Craft Printing Pty Limited v Dwyer

CATCHWORDS: GUARANTEE - debts of corporation guaranteed by sole director - whether that corporation ceased to be the contracting party in respect of the debts - if so, whether the defendant engaged in misleading or deceptive conduct or unconscionable conduct relied upon by the plaintiff to its detriment - whether the debts were extinguished by the plaintiff's appropriation of payments received to the oldest outstanding invoices first

Civil Procedure Act 2005 Business Names Act 2002 LEGISLATION CITED: Fair Trading Act 1987 Trade Practices Act 1974 (Cth) Australian Securities and Investments Commission Act 2001 (Cth)

Deeley v Lloyds Bank Limited [1912] AC 756 Equity Access Pty Ltd v Westpac Banking Group [1989] FCA 506 General Newspapers Pty Ltd v Telstra Corporation (1993) 45 FCR 164 Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (1988) 39 FCR 546 Henville v Walker [2001] HCA 52 CASES CITED: Lam v Ausintel Investments Australia Pty Ltd (1997) 97 FLR McLean v Discount & Finance Ltd (1939) 64 CLR 312 Reid Murray Holdings Ltd (in liq) v David Murray Holdings Pty Ltd (1972) 5 SASR 386 Simson v Ingham (1823) 2 B & C 65 Taco Co of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52 Wardley Australia Limited v State of Western Australia (1992) 175 CLR 514

PARTIES: Craft Printing Pty Limited (Plaintiff) Paul Andrew Dwyer (Defendant)

COUNSEL: Mr P Greenwood SC and Mr G George (Plaintiff) Mr B Coles QC and Mr I Archibald (Defendant)

SOLICITORS: David Purvis (Plaintiff) W Lawyers (Defendant)

The proceedings and the issues

1. These proceedings arise from a personal guarantee signed by the defendant on 30 July 2003 in respect of any amount due or owing by Comsta Pty Ltd, a corporation of which he was the sole shareholder and director, to the plaintiff. The guarantee was given in conjunction with an Application for Credit Account made to the plaintiff, signed by the defendant on behalf of Comsta Pty Ltd, in respect of the anticipated supply of printing services to the Paul's Group, of which Comsta Pty Ltd was the management company. The application was approved by the plaintiff on 31 July 2003. One of the plaintiff's Credit Terms, to which the defendant agreed by signing the document, was the requirement that a personal guarantee be provided by the director(s) of the company to which credit was to be extended: Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52.

Pursuant to this arrangement the plaintiff then provided printing services, on credit, to the Paul's Group, Comsta Pty Ltd being the contracting party in respect of each order placed. The plaintiff's case is that this arrangement continued unbroken until Comsta Pty Ltd went into liquidation on 7 March 2007, at which point of time the credit extended amounted to $204,930.01 (Table 2 of the written submissions). The plaintiff says that the amount of $204,930.01 remains outstanding and claims payment from the defendant under his guarantee.

The plaintiff continued to provide printing services, on credit, to the Paul's Group after 7 March 2007, believing that Comsta Pty Ltd was the contracting party in respect of each order placed, not having been informed that Comsta Pty Ltd had been placed in liquidation. It only ceased to provide printing services when it learned of the true facts in September 2007, at which point of time the credit extended had increased by a net $135,521.01 (Tables 3 and 4 of the written submissions). The plaintiff's case is that it only continued to provide printing services, on credit, to the Paul's Group after 7 March 2007 because it was unaware that Comsta Pty Ltd had been placed in liquidation. The plaintiff contends that it was induced by the defendant's unconscionable and misleading and deceptive conduct into believing Comsta Pty Limited remained as the contracting party. Had it known the true position, it would not have continued to provide credit in respect of the printing services to the Paul's Group in the absence of appropriate arrangements, including a personal guarantee from the defendant. The plaintiff says that amount of $135,521.01 remains outstanding and claims damages from the defendant for that amount.

The plaintiff therefore claims a total sum from the defendant of $340,451.02, plus interest.

The defendant's case is that Comsta Pty Ltd had ceased to be the contracting party for the printing services supplied by the plaintiff to the Paul's Group prior to the debts the subject of the plaintiff's claim having been incurred, and from that time the contracting party was some other entity within the Paul's Group. Accordingly, his guarantee did not cover printing services ordered after that time, and in particular did not cover the orders to which the outstanding amount of $204.930.01 relates, or the post-liquidation orders giving rise to the further indebtedness of $135,521.01.

The defendant's first contention is that the plaintiff was put on notice of the change by way of a letter sent to the plaintiff on 30 May 2005 advising of a restructure of the Paul's Group effective from 1 June 2005 (the so-called generic letter). If the plaintiff never received the letter of 30 May 2005, the defendant's alternative contention is that the change occurred from about 1 September 2005 when Comsta Pty Ltd ceased to hold itself out as the contracting party.

The defendant says that he cannot be liable for any indebtedness beyond the date Comsta Pty Ltd was placed in liquidation. He denies that he was guilty of either unconscionable conduct or misleading and deceptive conduct and says that he was under no obligation to inform the plaintiff of the true position.

Finally, the defendant contends that there are no debts owing to the plaintiff in any event, in that the outstanding invoices have been paid and any liability for them has been discharged by reason of the plaintiff's appropriation of payments received from the Paul's Group to the oldest outstanding invoices first. In response to this last defence, the plaintiff says that the appropriation was brought about by the defendant's misrepresentations as to the true facts, and any presumption should be displaced because it was never the intention of the parties that it should be applied: Deeley v Lloyds Bank Limited [1912] AC 756.

· Did Comsta Pty Ltd cease to be the contracting party for the debts incurred? · Did the defendant engage in misleading and deceptive conduct, or in conduct that was unconscionable? · Were the debts extinguished by the plaintiff's appropriation?

Did Comsta Pty Ltd cease to be the contracting party for the debts incurred? 10. The defendant contends that the pre-liquidation indebtedness of $204.930.01 was not incurred by Comsta Pty Ltd, rather it was incurred by some other entity within the Paul's group, such that it is not within the scope of the guarantee: Reid Murray Holdings Ltd (in liq) v David Murray Holdings Pty Ltd (1972) 5 SASR 386.

11. The basis for this contention relied upon a restructure in mid 2005 of the Paul's Group, pursuant to which it was contended that Comsta Pty Ltd ceased to trade on 31 May 2005. Leaving to one side the question of whether the corporation in fact ceased to trade on that date, the defendant having given no evidence to support that proposition, the principal flaw in the defendant's position is that the restructure was never communicated to the plaintiff.

12. The defendant relied first upon evidence it was submitted establishes that a letter to that effect, dated 30 May 2005, was sent to the plaintiff at or about that date. That evidence consisted of a copy of a generic letter said by Mr Grant Rodger, the Chief Financial Controller of the Paul's Group at the time, to have been prepared at the defendant's instigation, and sent to all suppliers of the companies within the Paul's Group. He prepared a master list of the suppliers and letters were then prepared for each supplier, each of which was signed by the defendant, as director, and Mr Pellinger-Riley, as CEO, of the Paul's Group of companies.

13. The batch of letters to the suppliers, once signed, was given by Mr Rodger to an administrative assistant, placed in window-faced envelopes, and placed in a tray for postage. But there is no evidence as to actual postage. Nor is there any evidence of receipt by the plaintiff of such a letter. No copy of any actual letter was produced. Mr Rodger cannot specifically remember a letter addressed to the plaintiff, but says that it was on the list of suppliers. The list was not put in evidence, notwithstanding that it remained on the computer system within the Paul's Group.

As one of our valued trading partners you are well aware that currently the Paul's and Hutt Retail stores operate through a number of legal entities and therefore we have multiple Trading Accounts with your organisation.

Over the years as we have added new stores to the group the company structure has become overly complex and difficult to administer and account for. We are in the process of streamlining the business and making it more efficient.

Effective 1 June 2005 we are re-structuring the group so that all our retail stores will fall under the one Entity: Paul's Warehouse Discretionary Trust (A.B.N. 40 752 587 129)

All our existing accounts with your organisation will of course be paid in full in due course and then those accounts should be consolidated into the new entity.

As of 1 June 2005 we will issue Purchase Orders to you in this new company name. To enable us to correctly process and reconcile your account with us we ask that you: ● Only deliver goods to our stores in accordance with our Purchase Order. (substitution of goods will not be accepted) ● Each delivery should have a delivery docket attached ● You should ensure that our employee receiving the goods, prints and signs his/her name on the delivery docket and that your driver retains a copy for POD purposes ● Send a complying Tax Invoice for each separate delivery (i.e. one delivery = one Tax Invoice). ● Your Tax Invoice must have: 0 Our Purchase Order Number 0 The Store name and address that the goods were delivered to.

This change in Trading companies represents one of the major initiatives we are taking in the restructure of the Paul's Group and is a vital part of our drive to become a more efficient operation and to consolidate the organisation for future growth and profitability. We hope that you, as a valued partner, will continue to word with us, as we enter this important phase.

Manfred Pellinger-Riley Paul Dwyer CEO, Paul's Group of Companies Director, Paul's Group of Companies

Mr Ray Webster was the Credit Manager of the plaintiff at the time of all these events, from the time of the Application for Credit Account and thereafter until his retirement last year. Mr Webster was an impressive witness who struck me as being a careful and thorough credit manager, whose evidence I accepted as reliable.

The evidence of Mr Webster was that from the outset and throughout his dealings with the defendant and the Paul's Group, he proceeded on the basis that Comsta Pty Ltd traded under the name Paul's Warehouse. He did not receive a letter from the Paul's Group such as the generic letter at or around 30 May 2005, or ever. If he had been aware that Comsta Pty Ltd was ceasing to trade, he would have insisted on proper arrangements being put in place before extending further credit, including credit checks and a personal guarantee. That proposition is in my view self-evident. Nor was he ever told that Comsta Pty Ltd had been placed in liquidation, a fact that only came to his attention in September 2007.

The plaintiff submits that the generic letter was sufficient to put the plaintiff on notice that Comsta Pty Ltd was ceasing to trade from 1 June 2005. It may be doubted that the content of the letter, even if it had been received, could be objectively viewed as achieving that purpose, particularly in the light of the defendant's concession that it was never intended for the plaintiff. But even if it could be said to do so, it may be taken as certain that the plaintiff never acceded to or agreed to any alteration of the existing arrangements. Be that as it may, the evidence falls short of establishing that such a letter was ever sent to the plaintiff, and I am satisfied that the plaintiff, or more relevantly its financial controller, Mr Webster, or the responsible sales representative, Kyle Walmsley, never received such a letter.

I find, therefore, that there was no change at that time to the pre-existing arrangements, which involved Comsta Pty Ltd as the contracting entity in respect of orders placed and printing services provided to the Paul's Group.

The defendant relied next upon certain changes that appeared in the coversheets used for the remittance of payments by the Paul's Group to the plaintiff for its printing services from 1 September 2005 (see annexure 'PAD 15'). After that date these remittance sheets displayed a masthead that read 'Paul's Warehouse' and nominated 'Paul's Warehouse Pty Limited', or sometimes 'Paul Warehouse' as the entity remitting the funds. There was also a change in the ABN specified. It was submitted that these changes indicated to the plaintiff that Comsta Pty Ltd no longer held itself out as the contracting entity. The proposition seems to be that thereafter the contracting party became the registered proprietor of the Business Name 'Paul's Warehouse', which was a company other than Comsta Pty Ltd. But the existence and identity of the registered proprietor of the Business Name had never been relevant. The evidence clearly establishes that it was always Comsta Pty Ltd that managed and operated Paul's Warehouse.

Even if it were to be accepted that this change in the remittances was something that even put the plaintiff on enquiry, I could not be satisfied that it put the plaintiff on notice of some restructure within the Paul's Group pursuant to which Comsta Pty Ltd intended to cease trading. As the plaintiff points out, these were but the remittance documents, and there was no change in the course of dealings so far as other documentation was concerned, such as the orders sent from the Paul's Group, the statements issued by the plaintiff, or the source of the funds. Comsta Pty Ltd was nominated from the outset as the management company through which all the dealings would pass and so it was the party to which credit was to be extended. That arrangement continued unchanged, and nothing occurred to suggest otherwise.

The rights and liabilities of the parties to a contract are to be determined in accordance with the principle of objectivity. This principle was reaffirmed by the High Court in Toll (FGCT) Pty Limited v Alphapharm Pty Limited [2004] HCA 52 at [40] in the following terms:

"It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party, by words and conduct, would have led a reasonable person in the position of the other party, to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties and the purpose and object of the transaction".

Also relevant to the way the course of dealings between these parties should be approached was articulated in pragmatic vein by Justice Allsop when he was a member of the Federal Court, in Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd (a judgment later described by Justice Young, then Chief Judge in Equity, as a "mammoth") in the following passage: "Contracts often arise, and perhaps generally do…when business people speak and act and order their affairs…without necessarily stopping for the formalities of dotting 'i's and crossing 't's…Sometimes this failure occurs because, having discussed the commercial essentials and having put in place necessary structural matters, the parties go about their commercial business on the clear basis of some manifested mutual assent, without ensuring the exhaustive completeness of documentation."

I find that throughout the course of dealings between the parties the contractual arrangements between them continued as they commenced, with Comsta Pty Ltd as the contracting party liable for the debts incurred for printing services supplied by the plaintiff to the Paul's Group prior to the liquidation of Comsta Pty Ltd. The defendant guaranteed that undischarged liability and is therefore now responsible for its discharge.

The defendant will, therefore, be required to pay to the plaintiff the sum of $204,930.01 plus interest.

Did the defendant engage in misleading and deceptive conduct or conduct that was unconscionable? 25. For recovery of the post-liquidation indebtedness of $135,521.01 the plaintiff relies on a case based on allegations of misleading and deceptive conduct, and unconscionable conduct, on the part of the defendant, based on various provisions of the Australian Securities and Investments Commission Act 2001 (Cth), the Trade Practices Act 1974 (Cth) and the Fair Trading Act 1987 (NSW). The applicability of this legislation was not in issue. Rather, the defence was that the defendant was not in breach of any of the relevant provisions.

26. The particulars of the defendant's conduct alleged by the plaintiff as having constituted the misleading and deceptive conduct, and the conduct that was unconscionable, are set out in some detail in the Particulars to paragraph 30 of the Amended Statement of Claim. I do not propose to set them out in full, but will summarise them by way of paraphrase.

· failed to inform the plaintiff of the winding-up of Comsta Pty Ltd, or to include the plaintiff as a creditor in the winding-up, with the intention of not allowing the fact of the winding-up to come to the plaintiff's attention, in the expectation that the defendant's business would continue to receive credit, the plaintiff having been induced to believe, or misled into believing that the credit advanced was secured by the defendant's guarantee · continued to deal with the plaintiff after the liquidation without informing it of the liquidation, knowing that the guarantee would not secure credit extended thereafter, thus depriving it of the ability to take steps to protect itself by way of appropriate credit arrangements, including a further guarantee.

The defendant contended that he did not engage in the conduct alleged, and denied that he engaged in any false or misleading conduct, or unconscionable conduct. It was submitted that there was no misrepresentation on the part of the defendant, and his silence did not involve any deliberate conduct or any intention to propound a falsehood. The defendant was under no obligation to make any disclosure, nor was there any evidence of concealment or lack of candour. In short, the circumstances did not require an explanation to the plaintiff. The defendant's conduct is to be judged in the light of the actual circumstances, including the restructure of the Paul's Group and that so far as he was concerned Comsta Pty Ltd had ceased to be the contracting party. It was not for the defendant to concern himself as to whether the plaintiff might require a fresh guarantee. So far as the allegation of unconscionable conduct is concerned, it was submitted that the plaintiff had not established any exploitation of vulnerability or weakness in the plaintiff by the defendant, no abuse of position, no breach of trust or confidence, nothing harsh or oppressive, no unjust retention of property, nor any inequitable denial of legal obligations. The defendant simply did not know that the plaintiff had a mistaken view as to the applicability of the guarantee. Finally, it was submitted, the evidence only established it as a possibility that if the alleged conduct had not occurred that the plaintiff would have avoided the loss claimed. Thus, causation had not been established.

Reliance was placed on the decisions in Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (1988) 39 FCR 546, Taco Co of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177 and Equity Access Pty Ltd v Westpac Banking Group [1989] FCA 506 and other cases cited in the defendant's written submissions.

It was further contended for the defendant that there is no general duty of disclosure in commercial dealings: General Newspapers Pty Ltd v Telstra Corporation (1993) 45 FCR 164 and Lam v Ausintel Investments Australia Pty Ltd (1997) 97 FLR at 475.

It is clear, however, that silence may give rise to a positive misrepresentation, where concealment of a fact may cause the true representation of another fact to be misleading. Silence will be unacceptable if the surrounding circumstances give rise to a rational expectation that information of a certain kind will be volunteered. Thus, the quality and effect of the silence is to be judged by reference to the nature of the surrounding circumstances.

Counsel for the plaintiff set out the following propositions as embodying the principles of law applicable to misleading and deceptive conduct by silence:

(i) A party can engage in misleading and deceptive conduct through silence.

(ii) The significance of a failure to disclose information always falls to be considered in the context in which the failure to speak or publish arises.

(iii) The context may or may not include facts giving rise to a reasonable expectation, in the circumstances of the case, that if particular matters exist they will be disclosed.

(iv) The primary question is simply whether, having regard to all the relevant circumstances, there has been conduct that is misleading or deceptive or that is likely to mislead or deceive.

(v) Silence may more readily lead to a finding of breach of s 52 of the Trade Practice Act 1974 (Cth)or s 42 of the Fair Trading Act1987 (NSW) where there is a duty of disclosure at common law.

(vi) Although an intention to deceive is not necessary, knowledge of the matter said to be misleading or deceptive is a relevant consideration.

(vii) Silence may, in combination with what is stated, give rise to a positive representation. That is, concealment of a fact may cause the true representation of another fact to be misleading, and may thus become a substantive misrepresentation.

(viii) The thing which makes silence unacceptable is the existence of surrounding circumstances giving rise to a rational expectation that information of some kind will be volunteered. But the quality and effect of silence are to be judged wholly by reference to the nature of the surrounding circumstances.

(ix) The relationship between the parties, actual or potential, is a relevant circumstance.

Having regard to the surrounding circumstances in the present matter, including the way in which the relationship between the parties was first set up, the unchanged course of dealing over a long period of time, their manifested mutual assent to the continuation of that relationship on the same or similar basis, there was a clear rational expectation of disclosure by the defendant of the true facts, and his failure to do so resulted in the plaintiff being misled and deceived.

I am therefore satisfied that the plaintiff was misled and deceived by the defendant's conduct which materially contributed to it continuing to supply printing services to the Paul's Group, on credit, without satisfactory arrangements, including a personal guarantee, to its detriment: Henville v Walker [2001] HCA 52 at [106] - [107].

The further post-liquidation indebtedness of $135,521.01 was clearly the result of the defendant's misleading and deceptive conduct, and I find the loss causally connected to the misleading and deceptive conduct: Wardley Australia Limited v State of Western Australia (1992) 175 CLR 514 at 525.

The defendant will, therefore, be required to pay to the plaintiff the sum of $135,521.01 plus interest.

I do not, therefore, need to deal with the claim based on the allegations of unconscionable conduct in any detail. It is clear that the defendant was in breach of the provisions of s 51AC(2) of the Trade Practices Act 1974, having regard to unreasonable failure to disclose to the plaintiff the true position concerning Comsta Pty Ltd and his lack of good faith in connection with the acquisition of the printing services supplied by the plaintiff: s 51AC(4) (i) and (k).

Were the debts extinguished by the plaintiff's appropriation? 38. The defendant's final contention relied upon the assertion of appropriation by the plaintiff of payments by the Paul's Group to particular accounts. It says that an appropriation of payments in satisfaction of outstanding invoices was made on the basis that the funds applied to the oldest outstanding invoices first. The defendant points to the evidence of Mr Webster in his affidavit of 19 November 2008, where he said:

"When the Plaintiff received funds in 2007, which were paid electronically, they were applied to the oldest outstanding invoices first, thus though 2007, funds in excess of $129,930.01 were received by the Plaintiff and applied to the account's oldest outstanding invoices. Attached marked "RW1" is a table detailing debits and payments made to this account during 2007."

39. The defendant then submits that this appropriation was confirmed by the Creditor's Statutory Demand issued by the plaintiff against "Paul's Retail Pty Limited ATF Paul's Warehouse Discretionary Trust (ABN 114 419 242) trading as Paul's Warehouse" (see annexure 'PAD 9'), where it is stated that the amount of $340,451.01 is claimed to be owing 'for printing done by the creditor on behalf of the debtor during the months of May, June, July, August and September 2007'. In addition, an email dated 16 October 2007 refers to the total debt of $340,451.01 as 'dating back to May 2007' (see the plaintiff's bundle at page 67). The appropriation was said to be further confirmed by a Statement sent by the plaintiff on or about 30 September 2007 (see annexure 'PAD 8').

40. The defendant's contention is that a definite appropriation to a particular debt is binding when the fact of the appropriation is communicated to the guarantor: Deeley v Lloyds Bank Limited [1912] AC 756; Simson v Ingham (1823) 2 B & C 65; and McLean v Discount & Finance Ltd (1939) 64 CLR 312. Thus, the plaintiff is bound by the appropriation and cannot now reverse it for the purposes of these proceedings. It was submitted that once the appropriation has occurred, the debt is extinguished, and it is irrelevant that there was some error on the part of the creditor. Simply put, Mr Edwards accepted that the true debtor was Paul's Retail Pty Limited. Thus, the debts upon which the plaintiff relies have been paid and it is not open for the plaintiff to seek to fix upon the defendant any liability for them in the present proceedings.

41. The flaw in the defendant's position is however that the rule relating to appropriation is not an inflexible rule of law. Rather it is a presumption of fact that may be rebutted by evidence showing that it was not the intention of the parties that it should be applied: Deeley v Lloyds Bank Limited [1912] AC 756 at 771, or a different intention can be inferred from the circumstances, such as the particular mode of dealing between the parties. The evidence in this case as to the intention of the parties is overwhelming. The appropriation made was clearly an error that resulted from misrepresentations made by the defendant as to the true state of affairs, and in these circumstances this defendant cannot be heard to complain once the true position emerged.

42. I am satisfied that any appropriation of payments made by the plaintiff was induced by the defendant's false and misleading conduct and by his misrepresentation as to the true debtor. In those circumstances any presumption said to arise by reason of that appropriation is rebutted, it being the common intention of the parties, objectively viewed, that such a presumption should not apply in the circumstances that obtained when the appropriation was made.

Disposition 43. There should therefore be a verdict for the plaintiff in the full amount claimed, plus interest under s 100 of the Civil Procedure Act 2005.

44. There is no dispute as to the arithmetic in relation to the claim for interest, and interest will be awarded in accordance with the plaintiff's claim in the sum of $76,141.37 (Table 5 of the written submissions). When added to the principal claim, the total claim is, therefore, $416,592.39.

45. Costs should follow the event as required by r 42.1, unless some other order is appropriate.

1. Judgment is to be entered for the plaintiff for $416,592.39.

2. The defendant is to pay the plaintiff's costs, on the ordinary basis. Leave to apply within 7 days for some other order.

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.