Steiner v Modbury Towing Services & Ors No. Scgrg-96-1993 Judgment No. S6774
[1998] SASC 6774
•5 August 1998
A & M STEINER TRADING AS METRO FACTORS & CO v MODBURY TOWING SERVICE PTY LTD TRADING AS O’LEARY MOTOR INDUSTRIES, MODERN TOWING SERVICE PTY LTD, MICHAEL JOSEPH O’LEARY AND EDWIN CHARLES HARRISON
Matheson J
The plaintiffs are husband and wife. At all material times they have carried on the business of factoring debts in partnership, trading as Metro Factors and Co. At all material times the first defendant, Modbury Towing Service Pty Ltd, has carried on the business of a motor crash repairer, trading as O’Leary Motor Industries (“OMI”). The third defendant (“Mr O’Leary”) and the fourth defendant (“Mr Harrison”) were its only directors. The second defendant, Modern Towing Service Pty Ltd, was the first defendant’s landlord.
In or about September 1990 the plaintiffs and the first defendant orally agreed that the plaintiffs would provide to OMI the benefit of a debt factoring facility whereby the plaintiffs would purchase such of the debts owing to OMI by insurance companies and offered for sale by OMI as the plaintiffs might from time to time agree to purchase. The plaintiffs provided the debt factoring facility until about August 1995, although the finishing date is not entirely clear. They allege that as at 31 July 1996 the first defendant owed them $455,380.08. They claim that sum together with interest against the defendants. Their summons herein was issued on 30 September 1996.
Initially the purchase price of the debts was to be 96.2% of the face value of the invoice relating to each debt, but from January 1991 until August 1991 it was agreed that the purchase prise was to be 96.5% of the face value of invoices. On 11 January 1991 a document described as “Agreement for Assignment of Future Book Debts” was signed by the third and fourth defendants on behalf of the assignor who was described as O’Leary Motor Industries. The company seal of the first defendant was not affixed to the agreement. The first plaintiffs signed on behalf of the assignee. Clause 2 of the Agreement read:
"2....... The Assignor shall sell and the Assignee shall purchase upon the terms and conditions hereinafter set out the debts which during the continuance in force of this agreement become owing to the Assignor by customers of the Assignee in respect of goods and services supplied to such customers.”
.................. Clause 3 read:
"3 Mode of Purchase:
3.1... The Assignor shall from time to time submit to the Assignee a list of the debt or debts of customers of the Assignor which the Assignor desires to sell to the Assignee. Every such list shall be in the form of the Schedule hereto and shall contain the details required in the form annexed hereto and shall be accompanied by a clearance certificate from the customer, a copy of the invoice, an authorisation directed to the insurer and to such other party as the Assignee directs signed by the Assignor to pay the debt direct to the Assignee and an acceptance of quotation from the insurer in respect of each invoice.
3.2... Subject as provided in Clause 3.3 hereof the debt or debts included in any such list shall be deemed to be purchased by the Assignee on the day on which the list is delivered to the Assignee and as from that day all rights of the Assignor in respect of every debt so included and all remedies for enforcing the same shall be deemed to have been equitably assigned to the Assignee by the Assignor.
3.3... If any such debt included in any such list is not accompanied by the documentation required under this agreement or is not accepted by the Assignee for any other reason then the same may be excluded from purchase under Clause 3.2 hereof by the Assignee.
3.4... The Assignee shall within one business day of delivery to them of a list of debts send to the Assignor notice in writing of any debts excluded from purchase in accordance with Clause 3.3 hereof.”
Clause 4 set out certain warranties by the assignor as to the debts assigned, and Clause 5 read:
"5....... The purchase price for every assigned debt shall be ninety six point five percent (96.5%) of that debt and the Assignee shall within twenty four hours of purchase pay the purchase price to the Assignor.
Clause 9 read:
"9. The Assignor further undertakes and agrees
9.1... That it will accept a re-assignment from the Assignee of all debts which have not been paid by the owner or insurer at the expiration of sixty days from the date of the original assignment and upon such re-assignment shall forthwith repay to the Assignee the full amount of such debts together with any costs and expenses incurred by the Assignee. In addition the Assignor shall pay to the Assignee interest at the rate of one half per cent per week on any monies due pursuant to such re-assignment but unpaid from and including the date of re-assignment.
9.2... That it will indemnify and keep indemnified the Assignee from all suits, actions, claims and demands which may be brought or made by or against the Assignee in respect of or arising out of a said assignment or said re-assignment.”
On the same day Messrs Harrison and O’Leary, signed a document which purported to be their own guarantees and indemnities, but alongside their signatures appeared the common seal of Modbury Towing Service Pty Ltd.
On 1 August 1991 Mr Steiner wrote the following letter to the Manager of OMI, and Mr Harrison admitted that he signed at the foot thereof on the date shown:
" We would like to congratulate you and thank you for your business as we complete the 1990/91 financial year of operations. You should have received our new Assignment Forms pad. Please discard the old ones and use these from now on. Again, as in the past, do not enter any information in the REF box. This space is reserved for office use and must be left blank.
As we review the year’s operations, it is very evident that delays in the repayments of factoring are occurring. These delays increase costs and charges. We would like to make funds available to you promptly and at the lowest possible cost. We are sure that this is your desire too. It makes good business sense.
We have therefore set up a new accounting procedures that will assist in this regard. The good news is that:
THE STANDARD COST OF FACTORING WILL BE A LOW 3.0%
Under normal circumstances this should be the only cost of factoring to you. If delays occur, it will unfortunately be necessary to apply SURCHARGES as follows:
1...... Half a percent per week for delays causing a hold up between the factoring date and the date of mailing the claim to the insurance companies for payment. If this delay exceeds 4 weeks, a full re-factoring will be necessary.
2...... Half a percent per week when payments from insurance companies exceed 60 days from the day of lodging the claims. This charge is the normal contracted arrangement, but Metro Factors can no longer absorb this cost and will be forced to pass it to the repairers who do not follow up delayed payments.
3...... Re-factoring for each 30 days or half a percent per week in the case of payments received by repairers for claims that have been factored and are therefore payable to Metro Factors. The surcharge will start from the day the cheque was received by the repairer.
It is therefore to our mutual benefit that all the required information is supplied at the time of processing the claim. This means ensuring that:
1. the CORRECT amount of excess is deducted.
2...... the claim number, the policy number, the name of the insured party, the make of the car, the registration number, the assessor and your own references are supplied. This means ALL THE INFORMATION listed in the assignment forms.
3...... In the case of third party claims, the discharge signed is made PAYABLE TO METRO FACTORS and not to the repairer. This has caused unnecessary chasing up of cheques in the past.
4...... Cheques made incorrectly in favour of the repairer that should have been made in favour of Metro Factors must be endorsed to Metro Factors and mailed to us immediately.
We are sure that your cooperation in these matters will allow us to continue to provide you with a good efficient service and to continue the satisfactory business relationship to our mutual benefit. We wish you a prosperous year ahead.
(A. Steiner)
DIRECTORI have read, understand and accept the new procedures.
E C Harrison
[signed]
1/8/1991”
Although Mr O’Leary did not also sign at the foot, I have no doubt, and I so find, that he was aware of and agreed with the new procedures, and that they were essentially followed.
On 22 November 1991 a fresh “Agreement for Assignment of Future Book Debts” was executed by Harrison and O’Leary. This time the assignor was correctly described as Modbury Towing Service Pty Ltd [trading as] O’Leary Motor Industries, and the common seal of Modbury Towing Service Pty Ltd was affixed. The agreement was in precisely the same terms as that of the 11 January 1991, including the purchase price of 96.5% contained in clause 5 thereof. On the same date guarantees and indemnities were executed by the defendant Modern Towing Service Pty Ltd and by Messrs O’Leary and Harrison. The guarantees and indemnities were not exactly in the same terms as those of 11 January 1991. I set out only the document that was signed by Messrs O’Leary and Harrison, the words I emphasise being not contained in the guarantees of 11 January 1991:
" GUARANTEE
IN CONSIDERATION of Alfred and Mariette Steiner of 2A Highland Avenue, Torrens Park, 5062 trading as METRO FACTORS & Co (hereinafter called ‘METRO FACTORS & Co’) entering into an agreement for the assignment of future book debts with Modbury Towing Service Pty Ltd (ACN 007969348) trading as O’LEARY MOTOR INDUSTRIES (herein after called ‘the company’) at our request and/or continuing to purchase debts from the company pursuant to any existing agreement (and any such agreement is hereinafter called ‘the contract’), we:
(Name of Director) MICHAEL JOSEPH O’LEARY
(Address of Director)......... 50 INTERNATIONAL AVE, SALISBURY NTH
and
(Name of Director)............. EDWIN CHARLES HARRISON
(Address of Director) 56 WATTLE CRES, T.T.GULLY
do hereby jointly and severally guarantee:
1.That if at any time default shall be made in payment of monies and/or interest payable by the company to Metro Factors & Co under the contract or in the performance or observance of any of the terms or conditions of the contract to be performed or observed by the company, we will forthwith on demand by Metro Factors & Co pay to Metro Factors & Co the whole of such monies and/or interest which shall then be due and payable to Metro Factors & Co. This guarantee shall be a continuing guarantee and shall not be released by any neglect or forbearance on the part of Metro Factors & Co in enforcing payments of any of the agreements obligations or conditions under the contract or by time being given to the company for any such payment performance or observance or by any other thing which under the law relating to sureties would but for this provision have the effect of releasing either of us or our executors or administrators.
2.That we will keep Metro Factors & Co indemnified against all loss of monies and/or interest payable under the contract and all losses costs charges and expenses whatsoever which Metro Factors & Co may incur by reason of any default as aforesaid on the part of the company.
3.Any notice or request for payment or the doing of any thing pursuant to clauses 1 and 2 hereof shall be properly served on both of the guarantors hereinbefore named if sent by security mail to either of us at the address hereinbefore set out signed by Metro Factors & Co or by its solicitors or agents.
DATEDthe 22nd day of November 1991
SIGNED by the said: ...............[signed] M J O’Leary
in the presence of: ...............[signed] A Steiner
SIGNED by the said: ................[signed] E C Harrison
in the presence of: ................[signed] A Steiner”
It is convenient now to make some general comments on the witnesses. The plaintiff, Mr Steiner, and his brother-in-law, Mr David Bayer, gave evidence for the plaintiffs. Messrs O’Leary and Harrison gave evidence for the defendants. Mr Steiner came to Australia from Hungary in 1950. At times his English was imprecise. At times under cross-examination he became agitated. I suspect his health is not good. Moreover, like all the witnesses, he was deposing to events and conversations that occurred some years ago. Having said all that, I have no doubt that he was an honest witness. I have no doubt that Mr Bayer was an honest witness.
I was not impressed by the evidence of Messrs O’Leary and Harrison. At times, I thought their recollections were “convenient” from the point of view of their case, rather than accurate. Both often hesitated long before answering difficult questions, but I considered that that was not due to any desire on their part to be honest or accurate. Generally speaking, where their evidence conflicts with that of Messrs Steiner and Bayer, I reject it. Further, I consider that Ms Cheryl Evans, who was the first defendant’s clerical assistant and subsequently its secretary, should have been called. She received instructions from both Mr O’Leary and Mr Harrison, and was present at many of their conversations with Messrs Steiner and Bayer. She had many conversations with Mr Bayer, and wrote several relevant letters.
What then were the terms of the agreement between the parties as and from 1 August 1991, and as and from 22 November 1991? Before endeavouring to answer these questions, I refer to a very useful discussion in the speech of Lord Wilberforce in Reardon Smith Line v Hansen-Tangen [1976] 1 WLR 989 on the construction of commercial contracts. His Lordship was concerned with charter parties, but his observations were not so confined. At pp995-996, his Lordship said:
"No contracts are made in a vacuum: there is always a setting in which they have to be placed. The nature of what is legitimate to have regard to is usually described as ‘the surrounding circumstances’ but this phrase is imprecise: it can be illustrated but hardly defined. In a commercial contract it is certainly right that the court should know the commercial purpose of the contract and this in turn presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating ...
It is often said that, in order to be admissible in aid of construction, these extrinsic facts must be within the knowledge of both parties to the contract, but this requirement should not be stated in too narrow a sense. When one speaks of the intention of the parties to the contract, one is speaking objectively - the parties cannot themselves give direct evidence of what their intention was - and what must be ascertained is what is to be taken as the intention which reasonable people would have had if placed in the situation of the parties. Similarly when one is speaking of aim, or object, or commercial purpose, one is speaking objectively of what reasonable persons would have in mind in the situation of the parties ...
[W]hat the court must do must be to place itself in thought in the same factual matrix as that in which the parties were ...”
I find that at least between 11 January and 1 August 1991, if not before, a course of conduct described by Messrs Steiner and Bayer as “pre-factoring” regularly occurred. I accept that it involved OMI submitting an invoice and an assignment, but no release or clearance certificate, the plaintiffs paying 96.5% of the face value of the invoice, and the plaintiffs holding the invoice until such time as OMI provided a release. Some times this took a few days, but often the delay was very substantially longer. Prior to 1 August 1991, no fee was charged by the plaintiffs in respect of its costs of holding the invoice pending submission to an insurer for payment. It is convenient for me to say here that in my view it was entirely reasonable of the plaintiffs ultimately to require payment by OMI of some interest for such delays as were occurring.
I do not think there can be any serious dispute that the original agreement was varied on or about 1 August 1991 at least to the extent of varying the purchase price to 97%, and to the extent of including the imposition of surcharges as set out in the letter of 1 August 1991. However, the defendants argue that the agreement of 22 November 1991 effectively varied what was then agreed. They point out that there was no mention therein of the imposition of surcharges, and that the purchase price was still stated to be 96.5%. I do not accept, however, that as a result of the execution of the 22November agreement the arrangements between the parties were varied again. It was unfortunate that what must have been a pro-forma factoring agreement was used again without appropriate alterations, but I accept that the intention of the plaintiffs, which was understood and accepted by Messrs O’Leary and Harrison, was to remedy the unsatisfactory execution of the documents that took place during the previous January. I find that the parties had been operating in accordance with the terms agreed in August 1991, including a purchase price of 97%, and that they continued so to operate after the execution of the documents on 22 November 1991.
The next question to resolve is the admissibility of three documents marked P13, P14 and P15 which I tentatively admitted, subject to the objection of Mr Keen, counsel for the plaintiffs. These documents were computer print-outs made by Mr Bayer on the night of 6 May 1998 during an adjournment whilst he was giving evidence. They purported to show pre-factoring at least as early as 5 July 1991. Mr Howard argued that these print-outs were admissible under s59b of the Evidence Act. However, I have decided that they should not be admitted, either under that or any other section of the Act, or at common law. In my opinion, in inserting “Part VIA - Computer Evidence” in the Evidence Act, Parliament in effect codified the law relating to the admissibility of computer output, and in the circumstances existing here the plaintiffs could not rely on either ss45a or 45b of the Act. With respect, I disagree with the decision in DPP v Nguyen (1990) 156 LSJS 475. I have reached the conclusion that the plaintiffs cannot invoke s59b principally because they did not prove that the computer was correctly programmed and regularly used to produce output of the same kind. I think the same obstacle faces the plaintiffs at common law (cf R v Weatherall (1981) 27 SASR 238.) Probably my ruling does not actually matter, because I accept the oral evidence of Messrs Steiner and Bayer that pre-factoring was occurring well before 22 November 1991.
The next question for consideration is the plea of the defendants in par5.3 of their defence that, to the extent that the August 1991 letter authorises surcharges, the same are penalties, and are therefore unenforceable in law. Mr Keen pointed out that the half percent surcharge per week amounted to 26% per annum. He referred me to a number of authorities starting with Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd [1915] AC 79. Lord Dunedin in his classical speech said at pp86-88:
" 1. Though the parties to a contract who use the words ‘penalty’ or ‘liquidated damages’ may prima facie be supposed to mean what they say, yet the expression used is not conclusive. The Court must find out whether the payment stipulated is in truth a penalty or liquidated damages. This doctrine may be said to be found passim in nearly every case.
2. The essence of a penalty is a payment of money stipulated as in terrorem of the offending party; the essence of liquidated damages is a genuine covenanted pre-estimate of damage (Clydebank Engineering and Shipbuilding Co. v. Don Jose Ramos Yzquierdo y Castaneda [1905] AC 6.
3. The question whether a sum stipulated is penalty or liquidated damages is a question of construction to be decided upon the terms and inherent circumstances of each particular contract, judged of as at the time of the making of the contract, not as at the time of the breach (Public Works Commissioner v. Hills [1906] AC 368 and Webster v. Bosanquet [1912] AC 394.
4. To assist this task of construction various tests have been suggested, which if applicable to the case under consideration may prove helpful, or even conclusive. Such are:
(a) It will be held to be penalty if the sum stipulated for is extravagant and unconscionable in amount in comparison with the greatest loss that could conceivably be proved to have followed from the breach ...
(b) It will be held to be a penalty if the breach consists only in not paying a sum of money, and the sum stipulated is a sum greater than the sum which ought to have been paid (Kemble v. Farren 6 Bing 141). This though one of the most ancient instances is truly a corollary to the last test. Whether it had its historical origin in the doctrine of the common law that when A. promised to pay B. a sum of money on a certain day and did not do so, B. could only recover the sum with, in certain cases, interest, but could never recover further damages for non-timeous payment, or whether it was a survival of the time when equity reformed unconscionable bargains merely because they were unconscionable, - a subject which much exercised Jessel M.R. in Wallis v. Smith 21 Ch D 243 - is probably more interesting than material.
(c) There is a presumption (but no more) that it is penalty when ‘a single lump sum is made payable by way of compensation, on the occurrence of one or more or all of several events, some of which may occasion serious and others but trifling damage’ (Lord Watson in Lord Elphinstone v. Monkland Iron and Coal Co 11 App Cas 332).
On the other hand:
(d) It is no obstacle to the sum stipulated being a genuine pre-estimate of damage, that the consequences of the breach are such as to make precise pre-estimation almost an impossibility. On the contrary, that is just the situation when it is probable that pre-estimated damage was the true bargain between the parties (Clydebank Case, Lord Halsbury [1905] AC at p11; Webster v. Bosanquet, Lord Mersey [1912] AC at p398).”
I add references to recent discussions of the attitude of courts of equity on the topic in Chitty on Contracts 27th Edn Vol 1 p1252, Cheshire Fifoot & Furmiston Law of Contract 13 Edn p635 and Hals Laws of Australia Vol 6 par110-11470.
Mr Howard, counsel for the plaintiffs, conceded that the word “surcharge” was unfortunate, and submitted that the words “holding charge” would have been more appropriate. In any event, he submitted that the surcharge really amounted to a fee for service, being a service which had been provided without charge prior to 1 August 1991. He pointed out that the primary commodity in the plaintiffs’ business was money, that what the plaintiffs were providing was money, and that there was no security therefor.
Mr Keen referred me to AMEV-UDC Finance Ltd v Austin (1986) 162 CLR 170. In their joint judgment at 193, Mason J (as he then was) and Wilson J said:
"Penalty clauses are not, generally speaking, so expressed as to entitle the plaintiff to recover his actual loss. Instead they prescribe the payment of a sum which is exorbitant or a sum to be ascertained by reference to a formula which is not an acceptable pre-estimate of damage. In either case the court, if it were to enforce the clause, would be performing a function very different from that which it undertakes when it severs or reads down an unenforceable covenant, such as a covenant in restraint of trade.”
Mr Keen also referred to two South Australian cases in which interest provisions had been struck down as unenforceable penalties. The first was Harvey v Rogers (1983) 32 SASR 247. It concerned a contract for the sale of a flat which contained a provision that if the purchaser should make default in the payment of the purchase price he should pay to the vendor interest on so much of the purchase price as remained unpaid at 20% per annum from the date on which payment was due until the date on which payment should be made. The purchaser failed to complete settlement on the day appointed. The vendor eventually sold the flat to another purchaser for a similar or slightly higher price. He sued the purchaser for damages for breach of contract. White J held that the rate of 20% specified in the clause of the contract relating to default was not a genuine pre-estimate of damages but was a penalty, and that the clause was unenforceable in equity. He held, however, that the vendor was entitled to reasonable compensation for being kept out of his money for thirteen months. At p249, White J said:
"In 1980, the rate of 20 per cent was not, in my opinion, a reasonable rate of compensation, bearing in mind the long-standing policy of the law in this area to fix a rate of compensatory interest below the commercial rate. See Stonham, [Vendor and Purchaser (1964)] pp.347,598. If the vendor was paying at the time a higher rate than 10 per cent under an existing mortgage over the property, the onus was on him to establish such higher rate. The rate of 10 per cent was commonly awarded to plaintiffs who were kept out of their money in relation to compensation in other areas of the law. I hold that a reasonable rate of compensation in 1980 and 1981 was 10 per cent. Compensatory damages may be fixed by reference to a reasonable rate of interests. Stonham, supra; Voumard, The sale of Land (3rd ed.) pp.430 et seq.; Harold Wood Brick Co. Ltd. v. Ferris [1935] 1 KB 613. In that case, it was held that, under a default clause not unlike the present default clause, the vendor was not limited to his right to resell but was also entitled to damages for breach of the agreement. The Court relied on the long-established principle in Laird v. Pim (1841) 7 M & W 474 (151 ER 474) that the vendor is entitled to damages at common law for breach of contract unless his damages were expressly excluded.
In York Glass Co Ltd. v Jubb (1925) 134 LT 36 at p40, Pollock M.R. said in relation to a similar damages claim: ‘This is really a simple case in which we have to apply the old rule of common law as to damages, which is: “Where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same position with respect to damages, as if the contract had been performed”.’
The provision in clause 12 of the present contract before me stipulates for damages calculated on a penalty rate of 20 per cent per annum. That clause not being enforceable, equity ‘incidentally gives a common law remedy by way of damages’; Stonham, p.347 and cases cited.”
I was also referred to the unreported judgment in Ciechanowicz and Ciechanowicz v Marchi & Vallorani Cox J, Supreme Court of South Australia Jt No 2622, delivered on 6 December 1990. That case also concerned an agreement for sale and purchase. At p19, his Honour said:
" The plaintiffs also claim interest on the purchase price of $405,000 at 20% per annum for the period 15 February 1989 to 19 June 1989, being the proposed and actual settlement dates respectively. The claim is made under cl.23(i)(b) of the contract which relates to a default by the vendors in the observance or performance of any condition or obligation on their part to be observed or performed at or before settlement ... It is impossible to regard the inflexible provision in cl.23 for interest at 20% per annum on the full purchase price from the fixed settlement date until the date on which settlement is in fact completed as a genuine pre-estimate of the loss or damage that the plaintiffs, when they signed the contract, could conceivably be expected to suffer in the event of the defendants being in breach of cl.16. Dunlop Pneumatic Tyre Co. Ltd v. New Garage and Motor Co. Ltd [1915] AC 79; O’Dea v. Allstates Leasing System (W.A.) Pty Ltd (1983) 152 CLR 359. The arbitrariness of cl.23 is obvious ... In my opinion, the provision for interest at 20% is penal and therefore unenforceable.”
I also refer to Bridge Wholesale Acceptance Corporation (Australia) Ltd v Rega Pty Ltd & Ors (1992) AustContractR 90-019. In that case Giles J referred to a number of authorities (including Citicorp Australia Limited v Hendry (1985) 4 NSWLR 1, and at 89,397 said:
" The ultimate question is whether or not [it] was a genuine pre-estimation or a sanction against breach. In the circumstances I have outlined I consider that cl 7 imposed an unreasonable burden on Rega to pay an extravagant or unconscionable amount, and provided for a penalty rather than a genuine pre-estimate of the loss from early termination.”
The plaintiffs claim that they were paying 16% on monies borrowed from Mr Bayer and from family trusts. The interest rate for small businesses at that time was 12.5 - 13%. I have reached the conclusion that an interest rate of 26% per annum was “an extravagant and unconscionable” rate, and is unenforceable. However, Mr Keen correctly conceded that the plaintiffs can recover their actual loss by way of damages if they are otherwise entitled to succeed (and see Chitty, op cit. p1252).
Although a consideration as to the proper construction of the guarantees does not strictly arise until and if I find that the plaintiffs are entitled to succeed, it is convenient to deal with Mr Keen’s argument now that, properly construed, the guarantees do not enable the plaintiffs to succeed against Messrs O’Leary and Harrison. Mr Keen stressed, in particular, the fact that the guarantees do not refer to the letter of 1 August 1991 or to surcharges at all. He referred to Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549. At 561 in their joint judgment, 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.”
Mr Keen also referred to Chan & Another v Cresdon Pty Ltd (1989) 168 CLR 242. In that case a lease of land under the Real Property Act contained a provision by which a guarantor, who was a party to the lease, guaranteed the performance by the lessee of its obligations “under this lease”. The lease was not registered under the Act. The lessee went into possession and paid rent. On default by the lessee, the lessor sought to recover the amount of the rent from the guarantor. The majority judges, Mason CJ, Brennan, Deane and McHugh JJ held that what was guaranteed was the “obligations [of the lessee] under this lease”, that is the instrument of lease in its character as a lease. They held that only a lease at law would meet this description for the purposes of the guarantee.
Mr Keen also relied strongly on the case of Dan & Others v Barclays Australia Ltd (1983) 57 ALJR 442. In that case the respondent bank agreed with a borrower, in accordance with the terms contained in a letter of the bank to the borrower dated 9 October 1978, to accept bills drawn by the borrower and maturing not later than 31 December 1981 up to total face value at any one time of $2m. The borrower, inter alia, agreed to provide several guarantees by certain guarantors for $500,000 plus interest and charges. The guarantors executed a guarantee for payment to the bank of all monies which should become owing by the borrower to the bank in respect of any bills together with interest and other charges and expenses. By clause 3 of the guarantee the bank acknowledged that the total liability of the guarantors should not exceed the sum of $500,000 “plus any interest and charges payable to the bank under the terms of the facility made available by the bank to the borrower pursuant to the bank’s letter to the borrower dated 9 October 1978”. As a result of the borrower having overlooked the necessity of providing for the bank’s discount charges, the agreement between the bank and the borrower was subsequently varied by letter dated 18 January 1979 by substituting $2,150,000 for $2m stipulated as the total face value of bills. The borrower eventually defaulted in payment to the bank of $2,150,000, the face value of a bill. The bank sued the guarantors in the Supreme Court of New South Wales and obtained judgment against each of the guarantors in the sum of $1,224,582.68, including $500,000, being the sum referred to in clause 3 in the guarantee, and $724,582.68 in respect of interest or charges owing by the borrower to the bank. The Court of Appeal dismissed an appeal. The High Court allowed the guarantors’ appeal in part. In their majority judgment, Mason and Brennan JJ (as they then were) and Deane J, said at p445:
"It is common ground that the appellants are only liable for that amount if the interest or charges in question answer the description in the qualifying phrase of being ‘payable to Barclays under the terms of the facility made available ... pursuant to’ the letter of 9th October. It is conceded that, regardless of whether that amount includes any charge in addition to default interest accruing due after 30th April, 1980, it is owing under the terms of the facility as it existed after the letter of 18th January. The guarantors submit that, that being so, the $724,582.68 is payable to Barclays not under the facility made available pursuant to the letter of 9th October but under a different facility made available pursuant to the letter of 18th January and that the $724,582.68 therefore falls outside the limits of the guarantee.
Ultimately, the issue for determination resolves itself into the question whether, after the terms of the letter of 18th January became operative between the parties, the facility then made available by Barclays to the borrower was what cl. 3 identifies as ‘the facility made available ... pursuant to Barclays’ letter to the borrower dated 9th October, 1978’. That is not the same question as the question whether the contract pursuant to which the facility was made available was a different contract or whether the particular paragraphs dealing with default interest and other charges remained in the same form. What cl. 3 requires is that any charges and interest in excess of the stipulated sum of $500,000 should have been payable under the terms of the specific identified ‘facility’. Even though the contract may have retained its identity and the paragraphs dealing with default interest and charges remained unaltered, the question remains whether the facility under the varied contract is different from the facility under the terms of the original contract.
The original facility to which cl. 3 of the guarantee refers was a facility to a maximum face value of $2,000,000 upon the terms and conditions contained in the letter of 9th October. After the agreement embodied in the letter of 18th January became operative, the current facility was to a face value of $2,150,000 upon the terms and conditions contained in the letters of 9th October and 18th January. Comparatively speaking, the alteration in the maximum face value of bills may not have been great; it was however significant. Other alterations in terms and conditions may have been consequential; however, they involved an alteration which, until subsequent further var[i]ation of the contract, made the guarantee which had been given by the guarantors inappropriate to satisfy the contractual obligations of the borrower to Barclays. The facility in a larger amount and on different terms and conditions was a different facility which was made available in substitution for the original facility. The difference between the old facility and the new is manifested by the rollover that occurred on 26th October, 1979. That rollover could not have occurred if the old facility were on foot. When default was made by the borrower on 30th April, 1980, there was but one paragraph which provided for default interest and one sum ($2,150,000) which bore that interest. It is immaterial that, if the original contract had remained on foot unaffected by the letter of 18th January, the facility made available pursuant to it may have retained its identity. But the original contract was superseded, and the facility made available pursuant to the letter of 18th January took the place of the facility made available pursuant to the letter of 9th October. It was a different facility.
It follows that the amount of $724,582.68, all of which accrued due under the terms of the new facility, does not satisfy the requirement of the qualifying phrase in cl. 3 that it be payable under the terms of the facility made available by the letter of 9th October. It was, therefore, not recoverable under the terms of the guarantee.”
I do not think this case supports Mr Keen’s argument. It may have done if the consideration clause had not been altered. On this aspect of the case, I have derived much assistance from the text of Phillips and O’Donovan “The Modern Contract of Guarantee”, 1992. At p179, the learned authors make the point that a consideration clause can be an integral part of the instrument, and be taken into account in the construction of the guarantee as a whole. They also state at pp176-177 that “oral evidence and evidence of surrounding circumstances (that is, “the factual matrix” of the contract) may be used to resolve any ambiguity in the guarantee.” The interpretation of the guarantees which I prefer is that the phrase “any existing agreement” in the consideration clause referred to the factoring agreement of 11 January 1991 as varied by the letter of 1 August 1991. In my opinion, the “existing agreement” not only covered factoring of “genuine” invoices for completed work, but also invoices for uncompleted work, namely the pre-factoring transactions. In my opinion, all subsequent transactions, including those which were based upon purported invoices relating to rebuilds and purported invoices based on quotations were merely variations of the pre-factoring arrangement. I hold that all of the transactions which are the subject of these proceedings are covered by the provisions of the guarantees.
On 10 August 1992 Mr David Bayer, the plaintiffs’ accountant, wrote to the defendant O’Leary in the following terms:
"Mike,
You asked for an explanation of the charges:-
They are:-
. 3% at factoring.
......... For pre-factoring there is an additional charge of 0.5% for every week. This amounts to an additional charge of 3% for every 42 days.
Therefore, if the outstanding of ‘O’Leary’ jobs and ‘non-released’ jobs total about $368,352 (as at 10/8) there is a pre-factoring surcharge totalling $1840 per week to just pay for the interest of $368,000 (1/2% per week).
Our proposal is to include the charge total of $29749.23 to the current outstanding, and request a payment of $4000 per week to cover the ‘interest’ of $1840 and reduce the ‘capital’ i.e. the outstanding by about 2160/wk.
Any additional lump sum payments will reduce the capital outstandings even further
[signed] David Bayer” (My emphasis.)
And on 11 August 1992 Mr Steiner wrote in the following terms to Mr O’Leary:
"Dear Mike.
I am sorry I have missed you yesterday as I would have liked to explain personally David’s notes, written hurriedly to you.
I hope the detailed Statement I left with Eddie was sufficiently clear to you. You asked for explanation of our charges, which are as follows:
As per normal agreement: Factoring charge is 3%
Pre factoring, which is normally on a short term basis, attracts a charge of 0.5% per week.The current outstanding amount of $368,352.00 (as at 10/8/92) for factored invoices that have not been released has an accumulated unpaid surcharge of $29,749.23 and is continuing to attract a surcharge of $1840.00 for every additional week.
Of course we would prefer settlement of the outstanding monies, but we are prepared to go along with the following terms:
We propose to add that $29,749.28c to the current outstanding, and would require a minimum regular weekly settlement of $4000.00. This will cover ongoing surcharges currently - $1840 - and reduce the debt by about $2160.00 per week. The surcharge of course will reduce as the outstanding reduces.
Of course any additional lump sum payment will reduce the amount outstanding even further.
I hope you will find this arrangement satisfactory. We would like to hear from you soon.
With best regards
[signed]
Fred” (My emphasis.)
Mr O’Leary affixed the stamp of O’Leary Motor Industries at the bottom of the letter, and opposite the stamp he wrote the word “Approved”, signed thereunder and returned the document so completed to the plaintiffs on 13 August 1992. The defendants accept that at least from 11 August 1992 they did agree to pay surcharges for pre-factored debts.
OMI made payments totalling $29,414.90 between 5 August 1992 and 23 October 1992.
By an undated letter, but which must have been sent between 14 September and 2 October 1992, Mr O’Leary wrote on OMI letterhead to Mr Steiner in the following terms:
"Dear Fred,
As requested we enclose the list you supplied to us, on which we have indicated as you have requested for the job’s [sic] which have not or have not any longer a release available.
We have gone to the trouble of splitting up the items actually factored by you into the following categories.
Those which as arranged with you were rebuilds and identified by nominal invoice number’s [sic] and Insurance Companies with the actual vehicle number involved and marked ‘+’ for rebuilds factored originally and are still in stock.
For those rebuilds factored by arrangement with you are marked ‘X’ but which have since been as arranged sold and the proceeds received.
Those job’s[sic] or items originally factored by you which are repair job’s[sic] for customers and Insurance Companies which in some cases, as discussed with you, were nominally identified by name and Insurance Company and vehicle registration number. These items are sub-divided into three groups as follows:
* = Private job’s[sic] still here and to be completed.
# =... Private job’s[sic] completed where the vehicle has been returned to the customer and payment has been received by us.
0 =Insurance job’s[sic] for customers where the job was invoiced and factored and where the Insurance Company has written off the vehicle after we had received the factored funds from you.
Please find listed into categories the amounts that may in future become owing to you by our company.
+ = Rebuilds factored and in stock $ 33,900.00
X = Rebuilds factored and have been sold $ 74,750.00
* = Private job’s[sic] still to be completed $ 23,700.00
# = Private job’s[sic] completed and payment received $ 87,740.29
0 = Insurance job’s [sic] factored and have been written off $109,549.13
$329,639.32Total of your invoice list as of the 14th September $396,386.44
Adjustments and Surcharges (Paid on the 16th Sept) $ 1,143.13
Surcharges for January - June $ 29,749.23
Amount that may in due course become due to you $329,639.32
JOBS IN PROGRESS $ 35,854.76The above amounts are those that may in due course become owing to your company and the remaining job’s[sic] not marked on the list are the current Insurance job’s[sic] in progress of a clearance certificate being released soon.
Yours Faithfully,
(Signed)
M.J. O’Leary
Manager” (My emphasis.)
I accept the evidence of Messrs Steiner and Bayer that the letter’s reference to “rebuilds” was the first time they were aware of any practice of factoring invoices in relation to rebuilds.
On 17 October 1992, OMI’s Secretary, Ms C L Evans, wrote to Mr Steiner as follows:
"Dear Fred,
We are writing in regards to the payment arrangement of $2,000.00 per Wednesday or/and Friday. With the understanding of this arrangement it was notified to us that the first 2 instalements[sic] of $4,000.00 was used to pay off 5 invoices off of the list. Within completing that a balance of $16,994.64 has been paid to you by instalements[sic] of 8 payments at $2,000.00 each and invoices amounting to $994.64.
We understand the above money is being held by yourself[sic] for which is paying the interest off for the jobs for which you have grouped together.
Fred, we would like to start from the top off[sic] the list by paying to you each week either the full amount of the invoice or $2,000.00 towards the amount of the invoice, then when the amount of the invoice is paid off we would like the individual breakdown of the interest and surcharges that has accured[sic] on that invoice while being held by yourself, for the balance that is owing on the invoice it will then be settled and we will continue to reduce each invoice every week.
We feel this a lot [more] convienent[sic] for us to work on but either way we have to pay the interest and surcharges that all the invoices have accured[sic], and paying the jobs off this way we see the list reduce and also we will have a record of interest and surcharges which has accured[sic] on each job.
It would be appreciated if we can see to this arrangement as soon as possible.
Yours Faithfully,
(Signed)
C.L. EVANS
Secretary”
At or about the time of the receipt of the letter of 17 October 1992, Mr Bayer established a separate account relating to OMI entitled “Repairer Code 102” (“the 102 account”). The establishment of this account is explained in Mr Steiner’s letter to Mr O’Leary dated 25 October 1992 which read:
"Dear Mike
Thank you for your letter of 17/10/92.
As discussed with you on my visit with David (Wednesday 21/10/92), we understand perfectly your desire to see items being deleted as you make regular repayments. Your request to pay off specific invoices from the top of the list has been set up.
To facilitate your keeping trace of the repayments, those items that you have categorised with the symbols ‘ + X * # and 0 ’ have now been identified in our records and will be listed separately for you under repairer code 102 in future. This will keep them separate from jobs in progress and awaiting releases, or jobs with insurance companies awaiting payment, which we will continue to list for you under repairer code 2. Both these outstanding lists (as at 23/10/92) are attached for your information.
Also attached as promised, is a reconciliation of all transactions that David has prepared since the beginning of the repayment procedures in August 1992. We trust that this will clarify for you what has been done with all monies that you have paid since then.
As explained by David to Cheryl, from now on you will see the refactoring charges after a 42 days period appear on the list as a bulk entry for the month in which it occurs. Similarly, whenever you repay any amount, you will be able to specify which item in the list (Repairer list 102) you want to pay off and you will see that item disappear from the list.
Yours faithfully,
Fred Steiner
Manager.”
The reconciliation referred to in the letter is disputed by OMI in par16 of its Defence, but it does not appear to have been disputed at the time. It is also convenient for me to say here that the establishment of the 102 account does not appear to me to have altered the obligations of OMI or to have varied the rights of the plaintiffs.
Subsequent to 23 October 1992, by reason of further alleged debtors having failed to pay the amount of alleged debts sold and assigned by OMI to the plaintiffs, the plaintiffs transferred such debts and surcharges accrued to the date of such transfer to the 102 account, and gave notice to OMI of such transfers having been made by sending to OMI statements of account and statements relating to the 102 account on or about the dates of each such transfer.
Except for a period of approximately three months (see below), OMI made payments of $4,000 per week to the plaintiffs from 30 October 1992 until 17 August 1995, and thereafter made further payments of $1,000 per week. The plaintiffs added surcharges at the rate of one half of one percent of the amount of the original debt or so much thereof as remained outstanding to the outstanding debts in the 102 account each seven days.
On 20 March 1995, Mr Harrison wrote the following letter to the plaintiffs:
"Metro Factors
2A Highland Avenue
TORRENS PARK S.A. 5062Dear Fred,
I confirm as discussed and agreed on the 1st of March, 1995 that as from the 5th of April, 1995 we will stop paying you the $4,000.00 per week off of the 102 capital list for a period of approximately 3 months.
This will enable us to get ourselves from a pre factoring to a post factoring situation and, as you agreed, this would save thousands of dollars per year in surcharges and other associated fee’s[sic]. I feel we need this amount of time so as to finish off old pre factored jobs completely and start and complete new insurance jobs and so that accounts can be finalised without any extra’s or shortages etc and so no penalties occur. We would then propose to continue factoring with you on a post factoring basis only.
I also think that we should do this ourselves without outside help so we can run more efficiently, and of course more profitably.
I am sure that in the future this plan when carried out will release funds to enable us to pay you more and you can in turn service other new customers. Another area we intend to improve is in the purchase of an easy quote computer package system. This I hope will improve quoting and accounting.
Yours Faithfully,
(Signed)
MODBURY TOWING SERVICE PTY LTD
PER;
MR E HARRISON
Managing Director”
Soon thereafter, Mr Steiner, on behalf of the plaintiffs, drew up an agreement on letterhead which read:
"AGREEMENT BETWEEN O’LEARY MOTORS PTY LTD AND METRO FACTORS & CO. FOR THE SETTLEMENT OF OUTSTANDING MONIES OF ACCOUNT 102
In order to settle, monitor and control the outstanding monies due to Metro Factors, the following is agreed:
*...... Current not released jobs ($157807.75) will be transferred to the 102 account.
*All future jobs will not be pre-factored but will be completed jobs ready to forward to insurance companies (it is understood that a job may, on rare occasions, be posted a day or two after factoring)
*...... Settlement of the 102 account will be by weekly payments of $5000. (It is understood that additional amounts can be made if possible so that interest charges are minimised).
*Interest charges will, as in the past, be calculated at 3% and added on a 42-day cycle, ie the normal 0.5% per week.
*...... Account 102 will be a consolidated total amount rather than a long list of individual jobs. The historical details of that amount are listed in pages 1 to 6 attached.
*This procedure will start forthwith.
The outstanding amount in account 102 is $455738.51. The breakdown of this amount is as follows:
Balance of original amount
Details in Page 1 attached 154250.49
1st transfer of not-released
Details in Page 2 attached 41100.00
2nd transfer of not-released
Details in Page 3 attached 81,735.00
3rd transfer of not-released
Details in Page 4-6 attached 157,807.75
Surcharges of last transfer
Details in Page 4-6 attached 7,571.33
Refactoring charges for
period 12/2/95 to 26/3/95 13273.94
--------------
TOTAL 455738.51The next refactoring will be on 7th May 1995
(Fred Steiner) (Eddy Harrisson[sic]) (Mike O’Leary)
Metro Factors O’Leary Motors O’Leary Motors”
The agreement was never executed, although some annotations were made on the defendants’ copy, for example, the amount shown for “surcharges of last transfer” was ticked, and the word “Agree” was written opposite the amount. It appears to have been faxed to the defendants on 29 March 1995, and refaxed on 17 July 1995. It must have been about this time that Mr O’Leary consulted a solicitor, Mr Antony Harry, and I infer that subsequent letters were at least partly drafted by him, until Hume Taylor & Co acted for the defendants. I set out below so much of Mr O’Leary’s response to the proposed agreement dated 31 July 1995 as is relevant:
"2. At no stage have we ever agreed to accept:
(a) the transfer of any claimed not released jobs (apart from those on the original 102 list) to the 102 account mentioned by you but would agree to the transfer to a new 102 list of those seven jobs only if this course is administratively more convenient to you;
(b) any credit, interest or other charges or surcharges you appear to be attempting unlawfully to extract (in addition to the original 3% factoring discount that was agreed) on either the original 102 list above or for that matter on any factoring. As I understand it, you can in all jobs other than those mentioned in paragraph 2, collect from insurers or other entities the debts you have purchased from us (at a discount). You are entitled to collect those and those only. Once the debt is factored to you, we owe you nothing in respect of the transaction as you have received what you agreed to purchase, namely the debt which you can then collect at your leisure upon completion of the job.
3. Upon detailed consideration of the lists attached to your fax, it seems clear that you have not, as originally arranged, applied sums totalling $324,179.18 paid by our company to you since 1992 off the jobs listed on the original 102 list. In fact you do not appear to give credit for these payments at all. Our records are quite clear in this respect. With every weekly payment of $4000.00 on account we made to you we allocated the payments to specific job amounts on the original 102 list by giving to you on specific job amounts on the original 102 list by giving to you on every occasion a payment advice slip specifying to what job it was to be applied. As we have allocated each payment, you can hardly then attempt to allocate yourself. As you will see from the enclosure, with the last payment enclosed, all the amounts for these jobs have now been paid to you and no sum at all remains payable to you in respect of these, or, for that matter, anything else except for the first seven jobs on page 3 list attached. These are potential liabilities only and not due or payable at present.
4. Fred, we realize of course that there are still sums owing to you for current factoring. However these are not owing or due from our company but from others from whom the debts you purchased may be due. We do not accept nor have we agreed to the so-called surcharges or interest on these you seem to claim. As I see it, when you purchase a debt from us, we owe you nothing in respect of the transaction and hence the so-called surcharges cannot be lawfully applied to these transactions. We therefore owe you nothing except as stated in paragraph 2 and for this reason did not sign or accept the Statement of Intent attached to your fax dated 29th. May 1992 as at that stage we anticipated discharging all of the jobs subsequently the subject of the original 102 list thereby leaving nothing owing to you. In any event the Statement of Intent was incorrect and did not record what had been agreed with us in relation to these particular jobs. As it turns out security for these was unnecessary anyway as the total of the amounts for these jobs has now been paid to you by the instalments agreed.
5. On or about 20th. March of this year we did agree with you that, in consideration of your not insisting on the agreed repayment off the original 102 list of $4000.00 per week for a period of three months, we would consider paying some surcharge and/or interest on other factoring effected after 20th. March 1995 where the factoring did not result in an enforceable debt recoverable by you from insurers for any reason (e.g. where insurers do not accept a quote that had been pre-factored on quote only). These are the only surcharges we have agreed to accept but the amount of these, limited as they are to jobs after that time, has yet to be finally agreed with you. You will recall that the sole purpose of this arrangement was to enable the remainder of the original 102 list to be discharged as soon as possible after that and to move from a pre- to post- factoring situation as has in fact occurred. Generally, I am happy to confer with you to finalize what form and amount these surcharges should take. I would not be interested in agreeing to these on the quite unrealistic basis that you have unilaterally attempted to claim in previous invoice statements as we have never agreed to these and all liability for them is denied. We would agree to a reasonable charge on the post - March factorings that fall over for any reason. Perhaps these could be based on current bank interest rates (about 10% simple interest per annum).
Yours faithfully,
(Signed)
MICHAEL O’LEARY
Director,
Modbury Towing Service Pty.Ltd.”
Mr Steiner’s reply dated 11 August 1995 included this passage:
"THE AMOUNT OWING
We have never denied that your company paid to us the amount you stated (some $300,000, we have not tallied the exact amount as at tody). Our total amount due ($455738.51) has deducted the amount you paid and has added the interest that you want to totally ignore.
You also seem confused between administrative and contractual issues. Accounts 2, 102, or any other number, are merely convenient ways of keeping lists separated for quick and easy reference. There is only ONE assignor (Modbury Towing Services Pty. Ltd.) and ONE assignee (Metro Factors & Co). The same contractual conditions apply to all the lists and account. When you talk about agreeing or not agreeing to the transfer of invoices from account 2 to account 102, this is irrelevant. Modbury Towing Services is responsible for ALL invoices it assigns and UNDER THE SAME CONTRACTUAL AGREEMENT, irrespective of whether these invoices are listed in 1 or 10 different accounts.
So I am once again, as I did in March 1995, offering the way in which the outstanding monies can be settled. I am also open to hearing any other satisfactory alternative. We have banked the 2 cheques you sent and credited the amount outstanding as has been done with all your payments to-date.
You must realise of course that by now we have become wary of verbal agreements and would like to finalise this matter in an in-writing businesslike manner.”
It is necessary now for me to discuss the appropriation by the plaintiffs of the payments made by the first defendant after the 102 account was set up. Leaving to one side the purchase by Mr Steiner of a Verada car from the first defendant, a complicated transaction that does not bear upon my decision, payments made by the first defendant from August 1992 until about 9 November 1993 were appropriated by the plaintiffs as payments for invoices nominated by OMI. They were not, however, all “off the top of the list”. Then or about 9 November 1993 a change occurred. The first defendant thereafter continued to nominate invoices to which its payments were to be appropriated, and it adjusted its records accordingly, whereas the plaintiffs thereafter appropriated all instalments in payment of surcharges, and they adjusted their records accordingly. I am not prepared to find that the first defendant ever agreed or even acquiesced in the plaintiffs’ appropriation. In my opinion, the parties merely agreed to disagree. I reject any suggestion that there was an estoppel of any sort, and in any event that was not pleaded. I agree with Mr Keen that his client can invoke the following passage from Chitty, op cit par21-046:
"Where several separate debts are due from the debtor to the creditor, the debtor may, when making a payment, appropriate the money paid to a particular debt or debts, and if the creditor accepts the payments so appropriated, he must apply it in the manner directed by the debtor, ..”
Mr Keen intimated that on this approach, the plaintiffs’ claim is reduced to $256,055.16. but I presume this figure was calculated on the basis of a 26% per annum surcharge. It is convenient to mention here that the parties were originally under the impression that the plaintiffs could claim compound interest upon the face value of the invoices transferred to the 102 account, but the plaintiffs have abandoned any such claim.
Upon my conclusion, there is no need for me to consider the plaintiffs’ alternative claim under the Trade Practices Act, or the defendants’ plea that any such claim is statute barred. The plaintiffs also sought to invoke clause 9.1 of the factoring agreement, but again there is no need to resolve the doubts I have about the success of any such argument.
Before concluding these reasons, I am bound to say that there was a good deal of sloppiness and imprecision in the approach of both parties to their arrangements, and it has not been an easy task to resolve the issues that have fallen for decision. However, for the reasons I have given the plaintiffs are entitled to succeed against all defendants. \I will hear argument as to interest and costs. Further, in my opinion, this is a case in which it may be appropriate to invoke Rule 71.03 of the Rules of the Supreme Court. I am prepared to direct that a Master of this Court inquire as to what was the appropriate rate of interest at relevant times, and I am prepared to make an order for the taking of an account of all dealings and transactions between the parties from the commencement of the business between them.
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