Di Bello & Anor v De Costi Seafoods

CATCHWORDS: Guarantee - Necessity for a contract relating to three parties: the creditor, the principal debtor, and the surety or guarantor - Principal and agent - ostensible authority - distinguish between the ostensible authority of a director of a company to bind the company, and the ostensible authority of that director to bind a fellow director - Estoppel - estoppel by conduct - implied or ostensible authority of A to bind B.

Hely-Hutchinson v Brayhead Ltd [1981] QB 549 at 583 CASES CITED: Essington Investments Pty Ltd v Regency Property Group [2004] NSWSC 375 Air Great Lakes Pty Ltd v K S Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309 at 336 and 338

First Claimant Katia Di Bello (formerly Katia Cowdrill) Second Claimant PARTIES: David Cowdrill Respondent De Costi Seafoods (Holdings) Pty Ltd

Mr M R Pesman - Claimants COUNSEL: Mr S Stanton - Respondents

NRG Legal - Claimants SOLICITORS: Aitken McLauchlan Thorpe - Respondent

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL 40628/04

SANTOW JA BRYSON JA BROWNIE AJA

(31/5/05 ex tempore) Di BELLO & ANOR v DE COSTI SEAFOODS (HOLDINGS) PTY LTD Judgment

1 BROWNIE AJA: The claimants were the directors of and the shareholders in Delzio Pty Ltd, which conducted a business called Ristorante Mario, or Mario's. Over a period of 18 or 19 years, the company purchased seafoods from the opponent.

2 It is not in dispute that the Managing Director of the opponent, Mr Costi, spoke to the second claimant, Mr Cowdrill, and said words to the effect that a good deal of money was owed to the opponent, and that something needed to be done about it. Within a few days the first claimant, who was then married to the second claimant, called upon Mr Costi. The case turns upon what was said in the conversation between these two people.

3 The learned Trial Judge, Truss DCJ found - and it is no longer in dispute - that the conversation took place in late April or early May 2000, some four years before the trial, and that Mr Costi's wife was present during the conversation, or part of it, as was Mr Theodorou, an employee of the opponent.

4 These four people each gave evidence, and they gave different accounts of what was said. Her Honour accepted each of the witnesses as truthful, and attributed the differences in the four accounts to differences of recollection. She quoted from the evidence-in-chief of each of the four witnesses, as to the critical words that had been said by the first claimant. Mr Costi had said in Chief that the first claimant had said to him: "George, I know we owe you a fair bit of money, but don't worry about the money. We are going to sell our house, and we will pay you everything we owe you. Our house is on the market now. I can't see the sale taking too long. I'll get over $700,000 for the house, no problems. Once it is sold, David and I will pay you personally. I know we owe you a lot of money, but we don't owe much money to everyone else." 5 Mrs Costi attributed to the first claimant these words: "I don't know if you have heard rumours of anything in relation to our company. Don't worry about the money that we owe you. We are planning to sell our house, and when we sell our house in a couple of months we will pay De Costi the outstanding amounts." 6 Mr Theodorou said that the first claimant said: "George, please don't worry, our house is on the market, and it will sell for over $700,000. We'll pay the debt once the house is sold, in a couple of months. George, we have known you too long and we would not let you down. We would not do this to you. Of course we'll pay you. I am so embarrassed that we have ended up in this situation, but David and I will repay the proceeds of the sale on our house." 7 The first claimant said that she had used these words: "Look George, we have been friends for many years now, so that's why I have come to see you personally today. You've probably heard that Mario's is going through a bad patch. David and I have to sell our house to pay out the Bank because of the pressure the Bank is putting on us, so that will reduce Delzio's interest, and we are going to try out some new ideas with Mario's to attract some more customers. Hopefully it will be all okay." 8 Her Honour went on at [18] to say that the versions of the opponent's witnesses were more or less consistent, and that it was ultimately a question whether she considered this version more probable than the first claimant's version. At [21], her Honour said: "Having regard to the submissions of counsel, and to all these matters, and having carefully weighed all the evidence, I have come to the conclusion that it is more probable than not that what occurred at the meeting was that the first defendant said words to the effect that the defendants would satisfy the plaintiff's outstanding account from the proceeds of the sale of their house, and on this basis the plaintiff refrained from taking any action with regard to the outstanding account and continued to supply the restaurant." 9 The claimant seeks leave to appeal, and to rely upon three grounds of appeal: first, that the Trial Judge erred in finding that the conversation between the first applicant and Mr Costi was capable of giving rise to an enforceable contract of guarantee by either claimant; and secondly, that the Trial Judge erred in finding that the first claimant had implied, or alternatively apparent or ostensible authority to bind the claimants; and thirdly that her Honour did not give proper reasons. 10 In my view, the first of those proposed grounds of appeal has been made good. Mr Costi said in Chief that he thought that the claimants were the proprietors of the business, and it was he who was negotiating on behalf of the opponent. 11 One must not forget the nature of a contract of guarantee. It is a contract that concerns three persons, conventionally referred to as the principal debtor, the creditor and the surety or guarantor. For valuable consideration a surety promises a creditor that if the principal debtor does not do something the surety will make good the deficiency. 12 On Mr Costi's account, the words said did not fit this template. In cross-examination Mr Costi also said that he believed that the claimants were the owners of the restaurant. Faced with the proposition that he did not know of the existence of Delzio Pty Ltd, he went no further than to say that in the year 2000 he could not say whether or not he was aware of the existence of a company. 13 Similarly, Mrs Costi said in Chief that she thought that the claimants were the owners of the restaurant business. In cross-examination she retreated a little even from what she had said in Chief. In Chief she had referred to the first claimant. In cross-examination she said that what had been said was a reference only to Mario's Restaurant. 14 Similarly, Mr Theodorou said in Chief that he had been introduced to the claimants who were the proprietors of Ristorante Mario. 15 All this seems to me to be destructive of the opponent's case, in that it tends to go counter to the proposition that in the critical conversation, Mr Costi, on behalf of the opponent, entered into a contract having the effect that in consideration of the opponent granting some further credit to Delzio Pty Ltd, the claimants or one or other of them would guarantee the obligation of Delzio Pty Ltd. If he, Mr Costi, did not know of the existence of Delzio Pty Ltd, it is, I think, practically impossible to find that he entered into the contract contended for. 16 There is a further aspect to this first proposed ground of appeal, namely, the question whether the words used were capable of supporting the view that the parties intended to create some legal relationship, or that they should be taken to have done so. The parties did not use the word guarantee or any synonym for that word or any generally synonymous expression. There was, it seems, an obligation owed by Delzio Pty Ltd to the opponent at the time of the conversation to pay a debt of some $47,000, either immediately or within a reasonable time. 17 On the versions of the conversation put forward by the opponent there was perhaps a fixing of time for payment, that is, upon or within a reasonable time after the settlement of the sale of the claimants' house, but that seems to be all. In particular there was nothing said as to whether the supposed guarantee was a guarantee by the first claimant alone, or by the second claimant alone, or by both claimants, nor whether the guarantee was in respect of the amount then owed, some $47,000, or only in respect of possible future debts, or both. 18 In the events that happened Delzio incurred a liability to the opponent for a further $19,000, or thereabouts, and the opponent sued the claimants and recovered a judgment for a total of about $66,000 together with interest. 19 The claimants point to further factual evidence suggesting that the parties had not intended to bring into effect a legally binding contract of guarantee, but it does not seem to me to be necessary to refer to these details. 20 In my view, and on the opponent's case, the words used in the critical conversation are not capable of supporting the alleged contract. 21 I should, however, say something about the proposed second ground of appeal. At trial the opponent had relied upon the dictum of Lord Denning MR in Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549 at 583: "Ostensible or apparent authority is the authority of an agent as it appears to others. It often coincides with actual authority. Thus, when the board appoints one of their members to be Managing Director, they invest him not only with implied authority, but also with ostensible authority to do all such things as fall within the usual scope of that office." 22 His Lordship was speaking of the implied or ostensible authority of a director of a company to represent the company. As far as what his Lordship said goes, it is correct. The difficulty about the dictum is that it, if it is taken to be a universal proposition, it is capable of being taken too far. 23 The Trial Judge found, and it is not in contest now, that the first claimant did not have the actual authority of the second claimant so as to bind him as to the entry into a contract of guarantee. It might still have been the case that the first claimant had apparent or ostensible authority to bind the second claimant in such a way. On the present hearing the claimants submitted that the learned Trial Judge had fallen into error at [32] by apparently treating as the same thing implied and apparent authority. It is not necessary to decide whether or not her Honour made this error, because on any view of the matter, it seems to me that the evidence does not support the proposition that the second claimant did or said anything which would have the legal effect of clothing the first claimant with apparent or ostensible authority to bind him. 24 What is sometimes called the doctrine of ostensible authority is no more than a manifestation of the principles of estoppel by conduct. Such an estoppel does not arise unless the person sought to be estopped him or herself does or says something which creates the estoppel. 25 To put the same thing in another way, if I so conduct myself as to represent that I have your authority to enter into a contract on your behalf, and I lack your actual authority to so bind you, you will not be bound. However, you might perhaps become bound if you had conducted yourself in such a way as to convey the same representation. It is your conduct, or the principal's conduct that is important, and not my conduct, or the supposed agent's conduct. Neither I nor any other purported agent can bind you, or any other principal, by what I say, or that other purported agent says, purportedly on your behalf, or the other principal's behalf, just by saying so. 26 Cases such as the present one involving the suggestion that one Director of a company might have ostensible authority to bind another Director to give a personal guarantee are really entirely different from cases where the question is whether a Director of a company has ostensible authority to bind the company. The relevant authorities were reviewed by this Court in the recent case of Essington Investments Pty Ltd v Regency Property Group [2004] NSWSC 375, and there is no need to repeat the references to those cases.

27 I propose the following orders: Grant leave to appeal. Direct that a notice of the appeal be filed within seven days. Allow the appeal. Set aside the judgment of the District Court, and in lieu thereof give judgment for the defendants with costs. Order the opponent to pay the costs of the claimants of the application for leave to appeal, and of the appeal.

The opponent should have a certificate under the Suitors Fund Act 1981 if otherwise qualified. 28 SANTOW JA: I agree. I would think the question of whether the relevant conversations were capable of giving rise to an enforceable contract of guarantee needs to be considered by reference primarily to the objective indicia upon which such intent can be discerned. See Air Great Lakes Pty Ltd v K S Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309 at 336 and 338 per Mahoney JA. 29 That said, it would be an over statement to say that only objective indicia of intent are to be taken into account as Mahoney JA said in Air Great Lakes (supra) at 330 330, "Actual subjective intention to contract is a factor which the law takes into account in determining whether a contract exists, but it is not, or not always, the determining factor." 30 Brownie AJA has referred to a number of objective factors which bear upon this question. I would wish to emphasise that one factor I consider of particular significance is that when asked in cross-examination why no action to enforce had been taken, Mr Costi's evidence was "at the time, I didn't know that if I didn't have a written guarantee that it would mean anything, without a written guarantee or a personal guarantee" T, 218.24 at 26. 31 That statement indicates that Mr Costi could not have intended at the time to enter into a legally enforceable contract if he, as he said, was of the view that without writing you could not have a "guarantee" of an enforceable kind. 32 Other matters which bear upon the objective indicia include that the respondent took no steps to enforce the guarantee until July 2003. 33 And finally, no mention of the guarantee was made in the opponent's proof of debt in the liquidation. 34 The combination of those objective circumstances, and Mr Costi's understanding of the requirement of writing for a guarantee indicate that there was no intention to enter into an enforceable contract of guarantee. That is reinforced by the fact there was never any request for a written guarantee. 35 I would agree with the orders proposed by Brownie AJA. 36 BRYSON JA: I agree in the judgment of Mr Justice Brownie. 37 SANTOW JA: Accordingly, the orders of the Court are as stated by Acting Justice Brownie.

24/08/2005 - Counsel listed incorrectly. - Paragraph(s) Cover sheet

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