneSteel in connection with such supply.
2.This guarantee and indemnity is given to OneSteel for the whole of the Customer’s indebtedness or liability to OneSteel for goods, material and/or services supplied or to be supplied to the Customer on any account whatever or however arising and is revocable at any time as to future transactions only by six (6) months’ notice in writing...” (Emphasis added.)
In my view it is unarguably clear that cll. 1 and 2 of the guarantee provide for the defendant to guarantee the indebtedness of Blue Frame to OneSteel which existed at the date of the guarantee. I note that there is no issue about past consideration. The guarantee is expressed to be in consideration of OneSteel supplying or continuing to supply goods and services to Blue Frame. There is no question that OneSteel continued to supply Blue Frame after the giving of the guarantee.
The only issue is whether the handwritten amendments have any effect upon the plain meaning of the typewritten words of cll. 1 and 2 of the guarantee. There are two handwritten amendments. First, immediately after cl. 2, the words “THIS GUARANTEE EPXIRES 12 MONTHS FROM SIGNING” have been added and initialled. Second, at the end of the guarantee, there is written “THIS GUARANTEE EXPIRES ON 27TH MARCH 2004”. The defendant has signed underneath this handwritten endorsement.
On behalf of the defendant it was submitted that the effect of the handwritten amendments was that the guarantee only applied to future advances. It was submitted that this result followed because the handwritten additions have the effect of rendering the guarantee one which applies to transactions occurring in a specified 12 month period only. I do not accept that this is so. The obvious intention of the handwritten additions is to make it clear that, whatever other conditions may be contained in the guarantee, the defendant will not be liable for any transactions occurring after 27 March 2004. In my view, the handwritten additions say nothing about the subject of existing indebtedness as at the date of operation of the guarantee. That issue is expressly and unambiguously covered in cll. 1 and 2 of the guarantee.
In support of the argument put on behalf of the defendant, reference was made to Morrell v Cowan[5]. In that case, a wife guaranteed the trading debts of her husband. The guarantee provided:
“I do hereby guarantee to you the sum of £500. This guarantee is to continue in force for the period six years and no longer.”
[5](1877) 7 ChD 151.
It was held that the guarantee was limited to goods supplied after the guarantee was given. The decision turned upon the particular facts of the case and the wording of the guarantee. The case is distinguishable from this one because there was no reference to the guarantee extending to existing indebtedness. The Court of Appeal was faced with the task of giving meaning to a guarantee of the sum of £500. In circumstances where the creditor had refused to supply the husband with any further goods unless a guarantee was given, the wife’s guarantee was held to apply to future transactions only. In my view, this case is of no assistance to the defendant. As I have said, the terms of the guarantee in this case expressly include a guarantee of the existing indebtedness of Blue Frame for materials supplied.
One final argument was put on behalf of the defendant. It was submitted that the handwritten additions to the guarantee were inconsistent with, and could not stand together with, the provisions of cl. 2. Clause 2 provides that the guarantee is revocable as to future transactions by six month’s notice. I do not accept this submission. The handwritten amendments, which have the effect of placing an expiry date on the guaranteed obligations, are not inconsistent with a continuing right in the defendant, as guarantor, to give six months’ notice of revocation. The two provisions can, in my view, be read together and given effect. Of course, after the first six months, there would be no point in giving notice of revocation. This is because the handwritten additions have the effect of ensuring that the guarantee does not apply to any obligations incurred after 27 March 2004[6].
[6]Thomas v Nottingham Inc Football Club Ltd [1972] 1 ChD 596; National Australia Bank Ltd v Carideo [2000] FCA 688 at [10].
Conclusion
It follows that the defendant is liable on the guarantee for the amount claimed and interest pursuant to statute. There will be judgment accordingly. I will hear the parties as to the precise form of the judgment and as to costs.
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