Sharp v AME Products Pty Ltd[2015] QDC 42

DISTRICT COURT OF QUEENSLAND

Introduction

1. [1]
   This is an appeal against the decision of a magistrate delivered on 19 June 2014 at Brisbane ordering judgment for the respondent in the sum of $95,327.28 together with interest and costs.

2. [2]
   The respondent successfully sued the appellant on a guarantee he gave as the director of a company which was provided with credit by the respondent.

The relevant facts

3. [3]
   The relevant facts are contained in the judgment of the magistrate. They are not contentious. The appellant was a director of a company, Hunts Automotive Electrical Services Pty Ltd (“the company”). The company applied to the respondent for credit. In the application form, it stated “Estimated Monthly Purchases: $10000” and “Credit Required: $20000.00”. An attachment headed “TERMS AND CONDITIONS OF SALE” set out the terms and conditions upon which the respondent would provide credit to the appellant. Relevantly, clause 4 was in the following terms:

“4.CREDIT LIMIT

4.1AME reserves the right to review and vary the credit limit of the applicant at any time.”

“AME” is a reference to the respondent. This document was dated 4 April 2006 and signed by the appellant in his capacity as director of the company. The application form together with the attached document constitute the contract for the provision of credit by the respondent to the company (“the contract”). 

4. [4]
   Attached to the contract is a guarantee also dated 4 June 2006 and signed by the appellant as guarantor (“the guarantee”). The guarantee is in the following terms:

“In consideration of the company at my/our request extending credit to the applicant, I/we Graham Sharp of 112 Neills Rd, Habana, and on behalf of the applicant (together with his or our said and each of their executors, administrators and assigned [sic] called “guarantor”) hereby jointly and severally guarantee to the company the payment by the applicant of all monies which may at any time by [sic] payable by the applicant to the company in relation to goods and services of any kind or nature whatsoever provided to the applicant by the company at the request of the applicant upon demand in writing being made for such monies upon me/us or any or more of us.  This guarantee shall be a continuing guarantee and shall not be affected or discharged by the winding up of the applicant or bankruptcy of the applicant or by the granting of time or any other indulgence or waiver that may be given by the company to the applicant.”

5. [5]
   Uncontroversially the magistrate found that the defendant had been appointed as a director of the company on 22 March 2006^[1] and that by the end of May 2006, which was described as the “second month of trading”, the amount owing to the respondent pursuant to the contract was more than $105,000.^[2] 

The decision of the magistrate

6. [6]
   In her reasons for judgment the magistrate noted that the issue for determination was whether the guarantee was limited to the amount of $20,000 which was set out in the application as being the credit required. She concluded that the expression did not constitute a contractual term creating a credit limit and that clause 4.1 of the contract was merely referring to a credit limit which may unilaterally be imposed by the respondent on the company.^[3]

7. [7]
   The magistrate applied the decision of Chesterman J in Linddales Pty Ltd v Macri Constructions Pty Ltd & Anor.^[4]  She concluded:

“The expression ‘credit required’ does not constitute a contractual term that the (appellant) would supply goods to the (company) for the amount of $20,000 and no more.  To construe it as if it did amount to a contractual term also requires ignoring the wording of the guarantee which refers to a guarantee of ‘all monies which may at any time (be) payable by the applicant to the company …’.  … Having regard to the view of the proper construction of the (contract) and guarantee, I am not satisfied that there has been any alteration of the (appellant’s) obligations as surety which would have the effect of revoking or limiting the guarantee.”^[5]

The grounds of appeal

8. [8]
   The grounds of appeal set out in the notice of appeal are that the magistrate erred in failing to hold that the specification by the parties of the credit required in the application for credit when read with clause 4.1 of the contract constituted the limit of the credit which could be extended pursuant to the contract and that the magistrate further erred in failing to hold that the respondent’s extension of credit to the company constituted a material alteration of the subject matter of the guarantee so as to discharge the appellant from his liability under the guarantee.

9. [9]
   In the appellant’s outline of argument, it is submitted that the decision in Linddales is distinguishable when regard is had to clause 4.1 of the contract.  It is submitted that to give effect to clause 4.1 it had to be referable to a credit limit known to both parties and that this credit limit was to be inferred from the nomination of credit required in the sum of $20,000 in the application for credit.  It is further submitted that clause 4.1 would have no effect if it was merely a reference to a unilateral right of the respondent.  In the circumstances it is submitted that the respondent, in extending credit to the company beyond $20,000, altered the appellant’s obligations as guarantor without his consent in such a manner as to materially prejudice him, thereby discharging him from further liability.^[6]

10. [10]
    In the respondent’s amended outline of argument, it is submitted that reference to credit required of $20,000 in the application for credit was no more than “an aspirational request” by the company that it be granted credit to that extent and that the respondent was at liberty to refuse that request entirely or approve credit for some greater or lesser amount. The respondent further submits that clause 4.1 is a standard provision which operates solely for the benefit of the respondent.

Discussion

11. [11]
    Like the magistrate below, I am of the view that Linddales is a decision which greatly assists in the determination of the dispute between the parties. In that case the facts were similar to those relevant to this appeal.  The plaintiff entered into an agreement by which the plaintiff was to supply labour services to the first defendant and the first defendant submitted a written application for credit to the plaintiff.  The second defendant executed a guarantee in favour of the plaintiff.^[7]  In the schedule at the beginning of the document, the first defendant nominated that the estimated credit required per month was $25,000.^[8]  The second defendant entered into a guarantee in similar terms to that entered into by the appellant before me.  The second defendant submitted that on a proper construction, the guarantee limited his liability to a sum not exceeding $25,000.

12. [12]
    In his reasons for judgment, Chesterman J stated:

“[7]The argument proceeds that the guarantee was to secure the first defendant’s performance of the contract formed by the credit application, and the second defendant is liable as guarantor only for the amount which the first defendant would have been liable had it duly performed the contract.

The argument is impossible to accept. It involves reading the first defendant’s estimate of its credit requirement as being a contractual term that the plaintiff would not supply labour services ‘on credit’ to a value of more than $25,000 in any one month. The contract does not say that. The figure of $25,000 is given as an estimate only of what the first defendant might require by way of labour services supplied but not pay for in advance or on delivery. There is nothing in the document to limit the value of labour services supplied from time to time. The argument involves reading the first defendant’s estimate of its credit requirements as a promise by the plaintiff to it, and the second defendant, not to supply labour on credit to a value of more than $25,000 at any one time. The language of the application is not capable of being read in such a way.

[8]Another reason for rejecting the submission appears from the words of the guarantee itself. The expressly stated consideration for the guarantee is that the plaintiff would grant to the first defendant ‘such credit as it might from time to time think fit...’ This is an express contradiction of the term advanced by the second defendant. It is impossible to reconcile the statement that the plaintiff might extend such credit as it thought fit with the proposition that it promised not to extend credit in any amount greater than $25,000 at any one time.

[9]The promise contained in the guarantee itself is likewise irreconcilable with the second defendant’s contention. The promise was to pay, as guarantor, ‘... all monies which may now or hereafter be owing...’ by the first defendant to the plaintiff. The commitment is limited only by the amount of the debt owed by the first defendant. To read any limitation of that amount into the guarantee is to do violence to the language chosen by the parties to record their bargain.

[10]It is no doubt true that guarantees should be construed strictly and that ambiguity should be resolved in favour of the surety. Before those principles have any application there must be some ambiguity, or at least some scope for differing constructions of the obligations imposed on the surety by his guarantee. The second defendant’s guarantee affords no room for doubt as to its meaning.”

13. [13]
    In my view, clause 4.1 of the contract was a provision inserted for the sole benefit of the respondent. It means that the amount of credit to be advanced was at the sole discretion of the respondent. It has no bearing on the reasoning of ChestermanJ set out above.

Conclusion

14. [14]
    The contract is unambiguous that there is no limit as to the credit which may be advanced thereunder. Although the company stated it required $20,000, this was no more than an estimate which was clearly inaccurate. Almost immediately, the company with the appellant as its director, obtained credit greatly in excess of this amount with the acquiescence of the respondent. The credit was given in circumstances where it was secured by the guarantee by which the appellant guaranteed payment of “all monies” which may at any time be payable by the company to the respondent. The extent of the appellant’s guarantee was limited only by the amount of the debt owed by the company. There was no breach of the contract on the part of the respondent in providing credit to the company to the extent it did. There is therefore no basis for arguing that the appellant should be discharged from its obligations pursuant to the guarantee.

15. [15]
    The magistrate was entirely correct in her reasoning that the appellant was liable for the full amount of the indebtedness of the company pursuant to the contract and the guarantee.

16. [16]
    The appeal is dismissed. Subject to it being demonstrated to me by written submissions within seven days that another order is appropriate, I order that the appellant pay the respondent’s costs of and incidental to the appeal on the standard basis.