On 28 November 2011, the defendant entered into a Trade Credit Application on behalf of Maxstra (NSW) Pty Ltd (Maxstra) with the plaintiff (Regency). He also gave a personal guarantee and indemnity which was undated but presumably signed on 28 November 2011.
The amount of credit approved by the plaintiff was $10,000. The trade requirements set out in the agreement were for a single order account. The plaintiff approved the credit on 8 December 2011.
In April 2013 Maxstra and Regency had entered into negotiations for the plaintiff to supply and install wardrobes, linen cupboards, mirrors and showerscreens at a development known as "Belmont Wharf Apartments", in Belmont, New South Wales.
The defendant resigned as a Director of Maxstra on 12 March 2015. He purported to terminate the guarantee and indemnity in writing on or about 20 March 2015. Mr Wessel (the plaintiff's General Manager) and his staff made a diligent search for any such correspondence, but have not been able to locate any termination letter. The defendant was not able to prove that any letter was in fact sent to the plaintiff. I am satisfied that the plaintiff did not receive any correspondence to that effect and that therefore the guarantee and indemnity remained on foot after the defendant left Maxstra.
On 15 May 2015, Maxstra once again invited Regency to tender for the "Belmont Wharf Apartments". Mr Nadinic was not involved in and knew nothing about these negotiations as he was no longer employed by Maxstra. Over the next week Mr Wessel on behalf of the plaintiff and Justin Leaney and Ben Isenhood on behalf of Maxstra conducted further negotiations. On 22 May Mr Isenhood sent the following email to Mr Wessel:
Hi Philip, I have reviewed all options see below what I propose to get you across the line. Delete the Vinyl Sliding Doors & Aluminium Side Jams to both the Linen & Pantries. And agree on a contract sum of $50,000.00 + GST.
Mr Wessel replied: Thanks Ben, Appreciate your consideration we accept your offer And enclose our revised quotation." The quotation is attached to Mr Wessel's affidavit at pages 41 and 42. It provides for the supply and installation of 27 showerscreens, 27 mirrors, 38 wardrobes, 16 linen/cupboards and 14 pantries. The quotation also contained some notes at the end which included "5. Regency's standard credit criteria."
On 25 May 2015 Mr Isenhood sent a contract to Mr Wessel for signing and collection. A signed copy is annexed to both Mr Wessel's and Mr Nadinic's affidavits. Clause 14.10 of that contract provides as follows:
14.10 Entire understanding
(a) This document contains the entire understanding between the parties as to the subject matter of this document.
(b) All previous quotations, tenders, negotiations, understandings, representations, warranties, memoranda or commitments concerning the subject matter of this document are merged in and superseded by this document and are of no effect. No party is liable to any other party in respect of those matters.
(c) No oral explanation or information provided by any party to another:
(i) affects the meaning or interpretation of this document; or
(ii) constitutes any collateral agreement, warranty or understanding between any of the parties.
On 18 June 2015 there was an additional agreement for the supply and installation of kitchen glass splashbacks. The additional cost of $11,230 + GST was accepted by Ben Isenhood. Regency did the work as contracted. It appears there was no issue about the quality of the work. In accordance with the contract Regency submitted progress payment claims. The first in the sum of $11,667.48 submitted on 24 June 2015 was paid on 9 August 2015. The second claim for $37,733.67 was submitted on 25 July 2015 and the third for $3,315.62 was forwarded on 25 September 2015. Claims 2 and 3 were never paid.
Maxstra, now known as Commercial Builders NSW Pty Ltd, was wound up on 16 February 2016 and liquidator Michael Carrafa was appointed by the Court. There is no prospect of Regency receiving any money in the winding up. The plaintiff seeks to recover from the defendant all monies owing to it, from the subcontract with Maxstra, pursuant to the guarantee he signed on or about 28 November 2011.
The parties disagreed about the issues in dispute. Some matters such as quantum and the signing of the guarantee were not in issue. Mr Burchett submitted that the only issues to be determined were: was the guarantee revoked by the defendant in writing, and was the increase in credit a reason to discharge the defendant.
I find that the defendant had not revoked the guarantee although it may have been his intention to do so.
Mr Dibello also conceded that the fact alone of a contract in the sum of $50,000 when the approved limit was $10,000 was not in itself a reason for the guarantee to be revoked. Mr Burchett produced a number of authorities to the effect that where the credit limit is increased without notice to the guarantor, the increase is irrelevant if it is part of the course of dealing agreed upon and guaranteed (see Duffy Bros Fruit Market (Campbelltown) Pty Ltd v Gumland Property Holdings Pty Ltd; Gumland Property Holdings Pty Ltd v Pisciuneri & Anor [2007] NSWCA 7). I accept that the quantum of $50,000 is of itself not a reason to set aside the guarantee.
Mr Dibello however raised one further issue in his submissions. Did the guarantee apply to this particular contract? Further, that even if it did, this subcontract was a course of dealing that was not anticipated by the Trade Credit Application. The subcontract signed by the plaintiff on 26 May contained detailed terms and conditions substantially different to the terms of the Trade Credit Agreement. Mr Dibello submitted that Mr Nadinic's obligations as a guarantor were discharged pursuant to the principles in Ankar Pty Ltd v National Westminster Finance (Australia) Ltd [1987] HCA 15 (Ankar).
The High Court in Ankar confirmed the principle that when conduct on behalf of the creditor has the effect of altering the surety's rights, the surety is discharged unless the alteration is unsubstantial and not prejudicial to the surety. At [18] the Court said:
… According to the English cases, the principle applies so as to discharge the surety when conduct on the part of the creditor has the effect of altering the surety's rights, unless the alteration is unsubstantial and not prejudicial to the surety. The rule does not permit the courts to inquire into the effect of the alteration. The consequence is that, to hold the surety to its bargain, the creditor must show that the nature of the alteration can be beneficial to the surety only or that by its nature it cannot in any circumstances increase the surety's risk, e.g., a reduction in the debtor's debt or in the interest payable by the surety. The mere possibility of detriment is enough to bring about the discharge of the surety.
The Ankar principle also applies to indemnities. In Andar Transport Pty Ltd v Brambles the Court said at [26]:
However, notwithstanding the differences in the operation of guarantees and indemnities, both are designed to satisfy a liability owed by someone other than the guarantor or indemnifier to a third person. The principles adopted in Ankar, and applied in Chan, are therefore relevant to the construction of indemnity clauses. [footnote omitted]
In response to this submission Mr Burchett said that you have to look at the guarantee and indemnity first and as it was a continuing guarantee and indemnity it covered all dealings between the parties. The Trade Credit Application provided that the guarantee and indemnity would "2. … not be discharged or impaired by reason of ….indulgence granted by [the plaintiff] to the Customer or any …variation of the obligations between them of by reason of [the defendant] not being given notice thereof", and "5. [The defendant] shall remain liable … for all goods and services supplied and obligations incurred in the name of the Customer". As such Mr Burchett said that the Ankar principle did not apply as this was simply a further provision of goods and services by Regency to Maxstra pursuant to the Trade Credit Application.
This issue of whether or not the Trade Credit Agreement applied in respect of the subcontract is the real matter for determination.
There is no evidence before the Court of other dealings between the parties. The Trade Credit Agreement was clearly intended for single order matters of limited financial cost. It applied where the plaintiff was the supplier on credit of goods and services with no additional contractual dealings.
But the contract signed in May 2015 was of an entirely different arrangement. Firstly, it was a subcontract and not a supply of goods on credit. Secondly, the parties entered into a formal subcontract after reasonably extensive negotiations, a contract that purported to be the entire agreement between the parties in relation to the "Belmont Wharf Apartments". Thirdly, the subcontract provided for progress payments. By virtue of the terms of that contract, the plaintiff had to supply and install goods and then make a claim for payment. This is a significant departure from a supply of goods on credit.
It is probable from the quotation provided to Maxstra by Mr Wessel that Regency wanted to apply its standard credit criteria (see paragraph 7 above). But Regency signed the subcontract which purported to subsume all negotiations and tender documents into the agreement as set out in Clause 14.10. The subcontract contained no provision for Regency to supply goods on credit, nor did it incorporate the Trade Credit Agreement.
As Kunc J said in Crane Distribution Limited v Yang [2016] NSWSC 620 at [23]:
When a party signs a document which apparently embodies all the terms of a contract, the signing party is taken to have signified its assent to those terms, and to have held out to other parties that it has done so: Equus Corp Pty Ltd v Glengallan Investments Pty Ltd [2004] HCA 55; (2012) 218 CLR 471 at [33]-[36]; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 53; (2004) 219 CLR 165 at [42]-[48].
The plaintiff is bound by the terms of the subcontract in respect of the work carried out in Belmont. It was a departure from the usual arrangements between the parties. Given the nature of the supply of goods and services at Belmont and the further variation of that contract, there must have been detriment potential or actual to the defendant if it was intended that the guarantee and indemnity was to apply to this work. Although an increase in credit does not per se lead to the voiding of a guarantee (see paragraph 12 above), in this case the size of the subcontract in its scope of works and quantum went beyond a mere supply of goods on credit.
As Goldring DCJ said in Plasterboard Central Pty Limited v Blain [2009] NSWDC 44 at [122]:
The effect of the High Court decision in Ankar is that if a creditor wishes to rely on a guarantee, and, after the formation of the principal obligation, substantially increases the obligation of the principal debtor, it must be meticulous in obtaining the consent of the surety to be bound by the increase in the obligation before doing so. If it fails to do so, the guarantee will be avoided.
At no time was Mr Nadinic consulted about the subcontract following his resignation from Maxstra. The increase in his potential liability was over 400%.
I find that the Trade Credit Agreement did not apply to the subcontract entered into in May 2015. It was an entirely different commercial arrangement, subject to progress payments after claim, and requiring compliance with other conditions such as completion in a proper and workmanlike manner and in accordance with the time constraints in the subcontract before payment was due. It was a not supply of goods on credit as anticipated by the Trade Credit Agreement.
If however I am wrong in that assessment, I am satisfied that the Ankar principle would apply to that subcontract on the basis of detriment to the defendant that I identified in paragraphs 22 and 23 above.
I enter a verdict for the defendant.
I will hear the parties on costs.
Magistrate R Clisdell
Penrith Local Court
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Decision last updated: 06 April 2017