Smith v Brooks Hire Service Pty Ltd
[2016] WADC 43
•30 MARCH 2016
SMITH -v- BROOKS HIRE SERVICE PTY LTD [2016] WADC 43
| DISTRICT COURT OF WESTERN AUSTRALIA | Citation No: | [2016] WADC 43 | |
| Case No: | APP:26/2015 | 19 AUGUST & 16 DECEMBER 2015 | |
| Coram: | STEWART DCJ | 30/03/16 | |
| PERTH | |||
| 26 | Judgment Part: | 1 of 1 | |
| Result: | Appeal dismissed | ||
| PDF Version |
| Parties: | MICHAEL PETER SMITH BROOKS HIRE SERVICE PTY LTD |
Catchwords: | Appeal from Magistrates Court Enforcement of indemnity Whether consideration uncertain Whether misleading or deceptive conduct or unconscionable conduct Turns on its own facts |
Legislation: | Australian Securities and Investments Commissions Act 2001 (Cth) s 12CB, 12CC Competition and Consumer Act 2010 (Cth) sch 2, s 21, s 22 District Court Rules 2005 (WA) Magistrates Court (Civil Proceedings) Act 2004 s 40 Property Law Act 1969 s 9 |
Case References: | Andar Transport Pty Ltd v Brambles Ltd (2004) 217 CLR 424 Fox v Percy (2003) 214 CLR 118 Marton v Evenwood (Unreported, WASCA, Library No 980135, 27 March 1998) Monarch Petroleum NL v Citco Australia Petroleum Ltd [1986] WAR 310 Pao On v Lau Yiu Long [1980] AC 614 Rava v Logan Wines Pty Ltd [2007] NSWCA 62 Silver v Dome Resources NL (2007) 62 ACSR 539 Sloane v The Distribution Group Ltd [2002] VSC 10 Violet Home Loans Pty Ltd v Schmidt (2013) 300 ALR 770 |
JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
- IN CIVIL
- Appellant
AND
BROOKS HIRE SERVICE PTY LTD
Respondent
ON APPEAL FROM:
Jurisdiction : MAGISTRATES COURT OF WESTERN AUSTRALIA
Coram : MAGISTRATE BOON
File No : PE 10857 of 2012
Catchwords:
Appeal from Magistrates Court - Enforcement of indemnity - Whether consideration uncertain - Whether misleading or deceptive conduct or unconscionable conduct - Turns on its own facts
Legislation:
Australian Securities and Investments Commissions Act 2001 (Cth) s 12CB, s 12CC
Competition and Consumer Act 2010 (Cth) sch 2, s 21, s 22
District Court Rules 2005 (WA)
Magistrates Court (Civil Proceedings) Act 2004 s 40
Property Law Act 1969 s 9
Result:
Appeal dismissed
Representation:
Counsel:
Appellant : Mr B Wheatley
Respondent : Mr M Curwood
Solicitors:
Appellant : Mossensons
Respondent : De Vita Legal
Case(s) referred to in judgment(s):
Andar Transport Pty Ltd v Brambles Ltd (2004) 217 CLR 424
Fox v Percy (2003) 214 CLR 118
Marton v Evenwood (Unreported, WASCA, Library No 980135, 27 March 1998)
Monarch Petroleum NL v Citco Australia Petroleum Ltd [1986] WAR 310
Pao On v Lau Yiu Long [1980] AC 614
Rava v Logan Wines Pty Ltd [2007] NSWCA 62
Silver v Dome Resources NL (2007) 62 ACSR 539
Sloane v The Distribution Group Ltd [2002] VSC 10
Violet Home Loans Pty Ltd v Schmidt (2013) 300 ALR 770
- STEWART DCJ:
Introduction
1 The respondent, Brooks Hire Service Pty Ltd (Brooks) hired equipment to AKC Holdings Pty Ltd (AKC) under a credit arrangement. AKC failed to pay all the invoices for the equipment. Brooks commenced proceedings in the Magistrates Court at Perth against AKC and two former directors of AKC, Alan Hugh Melville Corkill (Mr Corkill) and Michael Peter Smith (Mr Smith). The trial before the magistrate proceeded only against the appellant, Mr Smith. Brooks claimed a balance of $54,544.82 pursuant to a guarantee and indemnity document which formed part of the credit agreement between Brooks and AKC. This is an appeal from the learned magistrate's decision to give judgment in favour of Brooks for the sum claimed plus interest thereon and costs.
Background evidence and trial
2 Brooks hires out heavy machinery and associated plant and equipment.
3 On 15 November 2011, Mr Rabarts, an employee of AKC sent an email to Brooks requesting a credit application form. Brooks emailed a nine-page credit application to Mr Rabarts.
4 The application was completed, scanned and emailed back to Brooks on 16 November 2011.
5 Her Honour in her reasons for decision said at [4]:
Ms Kristy Forrest, human resources and accounts administrator with Brooks Hire, gave evidence that she had processed the credit application. She undertook a Veda check and an ABN search of AKC Holdings, and contacted all of the trade references in the application form. The Veda search showed AKC Holdings had a score result 1.65 times worse than the Veda average. It showed that the 'enquirer' Brooks Hire was searching for a 30-day account in an amount of $10,000. It also showed that Mr Corkill was the current director. The ASIC current and historical extract identified Mr Smith as a director from 21 October 2011 to 27 July 2012, and Mr Corkill as a director and secretary from 17 April 2009 to 24 July 2012. Mr Smith was shown as a secretary from 24 July 2012 to 27 July 2012. The ASIC documents showed that there was a change to company details as to member shareholding processed with an effective date of 24 September 2012. Mr Corkill was shown as a current shareholder. Mr Smith was shown as a former 50% shareholder. Black Flag Investments Pty Ltd was also listed as a current 50% shareholder.
6 Ms Forrest passed the application to Mr Stuart Brooks who approved the credit application.
7 At [8] – [10] of her reasons for decision her Honour said:
Mr Stuart Brooks, general manager of Brooks Hire, gave evidence that part of his job is to approve credit applications. He said Brooks Hire's policy in dealing with new customers is to have a standard form credit application signed by each new customer. If the customer is a company, Brooks Hire also requires the directors to sign the credit application as guarantors. He said he had no independent recollection of approving AKC Holdings' application for credit. He said however that based upon Brooks Hire's and his own standard practice he would not have permitted a hire of equipment by AKC Holdings on credit without a credit application being approved by him, which included guarantees from AKC Holdings' directors. In the event that a customer is not prepared to complete a credit application including directors' guarantees, Brooks Hire's policy is to only deal with such a customer on a 'cash on delivery' basis.
Mr Brooks said it is normal to email credit applications, and it was left to AKC Holdings to collect the signatures of its directors. The form is sent to the company that needs the service. Mr Brooks said he did not have an actual recollection of approving this application, but at the time he approved all credit applications so it was likely he had done so. Mr Brooks was unable to explain what the notation of '$5,000.00' on the application form was for. It was put to him that he may have put a credit limit of $5,000 on AKC Holdings, and he said it was a possibility but he could not remember. He said that sometimes if there was a bad reference he would put a credit limit on it. He could not recall being shown the Veda report. It was put to him that when AKC Holdings ticked 'Yes' to the question 'Do you always quote purchase orders?', that this was an agreement Brooks Hire had with AKC Holdings. He said there was nothing in Brooks Hire's system to make sure that happens namely, the giving of purchase order numbers. He said he himself had never used the information in the credit application to book a job. He supposed order numbers might help, but he didn't know their exact purpose. He agreed that the credit application form was the basis upon which they provided credit to their customers. He said they would never stop a job for not having a purchase order number unless the customer not told them not to hire without it.
Mr Brooks said that when he received the credit application he would have gone through it to make sure it was signed. He had not noticed Mr Smith had only recently been appointed as a director. He was not aware of having any contact with the guarantors. Brooks Hire does not check if the guarantors know what they are signing. He was not aware that Mr Smith had a medical condition, namely, stress and anxiety, since June of 2011. Mr Brooks had not had any input in the words 'watch out' written on the credit application form. It was put to him that it was difficult to make sense of the guarantee when it referred to 'the facility specified below'. He said you would know if you were signing a personal guarantee. He said he would know he would be hiring a machine and that he was making a credit application for a service. He said they take the credit applications on good faith. The applicants could see their own legal people if they had a question about the form. He had made no attempt to explain the indemnity to the directors. He said if they had a question Brooks would help. He said he was not sure if a copy of the signed document was sent back to the directors, and he had never met either of them.
8 At [11] – [12] of her reasons for decision her Honour said:
Mr Smith gave evidence that in late 2009 Mr Corkill employed him as an industrial relations consultant for Local People Solutions Pty Ltd, a company run by Mr Corkill. AKC Holdings was a company incorporated by Mr Corkill. Mr Smith said that since mid 2011 he was receiving medical treatment for anxiety and stress, which affected his decision making and his memory. Mr Smith said AKC Holdings traded as 'Eyeson Safety & Training' and was in the business of training workers, not in the business of hiring heavy machinery. Mr Corkill controlled the operation and finances of AKC Holdings and Mr Smith said he himself had no real control over AKC Holdings' business.
Mr Smith said that before his appointment as a director of AKC Holdings, he had raised with Mr Corkill the importance of ensuring the purchase order numbers were included on all purchases by AKC Holdings. Mr Smith said he had been appointed as a director of AKC Holdings from 2 November 2011 at the suggestion of Mr Corkill. Mr Smith said he was a non-active director for about nine months during which time he was either working from a serviced office in Perth for the Eyeson group of companies operated by Mr Corkill, and from 30 October 2011 to 10 November 2011 he was overseas in London, Sierra Leone and Senegal. Mr Smith said that as at November 2011 he was not aware of the financial circumstances of AKC Holdings but was aware that the Eyeson group of companies had cash flow problems as Eyeson Workforce Pty Ltd was factoring its debts. Mr Smith said he was aware that prior to 16 November 2011 his father, Mr Peter James Smith, at the request of Mr Corkill, had lent more than $300,000 to Time Equity Pty Ltd trading as Eyeson Asset Maintenance, another company operated by Mr Corkill to pay the wages of its employees. Mr Smith said he had never signed a guarantee prior to 2011. On or about 16 November 2011, at AKC Holdings head office, Mr Corkill asked him to sign a document for a one off hire of a front-end loader. He said he was not given an opportunity to read the document or to obtain legal advice in relation to it, and he was not told that he should obtain legal advice before signing it. He said if he had been told that he should obtain legal advice before signing the guarantee and indemnity, he would have done so. He was not aware that by signing the document Brooks Hire would seek to hold him personally liable for all transactions and amounts due to it. He had signed the document provided to him by Mr Corkill in reliance on his statement that it was only for the one off hire of the front-end loader. He said he would not have signed the guarantee and indemnity if he had known that it would render him personally liable for an unlimited amount and for unlimited transactions, particularly given the uncertainty of the financial position of the Eyeson group of companies. He was not given a copy of the document he signed. He had not completed the handwritten portion of the document which he recognised as being in Mr Corkill's handwriting. He said he had not provided any financial information in relation to the document he signed, and the number of employees and turnover for AKC Holdings set out on page 3 was incorrect. He did not authorise the statement of assets and liabilities dated 15 September 2011 to Key Factors to be supplied to Brooks Hire. Mr Smith said he was not a shareholder of AKC Holdings, and Black Flag was not his father's company. Mr Smith said that when he signed the document he was not aware it contained an indemnity or guarantee.
9 The application for credit account is nine pages long. The details of the applicant, personal details of the directors, Mr Corkill and Mr Smith and trade references were completed at pages 1 and 2 of the document. Page 4 of the document sets out the guarantee and indemnity portion as follows:
GUARANTEE
WE the person(s) who have signed this Guarantee ('the Guarantor') IN CONSIDERATION of the Company granting to the customer the facilities specified below do hereby jointly and each of them severally guarantee payment of the Customer's account and all monies now or hereafter owed by the Customer to the Company and the due and punctual performance of the Customer's obligations under the terms and conditions annexed hereto. The guarantee is a continuing guarantee and is irrevocable until the Company has been paid all monies owing to it by the customer.
INDEMNITY
As a separate legal agreement each guarantor shall hold the company fully indemnified against all loss or damages suffered as a result of the whole or any part of the amount owed by the Customer to the Company not being recoverable from the Customer and/or the Guarantor(s) by reason of any legal limitation or any act or circumstances whether known to the company or not.
CONTINUING GUARANTEE
The continuing guarantee hereby created shall remain in full force and effect and shall not be discharged until the expiry of not less than 7 months from the date of receipt of the last payment by the Company from the Customer and/or Guarantor(s) in satisfaction of any monies due to the Company.
10 As her Honour noted in her reasons for decision at [3]:
The document states that it is executed as a deed but the date is left blank. It contains the names Alan Corkill and Michael Smith as guarantors, and signatures purporting to be that of Mr Corkill and Mr Smith, but it contains no signatures of any witnesses.
11 Mr Smith and Mr Corkill signed a number of other pages of the document including at page 3 under the heading 'Privacy Act' and at page 5 under the heading 'Waiver Fee'.
12 Pages 6 - 9 of the document set out the conditions of trading. Clause 2 sets out the terms of payment and provides for the payment of the hire charges on credit.
13 There was also annexed to the document two pages of personal statements of assets and liabilities each signed by Mr Corkill and Mr Smith on a letterhead of Key Factors.
14 AKC hired equipment from Brooks under the credit arrangement but did not pay all of its invoices. By the end of March 2012 there was an outstanding account of $62,148.85.
15 On or about 5 July 2012 Mr Corkill proposed an extension of time for repayment to the NSW solicitors for Brooks. Brooks' solicitors advised that Brooks accepted the proposal to pay the outstanding amount by instalments over 52 weeks. A number of payments were made by AKC in accordance with the agreed repayment proposal.
16 A liquidator was appointed to AKC on or about 5 February 2013.
17 On or about 2 September 2013 Mr Corkill was declared bankrupt.
18 As I have noted, the trial before the learned magistrate proceeded only against Mr Smith.
The trial issues and findings
19 There were two primary issues at trial.
20 First, whether Mr Smith was bound by the guarantee and indemnity agreement contained within the credit application. Mr Smith submitted that the guarantee and indemnity was unenforceable due to uncertain consideration.
21 At [14] her Honour said:
Counsel referred me to various authorities as to the general principles governing guarantees and indemnities. On behalf of Brooks Hire it is said that the contract at issue is a hybrid contract of guarantee and indemnity. In a contract of guarantee a surety assumes a secondary liability to the creditor for the default of the primary debtor, whereas in a contract of indemnity a primary liability is assumed whether or not the third party or primary debtor defaults. It was said that an indemnity imposes a primary obligation that is independent of the continuing obligation of another person.
22 Her Honour found the consideration was not uncertain. She found that [32]:
In this case, it was AKC Holdings which wrote to Brooks Hire and requested a credit application form. The evidence suggests, on balance of probabilities, that Brooks Hire normally required immediate payment in respect of hiring its machinery. It would not hire machines on credit unless a credit agreement with signed directors' guarantees and indemnity was in place. The credit application was, on its face, signed by two directors of AKC Holdings. The guarantee and indemnity part of the agreement is at page 5, and says on the bottom of it that it is 'page 5 of 9'. The guarantee and indemnity part of the document therefore, in my view, needs to be construed in the context of the entire document. The guarantee part of the credit agreement refers to the parties entering into the guarantee 'in consideration of the company granting to the customer the facilities specified below'. As has been pointed out on behalf of Brooks Hire, the terms and conditions of trading by Brooks Hire form that part of the document which appears below the guarantee and indemnity portion of the document. At page 6 of 9, clause 2 relates to the terms of payment and provides for payment of the hire charges on credit. That is a benefit conferred by Brooks Hire upon AKC Holdings, and as the authorities already referred to have indicated, it is of no significance that the consideration advanced is of benefit to the company rather than to Mr Smith who signed the guarantee and indemnity portion of the document as director. In my view, the document read as a whole means that consideration is not uncertain. The consideration is that Brooks Hire would allow AKC Holdings to hire goods on credit. If I am wrong about this, however, and the consideration set out in the document is uncertain, then the extrinsic evidence of Mr Brooks is able to satisfy me on the balance of probabilities that the credit facility extended to AKC Holdings would not have been provided by Brooks Hire if Mr Smith had not signed the guarantee and indemnity. In my view, the submissions relating to lack of consideration must fail.
23 Secondly, was the guarantee and indemnity unenforceable due to misleading or deceptive or unconscionable conduct on the part of Brooks or its agents? Mr Smith submitted the guarantee and indemnity was unenforceable.
24 In relation to the second issue the learned magistrate found that Brooks was not a party to any unconscionable conduct or misleading or deceptive conduct. Her Honour found [64] – [65]:
The fact remains that Mr Smith was, at the relevant time, a director of the company and he did sign the guarantee and indemnity document. He had access to the document and could have read it if had chosen to do so. Instead, he chose to rely on the apparently false representations of Mr Corkill that this was not an application for credit in relation to one hire only. That is not what the document says, as it clearly says on its face that it is a guarantee and indemnity in relation to 'all monies'. Mr Smith, as a director of the company, had the power to control what the company was doing but did not do so. There is nothing in the documentation which would alert Brooks Hire to the fact that Mr Smith may have had a medical condition which had the potential to affect his ability to run the company. Both Mr Corkill and Mr Smith were directors of the company, there is nothing in the evidence to suggest that Brooks Hire should have known that AKC Holdings was in financial difficulties and that Mr Corkill misrepresented the nature of the document to Mr Smith. The misrepresentation, if it occurred, was not made on behalf of Brooks Hire and it was not made with its knowledge. There is no evidence to suggest that it knew or could reasonably have been expected to know of the misrepresentation.
The weight of the authorities referred to by the parties does not lead, in my view, to a conclusion that it is necessary for a creditor to insist, in an apparently normal business transaction, that directors of companies which would obtain a benefit from the provision of credit, are required to obtain independent legal advice or particular explanation.
25 Brooks filed a Notice of Respondent's Intention in relation to her Honour's finding that Brooks had not proven that the guarantee was not discharged by variation. Her Honour found [46] – [48]:
Brooks Hire submits that on its proper construction, the contractual clause under the heading, 'continuing guarantee' makes it clear that the obligations of the guarantor, 'shall remain in full force and effect and shall not be discharged until the expiry of not less than 7 months from the date of receipt of the last payment by the company from the customer and/or the guarantor'. It submits that accordingly, the clause contemplates that the liability remains in effect irrespective of whether there have been part payments or variations of the contract. As a hypothetical example, Brooks Hire states that if AKC had made payment in full on a certain date, the liability of the guarantor would not be discharged by that payment, but would remain in full force and effect for a period of 7 months thereafter (in the event of any disgorgement of that payment by a liquidator). Brooks Hire submits that the words of the clause are clear. The liability of the guarantor continues in full force and effect and is not discharged until the expiry of not less than 7 months after the satisfaction of any monies due by the company. It submits that as the repayment arrangement did not result in the satisfaction of all monies due, the liability remains in effect. Brooks Hire submits that the extract of the textbook is not relevant because the clause in question deals with continuing liability and obligations.
In this matter, the case law referred to by Mr Smith favours a finding that he was discharged from his obligations under the guarantee by Brooks Hire giving AKC Holdings further time to pay the debt by instalments. That agreement was entered into without Mr Smith's knowledge or consent. Mr Smith didn't know about it and he was overseas at the time the agreement was made. In my view, it is irrelevant that this agreement was struck after the proceedings were commenced, as the agreement relates to the principal debtor's rights under the contract the subject of the guarantee. Brooks Hire has not referred to any case law to the opposite effect.
Brooks Hire has the burden of proving that the contract of guarantee was not discharged by the repayment arrangement, and it has not discharged that onus. However, the indemnity cannot be discharged and this is acknowledged by Mr Smith.
The appeal
26 The court has jurisdiction to hear this appeal pursuant to s 40(1)(b) of the Magistrates Court (Civil Proceedings) Act 2004.
27 By r 50(1) of the District Court Rules 2005, the appeal is 'by way of a reconsideration of the evidence before' her Honour.
28 In Kendall & Curthoys, Civil Procedure Western Australia (vol 2 [16.307.10]), this is said 'to be clearly by way of rehearing'. I refer to Fox v Percy (2003) 214 CLR 118 [23] and [25].
29 Therefore, it is for Mr Smith to persuade this court that the learned magistrate was in error in her findings of fact or application of the law to the facts as she found them before the appeal could be granted. Accordingly, Mr Smith carries the onus in relation to his appeal.
30 Seven grounds of appeal challenge her Honour's findings. Ground 2 relies on seven particulars. Ground 3 relies on 10 particulars.
31 It is only necessary for me to consider the Notice of Respondent's Intention if Mr Smith persuades the court that the learned magistrate was in error in her application of the law to the facts as she found them.
Grounds 1 and 2
32 It is appropriate to deal with grounds 1 and 2 together as they relate to the issue of consideration.
33 The first and second grounds of the further amended grounds of appeal read as follows:
1. The learned Magistrate erred in law in finding that the providing of credit by the Claimant to the debtor pursuant to the Credit Contract was consideration for the indemnity by Mr Smith (see paragraph 32 of the reasons) as such a finding was inconsistent with the indemnity which was expressly stated to be a 'separate independent agreement' from the credit agreement between the debtor and the Claimant (see paragraph 2 of the reasons) and was to be executed as a Deed without the need for consideration and to be strictly construed in favour of Mr Smith.
2. The learned Magistrate erred in law in finding that the same consideration supported both the guarantee and indemnity (see paragraph 32 of the reasons) in that she failed to properly consider:
(a) the text, context and purpose of both the guarantee and indemnity, which precluded such a finding;
(b) that the indemnity was stated to be 'a separate independent agreement' from the granting of credit for the guarantee;
(c) that the indemnity was not stated to be supported by consideration in contrast to the guarantee;
(d) that consideration was not necessary to give business efficacy to the indemnity as the document was expressed to be executed as a Deed;
(e) that the indemnity should be strictly construed in favour of Mr Smith;
(f) extrinsic evidence which relied upon the inadmissible subjective intent of Mr Brooks but failed to take into account the evidence of Mr Smith that he signed the instrument in reliance upon a representation that it was for a single transaction only;
(g) or provide reasons for such a finding.
35 First, Mr Smith said that the intent was that the document was to take effect as a deed.
36 Secondly, there was no express consideration for the indemnity.
37 Thirdly, Mr Smith submitted that, the wording of consideration in the guarantee is totally irrelevant to the issue of the indemnity. He contended it does not support consideration for the indemnity as stated in her reasons [32].
38 Fourthly, that the rules of construction do not establish consideration.
39 Finally, Mr Smith argued that strict construction applies to indemnities. Mr Smith submitted the rules of construction were not applied.
40 As to the first point, if the material document was a deed, the rules relating to offer and acceptance have no relevance: see Monarch Petroleum NL v Citco Australia Petroleum Ltd [1986] WAR 310, 353.
41 In Monarch Petroleum NL v Citco Australia Petroleum Ltd the material documents were deeds. In this case the material document is not a deed. The document on its face is not a deed because it does not have the formalities of a deed pursuant to s 9 of the Property Law Act 1969. The formal requirements of a deed require an independent witness.
42 It was not executed as a deed by Mr Smith and Mr Corkill. The document was accepted as executed by Brooks. The case of Brooks Hire was that it was suing on a contract, and that the contract was supported by consideration.
43 Accordingly, the document is not a deed. I am of the view there is no substance to the submission.
44 I turn now to the argument that the magistrate erred in law in finding the same consideration supported both the guarantee and the indemnity. Mr Smith submitted the indemnity is not intended to be supported by the same consideration as the guarantee because the express wording of the guarantee is not contained in the indemnity. Further, the wording of the indemnity as a separate independent agreement meant that it was clearly not intended on its face to be supported by the same consideration.
45 No authority has been referred to me in support of the propositions. I can see no reason in principle that a guarantee and indemnity cannot be supported by the same consideration.
46 Indeed, in Silver v Dome Resources NL (2007) 62 ACSR 539 Hamilton J said [142]:
The law relating to the consideration for contracts of guarantee is generally similar to the law relating to consideration for contracts generally: O'Donovan and Phillips, The Modern Contract of Guarantee (looseleaf) at [2.1000]; C A Rowlatt Principal and Surety 5th ed, Sweet & Maxwell, London, 1999 at [2–01].
47 And at [143]:
One of the common forms of consideration for a guarantee is entry into the principal transaction: O'Donovan & Phillips [2.1100]. The learned authors state:
'In cases in which the consideration is the actual act of entering into the principal transaction, the guarantee will only become binding when that act occurs, that is, by the actual supply of goods, the actual making of advances or entering into the lease. If the stipulated act does not take place, the consideration for the guarantee will totally fail.
…'
It is clear from this case that it is not necessary that the relevant consideration be specified in a written guarantee for it to be treated as consideration for the giving of the guarantee. See also the decision of the Full Court of Western Australia in Lilley v Midland Brick Co Pty Ltd (1992) 9 WAR 339; O'Donovan & Phillips[2.1050].
49 Mr Smith further submitted that her Honour's findings were not justified by the judgment of the Privy Council in Pao On v Lau Yiu Long [1980] AC 614, 631. He submitted the additional consideration was inconsistent with the terms of the written agreement.
50 At [24] and [25] of her decision her Honour summarised the facts of Pao On v Lau Yiu Long. In delivering the judgment of the Privy Council in Pao On, Lord Scarman said at (631 - 632):
There is no doubt – and it was not challenged – that extrinsic evidence is admissible to prove the real consideration where (a) no consideration, or a nominal consideration, is expressed in the instrument, or (b) the expressed consideration is in general terms or ambiguously stated, or (c) a substantial consideration is stated, but an additional consideration exists. The additional consideration must not, however, be inconsistent with the terms of the written instrument. Extrinsic evidence is also admissible to prove the illegality of the consideration. In their Lordships' opinion the law is correctly stated in Halsbury's Laws of England, 4th ed, vol. 12 (1975), para. 1487. The extrinsic evidence in this case shows that the consideration for the promise of indemnity, while it included the cancellation of the subsidiary agreement, was primarily the promise given by the plaintiffs to the defendants, to perform their contract with Fu Chip, which included the undertaking not to sell 60 per cent of the shares allotted to them before April 30, 1974. Thus the real consideration for the indemnity was the promise to perform, or the performance of, the plaintiffs' pre-existing contractual obligations to Fu Chip. This promise was perfectly consistent with the consideration stated in the guarantee. Indeed, it reinforces it by imposing upon the plaintiffs an obligation now owed to the defendants to do what, at the first defendant's request, they had agreed with Fu Chip to do.
51 In my view her judgment is not in conflict with the decision in Pao On. She is clear in her judgment that the document read as a whole means that the consideration is not uncertain. In my view the consideration is not inconsistent with the terms of the indemnity.
52 It is further argued that her Honour took into account extrinsic evidence of Mr Brooks which relied upon the inadmissible subjective intent of Mr Brooks. At trial, Mr Brooks gave unchallenged evidence as to the requirement for a completed credit application form with directors' guarantees. Mr Brooks said it was the policy of the company and Mr Brooks' own standard practice [8]. In my view, the evidence was admissible and consistent with the terms of the written agreement.
53 Moreover, it is argued that her Honour failed to take into account the evidence of the appellant that he signed the document on a representation that it was limited to a single transaction.
54 In Marton v Evenwood (Unreported, WASCA, Library No 980135, 27 March 1998) Pidgeon J observed:
The learned Master said that if a signatory chooses not to read a document he does so at his own risk and is nevertheless bound by it. He referred to L'Estrange v Graucob [1934] 2KB394.
55 As her Honour found at [66]:
In my years of experience as a magistrate, I have encountered many contracts containing similar guarantee and indemnity clauses and this contract was similar to many others before the courts. It is not in my view realistic to require all creditors to go to the lengths suggested on behalf of Mr Smith to ensure that directors of companies understand what they are signing, when the document is clear on its face, as this one was. Mr Smith should have read the document but he chose not, although even on his own evidence he flicked through it and was told that it was a guarantee and indemnity. In my view based on all these factors, it cannot be said that Mr Smith should not be bound by the guarantee and indemnity on the grounds of misleading or deceptive conduct or unconscionable conduct.
56 In my view, Mr Smith cannot take advantage of a fellow director's alleged representation so that the contract he signed has no effect. The contract provides for the hiring of goods on credit. The fact remains that he signed the guarantee and indemnity as a director of AKC. AKC benefited by being able to hire goods on credit. The contract formed is not a contract for a single transaction. It is a contract for the hire of goods on credit.
57 I turn now to the submission that the accepted rules of construction preclude a finding that the indemnity takes effect as a contract.
58 Mr Smith referred to Lewison and Hughes, The Interpretation of Contracts in Australia at [7.08.5]:
In the case of contracts of guarantee and indemnity, it is often said that they are to be construed contra proferentem – that is, in favour of the guarantor. So, in Ankar Pty Ltd v National Westminster Finance (Australia) Ltd, Mason ACJ, Wilson, Brennan and Dawson JJ said:
'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 … A doubt as to the status of a provision in a guarantee should therefore be resolved in favour of the surety …'
The same principle applies to indemnity clauses. In Andar Transport Pty Ltd v Brambles Ltd Gleeson CJ, McHugh, Gummow, Hayne and Haydon JJ said:
'[N]otwithstanding the differences in the operation of guarantees and indemnities, both are designed to satisfy a liability owed by someone other than the guarantor or indemnifier to a third person. The principles adopted in Ankar, and applied in Chan, are therefore relevant to the construction of indemnity clauses.'
59 But as the learned authors' state and I agree:
However, the principles cannot be pressed too far.
60 For instance, the learned authors refer to Rava v Logan Wines Pty Ltd [2007] NSWCA 62.
61 In that case Campbell JA observed [53] – [56]:
There is, however, another way in which the principle of construction that was adopted in Andar needs to be applied to the facts in this case. It needs to be recalled that the contra proferentem rule is just one rule of construction. It needs to be used bearing in mind the fundamental purpose of construction of a document, namely, to ascertain the intention of the parties arising from the document as a whole and reading the document with such background information as was known by all the parties to it.
Further, it is to be used along with other aids that the law recognises for the construction of a document. Other such aids for construction of a document include the one that says that a contract that has been entered in a business context and is elliptical or ambiguous should be not read in a way that is commercially unlikely to be what the parties intended: Australian Broadcasting Commission v Australasian Performing Right Assn Ltd (1973) 129 CLR 99 at 109; Cohen & Co v Ockerby & Co Ltd (1917) 24 CLR 288 at 300; The Council of the Upper Hunter County District v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429 at 437. Closely allied principles are ones whereby a construction should be avoided if it leads to a capricious and unreasonable result (Australian Broadcasting Commission at 109) and whereby if a contract is open to two constructions it will receive that construction which will avoid consequences that are capricious, unreasonable, unjust or inconvenient (TCN Channel 9 v Hayden Enterprises Pty Ltd (1989) 16 NSWLR 130 at 146).
Further, it is not a legitimate use of the contra proferentem rule to say that two meanings of a particular contractual provision are possible and hence the meaning unfavourable to the proferens should be chosen if one of those meanings is an unrealistic or unlikely construction of the contract — North v Marina at [75] and cases there cited. Rather, the contra proferentem rule is to be used only where the document is otherwise ambiguous, and it is a principle of last resort: North v Marina at [76] - [78] and cases there cited.
Where it is understood in that way, the application of the principle for construction of guarantees and indemnities that was adopted by the High Court in Andar does not involve preparing a list of all the possible meanings of a clause that the language can bear without breaking, and choosing the meaning that is most favourable to the guarantor or indemnifier. Rather, the choice is limited to choosing amongst meanings that are fairly open by reason of the application of other rules of construction.
62 Therefore, in my view reliance on Andar Transport Pty Ltd v Brambles Ltd (2004) 217 CLR 424does not assist Mr Smith in the circumstances of this case. There was no relevant ambiguity in the indemnity part of the document. In my view, her Honour was correct for the reasons she stated that the guarantee and indemnity part of the document needs to be construed in the context of the entire document. She was correct that the consideration is not uncertain. The consideration is that Brooks Hire would allow AKC Holdings to hire goods on credit [32].
63 An authority on point in this context is Sloane v The Distribution Group Ltd [2002] VSC 10 [7] – [8], where Phillips JA said:
It is one question to ask whether the company was bound by the application for credit facility when there was no separate execution expressly for and on behalf of the company, but in view of the clause I have quoted and the signature of the two directors appearing at the foot of the page on which that clause appears, I can see no basis upon which it could properly be concluded that the two directors, by signing, were not accepting 'liability jointly and severally with the debtor company named for all outstanding debts'. According to the appellants, it was only the debtor company who was bound by the credit application and in context it must follow, it was argued, that the clause I have just quoted had no effect at all. Such a conclusion demonstrates to my mind that the submission is untenable. Moreover if the appellants were correct, clause 3 under the heading 'Guarantor's Consent', which relates to certain privacy considerations, would also have to be ignored as having no operation. In my view his Honour was plainly right in the construction he placed upon the document and in concluding, in effect, that the defendants were liable by reason of the words I have quoted. No error has been established in that regard.
A second point taken on appeal, but not, I suspect, argued below, is that there was no consideration given by the plaintiff for the guarantee or indemnity obtained from the defendants (as I shall continue to call them). Again, this is a point without substance. The plaintiff, trading as Lawrence and Hansen, plainly gave consideration by extending the credit limit of the company and it is nothing to the point that that was to the benefit of the company as distinct from the directors themselves. The defendants sought a benefit for the company and that benefit was obtained. That was the consideration given for the promise of the company to pay its debts and for the promise of the directors to guarantee that liability or to indemnify the plaintiff against default.
64 For the above reasons, I am of the view that grounds 1 and 2 of the appeal must fail.
Ground 3
65 Ground 3 reads as follows:
The learned Magistrate erred in law in finding that the Claimant had not engaged in misleading or deceptive or unconscionable conduct in view of an apparently normal business transaction (see paragraph 65 of the reasons).
66 Mr Smith relies on 10 separate particulars in support of this proposition that it is not a normal transaction:
(a) there was no clear notice that the indemnity was a primary liability unlimited in amount and time and that both Mr Brooks and Mr Smith did not understand that an indemnity created a primary liability (see [52] of the reasons;
(b) the Claimant had no contact with Mr Smith who was not experienced in business and left it to AKC Holdings (the debtor) to obtain signatures to the guarantee and indemnity;
(c) no independent legal advice was given to Mr Smith;
(d) AKC Holdings was under financial pressure as it was factoring its debts;
(e) AKC Holdings had a higher than average credit risk;
(f) Mr Smith was not shown as a director on the VEDA search obtained by the Claimant (and appeared to be a volunteer);
(g) Mr Smith's signature to the indemnity was not witnessed and was not enforceable as a Deed;
(h) the Claimant endorsed the credit application with the amount of $5,000 and 'watch out';
(i) Mr Smith was not advised that the Claimant would hire equipment without the purchase orders (see [88] of the reasons) although it was a requirement of the credit application and a material consideration to Mr Smith that purchase orders be supplied (see [12] of the reasons);
(j) Mr Smith gave uncontradicted evidence that he signed the instrument in reliance upon a representation that it was for a single transaction.
67 In relation to ground 3, the critical question is who made the representation. Her Honour noted that this was the first occasion on which Brooks and AKC had any dealings with each other. Further, her Honour found that the misrepresentation, if it occurred, was not made on behalf of Brooks and it was not made with its knowledge, see her findings [64].
68 The finding that Mr Corkill was not an agent of Brooks is not challenged in the appeal grounds. Further, it has not been contended in the appeal that AKC was the agent of Brooks in obtaining the signatures of the guarantors and indemnifiers as Mr Smith submitted at trial [49].
69 Both Mr Corkill and Mr Smith were directors of the same company. In my view what has been submitted by Mr Smith does not implicate Brooks in the alleged misleading or deceptive or unconscionable conduct.
70 In relation to the particulars relied upon in support of ground 3, particular (a), is an allegation that there was no clear notice that the indemnity was a primary liability unlimited in amount and both Mr Brooks and Mr Smith did not understand that an indemnity created a primary liability. The evidence was that Mr Smith did not read the document or only flicked through it. The evidence is that Mr Smith relied on the representation of his fellow director so there can be no question of reliance on Brooks.
71 As for particulars (b) and (c), there was nothing preventing Mr Smith from obtaining independent legal advice. As I have noted AKC was not the agent of Brooks in obtaining the signatures.
72 In relation to particulars (d) and (e), there was no factual finding made by her Honour to the effect that AKC was either under financial pressure or that it had a higher than average credit risk. Accordingly, there can be no foundation to these allegations. In any event it is not relevant to whether or not it is a normal business transaction.
73 Furthermore, the contention in particular (f) that Mr Smith was not shown as a director on the Veda search is irrelevant because at the time Mr Smith signed the guarantee and indemnity he was a director of AKC.
74 I have already dealt with particular (g), that this document is not a deed.
75 In relation to particular (h), her Honour made no findings as to when and how the words and amount was written. Accordingly, reliance on this ground has no basis.
76 In my view particular (i) that Mr Smith was not advised AKC would hire equipment without purchase orders, is not to the point. As her Honour noted at [12] of her reasons, he [Mr Smith] signed a document provided to him by Mr Corkill in reliance on his statement that it was only for the one-off hire of a front-end loader. Accordingly, it is irrelevant to complain about lack of purchase orders before equipment was hired because that is not what led Mr Smith to sign the document. The evidence at trial was that it was the representation of a fellow director.
77 In all the circumstances I am not persuaded there is an error of law. In my view there is nothing in the matters complained of that can lead me to disturb the finding of her Honour that this was an ordinary business transaction [65].
Ground 4
78 Ground 4 reads as follows:
The learned Magistrate erred in law in finding that the Claimant did not engage in unconscionable conduct (see paragraph 66 of the reasons) in that she failed to properly consider the relevant circumstances specifically set out in s 22(2) of the Competition and Consumer Act 2010 (Cth), alternatively s 12CA of the Australian Securities and Investments Commission Act 2001 (Cth) for the purpose of evaluing [sic] unconscionable conduct.
79 So far as ground 4 is concerned, Mr Smith in oral submissions corrected the references to respectively, section 22(1) of Schedule 2 to the Competition and Consumer Act 2010 (Cth) and section 12CB of the Australian Securities and Investments Commission Act 2001 (Cth). It was contended that her Honour failed to properly address the issues of unconscionable conduct as required by statute and did not address, for example, the issue of good faith.
80 Section 21 of sch 2 to the Competition and Consumer Act 2010 (Cth) relevantly provides:
(1) A person must not, in trade or commerce, in connection with:
(a) the supply or possible supply of goods or services to a person (other than a listed public company); or
(b) the acquisition or possible acquisition of goods or services from a person (other than a listed public company);
- engage in conduct that is, in all the circumstances, unconscionable.
81 Section 22 of sch 2 provides:
(1) Without limiting the matters to which the court may have regard for the purpose of determining whether a person (the supplier) has contravened section 21 in connection with the supply or possible supply of goods or services to a person (the customer), the court may have regard to:
(a) the relative strengths of the bargaining positions of the supplier and the customer; and
(b) whether, as a result of conduct engaged in by the supplier, the customer was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the supplier; and
(c) whether the customer was able to understand any documents relating to the supply or possible supply of the goods or services; and
(d) whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the customer or a person acting on behalf of the customer by the supplier or a person acting on behalf of the supplier in relation to the supply or possible supply of the goods or services; and
(e) the amount for which, and the circumstances under which, the customer could have acquired identical or equivalent goods or services from a person other than the supplier; and
(f) the extent to which the supplier's conduct towards the customer was consistent with the supplier's conduct in similar transactions between the supplier and other like customers; and
(g) the requirements of any applicable industry code; and
(h) the requirements of any other industry code, if the customer acted on the reasonable belief that the supplier would comply with that code; and
(i) the extent to which the supplier unreasonably failed to disclose to the customer:
(i) any intended conduct of the supplier that might affect the interests of the customer;
(ii) any risks to the customer arising from the supplier's intended conduct (being risks that the supplier should have foreseen would not be apparent to the customer); and
(j) if there is a contract between the supplier and the customer for the supply of the goods or services:
(i) the extent to which the supplier was willing to negotiate the terms and conditions of the contract with the customer; and
(ii) the terms and conditions of the contract; and
(iii) the conduct of the supplier and the customer in complying with the terms and conditions of the contract; and
(iv) any conduct that the supplier or the customer engaged in, in connection with their commercial relationship, after they entered into the contract; and
(k) without limiting paragraph (j), whether the supplier has a contractual right to vary unilaterally a term or condition of a contract between the supplier and the customer for the supply of the goods or services; and
(l) the extent to which the supplier and the customer acted in good faith.
83 Section 12CC sets out 12 matters that replicate the matters in s 22.
84 Statutory unconscionability was considered in Violet Home Loans Pty Ltd v Schmidt (2013) 300 ALR 770. The court observed [58]:
In Director of Consumer Affairs Victoria v Scully (No 3), Hargrave J discussed the principles relevant to the establishment of statutory unconscionability. His Honour rejected a contention by the Director that 'moral obloquy' was not required. Having reviewed many of the cases which were in turn cited to us, including Tonto, Hargrave J said:
It follows that the conduct in question must be more than negligent. It will usually involve some deliberate wrongdoing, although there may be cases where recklessness will suffice. For example, cases involving wilful blindness. Ultimately, as the cases demonstrate, each case must depend upon its own circumstances and the court must make a value judgment as to whether to characterise the conduct with "the opprobrium of unconscionability".
The concept of statutory unconscionability is embodied in legislation across the states, territories and the Commonwealth. Uniformity of decision-making must be preferred unless I am convinced that the interpretation placed on the legislation in the authorities is plainly wrong. I am not.
We agree with the analysis of Hargrave J. We note that recklessness, in the form of wilful blindness, may in some cases supply the necessary element of moral obloquy.
85 Her Honour considered the legislation and the authorities including Violet relied upon by Mr Smith in support of this ground of appeal [54]. In my view, that her Honour expressly did not mention each subsection in her reasons for decision referred by Mr Smith as a 'shopping list' does not establish any error of law. Moreover, that she did not refer to an applicable industry code, being, the voluntary Code of Banking practice is also not to the point.
86 Her Honour was not required to canvas every single point because she found that Brooks did not engage in any conduct that would establish statutory unconscionability. The conduct Mr Smith relied upon as being unconscionable was not from Brooks.
87 As her Honour noted, the cases indicate that alarm bells should ring if it is people such as family members who sign a guarantee or an indemnity when they have no control or interest in the transaction, see her reasons [61].
88 As her Honour found Mr Smith was not such a person. He was a director of AKC. He had power to control what the company was doing but did not do so [64].
89 In all the circumstances, this ground of appeal must fail.
Grounds 5 – 7
90 It is appropriate to deal with these grounds together.
Ground 5
91 Ground 5 reads:
The learned Magistrate erred in law in finding that the Claimant had not engaged in misleading or deceptive or unconscionable conduct based on the many contracts containing similar guarantee and indemnity clauses she had encountered in her years of experience as a Magistrate (see paragraph 66 of the reasons).
Ground 6
92 Ground 6 reads:
The learned Magistrate erred in law in finding that the Claimant had not engaged in misleading or deceptive or unconscionable conduct as the document was clear on its face (see paragraph 66 of the reasons) when both Mr Brooks of the Claimant and Mr Smith gave evidence that they did not understand that an indemnity created a primary liability (see paragraph 52 of the reasons).
Ground 7
93 Ground 7 reads:
The learned Magistrate erred in law in finding that the Claimant had not engaged in misleading or deceptive or unconscionable conduct as Mr Smith gave evidence he was told the document was a guarantee and indemnity (see paragraph 66 of the reasons) when the learned Magistrate had already found that when Mr Smith signed the document he was not aware it contained an indemnity or guarantee (see paragraph 12 of the reasons).
94 Grounds 5 – 7 also rely upon the basic premise that the learned magistrate erred in law in finding that Brooks had not engaged in misleading or deceptive or unconscionable conduct.
95 As to grounds 5 - 7, once again the critical question is who made the representation.
96 As her Honour found, it was Mr Corkill who made the alleged representation to Mr Smith not any person from Brooks. Mr Corkill cannot be an agent of Brooks.
97 By ground 5 Mr Smith contends her Honour was relying upon extraneous evidence. He contends it is irrelevant and impermissible. In my view the evidence in this trial supported her Honour's findings. Her Honour did not base her decision on the observation identified by Mr Smith but rather on the entirety of the evidence presented at trial. Further, as Pidgeon J observed in Martin v Evenwood:
I consider the learned master was correct in the way he had dealt with the question raised under Pandya. This was not a case of one person being in a subordinate position to the other. They were each directors of a company which was trading and which it committed itself to purchase properties and to find a deposit. The agreement signed was an ordinary type of commercial transaction. In distinguishing the facts from a case such as Pandya, it would be open to take into account the fact that when a private company is obtaining a loan it is common to seek guarantees from the directors as it is the directors' personal standing that is often the cause of the loan being made. This is a case of a proprietary company with two directors seeking a large loan. It is, in my view, a commercial fact known to the courts judging questions in the area of commerce that the personal guarantee of directors is often required and that in this sense, the document is not an unusual one.
98 For the above reasons, there was no error of law in her Honour's approach.
99 Ground 6 contends that there was an error of law in her Honour's findings that the document was clear on its face having regard to the evidence of Mr Smith and Mr Brooks that they did not understand that an indemnity created a primary liability.
100 In my view, no error of law is demonstrated. I refer to my reasons in relation to ground 3, particularly ground 3(a). I refer to the entirety of her Honour's judgment. As I have found, her Honour gave clear reasons for all of her findings.
101 By ground 7 it is contended that her Honour was in error when Mr Smith had given evidence when he signed the document he was not aware it contained an indemnity or guarantee.
102 Having regard to the entirety of the evidence, I do not accept her Honour was inconsistent in her findings. I consider her Honour was correct for all the reasons she stated.
103 In those circumstances none of the grounds relied on by Mr Smith can succeed in disturbing the learned magistrate's conclusion in this trial that there was neither misleading or deceptive conduct nor unconscionable conduct on behalf of Brooks.
104 Accordingly, these grounds of appeal must fail.
Conclusion
105 For the above reasons, none of the grounds of appeal are made out. Accordingly, the appeal is dismissed.
106 As the appeal cannot succeed, it is not necessary for me to consider the Respondent's Notice of Intention.
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