Visa Global Logistics Pty Ltd v Smith

[2013] VCC 1262

IN THE COUNTY COURT OF VICTORIA Revised
(Not) Restricted

AT MELBOURNE

COMMERCIAL LIST

GENERAL CASES DIVISION

Case No. CI-12-05656

VISA GLOBAL LOGISTICS PTY LTD	Plaintiff
v.
JASON SMITH and DENNIS NEWHAM	Defendants

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JUDGE:	His Honour Judge Anderson
WHERE HELD:	Melbourne
DATE OF HEARING:	1 October 2013
DATE OF JUDGMENT:	1 October 2013 (revised 2 October 2013)
CASE MAY BE CITED AS:	Visa Global Logistics Pty Ltd v. Smith & Anor
MEDIUM NEUTRAL CITATION:	[2013] VCC 1262

REASONS FOR JUDGMENT

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Catchwords:             Guarantee – Director guaranteed company’s credit application – Ceased to be a director in 2006 – Company failed to pay for goods supplied in 2012 – Plaintiff’s accounts manager aware in 2006 that defendant no longer a director of company – Whether plaintiff entitled to enforce guarantee against former director.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr Z. Partos	Behan Legal
For the First Defendant	No appearance
For the Second Defendant	Mr D. Newham in person

HIS HONOUR:

1Dennis Newham was a director of Dee Jay Furniture Imports Pty Ltd between 30 June 2004 and 31 March 2006. The company was involved in the importation of furniture. It was necessary for the company to establish a relationship with an entity which would handle the logistics of bringing the imported furniture into Australia.

2On 13 January 2006, Mr Newham and a fellow director, Jason Smith, made an application to the plaintiff on behalf of the company for credit. Both executed a “director’s guarantee and indemnity”. On 16 February 2006, the plaintiff informed the company that the company’s “credit request has been approved with the terms 30 days for freight and local charges and for duty/GST payment must be made within 2 to 3 days of deliver”. After Mr Newham ceased to be a director of the company on 31 March 2006, the company continued to trade with the plaintiff and receive logistical services.

3The plaintiff in this proceeding claims $122,888.20, together with interest on that sum, in relation to the supply of services invoiced between 28 June and 18 September 2012.

4Mr Newham was initially represented by solicitors. Mr Newham’s solicitors gave notice that they were ceasing to act on 8 February 2013, shortly before Mr Newham filed his Defence on 15 February 2013. The Defence refers to the fact that he resigned as a director of the company on 31 March 2006, after which “bank guarantees returned to me, all company shares transferred out of my name releasing me from any obligations associated with the business after that date” and, critically, that “all creditors informed in writing that I was no longer a director of the company”.

5The issues for determination in the proceeding are:

a.whether the guarantee was impliedly revoked as a consequence of action taken when Mr Newham left the company;

b.whether there were any circumstances which would prevent the plaintiff from enforcing the guarantee against him, including the fact that it allowed the company to trade outside the agreed terms.

6There is no issue in relation to the following matters:

a.Mr Newham executed the guarantee;

b.the company ran up a trading debt in the sum claimed, which the plaintiff has been unable to recover from the company;

c.there is no evidence that the plaintiff was given written notice in or about March 2006 that Mr Newham was ceasing to be a director of the company and would no longer consider himself bound by the guarantee.

7Mr Newham has given evidence that he left the company after a disagreement with his fellow director Mr Smith. The company’s accountant at that time was Mr Polonsky. There were negotiations between Mr Newham, Mr Smith and Mr Polonsky over a period of time relating to the release of Mr Newham from his obligations, particularly in relation to a bank guarantee. Mr Newham gave evidence that he received a letter from the company informing him that his obligations pursuant to the bank guarantee had been finalised and that the creditors of the company had been informed he was no longer associated with the company. Mr Newham said that he no longer had the letter as it had been destroyed during a flood in his offices in December 2011.

8Mr Newham had subpoenaed Mr Polonsky to produce any correspondence sent to the company’s creditors, or sent to himself. That process has not led to any positive response, as Mr Polonsky wrote to the Court that he had no such correspondence.

9The trading relationship between the plaintiff and the company commenced in about 2005 or 2006 when the plaintiff’s accounts manager, Mr Richard Hammond, was introduced to the directors of the company by another customer of the plaintiff. Although Mr Hammond’s recollection of events at that time is not particularly good, he thought it likely that he would have given the company’s directors a credit application form and upon receipt of the completed form and guarantees by the directors, he would have passed them on to the plaintiff’s administration.

10Mr Simon Hardwidge, one of two directors of the plaintiff, and the director in charge of the plaintiff’s Melbourne operations, gave evidence that it was his responsibility to approve all credit applications for Melbourne customers of the plaintiff and he would have approved the credit application of the company in this case. He said that the plaintiff has hundreds of customers and at any one time, they would have about $25 million to $30 million of unpaid accounts, which remain unpaid for an average period of 50 days, although the standard trading terms are 30 days. He said that he had no knowledge of Mr Newham leaving the company and the plaintiff had not received any written notice of that fact, or that Mr Newham no longer regarded himself as bound by the guarantee.

11Mr Hammond said that he recalled dealing with both Mr Newham and Mr Smith as the directors of the company and that he was aware that Mr Newham had left the company. He said, “I knew that there were problems with the directors and they were splitting up. They were still trading with us. There was no need for me to get involved”. The plaintiff, through Mr Hammond, continued to deal with the company, including with Mr Smith and a Mr Greg Stafford who had become involved with the company and apparently handled the accounts.

12In 2012, Mr Hammond said he was aware that there was a problem with the company’s account. He liaised with Mr Smith in relation to the outstanding monies and eventually he put the matter into the hands of the plaintiff’s accounts people for collection. Mr Hammond was asked specifically about the security in place at the time. He said, “I thought something was in place from day one. I was not aware there was a problem. I thought they would pay the account”.

13After Mr Newham received the Writ in the proceeding, he contacted Mr Hammond early in 2013. Mr Hammond told Mr Newham at that time that he knew Mr Newham had left the company at an earlier date, although he had to be reminded by Mr Newham that it was in about 2006. Mr Newham gave evidence that Mr Hammond had told him during a conversation at about this time that he was “shocked” to learn that Mr Newham had been sued and that the plaintiff’s legal department had only found out about Mr Newham’s involvement when it “pulled out the file”, presumably containing the original credit application and guarantee.

14The matter was set down for trial today following the hearing of the plaintiff’s Summary Judgment application on 16 September 2013. At that stage, I considered that the information relayed to me by Mr Newham of what Mr Hammond said he would say if he were to give evidence made it appropriate to have a trial of the proceeding. The critical issue related to the enforceability of the guarantee in light of the circumstances in which Mr Newham ceased to be involved in the company and the knowledge Mr Hammond had of those matters at that time.

15Mr Hardwidge’s evidence has clarified the role that he had in relation to the approval of credit applications and the reliance of the plaintiff upon the directors’ guarantees for the provision of credit to the company. Both his evidence and the evidence of Mr Hammond clarified the position and responsibilities of Mr Hammond, which was essentially a sales role which involved securing new business and communicating in relation to the pricing of the services provided by the plaintiff.

16Although the matters specifically raised by Mr Newham in his Defence have not been established on the evidence, the matter was set down for trial on 16 September 2013 on a broader basis. Plaintiff’s counsel, Mr Partos, has conducted the trial and made submissions addressing the possible legal bases upon which the circumstances of this case might affect the enforceability of the guarantee against Mr Newham.

17It is clear that there has been no discharge of the guarantee by agreement. Although the guarantee is expressed to be irrevocable, in certain circumstances, equity might intervene or alternatively, an estoppel might arise by reason of the conduct of the parties. If the plaintiff had express notice that Mr Newham was ceasing his involvement with the company, and that, as a consequence, he would no longer consider himself bound to guarantee or indemnify the plaintiff in respect of any ongoing trading with the company, there may have been some basis for asserting that the guarantee could not be enforced against Mr Newham. In the present case however, I am not satisfied that there are any circumstances which would lead to that result.

18The highest the evidence amounts to is that Mr Hammond was apparently aware, at about the time Mr Newham left the company, that there had been a dispute between the directors and Mr Newham was no longer involved. Although there had been previous dealings Mr Hammond had had with both Mr Newham and Mr Smith as directors of the company, after about 2006 he no longer had dealings with Mr Newham. Mr Newham could not reasonably have expected to rely on these matters as sufficient to terminate his continuing obligations under the guarantee. Accordingly, I consider that the plaintiff is entitled to enforce the guarantee against Mr Newham.

19One further issue raised by Mr Newham related to the fact that the plaintiff had allowed the company to trade beyond the trading terms of 30 days, and a credit limit of $100,000, which the plaintiff had imposed internally at the time of approving the credit application. The terms of the guarantee make it clear that these are matters which do not excuse or reduce the liability of the guarantors.

20Mr Smith was also sued. Solicitors on his behalf filed an appearance. On 15 March 2013, Mr Smith’s solicitors filed a Notice of Ceasing to Act. Mr Smith has not taken any further part in the proceeding. He has not appeared at the hearing today. As a co-guarantor, the plaintiff is also entitled to enter judgment against him.

21In the circumstances, I make the following orders:

a.Judgment for the plaintiff against the first defendant and the second defendant that the first defendant and the second defendant pay to the plaintiff $122,888.20, together with statutory interest from the date each invoice was due until 14 November 2012 of $2,918.94 and from 15 November 2012 to today of $11,343.26, total judgment $137,150.40.

b.The first defendant and the second defendant must pay the plaintiff’s costs of the proceeding, including any reserved costs, to be assessed by the Costs Court in default of agreement.

c.Stay execution upon the judgment and the costs order for 21 days.

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Certificate

I certify that these 5 pages are a true copy of the reasons for decision of His Honour Judge Anderson delivered on 1 October 2013 and revised on 2 October 2013.

Dated: 2 October 2013

Catherine Kusiak  

Associate to His Honour Judge Anderson