BETTER SPRINKLER SYSTEMS P/L v GEORGE KOUSSIDIS No. SCGRG-98-97 Judgment No. S291 [1999] SASC 291

The plaintiff purchased the business on 1 July 1985. The appellant, who I will call the defendant, has had a long association with the building industry. Before 1985 he opened a running account with the predecessor in business of the plaintiff at the King William Street premises. The account was in his own name. When the plaintiff took over the business, the account in the defendant's name continued.

At all material times, the account was operated by way of what appears to be a cash register imprint on a printed card or statement. At the top of the card was the name of the defendant and an address, which varied from time to time. Opposite each cash register imprint the person taking delivery of the petrol or service would sign the statement opposite the particular cash register imprint. The original account would then be posted to the defendant once a month, showing the total debt incurred for that month and any outstanding balance carried forward. In some instances, instead of a signature on the statement, there would appear a reference to another monthly invoice, or a vehicle registration number, or some other endorsement.

In due course, the amount owing on the account was in excess of $30000, and the plaintiff sued the defendant for that amount in the Adelaide Magistrates Court.

The defendant claimed that he was not indebted, but that there had been novation of the original contract whereby the contracting party became John Koussidis Homes Pty Ltd. That company, when the action was commenced, had gone into liquidation, with little prospect of the plaintiff being paid by that company.

The defendant pleaded express novation by an oral agreement with the agent of the plaintiff, Mr Alex Martin. However, no such evidence was led at the trial, and the defendant's case was that there had been a novation to be inferred from a number of facts to which I shall shortly refer.

The magistrate who heard the case accepted the defendant's plea and dismissed the plaintiff's claim.

The plaintiff appealed to a single judge of this court, who allowed the plaintiff's appeal and entered judgment for the plaintiff. The defendant now appeals to this court seeking reinstatement of the magistrate's order.

The evidence shows that the account was initially used by the defendant and his wife, but that as time went on it was also operated on and signed for by a number of other persons, including the defendant's son, and a number of other people who were known by the plaintiff to work in the building business associated with the Koussidis family. It was also known by the plaintiff that the vehicles which were filled or serviced there were used in the same business.

All those additional people were shown to have operated on the account in a period between about May 1987 and June 1993, and periods thereafter. Some of them had been expressly authorised to use the account by John Koussidis, the defendant's son.

From about April 1986 Mr Martin, the operator of the plaintiff's business, was aware that the accounts were being paid by the business and that, from some time in 1990, that business was being conducted by an incorporated company.

The defendant's evidence was that he initially traded in partnership with his wife as "G Koussidis & Co", until about the end of 1981. There was then a period of about three years when he did not trade, and then he resumed trading as G Koussidis & Co Pty Ltd. The accounts from the plaintiff were sent to the business address, which changed during the relevant period at least twice.

The manager of that company, that is G Koussidis & Co Pty Ltd, included John Koussidis for a period, a person with whom, over the years, the plaintiff had more and more dealings.

At some stage, by a process not explained, the business, that is the building business, was taken over by John Koussidis Homes Pty Ltd, a company apparently controlled by the defendant's son. G Koussidis & Co Pty Ltd became deregistered. Although those facts were not known in detail, at least to the plaintiff, other evidence shows that John Koussidis Homes Pty Ltd started trading as such in about November 1989.

Throughout the whole period of the account, however, the account forms were only ever in the personal name of the defendant. He signed for various items on the account throughout that period, and he never suggested to the plaintiff that the account was being kept in the wrong name, or that the other signatures he saw on the statement were signatures of unauthorised persons. Although in later years it appears that the business was managed by John Koussidis, when a member of his staff pointed out to him that the account was being maintained in the name of G Koussidis, he did nothing about it. No-one ever requested the plaintiff to change the name or the identity of the account.

John Koussidis Homes Pty Ltd had an administrator appointed in August of 1995 and went into liquidation in December of that year. The plaintiff was not included in the list of creditors of the company to whom the liquidator gave notice of his appointment, or to whom any other notice was given by the liquidator. There may, of course, be explanations for that but they were not forthcoming, and in the absence of any explanation it was open to infer that the company and its directors did not regard the company as having had any liability to the plaintiff.

Notwithstanding all that evidence, particularly of the goods and services being supplied to a business conducted by the company, and whilst he did not refer to the fact of novation in so many words, the magistrate who heard the case concluded as follows:

"Having considered the respective arguments for some time I have settled on the view that the true arrangement which developed was that the company informally took over the account evidenced by various facts, namely, the number of company people purchasing fuel and personally signing for same, the adoption of the practice of accounts always being sent to the company address, the practice of all accounts being paid for by the company and the fact that the defendant was never pursued for any debts until well after it was apparent that the company had no funds."

"Whilst I formed the view that the plaintiff was an honest witness for whom one could not help but feel sympathy, I am nevertheless satisfied that the arrangement which evolved over many years was more consistent with the plaintiff's rather than the defendant's contention."

I interpose here to say it appears to me that the magistrate was not rejecting the plaintiff's evidence, but rather he was merely rejecting the contention or inference which the plaintiff invited him to draw from that evidence. The magistrate continued:

"The mere fact that either the plaintiff or the defendant chose to leave the account in the original form does not reflect the true position as between the parties; their relationship gradually developed through progressive changes so that it must have been clear that the company had taken over responsibility of the account and the plaintiff's and company's behaviour suggests that that is what they believed to be the case."

It will be noted that the magistrate inferred a change at some point in the identity of the contracting parties. He did not say when that occurred, although in my opinion the identity of a particular date is not necessarily fatal to a finding of novation. It is also to be noted that the facts on which the magistrate drew the inference were essentially not in dispute.

When the matter came before a single judge of this Court the Judge correctly stated the law in the following way:

"A novation occurs where a new contract is substituted for an original contract and in circumstances when the parties to both contracts accept the substitution: Tito v Waddell [1977] 1 Ch 106 at 287. The novation creates a new contract and therefore all the normal requirements for the formation of a contract must be present. There is no reason why a novation cannot be implied so long as the requisite intention is present. In Mutual Export v Asia Express Ltd (1990) 19 NSWLR 285 at 295 Carruthers J held that 'there may be tacit acquiescence by one party in the novation of a contract'. (See also Olsson v Dyson [1969] HCA 3; (1969) 120 CLR 365)"

His Honour went on to hold, by reference to a dictum of McHugh JA, with which Hope and Mahoney JJA concurred, in Integrated Computer Services v Digital Equipment, 5 BPR 11,110 that novation could be inferred from conduct provided that it proved all the necessary elements of an express contract, and that it was not necessary to pinpoint the precise time when the change occurred.

The learned judge recited the relevant facts and concluded there was insufficient evidence to conclude that the plaintiff agreed to a novation of the contract. Not only that, but it was consistent with the plaintiff's case, that it had never been treated as a creditor of John Koussidis Homes Pty Ltd.

The learned judge therefore commenced with the position, which was not disputed, that the original contract was made between the plaintiff and the defendant, but there was insufficient evidence from which he could infer that the plaintiff had agreed to substitute the company for the defendant.

In my opinion, that was the correct approach. There can be no doubt that, sitting as an appellant judge, his Honour was entitled to draw his own inference from the facts found by the magistrate. Warren v Coombes [1979] HCA 9; (1979) 142 CLR 531, in particular the joint judgment of Gibbs ACJ, Jacobs and Murphy JJ at 551. It cannot be shown that there was any error in the approach by the learned judge to the determination of the appeal. In my opinion it cannot be shown that he erred in refusing to draw the inference that there had been novation of the contract. I agree with his Honour that there was insufficient evidence to enable the inference to be drawn.

Let me deal briefly with the facts which the defendant says justified the inference of novation. The first group of facts can conveniently be dealt with together. Cars were supplied and serviced and were known by the plaintiff to have been used in a building business, a business operated by a company, and that the persons operating on the account were employed in business. Furthermore, the accounts were sent to what the plaintiff knew was a business address from time to time, and the accounts were paid apparently by a building business, sometimes, originally by George Koussidis Pty Ltd or by John Koussidis Homes Pty Ltd, although not invariably. There were some cheques drawn, particularly towards the latter stages of the account, which appeared to have been drawn on an account operated by John Koussidis himself or another account, the proprietor of which was unidentified, but which was merely named on the cheque as "John Koussidis Homes".

However, the plaintiff, I accept, knew that the business was being operated by a company. The contact person on the account form after 1986 was a person identified as Mandy, the company secretary. The evidence, as I see it, showed that the accounts had always been sent to a business address, even before the plaintiff acquired its present business.

I agree with the learned judge on appeal that there is nothing unusual in sending a personal account to a business address or for a business entity to pay a personal account. The plaintiff's knowledge that the account was being used for apparently business purposes does not establish in itself a novation.

There could be a number of reasons for that practice to have grown up. The plaintiff could have been happy to allow his personal account to be used, with some subsequent adjustments of his personal account with the company. There may well have been some indemnity arrangement between the plaintiff, instead of a guarantee of a company account by individuals. It may have been in the interest of the company in its relations with its credit providers to show a family member as a major creditor rather than an arms-length trade creditor.

Those are some of the possible interpretations. I hasten to say that there was no suggestion that there was any evidence of any of those things, but we are only concerned with possible reasons for an arrangement where the plaintiff is not told why a personal account is apparently used for business purposes.

However, although the cheques were sometimes accompanied by "with compliments" slips in the name of John Koussidis Homes, bearing the name of the company in small print at the bottom, the cheques themselves, at least those that were dishonoured from time to time, included ones which were, as I said before, cheques purporting to have been drawn by "John Koussidis Homes" or "J Koussidis". In other words, there was no consistent drawing of cheques to pay the account in the name of a company such as might even justify an inference of payment at all times by the company.

The second group of facts to which I refer is that there was evidence of the early appearance of John Koussidis on the signing of the account for goods or services provided by the plaintiff, and that he appears in turn to have authorised particular operators or expenses to be paid or debited on the account. John Koussidis's signature on the accounts appeared long before his company was incorporated and started trading. Given that the account was being used for business purposes, it would not be unusual for a family member of a family business to make decisions about payment of accounts by the business, and to authorise other people to operate on the account. It does not follow that the contract was with the business entity.

Thirdly, in the same vein was evidence that John Koussidis, by telephone, authorised the use of the account, by others. However, that was offset to a considerable extent by the fact that the defendant, in many cases, personally introduced the employees so authorised. In any event, once it was accepted that the account was being used for business purposes, it is not surprising that some responsible person in the business would authorise the use of the account.

All the facts in those three groups to which I refer are acts by people other than the plaintiff. They are relevant and might explain a particular situation, but none of them constitute actions by the plaintiff by which it could be said that the plaintiff had acknowledged that it was contracting with a different party and had released Mr Koussidis from liability under the original contract.

There were two series of facts from which it might be argued that such an acknowledgment could be inferred, and they must be critically examined. The first is that on a number of occasions Mr Martin, the principal of the plaintiff, when the plaintiff was having trouble being paid, wrote notes on the accounts apparently addressed to John Koussidis, and sought out John Koussidis at the office of the company rather than seeking out the defendant. The inference being, so it was said, that he sought him out because the plaintiff knew it was his company that was responsible under the contract.

There is no doubt that that occurred, but Mr Martin also spoke, it would seem, to Mr George Koussidis from time to time about unpaid accounts when George Koussidis came to the service station, and an arrangement was even entered into at some stage, at least on the plaintiff's evidence which appears to have been accepted by the magistrate, that the balance would be paid off by a series of continuing payments.

There was some dispute about the terms of that conversation but the magistrate, as I say, accepted the honesty of Mr Martin and, I infer, accepted his evidence. But the magistrate was not prepared to draw the necessary inference in favour of Mr Martin's company.

That conduct to which I referred, that is the approaches to John Koussidis at the premises of the company, does not suggest that the plaintiff no longer considered George Koussidis ultimately responsible for the performance of the contract. Once again, it comes back to an understanding by the plaintiff that whatever arrangements might exist between the various members of the family and their respective companies, goods and services supplied were to be used in and for the business, and in the normal course would be paid for by the business. It would not be unusual, with that expectation, to approach the person understood to be responsible for finding the money, wherever it might ultimately come from. It does not follow that conduct of the plaintiff constitutes an acknowledgment that the defendant is no longer bound by his contract.

It should also be noted in this context that when it was pointed out to John Koussidis that the account name was in the name of G Koussidis, he consciously eschewed any attempt to correct it. One could infer from that that whatever the practical source of funds was, John Koussidis and his company were avoiding any commitment to liability for the account, a necessary element of any novation.

In a similar vein it was argued the plaintiff had acknowledged that he was contracting with the company because it was not until after the plaintiff had stopped further credit on the account for some time that it first approached John Koussidis at his home seeking payment, but then much later did he only approach the defendant at his home, when it was quite clear that the plaintiff would not be paid by John Koussidis's interests. My answer to that is that to approach John Koussidis does not suggest the plaintiff was necessarily by then contracting with a company. Secondly, given the business practice to which I have referred and of which the plaintiff knew, it was not surprising that those avenues might be exhausted before calling on the person ultimately liable to pay on the contract.

I am not persuaded that the necessary inference against which the plaintiff can be drawn from any individual fact to which I have referred or from those facts taken collectively. The one recurring feature throughout the whole period of the account is that it remained in the name of the defendant personally, that throughout that period he continued to sign the statements on delivery of goods and services to him, that he was aware of others using the account and that he never suggested to the plaintiff that the account was maintained in an incorrect name. For these reasons I would dismiss the appeal.

WICKS J. I agree the appeal be dismissed for the reasons given by Bleby J.

45. MR WHITE. Yes, I have two applications. First I seek an order for costs. The second application is that your Honour will see that Lander J, by his orders on 20 November 1998, which is at 31 and 32 of the appeal book par 4 which is at 32, entered judgment for the sum of $36000 being the amount of the appellant's claim together with a lump sum of interest of $6000 in lieu of interest otherwise payable for the period since the service of the proceedings on 26 September. I would ask that this court set a rate of interest or interest on the $36000.

46. DOYLE CJ. That is done under the rules. It is interest as on a judgment so it would be whatever is the appropriate rate of interest as on a judgment for the Magistrates Court, so we do not need to do anything about that.

47. MR WHITE: I only raised it because Lander J fixed a lump sum.

48. DOYLE CJ. You are talking about post judgment interest which is under the rules. What do you say about costs Mr Kourakis?

2. The appellant pay to the respondent its costs of the appeal to be taxed.