SA Liquor Distributors Ltd v Faulkhead Nominees Pty Ltd & Anor - [2005] SADC 49

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil: Minor Civil Review)
SA LIQUOR DISTRIBUTORS LTD v FAULKHEAD NOMINEES PTY LTD & ANOR
Judgment of His Honour Judge Lee
18 May 2005
CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - CONSTRUCTION AND INTERPRETATION OF CONTRACTS - IMPLIED TERMS
GUARANTEE AND INDEMNITY - THE CONTRACT OF GUARANTEE
Minor civil review of dismissal of applicant's claim – applicant as distributor of liquor to retail outlets supplied liquor to first respondent as licensee of hotel pursuant to written agreement – first respondent’s obligations guaranteed in agreement by second respondent – whether agreement gave applicant enforceable rights to interest and collection costs – whether those rights were implied by written agreement and previous dealings between the parties – whether demand required as pre-requisite to liability of second respondent – whether Magistrate entitled to inquire into issues and facts in dispute without taking sworn evidence from the parties – dismissal of claim rescinded and judgment for $6,000 plus $300 instead of interest substituted.
Magistrates Court Act 1991 ss. 34 & 38, referred to.
Bianco Hiring Services v Rams Development & Ors (2002) SADC 75, considered.

SA LIQUOR DISTRIBUTORS LTD v FAULKHEAD NOMINEES PTY LTD & ANOR
[2005] SADC 49

This is an application, pursuant to s.38(6) of the Magistrates Court Act 1991, for a minor civil review.
The subject of the review is a decision of the Chief Magistrate to dismiss a claim in a minor civil action in the Magistrates Court. The applicant was the plaintiff and the respondents were the defendants to the action, and it will be convenient to describe them in the same way in these reasons.
The plaintiff carried on business as a distributor of liquor to retail outlets including the first defendant. The first defendant was the licensee of the Pier Hotel at Port Lincoln. The second defendant is a director of the first defendant.
Between about February and April 2004, the plaintiff supplied liquor to the first defendant at a cost of $104,019.75. After correspondence between the parties, the first defendant paid that sum to the plaintiff at the end of July 2004, but declined to pay interest and collection costs.
Paragraph 4 of the plaintiff’s particulars of claim is in these terms:
“It was a term of trade between the Defendant Company and the Plaintiff that the Defendant Company would in addition pay: -
(i) all costs or expenses incurred by the Plaintiff in the collection or attempted collection of any monies which may become due by the Defendant Company, and the Plaintiff has incurred costs of $2,994.49 (including search fees of $19.00) to its Commercial and Private Agent in collecting the aforesaid debt; and
(ii) interest at 1% per month on any sum unpaid at the expiration of the Plaintiff’s normal terms of trade, and interest as aforesaid amounts to $3,402.26 to date.”
Before the Chief Magistrate, the plaintiff sought to establish relevant terms of trade through a number of documents. The principal document was an “APPLICATION FOR CREDIT ACCOUNT” dated 18 April 2002. The document is four pages in length. It is signed by the second defendant on the first defendant’s behalf, and on his own behalf as guarantor.
The second page of the document is headed “GUARANTEE AND INDEMNITY”. Clause (c) states:
“This guarantee is in addition to and not in substitution for any other rights which the company may have against the purchaser and may be enforced against the guarantors without first having recourse to any such rights and without taking any steps or proceedings against the purchaser”.
The fourth page of the document is headed “TERMS AND CONDITIONS OF SALE”. Under the heading “PAYMENT TERMS” the following paragraph appears:
“All accounts are absolute net and remittances are due on the following basis 50% on or before the 21^st day of the month following purchases and the remaining by the last working day of each month following purchases. Non payment of accounts within the current trading terms will necessitate a debit of interest on a weekly basis to offset the cost of carrying overdue accounts. Supply on an order will only be effected to customers who adhere to our payment terms. The Supplier also recognises that the requirements of each Customer may vary from time to time, and accordingly payment terms are to be agreed between the Supplier and the Customer and are therefore subject to variation by mutual consent. If however the supplier considers it necessary to incur legal and or other expenses in obtaining or attempting to obtain payment of any amount due by the Customer, the Customer hereby acknowledges it is liable for the payment of those expenses.”
The other documents relied upon by the plaintiff comprised a number of letters of demand from AMA Collection Services Pty Ltd, both with respect to the principal debt, and with respect to interest and collection costs after the principal debt had been paid.
I turn now to the Chief Magistrate’s reasons for dismissing the claim.
His Honour said at the outset that he had chosen to proceed by way of inquiry without taking any sworn evidence. Then, after reciting the facts, his Honour made the following remarks about them:
1.     The letters of demand addressed to the second defendant do not establish that a demand was made upon the first defendant.
2.     The plaintiff did not advise the first defendant that its cheque for the principal debt was not accepted in full and final satisfaction of the entire debt, but that must have been obvious to the first defendant in any event.
3.     The payment terms did not specify the rate of interest, and there was merely a history of interest being charged at an unspecified rate on a running account.
4.     The credit application fails to mention a rate or otherwise to spell out how collection costs would be calculated. (His Honour mentioned that the claim for collection costs was $2,975.49, and that this was 2.75% of the total amount that was owing.)
His Honour then concluded his reasons as follows:
“11. This is a case where in my view the plaintiff’s claim should be dismissed and it should be dismissed for two reasons. One, insofar as it seeks a judgment against the defendant company there is no letter of demand or no demand arising within the contract against the defendant company. Insofar as the composition of the debt is concerned I have already made some remarks about that. Insofar as the claim is based against the individual there can be no liability vested in the individual the guarantor unless and until proper and lawful demand has been made by the plaintiff against the defendant company and the defendant company has not complied with the lawful demand made upon it.
12. Whilst I am conscious of the air of informality that prevails in minor civil actions, the approach that should be consistently adopted in the dealing with guarantees is to deal with them strictly and to require and oblige the parties to also deal with them strictly.”
In the grounds for its application for review, the plaintiff challenges the Magistrate’s conclusions with respect to the issue of demand, and with respect to the claims for interest and collection costs.
The question whether a demand was served upon the first defendant can be answered at once. A letter dated 7 September 2004 of AMA Collection Services was a demand against the first defendant. In any event, the agreement of guarantee and indemnity says that the company (the plaintiff) may enforce its rights against the guarantor (the second defendant) without taking any steps or proceedings against the purchaser (the first defendant).
The next question is whether an enforceable agreement to pay interest and collection costs can be found or implied in the documents and in the terms of trade between the parties.
I do not need to say much about the law on implied terms. Terms may be implied to give business efficacy to, and to facilitate the performance of, a contract, provided the terms are reasonable and equitable. And terms may be implied from previous dealings between the parties.
The paragraph headed “PAYMENT TERMS” deals with the topics of interest and collection costs, but I take his Honour to have concluded that the failure to specify a rate makes the agreement on those topics void for uncertainty.
With respect to interest, counsel for the plaintiff pointed to the reference in the agreement to “interest on a weekly basis to offset the cost of carrying overdue accounts”, and to the fact that interest was charged and paid on some twelve previous occasions. Although, as his Honour said, invoices relating to previous occasions did not specify a rate of interest, I am prepared to infer, from the fact that interest was charged and paid at a consistent rate of about 1% per month without complaint on at least twelve previous occasions, that there was an agreement between the plaintiff and the first defendant that the first defendant would continue to pay interest at that rate.
Counsel for the defendants contended that the amount charged for interest was in excess of the amount that would be required, in terms of the agreement, “to offset the cost of carrying overdue accounts”. The defendants have not established that the amount claimed was unreasonable, and, as I have said, the first defendant made payments at a consistent rate without complaint on at least twelve previous occasions.
Counsel for the defendants relied upon the fact that AMA’s Account Action Report shows that a decision to claim interest was not made until 18 August 2004, when a solicitor engaged by the second defendant contacted AMA to pursue the matter on his behalf. The short answer is this. The plaintiff’s earlier forbearance through AMA to claim interest does not amount to a waiver of its right to do so in accordance with the written agreement of the parties.
With respect to collection costs, the agreement between the parties states that, if the plaintiff “considers it necessary to incur legal and or other expenses in obtaining or attempting to obtain payment of any amount due”, the first defendant “acknowledges it is liable for the payment of those expenses”. I agree with counsel for the plaintiff that there is nothing uncertain about that aspect of the agreement. If the plaintiff considers it necessary to incur collection costs, and clearly it did in this case, then the first defendant is liable to pay those costs.
In Bianco Hiring Services v Rams Development & Ors (2002) SADC 75, a decision cited by counsel for the defendants, the creditor was entitled to recover “all debt collector’s expenses”. That is not what the agreement says here.
Although that is all that need be said about collection costs, there was debate before me about whether the work actually performed by AMA Collection Services justified the figure that it charged. Reference was also made to AMA’s Account Action Report disclosing that, as a result of complaints made by the second defendant, the amount charged was reduced by AMA to $3,500 on 5 August 2004. As already appears, the amount that the plaintiff ultimately paid was $2,975.49, and, as the Magistrate pointed out, that figure amounted to 2.75% of the total amount that was owing. In the absence of a detailed costing, it is reasonable to infer that the charge was based upon the amount recovered rather than the work actually performed. It seems to me that the charging of a percentage of the amount recovered is a common and acceptable practice in the debt collection industry. The defendants did not establish that 2.75% was out of step with rates commonly charged, nor that it was an unreasonable rate in all of the circumstances.
Counsel for the plaintiff argued that the Magistrate erred in electing to conduct an “inquiry” without taking evidence from the parties in the conventional way. Subsection (1)(a) of s.38 of the Magistrates Court Act 1991 states that “the trial will take the form of an inquiry by the Court into the matters in dispute between the parties rather than an adversarial contest between the parties”. Subsection (1)(b) states that “the Court will itself illicit by inquiry from the parties and the witnesses, and by examination of evidentiary material produced to the Court” the issues and facts in dispute. Subsection (1)(c) states that “the Court may itself call and examine witnesses”. Subsection (1)(e) states that the Court is not bound by the rules of evidence. So, whilst an ‘inquiry’ is mandatory, it seems to me that the method by which issues and facts are illicited is, subject to the common law requirement of procedural fairness, a matter for the discretion of the Court. Here the Magistrate chose not to take sworn evidence from the witness box, nor to admit relevant documents as exhibits. Whatever one might say about the desirability of that course in a case of this kind, in my opinion his Honour acted within power.
Counsel for the plaintiff said that the Magistrate permitted the defendants to be represented by legal counsel over the plaintiff’s objection, despite the requirement of s.38(4)(a)(ii) that all parties must agree. Although the point is not easily verifiable, because no transcript was taken, I need not pursue it in light of my conclusion on other grounds.
In the result, the plaintiff is entitled to recover from the defendants the sum of $6,000, being the jurisdictional limit of minor civil claims in the Magistrates Court. I rescind the dismissal of the claim, and substitute a judgment for the plaintiff against the defendants for the sum of $6,000. Pursuant to s.34 of the Act, I award a lump sum of $300 instead of interest.