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Rondo Building Services Pty Ltd v Casaron Pty Ltd[2002] QDC 128

Rondo Building Services Pty Ltd v Casaron Pty Ltd[2002] QDC 128

DISTRICT COURT OF QUEENSLAND

CITATION:

Rondo Building Services Pty Ltd v Casaron Pty Ltd & Anor [2002] QDC 128

PARTIES:

RONDO BUILDING SERVICES PTY LTD
ACN 000 289 207
Plaintiff

v

CASARON PTY LTD (FORMERLY PPP (QLD) PTY LTD)
ACN 077 155 429
First Defendant

and

PETER JOHN DANCE
Second Defendant

FILE NO:

D3731 of 2001

DIVISION:

Civil jurisdiction

PROCEEDING:

 

ORIGINATING COURT:

Brisbane

DELIVERED ON:

17 May 2002

DELIVERED AT:

Brisbane

HEARING DATE:

22 April 2002

JUDGE:

Judge Forde

ORDER:

Action dismissed with costs to be assessed

CATCHWORDS:

CLAIM ON GUARANTEE – execution by guarantor next to company seal – effects of Romalpa Clause Affixing of goods to other materials – debt or equitable claim – res judicata – issue estoppel

Uniform Civil Procedure Rules (Qld) r. 294

Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549;

Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (2000) 202 CLR 588; (2000) 74 ALJR 862; discussed

Borden (UK) v Scottish Timber Products Ltd (1981) 1 Ch. 25;  referred to

Clark Equipment Credit of Australia Ltd v Kiyose Holdings Pty Ltd & Ors (1989) 21 NSWLR 160 applied;

CSR Limited v Casaron Pty Ltd & Ors (2002) QSC 21; distinguished

Delaney v Purves & Or (1930) QWN 6; referred to

James Thane Pty Ltd v Conrad International Hotels Corp (1999) QCA 517 applied;

Luton Investments v Davreal (1968-1969) 89 WN (Part 1) NSW 450 referred to;

NEC Information Systems Australia Pty Ltd v John Linton BC 8500877 17.04.85 Supreme Court of New South Wales; Royal Bank of Canada v Oram (1978) 1 WWR 564 distinguished;

Scottish Amicable Life Assurance Society (1985) 9 ACLR 909 applied;

Sunbird Plaza Pty Ltd v Maloney(1988) 166 CLR 245

COUNSEL:

H.J Zillman for plaintiff

S. Couper QC with L Bowden for second defendant

SOLICITORS:

James Conomos Lawyers for plaintiff

Hawthorn Cuppaidge & Badgery for the second defendant

Introduction

  1. [1]
    The plaintiff in this action is Rondo Building Services Pty. Ltd. It carries on the business of providing steel frame work used in the construction of walls and ceilings in buildings. It provided such goods to the first defendant Casaron Pty. Ltd. (formerly PPP (Qld) Pty Ltd). The second defendant, it is alleged, guaranteed the payment of the debt of the first defendant. The amount sued for is $162,298.34 and interest. The second defendant does not dispute that in relation to the sum of $144,881.17, it does not seek any further discounting but that the debt has to be proved. The claim includes the sum of $1,010.39 for costs incurred in attempting to recover the monies owing.
  1. [2]
    Leave was given to the plaintiff to amend paragraph 8 of the Amended Statement of Claim to rely upon two documents as evidencing the guarantee viz. Exhibits 2a and 2b.
  1. [3]
    Judgment has been entered against the first defendant pursuant to an order of his honour Judge McGill on 23 October 2001 in the sum of $168,889.19 which included the sum of $24,008.02 by way of interest. The plaintiff pleads in its reply that by reason of that judgment, the second defendant is estopped from raising any allegations contained in paragraphs 2B(c)(i) to (iv) of the Further Amended Defence. This relates to the action being brought on the wrong basis, for debt rather than for recovery of proceeds of a trust. The second defendant says that the said judgment does not bind it. The second defendant did “not contest that the goods were delivered to the first defendant or that they have commingled in being irretrievably affixed and become fixtures”[1]. It was conceded in the addresses[2] by counsel for the second defendant that the affidavit of Mr. Finn Buckley[3] was adequate to prove the quantum of the claim. The amount sworn to in the affidavit was $163,308.73 as being due and owing. In the event that the plaintiff is successful, that is the judgment sum plus interest as pleaded.
  1. [4]
    The other defence raised is in relation to the nature of the execution of the guarantee. The second defendant asserts that he never intended to execute the guarantee in his own name but in the name of the company, the first defendant. The company seal was placed next to the signature of the second defendant, whose signature appeared in the position where the guarantor would usually sign.

Background evidence

  1. [5]
    PPP (Qld) Pty. Ltd. (PPP) was incorporated on 21.01.97. There was formerly a company Performance Paint & Plaster Pty. Ltd. which in turn had changed its name to PPP. The latter had a name change to Casaron but nothing turns on that for the purposes of this action. The plaintiff sent an account application form and the standard form of Deed of Guarantee and Indemnity to PPP. In fact, in 1993, Performance Paint and Plastering made an account application and the second defendant had executed a guarantee[4]. The defence object to this on the basis of relevance. It is admissible as evidence of the fact that the second defendant was aware of the nature of a guarantee and has executed one in the past. It is not admitted as evidence of his intention in the present case. The second defendant admitted that he was aware of the obligations involved in relation to a guarantee.[5]   It is clear that the plaintiff required a guarantee in the present case and that the second defendant signed next to the company seal. In effect, if the contention of the second defendant be correct, the company was guaranteeing its own indebtedness.  The second defendant  in his affidavit attempted to explain it away by saying that “I intended that the guarantee act as a guarantee by the company of the company’s own debt, or a cross guarantee between the companies in the group.”[6]     There was no reliable evidence as to how such a guarantee would assist in guaranteeing other companies’ debts with whom the first defendant was related.
  1. [6]
    Leave was given to the plaintiff to file an affidavit in relation to the dealings between the plaintiff and a company trading in New South Wales as PPP (NSW) Pty. Ltd.[7]  The affidavit does establish that no guarantee was required from the second defendant in relation to the trading of that company.[8]  The account was opened in 1994. In 1996, there was a request that all invoices and statements in

relation to that company be sent to PPP in Brisbane for payment. The affidavit is admitted not as evidence of the intention of the second defendant in the present case but as evidence that there has been trading between the parties on another occasion where there was no guarantee given. As with the other transaction where the second defendant signed the guarantee in 1993, the transaction is too remote to be probative of evidence of intention in 1997. Even if the evidence of previous dealings is allowed as evidence of intention in both cases, it does not advance the case of either party.

  1. [7]
    Exhibits 2a and 2b were the subject of close scrutiny in the submissions. The questions posed by the defence were: how the first defendant’s copy of the guarantee came to have the name of the debtor and the name of the guarantor inserted and how it came to be in the possession of the plaintiff. The question of who had the authority to insert same was raised. There were only two persons identified: Ms. Childs or Ms. Beitz. They were not called. In order to avoid an adverse inference being drawn, the defence were given leave to file an affidavit.[9]    He deposes to the facts that Ms. Childs had been in poor health and he had received advice from her husband that she did not want her bothered during her illness. Dr. Lim, a consultant physician and geriatrician provided a report[10] which read:

“I understand that Mrs. Childs has been asked to appear in court next week. This lady has had a recent prolonged medical illness requiring an inpatient hospital stay of several weeks. She remain unwell and is not physically fit enough to attend court at this time…”

  1. [8]
    In fact, Mrs. Childs would have been required to give evidence on 22 April 2002, some weeks after the report was written. There is no acceptable evidenced that she would not have been well enough to give evidence over the telephone as at that date. In early March, she had been suffering from diabetes and gangrene. The evidence from Mr. Eleftheriou spoke of “…I received advice that her husband did not wish her to be bothered at all due to her illness and consequently I took no further steps to complete the affidavit”. The affidavit did not state the source of this advice, the date or the recent condition of the proposed witness, Mrs. Childs. It is strictly not admissible. I am not satisfied that Mrs. Childs would not have been able to give evidence by telephone.
  1. [9]
    Exhibit 2a is a document entitled “Account Application and Deed of Guarantee and Indemnity”. It is signed by the second defendant on behalf of the first defendant as applicant. It is also signed by the second defendant in the usual place for signature by a guarantor. Next to that signature is the seal of the company PPP. It is dated 4 July 1997. The second defendant’s evidence was as follows:
  1. The first defendant was incorporated to carry out major projects in building constructions whereas Performance Paint and Plaster Pty. Ltd. was involved earlier in smaller projects.
  2. The first contract between the plaintiff and the first defendant was in May 1997.
  3. With reference to Ex. 2a  details of the name and address, the BSA and trade references were not completed when the second defendant signed same.
  4. Also, in Ex. 2a, the third sheet headed “To be completed by Limited Liability Company” was not completed. Details of the second defendant were inserted later.
  1. [10]
    In relation to Exhibit 2b, entitled “Applicant’s Copy of Standard Conditions of Sale and Deed of Guarantee and Indemnity”, the date was inserted before the second defendant signed same with the company seal of PPP next to same. The second defendant said that the handwriting on the second sheet with details of the debtor and himself as the guarantor were not filled in when he signed same. The second defendant gave evidence[11] that he affixed the seal then signed the guarantees with the intention of giving a “corporate guarantee”. When asked of this concept, he stated that “that would be one company guaranteeing an account of another company. I mean, we were running several accounts with Rondo”[12]. Mrs. Beitz witnessed Ex 2a. The second defendant was unaware of what happened to the documents after he signed them. He stated that he did not authorise anyone to write details on either document. He said it was his practice to sign copies so that the directors knew what originals had been signed.
  1. [11]
    The second defendant gave evidence that there was a discussion with representatives of suppliers including Mr. Buckley from the plaintiff regarding a proposal to make pro rata payments by PPP. He said that an arrangement was put into practice where a proportionate payment was made to various suppliers including PPP. No funds were placed in a separate trust account.[13]  This question was allowed in the context of clause 17 of the Standard Conditions of Sale[14].  Mr. Buckley in cross-examination[15] agreed that there was a meeting in early 2000 to discuss payments by the first defendant to various suppliers including the plaintiff. He agreed that accounts were paid pro rata between suppliers as a means of receiving some payments. The source of the monies was retention monies from various projects. When paid, they were credited to the account of the first defendant[16].
  1. [12]
    Prior to executing the guarantee part of the documents, there was no evidence about any conversations between the plaintiff’s representatives and the second defendant. This is of some significance as part of the surrounding circumstances. It is clear from the evidence of the second defendant that the claim in the present case related to invoices rendered after the month of August 1999, that is, after the execution of Exhibits 2a and 2b[17].
  1. [13]
    In cross-examination, the second defendant confirmed in relation to Exhibit 2a that before he signed it, that the name of the applicant PPP had been written in, the ACN number, the address and other details of telephone and facsimile number. The “Main Business Activity” had not the other details. Ms. Childs appears to have filled in all of the details both before and after the signing by the second defendant. A comparison of the writing and the type of pen confirm this. She was employed by the first defendant. In evidence, the second defendant confirmed that Ms. Childs had filled in part of the form as discussed before he signed same. He also confirmed that she asked him about the details of trade references later.
  1. [14]
    The credit of the second defendant was challenged[18] on his knowledge of the handwriting. In an earlier affidavit[19] the second defendant swore that “when I signed the documents there was no writing on them at all. The documents were witnessed by my secretary Mrs. Nanette Betz. I recognize Nannette’s handwriting being on all parts of the document apart from my signature and the dates”.   As only the guarantee parts were exhibited to the affidavit, that statement in his affidavit was probably correct. It does not detract from the general proposition that details were likely to have been filled in with the implied authority of the second defendant.  There is no contest that the first defendant was the applicant and that it was a Limited Liability Company. What is more controversial is that the name of the second defendant was filled in as the guarantor in Exhibit 2b and that the signature of the second defendant was to be found on the guarantee part next to the seal of the first defendant.
  1. [15]
    The second defendant stated that no-one from his office had authority to send a copy of Exhibit 2b to the plaintiff. It confirms the second defendant as the named guarantor albeit his signature is executed next to the company seal. It seems that both Mrs. Childs and Mrs. Betz were present when both documents were executed. Mrs. Childs wrote the date above the signature of the second defendant. In Exhibit 2a, Mrs. Betz witnessed his signature. The documents were then taken away and written on. The name of “Peter John Dance” as the named guarantor on Exhibit 2b was place there by error according to the second defendant. I am satisfied that the same person probably filled in both documents viz. Ex. 2a and 2b. I make that finding after a close examination of the writing. I do not accept the evidence of the second defendant that the printing of both Mrs. Childs and Mrs. Betz is so identical that one cannot form a view in relation to the subject documents. Exhibit 2b was the first defendant’s copy and yet it was forwarded to the plaintiff without authority according to the second defendant. He gave an explanation as to why he made an error in his affidavit in saying why he did not know the date he signed the documents or the signature. Since signing the affidavit, he said that Mrs. Childs had identified her writing to him. The second defendant said that someone working for PPP was given the task to fill in the balance to the details and to “send the correct document off to Rondo”[20].
  1. [16]
    The second defendant gave reasons why he did not want to give a guarantee to the plaintiff. His reasons are subjective and inadmissible as truth of the matter. He gave evidence that he told his staff that he did not want to give any guarantees. That statement is admitted as original evidence. By filling in his name as the guarantor in Exhibit 2a, the second defendant described the person who did so as “commercially naïve”[21]. I make the following findings in relation to the credit of  the second defendant:
  1. His affidavit[22] was incorrect when he stated that he did not know what date he signed the documents. Although he found out later from Mrs. Childs that she in fact had filled out the date, the second defendant was familiar with her writing and ought to have recognised her writing as distinct from Mrs. Betz. It was convenient for him on  a summary judgment application not to be specific.
  2. The second defendant’s attempt to explain the “corporate guarantee” did not make sense in the context of either guaranteeing the first  defendant’s own debt or the debts of other companies dealing with the plaintiff. There was no evidence produced as to how a cross guarantee would operate given the name of the applicant/debtor was the first defendant. Reference to other accounts[23] did not explain how there could be a cross guarantee of the debts of other companies when they were not named in the document. This explanation was incredible.
  3. HThe failure to call Mrs. Childs or to provide more up to date information about her medical condition reflects adversely on the second defendant’s case. A further affidavit from her medical practitioner or husband would have been practicable. Her husband could have given evidence over the telephone as to her ongoing inability to travel or get to court.
  4. No explanation has been given in relation to Mrs. Betz not being called. There was evidence that she was still in Queensland.  This also reflects adversely on the second defendant’s case quite apart from the failure to call Mrs. Childs even on the telephone.
  1. [17]
    These matters together with the demeanour of the second defendant, leave me with the impression that he was willing to paint an untrue picture for the court in this case. It is recognised that the meaning which the second defendant intended that his signature with the company seal should have is irrelevant. One has to determine looking at Exhibit 2a what rights and obligations the law attaches to the external conduct of the parties. What appears on the document as distinct from what was meant is important: Scottish Amicable Life Assurance Society[24]. In other words, the effect of the signature in the present case depends on what the parties did and not on what they intended to do by signing the application and guarantee document.     

Issues

  1. [18]
    There are two issues for determination according to the defence:
  1. The second defendant did not provide a personal guarantee. The document which he did execute was as a director of the first defendant.
  2. If he did execute a personal guarantee, the second defendant guaranteed the payment of debts by the first defendant, and there is no debt owing by the first defendant to the plaintiff.

Legal Principles Applicable

  1. [19]
    The following principles can be extracted from the helpful reasons of Giles J. in Clark Equipment Credit of Australia Ltd. v. Kiyose Holdings Pty. Ltd. and Others:[25]

“In the result, I conclude that the proper approach is to inquire whether there is to be found an intention that the signatory be personally bound to the contract evidenced in the document, meaning thereby not a subjective intention but an intention to be bound objectively, notwithstanding the qualification attached to the signature. That intention, or lack thereof, is to be found upon the construction of the document as a whole, including but not being limited to the qualification attached to the signature, in the light of the surrounding circumstances to the extent to which evidence thereof is permissible. The inquiry is not limited to consideration of the signature and its qualification in order to determine whether or not the signature indicates an assent to be personally bound.”

This principle was applied in James Thane Pty. Ltd. v Conrad International Hotels Corp. (1999) QCA 517.  The principle seems apposite to the present case, and with respect I adopt same. See also NEC Information Systems Australia Pty Ltd v John Linton[26]

Submissions of Defence

  1. [20]
    It is contended by the defence that as Exhibit 2b was sent to the plaintiff without his authority he is not bound by it. The first part concerning the name of the guarantor was also filled in without his authority according to the second defendant. His signature on Exhibit 2b was not witnessed. It is suggested that Exhibit 2b should be ignored. It purports to be a deed but is not attested. Section 45(2) of the Property Law Act 1974 requires a document to be attested before it can be regarded as a deed. This aspect of the defence case has some merit. The other aspect is that a deed to be binding must be delivered. Pursuant to s. 47 of the said Property Law Act, “delivery” means the intention to be legally bound either immediately or subject to fulfilment of a condition. The defence submission in this regard is that there is no evidence that the second defendant was to be bound by the document. In some ways this begs the question for determination in this case. I am content to find that the document Exhibit 2b is not binding as a deed as it was not properly attested.
  1. [21]
    It is conceded by the defence that in some circumstances an instrument which fails as a deed may be found to bind the parties as a simple contract: Luton Investments v. Davreal[27]. In dealing with that proposition,  senior counsel for the second defendant in his written submissions made the following points:
  1. (a)
    “…that the rule in Pigot’s (sic) case applies, namely that it is a contract altered by a third party after it left the possession of the relevant person, Mr. Dance, and that the amendments are such as to release him from liability thereunder:  see generally Farrow Mortgage Services Pty Ltd v Slade & Nelson (1996) 38 NSWLR 636….
  1. (b)
    in any event, it was a document sent to the plaintiff by mistake in circumstances where the second defendant Dance should be relieved from any liability under the document:  Royal (sic) Bank of Canada v Oram (1978) 1 WWR 564.
  1. (c)
    In any event it may be seen that the document was sent to the plaintiff in circumstances where there was no intention to be bound by it. In other words, there was no intention to create legal relations by that particular document.”
  1. [22]
    On the fact of it, the document Exhibit 2b is the copy for the first defendant. Usually, the plaintiff would have no interest in such a document, if the plaintiff had its own copy. If the original had been lost, the applicant’s copy may be of more significance if properly attested and filled in prior to signing by a guarantor. If one assumes for the moment that Mrs. Childs had authority to fill in the details, including the name of the second defendant as guarantor, then it is open to find more readily that the second defendant intended that the document be legally binding. It is also contended that the document was not intended to be sent to the plaintiff as it was the first defendant’s copy which included the guarantee. One must remember the second defendant’s evidence that the copy was usually filled in so that the directors knew what commitments had been made[28]. I infer from this that the copy which had the second defendant as guarantor reflected  the nature of the transaction, if one accepts that Mrs. Childs had his authority to fill in the details or if the details were already there when the second defendant signed Exhibit 2b.
  1. [23]
    The case relied upon by the defence in relation to proposition (b) above, is the Royal Bank of Canada[29]. The defendant in that case relied on the defence that he was mistaken as to the nature and extent of the document to which he affixed his signature.  He argued that the bank must have known that he was not guaranteeing past debts but a future advance. It cannot be said that in the present that the plaintiff was under any misapprehension as to the nature of the guarantee offered. It already had a duly executed guarantee (with the company seal affixed). Oram’s case is to be distinguished.
  1. [24]
    The final point relevant to Exhibit 2b is that it is suggested that the document was altered after the second defendant signed it. The name of PPP as debtor and the second defendant as guarantor were, according to the second defendant added after he signed. I am not convinced that the second defendant is a credible witness. The failure to call Mrs. Childs or to explain why she or Mrs. Betz could not be called reinforces an inference that the true story is not before the court. The facts in the Farrow Mortgage Services case op.cit. are distinguishable. In that case the contract of loan between the debtor and creditor was varied by increasing the rate of interest without the consent of the guarantor thereby prejudicing his position. In the present case, the position of the second defendant is prejudiced by being named as a guarantor. However, if it is found to be that the second defendant in fact intended to cause the plaintiff to believe that he was in fact the guarantor, then such an addition was made with his implicit consent. It is therefore necessary to look at the execution of the both exhibits in the context of the signature being executed next to the seal of the first defendant before a decision can be made about the relevance of the additional information, allegedly place there after the second defendant signed same.

Exhibit 2a—“Account Application and Deed of Guarantee and Indemnity”

  1. [25]
    The question posed by the defence[30] is whether or not the first defendant is personally bound by this document. The submission contends, consistent with the cases, that this depends upon the intention as disclosed from the whole of the surrounding circumstances looked at objectively. Reliance was placed upon the passage cited from Clarke Equipment Credit of Australia Ltd.[31]  There is no doubt that the second defendant attached a qualification to his signature. The company seal of the first defendant was placed next to his signature. It was witnessed by Mrs. Betz. It was dated by Mrs. Childs. The name of the guarantor was not placed in the appropriate part of the guarantee form nor was the name of the debtor. The name of the debtor appeared in the “Account Application” part. There is no doubt as to the identity of the debtor. The name of the director “Peter John Dance” appeared in the other part of the form. It does not follow that he would be the guarantor. A cross in the square as to the ownership of the premises at “221 Bleasby Road Eight Mile Plains” would seem to indicate that the assets of the director was a relevant factor. The fact that his name appeared in the place where the document was signed allows one to infer that as far as the  plaintiff was concerned, the director who purported to sign as guarantor was a person called “Peter John Dance” who owned a certain property at Eight Miles Plains.
  1. [26]
    The defence argue that the guarantee does not itself identify who is to personally guarantee the relevant indebtedness. The authority of Scottish Amicable Life v Reg Austin Insurances[32] is referred to. In that case, the guarantors were the directors of the company. They executed the agency agreement and also the indemnity or guarantee provision by signing same and affixing the common seal of the company over the two signed names. It was held by Mahoney JA[33] that :
  1. for the document to be the document of the  directors, it was necessary that they had intended that the document would operate as their document and that there was sufficient authentication of the document as their document:
  2. it could be inferred from the events leading up to the execution of the indemnity and from the wording of the indemnity itself, that the directors by executing the indemnity, believed the execution would have the effect of rendering the indemnity effective or operative; and
  3. although the directors merely took part in the execution of the document by the company, their signatures provided sufficient authentication.
  1. [27]
    The authority of Delaney v Purves and others[34] was applied. In that case the directors of the company had executed the lease under the company seal and signed same. Clause 33 of the lease provided that the named directors covenanted as sureties to make good to the lessors any losses sustained under the terms of the lease. It was held that by executing same as sureties at the end notwithstanding the company seal that they were liable as sureties. In the present case, the second defendant as executed Exhibit 2a as a guarantor with the company seal affixed nearby. 
  1. [28]
    What is lacking in the present case is any evidence from the plaintiff of the surrounding events leading up to the execution of the guarantee. In most cases this would not be relevant because of the clear manner in which the documentation is completed. In the Scottish Amicable Life Assurance case[35], there was slight evidence from a Mr. Robinson who was acting for the creditor. He stated that one of the directors who was to guarantee the debt said, “Look why don’t you call round to my house tonight with the agreement and we can execute it there”. There was some evidence that the creditor required a personal guarantee from each director.[36] There was no direct evidence as to how or why the parties executed the agreement as they did. The intention of the guarantors was to be inferred from the documents and the surrounding circumstances. The guarantors did not give evidence. These matters were sufficient for Mahoney AJ to infer that the guarantors knew that the document which was to be executed included an indemnity or guarantee which to be executed by them personally and so bind them personally. Justice Mahoney was not prepared to find that by placing the company seal at the end that the guarantors were attempting to avoid the giving of the indemnity which the parties assumed that they would give. To find otherwise “would involve a conscious fraud on the part of” the signatories. He went on to find that the by signing as they did, it gave effect to the indemnity and with the object that it should do so.
  1. [29]
    Having regard to these authorities and the evidence in this case, the following findings are open:
  1. that the second defendant was a person who was well aware of his obligations under a guarantee
  2. that by failing to fill in the name of the debtor and guarantor on the second last sheet of Exhibit 2a did not render the document uncertain.
  3. There was sufficient evidence looking at the document as a whole of the name of the debtor and the name of the proposed guarantor.
  4. That the placing of the common seal next to the name of the second defendant did not displace the objective facts as intended by the parties that  there be a guarantee given by the second defendant.
  5. That the finding in (d) above is separate from and not reliant on Exhibit 2b.
  6. Although these are not  necessary findings, they are made for completeness and in deference to the parties submissions:
  1. (i)
    Mrs. Childs was probably acting with the authority of the second defendant in filling out Exhibit 2b
  2. (ii)
    in dealing with the question of intention, the second defendant was probably bound by Exhibit 2b in the nature of an admission as evidencing his intention to be a guarantor of the first defendants’ liability to the plaintiff. It is part of the surrounding circumstances.

Does the Guarantee Attach to the Liabilities Created – the Romalpa Point

  1. [30]
    The submissions of the second defendant on this aspect make the following points:
  1. The true relationship between the plaintiff and the first defendant  was one of trustee/beneficiary. Therefore, any breach of that relationship does not sound in debt. A guarantee does not attach to or relate to breaches of trust.
  2. Guarantees are to be construed strictly in favour of the guarantor. The case cited is Ankar Pty Ltd v National Westminster Finance (Australia) Ltd[37]. In the joint judgment, the Court added:

“Of course in construing the contract the court is entitled to look to the general setting in which the contract has come into existence”.

  1. [31]
    Reference was made to the decision of Sunbird Plaza Pty Ltd v Maloney[38] to illustrate the point. That case involved a contract of sale of a home unit. The purchasers defaulted and did not settle. It was held that the guarantor’s promise was that the purchaser would perform its contractual obligations including the payment of all moneys payable under the contract. As settlement had not taken place the balance of the price had not become a debt payable by the purchaser. Therefore, the guarantor was not liable.
  1. [32]
    It is suggested in the defence submissions that the relevant clauses in the guarantee viz. 1,2,10 and 11 would seem to indicate that the guarantee in the present case being Exhibit 2a does not extend to a liability for breach of trust. Clause 2 provides relevantly:
  1. “2.
    This guarantee is given for valuable consideration and is a continuing guarantee to Rondo for the whole of the Debtor’s indebtedness or liability to it in respect of goods and/or materials supplied to the Debtor on any other account however or whatever arising”.
  1. [33]
    Osborn “A Concise Law Dictionary” 5th ed. defines liability as follows:

“Subjection to a legal obligation; or the obligation itself. He who commits a wrong or breaks a contract or trust is said to be liable or responsible for it…”.

In Exhibit 2a, under Clause 17 of the Standard Conditions of Sale, the following appears:

“The Buyer shall be at liberty to agree to sell products (independently or affixed to the other materials) subject to the condition that until payment of the price, the Buyer shall sell as agents and bailees for Rondo and that the entire proceeds from sale thereof shall be held in a separate account in trust for Rondo.”

  1. [34]
    No monies were put in trust for the plaintiff. Any monies available were sent to the plaintiff and credited to the relevant account. Mr. Bailey accepted that monies were, by arrangement, paid to the plaintiff on a pro rata basis with other suppliers. It is submitted by the defence that the plaintiff allowed the first defendant to deal with the monies in that manner. The cause of action should be for breach of contract of bailment and /or breach of trust. The manner in which the present action is pleaded is that the debt was incurred by the first defendant and as it is still due and owing the second defendant is liable to pay the amount due and owing. It is clear that the plaintiff has not attempted to rely on monies owing for breach of a trust.
  1. [35]
    In his submissions, counsel for the plaintiff in addressing on the Romalpa clause[39], submitted that the goods had become part of the foundation of other buildings and that it was “not entirely dissimilar” to the case before Justice Holmes of CSR Limited v Casaron Pty Ltd & Ors.[40]  The questions in that case were whether a Romalpa clause could be regarded as effective to retain title in goods where they are absorbed into a construction or manufacturing process and whether a liquidated debt could be claimed where property had passed. Her honour referred to a decision of Borden (UK) v Scottish Timber Products Ltd[41] in which it was held that once the resin which was supplied had been used in the process of manufacture, then the title of the seller under the Romalpa clause ceased to exist.
  1. [36]
    The clause in CSR Limited was as follows:

“By applying for credit with CSR, you agree that… we own the goods until they are paid for. Goods supplied to you remain our property until we receive payment for all amounts you owe to us. If your account is in default we have the right to enter your premises (or the premises of any associated company or agent) to retake possession of the goods, without liability for trespass or damage. If you resell the goods, or if you sell products manufactured using the goods, then you must keep the proceeds of the sale in a separate, identifiable account until we have been paid in full”.[42]

  1. [37]
    The claim was for a liquidated sum for a breach of the agreement against Casaron Pty Ltd. and a claim for a liquidated debt for breach of guarantee. In the case before Holmes J. the property in the goods had passed as they had been incorporated into building works. She held that the plaintiff was entitled to sue for the price of the goods. She added:

“Unlike the Associated Alloys situation, it seems unlikely that an argument could be mounted that any funds derived from their use were subject to a trust, since the clause specifically refers to reselling of the goods or products manufactured from them, but not to  profits derived from their use in construction. In any event, that is not an issue here.”[43]

In effect, her honour was not asked to deal with the question before me in the present case. Because the goods had been incorporated into the construction, her honour was dealing with a factual situation  not covered by the clause.

  1. [38]
    Another case which illustrated the point to which reference was made by her honour was Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd.[44]    The relevant clause in that case provided:
  1. “5.
    In the event that the (Buyer) uses the goods/product in some manufacturing or construction process of its own or some third party, then the (Buyer) shall hold such part of the proceeds of such manufacturing or construction process as relates to the goods/ product in trust for the (Seller). Such part shall be deemed to equal in dollar terms the amount owing by the (Buyer) to the (Seller) at the time of the receipt of such proceeds.” (the “proceeds clause”)
  1. [39]
    The clause in the present is for present purposes similar to the clause in Associated Alloys.[45]  It was held that although the proceeds clause operated as an agreement to constitute a trust of future acquired property, the evidence in that case did not show any receipt of the future acquired property by the buyer. Therefore, it was held that without proof of that “threshold” fact, no trust relationship arose under the proceeds subclause. Any liability to account could not be established. In the present case, there is no detail given of what monies were received even if the action had been framed differently. There is general evidence that monies were received by the plaintiff on a pro rata basis. There is evidence that the monies were not placed in a separate account. The buyer in the Associated Alloys case also had not paid the full amount of the value of the steel used in the manufacture of steel. There was no question of the seller retaining title in that case either.
  1. [40]
    In Associated Alloys, the phrase “the proceeds” was construed as referring to moneys received by the buyer and not debts which appeared in the buyers’ books. It was held that as a matter of business efficacy that an implied contractual term arose viz. that the receipt by the buyer of the relevant “proceeds” to the amount owing by the buyer to the seller at the time of receipt of such proceeds would discharge the debt by performance[46]. The problem for the plaintiff in the present case is that apart from the pleading point, there is no detailed evidence of the quantum of the receipts relevant to the present claim. The onus of proof is upon the seller[47]. For example, the whole of the proceeds may have been received and thus the debt would be discharged. There would be no debt to guarantee. I am unable to make any finding of what trust monies were received and referable to the present debt to the plaintiff under clause 17 of the Standard Conditions of Sale: Exhibit 2a. In my view, the only claim available to the plaintiff in the present case is under clause 17. That was the situation in Associated Alloys as well. The problems of proof existed in that case even though an equitable claim was made under the  provisions of the relevant clause. One can envisage such practical problems in cases of this nature. There are obvious benefits of having a clause of this nature in the agreement, but problems arise when the debt for which the guarantor is liable changes its nature when the goods are affixed to other materials or used up in the construction process. It may allow a tracing exercise in appropriate cases but the effect of same is to extinguish the obligation of the debt.
  1. [41]
    It has not been argued in this case that the words “indebtedness or liability” in clause 2 of the guarantee would be broad enough to cover an equitable claim under the present guarantee. The decision of Victorian Workcover Authority v Esso Australia Ltd[48] is authority for the proposition that a debt is distinct from a claim for compensation in equity. In any event, the same problem would arise in relation to proof of the “proceeds” as discussed.

Estoppel

  1. [42]
    The plaintiff pleads in the Amended Reply:

“In addition to the matters pleaded in paragraphs 6,7,8,9 and 10 of this amended reply, the plaintiff says that by reason of the judgment of His Honour Judge McGill SC of 23 October 2001, the second defendant is not entitled at law to raise the allegations in paragraphs 2B(c)(i), 2B(c)(ii), 2B(c)(iii) and 2B(c)(iv) of the amended defence of the second defendant.”

  1. [43]
    It is probably a good starting point to look at the nature of the proceedings before His Honour McGill D.C.J.[49]    The first defendant was ordered to pay to the plaintiff the sum of $168,889.19 and costs on an indemnity basis. The application against the second defendants for summary judgment was dismissed. It was submitted by counsel for the first defendant in the written submissions  that the second defendant was not a party to the summary judgment proceedings. Two separate applications for summary judgment were issues against the first and second defendant.[50]    There were separate applications for summary judgment both being heard by the same judge on 23 October 2001.
  1. [44]
    A defence was filed by the first defendant on 30 August 2001. It pleaded a compromise of the debts owing. This defence was rejected by the learned judge as applicable to the first or second defendant. His Honour held that the first defendant has no real prospects of defence. He then went on to deal with the defence of the second defendant in respect of the guarantee and indemnity. His Honour observed that the common seal of the first defendant was annexed to the signature of the second defendant. He found that what was intended by that could only be resolved at trial. The second defendant had sworn an affidavit in those proceedings on behalf of the company. He did refer at paragraph 29 of his affidavit sworn and filed on 18 October 2001 that “(a)ll retention monies received by the first defendant were paid to the various creditors as provided for in the agreement”. A further affidavit of the same date was filed and the second defendant swore that he never intended to bind himself as guarantor of the first defendant’s debts. That was pleaded in the original defence of the second defendant filed on 28 September 2001. In that defence there was no mention of Clause 17 or that monies were held in trust. That matter was first pleaded in the Amended Defence filed by the second defendant on 12 March 2002.
  1. [45]
    The question which requires determination is whether the second defendant ought to have pleaded the relevant defence as at the date of the summary judgment. The question of Clause 17 and trust monies was not raised by either defendant on the summary judgment application. The same counsel, Mr. Bowden, appeared for both defendants on the application for summary judgment. Separate affidavits were sworn by the second defendant in relation to his own position and that of the first defendant.

Principles of law applicable to res judicata or estoppel

  1. [46]
    The second defendant contends[51] that he “was never heard in any legal sense in the application for summary judgment in respect of the first defendant.”  Therefore, there can be no issue estoppel or res judicata according to Carl Zeiss Stiftung v. Rayner & Keeler Ltd[52]; Department of Aviation v. Ansett[53]. Those cases concerned the question of identifying the parties and the issues decided and against whom. In the present case, there was no issue  decided in relation to clause 17. The plaintiff and the second defendant were parties in the same action, so the question of identity does not arise.
  1. [47]
    One must start with the proposition that in the absence of a special agreement, a judgment against the principal debtor is not binding on the surety and is not evidence against him in an action against him by the creditor, but the surety is entitled to have the liability proved as against him in the same way as against the principal debtor: Ex parte Young[54]. As stated by James L.J., the principal debtor may neglect to defend the interests of the surety properly in an action. The difference in the present case is that the second defendant as guarantor was represented at the application for summary judgment. Lush L.J. stated[55] that the guarantor is only bound to pay the amount which is proved against him. Any verdict against the first defendant is no evidence against the guarantor. It is not evidence of the surety’s liability to pay the judgment sum awarded against the first defendant[56]. In fact, in the present case, counsel for the defence required the plaintiff to formally prove the quantum of the debt at trial. Even if it could be said that his honour McGill D.C.J. determined the quantum of the claim as against the second defendant subject to the argument on the guarantee, it was not a determination against the second defendant that monies were due and owing as against the second defendant. The reason for that is that the application for summary judgment as against the second defendant was dismissed.
  1. [48]
    The defence contend that the second defendant is now entitled to defend the action as against the plaintiff on whatever grounds that he elects to do so. Apart from Ex. parte Young ibid., the defence relied on Begley v Attorney General of New South Wales[57] which applied the principle referred to above. In Begley’s case, the surety was not a party in the action against the administratrix. Counsel for the second defendant in the present case argues that the second defendant was not a party to the judgment against the first defendant and so res judicata does not apply. One can assume that to be correct for present purposes: Effem Foods Pty Ltd v Trawl Industries of Australia Pty Ltd. (In Liq)[58]. The cause of action against the first defendant is different to that between the plaintiff and the second defendant. That is sufficient to dispose of the res judicata point[59]. There may be different causes of action, yet issue estoppel is able to be pleaded. The question is whether an issue of fact or law which is raised in the present proceedings was an issue of fact or law which was also raised in the earlier proceedings and determined in those proceedings[60]  As previously observed, the clause 17 point was not raised before His Honour McGill  D.C.J.
  1. [49]
    The only basis ,therefore, upon which the plaintiff could succeed is if it can be shown that the second defendant acted unreasonably in not raising the clause 17 point on the application for summary judgment. In Port of Melbourne Authority v Anshun Proprietary Limited[61], it was held that where a party acted unreasonably in refraining from raising an issue in the first action which was so closely connected with the subject matter of that action that it was to be expected that the owner would
  1. [50]
    raise it as a defence then the party is estopped from raising it in a subsequent action. The facts of Anshun’s case should be recalled before discussing the relevance of that case to the present case. The same parties were involved in contribution proceedings in the first action. The Port of Melbourne Authority was required to contribute 90% of the plaintiff’s damages in the first action. The employer of the plaintiff, Anshun, was held liable for 10% only. There was an indemnity arrangement between the Port of Melbourne Authority and Anshun which was not pleaded in the first action but upon which the former attempted to rely in a second action. It was held that it could not do so as the issue of contribution was so closely connected with the indemnity issue that the latter issue ought reasonably to have been raised in the first action. A decision in the later action would conflict with that in the first action.
  1. [51]
    Reference was made in the joint judgment of Gibbs C.J. and Mason and Aickin JJ[62] to the decision of Henderson  v Henderson[63]:

“where a given matter becomes the subject of litigation in, and of adjudication by, a Court of competent jurisdiction, the Court requires the parties to that litigation to bring forward their whole case, and will not (except under special circumstances) permit the same parties to open the same subject of litigation in respect of matter which might have been brought forward as part of the subject in contest, but which was not brought forward, only because they have, from negligence, inadvertence, or even accident, omitted part of their case. The plea of res judicata applies, except in special cases, not only to points upon which the Court was actually required by the parties to form an opinion and pronounce a judgment, but to every point which properly belonged to the subject of litigation, and which the parties, exercising reasonable diligence, might have brought forward at the time.”

At p. 602-3, the joint judgment contains the following ruling:

“In this situation we would prefer to say that there will be no estoppel unless it appears that the matter relied upon as a defence in the second action was so relevant to the subject matter of the first action that it would have been unreasonable not to rely on it. Generally speaking, it would be unreasonable not to plead a defence if, having regard to the nature of the plaintiff’s claim, and its subject matter it would be expected that the defendant would raise the defence and thereby enable the relevant issues to be determined in the one proceeding. In this respect, we need to  recall that there are a variety of circumstances, some referred to in the earlier cases, why a party may justifiably refrain from litigating an issue in one proceeding yet wish to litigate the issue in other proceedings e.g. expense, importance of the particular issue, motives extraneous to the actual litigation, to mention but a few.”[64]

  1. [52]
    It is therefore important to distinguish those cases where there has been a final determination of issues between the parties and an interlocutory application for summary judgment. The present case does not involve a second action. It is the same action involving a defence relying on clause 17 of the Standard Conditions of Sale. That was a defence which was not raised by the second defendant on the application.
  1. [53]
    Rule 294 of the Uniform Civil Procedure Rules provides as follows:

“294 (1)  The making of orders under this part that does not dispose of all claims in issue in a proceeding does not prevent the continuation of any part of the proceeding not disposed of by the orders.”

Rule 294 is part of Part 2 of the Summary Judgment rules. Once the application for summary judgment as against the second defendant was refused, the second defendant had  the right to defend the action at trial, subject to a later application by the plaintiff for summary judgment with the court’s leave.[65]

  1. [54]
    If the plaintiff’s argument be correct, that is, the second defendant ought reasonably have raised the clause 17 issue at the summary judgment stage, then it would follow that a new defence may not be raised after an interlocutory hearing by any defendant unless it can be shown that the defendant has acted reasonably in not raising same at that interlocutory stage. That proposition has practical difficulties which overlooks the nature of summary judgment proceedings. Often there is little time to plead fully particularly in the absence of discovery. A defendant may be content to run with a strong argument at the summary stage and broaden the defence at a later point. I reject the proposition that a defendant who is entitled to defend a claim should, in the absence of an order to the contrary, be bound by the defences relied upon at the summary hearing. The defendant in the present case was able to show that a trial was necessary in relation to the nature of the signature and seal on the guarantee and indemnity. A defendant may receive advice subsequently that that ground has no merit but another ground should be relied upon. The decision in Anshun’s case recognises such situations.[66]  Anshun’s case did not decide that such an approach cannot be relied upon. The argument that there is an issue estoppel  is rejected. 

Summary of Findings

  1. The placing of the company seal of the first defendant next to the signature of the second defendant as guarantor did not allow the second defendant to avoid personal liability.
  1. Clause 17 of the Standard Conditions of Sale provided that once the goods sold had become affixed to other materials, then the entire proceeds from sale thereof should be held in a separate account  in trust. It was common round that the goods were so affixed. It follows that  the obligation of the debt was extinguished at that stage and that the second defendant as guarantor was no longer liable.
  1. The second defendant was not estopped in this action from relying upon the said clause 17 as a defence notwithstanding it was not relied upon by him on the application for summary judgment

ORDERS

  1. The action is dismissed.
  1. The plaintiff is ordered to pay the second defendant’s costs of the action including reserve costs, if any, to be assessed on the standard scale.

Footnotes

[1] Ex 1 Facsimile 16.04.02

[2] Transcript 84/5

[3] Ex 7

[4] Ex. 5

[5] Transcript 67/18

[6] Ex. 6 para. 6

[7] The affidavit of Mindaugas Mikalauskas sworn on 24 April 2002 is marked Ex. 10 in these proceedings.

[8] See the further submissions by the second defendant are marked “C”.

[9] Affidavit of Stephen Raymond Eleftheriou sworn on 24 April 2002. It is marked Exhibit 11

[10] dated 7 March 2002  and exhibited to the said affidavit

[11] Transcript 58/60-59/6

[12] Transcript 59/15

[13] Transcript 64/10

[14] Ex. 2a

[15] Transcript 32/50

[16] Transcript 33/35

[17] Transcript 65/5

[18] Transcript 70/10 (f)

[19] Ex. 6 para. 5

[20] Transcript 74/37

[21] Transcript 75/36

[22] Ex. 6 para 5

[23] Transcript 59/18

[24] (1985) 9 ACLR 909 at 923

[25] (1989) 21 NSWLR 160 at 174C-D

[26] BC 8500877 Wood J. 17. 17.04.85 Supreme Court of NSW

[27]  (1968-69) 89 WN (Part 1) NSW 450 at 455

[28] Transcript 59/50

[29] ibid

[30] Ext A written submissions p. 6

[31] op.cit. 174

[32] op. cit.

[33] ibid 922-3

[34]  (1930) QWN 6

[35] op. cit.

[36] McHugh AJ at 924-5 

[37]  (1987) 162 CLR 549 at 561

[38] (1988) 166 CLR 245

[39] Transcript 105/20

[40] (2002) QSC 21

[41] (1981) 1 Ch. 25

[42] op. cit. p. 3

[43] p. 9. Footnote 11.

[44] (2000) 202 CLR 588;  (2000) 74 ALJR 862.

[45] ibid

[46] p.872 para. 41

[47] ibid.p.875 para 54

[48] (2001) 75 ALJR 1513

[49] Exhibit 3 is a copy of the judgment.

[50] The reasons for judgment are Exhibit 4.

[51] Ex. A para. 22

[52] (1967) 1 AC 853

[53] (1987) 72ALR 188 at 203-4

[54] (1881) 17 Ch. D. 668 at 672

[55] ibid. p. 673

[56] ibid. 674

[57] (1910) CLR 432 at 440

[58] (1993) 43 FCR 510 at 514; (1993) 115 ALR 377

[59]  ibid. 381

[60]  ibid. 381 quoting Fullagar J. in Jackson v. Goldsmith (1950) 81 CLR 446 at 466-8.

[61]   (1980-1981) 147 CLR 589

[62] ibid p. 598

[63] 67 ER 319

[64] Anshun op. cit. 602-3

[65] rule 294(2)

[66] op. cit. 602-603

Close

Editorial Notes

  • Published Case Name:

    Rondo Building Services Pty Ltd v Casaron Pty Ltd & Anor

  • Shortened Case Name:

    Rondo Building Services Pty Ltd v Casaron Pty Ltd

  • MNC:

    [2002] QDC 128

  • Court:

    QDC

  • Judge(s):

    Forde DCJ

  • Date:

    17 May 2002

Appeal Status

Please note, appeal data is presently unavailable for this judgment. This judgment may have been the subject of an appeal.

Cases Cited

Case NameFull CitationFrequency
Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549
2 citations
Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (2000) 202 CLR 588
2 citations
Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (2000) 74 ALJR 862
4 citations
Begley v Attorney-General (NSW) (1910) CLR 432
1 citation
Borden (UK) Ltd v Scottish Timber Products Ltd (1981) 1 Ch 25
2 citations
Carl Zeiss Stiftung v Rayner & Keeler Ltd (1967) 1 AC 853
1 citation
Clarke Equipment Credit of Aust Ltd v Kiyose Holdings Pty Ltd (1989) 21 NSWLR 160
3 citations
CSR Limited v Casaron Pty Ltd [2002] QSC 21
2 citations
Delaney v Purves [1930] QWN 6
2 citations
Effem Foods Pty Limited v Trawl Industries of Australia Pty Ltd (1993) 43 FCR 510
1 citation
Effem Foods Pty Ltd v Trawl Industries of Australia Ltd (In Liq) & Ors (1993) 115 ALR 377
3 citations
Farrow Mortgage Services Pty Ltd (in liquidation) v Slade & Nelson (1996) 38 NSWLR 636
1 citation
Henderson v Henderson (1843) 67 ER 319
1 citation
Jackson v Goldsmith (1950) 81 CLR 446
1 citation
Luton Investments v Davreal (1969) 89 WN (Part 1) NSW 450
2 citations
Paton v Reck[2000] 2 Qd R 619; [1999] QCA 517
2 citations
Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589
4 citations
Re Kitchin, ex parte: Young (1881) 17 Ch D 668
3 citations
Royal Bank of Canada v Oram (1978) 1 WWR 564
2 citations
Scottish Amicable Life Assurance Society v Reg Austin Insurances Pty Ltd (1985) 9 ACLR 909
4 citations
Secretary, Department of Aviation v Ansett Transport Industries Ltd (1987) 72 ALR 188
1 citation
Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245
2 citations
Victorian WorkCover Authority v Esso Australia Ltd (2001) 75 ALJR 1513
1 citation

Cases Citing

No judgments on Queensland Judgments cite this judgment.

1

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