ARONIS & ANOR v HALLETT BRICK INDUSTRIES LTD No. SCGRG-98-613 Judgment No. S92 [1999] SASC 92

Supreme Court of SA|1999-03-11|Before: Debelle J

MICHAEL ARONIS & ARONIS NOMINEES PTY LTD (TRADING AS WELLAND TYREPOWER v HALLETT BRICK INDUSTRIES LTD

This is an appeal from the decision of a magistrate ordering the appellants (defendants) to pay $20,736.08 to the respondent (plaintiff) for bricks sold by the respondent to the appellants. The only issue in the appeal concerns the manner in which the respondent is entitled to be paid. For convenience, I will refer to the parties as "plaintiff" and "defendants".

The plaintiff is a manufacturer and supplier of bricks. The defendant Aronis Nominees Pty Ltd carries on business under the trading name "Welland Tyrepower". It sells tyres and mechanical services. Michael Aronis is a director of Aronis Nominees Pty Ltd.

Michael Aronis had acquired some parcels of land at 2 Bridgeman Road, Findon. He proposed to construct home units on that land. Between March and July 1995 the defendant sold bricks to Michael Aronis and Aronis Nominees Pty Ltd for the purpose of constructing the home units. The price of the bricks was about $30,000. It appears that both defendants were involved in the construction of the home units and the purchase of the bricks. At all events, no distinction was made at the trial between the defendants. I will refer to them both as "the defendants". The action proceeded on the footing that both were liable to pay the plaintiff for the bricks. The only dispute concerned the manner in which the defendants should pay for the bricks. That dispute arose out of the fact that both the plaintiff and the defendant Aronis Nominees Pty Ltd are members of an organisation called Bartercard Ltd ("BCL").

BCL operates what is called the BCL Trading Programme, which is a kind of counter-trade system. It could also be described as a barter or exchange system. I will hereafter call the system "Bartercard". Members of Bartercard sell and supply goods to other members in return for what BCL calls "trade dollars" which are credited to the individual accounts of the sellers. Members who are buyers pay for the goods by trade dollars already credited to their individual accounts. BCL acts as a broker, clearing house and record keeper of these transactions and is paid a fee for its services. It directs members to each other for the purposes of trade and business.

Members of BCL agree to be bound by the BCL Trading Rules & Regulations. The Rules & Regulations are constituted in one document. I will refer to them simply as "Rules". Rule 2 provides (in part):

"...The responsibility for the conduct of trade is exclusively that of the participating clients. BCL will use its best efforts to accurately record trades, to administer these Rules in accordance with their terms, and to broker Client goods and services. However, the client acknowledges that the sole principals in any trade are the buying and selling clients involved, that Trades are entered into voluntarily, and that BCL is not the guarantor of any transaction or trade dollar."

"The terms and conditions of BCL Trading Rules & Regulations are incorporated by reference in the client agreement. The agreement consists of the terms and conditions of the Bartercard Ltd Agreement inclusive of the BCL Trading Rules & Regulations...."

The Bartercard Ltd Agreement is the membership agreement already mentioned. The only relevant clause in that agreement is clause 7 which states that members agree to be bound by the BCL Trading Rules. Rule 5 provides:

"A 'trade' is a barter purchase or a sale of goods and/or services whereby payment is made in trade dollars posted to clients account pursuant to these Rules and Regulations. The term "Trade Dollar" is an accounting unit/book entry with an assigned arbitrary value used to record the value of trades as determined by the selling client (herein called the Merchant). It is used by all affected parties as a practical method of recording the value of every transaction which resulted in a transfer of goods and/or services available from other clients who are clients of the BCL. Trade dollars may be used only in the manner and for the purpose set forth in these Rules and Regulations. They will not be considered legal tender, securities or commodities. They may not be redeemed for cash. BCL disclaims the responsibility for the negotiability of trade dollars for the availability of goods and/or services from any source."

"The following procedures apply to transactions involving special orders, construction jobs, service work or long term leases and other work-in-progress transactions. Customer should obtain a WRITTEN ESTIMATE BEFORE authorising work to begin.

BEFORE STARTING, if appropriate, merchant should obtain a deposit or down payment in trade dollars in the same manner as a cash transaction. This is done with a completed BCL transaction voucher and authorisation number from BCL Credit Clearance if the amount exceeds $100.00 or $500 if the credit clearance is required on a Gold Card or as stipulated on the particular Bartercard card. Merchant should include in its contract that if customer does not have sufficient trade dollars in its account when authorisation is requested, the difference must be paid in CASH TO THE MERCHANT. BCL will only issue an authorisation for the amount in the account and remaining usable credit line facility."

The Rules do not define either "special orders", "construction jobs", "service work" or "long term leases and other work-in-progress transactions". Rule 33 provides for the suspension of trading privileges. It reads:

"A. BCL reserves the right at its sole discretion, to suspend the trading privileges of any client who is in violation of any State or Federal law; who engages in overpricing, direct trades, or otherwise breaches the terms of the agreement; or has cash fees due to BCL which are more than one month past due. In the latter case, the trading privileges of client shall be reinstated immediately upon payment of all cash fees due, including interest.

B. In the event of termination or cancellation by either party BCL may freeze the account until the cash fees have been prepaid."

After the plaintiff had provided the defendants with a quotation for the cost of the bricks, the parties ascertained that they were both members of BCL. They agreed that payment would be made by trade dollars through Bartercard. The plaintiff sold the defendants bricks to a total value of $30,736.80. In May 1995 the plaintiff was paid the equivalent of $10,000 in BCL trade dollars. That was the only payment received from or on behalf of the defendants.

After the last of the bricks had been supplied in July 1995, Mr Renwood, the plaintiff's credit manager, began to enquire from BCL about payment of the balance of the price. He tried to contact a person called Domenic at BCL. Domenic was the person nominated by BCL to deal with this sale. Domenic proved to be elusive and the first contact was not made until September 1995. Mr Renwood informed Domenic of the cost of goods supplied and the amount paid. Domenic promised to look into the matter and get back to Mr Renwood. It was not until 17 November that Domenic told Mr Renwood that BCL had withdrawn its services to Aronis Nominees Pty Ltd. Domenic informed Mr Renwood that the plaintiff should seek to recover the balance of the cost of the bricks direct from the defendants.

On the same day, the plaintiff sent an invoice addressed to Welland Tyrepower for the balance of $20,736.08. It also sent a statement dated 17 November 1995 which was endorsed:

"Your prompt payment is requested. As advised by Bartercard this is the portion of the account you are to pay for. Please advise if you require any further paperwork.

Thereafter, the plaintiff sent monthly statements seeking payment of $20,736.08 on 30 November and 31 December 1995, 31 January, 29 February and 31 March 1996. In February 1996, Mr Renwood telephoned the defendants seeking payment. His evidence was that he was told that the account would be paid. On 7 March 1996 the plaintiff placed a workers' lien on the land on which the home units were being constructed. On 15 March 1996 a debt collection firm acting for the plaintiff sent the defendants a demand for payment of the debt due to the plaintiff. That demand brought a response from the defendants who then offered to pay the debt in BCL trade dollars. The offer was rejected by the plaintiff which insisted on being paid in ordinary currency. The defendants made subsequent offers to like effect but they were not accepted.

The reason why BCL did not pay the balance of the debt due to the plaintiff was that Aronis Nominees Pty Ltd did not have sufficient credit with BCL. It appears that BCL had suspended the trading rights of the defendants pursuant to Rule 33. There was a relatively prolonged dispute between the defendants and BCL. It was not until Aronis Nominees Pty Ltd re-established its credit with BCL that it offered to pay the plaintiff's debt in trade dollars.

To summarise. The plaintiff delivered the last load of bricks in July 1995. The equivalent of $10,000 had been paid in trade dollars in May 1995. On 17 November 1995 the plaintiff ascertained that BCL was not going to pay the balance in trade dollars. The plaintiff then sent statements requesting payment to the defendants. The requests were not answered until March 1996 when the plaintiff's debt collector made a demand on the defendants.

The magistrate held that the payment by BCL in trade dollars was a primary but not an exclusive resource for payment of the debt due to the plaintiff. He held that the defendants were, therefore, liable to pay the balance of the debt in ordinary currency. In reaching that conclusion, he held that debts had to be paid through BCL's system within a reasonable time. If not, the creditor could insist on payment in ordinary currency. He described the circumstances of this case as a repudiation by the defendant Aronis Nominees Pty Ltd of its obligation to comply both with its agreement with BCL and its agreement with the plaintiff.

In this appeal the defendants submit that it was a fundamental term of the agreement between the parties that payment would be made in Bartercard trade dollars so that the plaintiff is required to accept payment in trade dollars and not in ordinary currency. They also contend that it was not possible for the plaintiff to convert the balance outstanding to $20,736.08 in ordinary currency. I immediately deal with the latter contention. The statement sent by the plaintiff to the defendants and dated 17 November 1995 stated that Bartercard had advised the plaintiff that $20,736.08 was the balance due. There was no evidence to the contrary. The defendants must, therefore, accept that to be the sum due in ordinary currency.

The magistrate came to the conclusion that payment by Bartercard trade dollars was intended to be a primary but not the exclusive source of payment applying the reasoning of the High Court in Saffron v Societe Miniere Cafrika [1958] HCA 50; (1954) 100 CLR 231, at 243 to 245 where it was held that, in the circumstances of that case, the stipulation for payment by letter of credit did not go beyond requiring the establishment of such a letter as the primary but not the exclusive source of payment with the consequence that the seller could sue for and recover the price.

As the reasons in Saffron indicate, the question is to determine the intention of the parties. In that case, the court decided that it was not reasonable to suppose that the parties intended that, in the unlikely circumstance that the buyer got the goods but payment therefor against the letter of credit was refused, the seller should not be paid. For that reason, the letter of credit was held to be the primary but not the exclusive source of payment. Thus, when considering whether a seller who had received a letter of credit in payment is barred from suing to recover the price of the goods, it is necessary to examine whether the letter of credit is to be regarded as an absolute or as a conditional method of payment: W J Alan & Co Ltd v El Nasr Export & Import Co [1972] EWCA Civ 12; [1972] 2 QB 189 at 210; E D & F Man Ltd v Nigerian Sweets & Confectionary Co Ltd [1977] 2 Lloyd's Rep. 50 at 55 to 56. See also Northwest Shipping and Towage Co Pty Ltd v Commonwealth Bank of Australia (1993) 118 CLR 453 at 463 and the discussion in Gutteridge and Megrah, The Law of Bankers' Commercial Credits (7th Ed) at 35 to 42.

I think that, in the particular circumstances of this case, a more helpful analogy is payment for goods by a bill of exchange or cheque. If a bill of exchange or a cheque given in payment for the sale of goods is dishonoured, the seller may sue to recover payment unless the parties have agreed that the receipt of the negotiable instrument is in full satisfaction of the debt. As Lord Esher MR said in re Romer and Haslam [1893] 2 QB 286 at 296

"It is perfectly well-known law, which is acted upon in every form of mercantile business, that the giving of a negotiable security by a debtor to his creditor operates as a conditional payment only, and not as a satisfaction of the debt, unless the parties agree so to treat it. Such a conditional payment is liable to be defeated on non-payment of the negotiable instrument at maturity, and it is surprising that there can be at the present day any doubt as to the business result of such a transaction."

The other members of his Court of Appeal concurred with that view. See also Saffron (supra) at 244. In Tilley v Official Receiver [1960] HCA 86; (1960) 103 CLR 529 at 532 Dixon CJ expressed the principle in these terms:

"Prima facie when a cheque is taken for the price of goods, or for that matter in respect of any other debt contracted, it operates as conditional payment. The condition is that the cheque be paid on presentation: if it is dishonoured the debt upon the original consideration revives. The rule is, of course, an old one and the presumption applies to other negotiable instruments as well as to cheques, although perhaps not necessarily with the same strength."

See also Kitto J at 535-536 and Menzies J at 537. It is a question of fact in each case whether the negotiable instrument is taken in complete satisfaction of the original debt or merely as a conditional payment, the onus lying on the party alleging that the negotiable instrument operates as a complete satisfaction of the original debt: Armco (Australia) Pty Ltd v Federal Commissioner of Taxation (1948) 76 CLR 589, 595.

The Rules of the BCL Trading Programme contemplate that parties shall be responsible for determining the terms of their contracts. The Bartercard system is no more than a means of payment. The parties did not reduce their contract to writing. It is, therefore, necessary to imply the terms from all the circumstances having regard to the requirements of ordinary business efficacy. It is not reasonable to suppose that the parties intended that, if payment could not be made in Bartercard trade dollars within a reasonable time, the seller would not be entitled to sue for and recover the price of the bricks. It could not have been intended that the plaintiff should have to wait for payment until the defendants resolved the dispute with BCL since there could be no certainty that the defendants would be able to resolve that dispute. Further, it is an ordinary term of trade and commerce that payment for goods should be made within a reasonable time. Thus, it was an implied term of the agreement that all accounts would be paid with trade dollars within a reasonable time and, if not, the plaintiff could insist upon payment in ordinary currency. Such a term is consistent with the terms of Rule 16 which requires payment in cash in circumstances where the buyer does not have sufficient trade dollars in its account. In this case, the defendants did not have sufficient trade dollars in their account. In addition, it could not have been intended that payment in Bartercard trade dollars would be the exclusive form of payment. If that were so, the plaintiff would not be able to recover payment if the defendants had no Bartercard trade dollars to discharge their liability. When BCL, through its employee Domenic, informed the plaintiff that payment could not be made in Bartercard trade dollars, the position was analogous to that of a bank dishonouring a cheque. As the defendants could not pay in trade dollars and were in breach of the implied terms, the plaintiff was entitled to sue the defendants to recover the balance of the purchase price.

The defendants also submitted that the plaintiff's duty to mitigate its loss required it to accept the payment in trade dollars when it was offered in March 1996. I do not agree. The defendants were seeking to turn their default to their advantage. The plaintiff was entitled to insist upon payment in ordinary currency. The defendants resisted that claim and must bear the consequences of their failure to pay the plaintiff what was due to it. In addition, the submission does not lie well in the mouth of a party which failed to make any attempt to pay for the bricks until some nine months after the last bricks were delivered and who, for at least four months, made no response at all to the plaintiff's requests for payment.

For these reasons, the plaintiff is entitled to be paid $20,736.08 in ordinary currency.

In this action the plaintiff also sought to enforce its workmen's lien. The magistrate held that the plaintiff was entitled to enforce it. The only issue on this appeal was whether the plaintiff could only recover payment in trade dollars so that it would not be entitled to enforce its lien. For the reasons already given, the plaintiff is not limited to recovery of payment in trade dollars. The plaintiff is entitled to enforce its lien.

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