Flexirent Capital Pty Ltd v Mills

District Court of NSW|2020-02-19

A. Introduction

Flexirent Capital Pty Ltd sues Nicola Mills on a guarantee for the debts of Wasabi Property Holdings Pty Ltd. Ms Mills, appearing self‑represented, admits that Wasabi has debts to Flexirent, and admits she signed the guarantee, but asserts that the guarantee does not extend to the debts the subject of the claim.

B. The issues

At the commencement of the hearing, Ms Mills informed the Court that the only matter in dispute was whether the guarantee relied upon by Flexirent covered all the debts Flexirent sought to recover. Thus, neither the liability of Wasabi nor the amount of its debts was disputed. The only issue was whether, by the guarantee signed by Ms Mills, she guaranteed the debts of Wasabi claimed by Flexirent in the proceedings.

D. Evidence other than documents

William Hancock was a manager employed by Flexirent. His employment commenced in October 2014, [30] after the execution of the documents in evidence. That matter was not disclosed in his first affidavit.
Mr Hancock gave evidence of practice. That he was not an employee of Flexirent at the time of the execution of the documents diminishes the value of his evidence of practice. The practice of Flexirent, in any event, is a matter of limited value in the construction of the Wasabi Guarantee. The practice was not known to Ms Mills, and pertains to a subsequent period by reason of Mr Hancock's later date of employment.
In cross‑examination, Mr Hancock accepted that generally Flexirent used a "Guarantee of Finance Lease Facility" where the lease facility was contained in one agreement, but where there were multiple agreements, the document headed "Guarantee of Master Rental & Finance Lease Facility" was used. Mr Hancock in re‑examination noted that the substantive terms on both documents were the same, so there was no real difference between the agreements. A transcript of his evidence was not available at the time of judgment.
In his affidavit of 27 April 2018, Mr Hancock said: "I have searched the books and records of Flexirent and have been unable to locate a copy of the PRC [Pacific Retail] Master Agreement executed by PRC, although the Defendant admits the PRC Master Agreement was entered into by Flexirent and PRC." [31]
The content of the defence admission is not so clear. The defence admitted para 3 of the statement of claim, which reads: "By way of a Master Finance Lease Agreement ("PRC Master Agreement") between the Plaintiff and Pacific Retail Corporate Pty Ltd ABN 18 105 738 056 ("PRC") dated 20 December 2011, PRC agreed to pay to Flexirent equipment rental payments due from time to time pursuant to each Schedule to the PRC Master Agreement."
Flexirent relied upon this admission to prove the incorporation of the printed Master Finance Lease Agreement Terms and Conditions to which I earlier referred. But these printed terms were not specifically pleaded in either statement of claim or defence, and the reference to an agreement "dated 20 December 2011" could, as I indicated earlier, refer only to the (first Pacific Retail) Schedule Agreement. [32] As I noted, the reference to "Master Finance Lease Agreement" is a title used both in the printed terms and in the four Schedule Agreements.
Mr Hancock also gave evidence of a policy of Flexirent that its security position would be "no worse off" [33] if it agreed to a Novation with Wasabi. But without details of the respective financial positions of Pacific Retail, Ms Mills, Wasabi and Mr Hill or of the corporate guarantors, Go Pacific Retail Pty Ltd and Go Sushi (Corporate) Pty Ltd, [34] the Court is unable to conclude whether the change with or without Ms Mills' guarantee left Flexirent worse off. Flexirent did not renew the guarantee by Mr Hill, co‑guarantor in the Pacific Retail Guarantee, or the guarantee by Go Sushi, [35] but it obtained a new primary debtor in Wasabi in replacement of Pacific Retail. And Ms Mills was giving a guarantee in respect of the Daddow Schedule Agreement debts, an additional or different security to that previously in place. [36]

E. Principles of construction

Liability of a surety must be strictly proven, and ambiguous contractual provisions are to be construed in favour of the surety. [37] This principle of construction is an aspect of the contra proferentem rule, that in the case of ambiguity, an agreement is construed against the proferens. Whilst the wording of the Wasabi Guarantee may raise an argument as to who proffered it, it was not in contest that it was drafted by Flexirent. [38] Nor is it significant that although called a guarantee, its terms seem to embrace a contract of both guarantee in cl 1 and indemnity in cl 6. [39] Flexirent did not submit that in the circumstances cl 6 of the Wasabi Guarantee could be applicable to the Pacific Retail Novation Agreements where cl 1 was inapplicable.
The Court must also bear in mind that the fundamental purpose of construction is "to ascertain the intention of the parties arising from the document as a whole and reading the document with such background information as was known by all the parties to it". [40] And: "a contract that has been entered in a business context and is elliptical or ambiguous should be not read in a way that is commercially unlikely to be what the parties intended". [41]
A capricious and unreasonable construction should be avoided. So also should meanings that are "unrealistic or unlikely". [42] The contra proferentem rule is said to be a "principle of last resort", [43] although whether this weakens the obligation to prove strictly the liability of a surety may be doubted in view of the decisions of Andar Transport Pty Ltd v Brambles Ltd [44] and Ankar Pty Ltd v National Westminster Finance (Australia) Ltd. [45]
In both Rava v Logan Wines & Anor [46] and Zhang v BM Sydney Building Materials Pty Ltd, [47] there appeared to be compelling reasons why the Court favoured a construction contrary to that proposed by the guarantor: avoiding "commercial nonsense" [48] and a construction that was "capricious and unreasonable" [49] or "unrealistic or unlikely". [50]

F. The construction of the guarantee

As stated, Flexirent accepted that cl 6(b) with its reference to Flexirent being "forced to disgorge moneys" had no application, and that cll 6(a) and 6(c) added nothing to the obligation in cl 1 in the circumstances of this case since both were, by the reference in them to cl 1, confined by the terms of the "Agreement". By cl 1, Ms Mills (although referred to as "we") guaranteed the payment of amounts owing by "the Customer", Wasabi, under "the Agreement". "Agreement" is defined in cl 7 as "a rental agreement or finance lease agreement of goods between Flexirent Capital Pty Limited and the Customer". [51]
Both Flexirent and Ms Mills accepted that there were at least two agreements potentially covered by the Wasabi Guarantee, the agreement produced by the Daddow Novation, and the agreement or agreements produced by the Pacific Retail Novations. Both accepted that the Wasabi Guarantee extended to the Daddow Novation. It follows that the definition of "Agreement" - "a rental agreement or finance lease agreement" - must be read as "all rental agreements and finance lease agreements", or, perhaps, "any...finance lease agreement" in order for it to extend to the Pacific Retail Novations or any of them, and the definite article in "the Agreement" and in "the rental and finance lease agreement" in the guarantee clause must likewise be ignored.
Ms Mills submitted a number of reasons why the Wasabi Guarantee extended only to the finance lease agreement resulting from the Daddow Novation.
First, Ms Mills relied upon the title to the documents and the evidence of Mr Hancock that Flexirent's practice was to use a differently titled guarantee for a Master Finance Lease Agreement or multiple agreements. As to the title, it would seem to be less significant where the terms of the form of guarantees were identical.
As indicated earlier, I found the evidence of practice of limited assistance. Mr Hancock was not employed at the time of the relevant agreement in late 2013. Further, the practice was not reflected by the evidence in the proceedings. Although the Daddow Novation involved only one agreement, so far as appears on the evidence, the earlier personal guarantee initially given in respect of it was on a document titled "Guarantee of Master Rental & Finance Lease Facility", not titled "Guarantee of Finance Lease Facility" as was the Wasabi Guarantee signed on 4 November 2013.
Thus, the number of agreements or title of agreement the subject of the Daddow guarantee did not originally result in a differently titled guarantee being used. The practice asserted by Mr Hancock was not adopted in that case. The circumstance that Ms Mills signed in 2011 a similar guarantee headed "Guarantee of Master Rental & Finance Lease Facility" [52] in respect of Pacific Retail's debts, that may have applied to the four Schedule Agreements (prior to the Novation Agreements) is insufficient in these circumstances to prove a pervasive practice. And, as stated, both the Daddow Novation and the Pacific Retail Novation Agreements refer to a "Master Finance Lease Agreement", so the title of the Novation Agreement was not a proper basis to distinguish the use of one titled guarantee over another or, more importantly, to distinguish the meaning of "Agreement" in one guarantee from that in another where the term is identically defined in both.
Accordingly, I do not think Ms Mills derives any assistance from her first point.
The second matter raised by Ms Mills is that the Daddow Novation Agreement was more closely connected in time with the guarantee than were the Pacific Retail Novation Agreements. This argument appears to have more force.
The Wasabi Guarantee and the Daddow Novation Agreement were signed by all parties within two and a half weeks in November 2013. But the four Pacific Retail Novation Agreements were not signed by Ms Mills until 19 December 2013. [53] Flexirent did not sign any of the Pacific Retail Novation Agreements until 9 July 2014, and even then it signed one only and three remained unsigned. That delay was not explained. One explanation for the delay may be that Flexirent did not obtain the appropriate guarantee from Ms Mills, but that would not assist Flexirent's case. That explanation might find some support in the copy Wasabi Guarantee signed by Flexirent on 9 July 2014, [54] the same date the one Pacific Retail Novation Agreement was signed by the same signatory.
The earlier Pacific Retail Guarantee of Pacific Retail's debts was signed by Ms Mills on 12 December 2011, and it was signed by Flexirent on 18 January 2012, [55] whereas the four Schedule Agreements were signed by Flexirent on that same day, 18 January 2012, [56] and subsequently 1 February 2012, [57] 28 March 2012 [58] and 20 April 2012, [59] indicating, perhaps, the coincidence of dates was of little importance. Ms Mills did not submit that the earlier guarantee (that is, the Pacific Retail Guarantee) was ineffective in respect of those later schedule agreements notwithstanding that she (apparently) had deleted cl 3(d) from that guarantee before execution, but, as I mentioned, that issue was not properly ventilated in these proceedings. Each of those four Schedule Agreements was executed by Flexirent soon after Ms Mills executed them (as to which, see [11] above), and Flexirent executed the first Schedule Agreement on the same day as it executed the relevant Pacific Retail Guarantee, not seven months later as occurred with the signing of the first Pacific Retail Novation Agreement (compared to the date of the signing of the Wasabi Guarantee). I think the circumstance and ambit of the earlier guarantee and possibly associated agreements is of limited assistance in the construction of the Wasabi Guarantee.
Ms Mills also referred to the absence of correspondence about the guarantee. In circumstances where she did not give evidence, the absence of correspondence seems less significant. It does not favour one construction over another.
Accordingly, I regard the greater chronological connection between the Daddow Novation Agreement and the Wasabi Guarantee as providing some support for Ms Mills' submitted construction. I was not persuaded by her other arguments.
Ms Jeliba for Flexirent referred to the business context and the presence of Ms Mills' earlier guarantee and the four Schedule Agreements. Without more detailed evidence of the business explanation for the various Novation Agreements, I could not see how a "business context" would make a personal guarantee applicable to all novations more likely. Nor does the presence of an earlier guarantee that may have secured the debts of Pacific Retail under the four Schedule Agreements greatly assist in determining whether the subject guarantee did or did not extend to the novated contracts involving those schedules. There were originally two guarantors in the Pacific Retail Guarantee. I do not see why one was more likely than none to have continued as a guarantor, or that one guarantor rather than both was more likely to have been removed.
As indicated earlier, Flexirent submitted that the four Schedule Agreements constituted only one agreement. It relies upon the printed terms referred to earlier. [60] Clause 2 of the printed terms said: "2. ENTIRE AGREEMENT (a) The entire Master Finance Lease Agreement between you and us consists of these terms and conditions, the Application Form, each accepted Schedule, a Guarantee (if required by us) and the Direct Debit Service Schedule. (b) This Master Finance Lease Agreement cannot be cancelled or terminated except in accordance with its terms. (c) Any brochures and marketing material you may have seen are provided for your information only and do not form part of this Master Finance Lease Agreement." [61]
As stated, there was some doubt as to whether these terms were ever part of the Novation Agreements. They are not attached nor unambiguously referred to in any agreement. The Pacific Retail Novation Agreements refer to the "Master Finance Lease Agreement" of a respective date corresponding to the dates of the four Schedule Agreements, which tie the quoted title to them, rather than to the printed terms. [62] There was no evidence of the printed terms being given to Ms Mills. In my view, there was insufficient evidence to establish that those terms were incorporated as part of the four Schedule Agreements or the later Novation Agreements.
Flexirent submitted that the statement of claim at para 3 contains an admitted assertion that I referred to earlier. But as indicated, the date corresponds to the date Pacific Retail executed the schedule, and not to the undated and unexecuted printed terms which had no place indicated for execution or date.
Flexirent also referred to the circumstance that Ms Mills signed the four Schedule Agreements and the corresponding Pacific Retail Novation Agreements as director (she signed as CEO in the Novation Agreements). [63] That does not assist in establishing the proper ambit and construction of the term "the Agreement" in the Wasabi Guarantee.
Flexirent also relied upon a statement Ms Mills made in email correspondence which suggested that she could not pay the outstanding debts. This statement appears to be in the course of discussions to resolve a dispute and her belated objection may be a sufficient basis to exclude it. In any event, I do not think it contains any admission of her liability under the Wasabi Guarantee for the Pacific Retail debts, especially as she accepts that she did have a responsibility for the debts of Daddow that were assumed by Wasabi. In other words, her email neither distinguished between these two sets of debts nor expressly conceded a liability.
In the result, the primary assistance to be gained from the surrounding circumstances was the greater chronological connection between the Daddow Novation rather than the Pacific Retail Novations to the Wasabi Guarantee. In this light the clause must be construed.

G. Conclusion on the proper meaning of the guarantee

By the guarantee cl 1(a), Ms Mills guaranteed "payment of amounts owing by the Customer to [Flexirent] under the Agreement". [64]
The Agreement is defined in cl 7 as "a rental agreement or finance lease agreement of goods between Flexirent...and the Customer". Wasabi is the customer.
A literal reading of the Wasabi Guarantee indicates that it operates in respect of one Agreement. It refers to "the Agreement", which is defined as "a...agreement". [65] The particular agreement is not defined, but that does not indicate that the guarantee should operate in respect of all agreements.
The Pacific Retail Novation Agreements resulted in or produced four Schedule Agreements between Wasabi and Flexirent. Flexirent submitted that these were one agreement, and the content of the printed terms support that submission. But the conduct of Flexirent in preparing for execution four separate novation agreements which were executed by Wasabi [66] (even if Mr Hancock's evidence seeks to rely on only one of them), [67] and issuing four notices of termination, one in respect of each of the four Schedule Agreements referring to, respectively, the four Schedule Agreements by date, militates against such a construction. Mr Hancock's reference to the one Pacific Retail Novation Agreement signed by Flexirent overlooks that the particular Novation Agreement specified only one schedule numbered 1097547, not four schedules.
In any event, if there was only one Pacific Retail Finance Lease Agreement, that does not assist Flexirent. It was not, and could not be, disputed that the Daddow Novation Agreement produced a separate agreement from the Pacific Retail Novation Agreements. So even if the four Pacific Retail Novations are to be regarded as resulting in a single agreement, still Flexirent's submission requires that the guarantee applies to two agreements.
In the result, Flexirent cannot succeed unless the meaning of "Agreement" defined as "a...finance lease agreement" is read as "all...finance lease agreements". To so read the Wasabi Guarantee is not compelled by commercial necessity nor is the literal reading capricious or unreasonable. The better construction, taking into account the principles in Andar and Ankar discussed earlier, and the timing of the execution (and the non‑execution) of the Pacific Retail Novation Agreements (especially compared to the Daddow Novation Agreement), is that the Wasabi Guarantee applies only to the debts of one agreement, the Daddow Novation Agreement.
It follows that I am not satisfied that the Wasabi Guarantee covers the debts the subject of the claim.
The evidence did contain other terms of a (possibly corporate) guarantee in Exhibit A [68] and Exhibit 1, referred to earlier, including a further definition of "Agreement". Flexirent did not contend those terms were applicable and Mr Hancock's evidence that the Wasabi Guarantee included those pages was expressly not read by Flexirent. In any event, the definition of "Agreement" in that document would not assist Flexirent both because Agreement is not defined to include multiple Master Finance Lease Agreements, and because the agreement needed to be "on or about the date of this Guarantee", [69] which was not the case with the Pacific Retail Novation Agreements.
If I am in error, I note that there was no dispute as to the quantum owed by Wasabi, which is, as of today, $210,272.82, being $139,902.08 of principal and $70,370.74 of interest.

H. Costs

The ordinary rule that costs follow the event indicates that the plaintiff should pay the defendant's costs. For some period of the proceedings the defendant was self‑represented and during that period the defendant would not be entitled to any time-based costs.
Costs would be assessed on the ordinary basis apart from when Ms Mills was self‑represented in the proceedings.

I. Orders

The orders of this Court are, therefore: 1. Proceedings dismissed. 2. Plaintiff to pay the defendant's costs. 3. Note that for some period of the proceedings, the defendant was self-represented and the defendant during that period is not entitled to any time-based costs.

Endnotes

Zhang v BM Sydney Building Materials Pty Ltd [2016] NSWCA 166 at [46]-[47].
See Exhibit C at Plaintiff's Hearing Bundle ("PHB"), p 131.
Exhibit A, p 31-34/PHB, pp 78-81. See Exhibit D for schedule of how pages numbers in Exhibit A correspond to the page numbers in the PHB.
Exhibit C at PHB, p 130.
Exhibit A, p 31/PHB, p 78.
Exhibit A, p 32/PHB, p 79.
Exhibit A, p 33/PHB, p 80.
Exhibit A, p 34/PHB, p 81.
Exhibit A at PHB, p 83.
Exhibit A at PHB, p 87.
Exhibit A at PHB, p 92.
Exhibit A at PHB, p 83.
Exhibit A at PHB, p 87.
Exhibit A at PHB, p 92.
Exhibit A at PHB, p 85.
Exhibit A at PHB, p 90.
Exhibit A at PHB, 95.
Exhibit A at PHB, pp 50 and 65.
Exhibit A, p 51/PHB, p 98.
Exhibit A, p 52/PHB, p 99.
See Exhibit 5.
Exhibit 4.
See Exhibit 5.
Exhibit A at PHB, pp 100-102.
See [27]-[31] of Statement of Claim.
Exhibit B at PHB, pp 122-129.
Exhibit B at PHB, p 123.
See Exhibit 3.
Exhibit A at PHB, pp 73-77.
Affidavit 12/2/20 at [2].
At [10].
See Exhibit A at PHB, p 79.
Affidavit 12/2/20 at [10].
Exhibit C.
See Exhibit A p 52/PHB p 99.
See Exhibit 2.
Andar Transport Pty Ltd v Brambles Ltd (2004) 217 CLR 424 at 433, [17]; Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549 at 561.
See Andar at [22].
See Andar at [26].
Rava v Logan Wines & Anor [2007] NSWCA 62 at [53].
Rava at [54].
Rava at [54]-[55].
Rava at [55]. See also Zhang v BM Sydney Building Materials Pty Ltd [2016] NSWCA 166 at [48], [74]-[75].
(2004) 217 CLR 424.
(1987) 162 CLR 549.
[2007] NSWCA 62 at [46], [57].
[2016] NSWCA 166 at [62].
Rava at [46], Zhang at [43].
Rava at [54], [57].
Rava at [55], Zhang at [49].
Exhibit A, p 98/ PHB, p 151.
Exhibit C.
Exhibit B.
Exhibit 3.
Exhibit C at PHB, p 131.
Exhibit A at PHB, p 79.
Exhibit A at PHB, p 83.
Exhibit A at PHB, p 87.
Exhibit A at PHB, p 92.
Exhibit A at PHB, pp 73-77.
Exhibit A at PHB, p 73.
See Exhibit B at PHB, pp 122, 124, 126 and 128.
Exhibit B at PHB, pp 123, 125, 127 and 129.
Exhibit A, p 51/ PHB, p 98.
Exhibit A at PHB, p 98, cl 7 cf Exhibit 1, p 3, cl 1.1, definition of "Agreement".
Exhibit B.
See affidavit of Mr Hancock, 27/4/18 at [18] and Exhibit A, pp 49-50/PHB at pp 96-97.
Exhibit A at PHB, pp 100-102.
Exhibit A at PHB, p 100. 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: 01 June 2020

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Judgment (10 paragraphs)

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Cases Cited (4)