DISTRICT COURT OF QUEENSLAND

1. [1]
   The appellant, Dennis John Musca, appeals against a number of orders made by Mr Dean Wilkinson Magistrate, in the Maroochydore Magistrates Court on 11 December 2000.

2. [2]
   On that day, Mr Wilkinson granted leave to Business Finance and Leasing Pty Ltd (BFL) to discontinue proceedings against Mr Musca. At the same time, he permitted Capital Finance Australia Limited (Capital) to amend its Claim and Statement of Claim against Mr Musca, and he dismissed an application made by Mr Musca for summary judgment. Capital and BFL had been respectively the first and second plaintiffs and had sued Mr Musca for monies owing pursuant to a guarantee. The appeal is against all of the orders made by Mr Wilkinson on 11 December 2002. The Notice of Appeal was filed on 8 January 2003, and, unfortunately, was not heard until the 1^st December 2003. In the meantime, the file reveals that the claim has been continued and appears in all respects to be ready for trial in the Magistrates Court subject to the orders of this Court.

3. [3]
   The central issue of the appeal concerns the proper construction and legal effect of a guarantee given by Mr Musca which in effect guarantees to BFL the punctual payment of rental payable by Denville Homes Pty Ltd pursuant to the terms of a rental agreement between BFL and Denville Homes Pty Ltd dated 21 July 2000. It is common ground that Denville defaulted under the agreement which was for the rental of some computer equipment; and it is alleged that monies are owing by Denville to BFL the payment of which is guaranteed by Mr Musca.

4. [4]
   It is common ground that BFL acted as agent for Capital in entering into the rental agreement. It is not suggested by BFL or Capital that the relationship of principal and agent was disclosed to Mr Musca prior to him executing the guarantee and I will proceed on the basis that Capital was at all material times an undisclosed principal of BFL.

5. [5]
   At the hearing of the appeal, and in his written submission, Mr Coates on behalf of Mr Musca focused on what I think is the real issue in the appeal. The issue is whether Capital as undisclosed principal is, in the circumstances of this case, capable of suing on the guarantee notwithstanding that it was not a party to the rental agreement or the guarantee.

6. [6]
   The law relating to undisclosed principals

It is well settled that, in certain circumstances, an undisclosed principal may sue or be sued on a contract to which the undisclosed principal is not a party. The relevant principles were summarised in Siu v Eastern Insurance Co Ltd (P.C.) [1994] 2 AC 199 at 207 as follows:

“(1) An undisclosed principal may sue and be sued on a contract made by an agent on his behalf, acting within the scope of his actual authority. (2) In entering into the contract, the agent must intend to act on the principal’s behalf. (3) The agent of an undisclosed principal may also sue and be sued on the contract. (4) Any defence which the third party may have against the agent is available against his principal. (5) The terms of the contract may, expressly or by implication, exclude the principal’s right to sue, and his liability to be sued. The contract itself, or the circumstances surrounding the contract, may show that the agent is the true and only principal.”

7. [7]
   This statement was accepted to be the law in Queensland in Pico Holdings Inc v Wave Vistas Pty Ltd & Anor [2003] QCA 204 per Mullins J at para 69 of her Honour’s judgment.

8. [8]
   As her Honour noted, the law which permits an undisclosed principal to sue and be sued on a contract to which it is not a party has been described as an anomaly as it is an exception to the principle of the privity of contract. However, as the Privy Council in Siu noted (at 207) “.it is justified on grounds of commercial convenience.”

9. [9]
   In his submissions before me, Mr Coates has concentrated on elements 2 and 5 in Siu as being applicable here, to support his argument that Capital in this case is not entitled to the benefit of the guarantee given by Mr Musca to BFL.

10. [10]
    The Siu case was concerned with the fifth feature set out at p. 207 of the judgment, and as the Privy Council noted at pp. 207-208, the relevant law was stated by Diplock L.J. in Teheran-Europe Co. Ltd v S.T. Belton (Tractors) Ltd (1968) 2 Q.B. 545 at 555:

“Where an agent has…actual authority and enters into a contract with another party intending to do so on behalf of his principal, it matters not whether he discloses to the other party the identity of his principal, or even that he is contracting on behalf of a principal at all, if the other party is wiling or leads the agent to believe that he is willing to treat as a party to the contract anyone on whose behalf the agent may have been authorised to contract. In the case of an ordinary commercial contract such willingness of the other party may be assumed by the agent unless either the other party manifests his unwillingness or there are other circumstances which should lead the agent to realise that the other party was not so willing.”

11. [11]
    Again, in Siu, after referring to Fred. Drughorn Ltd. v. Rederiaktiebolaget Transatlantic [1919] A.C. 203, the Privy Council observed:

If courts are too ready to construe written contracts as contradicting the rights of an undisclosed principal to intervene, it would go far to destroy the beneficial assumption in commercial cases to which Diplock J referred in Teheran-Europe Co. Ltd v S.T. Belton (Tractors) Ltd [1968] 2 Q.B. 545 at 555.”

12. [12]
    With those principles in mind, I now turn to the written agreements in this case between BFL, Denville Homes and Mr Musca.

13. [13]
    The Agreements

In my opinion, the guarantee (although undated) cannot be read and construed as an entirely separate document to the rental agreement. This is so, because of the chronology of events evidenced by the documents leading up to the execution of the rental agreement to which Mr Jennings helpfully referred in his oral argument. The first relevant document is what appears to be an application for finance made on behalf of the directors of Denville Homes Pty Ltd (one of whom is Mr Musca) to BFL on 16 June 2000. DFL is described in the top left of that document as “Finance Consultants” and the Privacy Act Authorisation by the applicant contains this paragraph:

“I/We also agree that BFL and any lender approached by BFL on my/our behalf, may obtain a credit report containing information about my/our commercial activities or commercial creditworthiness from a business which provides information about the commercial creditworthiness of persons.”

14. [14]
    On 28 June 2000, Capital and BFL entered into a principal and agent agreement which relevantly provides as part of the definition of “security” “any guarantee”. Clause 2.5 provides:

“4.1Authority of Agent

If the Principal approves a Leasing Proposal then the Principal authorises the Agent to sign as agent for the Principal the relevant Leasing Agreement and any Security specified in the Leasing Proposal”

“5.7Undisclosed Agency

1. (a)
   If the Principal approves a Leasing Proposal on the basis that the agency of the Agent in relation to the subject transaction is to be undisclosed, then the Principal must not, except as allowed under paragraph (b), disclose to any person that the Agent is acting as Agent of the Principal.

15. [15]
    As I have noted, the rental agreement between BFL and Denville Homes is dated 21 July 2000. Mr Musca has signed as one of the directors on behalf of Denville Homes. As I have noted, the guarantee is not dated as is the case with the privacy authority and agreement, but in the material before Mr Wilkinson, the rental agreement, privacy authority and guarantee are all annexed to an affidavit of Paul Crutchley sworn 22 April 2002. He was a director of BFL and swears that all documents were signed by Mr Musca on 21 July 2000. Mr Musca specifically refers to Mr Crutchley’s affidavit in an affidavit sworn the 3 June 2002, and does not dispute Mr Crutchley’s statement about the signing date of the guarantee. The pleadings do not assist either way. It is not suggested on behalf of Mr Musca that the guarantee he gave was not in respect to the obligations of Denville Homes to BFL pursuant to the terms of the rental agreement.

16. [16]
    The Appellant’s arguments

As I have noted, Mr Coates concentrated on elements 2 and 5 in the Siu judgment as supporting his argument that in this case Capital is not entitled to sue on the guarantee as undisclosed principal.

17. [17]
    In the written outline (prepared by another barrister) there is greater emphasis on the argument advanced before Mr Wilkinson, and rejected by him, that the guarantee is a deed inter parties, and, as Capital is not a party to the guarantee, it cannot sue on it. The outline expresses the argument thus:

“First, the common law doctrine that an undisclosed principal can in appropriate circumstances sue and be sued on a contract made by his agent, does not apply to a contract under deed; see Bowstead on Agency, 17^th ed., 2001 at p. [357] – Article 78(1). There the rule is stated in the following terms:-

“…A principal may not sue or be sued on any deed inter parties, even if it is expressed to be executed on his behalf, unless he is described as a party to it and it is executed in his name.”

“Further, the contract, being a contract of surety, is to be construed strictly in favour of the guarantor. This is because the liability of the surety is seen to be strictissimi juris: See Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549. The identity of the principal creditor is of real significance to a guarantor under a contract of surety. It is submitted that the guarantee upon its proper construction did not evidence a clear intention to benefit any other party apart from BFL. The appellant entered into the guarantee for BFL’s benefit alone.

18. [18]
    In his decision, Mr Wilkinson essentially resolved the issues in favour of Capital by rejecting this argument and holding (by reference to various definitions extracted from Law Dictionaries) that “a guarantee is contractual in nature, and a deed is merely a species of contract”.

19. [19]
    I now turn to the main thrust of Mr Musca’s argument on appeal concerning elements 2 and 5 in the Siu judgment which is based on the description in the rental agreement of BFL as the owner of the leased goods. There is no doubt that BFL is described in the rental agreement as the owner, but in turning to the elements in Siu, and in particular element 5, the appellant’s argument must be considered in the light of the whole agreement and not particular parts in isolation.

20. [20]
    Rather than expressly or by implication excluding Capital’s right to sue, the clear terms of the agreement here raise the possible existence of another owner or principal; and that BFL may not be the owner of the foods, but acting as agent for another. I have already noted the reference to another lender in the privacy statement accompanying the original application for finance to BFL, itself described as “Finance Consultants”.

21. [21]
    Clause 1.2. of the Guarantee provides:

“1.2The guarantor acknowledges that:

1. (a)
   the owner has provided to it a copy of the rental agreement;

2. (b)
   the guarantor (or its directors if it is a company) has read and understood the terms of the rental agreement

22. [22]
    “Guarantee money” is defined as:

“”Guarantee money” means all money and damages now or in the future are owing by the client to the owner for any reason under or in relation to the rental agreement and any other agreement relating to the rental or leasing of goods including, without limitation, money and damages payable to the client alone or with any other person and in its own right or in any other capacity, and if there is more than one client, by all or any of them.

23. [23]
    Clause 17.3 of the terms of the Rental Agreement (under the heading in Clause 17 of “Assignment/third party rights”) provides:

“The client (Denville) may not object to the owner entering into this agreement as agent for another person (whether disclosed or not) or to the fact that the other person may be or become the true owner of the equipment.

24. [24]
    There can be no doubt that Mr Musca must have turned his mind to the existence of an undisclosed principal before executing the guarantee, having expressly acknowledged having read and understood the terms of the rental agreement including Clause 17.3.

25. [25]
    In my opinion, the essential elements referred to in Siu exist here, and Capital is entitled to the benefit of the guarantee given to BFL. The argument advanced by Capital before Mr Wilkinson based on Siu was clearly correct.

26. [26]
    In light of these findings, it is not necessary for me to consider further the appellant’s arguments relating to UCPR 293(1) and the well known principles relating to summary judgment in favour of a defendant discussed in Bernstrom v National Australia Bank Limited [2003] 1 Qd. R. 469

27. [27]
    The appeal is dismissed with costs.