Rayners Building Supplies Pty Ltd v Efficient Plasterers Pty Ltd - [2019] SADC 77

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
RAYNERS BUILDING SUPPLIES PTY LTD v EFFICIENT PLASTERERS PTY LTD & ANOR
[2019] SADC 77
Judgment of His Honour Judge Slattery
14 June 2019
CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES
EQUITY - EQUITABLE REMEDIES
The plaintiff is a specialist building materials supplier. On 7 June 2012 the plaintiff and the second defendant Michael Hay executed an agreement called an “Application for Credit” under which the plaintiff agreed to supply building materials on a 30 day credit account to Mr Hay. The applicant on the application for credit was named as “Efficient Plasterers”, a business name of which the second defendant Mr Hay was a proprietor with Ebony Larcomb. The trading terms and credit terms were all contained in the Application for Credit document which also contained a guarantee and indemnity provision that was signed by Mr Hay. Mr Hay completed the application and identified that the amount of credit then required by him was in the sum of $5,000. From the outset of trading under the credit terms between the plaintiff and Mr Hay, the plaintiff allowed to Mr Hay credit consistently in excess of the sum of $5,000.
After 7 June 2012, the plaintiff opened a separate and specific account for its trading with “Efficient Plasterers” and nominated for that trading a specific account number “EFFPLA01”. After that time, every invoice for payment and all correspondence delivered from the plaintiff concerned with this trading account were addressed to the name “Efficient Plasterers” and carried that account number. From time to time the plaintiff delivered to Mr Hay upon request, a copy of its internal debtor’s ledger and other financial records all of which were in the name of “Efficient Plasterers”, which carried the same account number and which disclosed the history of trading and payments on that account made with the second defendant Mr Hay.
On 1 July 2014, and without notice to the plaintiff, Mr Hay commenced to trade on his own personal account. From that time, the plaintiff continued to receive and process orders under the same account name and number and continued to provide credit on the account as required by Mr Hay.
Without any notice to the plaintiff, on 30 October 2014, Mr Hay purported to commence trading under the name of a company “Efficient Plasterers Pty Ltd”. Notwithstanding, after 30 October 2014 all of the orders for materials to be supplied placed upon the plaintiff were negotiated through the same account name “Efficient Plasterers” and under the same account number. All invoices sent by the plaintiff to Mr Hay and all requested copies of internal ledgers and financial records of the plaintiff were sent to the same addressee and carried the same account number.
There was a default in the payment of the debit amount under the trading account. The plaintiff placed the account on “cash on delivery” terms. The remaining indebtedness on the account was unpaid. The plaintiff commenced proceedings against “Efficient Plasterers Pty Ltd” and Mr Hay for recovery of the debt. The corporate defendant did not file a defence and the plaintiff signed judgment against it in default.
In its pleadings, the plaintiff pleads that the defendants are jointly and severally indebted on the trading account and that Mr Hay is liable for the debt personally and as a director of the second defendant. In the prayer for relief, the plaintiff claims against the defendant Michael Hay under the guarantee provision of the application for credit terms agreement. The plaintiff also claims against the company “Efficient Plasterers Pty Ltd” for breach of the credit terms.
The second defendant claims that the signing of judgment against the first corporate defendant amounted to an election between two inconsistent rights as between the defendants, the guarantee is limited to the amount of $5,000, the guarantee and indemnity is applicable only in respect of credit given to the second defendant as applicant and as a result of the election no liability is incurred by the second defendant Mr Hay. No pleading to this effect were disclosed in the defence of the second defendant who sought the indulgence of the court to put those arguments.
Held:
1. There is no evidence before the court that the plaintiff ever entered into a trading relationship with the first defendant “Efficient Plasterers Pty Ltd” or that it was bound by or ever agreed to be bound by the terms of the application for credit terms with the plaintiff.
2. The second defendant Michael Hay executed and agreed to be bound by the application for credit terms which included a guarantee and indemnity provision. Any liability under it is a several liability of the second defendant Michael Hay.
3. There is no evidence before the court that the plaintiff traded with or accepted or considered that it was trading with the first defendant “Efficient Plasterers Pty Ltd” at any relevant time.
4. The plaintiff considered that it was always trading under the terms of the application for credit and under the same account number.
5. There is no evidence before the court that the first and second defendants were jointly or jointly and severally liable on the trading account and for the debt arising thereunder.
6. There is no evidence before the court that the second defendant traded with the plaintiff as a director of the first defendant.
7. At the time the plaintiff obtained judgment against the first defendant:
7.1. Any liability of the defendants was not joint and several;
7.2. Any such liability, if it existed between them, was joint only;
7.3. The obtaining of judgment was an election made by the plaintiff on one of two possible bases namely:
7.3.i. An election between two parties jointly liable; or
7.3.ii. An election between the liability of an agent acting for an undisclosed principal and the undisclosed principal.
8. The election binds the plaintiff.
9. The election of the plaintiff releases the second defendant from any primary liability for the trading debt in circumstances where the second defendant Mr Hay permitted and caused the first corporate defendant to use the trading account in his name and so to incur debt with the plaintiff. The judgment election affected the primary liability of the second defendant as the applicant on the account to make a payment direct to Rayners, but it did not affect or discharge the liability of the second defendant as the applicant under the guarantee and indemnity.
10. The guarantee is not limited to an amount of credit of $5,000, is a continuing guarantee and the second defendant is liable thereunder.
11. The plaintiff adequately notified the defendants of its claim under the indemnity provision of the application for credit terms.
12. The second defendant is liable to pay to the plaintiff under the guarantee or alternatively, under the indemnity, the whole of the balance of the debit amount in the trading account in the sum of $177,507.07, which includes the costs incurred by Rayners with the collection agent and the interest applicable thereon at the daily rate of $37.88 calculated from 16 November 2017 until payment.
13. In the exercise of the court’s discretion, the second defendant should be given permission to put before the court his arguments about res judicata and issue estoppel.
Professor Dal Pont, “Law of Agency” LexusNexus Butterworths 2008, [19.28]; Disctrict Court Civil Rules 6R 100, referred to.
Siu Yin Kwan v Eastern Insurance Co Ltd [1994] 2 AC 199; Blair v Curran (1939) 62 CLR 464; Sargent v ASL Developments (1974) 131 CLR 634; Henderson v Henderson (1843) 67 ER 313; Battye v Shammall (2005) 91 SASR 315; S P Hywood Pty Ltd v Standard Chartered Bank Ltd (Perry J, 22 December 1992, unreported); Drane v Evangelou & Ors [1978] 1 WLR 455; In re Vandervell’s Trusts (No. 2) [1974] Ch 269, discussed.
Electricity Generation Corp Ltd v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640; Peterson v Moloney (1951) 84 CLR 91; Boyter v Thomson [1995] WLR 36; Netage Pty Ltd v Cantley (1985) 6 IPR 200; Allen v F O’Hearn & Co [1937] AC 213; Grime v Bartholomew [1972] 2 NSWLR 827; Elder Smith Goldsbrough Mort Ltd v McBride [1976] 2 NSWLR 631; Re Lucock (1924) 20 Tas LR 52; Marzo v Land and Homes (WA) Ltd (1931) 34 WALR 62; Capitanio v PPG Developments Pty Ltd [2018] SASC 54; Rogers v R (1994) 181 CLR 251; Jackson v Goldsmith (1950) 81 CLR 446; Commonwealth v Verwayen (1990) 170 CLR 394; Chamberlain v Deputy Commissioner of Taxation (ACT) (1988) 164 CLR 502, considered.

RAYNERS BUILDING SUPPLIES PTY LTD v EFFICIENT PLASTERERS PTY LTD & ANOR
[2019] SADC 77

This action concerns a claim by a supplier of building products against a personal defendant relying upon the terms of a credit contract executed by the second defendant on 7 June 2012. The first defendant is a company that was owned and controlled by the second defendant and it did not execute any such agreement.
The plaintiff Rayners Building Supplies Pty Ltd (“Rayners”) is a specialised supplier of coatings and products for use in the building industry. Prior to 2012 the second defendant was employed in the building industry as a plasterer and wall fixer, generally using products supplied by the plaintiff. At a time which is not clear upon the evidence, the second defendant Mr Hay commenced to work on his own account and obtained supplies from the plaintiff personally for that work.
Mr Hay was very well known to the managing director and operations manager of Rayners, Mr Anthony De Pizzol. Mr De Pizzol was very supportive of and encouraged Mr Hay to embark upon becoming a self-employed subcontractor in his own right.
On or about 7 June 2012, Mr Hay approached Mr De Pizzol and asked for a “30 day trading account” ostensibly to pay on a 30 day credit account for materials purchased. Mr De Pizzol agreed to the request and arranged for the completion and execution by Mr Hay of an application for credit. At that time, Mr Hay was on trading terms with Rayners that required him to pay cash on delivery. This action largely revolves around the terms, operation and effect of acceptance by Rayners of the application for credit and the subsequent trading on that account.
Before considering the application for credit document, it is appropriate to identify a number of other pertinent factual matters. The first is that as at 7 June 2012, the first defendant had not yet been incorporated and no contention has been made that the application for credit agreement of that date was then contemplated to be for the benefit (and burden) of that company once incorporated.
In the third statement of claim, Rayners claim against both defendants alleging they have breached the application for credit. Rayners claim that the two defendants are jointly and severally liable to it. In support of these claims, Rayners pleads material facts about the position of Mr Hay, his partnership with his de facto spouse Ebony Larcomb and the execution by Mr Hay of the credit application in his personal capacity or, alternatively as a partner of Ms Larcombe who did not separately execute such an agreement.
Rayners then pleads the specific terms of the application for credit as well as the guarantee and indemnity provisions within the application and then alleges that it always supplied goods personally to Mr Hay as a partner and then to both the first and second defendants after 30 October 2014, the date of incorporation of the first defendant.
There are no pleadings of any material facts to identify the basis upon which the plaintiffs allege that the first plaintiff is liable to them. The pleading is of a legal conclusion and it has been left largely to the court to identify the legal basis in support of that conclusion. The defendants raised no issue about this and the reasons for that position soon became apparent at the hearing of this matter. I will discuss them below. Importantly, there is no evidence to suggest that the first defendant company executed an application for credit and was thereby bound by specific trading terms recorded on the face of that document.
It is not in contest that Rayners had not been paid the sum of $163,851.36 on this trading account. Consequential losses are also claimed by Rayners, based on the terms of the “Application for Credit” document. The first defendant did not file a defence. A judgment in default was entered against the first defendant the detail of which I will discuss below.
In his defence, Mr Hay denies that goods were supplied to him in his personal capacity alone or with the first defendant. Mr Hay says further that the guarantee and the indemnity applied only to goods supplied before the incorporation of the first defendant on 30 October 2014. Implicitly, at least, he appears to contend that all trading by Rayners thereafter was with the first defendant which is now in liquidation following a members voluntary winding up. Mr Hay says that as a result, he has no personal liability to pay the debts of the corporate first defendant. He did not plead any special defences.
This failure by Mr Hay to plead any special defences is pertinent for a number of reasons: on 14 December 2014 Rayners obtained a default judgment against the first defendant Efficient Plasterers Pty Ltd for the sum of $177,105.77. Mr Hay was implicitly aware of this judgment being obtained by Rayners from on or about that date and he made no application to amend his defence to plead any particular special defence nor did he make any such application on the day of trial when Rayners amended its statement of claim by consent.
The liability of Mr Hay and the prospects of success of the claims of Rayners against him are all connected to the application for credit document and the sequelae of its use. That document was completed by Mr Hay. He identified himself as the sole trader trading under the name “Efficient Plasterers”. All of the details under this part of the application which set out all of the essential information about the applicant for credit terms and so for the trading relationship are referable only to Mr Hay.
The next section to be completed by Mr Hay is the amount of credit required (my emphasis). Mr Hay inserted the figure of $5,000. Mr Hay suggests that this figure of $5,000 is a cap and operates as a limit of credit and liability. He contends that if Rayners provide a credit amount to him of greater than that figure then that is a matter for it and such a liability is not to be visited upon any of the defendants. I am unable to accept this argument. Consistent with authority[1] the meaning of the term used here is to be determined by what reasonable business people would have understood those terms to mean.[2] In that context, the meaning of the expression “amount of credit required” is, I consider, to be quite plain. It means the amount required by Mr Hay to be given under the agreement at that time. It has no other temporal or contractual significance nor does it have the effect of being a limiting term under the contract such that is a cap or a limit upon a liability under a guarantee or under an indemnity. If it were to have operation as a cap on liability, that should have been very plainly expressed so that a guarantor would be “held safe” from liability for amounts beyond that amount.
[1] Electricity Generation Corp Ltd v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640.
[2] Ibid at [35].
In my view, the expression carries no greater contractual significance than that at the time the document was executed, Mr Hay was seeking that amount of credit. I would not for that reason treat it as some form of contractual limit. As a matter of fact, it is known that from the outset, the limit was exceeded to the knowledge of both parties. It is repugnant to the terms of the application for credit document, the commercial realities of the matter and plain common sense to suggest that Mr Hay could with impunity use the credit facilities made available to him under this agreement to his own personal advantage and, for example, stand by and allow Rayners to mislead itself about the status of the level of his own indebtedness on the guarantee and indemnity that he had provided.
I consider that those arguments of the second defendant give rise to at least two substantial issues here. The principal contention of Mr Hay is that the first defendant company was the relevant debtor in the trading with Rayners as the creditor. Therefore, on this argument and in the absence of a binding credit agreement, there is no factual basis for Rayners to do any more than has occurred: to bring suit against Efficient Plasterers Pty Ltd and then to sign judgment against that company. On that argument, there would be no occasion for a secondary liability of a guarantor or primary liability of an indemnifier to arise. But that is not the final position taken by Mr Hay who challenges liability generally because the guarantee/indemnity obligation is limited (as he contends) to the figure of $5,000. That argument will arise only in the context of a liability to honour a guarantee or an indemnity which, on the facts before the court, can only arise on the document executed by Mr Hay and dated 7 June 2012.
The second matter is that the guarantee and indemnity give rise to two different obligations. The indemnity obligation is a primary one. It is to hold Rayners safe from any losses on the trading account. That trading account is the one which operates from its date and the indemnity does not contain any specific or implied limits on that legal liability. The guarantee is a secondary liability.
I consider that the position is plain enough on the material before the court: the trading under the credit account commenced and continued with both parties operating under its terms and as the level of credit “required” by Mr Hay increased, that requirement was accommodated by Rayners.
In its reply, Rayners also plead a further alternative basis to reject the contentions of Mr Hay. It contends and I accept that from 1 July 2014, Mr Hay regularly sought and obtained credit in excess of the credit limit of $5,000. That continued after 30 October 2014, the date of the commencement of the operations of the first defendant. In paragraph 2.1-2.4 inclusive of its reply, Rayners sets out the details of the trading which is well in excess of the credit limit of $5,000. Then, in paragraph 3 of its reply, Rayners set out the communication between the plaintiff and the defendants concerning the rising debt, its acknowledgement by the second defendant Mr Hay, and the undertakings given by Mr Hay personally that the debt would be repaid. Rayners then pleads its reliance upon the expressed or implied representations set out in paragraphs 1, 2 and 3 of the reply about the defendants and in particular Mr Hay continuing to seek credit approval, the knowledge of Mr Hay of the increased credit approval and the unconscionability of a refusal now to acknowledge the further credit sought by Mr Hay and the first defendant. Alternatively, it is alleged that Mr Hay is estopped from doing so because he gave consent, expressly or impliedly, to the increase in the credit limit and he was the person intrinsically involved in taking advantage of the availability of that credit limit by using it to the advantage of himself and the first defendant.
Rayners further plead, and I accept, that a guarantor will not be discharged from liability in relation to a credit limit (if that is applicable in any event) where the guarantor has expressly or impliedly authorised the assured to effect the alteration and in any event, the guarantee was a continuing guarantee. The reply does not plead the indemnity also contained within the trading terms. I will address that matter later in these reasons.

In relation to the terms of the application for credit as completed, I do not consider that the fact that Mr Hay was a sole trader or, as he contends, a partner has any significance. The position as a sole trader means that a guarantee and indemnity is, to an extent, otiose as he is always personally liable on the trading account. However, that contention takes no account of the possibility of changed trading conditions and arrangements during the course of the relationship.
The first page of the application completed by Mr Hay announces that he is a sole trader and that he has an Australian Business Number (“ABN”). Later on the first page, he identifies a “…director or partner…” to be Ebony Larcomb and gives her address which is the same as his own address. No enquiry seems to have been made about the status of Ebony Larcomb or if in fact there was a partnership in existence. Legally this would have been of limited interest to Rayners because, as a partner, Ebony Larcomb was jointly liable with Mr Hay for trading debts and she did not give a separate guarantee. There was no suggestion in the evidence of there being any communication between the parties about the status of Ebony Larcomb or her liabilities in the parties’ relationship. Nothing more appears to have been said on the issue and it plays no part in my considerations here even though the ABN on the exhibit is referable to a partnership.
Something was made by the defendant Mr Hay of the internal limit of $5,000 placed within the “office use only” box on the front page of the application. There is no contractual or other significance of this entry because it is a matter internal to Rayners and it was not something seen by Mr Hay. It is no more than the request but it does not assist Mr Hay. Rayners and Mr Hay both knew of the extent of the credit provided to Mr Hay in his trading. Neither of them thought it necessary to make any adjustment to these trading terms. And as I have earlier indicated, I am satisfied that Mr Hay is estopped from denying liability on his guarantee because he has expressly or impliedly authorised the assured, Rayners, to continue to provide increasing amounts of credit. He was the partner or alternatively the only guiding hand and mind of Efficient Plasterers Pty Ltd and therefore he was in a position to know at all material times of the true position in the trading relationship.
One of the trading terms which I consider is an essential aspect of the relationship was the account number attributable to this arrangement. It is recorded on the front page of the application for credit. That may not have been contemporaneously known by the defendant Mr Hay at the time that he filled in the document and I presume that it was not known by him at that time. However, that number was placed upon all account documents and correspondence sent by Rayners to Mr Hay concerning this trading account. That correspondence included the accounts sent monthly by Rayners to Mr Hay, recording the trading debits and credits in that trading relationship. All of that material was sent to Mr Hay under the business name “Efficient Plasterers” which was the name nominated by Mr Hay on the front sheet of the application for credit that he completed. This was the invariable approach of Rayners from on or about 7 June 2012 until placing Mr Hay upon cash on delivery terms in 2017. At that time, the account number changed for the first time to “COD 2” but the name Efficient Plasterers continued to be the account name used by Rayners throughout the whole of this trading relationship in correspondence and on accounts.
The defendant Mr Hay did not give viva voce evidence on this or any other topic.
Exhibit P1 contains evidence of the content of the correspondence, the accounts and the other peripheral materials sent by Rayners to Mr Hay and correspondence sent by Mr Hay to Rayners. The whole of the materials sent by Rayners to Mr Hay is sent to the business name “Efficient Plasterers” and it all carries the same trading account number “EFFPLA01”. This did not change throughout the whole period from 2012 until 2017. I am satisfied on all of the evidence before me that a clear evidential inference arises that this was the mutually accepted basis of the parties’ trading from which there was no formal or informal deviation. For present purposes, it is unnecessary for me to make formal findings of the knowledge of Mr Hay about these matters however I am satisfied from all of the evidence before me that Mr Hay was aware of all of these matters and that Rayners continued to address both correspondence and trading accounts consistently to the same business name of ‘Efficient Plasterers’, and under the same account number. Mr Hay was the principal of his business and he was the recipient of all of this information. All of the correspondence and all of the accounts were sent to his address and on occasions he made responses to Rayners. Otherwise, responses were made by Ebony Larcomb on his behalf.
In turn, these matters satisfy me and I find that the credit terms and the account number under which the whole of the parties trading occurred are reflected in the documents at pages 1 and 2 of Exhibit P1. I am similarly satisfied and I find that when any trading was done between Rayners and Mr Hay or his interests after that time, it occurred through and upon the terms and conditions set out in those documents.
That position did not change because, for example, Mr Hay may have incorporated the company Efficient Plasterers Pty Ltd and then (without notice to Rayners) purported to trade under that name. The reasons are quite apparent. After the incorporation of the trading company Efficient Plasterers Pty Ltd, no notice was given to Rayners of this fact. There was no adjustment of trading terms by, for example, the completion of a fresh application for credit by that company or a change of details and addresses within Rayners trading records or a new account number. I will return to these matters later in these reasons.
The second page of this document completed by Mr Hay is divided into three parts. Each of the three parts contains a signature block. In that first signature block, there is a signature and under it the signatory is identified as Mr Michael Hay. That signature appears three times on the page, at the foot at each of the parts. I am satisfied that they are three identical signatures. There was no challenge to that fact on the evidence before me. In the second and third signature blocks, the signature of Mr Michael Hay is witnessed by a Margaret Hay and her address is disclosed.
For present purposes, the second and third parts with the attendant signature blocks are relevant to these considerations. The second reads as follows:-
TERMS AND CONDITIONS OF SALE
1.   I understand that the normal payment terms are 30 days from the end of the month of purchase and I hereby agree to these terms.
2. Should it be considered necessary by any member of Rayners Building Supplies Pty Ltd to incur legal and/or other expenses including any such expenses to any agency licensed under the Commercial and Private Agents Act (as Amended) in obtaining payment of any such amount due by me, I in consideration of the granting of credit to me expressly undertake to reimburse the supplier for the whole amount of such expenses.
3.   I understand that interest at current bank overdraft rates, may be charged on any overdue account and further in consideration of any grant of credit to me I expressly undertake to pay all such interest.
4.   Title to the goods shall not pass to the Buyer until the Buyer has paid the full purchase price and any interest outstanding to the Seller. Risk in the goods shall pass to the Buyer as from the date of delivery to the Buyer or the Buyer’s agent. Until the Buyer makes payment in full to the Seller, the Buyer shall hold the goods as bailee for the Seller. If the goods are on-sold by the Buyer to it’s customers before full payment to the Seller is made, the Buyer shall hold the proceeds of sale on trust for the Seller pending such full payment.
Applicant’s Signature <signed>            Witness’s Signature <signed>
Date 7/6/12  Witness’s Name    Margareth Hay
Witness’s Address <address>
Staying for the moment with this part of the document, term1 is quite obviously the trading terms between the parties. Term 2 is a separate contractual undertaking by which Michael Hay agrees to pay the legal or other expenses incurred in pursuing the debts owed by him under this trading arrangement. Implicitly, these fees must be both in a reasonable amount and reasonably incurred. The third term within this part relates to interest. In the hearing, I was informed that the parties had reached an agreed position on this topic. I was informed that without prejudice to liability, the parties had agreed a particular daily rate of interest. I will deal with these matters later in this judgment.
In the third part of the page, there is set out a guarantee and indemnity. It reads as follows:-
GUARANTEE
In consideration of Rayners Building Supplies Pty Ltd making available to the applicant described in this Application for Credit, the credit terms of that application we the undersigned as Directors and/or the persons interested in the undertaking of the Applicant do hereby irrevocably guarantee the due performance and observance by the Applicant of the accommodation for credit which you have made available to it irrespective of whether or not such accommodation for credit shall be secured in your favour by the Applicant and I/We hereby irrevocably agree to indemnify Rayners Building Supplies Pty Ltd against all losses, damages, costs and legal collection and repossession expenses which may be incurred to Rayners Building Supplies Pty Ltd by reason of any default on the part of the Applicant in performing and observing the agreements and the obligations of the applicant pursuant to the said application for credit accommodation. It is acknowledged that this is a continuing guarantee/indemnity.
Signature <signed>
Date 7/6/12
Witness <signed>
Address <address>
Focussing upon this part of the document, it is apparent that the person identified as the “undersigned” is Mr Michael Hay. He is also the applicant on the application for credit. That is, he is the person who contractually seeks the credit arrangement in consideration of the promises that he makes to observe the terms and conditions of the applications. They are set out in the second section of the page that I have discussed above.
Mr Michael Hay then irrevocably agrees to indemnify Rayners against all losses incurred through any default by Mr Michael Hay. Therefore, under this contract of indemnity, Mr Michael Hay assumes the primary liability of the trading account irrespective of any other default such that, Mr Michael Hay agrees to keep Rayners harmless against any loss that may arise out of this trading relationship. That is different to the contract of guarantee where Mr Michael Hay assumes a secondary liability to Rayners for the default of the entity/person primarily liable. And for the same reasons as earlier expressed, there is no limit of this indemnity because it is referable to “…loss… incurred… by reason of any default… in… observing… the agreement…” This wording re-emphasises the difference between a guarantee and indemnity. If there was to be any limit upon the indemnity it would need to be specifically stated but here it is referable to the trading relationship and not a specific figure of loss which of course is much broader than a liability under a guarantee.
These were the credit terms under the account number upon which the parties proceeded to transact their business. The pleadings assert and it is admitted that on or about 1 July 2014 Mr Michael Hay commenced to operate on his own account. It appears that the partnership ended some time before or on 30 June 2014. There is no specific evidence before me on that matter. Thereafter, and some time before 30 October 2014, Mr Michael Hay incorporated Efficient Plasterers Pty Ltd, the first defendant. It is implicit from the pleadings but there is no proof before me that from that date, 30 October 2014, Mr Hay purported to commence trading with Rayners through that company. I consider this to be a peculiar situation because the issue was not specifically or tangentially clear within the evidence and this appears to have been the consequence of admissions in the parties’ pleadings.
There is no contest in the evidence that Rayners were never made aware, formally or informally, of the change of trading arrangements on 1 July 2014 or of that incorporation of the first defendant Efficient Plasterers Pty Ltd and an intention of Mr Hay to trade through that company. I am satisfied on the evidence that the most that can be said is at the earliest, on 4 February 2016[3] in an email letter from Mr Hay to Rayners confirming that a portion of the outstanding debt will be paid shortly, the email is signed under a signature block referring to Efficient Plasterers Pty Ltd. This is the response sent by Mr Hay under the name Efficient Plasterers Pty Ltd in response to a long series of emails sent from Rayners addressed only to “Efficient Plasterers” concerning outstanding debts.
[3] Exhibit P1 tab 4 p 236.
I am satisfied on the evidence that is recorded within the documents that the first time there was any mention of the company Efficient Plasterers Pty Ltd was made in February 2016. I am also satisfied that there is no evidence of any notice being given to Rayners at that time or at any relevant time by Mr Hay or anyone on behalf of that company Efficient Plasterers Pty Ltd of any proposed change in the trading arrangements for consideration and agreement by Rayners. Up until that time and thereafter, all of the debtors ledgers and other associated internal financial records of Rayners continued to record the transactions that were occurring and the accumulation of debt and payment in the same way under the same account number in the same account name. There is no evidence that the reconciliation of these outstanding debts ever raised the issue of the identity of the debtor which according to Rayners’ records was always ‘Efficient Plasterers’. It was never Efficient Plasterers Pty and Mr Hay did not seek a change of that trading record or of the account number.
The correspondence and accounts that were directed to that debtor always carried that debtor’s account number which was the same and which I have set out above. Throughout the course of the trading relationship and usually at the request of the “partner” Ebony Larcomb, Rayners supplied to “Efficient Plasterers” copies of ledgers of account reconciliations drawn from Rayners’ internal financial records. These were apparently required to allow the reconciliation by “Efficient Plasterers” of its own internal financial records. All of the material drawn from Rayners’ financial records was in the same form: a debtors ledger for “Efficient Plasterers”; the same account number – EFFPLA01; and all of the trading reflected in one debtors ledger without any change or distinction made.[4] The documents are in evidence before the court.
[4] Viz Exhibit P1, vol 1, pp 221 et seq.
There is no indication within these ledgers of an awareness on the part of Rayners of the actual existence of the first defendant, of any changed arrangements of trading, or any awareness of the intention of Mr Hay to make any change to the established trading arrangements or the account under which it may have been transacted. I accept the evidence given by Mr De Pizzol and I am satisfied on the whole of the evidence before me, that Rayners was not aware of any attempt by Mr Hay to interpolate Efficient Plasterers Pty Ltd as a trading entity (and therefore the debtor) in the place of “Efficient Plasterers” as described in the application for credit. I am similarly satisfied that nothing done by it in any way contractually binds it to accept Efficient Plasterers Pty Ltd, the first defendant, as the trading entity. Similarly, I am satisfied that nothing done by Rayners would attract the operation of the Australian Consumer Law or the intervention of principles of equity in relation to the trading arrangement between them such that a finding may be made that Rayners ever bound itself to such an arrangement or would be estopped from denying such an arrangement. I am satisfied that Rayners never entered into a contractual tading arrangement with Efficient Plasterers Pty Ltd.
I am also satisfied from the evidence of Mr De Pizzol which I accept and upon the whole of the documentation before the court in evidence, that if Mr Hay wished to create a new trading relationship and trading terms outside of the application for credit terms that had been completed, it was necessary for him to obtain the agreement of Rayners. It is trite, but a contract cannot be unilaterally varied and such a variation will usually be by a further contract. When that occurs, it is often the case that the original contract will continue to subsist alongside of the new one. These are all questions of fact. The unifying feature is that the new contract must come into existence and at a practical level, there must be some identifiable consideration. Such a contract may arise as a matter of inference from identifiable conduct.
I am satisfied that on the evidence before the court, no new contract came into existence for the reasons that I have already explained. There is no evidence of the formation of the new contract and much less is there any evidence that Rayners knew anything of the intentions of Mr Hay to create a new trading arrangement using Efficient Plasterers Pty Ltd in place of himself or perhaps the partnership. The whole of the exchange of emails and documentation emanating from Rayners is evidence of the understanding of Rayners. The exchange of emails in which Mr Hay signs off under the signature block of Efficient Plasterers Pty Ltd after February 2016 has no legal significance. The manner in which Mr Hay chooses to communicate by email is completely a matter for him. It has no contractual or other significance. It creates no inference from identifiable conduct sufficient to point to the formation of an agreement between parties to trade under a different relationship. To the contrary, the material emanating from Rayners points in only one direction, the belief of Rayners that it was dealing with “Efficient Plasterers”, that it was not dealing with any other entity, that it was dealing under the same trading terms as reflected in the application for credit and under the same account number.
I am also satisfied that for the whole of the period of the trading with Rayners, the terms which governed the trading relationship were those set out in the application for credit signed by Mr Hay on 7 June 2012. I am satisfied that from the date of that document, that contract was maintained in order to take advantage of the very generous credit terms provided under it. I am also satisfied that a clear inference arises on the evidence that Mr Hay, purportedly as “Efficient Plasterers”, continually took advantage of the very generous credit terms provided by Rayners. The contract did not operate such that there was a cap on credit and it was a matter for the risk of Rayners that the credit limit would be exceeded.
I am further satisfied that because the account number used by Rayners on all of its correspondence did not change, the terms of trade for any person or entity using that particular account did not change. All of the trading was done through the account opened by Mr Hay under the name “Efficient Plasterers” with Rayners under the terms of the agreement dated 7 June 2012. It matters not that another (corporate) vehicle may have received the material supplied by Rayners under those terms. That was never a matter for Rayners. I am satisfied that Rayners only ever operated under the contractual arrangements reflected in the document of 7 June 2012 and the reasons are obvious enough. The name of the debtor did not change in the internal financial records of Rayners; that name did not change in the external manifestation of Rayners contractual intent namely the invoices and the associated ledgers; the account number did not change from 7 June 2012 until Rayners decided to put the account on a cash on delivery basis in 2017; and the account number was manifest to the recipient of the documents emanating from Rayners since 7 June 2012.

At the time of the incorporation of Efficient Plasterers Pty Ltd, all of these factual matters were similarly manifest to that company, because Mr Hay was the only director and shareholder of that company, and it is admitted that he was its controller and therefore he was the guiding mind and hand of that company.[5] In those particular circumstance and in a case of a closely held corporation, his knowledge was indistinguishable from the knowledge of the company.
[5] Statement of claim paragraph 5; defence paragraph 2.
I have earlier canvassed as much of the chronology of the incorporation of Efficient Plasterers Pty Ltd as is available on the evidence. The pleadings suggest that it was incorporated by no later than 30 October 2014 and that appears to be the date from which Mr Hay utilised that company as a trading vehicle for the contracts that he was obtaining. As I have said earlier, the choice by Mr Hay to use that company as the vehicle to complete the contracts that it was obtaining is irrelevant in my considerations here. My understanding of the pleadings is that these dates are part of the historical narrative. The evidence of Mr De Pizzol, the managing director of Rayners which I accept, satisfies me that Rayners were not temporally aware of these facts and only became aware of them much later. The documents within Exhibit P1 to which I have earlier referred do not appear to make reference to the name of that company in a signature block until early 2016. In the background of the findings that I have made, that fact is not significant at all. However, it appears that from the point of view of the defendants, Mr Hay commenced to trade through and under the name of Efficient Plasterers Pty Ltd from at least October 2014 without informing Rayners of that fact.
The plaintiff pleads in amended paragraph 10A of the statement of claim that the two defendants are jointly and severally liable for this claim. It is alleged they have both breached the application for credit terms. The plaintiff pleads that from 1 July 2014 it supplied goods to Mr Hay and then from 30 October 2014 it supplied goods to both Mr Hay and Efficient Plasterers Pty Ltd. These dates appear to borrow from the public record that the partnership between Mr Hay and Ms Ebony Larcomb ended on 30 June 2014 and the company Efficient Plasterers Pty Ltd commenced on or about 30 October 2014. However, there is no additional evidence apart from the publicly available court records that are contained within tabs 8, 9 and 10 of Exhibit P1.[6] There is no evidence to support this contention.
[6] Pp 385-390 inclusive.
Then in paragraph 10B of the statement of claim, Rayners pleads that the plaintiff supplied goods to Mr Hay as a partner or as a sole trader or as a director of the first defendant. I am satisfied that there is no factual basis to make good a plea that materials were supplied to Mr Hay as a director of the first defendant. There is no evidence to support any connection between Rayners and the company Efficient Plasterers Pty Ltd on a trading basis. I am satisfied that the trading terms of the arrangement were those settled on 7 June 2012 and they did not change. If Mr Hay saw fit to continue to trade under those terms but to cause goods supplied by Rayners under that contract to then be used by the first defendant company, then that is a matter for him and his company.
In the absence of any agreement for a variation of that contract or any other basis to assert that there has been a variation of the contract (of which there is no evidence) I find that the contracting terms between the parties remained unchanged from the commencement date of that agreement on 7 June 2012. I am satisfied that as a result, the terms of the trading arrangement of 7 June 2012 and the credit terms applicable thereunder remained extant as the trading terms for all transactions using that account. Rayners continually operated upon those terms, upon the basis that its debtor was “Efficient Plasterers” and that the parties were trading under the same account number. The material supplied under that contract were supplied to Mr Hay under its terms and he was personally liable to make payment for them.
I am similarly unable to identify on the evidence any basis to suggest that there was any joint and several liability arising between the company Efficient Plasterers Pty Ltd and Mr Hay in favour of Rayners. The original trading contract of 7 June 2012 between Mr Hay and Rayners remained extant and operative. On the evidence before me, the parties conducted all trading under and through the terms of that agreement.
It is well settled that joint and several liability arises either by the parties’ agreement or, for example, it is recognised at common law or is imposed by statute which usually reflects the settled common law. An obvious example is the joint and several liability in tort of partners. These are all well settled principles. In light of the fact that Rayners had no knowledge of the incorporation of the first defendant company and there was no attempt to interpolate that company into the trading arrangements, Rayners had no reason to think that it was trading with that company. As a result, I am unable to identify any basis upon which it may be said that there was any joint and several liability arising. I am similarly unable to identify any evidence to support the contention that Rayners traded with Mr Hay as a director of the first defendant. All of the evidence discloses that Rayners continued to trade as if the original terms of 7 June 2012 were unchanged. The personal liability upon Mr Hay under its terms is against him in his own rights, not as the director of a company.
Notwithstanding that I have found that there was no direct contractual nexus or relationship between Rayners and the first defendant, that is not the end of the basis upon which the signing of judgment by Rayners against that company remains significant from the defendants’ point of view. It is necessary to canvas a number of other matters.
The first is that in the absence of a defence, judgment has been signed by Rayners against the first defendant company. This occurred prior to the liquidation of that company.
The pleas that are relevant are to be found in para 10A of the statement of claim that from 30 October 2014 the plaintiff supplied goods to both of the defendants. There is no suggestion on evidence of a separate supply to each of them and the plea is to be understood as a supply to them jointly. If that be so then the judgment taken against one party jointly liable is an election and so binds the creditor and releases the other debtor jointly liable. The election binds the creditor and in the usual course a creditor will not make that election and will await a later judgment.[7] This is one of the bases upon which Rayners may be said to have legally elected between their rights against the company and their rights against Mr Hay personally under the contract. That is peculiar in a sense as there is no evidence that Rayners traded with the company. I consider that there may well be a second basis for so finding which I set out hereunder.
[7] Peterson v Moloney (1951) 84 CLR 91 at 102.
As I have found that there was no contractual basis for the claim, the only other basis upon which an action could be brought directly against the company is if Mr Hay is treated as the agent of an undisclosed principal. At [19.28] of the text “Law of Agency”,[8] the learned author, Professor Dal Pont, says as follows:
[19.28] A leading modern statement of the relevant law pertaining to the doctrine of the undisclosed principal – or maybe more precisely ‘undisclosed agency’[9] – is that of Lord Lloyd in Siu Yin Kwan v Eastern Insurance Co Ltd who said:[10]
(1) An undisclosed principal may sue and be sued on a contract made by an agent on his behalf, acting within the scope of his actual authority. (2) In entering into the contract, the agent must intend to act on the principal’s behalf. (3) The agent of an undisclosed principal may also sue and be sued on the contract. (4) Any defence which the third party may have against the agent is available against his principal. (5) The terms of the contract may, expressly or by implication, exclude the principal’s right to sue, and his liability to be sued. The contract itself, or the circumstances surrounding the contract, may show that the agent is the true and only principal.
So where an agent contracts on behalf of a disclosed principal,[11] it is the principal alone who can sue and be sued on the contract.[12] The agent cannot be liable under the contract. The agent can only bring proceedings if he or she is authorised by the terms of the agency to do so, and then only in the name of the principal. It is conceivable that the agent could be authorised in express terms to commence proceedings on behalf of the principal in his or her own name, although this is unusual.[13] Conversely, where on the face of the contract, an agent contracts personally, without disclosing that he or she acts as an agent for a principal, the general law discussed elsewhere[14] dictates that the agent can sue and be sued on the contract.[15]
[8] LexusNexus Butterworths 2008.
[9] In view of the fact that the third party does not know that the actor in question is acting as an agent, not a principal: Restatement § 2.06, Comment b.
[10] [1994] 2 AC 199 at 207. See generally J B Ames, ‘Undisclosed Principal – His Rights and Liabilities’ (1909) 18 Yale LJ 433; AL Goodhart and CJ Hamson, ‘Undisclosed Principals in Contract’ (1932) 4 CLJ 320; PFP Higgins, ‘The Equity of the Undisclosed Principal’ (1965) 28 MLR 167.
[11] As to the circumstances in which an agent is held to contract on behalf of a disclosed principal see [23.13]-[23.17].
[12] Boyter v Thomson [1995] WLR 36 at 39 per Lord Jauncey.
[13] Netage Pty Ltd v Cantley (1985) 6 IPR 200 at 212 per Young J.
[14] See [23.3]-[23.7].
[15] Allen v F O’Hearn & Co [1937] AC 213 at 218; Grime v Bartholomew [1972] 2 NSWLR 827 at 833 per Holland J; Elder Smith Goldsbrough Mort Ltd v McBride [1976] 2 NSWLR 631 at 643-5 per Sheppard J (auctioneer selling for an undisclosed principal).
The appropriate context here is the liability of the principal, the agent or both. It is well settled that in such a case, the agent remains liable personally under the contract and may be sued upon it. However, the rights, and so the liability of the principal, are always superior including in the election of the third party with whom the agent dealt. A third party who makes an election between the principal and the agent (in terms of an action for recovery) is bound by that election.[16] On this analysis, it may be said that Mr Hay as the agent, made contracts with Rayners for the supply of materials for his undisclosed principal, Efficient Plasterers Pty Ltd. That analysis characterises Mr Hay as an agent whose liability as an agent for an undisclosed principal is discharged when an election is made by Rayners to sue and then sign judgment against Efficient Plasterers Pty Ltd.
[16] Re Lucock (1924) 20 Tas LR 52 at 55 per Nicholls CJ; Marzo v Land and Homes (WA) Ltd (1931) 34 WALR 62 at 64 per Dwyer J; see generally Dal Pont: Law of Agency at 19.31.
Mr Hay contended that a res judicata arose because of the entry of the judgment against the first defendant company and there is therefore an issue estoppel. These matters were not pleaded and were only raised by his counsel Mr Thomas in his submissions at the end of the trial. The attitude of Mr Douglas for the plaintiff was opposition but he also submitted that the arguments failed.
In summary, Mr Hay argues primarily a case of res judicata founded upon the default judgment entered against the first defendant company. That case is also put in terms of the doctrine of election. It was submitted that Rayners had elected to exercise its legal right by entering into default judgment against the first defendant company and in so doing established the liability of the first defendant. Mr Hay did not plead res judicata, issue estoppel or the doctrine or election in his defence.
6R 100 provides as follows:-
100—Requirements for defence
(1)     A defence—
(a)     must raise any preliminary issue; and
(b)     must indicate which (if any) allegations in the plaintiff's statement of claim the defendant admits or does not propose to challenge at the trial; and
(c)     must specifically raise any special defence on which the defendant relies; and
(d)     must state the basis of each special defence on which the defendant relies (including reference to any statutory provision on which the defendant relies); and
(e)     must contain a short statement of the material facts and matters on which each special defence is based.
(2)     A preliminary issue is—
(a)     a challenge to the jurisdiction of the Court; or
(b)     a challenge to the validity of an action on the ground—
(i)    that no cause of action is apparent from the plaintiff's pleadings; or
(ii)that a procedural irregularity affecting the validity of the action has occurred; or
(c)a challenge to the appropriateness of the Court as a forum for hearing the action.
(3)     A special defence is a defence other than a denial of facts and matters alleged by the plaintiff, or a denial that facts alleged by the plaintiff give rise to a cause of action.
(4)     A claim for a set off may be raised as a defence (or a partial defence) to a claim.
(5)     If a statement of claim contains an allegation, the defendant is to be taken to deny the allegation unless the defence indicates that the allegation is admitted or that the defendant does not propose to challenge it at the trial.
A special defence is one where the defendant will bear the onus of proof.[17] Pursuant to 6R 100(c), the defences relied upon by Mr Hay are special defences that should have been raised in his defence. No application was made for the amendment of the defence. In giving consideration to these arguments, I think it is first appropriate to identify whether the defences are a complete answer to the claim of the plaintiff when giving consideration to the exercise of my discretion. It is appropriate first to consider the principles applicable and then reach a conclusion about them.
[17] Capitanio v PPG Developments Pty Ltd [2018] SASC 54 at [104].
The difference between res judicata and issue estoppel is subtle. In Blair v Curran,[18] Dixon J (as his Honour then was) said:-
In the first the very right or cause of action claimed or put in suit has in the former proceedings passed into judgment, so that it is merged and has no longer an independent existence, while in the second, for the purpose of some other claim or cause of action, a state of fact or law is alleged or denied the existence of which is a matter necessarily decided by the prior judgment, decree or order.
[18] (1939) 62 CLR 464 at 532.
Both res judicata and issue estoppel ultimately operate to bind parties to accept that a final judicial decision of an issue between the parties is correct: Rogers v R.[19] Res judicata operates to prevent a party litigating in a second proceeding on a cause of action which has merged into a judgment on a prior proceeding. Where an action has been brought and judgment entered into on that action, no further proceedings can be brought in respect of that action.[20]
[19] (1994) 181 CLR 251.
[20] Jackson v Goldsmith (1950) 81 CLR 446.
The second defendant argues that in entering into default judgment against the first defendant, the cause of action on which the plaintiff relies in these proceedings have been formed into judgment. That proposition is put in terms of both res judicata and issue estoppel.
It is further argued that by electing to enter into default judgment against the first defendant, the plaintiff elected to extinguish its right to recover that sum in full against the second defendant. Reference was made to the decision of the High Court in Sargent v ASL Developments.[21] This decision is authority for the proposition that the doctrine of election exists between two legally inconsistent rights; where one right has been nominated the other must necessarily be extinguished. The elector must have clear knowledge and words or conduct which amount to the making of an election between two inconsistent rights available to him or her. An election once made is irrevocable.[22]
[21] (1974) 131 CLR 634.
[22] Commonwealth v Verwayen (1990) 170 CLR 394.
A default judgment has been entered into by the plaintiff against the first defendant based upon an action for a breach of contract. I consider that there are two principal outcomes. I have earlier found that there is no evidence of any contract between Rayners and Efficient Plasterers Pty Ltd. It was not possible for the company to breach a contract that had not been varied, assigned or novated to its the benefit. The election that has occurred which is binding and irrevocable is between rights to sue Mr Hay personally as the agent of the undisclosed corporate principal, Efficient Plasterers Pty Ltd. or that company. Arguably, this election has been made between two entities principally liable regardless of the contractual relationship reflected in the agreement of 7 June 2012. That agreement contained a guarantee executed by Mr Hay and an indemnity given by him. Both of these obligations bound Mr Hay at the time that the company traded with Rayners or he chose to act in his role within the company and that has never changed.
The second argument is similar to the first and the result is not different. The Second Defendant contends that the plaintiff has sought to enforce the primary obligation under the credit contract. By virtue of the default judgment being entered into, the cause of action based on the primary breach of the credit contract has consequently merged into a judgment. Accordingly, there is an issue estopped giving rise to a res judicata on the plaintiff’s primary action for breach of contract. I accept this submission although I am quite troubled by the fact that this situation has arisen because of a decision made to sign judgment against the corporate first defendant without any apparent consideration having been given to whether liability was joint, joint and several and the consequences of such election. I consider that the action for breach of contract has passed into judgment and can no longer be sustained. In Henderson v Henderson[23] Wigram VC stated:[24]
Where a given matter becomes the subject of litigation in, and of, adjudication by a court of competent jurisdiction, the court requires the parties to that litigation to bring forward their whole case, and will not (except under special circumstances) permit the same parties to open the same subject of litigation in respect of matter which might have been brought forward as part of the subject in contest…
[23] (1843) 67 ER 313.
[24] See also, Chamberlain v Deputy Commissioner of Taxation (ACT) (1988) 164 CLR 502.
The cause of action in contract relied upon by Rayners is one upon which it has relied earlier and it has been litigated and finalised. This is so notwithstanding that the second defendant was a party to the proceedings which gave rise to the default judgment. Accordingly, Rayner’s primary action in contract against the second defendant must fail. Given my findings, it is unnecessary to consider the argument of Mr Hay about issue estoppel.
However, for the reasons already expressed, the default judgment does not extinguish the right of the plaintiff to pursue the second defendant in his capacity as a guarantor of the credit obligation. The nature of the guarantee is that it is a collateral contract between two parties to secure the performance of an obligation to a third party. It can be accurately described as a secondary obligation as distinct from the person who is primarily liable, for example, under an indemnity or as the contracting party. In this legal sense, the default judgment has concluded only that the first defendant has a primary liability in contract or separately as the undisclosed principal that Rayners elected to sue to pay the amount disclosed in the judgment debt.

On the doctrine of election, a right to enforce a guarantee is not inconsistent with a right to enforce a separate obligation against the primary debtor. As was explained in Sargent v ASL Development Ltd:[25]
The doctrine only applies if the rights are inconsistent the one with the other and it is this concurrent existence of inconsistent sets of rights which explains the doctrine; because they are inconsistent neither one may be enjoyed without the extinction of the other and that extinction confers upon the elector the benefit of enjoying the other, a benefit denied to him so long as both remained in existence.
[25] Supra.
A creditor may seek to simultaneously enforce both the primary obligation of the debtor and the secondary obligation of the guarantor. As there is no inconsistency between these two rights the doctrine of election in my opinion has no application in those circumstances, I turn then to consider the guarantee and the indemnity.
In respect of the guarantee, Mr Hay argues firstly that there is no guarantee over the obligations of the first defendant and that the words of the guarantee should not be so construed. In the alternative, Mr Hay argues that it should be read as being confined to the original amount of credit provided, being $5,000. It is further argued that the guarantee extends only to goods supplied by the plaintiff to the partnership and does not cover goods supplied to the first defendant. I have earlier referred to the decision of the High Court in Electricity Generation concerning the correct approach to the construction of a commercial contract. It is that approach which I will apply hereunder.
The liability of a guarantor is strict and a contract of guarantee is so to be construed strictly. The guarantee here is expressed in terms of guaranteeing the ‘due performance and observation’ of the credit applicant. The guarantee and indemnity ends with the line:
It is acknowledged that this is a continuing guarantee/indemnity
Textually, there is nothing which limits either the date of the guarantee or the amount. The consideration for the guarantee was goods supplied on an ongoing basis which was in effect, a running account. I reject the argument that there was a fixed consideration of $5,000 for the reasons that I have already expressed and further, there are no words within the guarantee that support that construction. I consider that the last line of the guarantee and indemnity expressly contradicts that construction. The business of the primary debtor is one requiring ongoing goods on credit. Mr Hay deliberately used that contract, the name of Efficient Plasterers and traded under the account number for the benefit of Efficient Plasterers Pty Ltd. These are the surrounding circumstances and the commercial purpose against which the contract of guarantee must be objectively assessed. Accordingly, I am satisfied that one purpose of the guarantee was to secure that ongoing business. I therefore reject the arguments of Mr Hay on that basis.
I further find that the guarantee was intended to be a continuing one and covers the full amount of the debt owing. I also consider that there is an apparent inconsistency in the position of the second defendant. The doctrine of election which I have accepted applies where there has been a choice between two inconsistent rights; the rights of action against persons jointly liable or against an agent or his undisclosed principal is an example. But that doctrine is applicable in relation to rights recognised in law. Usually these are inconsistent rights of action. The obligation of, say, a guarantor arises from the time of the execution of the guarantee and it is usually contingent upon a demand being made in respect of a liability (of an assured) and so it is properly described as a secondary liability.
Perhaps consistently with the way that this matter progressed during the hearing, submissions were made by Rayners about the operation of the indemnity. As I said earlier, there is no pleading referable to the indemnity, only the guarantee. However, both parties have made submissions upon its terms and upon its operation. The defendant Mr Hay took the view that if there is to be found a limiting exclusion in the guarantee, the same exclusion arises on the indemnity.
Both parties were content for the indemnity to be in evidence before me and conscious of the difference between the two, Rayners made submissions on the event said to constitute the demand for indemnity. In the end, this situation became a question of the relief, if any, that may be granted to Rayners.
The decision of Gray J in the judgment Full Court of the Supreme Court of South Australia in Battye v Shammall[26] at [51] sets out the common law position. That paragraph reads as follows:
[26] (2005) 91 SASR 315.
[51] It is also to be borne in mind that the rules of pleading require material facts to be pleaded. It is strictly unnecessary to plead causes of action, although this is often done. As earlier observed, it was common ground throughout that the discussions took place between Mr Shammall and the Battyes with a view to partnership, a partnership which later ensued. It could be said that in substance Mr Shammall was sufficiently aware of the case he had to meet. The observations of Perry J in S P Hywood Pty Ltd v Standard Chartered Bank Ltd[27] are apposite:
[27] S P Hywood Pty Ltd v Standard Chartered Bank Ltd (Perry J, 22 December 1992, unreported).
It is clear on the authorities that the trial judge is not limited to a consideration of the particular cause of action which might be identified by counsel. In Drane v Evangelou & Ors [1978] 1 WLR 455, Lord Denning MR said (458):
“Now there is an appeal to this court. The first point taken on behalf of the defendants was a pleading point. The amended particulars of claim alleged that the landlord had
‘interfered with the right of the plaintiff and his de facto wife Ann Watts to quiet enjoyment of the said premises by unlawfully evicting them from the said premises on Tuesday October 14, 1975.’
Counsel for the defendant submitted that that claim was for breach of a convenant for quiet enjoyment. He cited a passage from Woodfall on Landlord and Tenant, 27^th ed (1968), para 1338:
‘Since the claim is in contract, punitive or exemplary damages cannot be awarded.’
The judge at once said:
‘What about trespass? Does the claim not lie in trespass?’
Counsel for the defendant urged that trespass was not pleaded. The judge then said:
‘The facts are alleged sufficiently so it does not matter what label you put upon it.’
The judge was right. The plaintiff in the particulars of claim gave details saying that three men broke the door, removed the plaintiff’s belongings, bolted the door from the inside: and so forth. Those facts were clearly sufficient to warrant a claim for trespass. As we said in In re Vandervell’s Trusts (No. 2) [1974] Ch 269, 321-322:
‘It is sufficient for the pleader to state materials facts. He need not state the legal result. If, for convenience, he does so, he is not bound by, or limited to, what he has stated. He can present, in argument, any legal consequence of which the facts permit’.”
…
The trial judge is free to give judgment on any available cause of action whatever, irrespective of any mention of particular causes of action in the pleadings. Of course, it must be observed that the pleading of the material facts will often operate to confine the evidence in such a way as to have the practical effect of limiting the options of the trial judge in fashioning relief at the end of the trial.
But what must be kept steadfastly in mind is that all causes of action are at large at the end of the trial, in the sense that judgment may be given upon any cause of action open on the evidence as proved, irrespective of the manner in which the plaintiff’s case has been presented, or argued.
For the foregoing reasons the contention of Mr Shammall that the misuse of a fiduciary relationship had not been raised at trial should be rejected.
Gray J there refers with approval to the decision of Perry J in SP Hywood Pty Ltd v Standard Chartered Bank Ltd[28] in which Perry J referred with approval to the decision of Lord Denning MR in Drane v Evangelou.[29]
[28] Unreported, Supreme Court SA, Perry J No SCGRG92/678 22 December 1992.
[29] [1978] 1 WLR 455 at 458.
I refer in particular to the last two paragraphs of the decision of Perry J. His Honour observed that the pleading of material facts operates to confine evidence so that it has the practical effect of limiting the options of a trial judge in fashioning any relief at the end of the trial. However, all causes of action are at large and any judgment may be given upon any cause of action open on the evidence as proved irrespective of the manner in which the plaintiffs’ case has been presented, or argued.
Whether or not intended, this is the position reached in this matter due to the way the parties approached their cases before me. No objection was raised by the second defendant Mr Hay about proceeding in this way.
Under the application for credit terms, the obligation of an indemnifier arises from the outset and is a primary liability. Both arise here under the same contract under which the parties traded. If it is to be accepted that an election has been made about a right belonging to Rayners which is rendered nugatory because of the impecuniosity of the company, that is the very basis for the activation of the rights under the guarantee and the indemnity. Those rights do not cease at the point of election in any event. Mr Hay traded with Rayners in the way that he did and which I have earlier described in detail in these reasons.
The plaintiff submits also that the letter of demand sent by the entity ‘Debt Payable’, its collection agency, is sufficient notice to invoke the indemnity provided by the second defendant. I accept this submission. The content of such claims for indemnity by notice are not terms of art and arise actually or by inference from the parties’ own behaviours. It was further submitted that at the time both the first and second defendants failed to pay the amount due, there was a breach of that indemnity.
The collection agent made a charge upon Rayners of five per cent of the debt to be collected as the profit/cost charge for work done. In his evidence, Mr De Pizzol said that this rate of five per cent of the debt to be collected was an industry standard and in his experience, was no more or less than discharged by other participants in the industry. I understood from Mr De Pizzol’s evidence that Rayners had used a number of other such collection agencies and that, in the main, a rate charged of about five per cent of the debt to be collected was a reasonable general industry standard and was not out of the ordinary. There was no challenge to this evidence. It is unnecessary therefore for the plaintiff to prove that Mr De Pizzol is a person who has some particular knowledge of these matters. I am prepared to accept the evidence of Mr De Pizzol that the rate charged is a general industry standard, it is reasonable and it is generally accepted within the industry. I am also prepared to accept that the debt owing to the collection agency has been paid. There was some dispute about this however, on balance, I am prepared to accept that the debt has been paid.
As I have earlier indicated, the indemnity creates a primary liability as opposed to a secondary one (as may arise under a guarantee). It is not contingent on the liability of the debtor and it is a promise by the indemnifier to keep Rayners harmless against loss that Rayners may suffer by reason of any default on the part of the applicant, here Mr Hay.
Based on my findings of fact, the position is that the corporate first defendant has been permitted to operate on the original account settled on 7 June 2012. All of the trading with Rayners occurred on that account. As Mr Hay was the applicant on that account, the corporate first defendant could not have operated on that account except through the second defendant Mr Hay. Thus, the accommodation of credit was received by the company through the agreement made by Mr Hay as applicant. It remained part of the accommodation of credit even though Mr Hay caused the goods to be supplied to the corporate defendant which, by election of Rayners, became primarily liable. Logically then, the obtaining of judgment against the entity which became the principal creditor only because of the conduct of the applicant Mr Hay activates the liability of Mr Hay on the guarantee and the indemnity. This is because as the applicant he was aware that he was using the account in his name to pursue the provision of credit for the first defendant. Once there is a default of the first defendant then the guarantee and indemnity obligations upon Mr Hay are activated. He is liable thereunder.
I also consider that in these quite narrow factual circumstances, and in the absence of an election, Mr Hay would have remained liable on the account regardless of where and to whom or what he sent the goods purchased on the credit account. I therefore consider that Mr Hay is liable on the guarantee. But for the election he would have remained primarily liable for the whole of the debt of Rayners claimable under the trading terms in the Application for Credit. If I am wrong about the election issue I would find him liable on the trading terms for the claims of Rayners.
I am satisfied that the indemnity is sufficiently broad that the liability of Mr Hay on any loss, damage, costs or legal collection fees incurred by Rayners by reason of the default of the primary debtor which, following the election, is the first defendant. Accepting the argument about election by Rayners in respect of Efficient Plasterers Pty Ltd, I also consider that the obligation to indemnify which subsists from the outset is also activated such that this right applies from the demand for indemnity being made by Rayners. I have accepted that such a demand has been made and this was not put in contest. Mr Hay is also obligated upon the whole of the terms of the indemnity. Those terms include the obligation to pay collection fees and interest. There is no contest about the rate of interest. The evidence is that an amount of $8,232.00 has been paid to the business debt payable. I allow that claim for $8,232.00.
On the issue of the amount of the credit limit, I alternatively accept that Rayners relied upon the expressed or implied representations of Mr Hay more particularly set out in paragraphs 1, 2 and 3 of the reply. I accept that it is implicit and an inference arises on the evidence that Mr Hay sought from Rayners and therefore required approval for an increased trading credit limit and he was similarly aware of the approval given by Rayners. I am similarly satisfied that the requirement for the increase and the grant of the increase in the amount of credit occurred in the context of the application for increased credit from time to time or, alternatively, that Rayners reasonably believed that Mr Hay made himself responsible to pay the increased credit limit on the trading account. To the knowledge of Mr Hay, Rayners materially changed its position by allowing the increased credit limit such that any attempt by Mr Hay to depart from the understanding which he created for Rayners and upon which it relied would be unconscionable.
For the same reasons, I accept that Mr Hay is now estopped from asserting that he did not require the increased credit limit from Rayners. He was the person who required the increase and he took advantage of the availability of that credit limit by using it for his own benefit and for the benefit of the trading of the first defendant. He is estopped from denying his liability under the guarantee for the increased credit limit because of his actions upon which, to his knowledge, there was reliance by Rayners, and that Rayners changed its position by granting the increased credit limit.
I further allow the claim for interest under the terms of the trading agreement.
In light of this discussion, I would allow the full suite of arguments put by the second defendant notwithstanding the absence of pleadings in compliance with the Rules of Court.
I make orders as follows:
1.   Judgment in favour of the plaintiff against the defendant Michael Hay in the amount of $177,105.07 together with interest at the rate of $37.88 per day from 16 November 2017 until the date of payment.
2.   That the defendant Michael Hay pay the plaintiff’s costs of an incidental to the proceedings to be assessed if not agreed.
3.   I will hear the parties as to consequential costs and orders.