Trapp v Esanda Finance Corporation Limited

[2010] QDC 137

DISTRICT COURT OF QUEENSLAND

CITATION:

Trapp v ESANDA Finance Corporation Limited [2010] QDC 137

PARTIES:

Neil Edward Trapp
(Appellant)

v

Esanda Finance Corporation Limited
(Respondent)

And

Esanda Finance Corporation Limited
(Cross-Appellant)

v

Neil Edward Trapp
(Cross-Respondent)

FILE NO/S:

1618 of 2009

DIVISION:

Civil

PROCEEDING:

ORIGINATING COURT:

Magistrate’s Court

DELIVERED ON:

25 March 2010

DELIVERED AT:

Brisbane

HEARING DATE:

19 March 2010

JUDGE:

Samios DCJ

ORDER:

Appeal dismissed.  Cross-appeal dismissed.

CATCHWORDS:

Guarantee and indemnity – discharge of surety – practice – costs –

UCPR rule 360

Andar Transport v Brambles Limited (2004) 217 CLR 424
Angar Pty Ltd v National Westminster Finance (Australia) Limited (1987) 162 CLR 549
Carr v Thomas  (2009) NSWCA 208
Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337
Mahoney v McManus (1981) 36 ALR 545
Re Vella: ex-parte Perpetual Finance Corporation (1992) FCA 462
Walker v Barry (1924) 35 CLR 48

COUNSEL:

Mr Ferrett for the appellant/respondent
Mr Forde for the respondent/cross-appellant

SOLICITORS:

Lynch Morgan Lawyers for the appellant/respondent
Norton Rose Australia for the respondent/cross-appellant

1. On 15 September 2000 Neil Edward Trapp (Mr Trapp) entered into a written guarantee and indemnity (the guarantee) with Esanda Finance Corporation Limited (Esanda).

1. In proceedings commenced in the Magistrates Court Esanda claimed Mr Trapp owed Esanda $17,434.50 for money due and payable under the guarantee.  This amount was amended at the hearing to $16,613.31.

1. On 14 May 2009 after a hearing the learned Magistrate gave judgment in favour of Esanda against Mr Trapp for $24,996.61 which sum included $4,463.55 for interest and $8,383.30 for costs.  The costs were allowed by the learned Magistrate on a party/party basis.

1. Mr Trapp appeals against the learned Magistrate’s decision on the ground the learned Magistrate erred in finding that the release by Esanda of a co-guarantor, William Paul Trapp, on 17 March 2005 did not in law release Mr Trapp from his obligations under the guarantee dated 15 September 2000.

1. Esanda cross-appeals against the learned Magistrate’s decision on the ground that the costs ordered in favour of Esanda ought to have been assessed on the indemnity basis rather than the party/party basis.

The appeal

1. There is no dispute between the parties that Mr Trapp and Mr William Paul Trapp were co-guarantors under the guarantee.  Further, that by deed of release between Esanda and William Paul Trapp made on 17 March 2005, William Paul Trapp was released from his obligations under the guarantee dated 15 September 2000 in consideration of payment of the sum of $8,000 to Esanda (the deed).  There is no dispute the sum of $8,000 has been paid by William Paul Trapp to Esanda.

1. There is no dispute between the parties that where there are two or more co-sureties in respect of a debt the release by the creditor of one guarantor will release the other guarantor or guarantors (Walker v Barry (1924) 35 CLR 48 at 57-58; Mahoney v McManus (1981) 36 ALR 545, 552; Carr v Thomas (2009) NSWCA 208).

1. Finally, there is no dispute that the general principle does not apply if the terms of the contract of guarantee preserve the liability of each guarantor if the creditor releases other guarantors from liability.

1. The issue on this appeal is whether the clauses in the guarantee upon their proper construction preserve the liability of Mr Trapp notwithstanding the release of William Paul Trapp by the deed.

1. The relevant clauses of the guarantee are as follows:-

“2.        This instrument shall be a continuing Guarantee and Indemnity for the purpose of securing the whole of the Obligations (whether under the Guarantee of the Indemnity herein) notwithstanding any partial payment or performance thereof and shall be without prejudice to nor shall I/we or any of us be exonerated in whole or in part nor shall Esanda’s rights or remedies against me/us or any of us be in any way prejudiced or adversely affected by any of the matters following:
…
(b)         Any release variation (including variation of interest rate or variation of rental) exchange renewal or modification made or any other dealing by Esanda with any judgement or specialty instrument negotiable or otherwise or other security whatsoever recovered held or enforceable by Esanda in respect of all or any of the Obligations whether the same shall be held from or enforceable against the Customer me/us or any of us or any other person whomsoever or any refusal or omission by Esanda to complete enforce or assign any such judgment specialty instrument negotiable or otherwise or other security.

(c)         Any time given to the Customer or me/us or any of us or any other person or any other indulgence granted to or compromise or arrangement made with the Customer or me/us or any of us whether with or without the consent of or notice to me/us or any of us.
…”

1. The importance of the wording of the guarantee being precise when it is sought to have a co-guarantor (even in a joint and several guarantee) remain liable upon the release of the other guarantor is evident from the judgment of Lee J in Re Vella: ex-parte Perpetual Finance Corporation (1992) FCA 462. It is also important to remember ambiguous contractual promises should be construed in favour of the surety (see Andar Transport v Brambles Limited (2004) 217 CLR 424 at 433 and Angar Pty Ltd v National Westminster Finance (Australia) Limited (1987) 162 CLR 549).

1. The learned Magistrate held that upon the proper construction of the guarantee Mr Trapp remained liable despite the deed. In my opinion the clause in the guarantee is capable of a proper construction. The opening of clause 2 refers to the guarantee being a “continuing” guarantee and Esanda’s rights or remedies under the guarantee are not in any way prejudiced or adversely affected by the following which in its plain meaning refers to any “release” (clause 2(b)) or any “compromise” ((clause 2(c)). In my opinion the guarantee is not inelegant, difficult or poorly drafted.  Bearing in mind the principles of construction of guarantees, in my opinion, the learned Magistrate was correct in the conclusion he reached upon the proper construction of the guarantee in this case.

1. Further, no term can be implied into this guarantee which would make the continued existence of the co-guarantor a condition of the contract of the guarantee.  That is, because to imply such a term would be contrary to the existing express terms and therefore fall outside the test referred to by the High Court in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337.

1. Therefore I dismiss the appeal.

The cross-appeal

1. Esanda gave to Mr Trapp an offer to settle on 5 August 2008.  The offer was Esanda would accept $15,000 and each party bear its own costs. 

1. Esanda submits there are a number of bases upon which the learned Magistrate ought to have ordered the costs to be paid by Mr Trapp on an indemnity basis.

1. Firstly, the terms of the guarantee that Mr Trapp would indemnify Esanda for its costs of enforcement of the guarantee.  The clause is as follows: “I/we shall indemnify and keep you indemnified against and pay to Esanda upon demand all duties and costs as hereinafter defined.  “All duties and costs” include all your legal costs of and incidental to the preparation, execution, stamping and enforcement of this instrument and also all expenses …”.”

1. Secondly, Esanda says the learned Magistrate failed to take into account the terms of the formal offer to settle.

1. Thirdly, the learned Magistrate failed to take into account the amount of the damages.

1. Fourthly, that although the Magistrate said the matter was not a complex matter the defence sought to rely on an interpretation of the terms of the guarantee which was untenable. 

1. Fifthly, no valid reason or explanation was provided for the appellant’s refusal to accept the respondent’s offer to compromise.

1. Rule 360 of the UCPR sub-section 1 provides as follows:-

“360(1) If –

(a)the plaintiff makes an offer to settle that is not accepted by the defendant and the plaintiff obtains a judgment no less favourable than the offer to settle; and

(b)the court is satisfied that the plaintiff was at all material times willing and able to carry out what was proposed in the offer;

the court must order the defendant to pay the plaintiff’s costs calculated on the indemnity basis unless the defendant shows another order for costs is appropriate in the circumstances.”

1. What the learned Magistrate said was:-

“I think another order is appropriate.  The matter is not a complex matter; quite a simple matter indeed, only two witnesses were called.  It has been dealt with today.  Whilst the file is rather lengthy, a lot of the material in the file is rather irrelevant.

It seems to me, as I said the matter is not complex, the amount of the claim was inflated by some $3,000 or $4,000.  In the circumstances, I think the appropriate order would be that the costs be on a party and party basis on the Magistrates’ Court scale and that’s what I will allow.”

1. Therefore the learned Magistrate was persuaded another order was appropriate to be made.  Further, the two bases he relied upon was that it was not a complex matter and there had been a change in the quantum of the claim.

1. It has been submitted the learned Magistrate erred in exercising his discretion by taking into consideration or giving too much weight to the following:

(a)the amount of costs that might have been paid by the plaintiff if costs were to be awarded on an indemnity basis;

(b)the assumption made by the Magistrate that the plaintiff’s solicitor might be charging the plaintiff on a rate per hour basis;

(c)that top tier firms charging their fees at a rate per hour were doing so as part of a “racket”;

(d)        the amount of the plaintiff’s claim;

(e)the fact that the proceedings were conducted in the Magistrates’ Court;

(f)         that the matter was not a complex matter;
(g)         that the matter was dealt with in one day;
(h)         that a lot of the material on the court file was irrelevant; and

(i)that the amount of the claim was inflated by some $3,000 or $4,000.

1. While the learned Magistrate may have said a number of those things in the course of argument, at the end of the day, his decision was based on two points.  One was that it was not a complex matter, and the second point was that the quantum of the claim had altered over the time of the claim.

1. In my opinion, the indemnity for costs to be paid by Mr Trapp to Esanda was not pleaded in the statement of claim and no claim was made for a costs order on the basis of the contractual claim.  The learned Magistrate could, in his discretion, reject making an order for costs on that basis.

1. Further, the terms of the offer and the amount of the claim recovered could be a base for making another order in the circumstances.  In my opinion, Mr Trapp did not show a wilful disregard for known facts and/or established law. 

1. The change of quantum demonstrates uncertainty in Esanda’s claim. This has some importance when examining the discretion the learned Magistrate had. When the claim was filed (13 May 2005) and at the time of the offer (5 August 2008) the claim was $17,434.50 when in fact according to Esanda’s witness the amount owing as at 22 March 2005 was $12,149.96. The claim made by Esanda’s witness was for interest from 22 March 2005 to 14 May 2009 in the sum of $4,463.35. That is $2.95 per day. If that is applied to the period 22 March 2005 to 5 August 2008 (the date of the offer) interest on $12,149.96 would be $3,628.50. The total would be $15,778.46. While this is more than the offer to settle, if Mr Trapp did not know the details of the claim he would not make an informed decision about the offer. Therefore, it was open to the learned Magistrate to consider the quantum of the claim significant.

1. Further, it was open to the learned Magistrate to consider the complexity of the case on the question of costs. I find no error on his part by taking into account the lack of complexity. Therefore, I dismiss the cross-appeal.

1. I will hear the parties on the question of costs on the appeal and the cross-appeal.