Waco Kwikform Limited v Jabbour

Supreme Court of NSW|2011-10-25|Before: White J

Judgment 1HIS HONOUR : These are proceedings to enforce a guarantee and charge. The plaintiff is in the business of providing equipment and labour to the building industry. The defendant is a director of a company formerly called Jabbour Construction Management Pty Ltd and later called Jabbcorp Pty Ltd ("Jabbcorp"). At relevant times Jabbcorp was in business as a builder. 2In October 2008 Jabbcorp was constructing a building at Carters Lane, Towradgi. It negotiated with the plaintiff for the plaintiff to supply labour and scaffolding for that project. The plaintiff's accounts department provided a document to be signed by Jabbcorp entitled " Application to Open/Continue to Operate an Account ". This document incorporated terms and conditions of hire and sale of equipment and terms and conditions of supplying labour, if the plaintiff were to supply equipment and/or labour. The document was not tailored to a specific project. 3On the same page there was a form of guarantee and indemnity. The general manager of Jabbcorp completed and signed for Jabbcorp the Application to Operate/Continue to Operate an Account. The defendant signed the guarantee and indemnity. The document was returned to the plaintiff. The Towradgi project was duly completed. Nothing is owed by the defendant to the plaintiff under the guarantee in respect of debts incurred in connection with that project. 4In 2009 Jabbcorp entered into a contract with Mistrina Pty Ltd for the design and construction of a project at 340 Bay Street, Brighton-Le-Sands. Jabbcorp contracted with the plaintiff for the plaintiff to provide scaffolding and labour for that project. Jabbcorp and the plaintiff signed a subcontract dated 2 February 2010. It was not on the terms of the plaintiff's standard terms and conditions of hire and sale or terms and conditions for supplying labour. The subcontract included a term that it constituted the entire agreement between the parties and superseded any prior agreement between the parties. The plaintiff provided scaffolding and labour to Jabbcorp pursuant to the subcontract. 5Receivers were appointed to Mistrina Pty Ltd. It stopped payments to Jabbcorp. Jabbcorp, as it was entitled to do, terminated its subcontract with the plaintiff. It did so by notice received by the plaintiff on 5 October 2010. On that day, Jabbcorp was placed into voluntary administration. On 26 November 2010 it entered into a deed of company arrangement. 6The plaintiff lodged a proof of debt with the deed administrator for $49,194.33. The proof of debt was accepted. A dividend was paid by the deed administrator of 3.3 cents in the dollar. On 16 May 2011 the plaintiff received $1,628.33 as its dividend under the deed of company arrangement. Pursuant to the deed of company arrangement, the plaintiff's claim against Jabbcorp has been released. 7The plaintiff sues the defendant for $47,566 under the guarantee and indemnity. It seeks interest pursuant to s 100 of the Civil Procedure Act 2005 and costs on the indemnity basis pursuant to the guarantee and indemnity. 8The guarantee and indemnity included a charge of all of the defendant's real and personal property. The plaintiff seeks an order for judicial sale of a property in Punchbowl owned by the defendant. The defendant says that the guarantee and indemnity given in 2008 in respect of the Towradgi project does not apply to the debt incurred in 2010 by Jabbcorp to the plaintiff in respect of the Brighton-Le-Sands project. He also disputes the quantum of the debt claimed by the plaintiff to have been owing by Jabbcorp. 9The issues are, first, whether the guarantee and indemnity signed by the defendant on 14 October 2008 and provided to the plaintiff, applies to the debt incurred by Jabbcorp to the plaintiff in respect of the Brighton-Le-Sands project. 10Secondly, if so, what is the quantum of the debt? 11Thirdly, whether the completion of the deed of company arrangement whereby Jabbcorp has been released from the debt it owed the plaintiff affects the plaintiff's right to recover under the guarantee and indemnity. 12Fourthly, whether costs on the indemnity basis are recoverable under the guarantee and indemnity. 13Fifthly, if the plaintiff is entitled to recover any moneys from the defendant as a debt or damages under the guarantee and indemnity, whether the charge secures, as well as that amount, interest under s 100 of the Civil Procedure Act and costs. 14Sixthly, whether any, and if so what, orders for judicial sale should be made to enforce the charge. 15I have reached the following conclusions. First, the guarantee and indemnity does apply to the debt incurred by Jabbcorp to the plaintiff in respect of the Brighton-Le-Sands project. 16Secondly, the principal amount recoverable as a debt under the guarantee or as damages under the indemnity is the amount claimed by the plaintiff, that is, $47,566. 17Thirdly, the release of Jabbcorp by completion of the deed of company arrangement does not affect the plaintiff's right to recover that sum from the defendant. 18Fourthly, costs are not recoverable on the indemnity basis pursuant to the guarantee and indemnity. The plaintiff is entitled to its costs on the ordinary basis. 19Fifthly, the charge secures the principal sum of $47,566 plus interest that will be included in the judgment to be entered pursuant to s 100 of the Civil Procedure Act plus costs as agreed or assessed on the ordinary basis. 20Sixthly, a declaration should be made as to what is secured by the charge, but no order for judicial sale should be made at this stage. The defendant should be given the opportunity to pay the amount for which judgment will be entered. The proceedings will be reserved for further consideration. Orders for judicial sale can be made if the judgment is not satisfied. In the meantime, the plaintiff's caveat over the Punchbowl property will be maintained. 21My reasons for these conclusions are as follows.

Scope of the Guarantee and Indemnity of 14 October 2008 22The guarantee and indemnity was in the following terms: " I/We unconditionally and irrevocably guarantee payment to WACO KWIKFORM LTD ('WACO KWIKFORM') of all the moneys now or at any time hereinafter due, owing or incurred by the DEBTOR to Waco Kwikform. I/We shall pay to Waco Kwikform any moneys due under this guarantee on demand. I/We unconditionally and irrevocably indemnify Waco Kwikform against any loss Waco Kwikform may suffer as a result of the failure of the DEBTOR, for any reason whatever, to pay Waco Kwikform any moneys due to it. I/We as principal debtor/s shall pay to Waco Kwikform on demand a sum equal to the amount of any such loss. This Guarantee and Indemnity is a continuing security and will not be affected in the event of death, incapacity, administration, bankruptcy or insolvency of the Debtor. I/We waive any right I/we may have of first requiring Waco Kwikform to proceed against or claim payment from the DEBTOR. I/We hereby charge with payment of the moneys and the compliance with all obligations secured by this Guarantee and Indemnity all beneficial interests (freehold and leasehold) in land and personal property held now or in the future by me/us. I/we agree that if demand is made upon me/us by Waco Kwikform, I/we will immediately execute a mortgage or other instruments of security, or consent to a caveat, as required by Waco Kwikform and in the event that I/we fail to do so within a reasonable time of being so requested, then I/we hereby irrevocably and by way of security appoint any director or officer of Waco Kwikform to be my/our true and lawful attorney to execute and register such instruments. This Guarantee and Indemnity is given by me/us in consideration for Waco Kwikform having agreed to supply (or as the case may be having agreed to continue to supply) certain goods to the DEBTOR and to grant (or as the case may be having agreed to continue to grant) credit facilities to the DEBTOR. For the purposes of this Guarantee and Indemnity, 'the DEBTOR' means the company or business whose name and details appear at the top of this form. Where more than one person executes this Guarantee and Indemnity their liability shall be joint and several." 23It expressly applied to " ... all moneys ... at any time hereinafter due ... by [Jabbcorp] to [the plaintiff]". 24Nothing in the text of the guarantee and indemnity confined its operation to the moneys due by Jabbcorp to the plaintiff in respect of the Towradgi project. 25The subcontract dated 2 February 2010 for the Brighton-Le-Sands project supersedes all prior agreements between the parties to that subcontract, that is, Jabbcorp and the plaintiff. The defendant was not a party to that subcontract. It was not a term of the subcontract that it supersede prior agreements between the plaintiff and the defendant so as to discharge any liability the defendant would otherwise have to guarantee Jabbcorp's debts. No such term could be implied. 26The subcontract dated 2 February 2010 would have superseded the terms of hire and sale of equipment and supply of labour incorporated into the Application to Open/Continue to Operate an Account signed by Jabbcorp and dated 14 October 2008. There was no reference in those conditions to the defendant's guarantee and indemnity. There could therefore be no implication from the supersession of those terms that the guarantee and indemnity was also superseded. 27The guarantee and indemnity is not ambiguous. Nothing in the surrounding circumstances raises any ambiguity as to the scopes of the documents. 28The defendant deposed that in 2005 Jabbcorp was undertaking construction on a project at Liverpool for a number of companies trading as Bathurst Towers. He deposed that in June of 2005 he had a conversation with Mr Hockley of the plaintiff in which he said that he needed the plaintiff to do work on the Liverpool project. According to the defendant, he said that the plaintiff would be required to work on the terms of Jabbcorp's subcontract and that Mr Hockley said words to the effect " We can do that but we also need an account form to open an account for the project. " 29The account form that was signed in June 2005 was not signed by Jabbcorp but by companies trading as Bathurst Towers. The defendant signed the form of guarantee and indemnity. 30If the conversation took place as deposed to by the defendant, it would not create any ambiguity in relation to the scope of the guarantee and indemnity in question in the present case. That is to say, if Mr Hockley said that the plaintiff needed an account form for the Bathurst Towers project or the Liverpool project, it could not limit the scope of the document signed by the defendant three years later in respect of a different debtor. 31In any event, I am not satisfied that such a conversation occurred. Mr Hockley denied it. When it was put to the defendant in cross-examination that Mr Hockley did not say the words " we also need an account form to open an account for the project " the defendant denied the suggestion in the following way: " Q. I want to suggest to you during that conversation that Mr Hockley did not say the words to you, 'We also need an account form to open an account for the project' ? A. No, that is not true. Mick Hockley was the representative of Waco who I was talking to in negotiating the subcontract for the project and through the negotiations I made it clear to him that we have a contract that we have to use and we agreed in principle at that point in time. When he went back to his office and came back after we finalised the numbers, he said that his office required an account form to be filled in as well, and I questioned him about that account form and he goes, 'this is procedure that we have got to put in place' ." 32In his answer in cross-examination the defendant did not say that Mr Hockley required the account form to be signed, " for the project ". 33I do not accept that anything was said in 2005 to indicate that the guarantee and indemnity form was required only in respect of the particular Liverpool project on which Jabbcorp was then working. The form of guarantee and indemnity signed by the defendant on 14 October 2008 was the first and only time the defendant signed a guarantee and indemnity in respect of Jabbcorp's debt to the plaintiff. In 2008 he had no conversations with anyone from the plaintiff before he signed the document. Accordingly, the scope of the obligations of Jabbcorp to the plaintiff that were the subject of the defendant's guarantee and indemnity is to be determined from the terms of the documents themselves. Even if discussions between the parties could qualify the express and unambiguous terms of the document, a question on which I need express no opinion, they do not do so. 34For these reasons, I conclude that the guarantee and indemnity applies to all moneys due by Jabbcorp to the plaintiff at any time after 14 October 2008, including the moneys due under the 2010 Brighton-Le-Sands subcontract.

Quantum of the debt owed by Jabbcorp to the plaintiff 35It was not suggested that the deed administrators' admission of the proof of debt submitted by the plaintiff was binding on the defendant. That was correct. The defendant contends that the amount Jabbcorp owed to the plaintiff was not $47,566, but $22,978.73. 36He raised two contentions. First, he said that the plaintiff had invoiced Jabbcorp for a greater proportion of the contract sum for the hire of scaffolding, and labour for erecting it, than was then due. He said that part of the charge made by the plaintiff at the time of erection of the scaffolding should have been allocated to the later dismantling of the scaffolding. 37The plaintiff later dismantled part of the scaffolding. But with the agreement of the principal it left part of the scaffolding in place. The plaintiff makes no claim against the defendant in respect of the scaffolding remaining in place. But the defendant would owe some part of the charges invoiced when the scaffolding was erected to the stage of dismantling and would say that only a proportion of that part should be charged to Jabbcorp because only a portion of the scaffolding was dismantled. 38No objection was taken to the plaintiff's invoices when they were rendered. Some invoices were paid in full. The defendant now says that they should not have been. The defendant rightly says that payments were made only on account. Nonetheless, the fact that no objection was taken to the apportionment made by the plaintiff at the time strongly suggests that the apportionment was appropriate. 39Mr Eckert, a branch manager of the Sydney branch of the plaintiff, says that the apportionment was in accordance with industry standards. The defendant did not dispute that. Mr Eckert was not cross-examined on that evidence. In my view, this is not a ground for reducing the plaintiff's claim. 40The other ground of dispute was that the defendant said that part of the amount invoiced was for a variation that had not been approved. There was no evidence that the variation claimed by the plaintiff had not been approved. The defendant was not the project manager responsible for approving or rejecting variations. He tended no contemporaneous document suggesting that there was any issue about the variation. No dispute about the variation was ever raised with the plaintiff. 41Control of Jabbcorp has now reverted to the defendant and he has got back from the deed administrator the defendant's books and records. If there were any dispute about the variation raised during the course of work, one would expect it to be documented in some way in the defendant's records and those documents tendered. 42The defendant's reason for now disputing the variation was that use of certain material had ceased. He referred to a site variation docket that shows that a subcontractor to the plaintiff had dismantled stairs on the eastern side of the building. But it appears from Mr Eckert's evidence in reply that the stairs were immediately relocated and re-erected at a different part of the site. Accordingly, there is no basis for saying that the use of material for which the charge was made had ceased. 43I therefore also reject this ground of dispute. I conclude that the plaintiff was owed by Jabbcorp the amount for which it submitted its proof of debt, namely, $49,194.33.

Deed of Company Arrangement 44Section 444H of the Corporations Act 2001 (Cth) provides that a deed of company arrangement releases the company from a debt only insofar as the deed provides for the release and the creditor is bound by the deed. There is no question that the plaintiff is bound by the deed of company arrangement in this case and that upon the deed having been effectuated, the debt has been released. However, s 444J provides that s 444H does not affect a creditor's rights under a guarantee or indemnity. Accordingly, the release of the debt owed by Jabbcorp to the plaintiff does not affect the defendant's liability under the guarantee and indemnity, indeed, even if s 444J did not preserve the rights of a creditor under a guarantee or indemnity, and even if the effect of a release would otherwise have been to preclude recovery under the guarantee, the plaintiff would still be entitled to recover the same amount under the indemnity against loss.

Indemnity costs 45Counsel for the plaintiff argued that because the defendant agreed to indemnify the plaintiff against " any loss [the plaintiff] may suffer as a result of the failure of [Jabbcorp] ... to pay [the plaintiff] any moneys due to it ", the defendant had to pay the plaintiff's costs on the indemnity basis. Such costs, it was said, were part of the loss suffered as a result of Jabbcorp's default. The contrary argument is that the plaintiff's loss suffered as a result of Jabbcorp's default is the subject matter of the litigation and that, although costs incurred in the litigation are incurred in respect of that loss, they are not an integer of the loss. 46The guarantee and indemnity is ambiguous in this respect. The usual rule is that where a mortgagee incurs costs in defending or enforcing the mortgage or establishing what debt is secured by the mortgage, the mortgagee is entitled to add such costs to the secured debt ( Re Leighton's Conveyance [1937] Ch 149 at 152; Inglis v Commonwealth Trading Bank of Australia (1973) 47 ALJR 234 at 235). However, unless the mortgage provides otherwise, the amount of costs recoverable are to be assessed on what was formerly the party/party basis (now the ordinary basis) and not what was formerly the common fund, or solicitor/client or solicitor/own client basis, or the indemnity basis ( Re Adelphi Hotel (Brighton) Ltd [1953] 1 WLR 955 at 957-958; AGC (Advances) Limited v West (1984) 5 NSWLR 301 at 304; Sandtara Pty Ltd v Australian European Finance Corporation Ltd (1990) 20 NSWLR 82 at 97). The guarantee and charge does not contain words that displace these principles. In my view, applying them, the plaintiff is not entitled to costs on the indemnity basis, but costs on the ordinary basis are secured by the charge.

Interest and costs are secured by the charge 47The next issue is what else is secured by the charge? The charge secures the " moneys and the compliance with all obligations secured by this Guarantee and Indemnity ". This includes the indemnity against loss the plaintiff suffered by reason of Jabbcorp's default. That loss is not only the loss of the principal debt owing, less the dividend received from the deed administrator, but it is also the loss arising from the plaintiff's having been kept out of its money for which compensation is provided by an award of interest under s 100 of the Civil Procedure Act . Therefore, the interest is also secured by the charge. I have already concluded that the costs incurred in enforcing the charge assessed on the ordinary basis are also secured.

Enforcement of the charge 48If the judgment which is to be entered is not paid, the plaintiff will be entitled to an order for judicial sale to enforce its charge. The further amended summons did not seek an order for judicial sale. It sought a declaration that the defendant's interest in certain real property is charged to secure the moneys owing under the guarantee and indemnity. No evidence was led on matters that would be material to fixing the terms of an order for judicial sale. The defendant is entitled to a reasonable time to pay the amount for which I have found he is liable before an order for judicial sale is made. 49I will therefore make a declaration as to what is secured by the charge. But I will not make orders at this stage to enforce the charge. The proceedings will be reserved for further consideration with liberty to apply and liberty to restore. 50In the meantime, the caveat is to continue. The orders made on 15 November 2010 were that the caveat be extended until further order. I do not think that any further specific order is needed to ensure the continued extension of the caveat.

Calculation of interest 51I have recalculated the amount of interest payable pursuant to s 100 of the Civil Procedure Act from the calculation provided by counsel for the plaintiff. The first demand under the guarantee was made on 15 June 2010. The demand was that the defendant pay the sum of $20,614.98 by 21 June 2010. In my view, interest should run from the latter date. Up to 30 June 2010 interest is payable at 7.75 per cent per annum. From 1 July 2010 to 31 December 2010 interest is payable at 8.5 per cent per annum. 52On 18 August 2010 the plaintiff made a demand for payment of $28,714.90 to be made by 25 August 2010. Interest on the sum of $28,714.90 should run from 25 August 2010. Otherwise, the calculations made by the plaintiff of interest under s 100 are in order. The total amount of interest payable under s 100 is $4,405.16. Ignoring the cents, judgment will be entered for the sum of $51,971.

Orders and declarations 53Subject to any submissions that counsel may have as to the form of orders, I propose the following:

Give judgment for the plaintiff against the defendant in the sum of $51,971 inclusive of interest under s 100 of the Civil Procedure Act .
Order the defendant pay the plaintiff's costs on the ordinary basis as agreed or assessed.
Declare the defendant's interest in the property in folio identifier 1/1160328 situated at 33A Cullens Road, Punchbowl is charged to secure payment of the judgment to be entered pursuant to order 1, any interest that may accrue on that judgment pursuant to s 101 of the Civil Procedure Act and the amount of costs payable pursuant to order 2, as may be agreed or assessed.
Order that within 7 days after the defendant tenders to the plaintiff by cash, bank cheque or any other agreed method of payment, the amount of the judgment and any interest payable pursuant to s 101 of the Civil Procedure Act and the amount of costs as agreed or assessed, the plaintiff deliver to the defendant signed withdrawal of caveat AF 660156F in registrable form.
Reserve proceedings for further consideration.
Give liberty to apply and to restore the proceedings on reasonable notice by arrangement with my Associate. [Parties addressed on costs. Plaintiff tenders an offer of compromise.] 54I think the offer of compromise is in accordance with r 20.26 of the Uniform Civil Procedure Rules 2005. Although it includes a term as to costs, the term is not different from the position that obtains under the Rules if nothing were said about costs and the offer was accepted. In any event, even if the offer of compromise should only be taken into account as a Calderbank offer, it was a generous offer and I do not think that the defendant, acting reasonably, ought to have rejected it. I decline to make a contrary order. Pursuant to r 42.14(2) the plaintiff is entitled to its costs on the indemnity basis from 7 May 2011. 55Accordingly, I make order 1 as previously indicated and in place of order 2, I order that the defendant pay the plaintiff's costs on the ordinary basis up to and including 6 May 2011, and on the indemnity basis from 7 May 2011. I make the declaration as previously set out in paragraph 3. I make the orders in 4, 5 and 6 as previously indicated. The exhibits are to be dealt with in accordance with the Rules. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 07 November 2011

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