Smyth and Smyth v Amatek Ltd

[1997] QCA 413

IN THE COURT OF APPEAL	[1997] QCA 413
SUPREME COURT OF QUEENSLAND

Appeal No. 2078 of 1997

Brisbane

[Smyth & Anor v Amatek Limited]

BETWEEN:

HAROLD WALTER SMYTH and

EILEEN DOROTHY SMYTH

(First Defendants) Appellants

AND:

AMATEK LIMITED (ACN 000 032 191)

(Plaintiff)	Respondent
McPherson JA Thomas J de Jersey J

Judgment delivered 21 November 1997

Judgment of the Court

APPEAL DISMISSED WITH COSTS.

CATCHWORDS:	Summary judgment given on guarantee - instrument of guarantee deficient in not stating subject matter of guarantee - whether judgment might be sustained on appeal by reference to indemnity provision.
Counsel:	Mr P. W. Hackett for the appellants Mr K.S. Howe for the respondent
Solicitors:	S.J. Gurnsey for the appellants Tracey L Moore for the respondent
Hearing Date:	11 November 1997

IN THE COURT OF APPEAL

SUPREME COURT OF QUEENSLAND

Appeal No. 2078 of 1997

Brisbane

Before McPherson JA

Thomas J

de Jersey J

[Smyth & Anor v Amatek Limited]

BETWEEN:

HAROLD WALTER SMYTH and

EILEEN DOROTHY SMYTH

(First Defendants) Appellants

AND:

AMATEK LIMITED (ACN 000 032 191)

(Plaintiff) Respondent

REASONS FOR JUDGMENT - THE COURT

Judgment delivered 21 November 1997

The respondent sued the appellants and their son, the second defendant, in the District Court,

for $49,242.98, as “the agreed and invoiced price of goods sold and delivered by the plaintiff to

Demdale Pty Ltd ... payment of which was guaranteed by the (appellants) and the second defendant”.

The respondent successfully sought summary judgment, the learned judge giving it leave to sign judgment

in that amount together with interest.

The material before the judge showed that the appellants signed a document entitled “Deed of

Guarantee and Indemnity” on 14 November 1994. The respondent delivered goods to Demdale Pty

Ltd, for which it did not pay. The respondent made demand on the appellants on 14 November 1996,

relying on that instrument of “guarantee and indemnity”.

The circumstances on which the learned judge focused, with the agreement of counsel for both

parties, were the resignation of both appellants as directors by mid August 1996, by which time no

moneys were owing by Demdale to the respondent. In January 1996 their son, the second defendant,

became a director of Demdale. In May of that year, the respondent's Annie McMaster informed him

that the respondent required a new credit application and personal guarantee. He then signed a “Deed

of Guarantee and Indemnity” in September 1996. Demdale accumulated debts to the respondent for

the delivery of goods from 17 September 1996 to 17 October 1996. The demand made upon the

appellant on 14 November 1996 related to those debts.

The only material before the judge directly relevant to revocation of any guarantee and

indemnity given by the appellants to the respondent, was this paragraph of the second defendant's

statement exhibited to the defendants' solicitor's affidavit:

“I was under the impression that once I had signed a new credit application and guarantee and was the sole director for some time, that I would be solely responsible for the company assets and liabilities.”

In his affidavit, the second defendant said:

“I confirm that I had numerous discussions with the credit department of the plaintiff company and say that at no time was it ever discussed, demanded or requested that the first defendants continue as guarantors after the sale of the business. All accounts prior to August 1996 had been paid by Demdale Pty Ltd. ...”

As illustrated however by Mahoney v McManus (1981) 55 ALJR 673, respective guarantees

from the appellants and the second defendant could have subsisted concurrently. There was no

suggestion, in the evidence put before the judge, that the appellants gave notice of revocation of their

obligations to the respondent, so that the approach dealt with in cases such as Lloyds v Harper (1880)

16 Ch D 290, 314 was not applicable. Having been referred to the clause in the instrument which

provided that the obligation continue notwithstanding “any change in the composition of members or directors of the debtor”, the judge proceeded to give judgment in favour of the respondent, and rightly

so provided the instrument did provide for a guarantee of these debts.

We put it that way because the case was conducted before the learned judge on the basis of

a liability arising under a guarantee. The relevant paragraph of the plaint is in these terms:

“By a written document dated 14th November 1994 the first defendants (jointly and severally) guaranteed the payment by Demdale to the plaintiff for the goods sold and delivered pursuant to the contract between the plaintiff and Demdale.”

Somewhat extraordinarily, the subject matter of the “guarantee” has not been completed in the

instrument. The relevant part reads:

“In consideration of Amatek agreeing to provide credit and goods and services from time to time to Demdale Pty Ltd ... (‘the debtor’) the guarantors jointly and severally guarantee:-”

The intended insertion following the punctuation mark has simply not been completed.

While it may have been likely that the guarantee was intended to extend to the discharge of the

credit obligation and payment for the goods and services previously referred to, that assumption could

not properly be made on a summary judgment application, having regard to the particular nature of that

procedure, so that by reference to the basis upon which the matter was presented to the judge and

argued before him, the judgment should not be sustained.

The instrument can however operate independently as an indemnity. Another clause provides:

“The guarantor shall indemnify Amatek and keep indemnified Amatek against all losses sustained or incurred by Amatek as a result of any failure on the part of the debtor to carry out its obligations under any credit facility or terms and conditions or any other amounts owed by the debtor to the company including all legal fees and expenses incurred by the company in enforcing the terms of this guarantee.”

As applicable here, the respondent would rely on an indemnity by the appellants in favour of the

respondent in respect of “other amounts owed” by Demdale to the respondent. There was no issue before the judge but that the debts were owed. It is reasonably clear that had the deficiency of the

guarantee been raised before the judge, the respondent would have sought to amend the plaint to plead

reliance additionally or alternatively on the indemnity. Counsel for the respondent before the judge was

alive to there being an indemnity, because he referred expressly to it. It may be, further, that the specific

reference to the written instrument in the plaint was sufficient to incorporate it. But it is not necessary

to resort to that possibility in order to resolve this appeal.

The important feature for the present is that both parties were content for the judge to assume

that there was an otherwise applicable guarantee, the only issue then being revocation, which he

resolved against the appellants. Had the unavailability of the guarantee been raised by the appellants,

it is likely that the respondent would have been given leave to rely, by amendment, on that indemnity,

and on the material before the judge, judgment would have been justified on that alternative basis.

Mr Hackett, who appeared before us for the appellants, contended that had leave been sought

before the judge to amend the plaint in that way, any consequent amendment would have led to an

application for adjournment so that further evidence might be put before the judge. However unlikely

the prospect of further evidence would have been, this is not an approach now available to the

appellants, where it was they who failed before the judge to advert to the deficiency of the guarantee.

By parity of reasoning with Suttor v Gundowda Pty Ltd (1950) 81 CLR 418, 438, the point the

appellants seek to raise on appeal (the deficiency of the guarantee) is presently unavailable if it could

have been cured by evidence from the respondent below. The response which the respondent would

almost certainly have taken below would have been to seek the amendment of the plaint to allege the

indemnity which, on the material before the judge, would then have entitled the respondent to the

judgment given.

Mr Hackett submitted that the existing material was insufficient to support a judgment based upon the indemnity. In particular he submitted that there was no evidence to show any losses incurred by Amatek as a result of any failure of the defendant. The principal debtor company had recently gone into liquidation and Mr Hackett submitted that there was no evidence that the plaintiff had proved in the liquidation. Those submissions are based upon the erroneous assumption that an action for enforcement of a right of indemnity involves a claim for damages.

A contract of indemnity is one by which a party agrees to make good a loss suffered by another (Halsbury’s Laws of England 4th ed, para 305). An action upon a right of indemnity is not an action for damages but an action to recover money payable under the terms of the contract (McGregor on Damages 15th ed, para 673). In the present case the defendants agreed to indemnify the plaintiff against any amounts owed by the debtor (Demdale) to the plaintiff. It was further provided that no moneys payable by the defendants to the plaintiff should be dealt with by the plaintiff otherwise than for the purpose of indemnifying itself ‘of the amount of loss suffered directly for or in connection with the default of the debtor’. These provisions show that the plaintiff was entitled to sue on its indemnity as soon as moneys were owed by Demdale to the plaintiff. There would be multiple avenues of recovery available to the defendants in respect of any rights that the plaintiff might have against the debtor.

No ground has been shown upon which the result could have been any different in the proceedings below if the present point concerning the absence of an effective guarantee had been taken. If the point had been taken at the trial, the defect could have been remedied (Sydney Harbour Trust Commissioners v Wailes (1908) 5 CLR 879, 881). The new point raised by Mr Hackett on appeal as to the invalidity of the claim for guarantee, even on the footing that it raises a pure question of law not depending on controverted facts, is not sufficient to deny the plaintiff’s entitlement to a money judgment in the same amount as that given. In these circumstances the appropriate course is to dismiss the appeal.

The appeal is therefore dismissed, with costs.