Nashco Pty Ltd v Yang

The decision of the primary judge

1. The primary judge dismissed Grand Metal's claims against Nashco. His Honour upheld Nashco's cross-claim against Grand Metal and ordered judgment in the amount of $979,716.47 (which included interest). However, his Honour dismissed Nashco's cross-claim in so far as it concerned the respondents.
2. The primary judge observed at [80] that Nashco relied on the Brewers' assignment to it of their entitlements under the Guarantee. His Honour set out the opening words and clause 1 of the Guarantee, and clause 3 of the Deed, at [81]-[83]. Referring to the language of "successors and assigns" in the Guarantee, his Honour proceeded on the assumption that clause 3 of the Deed operated to assign the benefit of the Guarantee to Nashco, and that Nashco was an "assign" of the Brewers (there being no suggestion that Nashco was a "successor"). The relevant question posed by his Honour was "what benefit under the Guarantee was so assigned": at [84]. Noting that it was common ground that "Mr and Mrs Brewer could only assign to [Nashco] the rights they had at the time of the assignment", his Honour described those rights as "to recover from Grand Metal any monies due to them by Grand Metal" (original emphasis): at [85]. His Honour's reasons for that conclusion were as follows: "The reference in the opening words of the Guarantee … to 'assigns' can only be a reference to such entity as Mr and Mrs Brewer have assigned their interest under the Guarantee. If the parties' intention had been to refer to an entity to which Mr and Mrs Brewer had assigned their interest in the 'Nashco' business, much clearer words would have been required. To the extent there is any ambiguity in the words used, it must be resolved in favour of the Guarantors."
3. Grand Metal did not owe any amount to the Nashco Partnership (this was common ground): at [87]. Rather, the amount for which Nashco sued on the cross-claim was owed in respect of goods that Nashco had supplied to Grand Metal after executing the Deed with the Brewers in July 2018. The primary judge found that the Guarantee did not cover that amount. In asserting to the contrary, Nashco was proceeding on an assumption that the effect of the Deed was "somehow to novate the Guarantee in favour of [Nashco]": at [88]. In his Honour's opinion, "that was not the effect of the Deed of Assignment": at [89].

The grounds of appeal

1. The Court granted leave to Nashco to rely on a Further Amended Notice of Appeal, which was filed without objection at the commencement of the hearing. Although the Further Amended Notice of Appeal contains four grounds of appeal, only Ground 1 was the subject of oral submissions. By that ground, Nashco contended that the primary judge erred "in failing to find that the benefit of the guarantee included all future sums of monies that became owing by [Grand Metal] to [Nashco] (as the successor in title or assigns of AG Brewer and KM Brewer) in respect of the continuing supply of goods by [Nashco] to [Grand Metal]".
2. Grounds 2 and 3 alleged, in similar terms, that the primary judge erred in finding that the Deed assigned the Guarantees but not all rights under the Guarantees. That alleged error is premised on the correctness of Nashco's construction of the Guarantee, being the subject of Ground 1. It follows that Ground 2 and Ground 3 do not add to the scope of the appeal, and no more need be said about them.
3. Ground 4, which alleged a failure of the primary judge to give any or any adequate reasons for making the findings the subject of Grounds 1 to 3, was not the subject of any submissions from the appellant, written or oral. It is apparent from the summary I have provided above that his Honour's reasons for dismissing Nashco's claim against the respondents were adequate. The brevity with which his Honour dealt with the claim reflected the limited attention that the parties gave the issue in their respective submissions below.
4. The balance of these reasons will thus focus on Ground 1. The resolution of that ground rests on the proper construction of the terms of the Guarantee.

The parties' submissions

1. Nashco submitted that, properly construed, the Guarantee was to operate after assignment in respect of monies that Grand Metal owed to it as the assignee of the business of the Nashco Partnership. In support of that construction, Nashco submitted that the Guarantee was expressed in the widest possible terms. It applied in respect of "all further sums of money from time to time owing to the Seller by the Customer"; and the "Seller" was defined as the Nashco Partnership "and its successors and assigns". Contrary to the primary judge's conclusion, the terms of the Guarantee contemplated and accommodated an assignment of rights held by the Nashco Partnership, including the right under the Guarantee to be indemnified in respect of future debts in circumstances that fell within its terms. The respondents did not become liable by reason of the assignment for any new or different liabilities; they simply became liable to different persons.
2. The respondents submitted that whilst Nashco and Grand Metal may have adopted a previous contractual relationship (as the primary judge found at [23]-[24]), that relationship was separate and distinct from that which had prevailed between the Nashco Partnership and Grand Metal. It was not the same contractual relationship, nor one that had been assigned or novated. The fact that the Guarantee was expressed to be in favour of not only the persons comprising the Nashco Partnership but also their "successors and assigns" did not alter this conclusion. The assignment of the benefit of the Guarantees did not expand the relationship for which the Guarantee made provision so as to cover debts that Grand Metal owed Nashco, not as assignee of any right or debt from the Nashco Partnership but in its own right and pursuant to its contractual relationship with Grand Metal.
3. The respondents submitted that the sum that Nashco claimed constituted a debt for unpaid building materials that it had supplied to Grand Metal pursuant to a separate contractual arrangement. The Nashco Partnership could never have sued the respondents on the Guarantee for monies that Grand Metal failed to pay Nashco for building materials that Nashco supplied, because the Partnership was not a party to the provision of the goods the subject of the contract between Grand Metal and Nashco. On Nashco's argument, the Deed conferred on it rights that the Nashco Partnership never had. Counsel for the respondents submitted that the fact that Nashco was an assignee was not a sufficient basis to permit Nashco to take the benefit of the Guarantee in respect of the sum owing to it.
4. In the course of the hearing, the Court drew to the attention of the parties a decision of the Court of Appeal of the United Kingdom in First National Finance Corporation v Goodman [1983] BCLC 203 ("Goodman"). The decision was not the subject of consideration by the primary judge. Indeed, it has not been applied or previously cited in any Australian court. Both parties took up the Court's invitation to provide written submissions addressing the decision. I will address both the decision and the supplementary submissions in the course of my reasons.

Construction of the Guarantee

1. In Andar Transport Pty Ltd v Brambles Ltd (2004) 217 CLR 424; [2004] HCA 28 at [17]-[23], Gleeson CJ, McHugh, Gummow, Hayne and Heydon JJ took as the starting point for the principles of construction applicable to contractual indemnities the decision in Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549; [1987] HCA 15 ("Ankar"). In Ankar, two clauses of a guarantee were construed as conditions the breach of which would discharge the surety from liability, with the Court stating at 561: "At law, as in equity, the traditional view is that the liability of the surety is strictissimi juris and that ambiguous contractual provisions should be construed in favour of the surety. The doctrine of strictissimi juris provides a counterpoise to the law's preference for a construction that reads a provision otherwise than as a condition. A doubt as to the status of a provision in a guarantee should therefore be resolved in favour of the surety."
2. In Gardiner v Agricultural and Rural Finance Pty Ltd [2007] NSWCA 235, Spigelman CJ noted at [18] that while endorsing the approach in Ankar, the Court in Andar referred at footnote 34 to two earlier decisions in which the Court had construed ambiguous provisions against the guarantor and indemnifier who had respectively prepared the relevant document in each case: Halford v Price (1960) 105 CLR 23 at 30, 34, 40, 41; [1960] HCA 38; and Davis v Commissioner for Main Roads (1968) 117 CLR 529 at 534; [1968] HCA 10. Spigelman CJ relied on these decisions, and the reference to them in Andar, as illustrating that "there is more than one principle involved in the task of contractual interpretation, which must be undertaken in accordance with the general principle above as applicable to commercial contracts": at [19]. Spigelman CJ referred in this respect to Coghlan v S H Lock (Aust) Ltd (1987) 8 NSWLR 88 at 92, where Lord Oliver of Aylmerton accepted the principle of construction in relation to guarantees to which I have referred above and went on to say: "But these principles do not, of course, mean that where parties to such a document have deliberately chosen to adopt wording of the widest possible import that wording is to be ignored. Nor do they oust the principle that where wording is susceptible of more than one meaning regard may be had to the circumstances surrounding the execution of the document as an aid to construction."
3. Although the High Court overturned this Court's decision in Gardiner, Spigelman CJ's statement of the applicable principles of construction was unaffected: see Agricultural and Rural Finance Pty Ltd v Gardiner (2008) 238 CLR 570; [2008] HCA 57. In Ankar, the joint reasons had also stated that in construing a contract of guarantee, "the court is entitled to look to the general setting in which the contract has come into existence": at 561, citing Reardon Smith Line Ltd v Hansen-Tangen [1976] 1 WLR 989 at 996-7.
4. Construing a guarantee thus involves ascertaining 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: Rava v Logan Wines Pty Ltd [2007] NSWCA 62 at [53], referred to with approval inter alia in CSR Limited v Adecco (Australia) Pty Ltd [2017] NSWCA 121 at [163]; Cherry v Steele-Park (2017) 96 NSWLR 548; [2017] NSWCA 295 at [112]. It does not follow from the requirement that ambiguity be resolved in favour of the surety that ambiguity must be detected where the natural and ordinary meaning of the language, taken in its contractual context, requires no such conclusion: Erect Safe Scaffolding (Australia) Pty Ltd v Sutton (2008) 72 NSWLR 1; [2008] NSWCA 114 at [87] per Basten JA; see also F & D Normoyle Pty Ltd v Transfield Pty Ltd (2005) 63 NSWLR 502; [2005] NSWCA 193 at [141]-[142] per Bryson JA.
5. The decision of the UK Court of Appeal in Goodman, to which the parties were referred during the hearing, shows the application of those principles in respect of a guarantee with not dissimilar terms to the one here in issue. The appellant, Mr Goodman, executed a guarantee with Cassel Arenz & Co Ltd ("Cassel") in respect of advances that Cassel made to Apartotel Ltd ("Apartotel"), of which he was a director. At the time of entry into the guarantee, Cassel was a wholly owned subsidiary of First National Finance Corporation ("FNFC"). Clause 1(B) of the guarantee relevantly provided (at 205-206): "In consideration of [Cassel] (hereinafter called 'the Bank' which expression where the context so admits includes the Bank's assigns) at our request making or continuing advances or otherwise giving credit to [Apartotel] - (and the address of their registered office is given) - (hereinafter called 'the Customer') We the undersigned Harry Goodman - (and his address is filled in) - Alan Stuart Fishman … and Maurice Stanley Fishman (with their addresses filled in) hereby agree to pay and satisfy on demand all moneys and liabilities whether certain or contingent which are now or shall at any time be due from the Customer to the Bank together with any interest thereon on any account whatsoever whether alone or jointly with any other person and in whatever name style or firm including - …(B) all money obtained from or liabilities incurred to the Bank notwithstanding that the borrowing or incurring of such liabilities may be invalid or in excess of the Customer or of any director attorney agent or other person purporting to borrow or act on behalf of the Customer and notwithstanding any other irregularity in such borrowing or incurring such liabilities."
6. Clause 2 of the guarantee provided (at 206): "This Guarantee shall not be considered as satisfied by any intermediate payment or satisfaction of the whole or any part of any sum or sums of money owing to the Bank by the Customer but shall be a continuing security and shall extend to cover any sum or sums of money which shall for the time being constitute any balance due from the Customer to the Bank on any account whatsoever."
7. Clauses 17 and 18 of the guarantee relevantly provided: "(A) Where this Guarantee is signed by more than one party the liability of each party hereunder shall be joint and several and every covenant herein shall be construed accordingly…. … (C) Notwithstanding the death of any party thereto this Guarantee shall extend to secure all advances or payments made by and to all moneys becoming or accruing due or owing to the Bank at any time thereafter until the expiry of one month from the delivery of notice by the personal representatives of the deceased party requiring the Bank to make no further advance or payment on the security of this Guarantee. 18. In this Guarantee where the context so admits - (A) 'The Bank' includes its successors and assigns and any company with which it may amalgamate."
8. In January 1972, Cassel "merged into" or "amalgamated with" FNFC, and ceased to trade. After that time, all facility letters and advances were made to Apartotel by FNFC. According to Stephenson LJ, whether or not the change of name was incorporated in the documents, "in other respects they remained the same, including the account number": at 205. On 16 April 1975, Cassel executed a deed of transfer, assigning to FNFC the benefit of the guarantee that was the subject of the proceedings.
9. In September 1972, the appellant fell out with the other two directors and ceased to take an active part in the business of Apartotel. However, he did not terminate his liability under the guarantee. FNFC made a demand of the appellant following Apartotel's winding up: at 205. All advances that Cassel had made to Apartotel were repaid, as were all or most of the advances that FNFC had made between January 1972 and the assignment in April 1975. The issue was whether the appellant's guarantee covered advances only up to one or both of those dates. At first instance, Bingham J held that the guarantee was not so limited, and gave judgment for FNFC. As Stephenson LJ put it, the issue was whether Bingham J was correct in his interpretation of the language of the guarantee and in his understanding of what advances it covered.
10. Pausing there, it is apparent from this recitation of the facts in Goodman that in so far as FNFC made advances to Apartotel following the merger or amalgamation with Cassel, there was no question that FNFC "stood in the shoes" of Cassel for the purposes of those advances. The question for the Court was whether FNFC fell within the term "the Bank" in the guarantee, either as defined in clause 1 or in the extended definition in clause 18, such that FNFC could rely on the guarantee to secure the appellant repaying the advances it had made to Apartotel following its amalgamation with Cassel. By contrast, no challenge is made in the present case to the primary judge's finding that Nashco fell within the terms of "the Seller" in the Guarantee, having taken an assignment of the Guarantee under the Deed. Instead, the issue is whether Nashco, as a "Seller" within the meaning of the Guarantee, can rely on the Guarantee for supplies that it made to Grand Metal after the Nashco Partnership assigned its business to Nashco.
11. In this respect there is force in the respondents' submission that the issue in the present case is not on all fours with Goodman, as the latter was concerned with the impact, if any, of the change in the identity of the creditor on liability under the guarantee. That said, aspects of the approach that the Court of Appeal in Goodman took to the construction of the terms of the guarantee in that case are instructive.
12. Counsel for the appellant in Goodman had sought to rely on dicta of Pickford LJ in Bradford Old Bank v Sutcliffe [1918] 2 KB 833. In Bradford, the plaintiffs had granted a loan to a company including on the basis of debentures and a guarantee from its two directors. Relevantly for present purposes, the plaintiffs amalgamated with another bank, and sold to the new bank, United Counties Bank Ltd, all of its debts and the benefit of all securities and guarantees. The new bank continued to use the books of the old bank, with a notation indicating the change; the company's accounts were transferred in those books to the name of the new bank; and the company paid interest on the loan by cheques drawn in favour of the new bank. When the plaintiff demanded from the company the amounts owing and commenced an action to enforce the guarantee, one of the defences was that the surety was discharged by a novation of the debt, by which the liability of the company to the plaintiffs was discharged.
13. Pickford LJ decided the matter on the basis that even if there was a novation, it did not discharge the surety. The debt had been ascertained some years previously, and the original debtors were still liable for the debt when the alleged novation took place. Relying on Wheatley v Bastow (1855) 44 ER 102, Pickford LJ held at 842 that so far as the interests of the surety were concerned, "a novation by which the original creditor releases the debtor has no greater effect than an assignment of the debt with notice to the surety": "In either case the transferee of the debt, whether by novation or assignment, is the person with whom the surety has to deal, and, as the liability is already ascertained, it is a matter of no consequence to the surety to whom he has to pay it. The case would be different if it were sought to make the surety liable for a debt arising out of dealings between the new creditor and the debtor, but no such case arises here." [Emphasis added.]
14. In Goodman, Stephenson LJ described the above passage as obiter (O'Connor LJ described it as "doubly obiter" (at 214)), and stated that in any event, any difference flowing from FNFC seeking to make the appellant liable for a debt arising out of dealings between itself, as the new creditor, and Apartotel, the debtor, depended upon "what the guarantee covered and whether it covered the debt owed by the debtor to the new creditor in the circumstances in which the new creditor succeeded the old". His Lordship noted in this respect that "[t]he substitution of the new creditor may be carried out by means which are assumed to effect no material alteration in the guarantor's position": at 210. When the transfer of benefits of a guarantee was effected by private agreement, "the extension of the guarantor's obligation to repayment of future advances by the transferee can only be derived from the intention of the transferor and guarantor as expressed in the guarantee or to be inferred by necessary implication": at 211.
15. Counsel for the appellant in Goodman also argued that the placement of the definition of "the Bank" within clause 1 of the guarantee was deliberate, and as such referred only to advances of money due to Cassel and not to its assigns. In rejecting that contention, Stephenson LJ observed at 212: "The whole parenthesis 'hereinafter called 'the Bank'', etc must look forward to the later part of clause 1 as well as to all the later clauses, and indicates that Cassel might not be the sole party making advances to Apartotel. But even if it were only expressing the consideration for the guarantee, and the consideration for the guarantee was to be given by Cassel only, that could not cut down the scope of the guarantor's promises set out in clauses 1 and 2. As counsel for the creditor … pointed out, the consideration need not be stated, and if it is, it is of only limited relevance." [Emphasis added.]
16. O'Connor LJ reached the same conclusion as Stephenson LJ as to whether FNFC fell within the terms of "the Bank" in the guarantee. Sir Denys Buckley agreed with the judgments of both Stephenson LJ and O'Connor LJ.
17. As I have noted above, the decision in Goodman is not directly concerned with the issue of construction arising in this case, but it is an instructive example of the application of general principles of construction to a broadly-formulated Guarantee. True it is that doubt may arise "not only from the uncertain meaning of a particular expression but from its apparent width of possible application": Bofinger v Kingsway Group Ltd (2009) 239 CLR 269; [2009] HCA 44 at [53]. However, the terms of the Guarantee in the present case are not ambiguous in the requisite sense.
18. The Guarantee was one of a suite of documents which Grand Metal executed in relation to the Nashco Partnership supplying it particular goods on particular terms. Each of the respondents, as directors of Grand Metal, executed the Supply Agreement and the Credit Account Application, to which the Terms and Conditions of Trade were attached and incorporated by reference; and they each signed a copy of the Guarantee. Clause 1.1(n) of the Supply Agreement provided that "a reference to any party to this document or to any other document or arrangement includes that party's legal representatives, substitutes (including, without limitation, any person taking by novation), successors and permitted assigns". The Terms and Conditions of Trade, and the Guarantee, similarly defined "the Seller" to include the Nashco Partnership and "its successors and assigns".
19. Performance under the Supply Agreement was triggered by the Purchaser submitting an Order Form for Goods. The Purchaser, being Grand Metal, had no right to Goods in the absence of submitting an Order Form; and the Supplier (being the Nashco Partnership, its legal representatives, its substitutes, successors and permitted assigns) had no right to payment in the absence of supplying the Goods consistently with the Order Form. Upon supply of the Goods, the Supplier had a right to payment for the Goods from the Purchaser. In the event that the Purchaser failed to pay, in accordance with the Credit Account Application and the Terms and Conditions of Trade, the Supplier could pursue the respondents, pursuant to the Guarantee.
20. The Guarantee falls to be construed against that background. The Guarantee, described in clause 2 as a continuing guarantee, is drafted in wide terms. By cl 1, the respondents guaranteed the due and punctual payment "to the Seller", as defined, of all monies "which are now owing to the Seller by the Customer", along with "all further sums of money from time to time owing to the Seller by the Customer", in respect of "goods and services supplied or to be supplied by the Seller to the Customer or any other liability of the Customer to the Seller". It thus covered both present and future supplies of goods by the Seller as defined. Clause 1 of the Guarantee also referred in broad terms to the arrangements pursuant to which the Seller might supply the goods. Although the Guarantee was executed in the context of the Supply Agreement, the supplies of goods to which cl 1 referred were not described by reference to that contract specifically; the respondents guaranteed "the due observance and performance by the Customer of all its obligations contained or implied in any contract with the Seller".
21. As the appellant submitted in the supplementary submissions, the creditor in the Guarantee was expressly defined as "the Seller" to include successors and assigns. The promise in clause 1 of the Guarantee expressly includes payment of "all further sums of money from time to time owing to the Seller by the Customer in respect of goods and services supplied or to be supplied". I agree with the appellant that this wording contemplated that it might be an assignee supplying the Goods to Grand Metal, and disclosed the requisite intention that the promise was to apply to an assignee in those circumstances. When the defined term is read into the clauses of the Guarantee, and cl 1 in particular, the formulation of the respondents' obligations accommodates future supplies of goods made to Grand Metal, including by the Nashco Partnership's successors and assigns.
22. In response to a scenario in which the business of the Nashco Partnership was carried on by the Brewers' personal representative in the event of their death, counsel for the respondents accepted that the respondents would be liable under the Guarantee in the event that Grand Metal chose to buy goods from the representative and did not pay for them. However, counsel did not accept that the same result would follow where the business of the Nashco Partnership was sold to a third party (for example, by a trustee in bankruptcy) and Grand Metal chose to buy the goods from the third-party purchaser. Counsel's reasoning for the distinction relied not on the terms of the Guarantee but on the nature of what the third party would purchase in that scenario, stating: "What would be sold - that is, to the purchaser from the trustee in bankruptcy - would be the assets of the business, but that would not include the contract pursuant to which the partnership was supplying goods and pursuant to which the guarantors had guaranteed the payment of any moneys owing under that contract. The person would not be an assignee. It would be an assignee of other rights and property, but in relation to the obligations sought to be enforced by the guarantee, that would not be in respect of a property that was assigned."
23. In my view, the terms of the Guarantee, read in the context of the other documents which the parties executed at the same time, were intended to accommodate the circumstances that obtained between Nashco and Grand Metal following assignment of the business of the Nashco Partnership. The Guarantee is expressed to be continuing; it guarantees all further sums of money from time to time owing to the Seller in respect of goods and services to be supplied by the Seller; and the definition of "Seller" squarely contemplates assignment of the business by which the goods are supplied. Contrary to the respondents' submissions, the Guarantee so construed does not operate to put Nashco in a better position than the Nashco Partnership by reason of the assignment. Consistently with the intention of the parties as reflected in the terms of the contractual documents, Nashco has no more than what the Nashco Partnership had, namely, the right to enforce the Guarantee for purchases of the same Goods, supplied in accordance with the same arrangements that Grand Metal agreed with the Nashco Partnership (see [23]-[24] of his Honour's reasons).
24. In their supplementary submissions, the respondents sought to distinguish Goodman on four bases. First, they submitted that Cassel amalgamated or merged with FNFC, making it unnecessary to consider the effect of the assignment in 1975 or FNFC's position as assignee. The ratio was thus said to be "removed from the issues in this case". I accept that submission, although for the reasons I have set out above I consider that the approach in Goodman to the construction of the guarantee is instructive, nonetheless.
25. Secondly, the respondents submitted that the appellant's counsel in Goodman made a concession at trial that affected the course of the matter. The concession was that "by the use of appropriate language in the original contract the guarantee could be held to apply not only to advances made by the original obligee A but to advances made by the assignee B as well". The respondent submitted that no such concession was made in the present case, and could not properly be made, by reason of five subsidiary points.
26. Before addressing those points, the premise of this submission seems to me to involve mischaracterising what counsel for the appellant in Goodman submitted before Bingham J. Reading the paragraph containing the so-called concession as a whole, the parties' agreement with the passage that the respondents extracted in their submissions was pitched at the level of principle. The parties in Goodman diverged as to what constituted "appropriate language", the appellant contending (as the respondents contend in this case) that "very intricate and careful draftsmanship" was needed to achieve the result for which FNFC contended, while FNFC submitted that "all that was needed was a clear indication of intention, which was to be found here": at 208. The parties in the present case diverge in the same way, albeit with respect to a different aspect of the guarantee.
27. Turning to the five subsidiary points, the first and second operate in combination, as do the third, fourth, and fifth. The first point is that the term "Seller" is used to refer to both the entity supplying goods to Grand Metal and to whom Grand Metal is indebted for those goods, and to the entity to whom the guarantee obligation is owed (in each case: the Nashco Partnership and its "successors and assigns"). These differing uses are said to reflect the separate contracts in existence, from which it is said to follow (and this is the second subsidiary point) that the entities constituting the "Seller" may not always coincide. For instance, the Nashco Partnership could continue to supply goods to Grand Metal yet have assigned title to existing debts owed by Grand Metal, and the benefit of the guarantees in respect of those debts, to another person. The Nashco Partnership would still be the "Seller" for the purposes of considering who was supplying goods to Grand Metal and to whom Grand Metal was liable for future supplies of goods. Yet the "Seller" in respect of those existing debts, and who held the benefit of the guarantees for those assigned debts, would be the assignee of those rights from the Nashco Partnership.
28. That a person may be an assignee in one respect but not another may be accepted as theoretically possible, but it does not reflect a sensible reading of the Guarantee having regard to the circumstances in which the Supply Agreement and Guarantee were entered into. The Guarantee secured the payment obligations of Grand Metal to the Seller, defined as the Nashco Partnership and its assigns, in relation to orders that Grand Metal placed with the Seller under the Supply Agreement. There is nothing in the terms of the Guarantee that disclose an intention that the word "Seller" was intended to refer potentially to two separate entities.
29. Thirdly, the respondents accepted that Nashco is the assignee of the debts formerly owed by Grand Metal to the Nashco Partnership (which have been repaid) and the concomitant benefit of the respondents' guarantees in respect of those same debts. However (and this is the fourth point), Nashco was not the assignee of the Nashco Partnership vis-à-vis the Goods Nashco supplied to Grand Metal or in respect of the debt owed by Grand Metal to Nashco for those goods. It does not fall within the definition of "Seller" for that purpose. The respondents' related, fifth point is that describing Nashco as the assignee of the "Nashco business" disguised what, in fact, legally occurred. Nashco did not undertake to supply Goods to Grand Metal as assignee. Nor was Nashco owed money by Grand Metal arising from the supply of further Goods as assignee of the Nashco Partnership. Instead, Nashco supplied Goods, and was owed money, under a separate and new contract with Grand Metal. These points essentially reagitate the submissions the respondents had earlier made on the appeal.
30. In my view, the respondents' focus on the status of Nashco comes at the expense of the terms of the Guarantee. As was the case in Goodman, the definition of "Seller" in the Guarantee contemplates that Grand Metal may incur a liability to make payments for goods supplied by a party other than the Nashco Partnership, which the respondents made a promise to satisfy in the event of Grand Metal's default. There is nothing in the terms of clauses 1 and 3 of the Guarantee that cut down the scope of that promise.
31. The third basis on which the respondents sought to distinguish Goodman was that the reasoning proceeded, in part, by reference to cases and authorities considering changes to the identity of creditors (see 209(b)-211(i)), which were said to have no application here. In their submission, there was a difference between the identity of the creditor changing, which it contended was the case in Goodman, and the creditor becoming an entirely new, separate legal entity. The premise is incorrect: the creditor in Goodman was an entirely new, separate legal entity. It did not preclude Stephenson LJ from concluding that the FNFC could rely on the guarantee to pursue advances that it made.
32. The respondents' reliance on Dance v Girdler (1804) 1 Bos & P 34; (1804) 127 ER 370 and Housing Guarantee Fund Ltd v Yusef [1991] 2 VR 17 ("Yusef") in this context is misplaced. As the appellant observed in its supplementary submissions, the change of identity was relevant in Dance v Girdler because the promise in the guarantee was given to an unincorporated society "and its successors". In the face of that language, the promise was construed as not extending to a new corporate entity. As for Yusef, I discuss that decision further below (at [61]ff) but for present purposes it is sufficient to note that it was not the creditor being an entirely new legal entity that was decisive in that case.
33. The fourth and final basis on which the respondents sought to distinguish Goodman rested on the fact that it has not been applied or cited in Australia. The respondents also submitted that the reasoning in Goodman is inconsistent with the decision in Yusef, which in my view is distinguishable. The respondent in that case, Mr Yusef, had given a guarantee as the director of a building company to the Master Builders Housing Fund Ltd ("MBHFL") as a condition of the company's registration with MBHFL. The guarantee was required pursuant to the rules of the MBHFL, with which the company also had to comply as a condition of registration, which brought with it recognition under the house builders' liability provisions of the Local Government Act 1958 (Vic).
34. By the guarantee, Mr Yusef guaranteed all sums of money which the company might be or thereafter become liable to pay MBHFL. Subsequently, MBHFL was dissolved upon court approval of a scheme of arrangement, pursuant to which the property, undertakings, liabilities, obligations and duties were transferred to and vested in the Housing Guarantee Fund Ltd (HGFL). Two years after the company of which Mr Yusef was a director was granted registration with HGFL, it requested that he and the other directors sign a new guarantee. Mr Yusef refused, and resigned as a director. After the company went into voluntary liquidation, HGFL, which was sued in relation to defective workmanship on a residential home that the company had built, sought to enforce the guarantee that Mr Yusef had given to MBHFL.
35. Crockett J observed that the liability of the company to MBHFL that Mr Yusef's guarantee secured arose from MBHFL's rules: at 21. Although MBHFL's rights might be assigned or transferred, and were transferred by the scheme of arrangement, his Honour stated that "it is altogether a different matter to say, as the appellant does, that the scheme of arrangement operated so as to cause the guarantee to serve as a security for the company's liabilities that were never those of M.B.H.F.L.": at 21. Although this might be thought to support the respondents' submissions, the critical point for his Honour was that the guarantee did not, and could not, bind the respondent to pay money on different terms. As his Honour stated at 21, "The respondent did not become guarantor pursuant to its guarantee for new liabilities of the company that arose under the appellant's rules" (emphasis added). At 22, his Honour observed that the terms of MBHFL's rules were different to the terms of HGFL's rules: "The relevant rule of the appellant is r. 45. That rule prescribes the ambit of the appellant's entitlement to recover from the company moneys paid to a house purchaser for loss suffered by him. It is those moneys which the appellant maintains the respondent's guarantee to M.B.H.F.L. permits it - upon default of payment of such moneys by the company pursuant to its guarantee - to recover from the respondent. The appellant's r. 45 is the equivalent of M.B.H.F.L.'s Sch. 2 to its rules. It is said the rules are very similar. That may be so. But that is not the point. They are different. And that is something which places the attempt to recover upon the respondent's guarantee to M.B.H.F.L. beyond the reach of s 317 [of the Companies (Victoria) Code pursuant to which the scheme of arrangement was ordered]."
36. Murphy J reached the same result on the same basis: at 25-26. In reaching the same conclusion, Cummins J reasoned as follows at 35-36: "In truth what is involved in the appellant's proposition is not a transfer but an alteration: not a transmutation but a metamorphosis. The property and undertaking of M.B.H.F.L. which passed to H.G.F.L. might properly comprehend liability not yet emerged or ascertained, if that liability were founded on M.B.H.F.L. Rules. To that extent liability need not have crystallised … when Marks J made his order. But the essential quality of that liability, and that which made it part of the property and undertaking of M.B.H.F.L. capable of passing, was that it was liability founded upon the rules of that company. Those rules were the source of the guarantee given by Dr. Hussain and, together with the terms of the guarantee itself, defined its existence and ambit. To ascertain liability by reference to another set of rules, of another entity, is to propound a different liability, that is, different property."
37. I note that the view I have reached in this regard as to the difference between Goodman and Yusef is consistent with the summary in O'Donovan and Phillips' The Modern Contract of Guarantee: English Edition (4th ed, 2020, Sweet & Maxwell) at [9-074].

Conclusion

1. For the reasons I have outlined above, the appellant has made out Ground 1 of the Further Amended Notice of Appeal. The appeal should be allowed.
2. As I noted above, the proceedings below involved a primary claim by Grand Metal against Nashco, with the issue that was the subject of the appeal arising on Nashco's cross-claim. Accordingly, Orders 1 and 4 of the primary judge, by which his Honour dismissed Grand Metal's claim against Nashco with costs, should remain in place. By Order 2, his Honour gave judgment on Nashco's cross-claim against Grand Metal as the first cross-defendant. Order 5 awarded Nashco its costs on the ordinary basis up to and including 29 January 2020, and on an indemnity basis thereafter, which would seem to reflect an offer of settlement that Nashco made to Grand Metal and Grand Metal did not accept.
3. Orders 3 and 6 related to his Honour's dismissal of the cross-claim against the respondents to the appeal with costs, both of which must be set aside. The appropriate course is also to set aside Orders 2 and 5, so as to make an order that reflects a single judgment against all five cross-defendants (jointly and severally), with effect from the date of the decision of the primary judge, and a single order as to costs. As to the latter, I have adopted the same approach as the primary judge on the assumption that the offer that Nashco made to Grand Metal was also made to the respondents. In the event that this assumption is misplaced, I have reserved liberty to apply in the terms below.
4. Accordingly, I propose the following orders: 1. Appeal allowed. 2. Set aside Orders 2, 3, 5 and 6 made by the primary judge on 25 August 2021. 3. In lieu thereof: 1. Judgment on the cross-claim against the first, second, third, fourth and fifth cross-defendants for $979,716.47 (including interest of $36,022.22), to take effect from 25 August 2021; 2. Order that the first, second, third, fourth and fifth cross-defendants pay the cross-claimant's costs of the cross-claim on the ordinary basis up to and including 29 January 2020, and on an indemnity basis thereafter. 1. The respondents pay the appellant's costs of the appeal. 2. Reserve liberty to apply within 14 days for different orders as to costs in relation to the proceedings below and the appeal.

Endnotes

1. Barclay v Lewis (1783) 3 Dougl 321, note (a).
2. Backhouse v Hall (1865) 6 B & S 507 at 519 (Blackburn J; Shee J concurring); and see First National Finance Corporation v Goodman [1983] BCLC 203 at 209 (Stephenson LJ).
3. For its full terms, see the judgment of Mitchelmore JA at [11].
4. See the judgment of Mitchelmore JA at [13]. 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: 04 August 2022