Parkesinclair Chemicals (Aust) Pty Ltd v Asia Asociates Inc [2000] VSC 362

5. PSC and AAI started trading in 1979. Prior to that time, the principals of PSC, the second defendant by counterclaim, Norman Douglas Parkes ("Mr Parkes"), and the third defendant by counterclaim, John Terrence Sinclair, and the president of AAI, Shunsuke Kubo, had met when they were employed within the American Steube Group. The two companies continued to trade without difficulty and to their mutual advantage until the end of 1995. This litigation concerns the destruction of this trading relationship and its consequences.

8. In this proceeding PSC alleges, and AAI denies, that on 21 December 1995 the parties entered into a five year agreement under which PSC was to act as the exclusive distributor for AAI of PET in Australia and that their trading should, at least until December 1996, be on "open terms". I refer to this alleged agreement as "the December Agreement" It is common ground that, in January 1996, AAI insisted on terms other than open terms and that by February 1996, or thereabouts, the December Agreement, if there was an agreement, was terminated. PSC seeks damages for breach of contract and for misleading and deceptive conduct.

11. Mr Parkes also sought relief from Mr Kubo for alleged defamatory statements contained in the letter written by him on 6 March 1997 but on day four of the trial I was told that the parties had resolved this claim and in due course it was dismissed with no order as to costs. The consequence of this was that Mr Parkes and Mr Kubo were removed from the litigation as second plaintiff and second defendant respectively, Mr Parkes remaining as second defendant by counterclaim. AAI's counterclaim seeks from PSC the sum of $US1,720,856 due for unpaid sales of PET shipped in September and November 1995 and March 1996 and an adjustment to the price of the December 1995 shipment. This indebtedness was conceded by counsel on behalf of PSC. Next, AAI sought the same amount from Mr Parkes and Mr Sinclair under guarantees said to have been given by these directors. These guarantees, or at least that given by Mr Parkes, are in issue. Judgment in default of appearance was entered against Mr Sinclair on 8 May 1998. Finally, AAI brought a claim against the fourth defendant by counterclaim, Michael Scales, the receiver appointed by the Westpac Banking Corporation over the assets of PSC, but this claim has been discontinued.

15. Throughout the 16 years that the two companies traded together, the subject of their trade was, for the most part, PET. They carried on their business not as agents of Japan Unipet or Southcorp, but as principals in their own right; Japan Unipet would sell to AAI which would on-sell to PSC which, in turn, would sell to Southcorp. Their business arrangements were fairly informal; there was no written distributorship agreement and each month's shipment was negotiated and agreed separately. Up to the end of 1995 the terms of these transactions were usually, but not invariably, as follows:

s The sale from Japan Unipet to AAI was made on terms of cash payable in 14 days after the issue of the bill of lading. As security for this payment, AAI would obtain from a Japanese bank an advance, secured by a bill of exchange drawn by it in favour of the bank, payable on the date that PSC was, in turn, obliged to make payment to AAI.

s The sale from AAI to PSC was upon "open terms" or by "open contract". This meant that PSC agreed to pay the price, including insurance and freight, 60, 90 or 120 days, as the case may be, after the issue of the bill of lading. In late 1995 this period was 60, and in November 1995, 90 days. This obligation was not secured otherwise than by PSC accepting AAI's bill of exchange drawn on the Japanese bank and by informal, and, in this litigation, disputed, guarantees given by Mr Sinclair and Mr Parkes to AAI.

s The sale from PSC to Southcorp was on the basis that Southcorp would issue a letter of credit for the price of the goods in favour of PSC payable in 30 days after receipt of the shipping documents.

21. The disparity between the terms on which it purchased from AAI and those upon which it sold to Southcorp was very convenient for PSC. It was able to discount the Southcorp letter of credit on receipt of the shipping documents and thereby obtain payment about 60 days before it was obliged to pay AAI for the same product. This meant that, in addition to its profit on the sale to Southcorp, PSC had the Southcorp payment as part of its working capital during this period. Although the AAI trade represented only 40% of PSC's total trade in 1995, it involved a considerable sum of money. In late 1995, purchases by Southcorp were running at the rate of about $US1M per month.

24. In 1995, and for some time previously, differences existed between the principals of PSC, Mr Parkes and Mr Sinclair, as to the conduct of its activities. These differences came to the attention of PSC's bankers, the Westpac Bank, and became known generally in the South-East Asian chemical trade circles. Mr Kubo, who had himself been aware of the differences for some time, was, however, content to let the trading continue as before until he learnt that the dispute was becoming public knowledge. On 7 November 1995, he wrote to Mr Parkes and Mr Sinclair pointing out that this publicity represented a risk for his company. Should it come to the attention of the Japanese banks upon which Mr Kubo relied for the conduct of the PET trade and his other business activities, these banks, he said, might require AAI to furnish them with the PSC balance sheet and, further, insist that AAI obtain security from PSC, which security Mr Kubo knew would not be forthcoming. The balance sheet of PSC which Mr Kubo had previously seen showed a substantial deficiency in shareholders' funds which might cause concern to his Japanese bankers, who, Mr Kubo said, were very conservative. He suggested that the trading arrangements be altered so that AAI might sell directly to Southcorp. In this way, PSC would act as an agent only and there would be no risk for AAI or its bankers since the Southcorp payments would be by letter of credit in favour of AAI. Mr Kubo commented, significantly, that such a change would not disadvantage PSC, since it received payment at the same time as it paid AAI and there would, therefore, be no adverse cash flow implications from the suggested change. The significance of this comment is that it showed that Mr Kubo was unaware of the short trading terms which existed between PSC and Southcorp. This proposal, in any event, was not acceptable to Mr Parkes.

27. At this time Mr Kubo was closer to Mr Sinclair than he was to Mr Parkes and it seems that Mr Sinclair kept his Japanese friend informed of events in Australia. Mr Kubo's relationship with his hostile co-director was a cause of dissatisfaction, even resentment, for Mr Parkes, who appears to have believed that Mr Sinclair disclosed confidential information to Mr Kubo, namely the terms of trade between PSC and Southcorp, which Mr Parkes did not wish to disclose to his trading partner. Mr Kubo denied any such disclosure and I accept his denial. On 21 November Mr Kubo wrote again to Mr Parkes, complaining about the public nature of his disputes with Mr Sinclair and announcing that he required the terms for the PET trade between them to change from open terms to 90 day letter of credit. He asked, too, for a reconfirmation in writing of the personal guarantees of Mr Sinclair and Mr Parkes.

30. In his faxed reply of 29 November Mr Parkes urged Mr Kubo to reconsider this decision stating that PSC had a strong trade position and enjoyed the full support of its bankers. He added "I am happy to give you my personal guarantee to full payment to [AAI]". Mr Kubo was comforted by the reconfirmation of the guarantee but, in his fax of 30 November, he said that his decision to change the terms of trade was driven not by any lack of trust in PSC but by a need to protect the interests of his company, as well as those of PSC. Again, he commented, "I presume your selling terms to Southcorp is net cash 30 days and any bank must be happy to finance on-sale to Southcorp". This shows his continuing erroneous belief that PSC was selling to Southcorp on the basis of net cash 30 days after delivery. Given the period of three weeks required for the voyage and a further week for clearing customs in Australia, this would approximate the terms of the PSC purchases, namely, 90 days cash after the date of bill of lading.

33. Meantime, things were going from bad to worse between Mr Sinclair and Mr Parkes and on 1 December 1995 Mutina Pty Ltd, the unit holder for Mr Parkes' interests, commenced a proceeding in this Court against Phugmar Holdings Pty Ltd, the unit holder for Mr Sinclair's interests, against Mr Sinclair himself and against PSC, seeking orders to break the deadlock which existed between the directors of PSC. On 11 December 1995 Beach J directed the appointment of James Rothney Simpson, who held 5% of the units in the Parkesinclair Unit Trust, as a third director on an interlocutory basis.

36. In the early weeks of December 1995, the terms of the December shipment of PET were agreed. The sale from AAI to PSC was to be 600 tonnes at $US1,646.33 per tonne C&F. Payment of the total sum of $US987,798 was to be by letter of credit payable 60 days after the date of the bill of lading. The price was later changed by agreement to $US1,004,616 in circumstances with which I am not concerned, but the parties remained in agreement that the terms of payment were no longer to be open terms. The goods had, as usual, been on-sold to Southcorp for a total of $US1,038,000 CIF, also payable by a 60 day letter of credit issued on 22 December. This meant that the two letters of credit were truly back to back.

39. I interrupt myself to note that it was conceded by counsel for PSC that, however regrettable this change in terms may have been for his client, AAI was legally entitled to make the change. The longstanding arrangements between the two companies gave rise to no entitlement in PSC to continue to trade on open terms or even to have notice of intention to change them.

42. Nevertheless, in December 1995 PSC kept pressing AAI to reconsider its attitude and to revert to open terms. At this time there were five shipments awaiting payment in due course by PSC under the open terms contracts with AAI.

In addition, there was an August shipment, called the Linklon shipment, in respect of which $US33,522 was due and payable on 15 January 1996.

48. On Saturday 15 December 1995 Teiichi Yonekawa, a director of AAI, arrived in Australia with representatives of Japan Unipet on a visit to the Southcorp works. He was accompanied by a trainee employee of AAI, Mr Nakazaki, who seems to have taken no part in the events with which I am concerned. Mr Yonekawa had not come to this country to deal with matters such as trading terms. All of the negotiations on this subject had been with Mr Kubo. Indeed, the exchange of faxed correspondence between Mr Kubo and Mr Parkes on 13, 14 and 15 December demonstrate that Mr Kubo was intent on maintaining his decision and that he was very upset and emotional at the pressure which was being applied by Mr Parkes in order to persuade him to revert to open terms trading. It should be noted that, while Mr Kubo was close to Mr Sinclair, his co-director, Mr Yonekawa, was sympathetic to Mr Parkes in his dispute with Mr Sinclair.

52. Mr Yonekawa said that, about 10.30 pm on that day, after a dinner with the Southcorp people, Mr Parkes took him aside and told him that he had received that day a fax from PSC's office manager, Jennifer Birch, to the effect that PSC was having difficulty in making the payments due in December as a consequence of the sudden change in the payment terms for the December shipment. Mr Yonekawa agreed with Mr Parkes' suggestion that they talk about it next week. Mr Yonekawa said, and I accept, that he was surprised that Mr Parkes had to be told such an important matter by his office manager. I find that Mr Parkes was well aware from his own knowledge of the true position with respect to these payments.

55. On Sunday 16 December Mr Parkes instructed Ms Birch to direct the Westpac Bank not to transmit to AAI's Japanese banker, Dai-ichi Kangyo Bank, the sum of $US928,400 payable on the following day. She did so and the payment was not made. The bill of exchange was marked "refer to drawer".

58. At 9.45 am on Tuesday 18 December Ms Birch instructed the Westpac Bank not to make the second December payment of $US464,200, which was to be paid to the Mitsubishi Bank on 20 December. This also was done and the second bill of exchange was returned marked "refer to drawer".

61. When he was pressed about his motives in so acting, Mr Parkes conceded that PSC had funds available to meet these payments but said that his action was but a step in the negotiations he was engaged in in order to settle the on-going relationship between his company and AAI. He said that he gave no thought to the impact on AAI of this dishonouring of the bills of exchange which it had drawn on the Japanese bankers and which PSC had accepted. Later he accepted that he knew that the dishonours would cause AAI problems. I am satisfied that the conduct of Mr Parkes and his company in dishonouring the two bills of exchange was a breach of its contract with AAI and of its obligations under the bills of exchange to the Japanese banks. These breaches were committed for no good reason; they were no more than tactical manoeuvres designed to place maximum pressure upon Mr Kubo at a time when Mr Parkes wished him to agree to revert to open terms of trading. In my assessment, Mr Parkes' conduct in this regard is reprehensible; it shows him as a man lacking in commercial integrity.

64. At 10.30 am on 19 December Mr Parkes, and perhaps others, had an appointment with the Westpac Bank. No evidence was given as to what was said but a version of the discussion appears in Mr Parkes' letter to Mr Kubo of the same day. It appears that at this meeting, or perhaps on that of the following day, Mr Parkes asked the bank for an increase of $1.5M in the Westpac facility. After the meeting, at about 12.00 noon Japanese time, Mr Parkes and Mr Kubo spoke by telephone. According to Mr Kubo, Mr Parkes told him in the course of the conversation that he, Parkes, had finished a meeting with the bank and that he had sufficient funds to pay the December bills but that he would not do so unless Mr Kubo agreed to certain unspecified conditions which would be faxed to him in Japan in two hours. Four hours later Mr Parkes' fax arrived. He wrote that the bank was happy with the financial accounts of PSC presented to it and it was prepared to consider an increased facility. He said, however, that, "without continued 90 day open terms we cannot pay your current outstanding accounts unless we can arrange additional facilities with our bank". Later in the same letter, he wrote that "we need continued open terms to at least June (inc Dec shipment) to have any possibility whatsoever to pay you". Mr Parkes accepted in the witness box, and I find, that this statement was false; PSC then had the means to make the December payments. The statements were doubly false since any difficulty in making the December payments was not a consequence of the change to the terms of trade for the December shipment. Assuming the shipment to have been made on open terms, the shipping documents would not have arrived in time for them to be discounted by PSC in order to meet the payments due on 17 and 20 December. This falsity, however, was not known to Mr Kubo at this time.

67. The response of Mr Kubo in his fax of the same date was one of outrage. He wrote that he resented the threat not to pay unless PSC's terms were agreed to. He described the defaults as PSC as "quite unreasonable". He said he was prepared to discuss the future of the two companies but this could occur only if the December payments were received on the following day. He then threatened legal and other action against PSC and its directors if the payments were not received by 5.00 pm on 20 December 1995.

70. On 20 December Mr Parkes, and perhaps others, again, met with the Westpac Bank officers at 7.45 am. Mr Yonekawa was invited to accompany them but he declined to do so.

73. Later that morning, Mr Parkes and Mr Colin Parkes met with Mr Yonekawa at his hotel. Mr Yonekawa pressed Mr Parkes to pay the sums due. On this occasion, or perhaps the preceding day, Mr Parkes told Mr Yonekawa that the PSC's terms of trade with Southcorp were by letter of credit and not for cash as he and Mr Kubo had previously thought. He showed Mr Yonekawa, too, a cash flow projection but Mr Yonekawa did not take this away with him. On the evidence I am unable to identify which of the many cash flows tendered in evidence this might have been. By this time Mr Yonekawa had become very worried that the two December payments might not be met as he was being told by Mr Parkes that this was not possible due to the change in payment arrangements for the December shipment. These matters he reported back to Mr Kubo in Japan, perhaps with a recommendation to Mr Kubo that he view PSC's position with some sympathy.

76. There occurred on this day, too, an exchange of faxes between Mr Kubo and Mr Parkes. It again appears from Mr Kubo's fax that the pressure on him was very considerable. He pointed out that, if PSC maintained its refusal to pay, then the two companies had no future to discuss at all since the Japanese banks would suspend their support which enabled AAI to trade with PSC. The financial accounts of AAI for the year ending 29 February 1996 were in evidence. They showed that its sales turnover was 7,650,774,877, its gross profit 346,091,662 and its nett profit 139,014,971. At this time the exchange rate was about 100 yen to the US dollar. The non-receipt of $US1.39M would, therefore represent a serious financial setback for AAI. In addition, as Mr Kubo emphasised, the dishonour of the bills was a source of embarrassment, even shame, for him in his dealings with his bankers.

79. The payment was not made as demanded by 5.00 pm or at all on 20 December. Late that night Mr Kubo spoke by telephone to Mr Yonekawa and, it would seem, had little sleep, for at 5.45 am on Friday 21 December he sent the following fax to Mr Yonekawa and to Mr Parkes in Melbourne:

"PET - at Yone's request, I confirm to give you open terms for shipments in January onwards subject to: 1. Your disclosure of cash flow plan to us 2. Amount of open terms have to be minimum requirement on your cash flow 3. Your settlement of payments due Dec 17 and 20th today I also authorise Yone to make any decision on my behalf there."

The reference to Yone is a reference to Mr Yonekawa.

84. At 9.30 am on 21 December 1995 there occurred at the Hampton office of PSC a meeting of its directors, Mr Parkes and Mr Sinclair. Mr Simpson was present via telephone from Sydney. Present also was Colin James Parkes a cousin of Mr Parkes and a member of the accounting firm Burton & Parkes, which had been recently retained by Mr Parkes to act as accountants for PSC. The minutes of this meeting drafted by Mr Parkes record the following:

"(4) Cash Flow Colin Parkes reported on future cash flow which clearly showed that December payments of approx A$1,800,000 to Asia Associates Inc could not be made in full unless the extra A$1,500,000 credit line was in place. General discussion also highlighted the fact that Asia Associates would need to re-instate open term trading for at least the full 1996 year and that it would take approximately 5 years with all dividends remaining in the company before the debt could be solved. Moved N. Parkes that Burton & Parkes continue to work with Westpac on facility and that N. Parkes negotiate for agency agreement and extend terms with Asia Associates representative currently in Melbourne. Motion Carried J. Sinclair abstained from the vote."

"(8) Asia Associates Inc Mr. T. Yonekawa of Asia Associates was invited to discuss general matters of immediate interest to both companies as a result of recent directors disputes at Parkesinclair Chemicals and withdrawal of open terms by Asia Associates Inc. Mr Yonekawa called for sensible discussion in the future between all parties however Parkesinclair Chemicals should be kept to itself as outside conflict did not help with Japanese suppliers or bankers. He welcomed the fact that Westpac Banking Corporation showed an interest to extend our facilities but was extremely concerned of our inability to make all December '95 payments of time. Accepted that letter of credit 60 days should be ok for December '95 shipment of approx A$1,400,000."

90. About 11.15 am, after the meeting concluded, Mr Yonekawa joined the two directors and Mr Colin Parkes. It is common ground that they had a discussion and that a typewritten document was produced and signed by Mr Parkes, Mr Sinclair and Mr Yonekawa and that a copy was sent by fax to Sydney where it was signed by Mr Simpson. Topics discussed were the future terms of trading between the two companies and the payments for the September shipments. There was some difference between Mr Yonekawa and Mr Parkes as to the sequence of these events and as to the matters discussed. The recollection of Mr Colin Parkes was not good. This may have been a consequence of the fact that he had only recently been engaged to act as accountant for PSC and that he was very much on the periphery of the discussions. Mr Kubo was in Tokyo but he participated inasmuch as he spoke by telephone to Mr Yonekawa on one or two occasions and possibly with Mr Parkes during the course of the morning. The typewritten document was read to him by Mr Yonekawa and he authorised Mr Yonekawa to sign it.

93. Mr Sinclair was not called to give evidence but I draw no inference from this. He has not been shown to have been in the camp of either party.

96. The terms of the document which was executed by the three men and by Mr Sinclair in Sydney are as follows:

"Asia Associates Inc-Japan No 1 - Nan Oh Building 20-1 Nishi Shinbashi 2 Chome Minato-Ku Tokyo 105 ATTENTION: Mr S Kubo / T Yonekawa RE : AGENCY AGREEMENT - AUSTRALIA / JAPAN Dear Shun/Ted Following recent discussions in Melbourne on 21st December 1995 regarding agreements between our Companies, we wish to confirm the following points. 1. Asia Associates agree that Parkesinclair Chemicals (AUST) Pty Ltd as trustee of the Parkesinclair Chemical UNIT TRUST, will be the exclusive agent in Australia for chemicals and plastics. Particularly it is agreed that the Polyethylene Terephthalate (PET) to Southcorp, will be exclusively sold via Parkesinclair Chemicals (AUST) Pty Ltd and that Asia Associates will provide open account trading terms as per past arrangements, until review in December 1996. 2. Parkesinclair Chemicals (AUST) Pty Ltd agrees that it will represent Asia Associates exclusively in Australia, except for petroleum products. It will also sell exclusively, any new products offered, except where it has current arrangements with other suppliers, such as Arco Chemicals, Quantum, etc. 3. Asia Associates agrees to write to Mr K Ryan of the Westpac Banking Corporation, at 409 St Kilda Road Melbourne to confirm its future agreement, to provide 90 day open account terms for the PET business. 4. The Directors of Parkesinclair Chemicals (AUST) Pty Ltd agree not to involve Asia Associates in any dispute between Directors and likewise Asia Associates will not involve itself in any of these matters whatsoever now or in the future. 5. Directors N Parkes & J Sinclair agree to maintain their personal payment pledges to Asia Associates, in return Asia Associates will continue its financial support, the continuation of business. 6. Both parties acknowledge that it will take a minimum of 5 years, for the balance sheet of Parkesinclair Chemicals (AUST) Pty Ltd to be put back to order and that this agreement is for that period of time. Shun/Ted, I hope the above outlines the spirit of our joint business relationship and that we can now go forward and work together for the best benefit of both parties. 7. Parkesinclair Chemicals (AUST) Pty Ltd to provide a monthly cash flow forecast to Asia Associates, commencing December 1995."

The reference to Ted is a reference to Mr Yonekawa.

101. I make two general observations about the form and terms of this document. First, it makes no mention of any agreement as to the payment of the $US1.39M which was then due. Second, its terms, including the introductory parts, suggest that it was drafted as a letter to be sent to Mr Kubo in Tokyo to record agreements previously made on that day, rather than a reduction to writing of a number of agreed matters.

104. Of the two principal witnesses who gave the detailed evidence of this meeting, I prefer Mr Yonekawa. I do so because his evidence was more consistent with the non-contentious facts and because he impressed me as a man who tried to give his honest recollection of events now nearly five years old and he did so in a forthright manner. He was ready to concede a lack of recollection and was not, in my assessment, prepared to reconstruct events. His evidence, too, was to a large extent confirmed by a contemporaneous note made by him at the meeting. His evidence as to insertion of clause 7 after the document was prepared is confirmed by the evidence of the document examiner Noel William Holland. Mr Parkes' evidence lacked most, if not all, of these characteristics. I watched him in the witness box over many days. He was evasive, argumentative and often lacked candour. He is a man who, as I have mentioned, and will mention again, did not shrink from telling lies, even lies on oath, to achieve his commercial objectives. He showed a lack of commercial integrity in stopping payment of the two December bills and he did this again in January. To the extent that his evidence contradicted that given by Mr Yonekawa, I prefer the latter.

107. I find that, after the Board meeting, Mr Parkes confronted Mr Yonekawa with the typed document but not including Item 7. It had already been signed by Mr Parkes and Mr Sinclair. Mr Parkes told Mr Yonekawa in effect that AAI would not be paid the substantial sum then due unless he agreed to sign the document, including its provision as to open terms. He told Mr Yonekawa that if he signed, PSC would pay two-thirds of its debt forthwith and the balance in January when a further bank facility was granted. Mr Yonekawa consulted with his president by telephone, explaining the position. Mr Kubo then authorised him to sign. The document bearing the two signatures was faxed to Sydney for execution by Mr Simpson. This done, it was faxed back to Melbourne where Mr Yonekawa signed the faxed copy, but not the original. I find, too, that at this last stage Mr Yonekawa raised the matter of the need for the support of the Japanese bankers. By this time it was too late to include such a term in the document which Mr Yonekawa had signed or was about to sign. I accept the evidence of Mr Yonekawa and Mr Kubo that AAI executed the document because they had no alternative. As Mr Yonekawa said, his first objective was to get the Japanese banks satisfied: "once we lost our reputation from the Japanese banks everything is dead".

110. I am satisfied that Mr Parkes accepted that the support of AAI's bankers was essential for the implementation of open trading arrangements and that he said so, but I do not find that this became a term of the agreement or that Mr Parkes bound PSC to provide a letter as Mr Yonekawa described. I reach this conclusion notwithstanding Mr Yonekawa's contemporaneous note, because the matter was raised after the agreement had been executed. Furthermore, it is significant that, despite many opportunities to do so, the fact that no such letter had been provided was never the subject of complaint by Mr Kubo or Mr Yonekawa. Even in mid-January when it is clear that the Japanese banks were not prepared to support the open terms trade and when Mr Kubo was keen to extricate himself from the agreement, this suggested agreement was not mentioned. As best I can determine, it was first mentioned in an amended defence filed on behalf of AAI as late as June 2000.

113. Discussions moved to the January shipment and the payment for the October shipment which was to fall due on 16 January 1996. Mr Parkes told Mr Yonekawa that PSC would be able to meet this obligation by discounting the Southcorp letter of credit for the January shipment. He therefore asked Mr Yonekawa to ensure that this shipment was dispatched early in the month so that the shipping documents would be with PSC in time for it to discount the letter of credit.

117. I shall now deal with the various contentions made by the parties about the 21 December Agreement and its terms. It is necessary to underline that it was not suggested by PSC or, indeed, by AAI in its alternative submission, that this agreement was entirely contained in the document signed by the participants on that date. In paragraph 5 of its amended statement of claim, filed by leave granted on 23 August 2000, PSC alleges that the agreement is partly contained in this document, partly contained in discussions between Mr Parkes and Mr Yonekawa and partly to be implied "from the conduct of the parties and the need to give business efficacy thereto and by implication of the law".

Agreement Uncertain, Incomplete and Unenforceable

122. These contentions which are made in paragraphs 5 and 5A of the fourth further amended defence and counterclaim filed by leave on 30 August 2000, rely upon the failure of the parties to agree upon the terms for the payment of the sums due on 17 and 20 December respectively and upon what financial support is referred to in Item 5 of the document. It is put that these omissions show that the parties did not intend to enter into legal relations or that the agreement was uncertain, incomplete and unenforceable.

125. There is no substance in these allegations. I am satisfied that on an objective standard Mr Parkes and Mr Yonekawa intended to enter into a legally binding agreement at least with respect to future trading. Each party then set about implementing the agreement. AAI gave open terms for the next shipment in January and PSC sought the extension of the bank facility on this basis supported by a letter signed by Mr Yonekawa on 22 December 1995. The context in which the discussions took place and their terms confirm this conclusion. As will appear, the agreement did not include a provision that the December payments be deferred. The financial support which AAI had provided in the past and which it agreed to continue was that provided by the open terms of trade.

129. A large number of terms expressly implied were contended for by each party. I shall deal only with those which are significant for the determination of this litigation.

134. PSC in paragraph 6(d) of its statement of claim alleges that the time for payment of the $US1.39M due in December was extended for five years as a term of the 21 December Agreement. It may be, too, that this pleaded extension of time was intended to apply to the payments not then due for the October and the November shipments. In any event, notwithstanding that he asserted such an agreement in his correspondence on and after 8 February 1996 and that he swore to it in an affidavit sworn 2 December 1996 and filed in the Federal Court in support of his application to set aside a statutory notice to pay given by AAI pursuant to the Corporations Law, Mr Parkes accepted in evidence before me that such an extension was never agreed to on 21 December 1995. It is true that Mr Parkes said that these payments would be made in two instalments, as I have mentioned, and that Mr Yonekawa and Mr Kubo accepted that this should be so. I find, however, that an agreement to pay by instalments was not part of the agreement reached on 21 December. To my mind, the correct analysis is that Mr Yonekawa and Mr Kubo had no option but to hope that he would pay. In the circumstances, they accepted that they should not insist upon payment of the whole of the debt at that time. The fact that there was no agreement as to payment by instalments is confirmed by the fact that Mr Parkes did not include it in his document which he had the parties sign. It is consistent with the fact, known to all at the time, that such an agreement must involve the Japanese banks which, as drawees, were entitled to immediate payment by PSC under the terms of the bills of exchange. It is significant, too, that Mr Parkes has not alleged such an agreement in this proceeding. I conclude that the proper analysis is that the whole of the sum of $US1.39M remained due and payable on 21 December and, to the extent that it was not paid, it remained so at all times thereafter.

138. By cll. 1 and 2 of the 21 December document each of the parties agreed that PSC would act as exclusive agent of AAI for chemical and plastics and that PSC would represent AAI exclusively. In each case this exclusivity would be for the term of the agreement, namely, five years.

142. I am satisfied that in cll. 1, 3 and 5 of the 21 December document AAI agreed to revert to 90 day open terms as from the January 1996 shipment and that it would sell on these terms until December 1996 when they would be renegotiated.

146. By cl. 5 of the 21 December document Messrs Parkes and Sinclair agreed "to maintain their personal payment pledges to [AAI]". There was some debate as to what this involved. Mr Parkes said that this expression meant no more than that he would use his "best endeavours to ensure that PSC paid the AAI drafts on time". He said that his prior assurances that his "full personal guarantee" was given had the same meaning. Much of his evidence on this matter was, of course, inadmissible and I do not act upon it. My task is to determine what the words written and spoken on 21 December mean on an objective basis. I have no hesitation in rejecting the construction put upon this part of cl. 5 on behalf of PSC. I find that Mr Parkes' attempt to construe restrictively the expression "personal guarantee" provides just another example of his commercial duplicity. I am satisfied that a reasonable reading of cl. 5 of the 21 December document means that Mr Parkes' and his fellow director was each guaranteeing payment of sums due and payable by PSC in the normal sense of that term. I return in a little detail to this matter in [102] to [105] below.

150. By cl. 7 of the 21 December document it was agreed that PSC would provide monthly cash flows to AAI. I am satisfied that this clause was added after the document had been prepared and that at Mr Yonekawa's insistence since it was a requirement of the president of his company in the fax sent on the early morning of 21 December. I construe this clause to impose upon PSC an obligation to provide its cash flow forecast each month commencing December 1995.

154. In paragraph 6A(h) of its defence, AAI says that it was an express oral term of the 21 December Agreement "that [AAI] could alter the terms of trade if in [AAI's] view circumstances beyond its control, such as requirements of its bankers, required such an alteration". The term was said to arise from the requirement of Mr Yonekawa, made after the document had been signed, that AAI should not be responsible if the terms were changed by circumstances beyond its control or if its bankers required a change from open terms. For reasons which I have set out above in [33], I am not satisfied that any such term is part of the 21 December Agreement.

158. In paragraph 6B of its defence, AAI asserts a number of terms of the 21 December Agreement which are said to be implied from circumstances existing as at 21 December 1995 and because "they were so obvious that they went without saying". This is, of course, only one of the requirements for the implication of a contractual term which are set out in BP Refinery (Westernport) Pty Ltd v Shire of Hastings.[1] Passing over the suggested implied terms which are of no consequence in this proceeding, it is alleged in paragraph 6B(c) that the agreement contained the following implied term or terms:

"(c) that if: (i) Parkesinclair could not or would not pay the December outstanding sum in January 1996; (ii) Parkesinclair could not or would not pay any other sum falling due to Asia in accordance with agreed terms; (iii) Parkes and Sinclair did not maintain their personal guarantees or did not provide further guarantees in a form satisfactory to Asia when required; (iv) Parkesinclair did not provide monthly cash flow forecasts to Asia commencing December 1995; (v) the monthly cash flow forecasts or other financial information provided by Parkesinclair indicated that Parksinclair was or might be unable to meet its obligations to Asia; (vi) Parkesinclair should become, or be revealed to be, insolvent or in such financial circumstances as to create a reasonable apprehension in Asia that particular trading terms would represent the risk of substantial loss to Asia; (vii) Asia's Japanese bankers requested or required Asia not to supply on open terms; then Asia could: (A) review, and if necessary alter, the trading terms upon which it was prepared to supply goods to Parkesinclair; (B) terminate the agency relationship."

162. I am not satisfied that the agreement contains any of these terms. It will be recalled that the agreement was made in circumstances where PSC had failed to make payments because it was said to be unable to do so, where it was known to have a very unsatisfactory balance sheet, where there was an existing dispute between the directors of PSC and where AAI was, nevertheless, committing itself to a long-term exclusive agency agreement with hazardous trading terms. It was a contract under which AAI assumed a considerable risk. The insertion of such a term removed this risk and is to that extent inconsistent with this express term. Its inclusion removes the risk for AAI and imposes a new risk upon PSC. In these circumstances it is difficult to say that the suggested term or terms are reasonable. Second, the term is not such that the contract will not be effective without it; it is not in this sense necessary to give the contract business efficacy. Third, it is not "so obvious that it goes without saying" in the sense that this is only one of a number of formulations of circumstances in which AAI might say that it should be permitted to escape the risk which it assumed.[2]

166. Next, AAI in paragraph 6D of its defence alleges that the 21 December Agreement is voidable on the ground that it was entered into under duress in that it was made under an improper threat that no part of the $US1.39M due and payable in December would be paid.

169. There was little dispute before me as to the applicable principles. They are usefully summarised by Coldrey J in Deemcope Pty Ltd v Cantown Pty Ltd.[3] Where a party to negotiations imposes pressure upon the other party which is in fact a reason for the other entering into a contract[4] or, perhaps, where this pressure induced the other to enter into the contract and where that pressure goes beyond that which the law would countenance as legitimate, then the contract is voidable. Examples of illegitimate pressure include unlawful threats or unconscionable conduct. Where it appears that a contract has been entered into as a result of pressure, it is for the pressuring party to demonstrate that the pressure was not illegitimate.[5]

172. I have already set out in some detail the circumstances in which AAI was persuaded to depart from its decision to trade only on a letter of credit basis in the future. I have found that the pressure applied by Mr Parkes to achieve that objective on 21 December 1995 was improper; it involved a breach of contract and a threat to maintain that breach. It was associated with statements to the effect that PSC was unable to make the payments and that this was a consequence of AAI's withdrawal of trading terms. Each of these statements was false and Mr Parkes knew this at the time. I am satisfied that the principal factor which caused AAI to execute the 21 December document was this pressure which I conclude was unconscionable, improper and illegitimate. The agreement was entered into in circumstances of duress and it was therefore voidable.

175. Counsel on behalf of PSC submitted that the absence of protest from AAI weighed against its contention. Mr Yonekawa returned to Japan on 24 December. On 4 January 1996 Mr Parkes sent by mail the original agreement for signature and return by Mr Kubo. Mr Kubo did not do this. This was probably because Mr Yonekawa had carried out an analysis of the cash flow position of PSC with respect to its ability to make the December payments and the further payments totalling $US865,122 which were due on 15 and 16 January for the Linklon shipment and the October shipment respectively. This analysis showed that the decision of AAI in December 1995 to change the terms of trade did not have the consequence that the December payments could not be made. In short, Mr Yonekawa realised that the rationale for the December Agreement offered by Mr Parkes was a false one. By this time it had emerged, too, that Japan Unipet was unable to ship the whole of the January shipment until the end of that month. This, Mr Yonekawa appreciated, would have the consequence that PSC would be unable to use the proceeds of the discounted Southcorp letter of credit to make the payments totalling $US1,329,322 which were to be paid in mid-January. These payments represented $US33,522 for the Linklon shipment payable on 15 January, $US831,600 for the October shipment payable on 16 January and $US464,200, the balance of the December payments.

178. Mr Yonekawa faxed a letter dated 29 December to Mr Parkes setting out these matters and suggesting that he, Parkes, should not have acted as aggressively as he had in December. It will be recalled that Mr Yonekawa had supported Mr Parkes in his dispute with Mr Sinclair and taken his part in his dealings with Mr Kubo. It is apparent that he, Yonekawa, now felt betrayed by a man in whom he had placed trust. Notwithstanding that Mr Yonekawa is writing in a language which is not his own, it is clear that he is here protesting at the improper pressure which had been brought to bear upon him. His protests are couched in language which is more conciliatory and temperate than might be expected from an Australian businessman, but I do not place great weight upon this in the circumstances. He concludes his letter by suggesting that Mr Parkes should apologise to Mr Kubo and that he deal with AAI in the future in a more honourable manner. Mr Parkes made no reply. I construe Mr Yonekawa's letter as a protest at the imposition at the economic duress in December 1995.

181. There is surprisingly little evidence of the fate of the PSC application to the Westpac Bank for the extra $1.5M facility. It seems that the application was lodged immediately after the discussions of 21 December with a request to the bank that it be expedited. But there is no evidence of any response by 16 January 1996 although the correspondence shows that PSC was in contact with the bank at least on that date.

185. The January order for 600 tonne could not be satisfied by Japan Unipet by a shipment early in the month as PSC had hoped; 100 tonne was sent on 7 January and 500 tonne on 27 January. Meantime, Mr Kubo had been to see his Japanese bankers, in particularly, the Dai-ichi Kangyo Bank whose bill of exchange had not been fully paid. He spoke to its deputy branch manager in Tokyo, a Mr Matsuura. Mr Matsuura was not called but counsel agreed that, in the circumstances, no inference should be drawn from his absence. Mr Kubo told me that he explained to Mr Matsuura that PSC had some internal troubles and that the bank officer advised him to stop giving PSC any more funding but that if AAI faced a lack of funds the bank would support it. I do not understand this advice to amount to a direction from AAI's bankers not to trade on open terms with PSC. Mr Kubo told the bank officer that he was going to Australia within a few weeks and that he would report back on his return. On this basis, it would seem that the Japanese bank was content to let things lie.

188. AAI did not finance the January purchase from Japan Unipet by bill of exchange in the usual way. The shipping documents for the first January shipment did not pass through the bank channels to the Westpac Bank as they had in the past. Mr Kubo brought them himself to Melbourne for his meeting with Mr Parkes on 17 January.

191. Meantime, Mr Yonekawa wrote on 5 January 1996 and again on 10 January 1996 emphasising to Mr Parkes the importance of timely payment of the $US865,122 due on 15 and 16 January. In the former letter Mr Yonekawa insisted that the $US464,200 outstanding from December should also be paid by 16 January. Mr Parkes in his reply of 10 January assured his friend that the two payments due in January would be remitted on the due date but said that the balance of the December payment depended upon the Westpac Bank's approval of the increased facility. Notwithstanding this assurance, it may be supposed that, based on Mr Yonekawa's analysis and on the events of December, Mr Kubo feared that these payments might not be made.

194. And his fears were well founded. He arrived in Australia on 15 January and the Linklon payment was duly made on that day. But on 16 January Mr Parkes instructed the Westpac Bank not to pay the $US831,600 for the October shipment, due under the bill of exchange which PSC had accepted and which was payable to the Dai-ichi Kangyo Bank on that day. He did this, as before, as a tactical manoeuvre to improve his bargaining position in the negotiations which he expected to have with Mr Kubo on the following day. He must have known that this non-payment would be a source of great commercial embarrassment for Mr Kubo and his company with its Japanese bankers. It is another example of a reprehensible lack of commercial morality on the part of Mr Parkes.

197. On 17 January there occurred a meeting between Mr Parkes, Mr Kubo and Mr Yonekawa. Mr Parkes asked for the shipping documents and Mr Kubo refused to hand them over unless he received payment. Mr Parkes said that he told Mr Kubo that he needed them to enable him to discount the Southcorp letter of credit so that he could make the payment for the October shipment due 16 January. This was false. The shipping documents in question were for the first January shipment of 100 tonne only. The price agreed between AAI and PSC was $US1,633.10 per tonne so that the value of the documents was only $US163,310. The price payable by Southcorp was $US1,680 per tonne. Its payment for this shipment would not, therefore, have been sufficient to enable PSC to pay the $US831,600 unless it had other funds available. In fact it had sufficient funds to make this payment.

200. Notwithstanding some initial uncertainty in the evidence, it became clear that the payment which Mr Kubo was demanding at this meeting was payment for the first January shipment. It is equally clear that he was not entitled to this under the terms of the January sale agreement, which was on open terms. Under the AAI invoice, payment for this shipment was not due until 90 days after bill of lading, that is, 4 April 1996. Mr Parkes protested at Mr Kubo's insistence that he be paid for this January shipment, saying that this was a breach of the 21 December Agreement. He became angry but Mr Kubo stood his ground. Mr Kubo maintained, too, that he would not in the future sell to PSC on open terms and he did not depart from this position. Notwithstanding this, Mr Parkes said he would on that day make the $US861,600 payment for the October shipment and he confirmed this by fax sent after the meeting. The payment was in fact made on that day.

203. At this meeting, too, there was some discussion of the $US464,200 outstanding from December. Mr Kubo pressed for its payment and Mr Parkes responded that he expected the further bank facility to be granted and that the payment would be made by Friday, 26 January at the latest.

206. It seems that before this meeting Mr Kubo had consulted his Australian lawyers, Messrs Minter Ellison. After the meeting he sent the shipping documents to them with instructions that they not hand them to PSC otherwise than in exchange for cash. In late February 1996 the Minter Ellison's delivered the documents to PSC in exchange for a transfer of the Southcorp letter of credit for the January shipment. After the meeting of 17 January 1996 AAI did not again trade with PSC on open terms and it was accepted by both parties before me that on this date it was refusing to comply with this central term of the 21 December Agreement.

209. PSC, however, did not treat this departure by Mr Kubo from the terms of sale of the January shipment or its refusal to sell in the future on open terms as a repudiation of the 21 December Agreement. Indeed, it maintained for some months that this agreement remained on foot. In this proceeding by an amendment made on 23 August 2000 PSC alleges for the first time that AAI repudiated the 21 December Agreement and that PSC accepted this repudiation in its letters of 31 January 1996, 1 February 1996 and 2 February 1996. I do not read these letters as an acceptance of any repudiation by AAI. Indeed, in this correspondence as on 24 January and 29 January and in the correspondence which followed the 2 February 1996 letter, PSC maintained the agreement was on foot and it sought to hold AAI to its terms. I refer in particular to the PSC fax of 29 February 1996 and to the letter of demand from its solicitors dated 6 March 1996.

212. It was put on behalf of AAI that, by refusing on 17 January to trade on open terms, it elected to determine the 21 December Agreement. Its entitlement to determine the agreement was said to arise because PSC had failed to make payment of the $US831,600 due on the preceding day, because PSC had failed to pay the balance of the December payment on that day and because the 21 December Agreement was voidable for duress.

215. I am not satisfied that AAI accepted the non-payment of the $US831,600 due on 16 January as a repudiation of the 21 December Agreement. First, its payment was not a term of that agreement. Second, the parties on 17 January appeared to have accepted that the sum would be paid on that day, and it was.

218. The position with respect to the $US464,200 outstanding from December is more difficult. I accept that the money remained due and payable and that PSC was in continuing breach of its obligations under the bill of exchange and under the September sale agreement. The sum is substantial and the breach is very serious. On and since 21 December 1995 Mr Parkes had provided reasons for the non-payment including, on 10 January, that the approval by Westpac Bank had not been received and AAI appears to have accepted that this be so. The fundamental difficulty is, however, that the payment of this sum was not a term of the 21 December Agreement. I am not satisfied that on 17 January, AAI was entitled to determine the agreement for this breach.

221. The third basis for the determination of the agreement is that the agreement was, as I have found, voidable for duress. In these circumstances the victim of duress may elect to determine the agreement at any time until after the duress is removed. In this case the improper pressure was the threat not to pay the $US1.39M in December. By 17 January $US464,200 remained unpaid and it may have appeared to Mr Kubo that it was likely to remain unpaid for some time. In this sense the pressure continued. AAI was, therefore, entitled to elect to determine the agreement on 17 January and, by its stated intention not to trade on the open terms contemplated by the December agreement, it elected to do so. The 21 December Agreement, therefore, came to an end on 17 January 1996.

225. Another matter which was discussed on 17 January was the appointment by AAI of John Gordon McCormack of Messrs McCormack De Bono & Co, Accountants, to review the financial position of PSC. Mr Parkes accepted that such a review should take place and on the following day Mr McCormack entered upon his task and spoke by telephone with Mr Parkes. On 22 January he had a meeting with Mr Parkes and with the PSC accountants, Gary James Burton and Mr Colin Parkes. Mr McCormack had previously provided the directors with a schedule of accounting information which he required, but not all of this was available. At this meeting he received financial statements for PSC as at 30 June 1995 and a cash flow for the months February to June 1996. There was some debate as to whether he was given further financial data on this occasion, including financial statements of PSC as at 31 December 1995 as Mr Burton said. It is not necessary that I resolve this dispute. But if it were necessary for me to do so, I would accept the evidence of Mr McCormack. This is not only because of the favourable impression I had of him as a reliable witness, but also because it seems that the December 1995 financial statements which Mr Burton said he gave him were not available and were not expected to be available until 29 February 1996, as the Westpac Bank records in its letter of 31 January 1996. In any event, Mr McCormack readily accepted that during the course of his review he was given general access to PSC's financial records.

228. Mr McCormack said that he quickly formed the view that PSC was insolvent and he advised AAI of this, recommending to Mr Kubo that his company should not make further advances to PSC unless it was secured. His opinion as to solvency was challenged before me and I shall return to this. For present purposes, it is sufficient that I record that he formed this view and communicated it to Mr Kubo. This would be sufficient to activate the implied term which I have rejected in [45] above.

231. The fate of PSC's application for $1.5M further facility still remains obscure as at this time. On 24 January 1996 the Westpac Bank approved an extra facility of $A550,000 only, subject to a number of conditions. I infer from this that the December application for a greater advance was rejected although there was no direct evidence of this nor of the reason for its rejection. In any event, the conditions attached to the 24 January approval were unacceptable to PSC and on 31 January the bank withdrew its approval and announced a general review of PSC's existing facilities.

234. At the meeting of 17 January, Mr Kubo had insisted that the balance of the December payments be made by Friday, 26 January at the latest. This was a public holiday, and on 23 and 24 January 1996 Mr Kubo informed Mr Parkes and Mr Sinclair respectively that the payment must be made by the end of 25 January 1996. He told them that, if this deadline was not met, he would cease all trade immediately, would wind up PSC, sue its directors and commence trading directly with Southcorp.

237. Payment was not made on 25 or 26 January and a further meeting was arranged for Monday, 29 January 1996. Present at this meeting were Mr Kubo and Mr Yonekawa from AAI, Mr McCormack, the investigating accountant, Mr Parkes and Mr Sinclair from PSC and its former accountant Paul Briglia. The financial position of PSC was discussed, with Mr McCormack saying that it had a balance sheet deficiency of between $A2M and $A3M and that it needed an extra advance from AAI of a minimum of $A1M up to $A3M. The question of the unpaid December payment must have been raised for Mr Kubo had a clear recollection that Mr Parkes told him that all creditors of PSC had been paid except this debt due to AAI. Not surprisingly, he took offence at this discrimination against him by a company which was seeking his continuing support. No reason for this preference was offered by Mr Parkes. When asked, Mr Kubo said that Mr Parkes told him nothing of the refusal of the Westpac Bank to grant the extra facility of $A1.5M which was the basis of the deferral of the December payment on 21 December 1995 and no witness said otherwise.

240. After this meeting and on the same day Mr Parkes faxed a letter to the Westpac Bank. In it he sets out a misleadingly optimistic account of the meeting which had just taken place. He informed the bank that AAI wished to "defer their decision on open account trading pending further discussions". In fact, AAI's position was and had been for some time a sturdy refusal to return to these terms of trading and nothing had happened to give Mr Parkes or PSC any reason to think that this might change. He conceded as much before me.

243. On the following day, AAI wrote to PSC a letter dated 30 January 1995, prepared and faxed by its solicitors, effectively requiring that future trade be on a month-to-month basis on terms and conditions to be agreed. The balance of the January shipment was to be provided on the basis that shipping documents would be provided in exchange for a letter of credit or bank cheque. Again, this is contrary to the terms agreed in late December or early January that this shipment should be on an open terms basis. A copy of this letter was sent to Mr Ryan of the Westpac Bank.

246. The month of January concludes with the letter of the Westpac Bank dated 31 January to which I have referred in [68] above. In it, the bank announced the withdrawal of its offer to advance $550,000 made on 24 January and its intention to review all of the existing facilities of PSC. By this time, I assume, there was no question of the $1.5M further facility. There was no evidence from the bank for the reason for this change of attitude except what appears at the foot of its letter of 31 January:

"As you will appreciate the changed conditions in your trading pattern and the effect of this on your financial arrangements, now requires a priority review. To enable the Bank to understand the effect of this on your cashflow and to assess the level of continued support required for your Group we shall be pleased if you will urgently provide the above information."

250. It will be recalled, however, that this letter was sent the day after AAI's letter of 30 January to which I have referred in [72] above.

253. I can now summarise quickly the events that followed. On 14 and 24 February the two payments for the November shipments, the last of the open terms shipments, fell due. These sums, totalling $US391,720, were not paid so that the total amount then outstanding was $US855,920. By letter dated 8 February, Mr Parkes had told Mr Kubo that the payment of this sum would be a problem and he proposed as a solution a five year payment program with an on-going supply contract on open terms in accordance with the 21 December Agreement. He said in evidence that PSC could not make the payments due in February because it had not obtained bank finance and, in any event, he and Mr Kubo were in dispute.

256. In this month, too, AAI maintained its position that it would not trade on open terms. By letter dated 15 February Mr Kubo made a proposal for future trading which included a two year loan to assist PSC to clear the sums owing. Mr Parkes told me that it was not acceptable to him but he made no reply. As late as 5 March he wrote to Mr Kubo saying he was "working to formulate a response" to this letter.

259. Notwithstanding an assurance given by Mr Parkes to Mr Kubo on 7 February to the effect that litigation between him and Mr Sinclair "seems to have been resolved", disputes between the two men continued. PSC, by the vote of Mr Parkes and his co-director Mr Simpson, terminated the employment of Mr Sinclair about this time. On 23 February Mr Sinclair wrote to the Westpac Bank informing them of this fact. He expressed the opinion that PSC was trading insolvently and advised that he had on that day resigned as a director. He withdrew his personal guarantee supporting PSC's borrowings from the bank. On the same day the bank advised PSC that the transfer of limits between facilities would not apply pending completion of the bank's review which had been announced on 31 January. The reason given by the bank for this was the irretrievable breakdown between the directors. On 27 February the bank wrote to the directors of PSC that it had received notice of withdrawal of Mr Sinclair's guarantee and that no further drawings would be permitted on PSC's accounts. Surprisingly, Mr Parkes told me that this had very little effect on the ability of PSC to do business. The chartered accountant called by PSC on the insolvency issue, Barry Robert Jamison, accepted that the irresistible consequence of the bank's act was that PSC was then insolvent and I am confident that he is correct.

262. On 5 March the Westpac Bank appointed Mr Scales of Ernst & Young to act as investigative accountant of PSC and on 13 March it cancelled all credit facilities and made a formal demand of PSC for payment. On 12 April the bank appointed Mr Scales and Gregory Paul Swann as receivers and managers of the property of PSC.

265. Meantime, trade between AAI and PSC proceeded, but only on a letter of credit basis. Payment for the January shipments was arranged in the latter part of February by the transfer of the Southcorp letter of credit in favour of AAI or the Japanese bankers. Further sales of PET were made in February and March. On 4 March AAI made a formal demand from PSC that it pay by 8 March its outstanding debts and interest. This was not complied with and on 12 March AAI gave to PSC notice rescinding the agency agreement between them. Thereafter, AAI traded directly with Southcorp. Notwithstanding these notices, PSC continued to assert the existence of the trading relationship between the two companies and insisted that the 21 December Agreement remained on foot. In circumstances which are not entirely clear payment for the March shipment was not made to AAI.

268. It remains only to record that on 11 April 1996, the day before the appointment of the receiver and manager, a new company was incorporated by Mr Parkes. He called it Parkes Chemical (Aust) Pty Ltd, a name very similar to Parkesinclair Chemicals (Aust) Pty Ltd. According to the ASIC records, it shared a principal place of business with PSC. Its registered office was that of Messrs Burton & Parkes. Its directors for the first 24 hours of its corporate life were Mr Parkes, Mr Simpson and one Josephine Curran. On 12 April Mr Parkes, Mr Simpson and Ms Curran retired as directors in favour of Arnold Bernard Rosenthal, a resident of Pennsylvania, USA, and Neil James Masson, both friends of Mr Parkes. Mr Masson retired as director and secretary of the company on 3 December 1997 in favour of Mr Colin Parkes. On the day that the receiver and manager were appointed, the existing staff of PSC, including Mr Parkes, resigned and received their entitlements. They were then employed by Parkes Chemicals, which company has continued to trade in competition with PSC, but principally as a commission agent rather than as principal. Mr Rosenthal was its managing director, although he remained a resident of the USA until his death in 1998 and did not attend board meetings. I am satisfied that Mr Rosenthal and Mr Masson were mere shadow directors and that the new company was a vehicle used by Mr Parkes to continue the business which had previously been conducted by him through PSC.

271. I summarise my findings as to the liability of AAI on the claim as follows. This summary should be read subject to what has gone before.

(a) An agreement with respect to future trading on an open terms basis was entered into on 21 December 1995.

(b) The agreement was voidable for duress and on 17 January 1996 AAI elected to avoid the agreement.

(c) The agreement contained the terms alleged in sub-paragraphs 6(a), (b), (c), and (g) of the statement of claim. I make no findings as to the terms alleged in sub-paragraphs (e) and (f). There was no term as alleged in sub-paragraph 6(d).

(d) The agreement contained the terms alleged in sub-paragraphs 6A(b) (the second), (c), (d), (e) and (f) of the defence and counterclaim. I reject the terms alleged in sub-paragraphs 6A(a), (b) (the first) and (h), and 6B(a), (b) and (c).

(e) PSC provided a monthly cash flow on 21 December 1995 and on 22 January 1996. It committed no breach of the term alleged in sub-paragraph 6A(f) of the defence.

(f) Up to the time of termination of the agreement on 17 January AAI was not in breach of the terms alleged in sub-paragraphs 6(a), (b), (c) or (g) of the statement of claim or in sub-paragraphs 6A(b) (the second), (c), (d) or (g) of the defence.

(g) The Japanese bankers of AAI did not, prior to 17 January, require that AAI alter its terms of trade with PSC.

(h) PSC failed to pay the sums due to AAI and to its bankers under the relevant bills of exchange which fell due in December 1995 and February 1996. It was unable to make payment of the sums due in February 1996 due to an insufficiency of funds.

(i) On 17 January 1996 and thereafter AAI believed on reasonable grounds and it was a fact that PSC was likely to become insolvent and that continued trading on open terms represented a real risk of substantial loss to it.

284. A good deal of effort at trial was devoted to the question whether PSC was insolvent. This was said to be relevant to AAI's allegation that it was therefore entitled to modify the terms of trading, an entitlement which I rejected. Secondly, it was said to be relevant to the loss and damage claim of PSC. On behalf of PSC it was said that its claim for loss of goodwill arose because the breaches of contract by AAI rendered it insolvent. On behalf of AAI it was put that the financial position of PSC was, in January 1996, so desperate that it would have collapsed in any event so that AAI's alleged breaches did not cause any loss. The difficulty with all of this is that it raises different notions of insolvency. AAI's reliance on the implied term raises questions of apparent insolvency or future prospects of insolvency. PSC's allegation raises the question why the Westpac Bank froze the accounts of PSC and why it was put into receivership. AAI's contention with respect to causation again raises questions as to the viability of PSC in the future. All of these questions concern the finances of PSC at different times, times which were never precisely articulated in the pleadings or even in argument. None of them involves an assessment of insolvency in the sense that this concept is used in the law of bankruptcy or insolvent corporations, although it is clear that the witnesses, expert and lay, were addressing that question. Finally, given my findings on the liability of AAI, the question on any view does not arise. Nevertheless, in deference to the time and ink that has been spilt over this issue, I shall shortly venture my views upon it.

287. At all times PSC had a substantial balance sheet deficit. Indeed, its balance sheet had shown a deficit for many years. On its face, the balance sheet showed a diminishing surplus of assets over liabilities of $3.8M in 1993, $3.97M in 1994, $1.9M in 1995 and $1.6M on 31 December 1995. This surplus was, however, illusory for its non-current assets of $2M were represented by loans to associated companies which were wholly or mostly irrecoverable. A further asset was represented by goodwill which had been internally generated and valued at $3M. Mr McCormack assessed the true deficiency on 22 January 1996 as $2.85M. It should be added, however, that the Westpac Bank, which was a secured creditor of some $4.4M in January 1996, did not appear to be troubled by the balance sheet.

290. PSC had for many years been trading at a profit. Again, the profit and loss accounts record a net profit of $311,000 in 1993, $243,531 in 1994, $393,934 in 1995 and a loss of $24,621 for the half year to 31 December 1995. These trading figures were arrived at after payments by the company of substantial salaries to the directors, of substantial interest, much of which went to non-business purposes, and of a very large insurance premium for the directors. Notwithstanding these profits, the financial statements display some alarming trends. The gross profit ratio was declining from 9.5% in 1993, 7.78% in 1994, 6.6% in 1995 and 4.3% in the half year to December 1995. I bear in mind with respect to the last figure that it may not be indicative of a full year of trading.

293. PSC was, on any understanding of the term, insolvent by 25 January 1996. In addition to its substantial capital deficiency, the bank had declined to provide the support which it had required. The company had no means to pay the $US464,200 which was due and payable or the payments to fall due to AAI in February. Its director Mr Sinclair had formed the view that it was insolvent and had expressed that view publicly. Its director Mr Parkes had asserted in December and again in January that it was unable to pay AAI the sums then owing. It had dishonoured bills of exchange for very substantial sums. The question whether the company was, prior to that date, unable to pay its debts as they fell due out of its own money or from money available to it, depends entirely upon the prospect that Westpac Bank was going to grant a $1.5M extension to its facilities. Reliable evidence to support such an expectation is difficult to find. I would certainly not act upon a statement to that effect made by Mr Parkes. His unrealistic optimism is a feature of his correspondence and of his evidence. If it were necessary for me to make a finding on this question I would conclude that PSC was insolvent in the legal sense of the term on 21 December 1995 and that it remained so thereafter.

296. The company depended for its financial success to a very large extent on cash flow generated by the PET trade. This trade represented in 1995 about 40% of its turnover. Its cash flow from this source was dependent upon the sales to Southcorp being maintained and upon the continuance of the favourable terms offered by AAI as it had over the past 16 years. The facts of this case indicate this dependence and the lack of working capital of the company. When AAI withdrew its favourable trading terms, as it was entitled to do at any time, the bills which were to fall due in the succeeding three months could not be met from current sales of PET.

299. The cash flow from the PET trade depended upon the maintenance by Southcorp of the volume of its purchases of PET and the price which it was prepared to pay. Both of these components were a matter of some uncertainty. Given its low turnover margin, PSC was particularly susceptible to changes in these components. The price of PET for the September shipment to Southcorp was $US2,400 per tonne. It fell each month thereafter to $US2,150 in October, $US1,870 and $US1,500 in November, $US1,730 in December, $US1,680 in January $US1,550 in February and $US1,460 in March. This trend was apparent in January 1996 and, while it may not have been possible to look further ahead, indications were that the decline would continue. This is indeed what happened. By July 1996 the price obtained by Parkes Chemicals was $US1,000 and by December 1996 $US780 from which figure it rose slightly but it never again reached $US1,000. I am, however, not concerned so much with the price but rather with the trend. So long as the price declined and the quantity did not increase sufficiently, a company trading as did PSC prior to December 1995 faced the prospect each month that the proceeds of its sale would be insufficient to pay for the purchases of three months previously for which payment then became due.

302. There were indications in January 1996, too, that Southcorp was reducing the volume of its purchases. During the latter months of 1995 it purchased from PSC at the rate of 600 tonne per month. In March it decided to reduce its inventory so that monthly purchases for the June quarter were to be only 400 tonne. Again, this would have had the consequence that in each of those months PSC would have had insufficient funds to pay for the 600 tonne purchased in each of January, February and March 1996.

305. Whether these matters alone would have caused PSC to fail is a matter of speculation. It would depend upon the ability of management to sell down its non-performing assets and to generate capital from its other trading activities. I have little confidence that Mr Parkes would have survived to the end of the 1996 financial year but this question has been overtaken by the fact that he and his co-directors were in dispute. It was this that caused Mr Kubo to change the terms of trade in December 1995; it was the withdrawal of Mr Sinclair's guarantee which caused the Westpac Bank to withdraw its support and later to freeze the company's accounts. Even so, it may be that Mr Parkes, had he acted in a more forthright manner in December, could have weathered the storm and persuaded Mr Kubo to continue the trade that they had both found to be profitable. But it was not to be. Mr Parkes resorted to tactics which his trading partner, rightly in my view, saw as devious, aggressive and inflexible. To my mind, the cause of the collapse of PSC in April was a combination of these factors. I am not satisfied that the collapse of the business of PSC at that time was the result of any refusal of AAI to maintain open terms of trade as agreed in December 1995.

309. PSC's loss and damage had two components, loss of commission on PET sales and interest, and the loss of its business.

313. This head of damage was particularised as $1,441,174. It was calculated on the basis that PSC would have earned 3% profit on sales which were in fact made by AAI between July 1996 and July 2000 and estimated sales for the period April to June 1996 and those from August to December 2000. The total of these sales was agreed at $US35,500,186 and the 3% commission at $A1,669,820.

316. The expert called by PSC was Mr Jamison. He accepted that the loss under this head should make some deduction for expenses which would have been incurred by PSC to achieve these gross earnings. He made a subjective estimate of those proportions of the expenses recorded by the company in its 1995 profit and loss account which were referable to the PET component of its business. This estimate produced a total expenditure referable to the PET trade of $102,210. This figure was attacked by counsel for AAI as inadequate. It represented 7% of the total expenses incurred in 1995 and 11.2% of those expenses after non-business expenses were deducted. These percentages are to be contrasted with the fact that, in terms of turnover, the PET sales represented 40% of total sales. Gary Stephen Fettes, the accountant called by AAI, acknowledged the subjective nature of the assessment but was of opinion that the proper figure for expenses referable to the PET trade was of the order of $200,000. This would represent 21.9% of expenses in 1995 less non-business expenses. It would mean, too, that these PET related expenses would be 1.7% of total PET sales for that year compared with Mr Jamison's figure of 0.87%. In 1995 the total expenses, less non-business expenses, were 3.1% of total turnover. Accepting as I do that some deduction must be made for these expenses I am not persuaded that Mr Jamison's approach is correct. He tried to quantify, he said, how much it would cost to conduct a trading activity such as PSC's PET trade if it were added to an existing business. To my mind, this is not the correct approach. The question is what part of the actual expenses incurred by this business should be attributed to part only of that business, namely, the PET trade. The approach of Mr Fettes is preferable and I accept his figure of $200,000 for PET expenses. This means that, in 1995, the net profit earned from the PET trade, assuming a 3% gross profit, was of the order of $150,000.

319. Next, it was said by Mr Fettes that the gross profit of 3% itself was not appropriate. With the decline of the PET prices it was not reasonable to accept that Southcorp would continue to pay 6% over the Japan Unipet price or that PSC could expect to earn one-half of this for the five year period. In fact, soon after the termination of the PSC trading arrangements, the PET trade was substantially reorganised.

322. Japan Unipet ceased to be competitive and Southcorp purchased PET product manufactured by an Indonesian company, Bakrie Kasei Chemicals ("BKC") which had as its major shareholder Mitsubishi Chemical Corporation ("MCC"). MCC had a subsidiary in Singapore, Mitsubishi Chemical Corporation Singapore ("MCC Singapore"). AAI resumed shipments of PET for Southcorp in September 1996 and it did so, purchasing from BKC via MCC Singapore. This arrangement continued for some three years until MCC Singapore withdrew from the chain. During this three year period the percentage available for AAI was only 4%. Of this, it retained 3% and gave 1% to its representative in Australia. This meant that, during this period at least, in an arrangement whereby PSC and AAI were to share the profit equally, only 2% would have been paid to PSC.

325. Mr Yonekawa said also that in his opinion PSC would not have been acceptable to the Mitsubishi group if they became aware of the existence of disputes between its directors. In fact the existence of these disputes was known to them.

328. It was put, correctly in my view, that the claim for lost commission was in truth a claim for the loss of the opportunity to earn that commission. Accepting, as I do, that PSC might have expected to receive only 2% between September 1996 and September 1999 and that there were periods with no sales, I find that the lost gross profits over the five year period to December 2000 was $1,106,194 as Mr Fettes calculated. From this figure must be deducted expenses at the rate of $200,000 per annum for the four years and nine months from March 1996 to December 2000, totalling $950,000. The net profit so produced is therefore about $156,000. This is the profit that PSC would have earned, if all had gone as before. A discount must then be made for the prospect that Mitsubishi company would not wish to trade with PSC and the further prospect that, in December 1996, the open terms of trade would be changed to terms based on letter of credit with the consequence that PSC would then find itself short of working capital. I add to this the prospect that its capital structure was such that it could not survive the leaner period from 1996 to 1999. Doing the best I can, I estimate its loss under this head was of the order of $A50,000.

331. PSC claims interest on commission lost which Mr Jamison calculates at 10% amounting to $248,753. Given the way I have assessed the loss of commission component it is difficult to calculate this interest with any mathematical accuracy. I accept that some interest has been lost. The sum of $50,000, which I have assessed to be the loss of net profit, was incurred over four and three-quarter years. On the basis of 10% per annum over that period, the total interest on $50,000 is $5,000 per annum. If this loss of commission occurred at an even rate over this period the interest lost is $11,875. This is the amount I would award. The total, therefore, of lost commission and interest is $61,875.

335. The second component is the loss of goodwill of the whole of PSC's business which is assessed by Mr Jamison to be $3.2M. I reject this claim in its entirety for a number of reasons. I assume as I must that AAI is in breach of the 21 December Agreement by refusing in January 1996 and thereafter to trade on open terms. First, I am not satisfied that it was this refusal which caused the PSC business to be lost. I have referred to other factors which were, to my mind, the true reasons for this. Secondly, I am not satisfied that the business had goodwill which had any value. It is true that Mr Parkes had valuable contacts through which PSC obtained business, but as he demonstrated in April 1996, these contacts were attached to him and not to the company. For the receiver and manager, the goodwill was worthless. It was transferred to Mr Parkes' new company which thereafter enjoyed it. Thirdly, I agree with Mr Fettes that the goodwill represents the prospect that the business would earn profits in the future. These profits, at least insofar as they represent the PET trade, have been valued. To award a further sum for their capital value is to double count. Moreover, the substantial balance sheet deficit of PSC meant that the goodwill, if it ever existed, had gone. Mr Jamison conceded as much. Finally, according to Mr Jamison the justification for claiming goodwill was that, at the end of the five year contract, the business would have remained. It is that business which has been lost which he valued at $3M. If that be the case, this component must fail on the basis that PSC has not discharged the onus of proving the value of this business.

338. I would therefore have awarded $61,875 damages if PSC had shown itself to be entitled to them.

343. As I have mentioned AAI claims that PSC is indebted to it for the unpaid shipments of PET in September, November and December 1995 and March 1996 in the amount of $US1,720,856.

347. This indebtedness was conceded by counsel for PSC.

351. Further by way of counter-claim, AAI alleges that Mr Parkes, prior to PSC becoming liable for the amounts set out above, personally guaranteed payment of those amounts to AAI. Mr Parkes denies that he made such an agreement and, in any event relies upon s. 126 of the Instruments Act 1958 and says that the guarantee has been discharged.

355. In his evidence Mr Kubo explained that some time in the middle of 1979, at the commencement of the commercial relationship between the two companies, he discussed the issue of a personal guarantee with Mr Parkes and Mr Sinclair. He had approached a friend of his at Dai Nippon Ink & Chemicals, a Japanese chemical manufacturing company, to finance the commencement of the proposed trade as AAI did not have sufficient capital. That company required in return for such finance a personal guarantee of payment from the directors of AAI. Mr Kubo said that this was discussed with Mr Parkes and Mr Sinclair and he requested the same from them in respect of PSC's debts to AAI. Although Dai Nippon Ink & Chemicals required his guarantee to be in writing, which was provided, Mr Kubo stated that he did not require this of Mr Parkes and Mr Sinclair because he trusted them. His evidence was that Mr Parkes orally agreed to guarantee PSC's debts to AAI and that this was confirmed about once or twice a year until 1995. Mr Parkes did not deny this. He agreed, too, that the terminology used in these dealings was "personal guarantee". Indeed, this is the terminology used by the two men in their correspondence leading up to the meeting of 21 December 1995.

358. What Mr Parkes said was this. When he used the expression "personal guarantee", he meant that he was giving an assurance the he would do the best he could to ensure that PSC would pay AAI on time and that he would do so even if this involved preferring AAI to other creditors of PSC.

361. The expressions "guarantee" and "personal guarantee" have a particular and well-known meaning in commercial circles. A person who gives such a guarantee assumes personal liability in the event of the default of another. Giving this meaning to the words used, the evidence shows that on many occasions before 21 December 1995 Mr Parkes told Mr Kubo that he would personally be responsible for any default in payment to AAI by PSC. This appears to have been how Mr Kubo understood him; it appears to have been what Mr Sinclair meant when he gave a similarly worded guarantee to Mr Kubo and when he later threatened to withdraw it and Mr Parkes so understood this to be his meaning; it appears to have been the sense in which Mr Parkes used the expression in his dealings with the Westpac Bank; it appears to have been the sense used by Mr Parkes when he prepared the minutes of the meeting of the board of directors of PSC on 13 December 1995, when he spoke in the one breath of Mr Simpson's suggested guarantee to the bank and to Mr Kubo. If Mr Parkes wishes to use an ordinary business word in a special non-ordinary way, it is for him to make this clear to the person with whom he is dealing. This he did not. In determining what was agreed between parties to a contract, the law is concerned, not with the real intentions of the parties, but with the outward manifestations of those intentions. The reasonable bystander in these circumstances would understand his words as did Mr Kubo.

364. I, therefore, reject the contention put on behalf of Mr Parkes that he did not agree to become personally liable for the default of PSC in its dealings with AAI, including the September and November shipments. It is not, therefore, necessary that I make a finding upon the evidence given by Mr Parkes as to his true intention. I will add, however, in case I should be incorrect upon this, that I have not the slightest doubt that Mr Parkes was not being truthful when he swore as to his actual intention and meaning when he spoke of his personal guarantee.

368. In the alternative, Mr Parkes alleges that the guarantee agreement is not in writing signed by the person to be charged and that there is no memorandum or note of the agreement. Accordingly, by reason of s. 126 of the Instruments Act 1958, no action may be brought upon the guarantee. On behalf of AAI, it was submitted that any of a number of documents amounted to a sufficient note or memorandum for the purposes of the statute, alternatively that some of them did when read together.

371. The first document is a faxed letter from Mr Parkes dated 29 November 1995 to Mr Kubo. The letter reads "I am happy to give you my personal guarantee to full payment to AAI Associates Inc". It concludes "Regards, Norm". Mr Parkes gave evidence that it is likely he typed this letter himself but if he did not it would have been typed under his authority from his written notes. "Norm", of course, is the name of Mr Parkes and it is how he customarily signed his letters to Mr Kubo. This name, typed by the alleged guarantor or under his authority,[6] is sufficient to satisfy the statutory requirement that the writing be signed by the person to be charged.[7]

374. Counsel for AAI submitted that either read alone or together with two letters from Mr Kubo dated 7 November 1995 and 21 November 1995 addressed to Mr Parkes and Mr Sinclair and Mr Parkes respectively, this letter is a sufficient note or memorandum to satisfy the statute. The two letters from Mr Kubo are in similar terms. Both express his concern that the degree of the conflict between the two directors of PSC had become widely known. In the first letter to both directors Mr Kubo states his belief that he is an exceptional Japanese exporter in providing generous trading terms, knowing the financial position of PSC. He says he has done so "for my long personal mates' words to guarantee me payment of full amount of your debts". In the second of the letters, addressed to Mr Parkes alone, it is clear that Mr Kubo's concerns have increased since the first. He states:

"Reason why I have been giving you financial support regardless amount is 1) I have your & John's personal guarantee of payment... Since circumstances has been changed at your end, I would like to have your and John's re-confirmation in writings to guarantee full amount of payment to AAI personally under any circumstances."

378. Although Mr Parkes' letter of 29 November commences "as discussed with you last night...", it contains references to matters raised in Mr Kubo's previous letters. I have no difficulty finding a sufficient nexus between Mr Kubo's letters and Mr Parkes letter of 29 November 1995 so as to read the documents together. I am satisfied that the letters, read together, provide sufficient note or memorandum of the promise previously given by Mr Parkes to personally guarantee the obligations of PSC to AAI which may arise in the future course of trading between the two companies.

381. Counsel for Mr Parkes submitted that the letter of 29 November contains no more than a statement of future intent and not an acknowledgment that a guarantee has been given. I reject this argument. In his letter Mr Parkes is reassuring Mr Kubo that AAI is not in a vulnerable position vis-à-vis PSC as Mr Kubo fears, and he is attempting to persuade his trading partner to maintain the existing trading terms. As part of this reassurance, Mr Parkes gives Mr Kubo confirmation of his personal guarantee which Mr Kubo has sought. And Mr Kubo was reassured as Mr Parkes intended. He responded on the next day "Thanks for your yesterday's fax and words of guarantee".

384. The second document relied upon by AAI is a letter dated 11 December 1995 from Mr Parkes to Mr Sinclair, in which Mr Parkes raises the matter of the personal guarantees in these terms:

"While you indicated to Shun [Kubo] that you were withdrawing your personal guarantees in regard to any future business with AAI Associates he has indicated to me that you and I are responsible for all past business up until the November order. John - I enclose a copy of our cash flow which, as you know, has had to be changed radically since your action advising Shun of your sale and withdrawal of guarantees."

388. This letter is typed and concludes "Yours faithfully, Norman D Parkes" with a space for a signature, although the copy in evidence did not bear such signature. I am not concerned by this lack of signature. It is a letter which Mr Parkes agreed he had written. I am, however, not satisfied that, on a fair reading of the document, it is a sufficient note of the existence of a personal guarantee by Mr Parkes. It reads more like a statement of what Mr Kubo contended.

391. The next document was the minutes of the meeting of the directors of PSC held on 13 December 2000. These were handwritten by Mr Parkes but not signed by him. He is also shown at the commencement of the document as being present at the meeting and is named as the chair of the meeting. His handwriting sufficiently authenticates the document as being "signed" by him for the purpose of the statute, the more so that he placed his name on the document.

394. Under the item "Directors Guarantees", a motion is recorded as being moved that Mr Simpson be required "to put in place similar joint and several guarantees as other directors of the unit trust, and also to Mr Kubo". These two references, it was said, show the existence of a personal guarantee of Mr Parkes as one of the directors.

397. In accordance with normal canons of construction of documents, it is permissible in the case of ambiguity or uncertainty to admit extrinsic evidence within the knowledge of the parties to construe the guarantee.[8] It is clear on the evidence before me that Mr Parkes was one of the directors of the unit trust referred to and that Mr Simpson was an incoming director who, it was thought, should not be taking on any greater responsibility than the pre-existing directors in terms of personal liability for the debts of PSC. Moreover, under the item "AAI Associates" it is recorded in the minutes that Mr Parkes and Mr Sinclair agreed to reinforce their personal guarantees to Mr Kubo. This also is a sufficient note or memorandum of the existing personal guarantee by Mr Parkes to AAI and of his intention to continue to provide it.

400. The final document relied upon by AAI is the 21 December document itself which was signed by Mr Parkes on that day. By clause 5, Mr Parkes and Mr Sinclair agreed "to maintain their personal payment pledges to AAI." Although a different expression is used there is no doubt that it is the existing personal guarantees given by the two directors which are to be maintained. No other reasonable meaning is open. This part of the clause serves a two-fold purpose: it is a written note of the prior personal guarantees of the directors and it is an agreement in writing that the directors will not withdraw their personal guarantees to AAI in the future.

403. It was argued on behalf of AAI that all of these documents can be read together to form the note or memorandum. Given my conclusions as to them individually, I do not take this point any further. There is sufficient note or memorandum to satisfy the statute and to allow the present claim to proceed against Mr Parkes

407. Counsel for Mr Parkes then argued that the guarantee given by his client to AAI has been discharged by reason of a material alteration and/or breach of agreement between PSC and AAI. The argument depended entirely on the fact that the contract of guarantee was made in the 21 December Agreement. Whether or not this be the case, the guarantee which AAI relies on was one given orally prior to that date. The relevance of the 21 December document, if it have any relevance, is that it amounts to a note or memorandum of this oral agreement. Its operation is not therefore affected by any alteration to the document or to any discharge of the that agreement.

410. The debt which is alleged against Mr Parkes is one which derives from the open terms trading in September and November 1995, before the 21 December Agreement was entered into. His liability as guarantor arises from his undisputed promise given prior to placing those orders to be responsible for their payment. It is a promise on the faith of which Mr Kubo granted to PSC very favourable and potentially hazardous terms of trade. I am pleased to be able to conclude that Mr Parkes must honour his promise.

413. I have, in this context, made no mention of the sum of $US848,136 which was payable in respect of the March 1996 shipment. It is alleged in the counterclaim that this sum was to be secured by a transferable irrevocable 60 day letter of credit. This is denied in the reply, but the evidence shows it to have been the case. In paragraph 36 of the reply it is said that the letter of credit was in fact provided but AAI says that PSC prevented it from negotiating the letter of credit. There was little, if any, evidence as to what happened, but it is clear that PSC did not make the payment. My present interest in this is whether Mr Parkes' guarantee extends to this liability. I am not satisfied that it does. This was a sale made at a time when the open terms of trading were no longer available and at a time when the 21 December Agreement was at an end. To my mind, this transaction must stand apart from those in the months preceding 21 December 1995. The sale was negotiated under terms which were thought to secure payment to AAI by letter of credit. The guarantee is not applicable to it.

416. The liability of Mr Parkes under the guarantee is, therefore, limited to the unpaid shipments in September and November 1995 totalling $US872,720.

420. I can now state my conclusions in this proceeding. The claim of PSC fails. The counterclaim of AAI against PSC succeeds as does its claim against Mr Parkes, but only to the extent of $US872,720. Counsel on behalf of AAI told me that their client sought or might seek judgment against one or both of these parties in US dollars on the basis that the debt was payable in that currency. I have heard no argument on this question nor on the appropriate form of judgment nor on the associated question of the applicable rate of interest. These are difficult questions which I have considered on another occasion.[9] I will stand the matter over for a consideration of these issues.

[2] See Trollope & Colls Ltd v North West Metropolitan Regional Hospital Board [1973] 1 WLR 601 at 609, per Lord Pearson.

[3] [1995] VicRp 43; 1995 2 VR 44 at 47-8.

[4] Crescendo Management Pty Ltd v Westpac Banking Corporation (1988) 19 NSWLR 40 at 46, per McHugh JA; Barton v Armstrong [1976] AC 104 at 120, per Lord Cross (delivering the majority judgment); per Lord Wilberforce and Lord Simon at 121 (not deciding).

[5] Crescendo Management Pty Ltd v Westpac Banking Corporation (1988) 19 NSWLR 40 at 46, per McHugh JA.

[6] R v Moore (1884) 10 VLR 322

[7] Schneider v Norris [1814] EngR 211; (1814) 2 M & S 286 at 288-9[1814] EngR 211; , 105 ER 388 at 389, per Lord Ellenborough CJ. And see Clipper Maritime Ltd v Shirlstar Container Transport Ltd; "The Anemone" [1987] 1 Lloyd's Rep 546 at 556, per Staughton J (telex); Bilsland v Terry [1972] NZLR 43 at 49, per Quilliam J.

[8] Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337 at 352 per Mason J.

[9] Vlasons Shipping Inc v Neuchatel Swiss General Insurance Co Ltd (No 2) [1998] VSC 135.