Apparel Group Pty Ltd v Bettina Liano Pty Ltd

EX TEMPORE Judgment 1In this proceeding, the plaintiff, Apparel Group, seeks judgment against the second defendant, Ms Liano, on guarantees she is alleged to have given of debts owed by the first defendant, Bettina Liano Pty Ltd (BLPL), to the plaintiff. BLPL was wound up after commencement of this proceeding and, as a result, the proceeding against it is stayed pursuant to s 471B of the Corporations Act 2001 (Cth). 2Ms Liano filed a defence in the proceeding but has not filed any evidence and did not appear today. I am satisfied that she was aware that the matter was listed for hearing today. In particular, there is email correspondence between her and Mr Andrew Michael of Apparel Group which indicates that Ms Liano had an active email address. There is also evidence that Mr Mark Wilson, who is the solicitor for the Apparel Group, sent Ms Liano an email informing her of the hearing today. 3BLPL carried on the business of marketing fashion products including clothing and knitwear which was designed by Ms Liano. On 11 May 2012, Apparel Group, BLPL and Ms Liano entered into a Heads of Agreement. Although the Heads of Agreement is poorly drafted, it is apparent from the recitals that the parties intended to execute a formal Design and License Agreement and that, in the meantime, they intended the Heads of Agreement to be binding. By cl 2.1 of the Heads of Agreement, Apparel Group agreed to "accept during the Term exclusive responsibility for sourcing and the supply chain management of the BLPL Product Range". 4Pursuant to cl 2.2(c) of the Heads of Agreement, Apparel Group was to supply the BLPL product range to BLPL for sale by BLPL in various retail outlets governed by terms to be set out in the supply agreement to be executed by the parties. Clause 4.2(d) of the Heads of Agreement provides: Ms Bettina Liano agrees: ... (d) to guarantee BLPL's obligations under the supply agreement referred to in clause 2.2(c) of this Design and Licence Agreement. 5On 22 November 2012, the parties executed an agreement entitled "Terms of Trading". Clause 2 of that agreement provides that payment to Apparel Group by BLPL was to be made within 30 days from the date of invoice. That agreement also provides in cl 31(a): In consideration of the Company [Apparel Group] entering into this Agreement at the request of the Guarantor [Ms Liano] and agreeing for so long as it thinks fit to supply Goods on credit or to make advances or otherwise give credit or accommodation to or to forebear to enforce immediate payment of money due and owing (if any) by the Customer [BLPL] to the Company, the Guarantor as evidenced by its execution of this Agreement hereby unconditionally and irrevocably guarantees to the Company the due performance observance and fulfilment by the Customer of the terms, conditions, agreements and undertakings contained in this Agreement and on the part of the Customer to be performed observed or fulfilled (the "Obligations"). If the Customer makes default in performing observing or fulfilling any of the Obligations then the Guarantor will on demand pay to the Company all losses damages expenses and costs which the Company shall be entitled to recover by reason of such default whether or not the Company shall have exercised or exhausted any other remedies for the recovery of the same. 6On 22 December 2012, the parties executed the formal Design and Licence Agreement contemplated by the Heads of Agreement. The clear effect of that agreement was to replace the Heads of Agreement. 7Clause 6.5 of the Design and Licence Agreement relevantly provides: Apparel Group and BLPL agree that the supply by Apparel Group to BLPL of the BLPL Product Range will be pursuant to the Apparel Group Terms of Trading. 8Between around 22 November 2012 and 22 February 2013, Apparel Group supplied stock and fabrics to BLPL pursuant to the Terms of Trading and the Design and Licence Agreement. In her defence, Ms Liano admits that BLPL failed to pay the amount due to Apparel Group in respect of the goods supplied to BLPL by Apparel Group pursuant to those agreements and that those failures were a breach of the Terms of Trading. 9On or about 7 May 2013, Apparel Group demanded payment from Ms Liano pursuant to cl 31(a) of the Terms of Trading in the amount of $249,264.93 to be paid by 28 May 2013. In her defence, Ms Liano both admits the demand and that she has not paid the amount demanded. 10In this proceeding, Apparel Group claims the sum of $139,266.38. That amount is calculated by taking the amount of $249,266.38 owing by BLPL as shown in Apparel Group's April 2013 statement and deducting from that amount two design fees of $55,000 each payable by BLPL pursuant to the Design and Licence Agreement. 11It is difficult to see how, in light of the above, Ms Liano is not liable to pay the amount claimed by Apparel Group. 12The amount claimed before any deduction is established by business records of the Apparel Group. Ms Liano admits that there was a breach by BLPL of the Terms of Trading in not paying that amount. Her only defence appears to be that neither the Heads of Agreement nor the Terms of Trading contained enforceable guarantees given by her. However, why that should be is not apparent. 13It is true that there is a slight discrepancy between the amount demanded and the amount owing according to Apparel Group's records. Apparel Group is not able to explain that discrepancy. However, I accept the submission of Mr Bannan, who appeared for the plaintiff, that it is not essential for the validity of the demand that it correctly state the amount of the guarantor's liability: see Bunbury Foods Pty Limited v National Bank of Australasia Ltd [1984] HCA 10; (1984) 153 CLR 491 at 503-4. In this case, the amount that Apparel Group now seeks to recover is substantially less than the amount initially demanded. 14Since Ms Liano filed her defence, the Apparel Group has entered into an agreement with the liquidator of BLPL. Under the terms of that agreement, Apparel Group has agreed to buy from the liquidator certain intellectual property belonging to BLPL. However, in my opinion, the effect of the agreement between the Apparel Group and the liquidator was to preserve BLPL's obligations to make the payments which are the subject of the guarantee. In particular, cl 4.2 of that agreement provides: Nothing in this Deed affects any existing liability of the Seller to the Buyer under the Transaction Documents for which the Buyer may prove in the liquidation of the Seller, nor any guarantee given by Bettina Liano or any third party under any Transaction Document with respect to such amounts owing from time to time. Without limiting the generality of the foregoing, the parties to this deed acknowledge that all amounts owing by the Seller to the Buyer under the Trading Terms immediately before Completion remain owing notwithstanding any provision of this Deed, and that the Buyer may continue to prove such amounts in the liquidation of the Seller. 15In addition, cl 31 of the Terms of Trading expressly preserves Apparel Group's rights under the guarantee notwithstanding any release given to BLPL in respect of the debt. In particular, cl 31(c) provides The liability of the Guarantor hereunder shall not be affected by: ... (ii) the compounding release abandonment waiver variation relinquishment or renewal of any of the rights of the Company against the Customer; or ... (iv) any other act matter or thing which under the law relating to sureties would or might but for this provision release the Guarantor from its obligations herein 16Having regard to those matters, there is no reason why Apparel Group should not have judgment for the amount it claims. 17Apparel Group also claims interest on that judgment from the date the amount was due (28 May 2013) to today's date, at the contractual rate of interest (10% per annum) provided for in cl 4 of the Terms of Trading. In my opinion, there is no reason why Apparel Group should not have interest at that rate for that period. Consequently, it is also entitled to judgment for that amount, which comes to $13,697.71. 18Lastly, Apparel Group seeks its costs on an indemnity basis. Section 98(1) of the Civil Procedure Act 2005 (NSW) gives the court power to award costs on an indemnity basis. Where the parties have specifically agreed between them that costs will be paid on that basis, the court will ordinarily exercise the discretion given by s 98(1) to give effect to that contractual right: see Kyabram Property Investments Pty Ltd v Murray [2006] NSWSC 54 at [17]-[18] per Campbell J; Boreland v Docker [2007] NSWSC 53 at [114]-[117] per White J; National Bank of Australia v Chen-Conway [2008] NSWSC 485. The court, however, is not bound to do so and any costs order remains at the court's discretion: see Abigroup Ltd v Sandtara Pty Ltd [2002] NSWCA 45 at [9] per Stein JA (with whom Giles JA and Young CJ in Eq agreed); Kyabram Property Investments Pty Ltd v Murray at [14]. 19An agreement to pay costs will be construed as an agreement to pay costs on a party and party basis unless it is plain from its terms that costs are to be paid on some other basis: see Chen v Kevin McNamara & Son Pty Ltd (No 2) [2012] VSCA 229 at [8] per Redlich JA (with whom Maxwell P and Robson AJA agreed). See also Commonwealth Bank of Australia v Usalj [2010] NSWSC 1105 at [11]-[13] per McDougall J; Hannaford v Commonwealth Bank of Australia [2013] NSWCA 472 at [84] per Gleeson JA. 20In the present case, the obligation is expressed in cl 31(b) of the Terms of Trading as an obligation to indemnify against: All damages and all costs, losses and expenses which the company may suffer or incur consequent upon or arising directly or indirectly out of any breach or non-observance of the Obligations by the Customer. 21In my opinion, an obligation to indemnify against "all costs" must be construed as an obligation to pay costs on an indemnity basis. Unless costs are made payable on that basis, Apparel Group will not be indemnified against all its costs. The costs of this proceeding arise at least "indirectly" from the breach of the Terms of Trading by BLPL and so fall within the contractual indemnity. There is no reason not to give effect to that contractual indemnity. It follows that Ms Liano must pay costs on an indemnity basis. 22The orders of the court are: (1)Judgment be entered in favour of the plaintiff against the second defendant for the sum of $152,964.09. (2)The second defendant pay the plaintiff's costs of the proceedings on an indemnity basis.