Ayoub & Anor v Euphoric Pty Limited t/as Clay & Michel

LOWER COURT District Court JURISDICTION : LOWER COURT 8273/01 FILE NUMBER(S) : LOWER COURT Hungerford ADCJ JUDICIAL OFFICER :

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40319/04 DC 8273/01

BEAZLEY JA BRYSON JA McCLELLAN AJA

WEDNESDAY, 15 DECEMBER 2004 AYOUB & ANOR v EUPHORIC PTY LIMITED t/as CLAY & MICHEL JUDGMENT 1 BEAZLEY JA: I agree with McClellan AJA. 2 BRYSON JA: I agree with McClellan AJA. 3 McCLELLAN AJA: The respondent, Euphoric Pty Limited ("Euphoric") which trades as Clay & Michel, is a subsidiary of Mobil Oil Australia Pty Limited. It operates as a wholesale distributor of petroleum products. These proceedings are concerned with the payment for fuel allegedly provided by Euphoric to two companies, Madallah Trading Pty Limited ("Madallah") and Bycoon Pty Limited ("Bycoon") and a guarantee given by Mrs Mona Ayoub, who was the sole director of Bycoon. 4 Madallah operated a service station at Unanderra and had been purchasing fuel from Euphoric since 1999, apparently without incident until May/June 2000. From the end of June 2000, Madallah ceased operating the service station, which was thereafter operated by Bycoon. Fuel was supplied by both Madallah and Bycoon to other service stations. 5 The Unanderra service station site was owned by My Five Star Holding Pty Limited, of which the sole director and secretary was Mrs Ayoub. The shares in My Five Star Holdings were held in equal proportions by Mrs Ayoub and her four children. Mrs Ayoub's husband, Michael Ayoub, who was made bankrupt in 1991, was the employed manager of the service station, although Euphoric apparently assumed that he was the principal of Madallah. 6 Mrs Ayoub was also the secretary and sole director of Bycoon, of which she and her children were for a time the shareholders. Previously, Mr Elie Chahwan was the sole shareholder and director. Mr Chahwan is Mrs Ayoub's brother. 7 Mr Camille Nasr was the secretary, sole director and sole shareholder of Madallah. Mr Ayoub and Mr Nasr are cousins. 8 At the trial, Euphoric succeeded in its claims against Bycoon for its own debt and debt transferred from Madallah to Bycoon. It also succeeded in proceedings against Mrs Ayoub in which the company sued on a guarantee she had given.

The system for ordering and receiving fuel 9 There are disputes between the parties about many aspects of the matter. However, the system by which fuel was ordered from Euphoric and delivered to a customer was not disputed. An understanding of the system is important in the resolution of this appeal. 10 The system involved the following steps:

(i) An employee of the customer would telephone Euphoric's operations department and place an order.

(ii) The operations department sought the advice of the credit department as to the standing of the customer, which would inform the operations department if it approved the order.

(iii) Once approved by the credit department, the operations department telephoned Mobil's fuel ordering department and advised details of the fuel to be picked up at the Mobil depot at Clyde. The details were recorded by Mobil in a system known as the SAP ordering system and a shipment number was assigned to the transaction.

(iv) The operations department telephoned the customer to advise of the shipment number, which was then passed on to the driver who would collect fuel from the depot.

(v) The tanker driver, who was engaged by the customer, attended the fuel depot and used his personal electronic swipe card to gain access. In order to obtain fuel, the driver would have to swipe another card at the fuel gantry and enter the shipment number, which included numbers identifying the customer, into a keypad.

(vi) The fuel obtained would be recorded in Mobil's electronic recording system known as OMEGA, which generated a delivery docket in triplicate recording the customer's name, delivery address, product ordered, amount ordered in litres and number of litres loaded into each compartment of the tanker.

(vii) The driver signed a delivery docket. One copy of the docket was kept by the driver, one copy went to the customer and Mobil kept one copy.

(viii) Mobil faxed its copy of the delivery docket to Euphoric's operations department the afternoon of the delivery or the next morning for recording of details into a computer system, known as the PETSYS system.

(ix) Euphoric's operations department generated an invoice from the PETSYS system which was then debited to the customer's account. Invoices were forwarded to the customer.

(x) If a delivery docket was unavailable for some reason (as happened for some deliveries to Madallah), Mobil invoiced Euphoric for the fuel. Euphoric's trading accounts receivable processing clerk reconciled the invoice from Mobil with details in the PETSYS system to ensure correct billing of the customer and confirmation was made with records in the SAP system. On proof of delivery from Mobil, the customer was invoiced.

As from 1 May 2000, Euphoric's processing system changed from its PETSYS system to Mobil's SAP system. The initial process was the same as in steps (i) to (iv), after which the operations department would enter the order details into the SAP system; a delivery note number and shipment number were then raised. The operations department advised the customer of the shipment number and the process then proceeded as in steps (vi) to (viii) above. The SAP system automatically generated an invoice, for allocation to the customer's account within 48 hours after the load of fuel had been picked up, and this invoice was mailed to the customer. The SAP system also generated monthly account statements which were sent to customers.

The Madallah debt? 11 It is agreed that the commercial arrangements between Madallah and Euphoric did not provide for Euphoric to extend credit to Madallah. However, although this was the arrangement, it was possible for Madallah to obtain fuel for which it did not pay. The most obvious mechanism by which this could occur would be if a payment made by Madallah, either its own cheque or that of a third party, was dishonoured. The records indicate that this did occur at times. Furthermore, if Euphoric's employees, for whatever reason, did not enforce the commercial terms and authorised fuel without payment, Madallah may obtain fuel for which it had not paid. An explanation of the complexity of the arrangements was provided by Mr Nicholls, Euphoric's Financial Controller who said in evidence: "Q. What do you mean by shivers down your spine in relation to Madallah? A. The commercial arrangement we have with someone being capable of picking up from a terminal. To put it in context, it's an extremely large corporation, turning over about half a billion dollars a year. There are enormous amounts of transactions that will occur seven days a week, 24 hours a day, and the ability to actually physically procedurally-wise control those logistics is extremely difficult. It is a weakness that the industry has always suffered. The commercial arrangement with Madallah initially was for them to actually attempt to pay before we issued shipment numbers. The problem with that, which all sounds in theory good, is that in actual fact shipments that are issued are live and have a licence to make money, because they can - a person can go to a terminal with their appropriate issued truck card and access fuel from those terminals at any point and those shipments can be acted upon in seconds, if they wish to. This leaves an enormous window of exposure that we suffered with Madallah to the point where we requested security, because, effectively, it only required - if I can explain the exposure, if that's all right? We do not receive the money from the banks by notifications as fast as we transact, so you can get a shipment, take a load of fuel and sell it in the space of minutes, literally. However, the bank only tell us that we've received the money 24 hours later, up to 72 hours on a weekend. So we had an enormous window of exposure that relied on good faith of the customer to pay you. In the event that they didn't, you ended up with a debt, which is what happened with Madallah. In which case, we were always suffering from a hope and prayer that they bank the money, because we knew the shipments were live, the product was available. Q. Right. A. So it made a very dangerous commercial arrangement for us, considering - and I believe throughout history, there was also Madallah trading periods of time where moneys was not received in time or in accordance to what was actually drawn." 12 The sum which Euphoric claims was owed by Madallah when it ceased trading on 30 June 2000 was $290,380.41. This amount was confirmed by a reconciliation of Euphoric's ledger for Madallah which the trial judge found had been conducted with great care by Ms Giblin who has been the Credit Controller for Euphoric and has been its credit manager since October 2000. Although extensively cross-examined, the trial judge found Ms Giblin to be an impressive witness and his Honour accepted her evidence. 13 No flaw has been demonstrated in Ms Gilbin's reconciliation and the conclusion that it reflects the true position is supported by a number of matters. One of the more significant matters is the level of security inherent in the system of ordering and delivery to the customer's fuel tanker driver. Although it is conceivable that the system could be corrupted from within Euphoric, or by the customer's driver, there is no suggestion that this occurred in the present case. Because the driver must use an identifiable swipe card and enter a prearranged number before obtaining fuel, the opportunity for fraud is limited. For that fraud to have been worked many times on the one customer (each order is about $30,000), is inherently unlikely. 14 It is apparent that, at times, the record keeping process of Euphoric was not ideal. In part this is explained by the change in the recording system which occurred at the end of April 2000. As I have related, Euphoric changed from the PETSYS system to SAP, thus requiring a reconciliation of the PETSYS records and a transfer to SAP. The ledger shows eight items apparently raised under PETSYS which were transferred to the SAP records at 8 May 2000 totalling $242,273. At the same time, a payment of $112,552.59 was credited, leaving Madallah owing $129,720.43. Invoices to support the eight ledger entries totalling the $242,273 amount were tendered in evidence. Thereafter, the ledger shows a pattern of trading with most, but not all, orders being paid until three orders, one on 29 June 2000 and two on 30 June 2000 totalling $96,932.17. At 30 June the reconciliation conducted by Ms Giblin showed an outstanding debt from Madallah of $290,380.41. 15 There was no direct evidence of the delivery of fuel and non-payment tendered at the trial. Accordingly, Euphoric's case depended on an analysis of the available business records. It is obvious that Madallah would also have had records which could have assisted an understanding of the position. Indeed at the trial Mr Ayoub admitted that if, as he alleged, there were always deposits in advance, it would have been a very simple exercise to collect all the Madallah invoices and all the deposit books and show how each invoice was paid by the relevant deposit. Mr Nasr gave evidence to the same effect. However, no records were forthcoming. The explanation given was that Madallah had been sold by Mr Nasr to an unrelated person, Mr Aoun, and accordingly, access to its records was not available to Bycoon. 16 The evidence of the sale is not convincing. Mr Nasr said the sale took place at the beginning of 2002 and he was paid $10,000 in cash. However, an ASIC search revealed that Mr Ayoub remained the sole shareholder in 2003. There were no documents to support the sale. Mr Ayoub agreed that the records of Madallah were kept in a manner which would have allowed for simple analysis and, if it was the case, rebuttal of Euphoric's claim. At least for a period of months after these proceedings were commenced on 16 August 2001, the records could have been analysed to prove that Euphoric's claim was unfounded. This was not done and apparently no effort was made to retrieve the records. 17 Of these matters the trial judge said: "A price of $10,000, paid in cash with no documentary support and the ASIC search to the contrary, for a shelf company which had ceased trading 18 months before but against which there was a claimed debt of $290,000 strongly suggests, in my view, there was no such sale. It was, I consider, mere fantasy and a means to overcome the absence of Madallah's records. I do not believe the evidence of Mr Ayoub and Mr Nasr on this aspect. Of course, any records with Mr Aoun were unavailable because his whereabouts were unknown despite a warrant for his arrest to produce the records in these proceedings." 18 In my opinion, the evidence before his Honour more than justified the conclusion he reached on this aspect of the matter. The failure to produce Madallah's records points strongly to the conclusion that they would not have assisted the appellants' case. 19 The case of both defendants was that Madallah had always paid for any fuel it ordered at the time it was ordered and accordingly, no debt could have arisen. However, the reconciliation of the Euphoric records conducted by Mr Giblin indicates otherwise. As an illustration of the position, three deposits are recorded as being made by Madallah on 31 May 2000. One deposit, for an amount of $33,000 may have been payment for fuel purchased on 26 May for a total of $33,043.19. However, it is not apparent that the other two deposits being for $37,500 and $8,293.66 relate to any particular fuel order. 20 Evidence was given by the General Manager of Euphoric, Mr Peter Rogers, of his attendance on Mr Ayoub in late May or early June to discuss the troubled state of the Madallah account. Although challenged as to whether the meeting took place in May or June (it being suggested to him that it did not take place until October), Mr Rogers' evidence is supported by an entry in his diary which indicates that a meeting occurred on 30 May. It would be consistent with such a meeting having occurred that Madallah would seek to retrieve its situation by increasing its payments which may explain the payments on 31 May 2000. Notwithstanding these payments, as far as Euphoric was concerned, the position of Madallah did not improve and Mr Rogers gave evidence that he arranged a further meeting with Mr Ayoub for 15 June 2000. Mr Rogers, accompanied by Mr Powell, Euphoric's Marketing Manager, attended at the appointed time for that meeting but Mr Ayoub failed to arrive. There was no explanation for his failure to attend. 21 As the trial judge points out, although Mr Ayoub swore two affidavits in the proceedings, he does not deny Mr Rogers' evidence as to the meeting in late May or early June. Mr Ayoub's evidence is that rather than there being a meeting at that time, there was a meeting to discuss the Madallah debt in October of that year, but this is denied by both Mr Rogers and Mr Powell. Senior Counsel for the appellants relied on this evidence of Mr Ayoub, emphasising that if Mr Ayoub's evidence was correct it was not consistent with Madallah having trouble with meeting its payments in June. 22 The trial judge did not accept the evidence of Mr Ayoub in relation to many aspects of the matter. In particular, his Honour did not accept his denial of an indebtedness by Madallah in June or that allegations that monies were owed to Euphoric were only ventilated in October. To my mind, his Honour's conclusion is correct. It is supported by the fact that in his evidence, Mr Ayoub admitted that the "transfer of the disputed Madallah debt" was raised with him at the time Bycoon opened its account with Euphoric, after which arrangements to assign the Madallah debt to Bycoon were put in place. 23 Emphasis was placed by the appellants on the fact that Mr Rogers gave evidence that his recollection was that Madallah had a direct debit arrangement with Euphoric. In this respect, it would appear that Mr Rogers was mistaken, as payments appear to have been made by cheque. Mr Rogers believed that some direct debits had "bounced." 24 Although Mr Rogers' recollection on this aspect of the matter may have been faulty, his Honour did not consider that the credibility of his evidence was affected. Given the size of the Euphoric enterprise and the complexity of its business arrangements, it may be accepted that on these matters Mr Rogers may have an imperfect understanding. 25 It was in late June that Madallah's arrangements with Euphoric came to an end and on 7 July that Bycoon commenced to trade. Euphoric says that the cancellation of Madallah's arrangements was due to it being in arrears with payments. No alternative explanation was offered by the appellants. 26 It is true that Madallah continued to acquire fuel up to and including 30 June 2000, on which day two purchases were made. Senior counsel for Madallah submits that this would be inconsistent with Euphoric having terminated arrangements with Madallah earlier in the month. It is submitted that Madallah would not have been allowed to place further orders if Euphoric was not in funds. 27 The circumstances of these orders are not explained by the evidence. They could be orders which had been approved previously but only filled on that day. Perhaps the credit controller had not reacted as quickly as required or, having regard to the arrangements to be made with Bycoon, had authorised deliveries to the end of June. The evidence is silent. However, I am satisfied that the lack of explanation of this possible anomaly does not displace the conclusion which his Honour reached that the fuel, for which invoices were available, had been purchased by Madallah.

The novation of the Madallah debt and Mrs Ayoub's guarantee 28 Before Euphoric would provide fuel to Bycoon it required contractual and security arrangements to be incorporated in various documents. Unlike the arrangements with Madallah, Bycoon was offered a credit arrangement secured by a guarantee from Mrs Ayoub and a mortgage over real property. Mrs Ayoub was also required to authorise Bycoon's acceptance of the debt owned by Madallah to Euphoric. 29 On 28 June 2000, Mr and Mrs Ayoub met with Mr Peter Payne, who was Euphoric's Retail Manager in Wollongong at the time. Bycoon had already opened a bank account on 23 June for the purpose of trading with Euphoric. At the meeting on 28 June, Mrs Ayoub signed a credit application on behalf of Bycoon. She also signed a personal "Guarantee and Indemnity" which was expressed to be "In consideration for Euphoric Pty Ltd or its related bodies corporate (jointly and separately called Euphoric) granting or continuing to grant credit to Bycoon Pty Ltd." 30 The formal terms of the guarantee included the following: "1. I guarantee that the Customer will pay Euphoric every amount which it owes Euphoric, and I agree to pay Euphoric on demand any or those amounts in respect of which the Customer is in default, as well as any expense of Euphoric to enforce this guarantee and indemnity, including but not limited to legal costs and expenses, on a full indemnity basis. 2. I acknowledge the amount which the Customer owes Euphoric includes all credit which Euphoric extends interest on overdue amounts and all enforcement expenses relating to the Customers indebtedness, including but not limited to legal costs and expenses, on a full indemnity basis. Euphoric may extend credit in excess of the amount shown in the attached credit application. … 4. As a separate undertaking, I indemnify Euphoric and keep it indemnified against each liability, loss, cost, charge and expense that Euphoric incurs if the Customer breaches any kind of obligation to Euphoric (including without limitation, any obligation to pay money), if the Customer makes an incorrect or misleading representation or warranty, or if any part of this guarantee is unenforceable." 31 Mrs Ayoub gave evidence that she understood the debt transfer was a requirement of Euphoric before Bycoon could commence trading. She believed she signed it when she signed the mortgage documents which occurred on 7 July 2000. 32 The document by which Madallah assigned its debt to Bycoon is on the letterhead of Madallah Fuel Supplies Pty Ltd and is signed by Mr Nasr and Mrs Ayoub. It is expressed in terms of an offer to Euphoric to transfer the Madallah debt to Bycoon. It is in the following terms: "We hereby confirm that the balance of the account known as Madallah Pty Ltd, account number 271535 is $293339.62 as of 07/07/00 (subject to any disputes). We request that Clay & Michel to transfer the balance of the above account to Bycoon Pty Ltd, and that Bycoon Pty Ltd will be responsible for this debt. Director Madallah Pty Ltd Director Bycoon Pty Ltd" 33 The offer was accepted by Euphoric on 28 July 2000. This was done by clearing the debt from Madallah's ledger and including it as a debt to Bycoon. 34 Mr Nasr's evidence at trial in relation to negotiations with Euphoric to permit Bycoon to acquire fuel was confused. Although Mr Nasr executed the document transferring Madallah's debt to Bycoon, he denied that a liability existed. However, he agreed that it was likely that Mr Payne had asked him to sign it so that Bycoon could obtain fuel from Euphoric and that he probably executed it on 7 July 2000. 35 The trial judge considered all these matters and expressed the following conclusion: "In the result, I think the only reasonably logical conclusion from the circumstances, as I have endeavoured to outline them, is that the debt transfer was signed by Mr Nasr and by Mrs Ayoub on 7 July 2000 and represented an acceptance between them, in effect, that Madallah agreed to its debt to Euphoric (subject to any disputes) being transferred to Bycoon and Bycoon agreed to be responsible to Euphoric for payment of that debt; and Euphoric thereupon agreed, consistent with its conditions, to supply fuel to Bycoon on the terms set out in the credit application executed by Bycoon on 28 June 2000. I so find. To the extent Euphoric adjusted the accounts of Madallah and Bycoon in accordance with the debt transfer represented, in my view, its participation as a party to the arrangement between Madallah and Bycoon contained in the debt transfer. There was, I am satisfied, a true novation such that Bycoon was substituted as Euphoric's debtor in relation to the Madallah debt and Madallah was thereby released from its obligations. The Madallah debt as it was at 7 July 2000 of $290,380.41 thus became Bycoon's debt." 36 With respect, the trial judge's analysis of the evidence and the factual conclusion he drew are compelling. An essential element of those findings is that Euphoric required Bycoon to accept Madallah's obligations before it would supply fuel to Bycoon. Apart from the obvious commercial imperatives of the situation, Mrs Ayoub's evidence confirmed that this was the position, as was later confirmed by the adjustment of the relevant records held by Euphoric. 37 The appellants challenged the trial judge's findings and submitted that there was no evidence from any officer of Euphoric confirming that a debt transfer was required before Bycoon could trade and accordingly, Euphoric not being a party to the agreement, a novation was not effected (see Allianz Australia Insurance Limited v General Cologne Re Australia Ltd (2003) 12 ANZ Ins Cas 61-564). This submission is not consistent with the evidence of Mrs Ayoub and is not compatible with the commercial reality of the situation. Why would Madallah and Bycoon have entered into the novation agreement unless it was a requirement of Euphoric? And why did Euphoric make the relevant adjustment to its records unless it was party to the arrangement? 38 With respect to the guarantee, it was submitted that it should be confined to any debt of Bycoon which existed at 28 June 2000 when it was executed. To my mind, that proposition has no merit. It must have been obvious that the parties intended the future liabilities of Bycoon to be secured, because at least one purpose of the guarantee was to enable future trading by that company. This construction is supported by the recital which refers to "granting or continuing to grant credit." Clause 2 refers to "all credit which Euphoric extends and provides that Euphoric may extend credit in excess of the amount shown in the attached credit application." 39 It was further submitted that the guarantee should be confined to debts incurred by Bycoon with respect to the acquisition by it of fuel and could not extend to the assigned Madallah debt. This proposition was not raised at the trial and the respondent says that if it had been, it may have responded by pleading estoppel (see J O'Donovan & J Phillips, The Modern Contract of Guarantee, 3rd ed, p 257-258). The respondent emphasises the fact that it was Mrs Ayoub who gave the guarantee and, as the sole director of Bycoon, executed the document which made Bycoon liable to Euphoric for the Madallah debt. 40 To my mind, there is force in the respondent's submission and it may be that the principle in Coulton v Holcombe (1986) 162 CLR 1 should preclude the matter from being raised at this stage of the proceedings. However, I am satisfied in any event that the appellants' submission should be rejected. 41 There is no doubt that care must be exercised when construing a security, particularly an all accounts security, to identify the debts which the parties intended to fall within it. Ambiguity should be construed in favour of the surety (see Ankar Pty Limited & Arnick Holdings Pty Ltd v National Westminster Finance (Aust) Ltd (1987) 162 CLR 549; Andar Transport Pty Ltd v Brambles Limited (2004) 78 ALJR 907). The context will be important when trying to resolve any ambiguity (see Estoril Investments Pty Ltd v Westpac Banking Corporation (1993) 6 BPR 13,146). Furthermore, in the ordinary case an "all obligations" mortgage will not be understood to secure any debt which may be assigned by a third person to the secured creditor as well as present and future obligations to the mortgagee or debenture holder (see Re Clark's Refrigerated Transport Pty Ltd (In liq) [1982] VR 989 at 989). 42 In the present case, the guarantee was executed in the context of family arrangements. Although Mr Ayoub was the person managing both businesses, the trial judge - in my view correctly - found it to be apparent that Mrs Ayoub was astute in business and must have known that Bycoon would not be supplied with fuel by Euphoric unless arrangements had been made with respect to the Madallah debt. This is confirmed by the fact that fuel was only supplied to Bycoon after the mortgage and other related documents were executed by Mrs Ayoub on 7 July 2000. 43 The appellants submit that there is no evidence that the Madallah debt was discussed on 28 June when the guarantee was signed, and as it was not transferred until July, the guarantee should not be understood as extending to the Madallah debt. Again, this submission is not compatible with the commercial reality of the situation. If Euphoric was to agree to offer fuel to Bycoon on credit terms, given the relationship between Madallah, Bycoon, Mr Nasr, and Mr and Mrs Ayoub, it was inconceivable that Euphoric would not require arrangements to be made for the Madallah debt before supplying Bycoon. The circumstances of this case are quite different to those discussed in Estoril, Re Clarke's Refrigerated Transport and similar cases, where arrangements expressed in general terms are made which must be construed having regard to subsequent transactions. In the present case, the novation of the Madallah debt and arrangements to secure it are all part of the one dealing and there is no difficulty in construing clause 1 of the guarantee as securing that debt.

The Bycoon debt? 44 Bycoon first acquired fuel on 7 July 2000. Supplies were terminated on 17 November 2000. At the trial, the respondent claimed that when trading ceased, Bycoon owed a total of $377,692.55, being a claim based on the non-payment of 14 invoices issued to Bycoon for fuel obtained by it during a period of 18 days from 31 October to 17 November 2000, after allowing various adjustments. 45 At the trial the defence submitted that the respondent's case was based on flawed computer records and could not stand against the sworn evidence that the transactions did not take place. The trial judge summarised counsel's submission in the following terms: "Counsel emphasised the case against the defendants was pleaded as the alleged balance between the amounts of invoices and payments not dishonoured in respect of fuel purchased and not for any particular unpaid invoices; the evidence showed the absence of 17 invoices (reduced to 13 on 4 invoices being discovered), not the 14 disputed invoices. Thus, submitted counsel, the plaintiff had to prove the whole of the debt, not just the 14 unpaid invoices, to make out its case but without the relevant 13 invoices the debt had not been established." 46 With respect to the submission, the trial judge said: "I am able immediately to deal with that latter argument of the defendants. It has no substance: first, the existence of an invoice cannot be the sole evidence of a debt if other acceptable evidence exists; and, second, and in any event, Mr Ayoub conceded that the only dispute related to the 14 unpaid invoices covering the period from 31 October to 17 November 2000 as to which he said Bycoon received neither deliveries of fuel nor the invoices themselves. Thus, whether the plaintiff's case be pleaded on the basis of the whole debt or as expressly referable to the 14 invoices matters not - in my view, it is plain that the adjusted Bycoon debt, as I have referred to it earlier, of $377,692.55 related to the 14 invoices as the balance due on the account and it was accepted otherwise that all fuel ordered had been received and paid for." 47 The appellants' submission in the appeal is that his Honour erred by reducing the claim to a dispute with respect to the 14 invoices, it being submitted that no concession was made and that the dispute could not be confined in this manner. Because 13 invoices raised with respect to Bycoon were not in evidence, it was submitted that the respondent had failed to prove its case. 48 The appellants' case was that all shipments of fuel ceased on 2 November 2000. This was said to have followed a meeting between Mr Ayoub, Mr Rogers and another officer of Euphoric in late October or early November. Accordingly, it was submitted the 14 invoices, all for fuel delivered after 2 November, must have been raised in error. It was suggested that this was the only meeting to discuss difficulties with the account and that when Mr Rogers said a meeting occurred in June, he was confused. 49 I have already related the fact that the trial judge did not accept the evidence of Mr Ayoub in many respects. His Honour did not accept his denial that Euphoric received the fuel referred to in the 14 disputed invoices and did not accept that the alleged meeting occurred. The suggestion by Mr Ayoub that there was a meeting in October but not in May is entirely contrary to the events which are known to have occurred. Before the arrangements for Madallah were terminated and Bycoon substituted, there must have been meetings at which at least the proposed rearrangement was discussed and the terms of Bycoon's trading agreed. 50 The evidence of Mr Rogers, who his Honour accepted, was compelling. On 13 November 2000 he has a diary entry which he says relates to an issue concerning the accreditation for Bycoon trucks, which can only mean that Bycoon's account was active. He said that it was only on 20 November 2000 that credit issues in relation to Bycoon were raised with him. 51 Evidence in the appellants' case was given at the hearing by Ms Flanigan, Bycoon's administrative officer. She said that the last petrol shipment received by Bycoon was on 2 November 2000. However, the trial judge found that her evidence was most unsatisfactory. She gave evidence that all invoices issued to Bycoon had been collected and exhibited to her affidavit, but this turned out to be incorrect. Her mistake was obvious but the concession that it had occurred was made grudgingly. Furthermore, she accepted that if fuel had been delivered on 2 November, the relevant invoice would not have been received by Bycoon until some days later, making the proposition that no invoices were received after 2 November untenable. In my opinion, the trial judge rightly concluded that Ms Flanigan's evidence was lacking in credibility. 52 I am satisfied that the issue defined at the trial and to which the evidence was directed was whether the fuel recorded in the November invoices was in fact delivered. This is made plain by the contents of Mr Ayoub's affidavit of 16 August 2003, where he admits receipt of the fuel on all but the last 14 invoices. Furthermore, counsel opened the case on this basis. 53 The trial judge expressed confidence in the analysis of Ms Giblin with respect to the Bycoon debt. I have previously related the system by which a customer could obtain fuel and, as with Madallah, there was no suggestion of corrupt dealings in relation to the Bycoon deliveries or that the records had been falsely created. The logic of the process is that an invoice can only be the end result of Bycoon placing an order, getting a shipment number, the shipment number being entered into the keypad at the gantry (after the driver has swiped a card) and fuel obtained. 54 Ms Giblin's reconciliation was corroborated by the source OMEGA records maintained at the fuel depot. Ms Giblin personally went to the terminal to get these documents. The OMEGA records record the "trip number", which is the last six digits of the shipment number, and the shipment number identifies the order, which in turn identifies the customer. The OMEGA records show that of the 14 unpaid deliveries:

(a) One was obtained by Mr Fehring, who is the same person as the "John Fehring" recorded in the OMEGA records and on the driver access card;

(b) The other 13 were obtained by Mr B Zlatanco, whom the defendants' witnesses identify as Bycoon's main tanker driver. 55 There was no evidence given at the trial which would cast any doubt on the reliability or accuracy of either the SAP or OMEGA systems. When, on one occasion, with respect to an unrelated invoice, an order was allocated in SAP to the wrong customer, it was apparently fixed without difficulty. 56 The appellants were critical of the fact that two types of supporting documents which would have related to the transactions in the 14 undisputed invoices were not available. However, there are appropriate explanations for their absence. With respect to the shipping documents, OMEGA produces the documents and it is up to the tanker driver to put one of the triplicate copies in a box at the depot. Mr Fehring, Bycoon's occasional tanker driver, confirmed that there is no one at the depot who checks to ensure the drivers put a copy of the shipping document in the box. 57 Accordingly, the retention of shipping documents is beyond the control of the respondent. The respondent cannot compel Bycoon's tanker drivers to put a copy of the shipping documents into the box at the depot. 58 The shipping documents are generated from the OMEGA system. The source information, the OMEGA records, were in evidence. They identify Bycoon drivers as the drivers who collected the 14 unpaid loads. 59 With respect to monthly account statements, Ms Giblin gave evidence that these are generated by Mobil in Melbourne and sent to Euphoric to forward on to Euphoric's customers. Someone within Euphoric had the task of making a photocopy of the monthly account statements before sending out the originals. 60 The explanation at the trial for the respondent's inability to produce copies of the monthly statements was that the person who should have made a copy apparently neglected to do so. 61 With respect to the 14 invoices for unpaid loads, the driver for one of them, Mr John Fehring, gave evidence. He confirmed that he had not lost or misused his card excluding any possibility that the fuel load attributed should have been recorded against another driver. 62 The respondent points to the fact that in relation to the other 13 invoices the driver was Mr Zlatanco, who was regularly engaged by Bycoon and may have been its employee at the time. Accordingly, it was submitted the appellants could have called him to rebut the suggestion that fuel was received. The trial judge accepted this submission and, applying Jones v Dunkel (1959) 101 CLR 298, determined that Mr Zlatanco's evidence would not have assisted the appellants' case. 63 His Honour said: "Mr Zlatanco did not give evidence nor was any explanation offered by the defendants for that omission. Mr Zlatanco could have given relevant evidence as to the delivery of the 13 loads of fuel in the period 31 October to 17 November 2000. It is reasonable to accept, which I do, that his evidence would not have assisted the defendant's case and, applying Jones v Dunkel (1959) 101 CLR 298, I more confidently draw the inference from Ms Giblin's evidence in favour of the plaintiff's case." 64 His Honour's finding has as its foundation an assumption that Mr Zlatanco was a witness "in the appellants' camp." Before this Court that assumption was challenged, although it is not apparent whether his availability to the respondent was an issue at the trial. If, as the evidence suggests, Mr Zlatanco was an employee of Bycoon or its regular contractor, this would explain the fact that he was not called by Euphoric. Before this Court it was submitted that as Euphoric only became aware of the identity of Mr Zlatanco during the hearing there was no opportunity, even if he had been available, for Euphoric to have called him to give evidence. 65 As Campbell J (with whom Beazley JA and Pearlman AJA agreed) said in Manly Council v Byrne [2004] NSWCA 123 at [71] even the "fact that a witness who was not called is equally available to plaintiff and defendant is not always sufficient to avoid a Jones v Dunkel inference against either, or both, of those parties." 66 In the present case, having regard to the relationship between Bycoon and Mr Zlatanco, be it employee or contractor, and the fact that his identity and active part in receiving the disputed fuel was known to Bycoon, I am satisfied that it was more natural for the appellants to have called him. The trial judge was correct in concluding that Mr Zlatanco's evidence would not have assisted the appellants' case. 67 In the ultimate, the trial judge came to the conclusion that the fuel identified in the 14 invoices had been delivered to Bycoon but not paid for. His Honour rejected Mr Ayoub's evidence that there was no delivery after 2 November and rejected his account of his dealings with executives of Euphoric. 68 I am satisfied that these findings by his Honour were appropriate and that there is no basis for disturbing his Honour's conclusion.

The guarantee and the Contracts Review Act 1980 (NSW) 69 A claim was made by the appellants at the trial, relying upon s 7 of the Contracts Review Act, that a "procedural injustice" occurred when the guarantee was executed which would entitle Mrs Ayoub to be relieved either of the whole of the Bycoon debt or of so much as had been transferred from Madallah. The submission was repeated in this Court, particular reliance being placed on part of the evidence given by Mr Payne when he was questioned in relation to the discussion at the meeting he attended with Mr and Mrs Ayoub on 28 June, when the guarantee was signed. 70 In evidence, the following exchange occurred: "Q. .. you did not, did you, tell Mrs Ayoub that this document had in it a personal guarantee? A. I don't recall exactly what I said.' 71 Later Mr Payne stated: "I can't say hand on heart yes, I did and I can't say hand on heart no I didn't." 72 Reliance was also placed on the fact that Mrs Ayoub was apparently in a hurry to conclude the meeting and that it was not sufficiently brought home to her that she was signing a document in her personal capacity. This is said to be evidenced by the fact that she mistakenly affixed the company seal to the document. 73 As I have previously related, the trial judge found that Mrs Ayoub was well versed in business matters. Having regard to her apparent role in the business of both Madallah and Bycoon, this finding was completely justified. Being familiar with commercial matters, she must have known that the purpose of the meeting on 28 June was to make arrangements for Bycoon to be supplied with fuel. 74 The trial judge accepted Mr Payne's evidence as to the purpose of the meeting of 28 June and the events which occurred. In particular, his Honour found that the meeting had been requested by Mr Ayoub so that he could understand the arrangements which were proposed. 75 There is of course no doubt that Mrs Ayoub was aware that she was being asked to sign documents relating to the prospective trading by Bycoon. It is inconceivable that she did not know that this was to replace trading by Madallah or that Madallah's alleged debts did not have to be provided for in some effective manner. Mr Payne says that his invariable practice was to complete the details on the guarantee form with the customer and then hand them the form and ask them to sign it. When handing the document he usually says: "This is a personal guarantee. What that means is that we can take your house if you don't pay us the money." 76 The trial judge accepted this evidence and, having regard to the fact that the whole purpose of the meeting was to explain the credit application documents to Mr and Mrs Ayoub, found that the necessary explanation was given. In doing so, the trial judge rejected Mr Ayoub's account of the meeting. No error has been demonstrated in his Honour's reasoning. 77 Mrs Ayoub gave evidence in which she denied that she knew she was signing a guarantee at the meeting. The trial judge did not accept that evidence. Furthermore, it is plain from her cross-examination that she knew what was involved in a guarantee. She was questioned about that matter in the following exchange: "Q. Your complaint to this court is that you didn't know this was a guarantee? A. Yes Q. You say had you known, you would have taken some advice, is that what you say? A. Yes. Q. The reason you would have taken some advice is because you knew then, on 28 June 2000, that a guarantee is a very serious document, didn't you? A. Yes. Q. You understood as at 28 June 2000 that a guarantee means personal liability didn't you? A. Yes Q. That is why you would want to take some advice? A. Of course. Q. You understood the nature and effect of a guarantee perfectly well as at 28 June 2000; correct? A. What do you mean like as 28 June. Q. Well, as at before you walked into this meeting? A. Yes Q. Before you walked in? A. Yes. Q. Your state of knowledge was that you knew what a guarantee was, didn't you? A. I was there to sign the credit application. … Q. I am not asking you whether you understood you were signing a guarantee, okay. I am not asking you that. I am not asking you whether you knew you were signing a guarantee. What I am asking you is before you got to this meeting, you knew a guarantee could make you personally liable for a debt and was not something you would sign lightly; correct? A. Yes." 78 Mrs Ayoub accepted that a copy of the credit application form with the terms and conditions of the guarantee had been provided to Mr Ayoub before the meeting. Indeed, it was because Mr Ayoub said he could not understand them that the meeting had been arranged. Accordingly, as the trial judge found, the opportunity for Mrs Ayoub to become familiar with the documents and take advice about them had been afforded to her. She acknowledged this fact in cl 14 of the contract. With these matters in mind, his Honour concluded: "It is true Mr Ayoub said he did not understand the documents and, so, the meeting was arranged with Mr Payne for the purpose of explanations being given - Mrs Ayoub attended and Mr Payne said he acted accordingly; it was not Mr Payne who was in a hurry, only Mrs Ayoub. Further, and importantly, Mrs Ayoub conceded that before she attended the meeting she knew a guarantee could make her personally liable for a debt and was not something she would sign lightly. I find not procedural injustice and, in my view, certainly no unconscionability in the conduct of Euphoric in obtaining and acting upon the guarantee against Mrs Ayoub." 79 I agree with his Honour's conclusion. 80 A submission was made that because the common seal of Bycoon was affixed to the guarantee, Mr Rogers having advised that this was necessary, the guarantee should be understood to have been given by Bycoon and not Mrs Ayoub. The submission would make the guarantee valueless and defies the commercial reality of the situation. At the top of page one of the guarantee, Bycoon is identified as the customer and Mrs Ayoub as the Guarantor. The appearance of Bycoon's common seal is an obvious mistake. In my opinion, the submission was rightly rejected by the trial judge.

Should Madallah have been a party? 81 It is submitted in the appeal that Madallah was a necessary party to the proceedings because there was always a dispute over the Madallah debt, as is made plain on the document by which the debt was transferred to Bycoon. Without Madallah, it is submitted the proceedings in respect of the Madallah component of the Bycoon debt are not properly constituted. The matter was not raised at the trial. 82 In my opinion, the submission is misconceived. No claim was made against Madallah in the proceedings. Instead, Euphoric brings proceedings in debt against Bycoon, part of the debt being moneys allegedly originally owed by Madallah, but novated to Bycoon. Whatever the outcome of the proceedings, the legal interests of Madallah could not be affected. No claim was made with respect to the legitimacy of or for any breach of the novation agreement (see News Ltd v Australian Rugby League Limited (1996) 139 ALR 193 at 299). Furthermore, this is not a case where an assignee sues to recover from a debtor where it may be necessary to protect the debtor from repeated claims (see the discussion in Jennings v Credit Corporation Australia Pty Ltd (2000) 48 NSWLR 709 and the helpful analysis by Rein DCJ in HP Mercantile Pty Limited v Timothy Meakes (District Court no 4894/02).

Browne v Dunn and other evidentiary matters 83 A submission was made by the appellants that in a number of respects, the evidence of Mr Ayoub that the fuel identified in the 14 invoices was not ordered or received, was not effectively challenged. A similar submission was made with respect to the evidence of Mr Fehring and Ms Flanigan that fuel had not been received or invoiced to Bycoon for the month of November. 84 There is no doubt that the denial by Mr Ayoub of the receipt of the fuel referred to in the 14 invoices was challenged at the trial. His account of this matter and the relevant sequence of events was obviously in issue. 85 With respect to Ms Flanigan's evidence, there was an obvious and successful challenge to the reliability of her fundamental assertions. With respect to Mr Fehring, the trial judge found that his oral evidence departed in material respects from his evidence on affidavit. His Honour concluded that his evidence was not credible and was put by him in such a way as was shown to be misleading and internally inconsistent. 86 The trial judge had the advantage of seeing and hearing the witnesses and I am satisfied that the advantage was not misused. An exploration of each evidentiary issue raised by the appellants at the trial would not, in my opinion, have been justified. The fundamental issues - was fuel received and, if received, had it been paid for - were comprehensively examined having regard to the available documents including diaries, the operation of the ordering and recording systems of Euphoric, and relevant persons' recollections. All of these matters were assessed having regard to the commercial reality of the situation. In my opinion, the findings made by the trial judge were not only open but were justified having regard to the whole of the evidence, whether or not the rule in Browne v Dunn (1893) 6R 67(HL) was fully observed (see Fabre v Arenales (1992) 27 NSWLR 437 at 451). 87 Complaint is also made that his Honour allowed Ms Giblin's affidavit of 2003 to be read. Apparently, Bell DCJ had made orders which would have precluded late evidence, including the reading of an affidavit at the hearing. 88 The transcript reveals that the trial judge received lengthy submissions after which his Honour decided to allow the affidavit to be read in the proceedings. It has not been submitted that his Honour's decision suffers from any error of principle or that any relevant discretion miscarried. No application for an adjournment was made at the trial to allow the appellants an opportunity to respond to the evidence and I can discern no possible basis for any suggestion that there was appellable error.

Interest 89 Interest was claimed from 1 May 2001 until judgment at a rate of 12% per annum. Interest at this rate was claimed as it was the rate provided by the credit terms for overdue accounts. The date of 1 May 2001 was chosen because by that date, Euphoric had made a demand for the total debt. 90 The appellants submit that interest at the rate of 12%, in particular in relation to that portion of the judgment relevant to the Madallah debt, is inappropriate. Instead, the appellants submit that the respondent should be confined to the court rate and awarded interest only from 14 February 2003, when the pleadings were amended to identify the Madallah debt. 91 In my opinion, this submission should be rejected. 1 May 2001 was an appropriate date for the commencement of interest, it being one month following Euphoric's written demand, which I am satisfied was adequate for the debt claimed. In fact the agreement of the parties provided for a much earlier date, being 21 days after the relevant fuel was supplied. With respect to the rate of 12%, that was the rate reflected in the commercial bargain of the parties and it was appropriate to be applied in the event that arrears occurred.

Costs 92 The trial judge ordered: "The first defendant (Mrs Ayoub) to pay the plaintiff's (Euphoric) costs of the action on an indemnity basis and of her cross-claim on a party-party basis. The second defendant (Bycoon) pay the plaintiff's costs of the action on a party-party basis." 93 The only challenge now brought by the appellants to these orders is the order for indemnity costs in respect of Mrs Ayoub. However, as the guarantee and indemnity provides for Mrs Ayoub to indemnify Euphoric with respect to any relevant debt and its recovery, it was clearly within his Honour's discretion to make the orders to which I have referred.

Notice of contention 94 The respondent filed a notice of contention in which it pressed submissions put below that the appellants would be liable for the Madallah debt on the basis of promissory estoppel and collateral contract. Having regard to my conclusion that the Madallah debt was effectively transferred to Bycoon, it is unnecessary to consider the notice of contention. 95 In my opinion, the appeal should be dismissed with costs. **********

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