Muddle v Cormie

The grounds of appeal

1. Ms Muddle relied on the following grounds of appeal set out in the amended summons: "1. On 9 February 2017, the first and second defendants served the plaintiff with a Notice to Admit (the Notice to Admit). 2. The Notice to Admit specified, inter alia, that: (a) the plaintiff is a personal guarantor of Muddles Farm Centre Pty Limited (Muddles Farm) (paragraph 3); and (b) the plaintiff was at all material times liable to the first and second defendants pursuant to a personal guarantee for all amounts due and payable by Muddles Farm (paragraph 5). (collectively "the Statements") 3. The plaintiff did not serve a notice disputing the Statements on the first or second defendants. 4. Whether the plaintiff was a guarantor of Muddles Farm or was liable to the first and second defendants pursuant to a personal guarantee were questions of law, not fact. 5. The learned Local Court Magistrate erred in finding that the Statements were questions of fact to which rule 17.3 of the Uniform Civil Procedure Rules 2005 applied. 6. The learned Local Court Magistrate erred in failing to consider whether the plaintiff was liable to the first and second defendants as a guarantor of Muddles Farm. 7. The learned Local Court Magistrate ought to have found that the document dated 4 January 2012 and propounded by the first and second defendants as a guarantee was not supported by consideration and was therefore unenforceable."

The proceedings in the Local Court

1. By statement of claim filed on 17 June 2015 the Cormies claimed damages for breach of contract against Muddles Farm Centre Pty Limited (Muddles Farm), which was the first defendant in the Court below, and Ms Muddle. They alleged that Muddles Farm was liable to pay them the invoiced fee for grain which had been ordered by Muddles Farm and delivered to it and that Ms Muddle was liable as a guarantor. The proceedings in this Court concern only the judgment against Ms Muddle. I was informed that an order was made for the liquidation of Muddles Farm after the entry of judgment against it.
2. Relevantly, the Cormies made the following allegations in the statement of claim against Mrs Muddle (who was the second defendant in the Court below): "1 The First and Second Plaintiffs (the ''Plaintiffs") carry on business in partnership as C A & D K Cormie (ABN 49983 874160) under the trading name Cormie Industries. 2 The First Defendant is a corporation duly registered under the Corporations Act 2001 and carries on business as a retail supplier of farm related goods and perishables. 3 The Second Defendant is the sole director of the First Defendant and is a personal guarantor of the First Defendant. 4 On or about 4 January, 2012 the Second Defendant, as a director of the First Defendant, and in her personal capacity as guarantor for the First-Defendant, entered into a contract with the Plaintiffs for the supply of goods and services to the First Defendant. 5 It was agreed between the Plaintiffs, First Defendant and the Second Defendant that: A. The First Defendant would be at liberty to place orders with the Plaintiffs from, time to time for the supply of grain. B. In consideration for the supply of grain, the First Defendant would, pay to the Plaintiffs an amount calculated by reference to the current market price for such grain and transport. C. The Plaintiffs would deliver each supply of grain to the First Defendant within a reasonable time of order. D. Upon delivery, an authorised representative of the First Defendant would inspect and weigh the grain supplied before accepting delivery. E. Payment by the First Defendant to the Plaintiffs would be made within thirty (30) days of the Plaintiffs directing an invoice to the First Defendant. F. The Second Defendant would provide a guarantee by way of surety of debts owed by the First Defendant to the Plaintiffs. 6 At the request of the Second Defendant, the Plaintiffs delivered numerous loads of grain to the First Defendant during the period running the 1 May 2014 to 18 June 2014. [PARTICULARS of 9 deliveries given] 7 Each of the deliveries referenced in the preceding paragraph were weighed and accepted by an authorised representative of the First Defendant. 8 Following supply of grain to the First Defendant, the Plaintiffs issued Invoices for the grain supplied and accepted. [PARTICULARS of invoices given] 9 In breach of the contract between the Plaintiffs and the First Defendant, the First Defendant remains indebted to the Plaintiffs, in the amount of $97,049.37 (inclusive of GST), such amount being due and payable pursuant to the contract between the parties. 10 Pursuant to the contract entered 4 January, 2012, the Second Defendant is jointly and severally liable to the Plaintiff for the First Defendant's indebtedness."
3. Ms Muddle denied the personal guarantee in her defence filed on 22 April 2016 as follows: "5 iii At no time, as alleged in paragraph 5 F of the Statement of Claim, did the Second Defendant provide a personal guarantee - either oral or written - by way of surety of debts owed (if any) by the Muddles Farm Centre to the Plaintiff."
4. Her denial was amended, but to the same effect, in her further amended defence filed on 5 August 2016: "1. As to paragraph 3 and 10 of the Statement of Claim the Second Defendant denies that the Plaintiff is able to rely upon any alleged personal guarantee or alleged contract."
5. Mr Cormie swore an affidavit on 26 August 2016 which was read in the proceedings in the Court below. He deposed, of present relevance: "27 The First Defendant had always been slow in making payment during the course of our relationship. Following the death of Mr Muddle on or about 2005, payments became even slower. As I was providing a significant amount of grain to the First Defendant on credit, I required that the Second-Defendant enter into a personal guarantee in surety of such debts during early 2012. Annexed hereto and marked with the letter "G" (pages 37-41) is a copy of the guarantee signed by Ms Carol Muddle."
6. The guarantee, which was annexed to Mr Cormie's affidavit, provided as follows: "1. Guarantee We the above named Guarantors hereby agree jointly and severally to be answerable and responsible to Cormie Industries for the due payment by the Customer for all such goods and services as Cormie Industries may from time to time supply to the Customer. I/We acknowledge that this Agreement shall be a continuing Guarantee to Connie Industries for all debts whatsoever and whensoever contracted by the Customer with Cormie Industries in respect of goods or services supplied or to be supplied to the Customer (including any administration fee payable under 3.2 below). . . . . . 3. Payment Terms 3.1 Unless otherwise agreed in writing all accounts shall be payable within 30 days from date of invoice or as may otherwise be set out on any invoice or statement of account issued by Cormie Industries. . . . 4. Withdrawal of Credit Cormie Industries may withdraw credit from the Customer at any time without prior notice. . . ."
7. The Cormies served two notices to admit facts. There was no response to the second notice, dated 9 February 2017, as a result of which the matters alleged were taken to have been admitted. The relevant matters in the second notice were as follows: "3 The second defendant is the sole director of the first defendant and is a personal guarantor of the first defendant. . . . 5. At all material times the second defendant was liable to the plaintiffs for all amounts due and payable by the first defendant to the plaintiffs pursuant to a personal guarantee provided by her in surety of such debts . . . 15. As of the date of this Notice, the first and second defendants are indebted to the plaintiffs in the amount of $81,611.43 plus interest and costs orders already made."
8. The matter has a lengthy history in the Local Court which is not material for present purposes but explains the delay between the filing of the statement of claim and the hearing date of 11 April 2017. Ms Muddle was not present for the hearing in the Court below but was represented by Mr Graham, who also represented Muddles Farm. Mr Graham confirmed at the outset of the hearing that he was readily able to get instructions, notwithstanding Ms Muddles' absence. Mr Graham informed the Magistrate that he wished to make an application for leave to withdraw the admissions made as a result of the non-response to the notice to admit facts.
9. In the course of hearing argument on whether leave ought be granted to Muddles Farm and Ms Muddle (the defendants in the Court below), his Honour went through the notice to admit facts and asked counsel to identify the matters that were genuinely in dispute. When his Honour asked about 5. (see above), the following exchanges occurred: "HIS HONOUR: What about five, was she liable on a personal guarantee? GRAHAM: Your Honour, it's never been part of her defence so it would be disingenuous of me to say so. I can't say that. . . . HIS HONOUR: But there's no denial of the guarantee on the pleadings? LE PLASTRIER: There's not. HIS HONOUR: It's admitted, therefore--- GRAHAM: Not that I'm aware of."
10. When his Honour gave reasons for allowing the Muddle interests to withdraw certain admissions, his Honour said: "The fact that the defendant did not have a lawyer at the time of the expiry of the notice to admit, if that is the case, would be relevant but not determinative and I do note that she had directly briefed counsel in that period. Assuming, in her favour, that there are reasons why the omission was made it would still be necessary to look at whether the admissions were erroneous. For that purpose, a close analysis of the earlier notice to admit and response and the second notice to admit is important as well as looking at whether or not the questions now sought to be withdrawn are genuinely in dispute. For that purpose, paras 1, 2 and 3 were not genuinely in dispute and there is no reason to permit their withdrawal. Paragraphs 4, 6, 8, 10, 12, 16 and 17 were all already admitted in the first notice to admit and there is no reason shown why that should be withdrawn when that first notice to admit was answered with the benefit of legal advice. On further inquiry there was no reason given as to why any genuine dispute would arise in relation to paras 5, 7, 9, 11, 13, 14, 15, subject only to possible precise questions of quantum. As those matters are not genuinely in dispute, there is no reason why the admissions should be permitted to be withdrawn. ACCORDINGLY, ALL OF THOSE ADMISSIONS WILL STAND AND I DO NOT GRANT LEAVE TO WITHDRAW THEM." [Emphasis added.]
11. His Honour entered judgment against both Ms Muddle and Muddles Farm for all the amounts found to be outstanding. Ms Muddle's liability under the guarantee was not specifically addressed in the reasons, there being no apparent dispute about it.

The appeal

1. Mr Pearson, who appeared for Ms Muddle, argued that the appeal should be allowed on the following three bases: 1. Ms Muddle's liability under the guarantee was an issue at the trial; 2. In the alternative to (1), it was open to Ms Muddle to agitate that she was not bound by the guarantee on appeal to this Court; and 3. The guarantee was not enforceable as it was not supported by consideration.
2. These matters will be considered in turn.

Whether Ms Muddle's liability under the guarantee was an issue at trial

1. Mr Pearson argued that Ms Muddle's liability under the guarantee was denied in every iteration of the defence and that it was, therefore, an issue at the trial. He submitted that, insofar as Mr Graham, who appeared for her in the Court below, had conceded that Ms Muddle was liable under the guarantee, or that it was no longer in issue, this was plainly an error. He cited Dare v Pulham (1982) 148 CLR 658 at 664; [1982] HCA 70 in support of the proposition that a case is to be decided on the pleadings.
2. I reject this submission. In Dare v Pulham the Court (Murphy, Wilson, Brennan, Deane and Dawson JJ) specifically excepted from the general principle that the issues in a trial were determined by the pleadings, cases where the conduct of the trial had been such as to alter that premise. The Court said, at 664: "Apart from cases where the parties choose to disregard the pleadings and to fight the case on issues chosen at the trial, the relief which may be granted to a party must be founded on the pleadings." [Citations omitted.]
3. Moreover, the principles in Dare v Pulham must be read in light of Pt 6 of the Civil Procedure Act. The Court below was obliged by s 56 to act in accordance with the "overriding purpose", "to facilitate the just, quick and cheap resolution of the real issues in the proceedings". What the Magistrate did in the present case was to enquire of the parties what was really in issue and permit Muddle Farms and Ms Muddle to withdrawn admissions in respect of matters genuinely in dispute, but remain bound by admissions about matters that were not genuinely in dispute. Thus, his Honour sought to fulfil the purpose in determining their application to withdraw admissions arising from their non-response to the second notice to admit facts. It is fundamental that a party is bound by the conduct of counsel at the trial: R v Birks (1990) 19 NSWLR 677 at 684-685 (Gleeson CJ, McInerney J agreeing). The conduct of Mr Graham made it clear that Ms Muddle's liability as guarantor in the trial was not an issue requiring determination.
4. I note that, in the amended summons, Ms Muddle alleged that the Court below erred in finding certain "Statements" (the matters in [3], [5] and [15] referred to above) were questions of fact to which UCPR r 17.3 applied (ground 5 set out above). UCPR r 17.3 provides: "17.3 Notice to admit facts (1) The requesting party may, by a notice served on the admitting party (the requesting party's notice), require the admitting party to admit, for the purposes of the proceedings only, the facts specified in the notice. (2) If, as to any fact specified in the requesting party's notice, the admitting party does not, within 14 days after service on the admitting party of the requesting party's notice, serve on the requesting party a notice disputing that fact, that fact is, for the purposes of the proceedings only, taken to have been admitted by the admitting party in favour of the requesting party only. (3) The admitting party may, with the leave of the court, withdraw any such admission."
5. The matters alleged in [3], [5] and [15] were not pure questions of fact. However, I do not consider that the Magistrate, in refusing leave to withdraw these admissions, ought properly be regarded as having necessarily decided that the matters were questions of fact, to which UCPR 17.3 applied. Rather, I consider that the second notice to admit facts, which contained [3], [5] and [15], was used by the Magistrate as a check-list of matters which were potentially in dispute. He inquired of Mr Graham whether [3], [5] and [15] were in dispute, as far as the liability of Ms Muddle was concerned, and was assured by him that they were not. In these circumstances, whether they were questions of fact which were amenable to a notice to admit facts served pursuant to UCPR r 17.3 did not need to be decided, as the issue was overtaken by the concessions made by Mr Graham on behalf of Ms Muddle referred to above.

Whether Ms Muddle can agitate the enforceability of the guarantee on appeal to this Court

1. Mr Pearson argued that the enforceability of the guarantee was a matter of law and that, accordingly, even though the point was not taken at trial, it was open to Ms Muddle to argue in this Court that the guarantee was not enforceable. He contended that usually the rule that issues not raised at trial cannot be run on appeal relates to claims rather than denials because if the other party could have raised evidence at trial to counter the argument, it will not be allowed to be run on appeal.
2. One of the difficulties with this argument is that it was not as if the enforceability of the guarantee was overlooked at the trial (Cf. Coulton v Holcombe (1986) 162 CLR 1; [1986] HCA 33). Rather, it was positively conceded by Ms Muddle's counsel. It would, in my view, not be in the interests of justice to the Cormies to subject them to a further hearing on a footing different to the one which they faced at the first hearing, merely because Ms Muddle or her legal representatives have thought better of a concession made in the Court below: see Australia and New Zealand Banking Group Ltd v Haq [2016] NSWCA 93 at [100]-[107] (Simpson J, Sackville AJA agreeing).
3. I reject the submission that the enforceability of the guarantee was purely a matter of law and that no evidence could have been adduced on this issue had the Cormies appreciated that it was in dispute. The evidence surrounding the guarantee was adduced in relatively short form, as is apparent from the extract from Mr Cormie's affidavit set out above. It may be that, had the Cormies appreciated that there was a real issue about the enforceability of the guarantee they would have adduced further evidence of the surrounding circumstances which would, or could, have assisted in its interpretation: see Codelfa Construction Pty Ltd v State Rail Authority (NSW) (Codelfa/Eastern Suburbs Railway case) (1982) 149 CLR 337; at 353-353 (Mason J); [1982] HCA 24.

Whether the guarantee is enforceable

1. The third point does not need to be determined as I have already found that it was conceded at trial that the guarantee was enforceable and that it was not open to Ms Muddle on appeal to this Court to put in issue the enforceability of the guarantee. However, as both parties made detailed submissions about the enforceability of the guarantee I shall address the arguments.
2. Mr Pearson argued that, in the absence of any future promise emanating from the Cormies to supply grain to Muddles Farm, the guarantee was unenforceable because it was not supported by consideration. He submitted that, on its face, the guarantee contemplated that the Cormies had a choice whether to supply grain to Muddles Farm, but no obligation to do so (Cf. Silver v Dome Resources NL [2007] NSWSC 455; (2007) 62 ACSR 539 at [147] (Hamilton J)). Mr Le Plastrier, who appeared with Ms Ambikapathy for the Cormies, submitted that the guarantee operated with respect to future deliveries when and if they were made. He submitted that the consideration was the making of the deliveries and, if further consideration be required, the giving of further credit for such deliveries.
3. The guarantee was expressed to pertain to "all debts whatsoever and whensoever contracted". Thus, on a literal interpretation, it applied both to past debts and future debts. Past debts, without more, cannot constitute present consideration. However, the prospect of future debts arising from future deliveries was sufficient to constitute consideration. After the guarantee was executed on 4 January 2012 the Cormies delivered grain to Muddle Farms from 11 July 2012 to 18 June 2014. These deliveries on credit were sufficient consideration to support Ms Muddle's promise to guarantee the debts of Muddle Farms. Although guarantees have special characteristics, they are still contracts and must be construed as such, in order to give business efficacy to their terms. In my view, the effect of the guarantee was to make Ms Muddle liable for debts incurred by Muddle Farms for deliveries of grain made by the Cormies after 4 January 2012 on terms other than cash on delivery. The provision of credit by way of the payment terms in cl 3.1 (30 days from date of invoice), which could be withdrawn without notice (cl 4) also constituted consideration. Thus the guarantee was supported by consideration and therefore enforceable.
4. The present case is to be distinguished from cases where it has been found that no consideration emanated from the creditor to support the guarantor's promise to guarantee the debts of the debtor, or where the creditor fails to perform that for which the guarantee was given. From 4 January 2012 the Cormies delivered grain and continued to provide credit to Muddle Farm in return for Ms Muddle's guarantee of Muddle Farms' debts to the Cormies. With every delivery of grain provided on terms of credit, Ms Muddle became liable, as guarantor, to the Cormies for the invoiced amount until the amount was paid.

Whether leave is required

1. I consider each of the matters raised by Ms Muddle to be a mixed question of fact and law, except, possibly, the second question (whether it was open to Ms Muddle to re-agitate the question whether she was bound by the guarantee). Leave to appeal was therefore required in respect of the first and third question. As these questions were, to some extent, related I consider it to be appropriate to grant leave, although the prospects of success would otherwise have been insufficient for a grant of leave.

Orders

1. For the reasons set out above, I make the following orders: 1. Extend the time for filing the summons to 9 June 2017. 2. To the extent required, grant leave to the plaintiff to appeal. 3. Appeal dismissed. 4. Unless any party makes an application in writing, with any evidence in support, to my Associate within seven days hereof for a different order, order the plaintiff to pay the defendants' costs of the proceedings. 5. If an application is made pursuant to (4) above, the respondent is to provide a response to my Associate within a further 7 days in order that the matter can be determined on the papers. 6. Grant liberty to apply on 3 days' notice.

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: 21 November 2017