Retravision Southern Ltd v Big Kayz Pty Ltd and Kassabian

[2011] VCC 1239

IN THE COUNTY COURT OF VICTORIA Revised

Not Restricted

AT MELBOURNE
CIVIL DIVISION
COMMERCIAL LIST

GENERAL DIVISION

Case No. CI-10-03626

RETRAVISION SOUTHERN LTD	Plaintiff
(ACN 004 509 755)
v
BIG KAYZ PTY LTD	First Defendant
(ACN 097 426 894)
and
ROBY GREGORY KASSABIAN	Second Defendant
and
JOANNE LEE KASSABIAN	Third Defendant

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JUDGE:	HIS HONOUR JUDGE GINNANE
WHERE HELD:	Melbourne
DATE OF HEARING:	10 and 14 June, 24 August and 27 September 2011
DATE OF JUDGMENT:	30 September 2011
CASE MAY BE CITED AS:	Retravision Southern Ltd v Big Kayz Pty Ltd & Kassabian
MEDIUM NEUTRAL CITATION:	[2011] VCC 1239

REASONS FOR JUDGMENT
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Catchwords: GUARANTEE AND INDEMNITY – whether guarantee and indemnity an all moneys securities – licence agreement – subsequent licence to occupy store – whether two licences were separate agreements – whether moneys claimed were due under original licence – whether moneys owing secured by guarantee and indemnity – whether guarantee discharged because of variation to the licence.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Ms C Gobbo	Hall & Wilcox
For the Defendants	Ms M Norton	Sewell & Kettle
HIS HONOUR:

1          The plaintiff, Retravision Southern Ltd, the head office of which is situated in Blackburn, sues Big Kayz Pty Ltd for goods sold and services supplied under two Licence agreements.

2          Retravision also sues the second and third defendants, Robbie Gregory Kassabian and Joanne Lee Kassabian, who are directors of Big Kayz. They are sued as parties to the Licence Agreement and pursuant to a Deed of Guarantee and Indemnity, which is dated 12 April 2007. That Deed was made with Retravision (Vic-Tas) Ltd, which was the former name of the plaintiff.

3          Mr and Mrs Kassabian admitted that they had signed the Guarantee and Indemnity.

4          Big Kayz operated a Retravision store, first in Mt Druitt, and later in Auburn, which are both western suburbs of Sydney.

5          The debt owing by Big Kayz was proved by the evidence of Ms J Cornwall, the Accounts Payable Supervisor of Retravision Southern. Her evidence proved an account statement which recorded that as at 26 May 2011, the sum of $154,012.55 was owing for goods and services provided to Big Kayz.[1] Retravision did not pursue the sum of $5,000.00 included in that amount.[2] That left the plaintiff’s claim as the date of trial as for $149, 012.55.[3]

[1]             Transcript (“T”) 190

[2]             T 239

[3]             The Amended Statement of Claim claimed $146,256.57 plus interest from 24 July 2010 to the date of payment, but ultimately the case concluded on the basis that the amount identified by Ms Cornwall’s evidence was the amount claimed.

6          Big Kayz held one A class share in Retravision Southern Ltd. Apparently all Retravision retailers held such shares, which gave them some ownership of the company.

7 No issue was raised about the jurisdiction of the Court to hear the proceeding and I have proceeded on the basis that it comes within the provisions of s.36 of the County Court Act 1958.

8          The questions to be decided to determine this proceeding are:

(a)	Were the debts claimed by Retravision incurred under the Retravision Licence Agreement dated 16 August 2007, or in whole or in part, under the Licence to Occupy issued by Retravision to Big Kayz dated 9 July 2009 in respect of the Auburn store?
(b)	Were the Guarantee and Indemnity “all moneys” securities?
(c)	Were the Guarantee and Indemnity discharged because of the making of the Licence to Occupy the Auburn store?

The Commercial Relationship between Retravision and Big Kayz

9          In about 2001, Big Kayz commenced to operate a store under the name of Retravision Big Kayz, in the Mt Druitt Shopping Centre. It was paying a high rent.

10        According to Mr Kassabian, in about 2007, Retravision NSW experienced financial difficulties, which in turn affected his store. There were difficulties in obtaining credit, advertising and sales support.

11        In about 2007, the Victorian dealers purchased the business of a number of stores in New South Wales, south of the Hunter River, including the Mt Druitt and Auburn stores. Some of the business difficulties lessened, however the previous financial difficulties had severely affected the business of the Mt Druitt store.

12        In about March 2009, it became impossible for Big Kayz to continue to operate the Mt Druitt store. The lease had four years to run. After obtaining advice from, and with the assistance of, Retravision management, Big Kayz negotiated a release of its obligations from the lease with Westfield. Westfield agreed to waive any further rent provided it found a further tenant. It did so and Big Kayz’ obligations under the lease ended.

13        Mr Kassabian and Retravision’s witnesses, Mr T Cockayne, chief executive officer, Mr B O’Brien, Retail Operations Manager and Mr P Nash, Business Development Manager, gave evidence about these matters.

14        Discussions occurred between Big Kayz and Retravision to find it alternative premises. Two locations were considered, but they proved unsuitable. Most possible locations would have had to be fitted out and branded like a standard Retravision store. The defendants did not have the capital to do that.

15        Retravision’s Auburn store was then considered. It was a company store; Retravision leased it for $30,000 a month, with seven years to run on the lease and operated it through a manager. It had not been financially successful. Retravision and its member shareholders were keen to cease being the operator of the store.

16        Retravision suggested that Big Kayz move into the Auburn store pursuant to a temporary licence to occupy, the terms of which will be referred to in greater detail below, including payment of a fee of $5,000 a month.

17        Mr and Ms Kassabian were keen to continue their business. They had over $100,000 worth of stock to sell. Mr Kassabian’s other option was to find a job as an employee.

18        Big Kayz closed the Mt Druitt store on 31 May 2009 and moved into the Auburn store.

19        Big Kayz continued to trade under its own name “Retravision Big Kayz” in the Auburn store. It purchased the existing stock of the Auburn store. It was permitted to stock music equipment, of the type it had sold at Mt Druitt.

20        Big Kayz eventually paid the amount that it owed to Retravision at the time the Mt Druitt store closed.[4] The claim in this proceeding is for debts incurred since Big Kayz moved into the Auburn store.

[4]             T 93

21        There was no discussion about how the Licence Agreement would apply to the Auburn store. Mr Kassabian considered that in leaving the Mt Druitt store, he had terminated that Licence Agreement. Retravision disagreed, and contended that the Licence to Occupy was an amendment, or variation of the Licence to Occupy.

22        Mr Kassabian’s evidence was that he did not have the same autonomy in operating the Auburn store as he had at Mt Druitt. There were stricter reporting requirements. It was a rundown store, with very old stock. He was not able to run the business the way he wanted. Retravision’s witnesses disputed that Mr Kassabian was subject to any special restrictions in how he operated the Auburn store.

23        Mr Kassabian gave evidence that he would not have agreed to have the Licence Agreement apply to the Auburn store, because it would have required $1,000,000 in stock to run it properly. He considered that he was doing Retravision a favour in taking on the Auburn store. He said that it was never suggested that he would be responsible for losses from the store.

24        Ms V Santalucia, Retravision’s legal counsel, gave evidence that when franchisees moved stores, Retravision normally issued a letter identifying its consent to the new location. It did not terminate the existing licence agreement and re-issue a new licence agreement for a mere relocation.[5]

[5]             T 110

25         Mr Cockayne gave evidence that at the time of the move to Auburn, there was no discussion about the Licence Agreement, because the business remained intact. It was not unusual in the Retravision network for businesses to move locations in this manner.[6]

[6]             T 41

26        The Auburn store did not prosper and on 29 April 2010, Big Kayz gave the thirty days’ notice required to terminate the Licence to Occupy.

27        I will next set out the relevant provisions of the Interim Licence, the Charge, Licence Agreement and the Licence to Occupy. I will set out the relevant terms of the Guarantee and Indemnity, when dealing with the second issue, which is concerned with their operation.

The Interim Licence Agreement

28        Big Kayz, trading as Mt Druitt Retravision, entered into an Interim Licence Agreement dated 4 June 2007 in respect of the Mt Druitt store, with Retravision (Vic-Tas) Ltd, Retravision Pty Ltd, Retravision (NSW) Ltd (Receivers and Managers Appointed) (subject to Deed of Company Arrangement), the Deed Administrators and the Receivers and Managers of the NSW company. The term of that Interim Licence was 60 days from 12 April 2007 “unless terminated on its terms and capable of being extended on its terms”.

29        The Interim Licence described the “circumstances of this agreement” as including:

“1	to provide short-term assistance to the Retailer to maintain the goodwill attaching to the Retailer’s business; and
2	to assess in its absolute discretion the Retailer’s suitability to become a party to a long-term licence agreement with Retravision.”

30        Mr and Ms Kassabian gave a guarantee of obligations arising under the Interim Licence. However, the Guarantee and Indemnity under which

The Charge

31        Big Kayz gave a fixed and floating charge dated 12 April 2007 to Retravision. The Recitals to the Charge states:

“A	The Chargor and Retravision have entered into the Licence Agreement.
B	Pursuant to the terms of the Licence Agreement the Chargor has agreed to charge its present and future assets and undertaking on the terms and conditions of this Deed to secure the payment of the Money Owing.”

32        Clause 2.1 of the Charge states:

“2.1	Creation of Charge
The Chargor, as security for payment of the Money Owing, charges the Charged Property in favour of Retravision with the payment of the Money Owing.”

33        The term, “Money Owing”, is defined as:

“All money, debts, liabilities and damages now or in the future owing or remaining unpaid by the Chargor (alone or jointly and severally or jointly and severally with any other person) to Retravision on any account or in any way whatever and including without limitation under or in connection with the Licence Agreement.”

34        Clauses 2.2 and 2.3 create the fixed and floating charges.

35        Clause 4 is entitled “Payment Obligations” and clause 4.1 stated:

“Money Owing

The Chargor must pay and discharge the Money Owing in full (free from any deduction, set-off or counterclaim) to or as directed by Retravision:

4.1.1 at the times and in the way specified in any Relevant Agreement:

and

4.1.2 otherwise, on demand.”

36        The term “Relevant Agreement”, which appears in clause 4.1.1, was defined to mean a separate reference to:

“(a) this Deed;

(b) each present or future agreement in writing between Retravision and the Chargor or both (whether or not any other person is also a party to that agreement);

(c)	the Licence Agreement;
(d)	each Collateral Security;
(e)	each present or future document which the Chargor and Retravision agrees is to be a Relevant Agreement.”

The Licence Agreement

37        On 16 August 2007, Retravision Southern Limited and Big Kayz Pty Ltd, trading as Mt Druitt Retravision, entered into a Licence Agreement to replace the Interim Licence Agreement.

38        The Recitals to the Licence Agreement stated that Retravision carries on the business of granting licences to retailers for the use of distinctive product supply and marketing network, for the purchase by Retravision of household and office products and re-sale to retailers, the marketing and promotion of the Network and the Products and the sale of goods to the public by retailers. The Recitals recorded that the retailers carried on retail business either as Identified Stores using the Retravision Marks, or as Unidentified Stores using the retailers’ own trade names. The Recitals also stated that Retravision, at the request of the Member and the Guarantor, had agreed to grant the Member the non-exclusive licence to use the products, supply and marketing network referred to in Recital B on the terms and conditions set out in the Agreement.

39        The terms of the Licence Agreement refer to the interim Licence Agreement as the Licence Agreement, however to avoid confusion, my references to the Licence Agreement will be to the Licence Agreement entered into on 16 August 2007.

40        Clause 2 of the Licence Agreement states:

“APPLICATION OF PREVIOUS LICENCE AGREEMENT AND GUARANTEE

2.1	Replacement of Licence Agreement
The parties acknowledge and agree that:
2.1.1 this Agreement is, and is intended to be, a replacement of the Licence Agreement;
2.1.2 the provisions of Clauses 2.2.4.1-2.2.4.3 of the Terms and Conditions of the Licence Agreement are hereby incorporated in this Agreement, ratified and confirmed; and
2.1.3 any reference in the Deed (if any) and the Securities to the Licence Agreement is, with effect from the Commencement Date, intended to be a reference to this Agreement.
2.2	Guaranteed Obligation
Where the Guarantor is party to the Licence Agreement and this Agreement, then in consideration of Retravision entering into this Agreement with the Member and the Guarantor at the request of the Guarantor, in addition to the guarantee given under the Deed, the Guarantor hereby guarantees to Retravision the due performance, observance and fulfilment by the Member of all covenants, provisions, terms and conditions contained in this Agreement and on the part of the Member to be performed, observed and fulfilled (Guaranteed Obligations).
Application of the Deed
2.3.1 Retravision and the Guarantor agree that the term Guaranteed Money (as defined in the Deed) includes, and is intended to include, all moneys, debts, liabilities and damages now or in the future owing or unpaid by the Member (defined as the Chargor in the Deed) to Retravision under this Agreement, as the replacement of the Licence Agreement.
2.3.2 The Guarantor acknowledges that the aggregate of the obligations to Retravision include the Guaranteed Money and the Guaranteed Obligation.
2.4	Security Already Granted
The Securities continue in full force and effect to secure the Member’s obligations in relation to the Guaranteed Money and the Guaranteed Obligations (as applicable) and are hereby ratified and confirmed.
. . . .”

41        The term “Deed Of Guarantee and Indemnity” was defined in the Schedule to mean the Deed, the parties to which were Retravision, the Member and the Guarantor, dated 12 April 2007. The term “Securities” was defined to mean the fixed and floating charge between Retravision and the Member dated 12 April 2007.

42        Clause 4.1 of the Licence Agreement states:

“General Licence

Subject to Clauses 4.3 and 4.4, Retravision grants to the Member for the term a non-exclusive licence to adopt and use the Network in connection with the Member’s Business.”

“Member’s Business” is defined to mean:

“the retail, household and office products business conducted by the

Member from the Member’s Premises using the Network.”

“Member’s Premises” means:

“the premises at the Identified Store Location(s) and/or the Unidentified

Store Location(s) of the Member, as the case may be.”

43        The Schedule provides that the “Member’s Premises” were the Mt Druitt store.

44        Clause 5 of the Licence Agreement is headed “Purchase of Goods”. Clause 5.1 provided that:

“Retravision agrees to purchase Goods for re-sale to the Member and the Member agrees to purchase Goods from Retravision in accordance with this Agreement and the Trading Terms.”

45        Retravision applied Trading Terms, which stipulated the terms on which Retravision sold goods to retailers and dealt with matters such as credit limits, terms of payment and monthly account payments.

46        Clause 8 is headed “Obligations of Retailers Operating an Identified Store”. The term “Identified Store” means a retail store operated by the Retailer for which the Retailer is licensed to use the Retravision Marks.

47        Clause 8.5 is headed “‘Conduct Member’s Business only at the Identified Store Location”. It provides that the Member shall:

“8.5.1 subject to Clause 8.5.3, conduct the Member’s Business at the Identified Store Location;

8.5.2 not conduct the Member’s Business at the Identified Store Location or at any other location without the prior written approval of Retravision which approval may not be unreasonably withheld;

8.5.3 not conduct any business other than the Member’s Business at the Identified Store Location or at any other location without the prior written approval of Retravision which approval may not be unreasonably withheld; and

… .”

48        Clause 10.13 provides that the Member was not to part with possession of the Member’s premises without providing 30 days prior written notice to Retravision.

49        Clause 11 sets out the obligations of Retravision to the Member including the provision of advertising.

50        Clause 12 provides that the Licence Agreement might be terminated for breach of agreement by Retravision where there is no breach by the Member, immediate termination in certain circumstances or termination by the Member if Retravision suffered an “insolvency event”. Clause 12.6 provided, under the heading “Termination by Mutual Agreement”:

“The parties may terminate this Agreement by mutual agreement in

writing.”

51        Clause 19.1 provides that the Licence Agreement might only be varied or replaced by a document duly executed by the parties.

The Licence to Occupy the Auburn Store

52        On 17 July 2009, Mr R Kassabian, for and on behalf of Big Kayz, signed a three-page document headed “Licence to Occupy” and referred to shops in the Auburn Home Mega Mall. The relevant provisions of that document are:

“Retravision Southern Limited and Retravision Development Limited (together ‘Retravision’) have been granted a lease of the Show Room and a licence of the Storage Area.

Retravision hereby agrees to licence the Show Room and the Storage Area (together the ‘Auburn Premises’) to the Company on the following terms and conditions:

1         The Company’s licence to occupy the Auburn Premises (the ‘Licence’) will commence on the date of signing this letter by the Company (the ‘Commencement Date’).

2         The Company will pay to Retravision a licence fee of $5k per month (or part thereof) in advance during the term of the Licence (payable on the 1st day of each month without any set off or deduction).

3         The Company will be liable for all outgoings and running costs (i.e. utilities, telephones, insurance, advertising etc.) in connection with its use and occupation of the Auburn Premises and will pay those outgoings and running costs when due directly to the relevant service provider.

4         The Company will use and occupy the Auburn premises to relocate and continue to operate its existing Mt Druitt Retravision business (the ‘Business’) and:

(a)	the relocation of the Business will from a Retravision & supplier point of view be a temporary relocation; and
(b)	from a consumer point of view the Company will promote itself as ‘Retravision Auburn’.

5         The Company will be responsible for the day to day operation of the Business including staffing.

6         The Company has agreed to purchase all of Retravision’s stock for a provisional amount of $50,000 (ex gst). All customer payments received for the said stock will be forwarded to Retravision on a monthly basis and will be no that less than $3,500. At the end of 6 months a reconciliation will be conducted to identify if provisional amount of $50,000 has been exceeded. If not, a revaluation of remaining stock will be conducted based on sell through of previous stock.

7         The Company has agreed to assist in managing Retravision’s claims including but not limited to the provision of supplier information, pursuing suppliers for pick up, managing the pick up process and regular reporting to Retravision.

8         The Company must:

(a)	keep the Auburn Premises clean and in as good state of repair (excluding fair wear and tear) as at the Commencement Date;
(b)	promptly, when asked by Retravision, comply with all reasonable directions of Retravision to enable Retravision to fulfil its obligations under:

(i)       Retravision’s lease of the Show Room; and

(ii)      Retravision’s licence of the Storage Area,

(c) grant Retravision access to the Auburn premises any time during normal business hours to allow Retravision to confirm the Company’s performance of its obligations under the Licence.

9         The Company indemnifies and holds indemnified Retravision from and against all actions, claims, demands, loss, damages, costs and expenses which Retravision may sustain or incur for which Retravision (whether during the term of the Licence or after) may become liable in respect of any loss or damage to property or death or injury of whatsoever nature or and howsoever or whatever sustained which is caused or contributed to or incidental to the use or occupation of the Auburn premises by the Company.

10 The Licence will continue until terminated by either party providing the other with 30 days written notice (or earlier upon Retravision’s election if the Company breaches any provision of the terms and conditions of the Licence). Termination of the Licence does not discharge any right either party may have against the other under

the Licence. … .”

53        On 15 June 2010, Retravision wrote to the guarantors confirming termination of the Licence Agreement and requesting that Big Kayz and the guarantors attend to other obligations under the Licence Agreement. On 23 July 2010, Retravision issued demands to Big Kayz and the guarantors for moneys due and payable in accordance with the terms of the Licence Agreement.

The First Issue: Were the debts claimed by Retravision incurred under the
Licence Agreement or in whole, or in part, under the Licence to Occupy?

54        Retravision contended that there had been no material change in the operation of the Licence Agreement by virtue of the execution of the Licence to Occupy and the relocation of Big Kayz’ business to Auburn. It relied in particular on Clause 4 of the Licence to Occupy, which is set out above, and submitted that at the highest, there had been a variation of the Licence Agreement.

55        The defendants contended that it was implicit in the parties’ mutual decision to close the Mt Druitt store, that the Licence Agreement would terminate on its closure. They argued that the exclusive subject matter of the Licence Agreement was the conduct of the Big Kayz store at Mt Druitt.

56        The defendants also submitted that the Licence to Occupy was a separate and distinct agreement. It was not a franchise agreement within the meaning of the Trade Practices (Industry Codes Franchising) Regulations 1998, whereas the Licence Agreement was. There could not be a variation of the Licence Agreement unless the document was signed by all parties.

57        After having reserved judgment, I re-listed the proceeding to hear submissions on the following issues:

“(a)	whether the Licence and Licence to Occupy are to be treated as substantially stand alone agreements. The Licence permitting the adoption and use of the Network (as defined) in connection with the Member’s Business (see clause 4 of the Licence). The Licence to Occupy granting a right to occupy premises leased by Retravision and a right to purchase stock located at the Auburn store.
(b)	if yes to question 1, whether the Guarantee and Indemnity apply to moneys, debts, liabilities etc, arising under the Licence to Occupy.”

58        The parties made submissions about these issues and subsequently filed written submissions. Retravision contended that the Licence Agreement and Licence to Occupy were not stand alone agreements; the latter was an adjunct to or, variation of, the Licence Agreement. The Licence to Occupy referred to Big Kayz continuing to “operate its existing Mt Druitt Retravision business” from the Auburn store. The Licence to Occupy needed to be read in conjunction with, and have imputed into it, the terms of the Licence Agreement. While in the Auburn Store, Big Kayz was still utilizing the intellectual property of Retravision and operating with access to the Retravision network, pursuant to rights conferred by the Licence Agreement.

59        The defendants contended that the two licences were stand alone agreements.

Consideration of the First Issue

60        The Licence Agreement and the Licence to Occupy have different commercial purposes and different legal effects.

61        The Licence Agreement allows the adoption and use of the Network in connection with the Member’s Business. The Network is defined to mean:

“(a)	in the case of a Retailer who is licensed to operate an Identified Store, Retravision’s unique system (incorporating the use of the Retravision Intellectual Property) for the establishment, fitting out and operation of retail household and office products stores and the ordering, supply, purchase and promotion of Goods; or
(b)	in the case of a Retailer who is licensed to operate an Unidentified Store, Retravision’s unique system of ordering, supply and purchase of Goods.”

62        The Licence Agreement gave no right to occupy the Mt Druitt store because Big Kayz leased it from Westfield.

63        In contrast, the Licence to Occupy gave Big Kayz the right to occupy and use the Auburn store, which was leased by Retravision. That occupancy was intended to be temporary. The Licence to Occupy contained terms associated with, or regulating, that occupancy. It also dealt with the sale of stock that was located at the store.

64        The Licence to Occupy provided, and evidenced, Retravision’s written approval of the relocation of the Big Kayz business as was required by clause 8.5.2 of the Licence Agreement.

65        The Licence to Occupy did not end the operation of the Licence Agreement. Big Kayz still had all the rights and obligations of a member of the Network. The ordering of goods through the Network, to stock the Auburn store, continued to occur under the procedures referred to in clause 5 of the Licence Agreement and the Terms of Trade.

66        The Court is required to give commercial efficacy to the Licence Agreement and the Licence to Occupy. This may require reading them together.[7] But to read them in that manner, does not mean that the second is an amendment or variation of the first.

[7]             Smith v Chadwick (1882) 20 Ch D 27, 62-63 and McVeigh v National Australia Bank Ltd [2000] FCA 187

67        The Licence to Occupy was intended to permit the temporary occupancy of the Auburn Store. Big Kayz had to pay a monthly fee to occupy it and to pay for the stock that it purchased. It imposed requirements on the use of the premises, analogous to a tenant’s obligations under a lease.

68        The Licence to Occupy was not a variation, amendment or replacement of the Licence Agreement, which continued to regulate Big Kayz’ membership of the Network and such matters as the purchase of goods.

69        Retravision relied on the Court of Appeal decision in Tebb v Filsee Pty Ltd.[8] That case concerned the operation of guarantees, which provided security to the landlord in respect of a tenant’s obligations under a lease. The Court decided that the subsequent entry by the landlord and tenant into a licence to occupy the same premises, after the tenant had failed to pay rent and land tax due and the landlord had re-entered the premises, did not affect the continuance of the obligations under the guarantees.[9] The present case raises different circumstances.

[8] [2010] VSCA 311

[9]             supra at [34]

70        The debts claimed by Retravision were due in part under the Licence Agreement and in part under the Licence to Occupy; in the case of the monthly fee, the payment for stock purchased, any unpaid outgoings and running costs and the price of stock purchased.

The Second issue: Were the Guarantee and Indemnity “all moneys” Securities?

71        I first set out the relevant provisions of the Guarantee and Indemnity.

The Guarantee and Indemnity

72        The recitals of the Guarantee and Indemnity state:

“A	Retravision has agreed to advance Credit to the Chargor, at the request of the Guarantor.
B	The Guarantor has agreed to guarantee repayment of the Credit to Retravision in accordance with his Deed.”

73          Clause 2.2 and 2.3 state:

“2.2 Guarantee

The Guarantor irrevocably and unconditionally guarantees to Retravision the due and punctual payment by the Chargor of the Guaranteed Money.

2.3	Indemnity for Non-Payment
The Guarantor as a separate, additional and primary liability must indemnify on demand Retravision against all losses, damages, costs and expenses (direct or consequential) which Retravision may suffer or incur by reason or in consequence of a failure, refusal or default by the Chargor duly and punctually to pay the Guaranteed Money.”

74          “Guaranteed Money” is defined to mean:

“All money, debts, liabilities and damages now or in the future owing or remaining unpaid by the Chargor to Retravision under the Licence Agreement, the Related Securities or in consequence of any breach of the provisions of them and whether the money owing, debt, liability or damages:

(a)	is actual or contingent, ascertained or unascertained, fixed or fluctuating or of any other character;
(b)	is or is in respect of principal, interest, fees, damages or otherwise; or
(c)	is owing or incurred by the Chargor acting or purporting to act in its capacity as the trustee of any trust or settlement or otherwise.”

75        “Licence Agreement” is defined as:

“The document so named and entered into between Retravision and the Chargor and dated on or about the date of this document as amended, varied or replaced from time to time.”

76        The Licence Agreement first referred to in the definition was the Interim Licence Agreement, but it was replaced by the Licence Agreement of 16 August 2007.

77        “Related Securities” is defined as:

“The fixed and floating charge, freehold mortgage of land and any other mortgage, charge, pledge or other security now or afterwards held or taken by or given in favour of Retravision and entered into by the Chargor as security for payment of the Guaranteed Money.”

78        Retravision argued that by reason of the definition of “Guaranteed Moneys”, the Guarantors gave a guarantee for “all moneys” owing under the Licence Agreement as amended, varied, or replaced and also, of moneys owing under the Charge. The Indemnity imposed a separate, additional or primary liability against all losses, damages, costs and expenses which Retravision might suffer by reason of the failure of Big Kayz to pay the Guaranteed Moneys.

79        The defendants argued that the liability under the Guarantee was limited to amounts owing under the Licence Agreement and the Indemnity did not have any wider operation.

Consideration of the Second Issue

80        “All moneys” clauses in guarantees and mortgages are to be confined in their operation by reference to the context in which they appear and by reference to the commercial purpose which they are intended to serve.[10] O’Donovan and Phillips state:

“The general rule appears to be that an ‘all moneys’ clause in a guarantee or third party mortgage will not be interpreted to secure a debt of a fundamentally different character from the debts specifically contemplated by the parties at the time of entering into the contract.”[11]

[10]           See, for example, Fountain v Bank of America National Trust & Savings Association (1992) 5 BPR 11, 817 at 11, 819-11, 820 per Gleeson CJ

[11]           O’Donovan and Phillips, ‘Modern Contract of Guarantee’ (loose-leaf edition) p 5-1508

81        The determination of the second issue requires following a number of steps.

82        First is to note the definition of “Guaranteed Money” in the Guarantee as meaning all moneys due under the Licence Agreement.

83        Second, noting that the definition of “Guaranteed Money” applies to all moneys due under “Related Securities”.

84        The third, and key step, is to determine whether the definition of “Related Securities” should be read as the defendants contend. That reading is that the reference to “the fixed and floating charge” only applies to that charge, insofar as it was “entered into by the Chargor as security for payment of the Guaranteed Money”, to use the concluding words of the definition of “Related Securities”.

85        I do not accept that interpretation of the term “Related Securities”. The concluding words of the definition of that term: “as security for payment of the Guaranteed Money”, qualify the words “other mortgage, charge, pledge or other security”. They do not qualify the opening words “fixed and floating charge, freehold mortgage of land”, which are to be read in accordance with their normal meaning.

86        Therefore, if money is owing under the Charge, it is owing under a Related Security and is secured by the Guarantee as “Guaranteed Money”.

87        It was not suggested that any interpretation associated with the principle “ejusdem generis” should be applied to the definition of “Charge”.

88        I take into account that:

“At law, as in equity, the traditional view is that the liability of the surety is strictissimi juris and that ambiguous contractual provisions should be construed in favour of the surety.”[12]

[12]           Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549 at 561

89        However, I do not consider that there is the ambiguity in the wording of the definition of “Related Security” for a strictissimi juris approach to lead to a different conclusion.

90        I therefore conclude that the Guarantee and Indemnity secure as “Guaranteed Money” all “moneys owing” within the definition of that term in the Charge. Therefore, they secure moneys due under the Licence to Occupy as well as under the Licence Agreement.

91        Retravision also relied on the indemnity contained in Clause 2.3 of the Guarantee and Indemnity. Because that Indemnity applies to a failure to pay the “Guaranteed Money”, the reasoning that I have applied to the interpretation of the Guarantee also leads to the conclusion that the Indemnity is an “all moneys” Indemnity.

The Third Issue: Were the Guarantee and Indemnity discharged because of the making of the Licence to Occupy the Auburn Store?

92        The final issue is whether the Guarantee and Indemnity were discharged because of a variation to the guarantors’ liability caused by the entry into the Licence to Occupy.

93        The defendants although arguing that the Licence to Occupy was a separate agreement, also submitted that it represented a variation of the Licence Agreement that was sufficient to discharge their obligations under the Deed of Guarantee and Indemnity. They relied on the High Court decision in Ankar Pty Ltd v National Westminster Finance (Australia) Ltd[13] for the proposition that any departure by the creditor from the suretyship contract –

“’which is not obviously and without inquiry quite unsubstantial, will discharge the surety from liability, whether it injures him or not, for it constitutes an alteration in the surety’s obligations’: Halsbury’s Laws of England 4th edition, vol 20, par. 359.”

[13]           (supra) at 558

94        In Ankar’s Case, the joint judgment contained the following statements of principle:

“According to the English cases, the principle applies so as to discharge the surety when conduct on the part of the creditor has the effect of altering the surety’s rights, unless the alteration is unsubstantial and not prejudicial to the surety. The rule does not permit the courts to inquire into the effect of the alteration. The consequence is that, to hold the surety to its bargain, the creditor must show that the nature of the alteration can be beneficial to the surety only or that by its nature it cannot in any circumstance increase the surety’s risk, e.g., a reduction in the debtor’s debt or in the interest payable by the surety. The mere possibility of detriment is enough to bring about the discharge of the surety.

The foundation of the rule is that the creditor, by varying the principal contract or extending time, has altered the surety’s rights without consulting it though the surety has an interest in the principal contract, and that the creditor cannot be permitted to do so: see Rees v Berrington. Thus the liability of the surety was seen to be strictissimi juris and the suretyship contract was construed strictly in his favour.”[14]

[14]           (supra) at 559-560

95        The defendants submitted that the alteration to their liability caused by the Licence to Occupy had not been shown to be beneficial to the surety and had occurred without their consent.

96        The defendants pointed to differences between the Licence Agreement and the Licence to Occupy.[15] The Licence to Occupy was said to be less secure than the Licence Agreement and imposed different obligations including the purchase of the stock.

[15]           T 222

97        As previously stated, Retravision submitted that the Licence to Occupy was, at its highest, a variation to the Licence Agreement. It represented no change in the terms of the guarantors’ liability. There was no extension of additional facilities to increase their risk. There had been no discharge of the Guarantee and Indemnity.

98        I have found that that Licence to Occupy is a separate agreement to the Licence Agreement.

99        However, authority suggests that the rule that a variation of the principal contract discharges the guarantor does not apply if the subsequent agreement between the principal and the creditor amounts to the formation of a new contract rather than a variation of the original agreement.[16] Dodds-Streeton J stated, in Commonwealth Bank of Australia v McArthur:[17]

“Limitations upon, or reservations concerning, the special principle endorsed in Ankar Pty Ltd v National Westminster Finance Australia Ltd have been applied. For example, in the Wardens and Commonality of the Mercers of the City of London v New Hampshire Insurance, Phillips J considered that the principle applies only in relation to obligations arising under a specific contract which are guaranteed and not to obligations arising from a future course of dealings. Accordingly, if there is a guarantee in respect of all loans without reference to any particular contract, the creditor and principal could conclude a new loan and proceed to vary its terms without that variation operating to discharge the guarantor.

A further exception to the variation principle is where the contract of guarantee or third party mortgage expressly permits variation. In the present case, the CBA mortgage by cl 9.12 expressly provided for the mortgagee’s right to vary advances and accommodation.

Similarly, the principle has no application to a subsequent independent agreement, as distinct from the variation of the terms of a particular original agreement. Whilst discharge will result from variation of the terms of a particular agreement unless it is unsubstantial and unprejudicial or the guarantor consents, the guarantor will remain liable in relation to entirely independent contracts, provided they are within the scope of the guarantee.

Therefore, where there is a widely drafted ‘all money’s’ guarantee or mortgage clause, as in the present case, and as widely employed in modern commercial practice, a fresh advance or a subsequent loan would be within the scope of such a guarantee.

Where an ‘all money’s’ guarantee or mortgage is executed, the guarantor has undertaken to guarantee an indefinite number of liabilities without limit. In such a context, it is artificial to distinguish between original and subsequent independent agreements, on the one hand, and variations of a single agreement, on the other hand. In the absence of misrepresentation as to the effect of the ‘all moneys’ guarantee or mortgage, or other vitiating factors, there appears to be no reason why equity should require the discharge of the guarantor’s obligations in either case.”

[16]           O’Donovan and Phillips (supra) p 7-62, paragraph 7.400

[17] [2003] VSC 31 at [195]-[199]

100       O’Donovan and Phillips state the principle as follows:

“The rule that a variation of the principal contract discharges the guarantor does not apply if the subsequent agreement between the principal and creditor amounts to the formation of a new contract rather than a variation of the original agreement. Thus the guarantor of a loan will not be discharged if the creditor grants further loans to the debtor under subsequent contracts that are on entirely different terms. The guarantor will only be discharged from the obligation to guarantee the original loan if the subsequent loan agreement expressly or impliedly amounts to a rescission of the original agreement. Where further loans are made to the principal, it is probable that the guarantee will be so drafted that such additional loans come within the ambit of the guarantee eg if it is a guarantee of ‘all present and future debts and liabilities of the debtor’, that is an ‘all moneys’ guarantee. The wording must, however, clearly indicate an intention to bring such loans within the scope of the guarantee. Thus a clause in a guarantee of a builder’s obligations stating that any arrangement alteration of the building contract shall not affect the guarantor’s liability was not held to be sufficient to make the guarantor liable for independent borrowings to enable the builder to perform the construction work.”[18]

(authorities omitted)

[18]           O’Donovan and Phillips (supra), paragraph 7.400, p 7-62

101       I re-listed the proceeding to seek the parties’ submissions about this statement of principle. Both counsel accepted that if I found the Guarantee and Indemnity secured “all moneys”, then I would apply the approach discussed in Commonwealth Bank of Australia v McArthur.

102       I have decided that the Licence to Occupy was a subsequent independent agreement to the Licence Agreement and that the Guarantee and Indemnity were “all moneys” securities. Accordingly, applying Commonwealth Bank v McArthur, the entry into the Licence to Occupy did not discharge the Guarantee and Indemnity.

Other Matters

103       Retravision pleaded that Mr and Ms Kassabian were parties to the Licence Agreement and in effect, principals. The description of the parties to the Licence Agreement, when read with the manner in which Mr and Ms Kassabian are named as Guarantors in Schedule 1, make it clear that they signed the Licence Agreement as guarantors only[19].

[19]           Cf Clark Equipment Credit of Australia Ltd v Kiyose Holdings Pty Ltd & Ors (1989) 21 NSWLR 160 and Burrell & Family Pty Ltd v Harris [2010] SASC 184

104       Mr Kassabian gave evidence that he would not have signed the Licence to Occupy if he had known that he and Ms Kassabian were liable under the Guarantee and Indemnity for moneys owing under it. However, there was no case made to displace the principle that parties are bound by the contracts they sign.[20]

[20]           Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165

Conclusion

105       There will be judgment for the plaintiff against each of the defendants in the sum of $149,012.55. The first defendant is liable under the Licence Agreement and Licence to Occupy. The second and third defendants are liable under the Guarantee and Indemnity.

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