Mackay Reef Fish Supplies Pty Ltd v Gallagher
[2004] QDC 370
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- Unreported Judgment
- Mackay Reef Fish Supplies Pty Ltd v Gallagher[2004] QDC 370
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Mackay Reef Fish Supplies Pty Ltd v Gallagher[2004] QDC 370
Mackay Reef Fish Supplies Pty Ltd v Gallagher[2004] QDC 370
DISTRICT COURT OF QUEENSLAND
CITATION: | Mackay Reef Fish Supplies Pty Ltd v Gallagher [2004] QDC 370 |
PARTIES: | MACKAY REEF FISH SUPPLIES PTY LTD v SCOTT DUNCAN GALLAGHER (First Defendant) And DAVID JOHN LOVEDAY (Second Defendant) |
FILE NO/S: | D189 OF 2002 |
DIVISION: | Civil |
PROCEEDING: |
|
ORIGINATING COURT: | District Court Mackay |
DELIVERED ON: | 8 October 2004 |
DELIVERED AT: | Brisbane |
HEARING DATE: | 31 August, 1 and 9 September 2004 |
JUDGE: | Samios DCJ |
ORDER: | Plaintiff’s claim against the first defendant is dismissed |
CATCHWORDS: | GUARANTEE AND INDEMNITY - Discharge of Surety - Construction and Effect - Equitable Estoppel - Where variation of terms Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549, 597, 599 Clarke v Birley (1889) 41 ChD 422 Mehmet v Benson (1965) 113 CLR 295, 303 Moss v Hall (1850) 5 Ex 46, 50 Price v. Kirkham (1864) 3 H&C 437 Rees v Berrington (1795) 2 Ves Jun 540; 30 ER 765 Sunstar Fruit Pty ltd v Cosmo (1995) 2 Qd R 214, 221 Thompson v Palmer (1933) 49 CLR 507, 547 Walton Stores (Interstate) Ltd v Maher (1988) 164 CLR 387, 428-9 |
COUNSEL: | Mr G I Thomson for the plaintiff |
SOLICITORS: | Dibbs Barker Gosling for the plaintiff |
- [1]The plaintiff is a supplier of seafood.
- [2]The plaintiff’s claim against the first defendant (the defendant) is for the sum of $44,696.19 for money due and payable to the plaintiff pursuant to the terms of a guarantee.
- [3]The plaintiff obtained judgment by default against the second defendant (Mr Loveday).
- [4]On 3 February 1998 the plaintiff agreed with Seafood Blues (Australia) Pty Ltd (the company) to provide credit to the company for purchases made by the company from the plaintiff (the credit agreement).
- [5]The business of the company was the retail of fresh seafood and cooked seafood (the business).
- [6]The credit agreement provided:
“I/We note that account terms are nett 14 days and that I/We will undertake to pay within a 30 period.”
and
“I/We also understand if trading terms are not met that interest and/or charges may be forwarded to our credit account.”
- [7]By a personal guarantee signed by the defendant and Mr Loveday dated 3 February 1998 (the guarantee) the defendant and Mr Loveday, in consideration of the plaintiff agreeing to grant credit to the company, agreed to guarantee the due performance of the company of the whole of the obligations placed on the company by any trade contracts, agreements or other trade arrangements with the plaintiff.
- [8]The guarantee was stipulated to be unconditional, and enforceable immediately upon default by the company in discharging all or some of its obligations.
- [9]The guarantee provided:-
“This guarantee shall continue in force until such time as the supplier releases us from the guarantee in writing, and notwithstanding the fact that we no longer are directors, shareholders or owners of the applicant.”
- [10]The plaintiff claims that on 1 March 2001 the sum of $44,696.19 was due and payable by the company to the plaintiff pursuant to the terms of the credit agreement.
- [11]Annexed to the plaintiff’s claim is a schedule setting out the dates and invoices and the amount thereof claimed by the plaintiff to show how the amount of $44,696.19 is calculated. The schedule covers a period from 1 February 2000 to 15 February 2001. The schedule shows the balance at the commencement of this period is $403.19 and the balance at the end of this period is $44,696.19. The schedule relates to invoices for goods supplied in the months of February, March, April, October and November 2000 and February 2001.
- [12]When the defendant gave evidence he said that in 1998 the company was set up for the seafood business and that he was a director and shareholder. He and Mr Loveday approached the plaintiff for a 30 day account. Before signing the guarantee there were discussions with the directors of the plaintiff that the account would be a normal 30 day account. Trading took place between the plaintiff and the company. However, in July 1998 the defendant decided he would get out of the business for a number of reasons. Therefore, he reached a verbal agreement with Mr Loveday that the defendant would leave the business and that Mr Loveday would pay the defendant the monies that the defendant had invested in the company and that would take care of his half share of the business. After that he left the business. When he determined to leave the business he went around to every trade creditor and personally advised them that he sold his interest to Mr Loveday and would be getting out of the business and all accounts up to the end of July he would guarantee payment but after that it would be Mr Loveday’s responsibility. He saw both directors of the plaintiff company, Mr Brian Caracciolo and Mr David Caracciolo and spoke to them about this. His recollection of his conversation with Mr Brian Caracciolo was that he thanked the defendant for advising him of this and basically said that was it and the defendant left it at that. At the time of this conversation there were monies owing by the company to the plaintiff. He ensured that the two sums of money shown as owing on the statement of account for 31 July 1998 in the sum of $7,331.07 as the current amount and $8,822.65 for the 30 day amount were paid. All the statements for the trading between the plaintiff and the company are contained in Exhibit 14. This shows that those two sums were indeed paid. The $8,822.65 was paid on 3 August 1998 and the $7.331.07 was paid on 1 September 1998. After leaving the business he did not have any further dealings with the day to day running of the business. It was not until 2 April 2002 that he received a letter of demand. In between that time he had contact with the two directors of the plaintiff company. This contact was described by the defendant as social contact, either at his newsagency or at the hotel. The conversations he had with the two directors after he left the business and before he received the letter of demand were to the effect of how was Mr Loveday going, and the response would be that “He seems to be going okay” or “He is selling a lot of product”. At no time did the directors of the plaintiff tell him that he owed money to the plaintiff pursuant to the guarantee.
- [13]There is no dispute the business of the company closed down in February 2001. Because the defendant was still a party to the lease of the premises from which the business was conducted, and as his pension fund owed monies in relation to a chattel lease, the defendant resolved because there was a lot of money to be repaid, that he and his partner would take an assignment of the lease and open up a business. The defendant did so and that business was called Nelson’s Seafood Café. He then entered into another 30 day account with the plaintiff. He would not have done so if he had been told that it was the intention of the plaintiff to pursue him on the guarantee for the outstanding money owing by the company to the plaintiff. The defendant sold the business Nelson Seafood Café in March 2004.
- [14]The defendant also said when he gave evidence at one time after he left the business he had a conversation with Mr David Caracciolo at his newsagency. At that time Mr David Caracciolo was discussing the debt owed by the company to the plaintiff and said that Mr Loveday owed them money and did the defendant know if Mr Loveday had any assets. The defendant said he tried to assist Mr David Caracciolo. He said that it was not suggested to him by Mr David Caracciolo that the defendant owed the plaintiff any money.
- [15]When Mr David Caracciolo gave evidence he did not accept that he had been told by his brother, Brian Caracciolo or from sources within the industry that the defendant had left the business at some point. Mr David Caracciolo said he was in the interstate wholesale side of the business of the plaintiff and was not involved in the hands on, everyday transaction of local distribution.
- [16]On the other hand, when Mr Brian Caracciolo gave evidence, he said that he did not know when it was, but the defendant came in to see him about his involvement in the business and what he could recall was that the defendant said he was getting out. He did not know exactly when this conversation took place. He accepted it was possible that he was told the reasons why the defendant was getting out of the business. He accepted he was friendly enough with the defendant to discuss his reasons for getting out of the business.
- [17]When Mr David Caracciolo and Mr Brian Caracciolo gave evidence they both accepted there was contact with the defendant from time to time in the setting of the newsagency and the hotel. They accepted they may have said things to the effect that Mr Loveday and the business was going “steady” or “fine”. Mr Brian Caracciolo also said at no time did he say to the defendant that the defendant owed money to the plaintiff pursuant to the guarantee.
- [18]In these proceedings the defendant does not admit the claim by the plaintiff that the amount owing by the company to the plaintiff in the sum of $44,696.19 is accurate. Mr David Caracciolo was cross-examined at some length about the state of the accounts between the plaintiff and the company. The statements in Exhibit 14 show that some invoices were paid by the company whereas other invoices in some instances have not been paid. Assuming a running account as one might think would be the case in the normal course of events, Mr David Caracciolo said that there were payment plans put in place. However, he was not quite sure exactly where the payments made by the company to the plaintiff were allocated. Mr David Caracciolo accepted that arrangements had to be put in place for payments to be made by the company to the plaintiff during the dealings between the plaintiff and the company.
- [19]An examination of the statements in Exhibit 14 shows by reference to the statement for the end of May 2000 by way of example that whereas the schedule to the claim shows the amount outstanding as at 9 February 2000 (the last invoice in February 2000 in the schedule to the claim) is $11,063.09, that is not reflected in the statement to 31 May 2000 which shows the amount outstanding for 90 days (end of February 2000) is -$1,387.74. Mr David Caracciolo, when cross-examined, agreed the schedule to the claim in that respect appeared incorrect when compared to the statement. Further, this statement shows the 60 day amount outstanding is $17,490.50, whereas the statement for the next month (June 30, 2000) shows the 90 days amount outstanding is $30,351.68, an increase of about $12,500. Mr David Caracciolo, when cross-examined, agreed the maximum the 90 day figure could be is $17,490.50. He said the only way he could explain that is if some cheques were credited to the account and then they were dishonoured and put back on the account. Mr David Caracciolo said he would have to investigate the accounts further. He said customers pick invoices at random and pay their accounts by invoice. With respect to the company he said arrangements had been made for payments to be made by the company to the plaintiff upon the dishonour of cheques.
- [20]Ultimately the plaintiff called Ms Vicki Carney to give evidence. Ms Carney is employed by the plaintiff as a clerk. Her main duty is to look after the debtors. Ms Carney’s employment with the plaintiff commenced in August 2000. Ms Carney said that the invoices that are recorded as unpaid by the plaintiff and are listed in the schedule to the claim remain unpaid. Ms Carney had some difficulty with the apparent error in some of the statements where an amount is recorded as being outstanding for so many days does not appear to be recorded in the next statement as outstanding for the number of days one might expect if the statements accurately reflect the dealings between the plaintiff and the company. Ms Carney confirmed there were payment plans between the plaintiff and the company. Ms Carney also described how payments could be allocated so that some invoices were paid in full and some in part, depending on the funds that were paid by the company to the plaintiff. Regarding the apparent difference between the 30 day, 60 day and 90 day columns in the statements, Ms Carney said that the explanation she could give about that is that they had trouble with the statements for that particular month because the statements were printed out after the month had been closed off. Otherwise she had no reason to believe that the list of unpaid invoices was inaccurate. Nor did she have any reason to believe that the list of unpaid invoices was false.
- [21]Although the defendant has maintained a challenge to the accuracy of the sum claimed to be due, the defendant’s own reconciliation which is contained in Exhibit 14 records “the amount owing of $44,696.19 is correct”.
- [22]Ms Carney impressed me as an honest and reliable witness and because of the defendant’s own investigations into the state of the accounts between the plaintiff and the company, I am satisfied that the invoices claimed by the plaintiff to have been unpaid are unpaid and the sums reflected in those invoices are due and owing by the company to the plaintiff.
- [23]The plaintiff disputed the defendant’s claim that he ceased to be involved with the business from about July 1998. The plaintiff tendered records from the Australian Securities and Investments Commission showing the defendant remained a director and shareholder of the company until February 2000. However, the defendant called Mr Ferris who was the accountant for the company. I found no reason not to accept Mr Ferris’ evidence. I am satisfied by Mr Ferris’ evidence that Mr Loveday did not attend to formal matters such as the lodgement of records with the Australian Securities and Investments Commission with any urgency. I am satisfied the records of the Australian Securities and Investments Commission do not accurately reflect the state of the relationship between the defendant and the company.
- [24]I was favourably impressed by the defendant as a witness. I accept his evidence. I accept he terminated his relationship with Mr Loveday in about July 1998 and at about that time told Mr Brian Carraciolo this and that he would be paying all the creditors up to date and that he did so. I accept Mr Brian Carraciolo thanked the defendant for telling the plaintiff he was ceasing his involvement with the company.
- [25]Mr David Caracciolo and Mr Brian Caracciolo did not distinctly deny that conversations took place to the effect claimed by the defendant. They may have had difficulty recollecting detail and dates when these conversations took place. However, that is not surprising as these events occurred over six years ago.
- [26]The issue though is what effect, if any, does the defendant, having left the company in about July 1998 and telling the plaintiff this, have on his liability under the guarantee. Further, what effect, if any, do the dealings between the plaintiff and the company after the defendant left the company in about July 1998 have on his liability under the guarantee.
- [27]In Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549 at p 557 the majority in the High Court discussed the special character of a suretyship contract and of the relationship that it creates between the parties and at p 558, after citing English authorities, state:
“Then it has been said that any departure by the creditor from the suretyship contract “which is not obviously and without inquiry quite unsubstantial, will discharge the surety from liability, whether it injures him or not, for it constitutes an alteration in the surety’s obligations”: Halsbury’s Laws of England, 4th ed, vol 20, par 259. The final clause in the passage quoted from Halsbury indicates that this proposition is founded not so much on cases dealing with a breach of a term in the suretyship contract, as on cases in which conduct on the part of the creditor materially altered the surety’s obligations. Such an alternation takes place when the creditor agrees to a variation of the principal contract or to an extension of time within which the debtor may comply with that contract. The creditor’s agreement with the debtor thereby alters the nature of the surety’s obligations without the surety’s consent.”
- [28]The majority continued at p 559 in Ankar, stating:
“These statements of the principle, like that of Blackburn J in Polak v Everett (63), indicate that the principle is the by-product, not so much of the general law of contract, as of the special relationship between creditor and surety arising out of the suretyship contract upon which equity fastened to protect the surety when the creditor’s conduct affected the surety’s liability: Holme v Brunskill (64). According to the English cases, the principle applies so as to discharge the surety when conduct on the part of the creditor has the effect of altering the surety’s rights, unless the alteration is unsubstantial and not prejudicial to the surety. The rule does not permit the courts to inquire into the effect of the alteration. The consequence is that, to hold the surety to its bargain, the creditor must show that the nature of the alteration can be beneficial to the surety only or that by its nature it cannot in any circumstances increase the surety’s risk, eg, a reduction in the debtor’s debt or in the interest payable by the surety. The mere possibility of detriment is enough to bring about the discharge of the surety.
The foundation of the rule is that the creditor, by varying the principal contract or extending time, has altered the surety’s rights without consulting it though the surety has an interest in the principal contract, and that the creditor cannot be permitted to do: see Rees v Berrington (65). Thus the liability of the surety was seen to be strictissimi juris and the suretyship contract was construed strictly in his favour.”
- [29]Of the decision in Ankar the learned authors O'Donovan and Phillips in their work The Modern Contract of Guarantee 3rd Edition at p 340 state that although the High Court did not specifically approve of the English authorities it is considered the passage quoted from Ankar at p. 559 represents the law in Australia. Further, at p. 346 the learned authors state:
“As the law now stands, provided that there is a consensual agreement to alter the principal contract, it is thought the guarantor should be discharged, whether or not the alteration is contractually binding. The guarantor is as prejudiced or potentially prejudiced by this informal agreement as if the alteration were contractually binding. Indeed, in many cases the creditor’s voluntary promise may operate as an estoppel, thus preventing the creditor from insisting on the principal’s compliance with the original contractual conditions.
If, however, there is no consensual agreement to vary the principal contract but simply a breach of that contract by the creditor, it appears that the guarantor will not be discharged unless it is a repudiatory breach which is accepted by the principal debtor as terminating the principal contract or unless the terms of the principal contract have become “embodied” in the guarantee. There is some inconsistency here since the guarantor’s rights may be as prejudicially affected by a breach of the principal contract by the creditor as by a consensual variation.”
- [30]Counsel for the plaintiff submitted the plaintiff merely gave the company time to pay and that did not discharge the guarantee.
- [31]The English authorities for the proposition a creditor may discharge the surety where there is a binding agreement upon a sufficient consideration to suspend the remedy include Moss v Hall (1850) 5 Ex 46, 50 and Price v Kirkham (1864) 3 H & C 437. Further, the English authorities for the proposition that to discharge a guarantee a variation must be legally binding include Clarke v Birley (1889) 41 ChD 422 and Rees v Berrington (1795) 2 Ves Jun 540; 30 ER 765.
- [32]It is convenient to put aside for the moment what effect, if any, does the defendant leaving the company in about July 1998 and telling the plaintiff this have in the circumstances.
- [33]The schedule to the claim and Exhibit 14 show invoices for February 2000 for example remained unpaid for over a year yet the plaintiff continued to supply the company in the following months. Further, invoices for March and April 2000 remained unpaid for many months yet the plaintiff continued to supply the company in the following months. Further, invoices in the month of October 2000 which appear in the schedule to the claim and appear in the 31 October 2000 statement remain unpaid whereas other invoices appearing in the 31 October 2000 statement apparently were paid. The same appears to be the case by reference to the November 2000 invoices in the schedule to the claim. These invoices are unpaid, yet appear on the statement for 30 November 2000 together with other invoices which were apparently paid. Further, in the months in between April 2000 and October 2000 the plaintiff continued to supply the company even though there was $36,851.95 unpaid for invoices in February, March and April 2000.
- [34]Further, Mr David Caracciolo and Ms Carney said there were payment plans in place. As best as I can determine on the evidence the terms of these payment plans were to the effect that the company would pay current invoices and when possible make payments to meet “old” invoices so that the company’s indebtedness would not increase and hopefully decrease with continued trading by the company. However, I am satisfied the company often did not pay invoices within 30 days as contemplated by the credit agreement nor as contemplated by some of the payment plans.
- [35]In these circumstances, I am satisfied there was a variation of the contract between the company and the plaintiff of such a character as to affect the defendant by substantially or materially altering the risk the defendant undertook when he signed the guarantee. Therefore, the defendant was discharged from the guarantee.
- [36]In any event I am satisfied there was a binding agreement upon a sufficient consideration to discharge the defendant from the guarantee. That is because as the invoices in the schedule to the claim remained unpaid for the length of time the invoices remained unpaid while other invoices were paid, the plaintiff and the company are to be taken to have agreed that payment of the unpaid invoices would be made within a reasonable time of being required by the plaintiff to do so: (Mehmet v Benson (1965) 113 CLR 295, 303; Sunstar Fruit Pty Ltd v Cosmo (1995) 2 Qd R 214, 221). Further, consideration for this agreement between the plaintiff and the company were the profits the plaintiff received from the continued supply to the company.
- [37]Further, in my opinion the guarantee contemplated the defendant might cease to be a director, shareholder or owner of the company. Further, the liability of the defendant for which the guarantee would continue in force until such time as the plaintiff released the defendant in writing, was for a liability incurred by the company at the time the defendant was a director, shareholder or owner of the company. I am satisfied the defendant was not a director, shareholder or owner of the company from about July 1998. Further, the defendant made the plaintiff aware he was no longer a director, shareholder or owner of the company in about July 1998 and the plaintiff accepted the defendant was no longer a director, shareholder or owner of the company. I am satisfied when the defendant ceased being a director, shareholder or owner of the company there was no money owing by the company to the plaintiff. Therefore, I am satisfied in these circumstances the defendant is not liable to the plaintiff under the guarantee.
- [38]The defendant also claims that the plaintiff is estopped from pursuing the defendant under the guarantee.
- [39]Dixon J in Thompson v Palmer (1933) 49 CLR 507 at 547 expressed the fundamental rationale of estoppel as follows:
“… the object of estoppel in pais is to prevent an unjust departure by one person from an assumption adopted by another as the basis of some act or omission which, unless the assumption be adhered to, would operate to that other’s detriment. Whether a departure by a party from the assumption should be considered unjust and inadmissible depends on the part taken by him in occasioning its adoption by the other party. He may be required to abide by the assumption because it formed the conventional basis upon which the parties entered into contractual or other mutual relations … Or because he has exercised against the other party rights which would exist only if the assumption were correct …; or because knowing the mistake the other laboured under, he refrained from correcting him when it was his duty to do so; or because his imprudence, where care was required of him, was a proximate cause of the other party’s adopting and acting upon the faith of the assumption; or because he directly made representations upon which the other party founded the assumption. But, in each case, he is not bound to adhere to the assumption unless, as a result of adopting it as the basis of action or inaction, the other party will have placed himself in a position of material disadvantage if departure from the assumption be permitted.”
- [40]There is no dispute the defendant did not seek from the plaintiff nor was he given by the plaintiff a written release from the guarantee. I accept the defendant’s evidence that he would not have entered into a trading relationship with the plaintiff if he had known the plaintiff intended to pursue him on the guarantee. I am satisfied the plaintiff knew or ought to have known that the defendant would not have entered into that trading relationship had the plaintiff made its intentions to rely on the guarantee known to the defendant. I am satisfied the plaintiff knew or ought to have known that if it had told the defendant that it intended to pursue the defendant under the guarantee the plaintiff would have been faced with either the choice of abandoning its claim under the guarantee and accepting the profits from the continued trading with the defendant or alternatively abandon its profits that it would obtain from the defendant with the business Nelson Seafood Café and keep its rights in relation to the guarantee.
- [41]In Walton Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 at 428-429 per Brennan J (as he then was) the relevant principles for an estoppel are summarised. As the judgment shows the defendant must prove:
- (a)that the defendant assumed that a particular legal relationship then existed between the defendant and the plaintiff or expected that a particular legal relationship would exist between them and, in the latter case, that the plaintiff would not be free to withdraw from the expected legal relationship;
- (b)the plaintiff had induced the defendant to adopt that assumption or expectation; and
- (c)the defendant acts or abstains from acting in reliance on the assumption or expectation; and
- (d)the plaintiff knew or intended the defendant to do so;
- (e)the defendant’s action or inaction would occasion detriment if the assumption or expectation is not fulfilled; and
- (f)the plaintiff has failed to act to avoid that detriment whether by fulfilling the assumption or expectation or otherwise.
- [42]I am satisfied the defendant assumed that he would not be pursued on the guarantee by the plaintiff. Further, the plaintiff induced the defendant to adopt this assumption. The plaintiff did so in a number of ways. The plaintiff’s representatives made no reference to the guarantee when the defendant told the representatives of the plaintiff he was leaving the company. Thereafter, the representatives of the plaintiff did not tell the defendant the company was indebted to the plaintiff for sums beyond 30 days. Further, the plaintiff permitted the defendant to open an account with the plaintiff when it would have been expected that if there was an outstanding debt of the order of $44,000 it would have been mentioned to the defendant. Finally, the plaintiff failed to inform the defendant of the true state of the indebtedness of the company to the plaintiff when it would be expected that the plaintiff would do so and the plaintiff intended to pursue the defendant under the guarantee for the debt of the company.
- [43]I am satisfied the defendant acted in reliance on that assumption by entering into a new agreement with the plaintiff which he would not have done so if he had known that the plaintiff intended to pursue him for the debt of the company. I am satisfied the plaintiff knew or ought to have known that the defendant would act on the assumption that he was not to be pursued and was prepared to accept the profit from the continuing business that the defendant brought to the plaintiff thereafter as the business Nelson’s Seafood Café. I am satisfied that had the defendant known of the intention of the plaintiff to maintain that the defendant was liable under the guarantee the defendant would have sought a written release from the plaintiff soon after July 1998.
- [44]I am satisfied the defendant suffered disadvantage in all the circumstances because he incurred debts trading with the plaintiff and did not negotiate some acknowledgement from the plaintiff that the plaintiff did not hold the defendant liable under the guarantee or better terms of trading for Nelson Seafood Café which would have included some consideration related to the plaintiff’s claimed debt due by the company.
- [45]Therefore, I am satisfied the plaintiff is estopped from pursuing the defendant under the guarantee.
- [46]Although the defendant claims relief on the basis that the plaintiff is alleged to have engaged in misleading and deceptive conduct and unconscionable conduct pursuant to the provisions of the Trade Practices Act, if contrary to my findings the guarantee is binding upon the defendant then I accept it would not be misleading and deceptive, nor unconscionable for the plaintiff to hold the defendant liable under the guarantee.
- [47]In the circumstances I dismiss the plaintiff’s claim against the defendant.
- [48]I direct the parties to file and serve within 10 days their submissions on the question of costs.