Caltex Australia Petroleum Pty Ltd v Troost

Court of Appeal (NSW)|2015-02-09|Before: Meagher JA, Barrett JA, Emmett JA, Rail Logistics P

[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]

Judgment

MEAGHER JA: I agree, for the reasons given by Emmett JA, that this appeal should be allowed and that judgment should be entered and orders made as proposed by his Honour.
I add the following brief observations concerning the first two of Mr Troost's four arguments raised by way of contention. Those arguments are summarised by Emmett JA at [37].
As to the first contention: the subject matter of Mr Troost's indemnity was Caltex's "losses, damages, costs and expenses" by reason of "any default by the Applicant under the facility". The facility was described in the application signed by Mr Troost on behalf of Road Sea Rail Logistics P/L, and dated 5 November 2002, as "the CAPPL ACCOUNT CREDIT FACILITY and/or STARCARD FACILITY on the Terms and Conditions for Use of the StarCard and of the DDR Service Agreement … as may be amended from time to time". Notwithstanding that as between Caltex and Road Sea Rail, the originally applicable terms and conditions were subsequently amended, the "facility" and any losses incurred by reason of any defaults under it continued to answer the description of what was agreed to be the subject of the indemnity.

Factual background

On 5 November 2002, the Company completed an application to Caltex for a "Credit Facility and/or StarCard Facility". At that time, Mr Troost was the shareholder, sole director and secretary of the Company and he signed the application form on behalf of the Company. The trial judge found that, at that time, Mr Troost was very experienced in business.
The application form contained provision for the name and details of the applicant, including its credit requirements. It also contained a "Directors' Statement of Affairs" section, which required details of the names of directors of the applicant, and details of the assets and liabilities of the directors. Provision was made for the details of two directors. Mr Troost's details were inserted in that section of the application, including details of assets and liabilities that were subsequently demonstrated to be false. At the foot of the application form was a "Declaration" in the following terms: I/We hereby apply for use of the [Caltex] account credit facility and/or StarCard facility on the Terms and Conditions for Use of the StarCard and of the DDR Service Agreement which has been provided to me/us prior to signing this application and as may be amended from time to time. I/We declare that the particulars provided on this application are true and correct and I/we hereby represent and warrant that I/we have actual authority for and on behalf of the Applicants. I/We understand that Caltex determines whether or not to grant this Application relying on my/our representation and warranty.
In addition, the documentation contained a section entitled "Guarantee and Indemnity by Directors" and another section entitled "Statutory Declaration by Guarantor/Indemnifier". Each of those sections contained provision for signature by directors of the Company. The form of those two sections is as set out in the Appendix to these reasons. Relevantly, the guarantee and indemnity section had four signature blocks while the statutory declaration section had two signature blocks. The significance of that difference will become apparent in due course.
Mr Troost signed the statutory declaration section on 7 November 2002. Two other employees of the Company, Mr Gordon Lothian and Ms Loraine Johnson, also signed the statutory declaration section. It appears that they only signed as witnesses, since Mr Troost is the only person who is described as making and subscribing the declaration. On 19 November 2002, Mr Troost also signed the guarantee and indemnity section. There does not appear to have been any explanation as to why the two sections, which are on a single page, were signed by Mr Troost at different times. As appears from the Appendix, the guarantee and indemnity section consists of two columns, with two signature blocks under each column. The notation "signature of guarantor (director)" appears next to each of the four signature blocks. Mr Troost signed one of the signature blocks in the left-hand column, but did not sign any of the other signature blocks. More specifically, he did not sign in the right-hand column. That is of critical importance in the present case.
On 18 December 2002, Caltex accepted the Company's application and, from December 2002 to December 2009, Caltex supplied petroleum products to the Company on credit. The Company apparently paid for all products supplied apart from the products supplied in November and December 2009.
On 30 September 2008, Caltex sent an account statement containing a notice to the Company saying that, with effect from 14 November 2008, changes would apply to the terms and conditions on which Caltex supplied products. The notice stated that the Company would be taken to agree to comply with the new terms and conditions unless Caltex was informed otherwise by 13 November 2008. A notice in similar terms was sent by Caltex to the Company on 31 October 2008, 30 November 2008 and 31 December 2008. The trial judge held that the changes to the terms and conditions were binding on the Company. However, as will appear, her Honour held that Mr Troost did not consent to the changes in his personal capacity as a guarantor and indemnifier.
The terms and conditions applicable as from November 2008 contained a clause dealing with security in the following terms: 7.1 For the purposes of securing payment of all monies due and payable to Caltex by the [Company] arising from the use of the StarCard Facility and/or Bulk Facility, the [Company]: (a) agrees to deliver to Caltex, within seven days of written demand, a mortgage in respect of the [Company's] Property in a form acceptable to Caltex together with any documents required to obtain registration of the mortgage; (b) charges to Caltex all its Property (wherever situated) to secure its obligations under this Deed [sic] and authorises and consents to Caltex lodging a caveat (in a form and subject to any conditions as Caltex sees fit) upon the title to the Property in Caltex's absolute discretion; and (c) irrevocably appoints Caltex and persons nominated by Caltex separately as the attorney of the [Company] with power to sign and lodge such caveat or other similar document to give effect to these provisions. The term "Property" is defined as meaning all property, wherever situated, including all real and personal property, business and trading assets, stock, choses in action, goodwill and uncalled capital.
On 25 November 2008, the solicitor for both Mr Troost and the Company, and who acted for Mr Troost in the proceedings, wrote to Caltex saying that an associated company of the Company had registered a charge over the main assets of the Company. He said that the Company's main asset was its debtors' ledger which had, over the last 15 months, varied between $350,000 and $830,000. The solicitor said that he had been instructed that Caltex was considering the withdrawal of its facility to the Company as a result of the associated company's charge being registered. He said that the Company was prepared to grant Caltex priority over "the amount in the debtors' ledger at any time", such priority to be limited to the balance of the Caltex facility at that time. There was no evidence before the trial judge as to the response to that letter. In fact, the associated company referred to by the solicitor had not registered a charge although, by January 2007 (relevantly, before the time of the new terms and conditions), two other charges had been registered in respect of the Company.
Mr Troost ceased to be a director of the Company on 23 October 2009, the day before he was disqualified from acting as a director of any company. At the time when Mr Troost ceased to be a director of the Company, his mother assumed the position of sole director. Mr Troost continued to be the only shareholder of the Company. However, he asserted that, after he ceased to be a director, he ceased to have any involvement in the management of the Company.
On 4 November 2009, Caltex wrote to Mr Troost, as director of the Company. Caltex said that, on the basis of a credit review of the Company's StarCard account following a "recent payment dishonour", the Company's credit limit was reduced to $150,000 and the account with Caltex would cease on 4 December 2009. Petroleum products were thereafter delivered by Caltex to the Company from 8 November 2009 to 14 December 2009.
On 23 December 2009, Caltex sent a written demand to Mr Troost for payment of the amount then allegedly owing by the Company. Mr Troost failed to comply with the demand.
On 15 July 2010, the Company was placed into voluntary administration and, on 1 September 2010, it entered into a deed of company arrangement. Caltex proved in the administration under the deed and received a final dividend of $5,249.81. On 12 November 2012, Caltex commenced the proceedings against Mr Troost in the District Court.

Reasons of the trial judge

There was no dispute that Mr Troost had signed the documentation in three separate places. However, Mr Troost raised several matters by way of defence. It is desirable to say something about her Honour's reasons in dealing with the matters that are relevant to the appeal, since Mr Troost maintains that the decision of the trial judge in his favour can be supported on the basis of those further matters, even if her Honour was wrong on the question raised by Caltex in the appeal.

Variation of terms and conditions and whether Mr Troost was bound by the guarantee

The trial judge observed that Caltex's claim initially focused on the terms of the contract between it and the Company as at 18 December 2002, when Caltex accepted the application signed by Mr Troost. Her Honour found that the Company was bound by the application signed on its behalf by Mr Troost as its then sole director, and further found that, whatever the precise content of the original terms as at 18 December 2002, the application form expressly included acceptance of amendment. The trial judge concluded, therefore, that the original terms were irrelevant. In the course of the hearing, Caltex was given leave to amend its statement of claim to assert that the contract between Caltex and the Company relied on was the contract as amended in 2008.
The trial judge accepted Caltex's evidence that the account statements containing notice of the change of terms were posted to the Company. Her Honour found that, by its inertia or tacit acceptance, the Company accepted and was bound by the 2008 terms and conditions. Accordingly, her Honour held that the changed terms and conditions that were to apply with effect from 14 November 2008 were the terms in place when the relevant debts were incurred by the Company in 2009.
Mr Troost asserted in his defence that, due to Caltex's variation of the terms and conditions of the arrangements with the Company without his consent, Caltex was not entitled to enforce the guarantee and indemnity against him, or the guarantee and indemnity were otherwise discharged. Caltex accepted before the trial judge that it had the onus of establishing that Mr Troost had consented to the variation.
Relevantly to the question of consent, the trial judge found Mr Troost to be an unreliable witness of little credit. Her Honour said that his answers and his presentation in the witness box gave the impression of guile and of the careful finessing of answers to the point that some "slid into evasion". Her Honour referred to the declarations about Mr Troost's assets and liabilities contained in the application signed by Mr Troost on behalf of the Company, which declarations were false in virtually all material respects. Mr Troost had no explanation for that falsity. In cross-examination, he dismissed the significance of the false statements by saying that he was busy and signed many such documents. Her Honour regarded that as a strange explanation, since the application was completed in at least three separate stages on three days over a period of nearly two weeks. Her Honour concluded that it was difficult to reconcile the fact that the signatures were placed at different times with Mr Troost's explanation of the pressures of time. No explanation was offered to explain the circumstances of the three signatures by Mr Troost.
Accordingly, the trial judge treated Mr Troost's evidence with "considerable caution". Nevertheless, her Honour concluded that the evidence did not support a finding that the varied terms and conditions of 2008 came to the actual personal knowledge of Mr Troost. Her Honour therefore concluded that Caltex's claim on the guarantee should fail by reason of that amendment, to which Mr Troost had not consented. It was therefore necessary to consider whether Mr Troost was bound by the indemnity.

Whether Mr Troost was bound by the indemnity

The trial judge held that the page layout of the guarantee and indemnity section contemplated execution by two directors, in that there was the provision for two signature blocks under the left-hand column and two signature blocks under the right-hand column. Her Honour considered that the indemnity, in the right-hand column, was separate from the guarantee, in the left-hand column, such that the indemnity was contained in a standalone column with its own signature blocks underneath. Her Honour further considered that, if Caltex's submission as to the construction of that section were accepted, there could be up to four guarantees and indemnities, but only two could be supported by statutory declarations. Her Honour concluded that, on a proper construction of the document, the application called for each of the guarantee and the indemnity, as well as the statutory declaration, to be separately signed by each relevant director: Her Honour considered that that conclusion was strengthened having regard to "the strict approach to guarantees" applied by the law.
The trial judge found that the application on behalf of the Company was "submitted without adherence" to the form of indemnity, since it was not separately signed by Mr Troost. Her Honour found that, while Mr Troost had signed the guarantee clause, he had not executed the indemnity clause. Her Honour held that, accordingly, Mr Troost bound himself only to the clauses containing the guarantee in the left-hand column and did not bind himself to the clauses containing the indemnity in the right-hand column. Therefore, her Honour concluded, the indemnity did not attach to Mr Troost and Mr Troost was not bound by the indemnity clause.

Proof of indebtedness of the Company

Apart from the above matters, Mr Troost did not admit that any underlying debt was owing by the Company to Caltex. The invoices relating to the indebtedness claimed by Caltex related to deliveries made in November and December 2009, following Mr Troost's disqualification from office. Nevertheless, he continued to be the sole shareholder of the Company. He acknowledged that he continued to have contact with his mother, but asserted that that was not on a business basis, only on a family basis. Mr Aleksandar Popic, a Caltex officer who gave evidence about the invoices, had no personal knowledge of what products were supplied, what invoices were rendered or what payments were made. Mr Popic acknowledged that it was possible that the invoices were returned to Caltex. Nevertheless, there was no suggestion that the invoices in question were returned by the Company and her Honour found that there was not so much as a scintilla of evidence that that is what happened. Her Honour found that there was no evidence to cast doubt upon Caltex's records showing that petroleum products were supplied, invoices and accounts were sent to the Company, and the amounts shown on the invoices were not paid.
In that regard, the trial judge drew some comfort from the fact that Caltex's proof under the deed of company arrangement was accepted and a distribution was made to it. There was no suggestion that Mr Troost did not have access to the records of the Company and, if there were a genuine dispute as to whether products were supplied, invoices were sent and payments were not made, it would have been open to Mr Troost to adduce evidence as to those matters from the Company's records. He did not do so. Her Honour drew an inference that the payment under the deed of company arrangement reflected the Company's acknowledgement of the underlying debt. In effect, her Honour found that the Company remained indebted to Caltex in respect of the price for petroleum products sold and delivered under the credit afforded to the Company by the StarCard facility that was in force at the time of the delivery.

Failure to provide security

Mr Troost asserted that it was a term of the arrangement between Caltex and the Company from November 2008 that the Company was obliged to provide security to Caltex, the Company failed to provide security and Caltex took no steps to require the Company to provide security. Mr Troost asserted that, in those circumstances, Caltex agreed or acquiesced in the Company not providing security or waived or abandoned its entitlement to the security, such that it is not entitled to enforce the guarantee and indemnity against Mr Troost or the guarantee and indemnity was otherwise discharged.
The trial judge concluded that there was no evidence that Caltex failed to require the Company to register a charge. Her Honour considered that there was no evidence that there was any security of the Company's to attach and that, to the extent that there was a failure to register any charge, fault lay substantially at the feet of the Company, which continued to be under Mr Troost's management until October 2009.

Indemnity operated only while a director

Mr Troost contended that, on its proper construction, the guarantee and indemnity applied only while he was a director of the Company. He asserted that the guarantee and indemnity came to an end on 23 October 2009, when he ceased to be a director, that the debts of the Company to Caltex were incurred after he ceased to be a director, or that the default by the Company occurred after he ceased to be a director. Accordingly, the defence asserted, Mr Troost had no liability under the guarantee and indemnity. The trial judge rejected Mr Troost's contentions in that regard. Her Honour considered that there was nothing on the face of the document that limited the term of the guarantee to the term of office.

Increases in credit limits

Mr Troost asserted that he was discharged by reason of increases in the Company's credit limits without his consent. There is some question as to the amount of the original credit limit contained in the credit application. Mr Troost contends that the original credit limit was $50,000. The trial judge found that Caltex had accepted the Company's application for credit on the basis of a limit of $100,000 and payment within 14 days. However, the credit limit at any given time varied, since the contract terms contemplated such amendment "from time to time". Thus, on 15 February 2007, Caltex informed the Company, by letter addressed to Mr Troost, that the credit limit had been raised to $200,000.
The trial judge found that Mr Troost was told of the increase and accepted it for himself and on behalf of the Company, by his silence in and after February 2007 and actively in correspondence during 2008. For example, Mr Troost discussed the credit limit with Caltex on 1 August 2008 in an email exchange. Her Honour concluded that the absence of protest by Mr Troost was plain evidence of his acquiescence of the increase in the credit limit, bearing in mind that he was the director, as well as guarantor, at the time. Her Honour concluded that Mr Troost, in his capacity as guarantor, chose to run the risk of an increased credit limit with full knowledge of the increased limit. Her Honour found that Mr Troost had personal knowledge of the increased credit limit.

Conclusion of the trial judge

Thus, the trial judge concluded that Mr Troost's liability under the guarantee clause was discharged by the variation in the terms and conditions in 2008 and that Mr Troost was never bound by the indemnity clause because he had not signed in the right-hand column. Accordingly, judgment was entered for Mr Troost.

Issues on appeal

In seven separate grounds in the notice of appeal, Caltex complains about the conclusion reached by the trial judge that, by signing only under the clause constituting a guarantee, Mr Troost did not bind himself to the indemnity clause. Caltex contends that her Honour erred in finding that the indemnity clause was separate from the guarantee clause and that Mr Troost did not sign under the indemnity clause such that it attached to him.
Mr Troost filed notice raising seven further contentions that would arise if this Court were to reach a different conclusion on the question of whether the indemnity clause was binding on Mr Troost. In the course of argument, Mr Troost abandoned three of those contentions. The remaining contentions may be summarised as follows: 1. The variation of the terms and conditions between Caltex and the Company, without the knowledge and consent of Mr Troost, discharged his obligation under the indemnity clause; 2. Mr Troost was discharged from the guarantee and from the indemnity because Caltex had failed to preserve the security to which it was entitled under the facility, had unilaterally increased the credit limit applicable to the credit agreement or had granted to the Company extensions of time to pay; 3. The obligation of Mr Troost under both the guarantee clause and the indemnity clause were extant only for so long as Mr Troost was a director of the Company or only in respect of liabilities incurred while he was a director of the Company; and 4. Caltex had not proven that the Company was indebted to it, in that it failed to prove the terms of the agreement on which it relied, that those terms had been notified to the Company, that it had provided the petroleum products in question to the Company and that it had sent invoices to the Company in respect of those products.
None of Caltex's grounds of appeal challenges the conclusion reached by the trial judge that any liability of Mr Troost under the guarantee clause was discharged by the variation in 2008 of the terms and conditions of the facility granted to the Company by Caltex. Thus, the sole basis for Caltex's appeal is that the trial judge ought to have found that Mr Troost was bound by the indemnity clause. If that contention is upheld, it will be necessary to consider the additional contentions advanced on behalf of Mr Troost.

Whether Mr Troost was bound by the indemnity clause

Mr Troost says that the "Guarantee and Indemnity by Directors" section of the documentation should be construed strictissimi juris and, insofar as there is any ambiguity, it should be construed against Caltex. Caltex does not seriously dispute that proposition (see Ankar Pty Ltd v National Westminster Finance (Australia) Ltd [1987] HCA 15; 162 CLR 549 at 560-1, and Andar Transport Pty Ltd v Brambles Ltd [2004] HCA 28; 217 CLR 424 at [23], in which the High Court said that the principles of construction applicable to guarantees also apply to indemnities).
Mr Troost points to the fact that the indemnity clause is separate from the guarantee clause, insofar as they are in separate columns and each column has two signature blocks below it. Thus, there are four signature blocks in the "Guarantee and Indemnity by Directors" section of the documentation, whereas there are only two signature blocks in the "Statutory Declaration by Guarantor/Indemnifier" section and provision for only two directors in the "Directors' Statements of Affairs" section. Thus, he says, the author of the documentation contemplated that there would be no more than two directors, each of whom would sign the guarantee clause, the indemnity clause, the statutory declaration section and the statement of affairs section.
There are several factors that point irreversibly the other way. Those factors taken together indicate that there is no ambiguity in the guarantee and indemnity section of the documentation.
First, and particularly significant, is the fact that the left-hand column begins with an expression of consideration, whereas the right-hand column does not refer to any consideration. If each column were intended as a separate agreement, there would be no consideration for the indemnity. On the other hand, if the two columns are read as a single promise, given in consideration of the grant of the relevant facility, they make perfect sense consisting of three separate elements as follows: I/We irrevocably guarantee jointly and severally … I/We will jointly and severally indemnify … I/We agree that this is a continuing Guarantee and that my/our liability hereunder shall not be released …
It would be a quite unrealistic construction to treat the expression of consideration in the left-hand column as relating only to the first clause and not to the second and third clauses. It would be curious indeed if the parties contemplated that there was consideration for the guarantee, but not for the indemnity, and that the provision that the "Guarantee" would be a continuing one and was not to be discharged by conduct of the principal creditor was to qualify only the indemnity clause and not the guarantee clause. The references to "continuing guarantee" and "sureties" in the third clause are particularly apt to qualify the first clause, which is a guarantee, and are quite inapt to qualify the second clause, giving an indemnity.
Secondly, it is clear that, when the third clause refers to "this" being "a continuing Guarantee", it must be referring to the guarantee clause, if anything, and not simply to the indemnity clause.
Thirdly, the conjunctive "and" is used in the title of the "Guarantee and Indemnity by Directors" section (my emphasis added). If the intention were to have different obligations, one would expect different headings.
Fourthly, the descriptor "Guarantor/Indemnifier" is used in the "Statutory Declaration by Guarantor/Indemnifier" section, rather than "Guarantor and/or Indemnifier". One would expect the latter if the two columns were intended to convey different obligations.
Finally, the conjunctive "and" is used in the expression "Guarantor(s) and Indemnifier(s)" wherever that phrase appears in the text of the statutory declaration, rather than the phrase "Guarantor(s) and/or Indemnifier(s)". Again, one would expect the latter if different obligations were intended. The signature blocks under both the left-hand column and the right-hand column of the guarantee and indemnity section are identical and refer only to "Signature of Guarantor (Director)", whereas in the statutory declaration section is headed "Guarantor and Indemnifier". It would be curious that the same descriptor is used, if the signature blocks under the right-hand column were only intended to relate to an indemnifier and not a guarantor.
Those considerations indicate clearly enough that the author of the documentation intended that the guarantee and indemnity section create only one obligation for any director who signed that section. The fact that provision was made for up to four directors to sign, thereby accepting the obligation containing three clauses, in consideration of the grant by Caltex of the relevant facility to the applicant, whereas provision was made in other sections for only two directors to sign, is not capable of outweighing the only sensible commercial sense that can be made of the documentation.
The trial judge erred in concluding that Mr Troost was not bound by all of the clauses that constituted the "Guarantee and Indemnity by Directors". It would follow that, but for the contentions raised by Mr Troost in his notice of contention, there would be judgment for Caltex against Mr Troost in an amount equal to the unpaid balance of the Company's account under the facility, together with interest on that amount from the date of demand by Caltex up to the date of judgment. It is necessary, therefore, to consider Mr Troost's contentions.

Contention (2): failure to preserve security

These two contentions are related and it is convenient to deal with them together. They involve similar legal principles. While in many circumstances a guarantee and an indemnity are designed to achieve the same purpose, they create different obligations. A guarantee gives rise to a secondary liability, whereas an indemnity gives rise to a primary liability. That is to say, for the most part, the liability of a guarantor depends upon the non-performance by a principal debtor of an obligation owed by the principal debtor to a principal creditor. In the case of an indemnity, however, there is no such dependence. That distinction has important consequences.
The essence of the difference is that, under an indemnity, the indemnifier promises to make good loss or damage suffered by the other party (usually the principal creditor) as a consequence of some specified event or circumstance. An indemnity need not relate to a failure by another party (such as the principal debtor) to perform a contractual obligation. Where, however, the loss or damage indemnified is that flowing from the failure by the principal debtor to perform a contractual obligation, the object of the indemnity is clearly enough to achieve the same object as a guarantee of that obligation. Nevertheless, an indemnity creates a principal obligation, rather than a secondary obligation (see generally, Canty v PaperlinX Australia Pty Ltd [2014] NSWCA 309 at [37]-[40]; Sunbird Plaza Pty Ltd v Maloney [1988] HCA 11; 166 CLR 245 at 254-6).
In the case of a guarantee, if there is an agreement made between the principal creditor and the debtor to vary the obligation that is the subject of the guarantee, the guarantor ought to be consulted. If the guarantor does not consent to the alteration, the guarantor will be discharged unless it can be shown, without enquiry, that the alteration was unsubstantial or could not be otherwise than beneficial to the guarantor. If it is not self-evident, the Court will not enquire as to the effect of the alteration to determine its materiality (see Holme v Brunskill [1878] 3 QBD 495 at 508 and Ankar v National Westminster at 558-9). The principal creditor will not be permitted to vary the guaranteed obligation or to extend time to the debtor without consulting and obtaining the consent of the guarantor since, by doing so, the principal creditor alters the rights of the guarantor (Ankar v National Westminster at 560). However, if the principal contract contemplates and provides for variation of its terms, then the obligations guaranteed by the guarantor will also be subject to variation, with the consequence that such variation will generally not discharge the guarantor's liability (see, eg, Trade Credits Ltd v Burnes [1979] 1 NSWLR 630 at 634).
Thus, relevant to contention (1) is the extent to which the granting of time to a debtor, or other variation of the arrangements between the debtor and the principal creditor, will have the effect of discharging an indemnifier, as distinct from a guarantor. In principle, a material variation of the terms and conditions applicable to the obligations of the principal debtor to the principal creditor, if the variation is material so far as concerns the indemnifier, may well create a pro tanto discharge of the obligation to indemnify. That principle is strengthened by the fact that an indemnity is a primary obligation, which is by its nature more onerous than a secondary obligation. That is to say, assuming there is no express term to that effect, there may well be an implied term of an indemnity that the indemnified party will not vary the terms of the principal obligations so as to render more onerous the obligation to indemnify in respect of loss or damage resulting from a breach of the principal obligations. That argument was left open by this Court in Schoenhoff v Commonwealth Bank [2004] NSWCA 161 at [26]-[29].
Generally, where an indemnified party has the benefit of securities provided by a principal debtor and the indemnifier indemnifies the indemnified party in respect of loss, equity would treat the indemnifier as being subrogated to the security rights of the indemnified party (see Morris v Ford Motor Co Ltd [1973] 1 QB 792 at 800-1; Bofinger v Kingsway Group Ltd [2009] HCA 44; 239 CLR 269 at [6]-[8]). Accordingly, to the extent that the indemnified party impaired or released the securities, there may well be a basis for the indemnifier to be discharged to that extent. That question arises in relation to contention (2).
As indicated above, the trial judge concluded that the variation of the terms and conditions of the arrangement between the Company and Caltex without the consent of Mr Troost had the effect of discharging Mr Troost from his obligations under the guarantee clause found by her Honour to be separate from the indemnity clause. There was no ground of appeal based on that conclusion. Rather, Mr Troost raised that matter as a contention, on the assumption that this Court reaches a different conclusion on the construction question. A notice of contention is filed where a respondent seeks to uphold the decision below on grounds other than those relied on by a trial judge. In relation to this question, Mr Troost was successful before the trial judge. The matter should therefore have been raised by Caltex as a ground of appeal. However, the appeal proceeded on the basis that the issue was properly raised in this Court.
Assuming that both the left-hand and right-hand columns of the guarantee and indemnity section of the documentation constitute one agreement, the agreement for a "continuing Guarantee" in the third clause of that section would prima facie be an answer to the contentions advanced by Mr Troost that the variation in the terms of the facility between the Company and Caltex or the failure to enforce any entitlement to security that it may have had discharged the guarantee as well as the indemnity. However, it is by no means clear that Caltex initially placed any store on that provision. Rather, Caltex appeared to have accepted initially that at least the 2008 variation of the terms and conditions of the facility discharged the obligation under the guarantee clause.
It was common ground that the terms and conditions of the facility granted to the Company by Caltex in 2002 were varied in 2008. Mr Troost contends that the finding by the trial judge that he did not personally know of or consent to the variation in 2008 of the arrangements between the Company and Caltex was sufficient to dispose of the claim by Caltex under the indemnity clause.
The trial judge made no express finding about the precise terms and conditions that governed the facility as entered into in 2002. Nevertheless, there was evidence as to those terms and conditions. An officer of Caltex, Mr Aleksandar Popic, swore an affidavit in which he asserted, in inadmissible form, that an annexure to the affidavit was a copy of the relevant terms and conditions. That part of the affidavit was not the subject of objection, although the deponent was subsequently cross-examined to demonstrate that his knowledge of the terms and conditions applicable in 2002 was entirely hearsay. Nevertheless, there was no further objection to the admissibility of the material in question. Thus, it is possible to compare the terms and conditions that applied to the facility when it was entered into in 2002 with the varied terms and conditions imposed by Caltex in 2008. While the trial judge found that the change had not necessarily been brought to the attention of Mr Troost and that he had not consented to the change, her Honour found that the Company was bound by the change. At the time, Mr Troost was still the sole director and shareholder of the Company.
In the present case, as in any case involving an indemnity, it is necessary to identify the precise event that is the subject of the obligation undertaken by Mr Troost. That requires, in the present case, a careful analysis of the guarantee and indemnity section to determine the event that gives rise to the obligation to indemnify, and to determine whether it is self-evident that the alteration made in 2008 was immaterial.
Whether the obligation of Mr Troost under the indemnity clause of the guarantee and indemnity section applied to the arrangement between the Company and Caltex as amended in 2008 is a question of construction of that clause. The language of the clause is, relevantly, as follows: I/We will jointly and severally indemnify [Caltex] against all losses, damages, costs and expenses which may be incurred by [Caltex] by reason of any default by the [Company] under the facility. [emphasis added]
The word "facility" is not defined in the documentation. However, the evidence suggests that the application form, the "Guarantee and Indemnity by Directors" section, the "Statutory Declaration" section and the "Terms and Conditions" section may have been part of a single document, although that is not a matter without doubt. The final clause of the guarantee and indemnity section refers to "the Applicant's obligations set out above", and the application section contains a declaration on behalf of the applicant in the following terms: I/We hereby apply for use of the [Caltex] account credit facility and/or StarCard facility on the Terms and Conditions for Use of the StarCard and of the DDR Service Agreement which has been provided to me/us prior to signing this application and as may be amended from time to time. [emphasis added]
The consideration clause of the guarantee and indemnity section refers to Caltex agreeing to make "the [Caltex] account credit facility and/or the StarCard Facility" available to the Company. In those circumstances, the reference in the indemnity clause to "the facility" can only refer to the Caltex Account Credit Facility and StarCard Facility that is the subject of the application. As indicated, that refers to the relevant facility "as may be amended from time to time".
There was only ever one facility in place between the Company and Caltex. That is the facility that was granted in December 2002. That is the facility to which the indemnity clause relates. That facility was capable of variation from time to time as the application form clearly demonstrated. On its proper construction, the indemnity clause relates to any loss, damage, cost or expense incurred by Caltex by reason of any default by the Company under the facility granted on 18 December 2002, as amended from time to time. Clearly enough, subject to contention (3), Caltex has suffered loss by reason of the Company's default in the payment of the monies owing under the facility granted in 2002, as amended in 2008.
The conclusion that Mr Troost's obligation under the indemnity clause applied to the obligations of the Company under the facility granted in December 2002, as amended from time to time, obviates the need to determine whether the alterations made in 2008 were material. As I have said, Caltex conceded, in effect, that it was not self-evident that the alterations were immaterial. Hence, the trial judge did not undertake an analysis of the alterations. Assuming that the principles applicable to the construction of guarantees, as described in Ankar, apply to an indemnity, where the indemnity relates to the performance of a contractual obligation, as in the present case, it would follow that the alterations made in 2008 were material to an indemnifier, as well as to a guarantor. However, as I have said, it is unnecessary to determine that question.
Mr Troost also contended that Caltex was precluded from enforcing the indemnity clause because:

it had failed to preserve the security to which it was entitled under the terms and conditions of the facility;
it had unilaterally increased the credit limit applicable to the facility; and
it granted extensions of time to the Company to pay its debts. Those contentions require a consideration of the terms and conditions, as well as the conduct of Caltex in dealing with the accounts of the Company.

On 25 November 2008, the Company's solicitors wrote to Caltex saying that the Company's main asset consisted of its debtors' ledger, which had varied between $350,000 and $830,000 in the previous 15 months and that the Company was prepared to grant priority to Caltex over that asset. That appears to be an intimation of preparedness to grant some form of charge over debts due to the Company as security for the Company's indebtedness to Caltex. It appears that no steps were taken to give effect to any such charge.
Mr Troost contended that, because Caltex did not make written demand for a mortgage as contemplated by cl 7 of the amended terms and conditions, as set out above, and did not take steps to register under Pt 2K.2 of the Corporations Act 2001 (Cth) (as it existed at the relevant time) the charge purportedly created by that clause, he was discharged by the operation of the principle that where a creditor fails to preserve a security or the creditor loses a security, the liability of parties who bear a secondary liability for the debt would be reduced accordingly (see, eg, Brueckner v Satellite Group (Ultimo) Pty Ltd [2002] NSWSC 378; 15 BPR 98,462 at [131]). He says that that principle applies, by way of analogy, to an indemnity.
However, it was the Company, not Caltex, that was under an obligation to register any charge constituted by the clause. By cl 7.1(b), the Company charged all its property (wherever situated) to Caltex, and, under s 263 of the Corporations Act as it then existed, the Company (as the charging party) was under an obligation to register that charge. Its failure to do so was a default on its part. If Mr Troost's contentions are correct, then that failure resulted in loss or damage to Caltex, just as much as it resulted in loss or damage to him. That was a default under the facility as referred to in the indemnity clause. The failure by the Company to provide security gave rise to loss and damage on the part of Caltex that was covered by the indemnity clause.
The trial judge found that, because Mr Troost knew of the increased credit limits made available to the Company from time to time by Caltex, and consented to the increased limit, the increase did not in any way affect his obligations under the guarantee and indemnity. Mr Troost complains that, while he was content for the Company to take the benefit of the increased limit, he did not, in his capacity as guarantor and indemnifier, consent to his obligation extending to the increased liability of the Company. It is difficult to accept that contention. Mr Troost was the only director of the Company at the relevant time and he acquiesced in the increase. It is not fairly arguable that he did not also consent in his capacity as guarantor and indemnifier, as the trial judge found.
Finally, Mr Troost contends that, when the Company was in default under the facility, Caltex permitted the Company to continue to purchase petroleum products and maintained and increased the amount owing under the facility. In particular, on 15 February 2007, when the Company was trading well above its credit limit, Caltex merely increased the credit limit so that the Company was no longer in default. Further, on 4 November 2009 when Caltex decided to terminate the account, it permitted the Company to continue trading and drawing down credit for approximately one month. However, it cannot be suggested that, notwithstanding the increase in the credit limit, the indebtedness of the Company did not rise under the facility that was the subject of the indemnity clause.

Contention (3): whether liability limited by reference to time as a director

There is no reason to construe the contract as being limited to any liability of the Company being incurred while Mr Troost continued to be a director. When Mr Troost resigned as a director, it would have been open to him to notify Caltex that he would no longer be responsible for any liability incurred by the Company after his resignation.
Mr Troost contends that there are three possible interpretations of the guarantee and indemnity clause. The first is that it applied only in relation to defaults that took place while he was a director of the Company. The second is that it applied only to defaults in respect of debts incurred while he was a director. The third is that the clause applies forever. He says that the clause does not state anywhere that it would continue beyond the directorship of the signatory and points out that there is no express clause that identifies any end date or method of termination. Rather, he points out, the documentation provides for signature by "Guarantor/Director". Accordingly, Mr Troost says, the word "director" defines the scope of the clause and points against liability continuing beyond the directorship of Mr Troost or at least in respect of debts incurred after his directorship ceases. He says that a construction that results in an indemnity of indeterminate length should be avoided.
There is no ambiguity in the effect of the clause. The guarantee and indemnity obligation is qualified by the third clause, which provides that the guarantee is a "continuing" guarantee. The third clause does not refer in terms to the indemnity. Nevertheless, the liability of a signatory would be capable of determination, both as regards the guarantee and the indemnity. There would be nothing unusual in construing the provision as operating on the basis that, at any time, a signatory of the guarantee and indemnity could terminate his or her liability in futuro. It is well established that a continuing guarantee in which the consideration for the guarantee is divisible (such as when the creditor supplies goods or funds from time to time to the debtor) is capable of being revoked in respect of liability to accrue in the future: see Coulthart v Clementson (1879) 5 QBD 42 at 46-7; Re Nicholson; Ex parte Totterdell [1989] FCA 182 at [19]; see generally D Marks and G Moss, Rowlatt on Principal and Surety (6th ed 2001, Sweet & Maxwell) at [4-34]. That is to say, a guarantor and indemnifier would be entitled to give notice to Caltex that he or she would not be responsible for obligations of the Company incurred after the giving of the notice or for damage or for loss resulting from default by the Company in the performance of an obligation that came into existence after the giving of the notice. Thus, when Mr Troost ceased to be a director of the Company, it would have been open to him to notify Caltex that the guarantee and indemnity was at an end, with the intent that he would continue to be liable for any extant obligations of the Company or any default thereafter by the Company in the performance of any extant obligations. That would have been the extent of his liability.
Mr Troost gave no such notice. The debts in question of the Company, albeit that they were incurred after Mr Troost ceased to be a director, were debts under the facility granted on 18 December 2002, as amended in 2008. The failure by the Company to discharge its obligations under the facility constituted a default under the facility in respect of which Mr Troost had agreed to indemnify Caltex. This contention must be rejected.

Contention (4): proof of indebtedness of the Company

Mr Troost contends that Caltex failed to discharge its burden of proof in relation to critical aspects of its claim in that it failed to prove that:

the alleged standard terms applicable in about November 2002 were the standard terms at that time and were provided to the Company prior to its signing the application form;
the terms alleged to be applicable from 2008 were the terms at that time and were notified to the Company in a manner that amounted to a valid variation of the facility; and
the products that Caltex alleged it had supplied were in fact supplied and the invoices in question were in fact sent to the Company, which were pre-conditions to payment and, accordingly, default under the 2008 terms and conditions.

The primary judge found that it was unnecessary for Caltex to prove what the terms of the arrangement between the Company and Caltex were as at the date of the commencement of the facility in 2002. Mr Troost contends, however, that it was necessary for Caltex to prove the precise terms and conditions to succeed in order to determine whether the variation in 2008 was valid.
Caltex relied on affidavit evidence of Mr Aleksandar Popic. Mr Popic swore three affidavits. They were sworn on 3 June 2013, 24 January 2014 and 25 February 2014. They addressed matters about which there ought to have been no genuine dispute.
Mr Popic created confusion by annexing the wrong document to his June 2013 affidavit. In that affidavit, he annexed a copy of the Company's application to Caltex dated 5 November 2002, which, according to a handwritten note on the document, was approved by Caltex on 18 December 2002. Mr Popic also annexed a document that he said was a true copy of the general terms and conditions that applied as at November 2002. However, in his affidavit of February 2014, he indicated that, following a further review of the business records of Caltex, he had ascertained that a different document contained the standard terms and conditions that were in force in November 2002. He annexed a copy of that document to his affidavit. He said that the document attached to his June 2013 affidavit was in fact a copy of the terms and conditions that came into effect on 14 November 2008.
While the mistake made by Mr Popic gave rise to some confusion, it does not ultimately appear to be material. While the trial judge did not make a positive finding as to the terms and conditions that were in force in December 2002, there was certainly evidence available to support a finding as to what constituted those terms and conditions. There appears to be no reason to doubt the veracity of the assertions made by Mr Popic in his February 2014 affidavit.
Mr Troost also complained that Caltex had failed to prove that it had supplied petroleum products to the Company and had posted invoices to it. In his June 2013 affidavit, Mr Popic asserted that goods had been sold and delivered by Caltex to the Company in respect of which tax invoices were rendered to the Company on 8, 15, 22 and 30 November 2009, 7, 14 and 23 December 2009 and 25 January and 10 November 2010, as particularised in a table in the statement of claim. Mr Popic exhibited copies of the invoices to his affidavit. He said that each of the documents in the exhibit was a business record belonging to and kept by Caltex in the course of and for the purposes of its business. He also said that each of the documents has recorded in or on it facts recorded in the course of or for the purposes of the business of Caltex (thereby seeking to pick up the provisions of s 69 of the Evidence Act 1995 (NSW)). There was no objection to any of those assertions in Mr Popic's affidavit.
Mr Troost contended that, nevertheless, that evidence should not have been accepted by the trial judge because, in the course of cross-examination, Mr Popic accepted that he did not personally have knowledge of the despatch of the invoices or of the detailed computer database that he accessed in order to produce copies of the documents. That is not a basis for concluding that there was any error on the part of the trial judge in making a finding that Caltex supplied the petroleum products shown in the invoices and that Caltex despatched the invoices to the Company. Nothing was said by Mr Popic to cast any doubt on the reliability of the records to which he had access in order to produce the documents in question and to make his affidavit. This contention must be rejected.

Conclusion

It follows that each of the contentions advanced on behalf of Mr Troost should be rejected. Accordingly, the appeal should be allowed. The verdict and judgment of the District Court should be set aside. In lieu thereof, there should be a verdict and judgment for Caltex against Mr Troost in the amount of $132,513.29 plus interest from the date of demand to the date of judgment, plus fees owing to Caltex under the indemnity. There should be an order that Mr Troost pay Caltex's costs of the proceedings in the District Court. Mr Troost should also be ordered to pay Caltex's costs of the appeal. The parties should bring in short minutes to give effect to these reasons.

Appendix Guarantee and indemnity by directors In consideration of Caltex Australia Pty Ltd (CAPPL) agreeing to make the CAPPL ACCOUNT CREDIT FACILITY and/or the STARCARD FACILITY available to the Applicant, I/we irrevocably guarantee jointly and severally, the due and proper performance and observance by the Applicant of the terms and conditions governing such facilities, including but not limited to the due and punctual payment of all monies owing from time to time by the Applicant to CAPPL. I/we will jointly and severally indemnify CAPPL against all losses, damages, costs and expenses which may be incurred by CAPPL by reason of any default by the Applicant under the facility. I/we agree that this is a continuing Guarantee and that my/our liability hereunder shall not be released by any neglect or forbearance by CAPPL in enforcing my/our obligations hereunder or the Applicant's obligations set out above, or any other thing which under the law relating to sureties would, but for this provision, have the effect of so releasing me/us. SIGNATURE OF GUARANTOR (DIRECTOR) SIGNATURE OF GUARANTOR (DIRECTOR) FULL NAME FULL NAME WITNESS DATE WITNESS DATE SIGNATURE OF GUARANTOR (DIRECTOR) SIGNATURE OF GUARANTOR (DIRECTOR) FULL NAME FULL NAME WITNESS DATE WITNESS DATE

Statutory Declaration by Guarantor/Indemnifier I/we, (Declarant(s)) of DO SOLEMNLY AND SINCERELY DECLARE AS FOLLOWS:

I/We am/are the Guarantor(s) and Indemnifier(s) for the Applicant named in this Application for a StarCard facility and Caltex Australia Petroleum Pty Ltd Account Credit Facility.
I/We have received independent legal advice about the documents referred to in paragraph 1.
After receiving that advice I/we have freely and voluntarily signed the Guarantee and Indemnity by Directors contained with the Application. AND I/WE MAKE THIS SOLEMN DECLARATION conscientiously believing the contents to be true and by virtue of the Oaths Act 1900. MADE AND SUBSCRIBED by the said Declarant(s) at the day of 20 SIGNED: SIGNED: Print Name: Print Name: Before me: Print Name: A Justice of the Peace/Solicitor

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 23 March 2015

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