Zafiropoulos v Jaff

PARTIES : Harry Zafiropoulos (Plaintiff) Jaff Pty Limited ( Defendant)

COUNSEL : S Bell (Plaintiff) L Tyndall (Defendant)

SOLICITORS : Simons Ravden Lawyers (Plaintiff) Consolidated Lawyers ( Defendant)

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

12225/2008 - HARRY ZAFIROPOULOS v JAFF PTY LIMITED

JUDGMENT (Appeal decision of Local Court Magistrate - guarantee) 1 HER HONOUR: By summons filed 13 May 2008, the plaintiff seeks leave to appeal, to the extent necessary, of the judgment or order of his Honour Magistrate Connell given on 15 April 2008 in the Local Court, Downing Centre in proceedings 10548/2006; secondly, an order pursuant to s 75(a) of the Local Courts Act 1982 by entering a verdict and judgment for the first defendant on the claim together with an order that the plaintiff pay the first defendant's costs of those proceedings as agreed or assessed; and thirdly, in the alternative, an order pursuant to s 75(c) of the Local Courts Act setting aside the judgment and remitting the matter to the Local Court for determination. 2 The plaintiff is Harry Zafiropoulos who was the first defendant/first cross claimant in the Local Court proceedings. The defendant is Jaff Pty Limited who was the plaintiff/cross defendant in the Local Court proceedings. Mark Coomas was the second defendant/second cross claimant in the Local Court proceedings. Mark Coomas has not appealed the decision. He has not played an active role in this appeal. He has not filed an appearance nor did he appear at the hearing. He was called three times outside the Court. For convenience, in this judgment, I shall refer to the parties by name. 3 At the outset, it may be helpful to make some brief comments concerning the remedy pursued by the plaintiff. Section 73 of the Local Courts Act 1982 permits a party who is dissatisfied with a judgment as being erroneous on a point of law to appeal to this Court. The onus lies on the plaintiff to demonstrate that there has been an error of law. What is a question of law (as opposed to a question of fact) was considered in Allen v Kerr & Anor [1995] Aust Torts Reports 81-354; Azzopardi v Tasman UEB Industries Ltd (1985) 4 NSWLR 139 at 155-156; Carr v Neill [1999] NSWSC 1263 and R L & D Investments Pty Ltd v Bisby [2002] NSWSC 1082; (2002) 37 MVR 479. The judicial officer cannot act on evidence inconsistent with facts incontrovertibly established by the evidence - see Devries v Australian National Railways Commission (1993) 177 CLR 472 per Brennan, Gaudron and McHugh JJ at 479 and State Rail Authority of New South Wales v Earthline Constructions Pty Ltd (in Liq) (1999) 160 ALR 588. 4 In Swain v Waverley Municipal Council (2005) 220 CLR 517, the Chief Justice at [2] reiterated that in the common law system of civil justice, the issues between the parties are determined by the trial process. The system does not regard the trial as merely the first round in a contest destined to work its way through the judicial hierarchy until the litigants have exhausted either their resources or their possibilities of further appeal. 5 Section 75 of the Local Courts Act provides that this Court may determine an appeal either (a) by varying the terms of the judgment or order, or (b) by setting aside the judgment or order, or (c) by setting aside the judgment or order and remitting the matter to the Court for determination in accordance with the Supreme Court's directions, or (d) by dismissing the appeal.

Local Court proceedings 6 Mr Harry Zafiropoulos and Mr Coomas were directors of a company called Homeware Retailers Pty Limited ("Homeware"). Jaff Pty Limited ("Jaff") supplied goods to Homeware. Mr Peter Zafiropoulos and Mrs Maree Zafiropoulos were directors of Jaff. Mr Peter Zafiropoulos is the brother of Harry Zafiropoulos. Jaff supplied goods to Homeware and Homeware did not pay for certain goods. It went into liquidation. Jaff sued upon what it said was a guarantee to it by Harry Zafiropoulos and Mark Coomas, allegedly guaranteeing Homeware's debt to Jaff. 7 The relevant question determined by the Magistrate was; "was a contract of guarantee made as alleged by the plaintiff?" He held that there was. The Magistrate entered verdict and judgment in favour of the plaintiff against both defendants in the sum of $39,125.34 with interest on the sum of $39,125.34.

Grounds of Appeal 8 Mr Zafiropoulos appeals against part of the decision of his Honour Magistrate Connell dated 15 April 2008 on the grounds firstly, that the Magistrate erred in finding that Jaff would have changed its conduct had the credit application and guarantee not been received by it; secondly, finding that Jaff had accepted the guarantee of Mr Zafiropoulos; thirdly, finding that Jaff had communicated acceptance of the said guarantee; and fourthly, finding that by the said guarantee Mr Zafiropoulos guaranteed any debt of the Homeware to Jaff. I shall deal with the last ground of appeal first. 9 There are some relevant documents that I shall refer to here. In particular, there is a covering letter dated 17 December 2003, that attached a credit application and a guarantee. The covering letter is relevant for the purpose of this appeal. It reads:

      Wednesday, 17 December 2003

The Base Warehouse Shop 5, Salamander Shopping Centre 2 Town Centre Circuit SALAMANDER BAY NSW 2317

Please find attached a Credit Application for both Zafco Franchise Co Pty Ltd and Jaff Pty Ltd.

Would you please ensure that these are both completed, signed and mailed back to Head Office to be received no later than 10th January 2004.

Should this fail to happen, then no stock will be split or delivered to your store.

per Liz Butler PETER ZAFIROPOULOS Managing Director

10 The attached documents were dated 15 January 2004. It is not necessary to reproduce the credit application and the wording of the guarantee as they are not central to this appeal and in any event it appears in the portion of the Magistrate's judgment that is reproduced later in this judgment. 11 In cross examination, Mr Harry Zafiropoulos eventually agreed that he signed the guarantee in relation to Jaff Pty Ltd and knew what he was doing - see paragraph [26] of the Magistrate's written reasons.

The Magistrate's decision 12 At [5]-[8] of the Magistrate's written reasons dated 15 April 2008 he stated: "5. On 17 December 2003, a credit application for both Zafco Franchise Co Pty Ltd and Jaff was sent to the Base Warehouse, Salamander Bay, Port Stephens. The letter enclosing the application was dated 17 December 2003. The accountant for Jaff, Ms Lyn Butler, signed the letter on behalf of PZ. The letter and attachments is exhibit 3. On the letter head there are logos for "THE BASE STORE" and "THE BASE WAREHOUSE". The address on the letterhead is 70 Orange Grove Road Liverpool. The email address given on the letterhead is an email address related to Zafco. The letter is addressed to "Dear Harry/Mark". 6. The letter had attached to it various documents. The first was an "Application for Credit" to Jaff. The Applicant was Homeware. The particulars of owners/directors were filled out for HZ and MC. These included conditions for 30 days trading terms, an undertaking to pay all accounts on or before the due date, and an acknowledgement that if invoices were not paid the credit may be terminated. There was an acknowledgement that all of the terms and conditions had been read and agreed to. The names of HZ and MC were inserted in the document beneath the date of 15 January 2004 and below the conditions referred to above. 7. Just below the credit application but part of the same document was a "Personal Guarantee and Indemnity". The personal guarantee and indemnity was in the following terms: "I/We (and if more than one, jointly and severally) agree that if the Applicant [Homeware] at any time fails to pay any money due to Jaff Pty Limited or fails to perform or observe any term or condition of credit sale to be performed by the Applicant I/We will forthwith pay to Jaff Pty Limited all money due any [sic. and] payable by the Applicant (or subsequent owner of the business name of the Applicant) to Jaff Pty Limited by the Applicant under or relating to any sale by credit granted by Jaff Pty Limited to the Applicant, or any subsequent owner of the business name of the Applicant, including expenses and legal costs associated with the collection of outstanding monies and including any loss suffered by Jaff Pty Limited as a result of the Applicant's failure to perform or observe any term or condition of credit or sale. I/We agree that this Guarantee and Indemnity will not be released or discharged by any event which would or might so release or discharge the Guarantee and Indemnity, including (but not limited to) to the giving of time, the variation of the terms and conditions of credit or sale, the alteration of the composition of the Applicant, or the release of the Applicant or any co-guarantor. I/We understand this Guarantee and Indemnity binds me/us personally." Underneath the personal guarantee and indemnity were the signatures of HZ and MC, the date of 15 January 2004 and their printed names, 8. Therefore, on or around 15 January 2004, HZ and MC signed the credit application by Homeware to Jaff and the personal guarantee and indemnity as referred to above." 13 Harry Zafiropoulos submitted that the Magistrate may have relied upon the letter dated 17 December 2003 to Harry Zafiropoulos and Mark Coomas as being notice of a change in position but the Magistrate did not appear to make any findings about the letter although it appears that he considered it and that it may be that the letter attached to the guarantee dated 17 December 2003 showed that the conduct of Jaff would have changed if the guarantee were not signed. Counsel for Harry Zafiropoulos submitted that a close examination of the letter shows that this proposition is not correct because firstly, the letter is from Zafco Franchise Co Pty Limited, not Jaff; and secondly, the letter does not say that credit will be refused. Rather, it says that Zafco, not Jaff, will not split or deliver stock after 10 January 2004 if the guarantee is not signed. The letter states that there was the credit application for both Zafco Pty Ltd and Jaff Pty Ltd. One credit application is in the name "Jaff Pty Ltd" only. That credit application is signed by Harry Zafiropoulos and the reference to the statement "no stock will be split or delivered to your store" applies to both Jaff and Zafco. In my view the Magistrate made a finding that Harry Zafiropoulos entered into the guarantee in relation to Jaff. 14 Counsel for Harry Zafiropoulos says that the acceptance of the offer to guarantee was not communicated to him either specifically or by conduct or by implication and that the guarantee is not binding. This is correct. 15 It is clear that Magistrate accepted that the credit application was filed in the former office of Jaff at Orange Grove, Liverpool and his Honour also made a finding of fact that there was no written or oral communication of the acceptance of the credit application or the offer to enter a contract of guarantee. The next issue identified by the Magistrate for determination was that in order for Jaff to succeed it must prove acceptance in some other way [52] to [54]. 16 Harry Zafiropoulos's counsel submitted that the evidence on behalf of Jaff was given by Maree Zafiropoulos and Peter Zafiropoulos. According to counsel, they both gave oral evidence at the hearing and were cross examined, and at no time did either of them say that Jaff would have changed its position had the credit application or guarantee not been received. I accept that Maree Zafiropoulos and Peter Zafiropoulos did not specifically say that Jaff would have changed its position had the credit application or guarantee not been received but there is evidence that their accountant was chasing up the signing of the guarantee. 17 Harry Zafiropoulos also gave the following evidence during cross examination (at t 30-31). Q. Mr Zafiropoulos, you signed the guarantee and you filled out part of the credit application and what did you do with it then? After you filled out your side, did you give it to Mr Coomas or what happened? A. I told you. I spoke to Lyn Butler and I said "Is this proper without having witnesses here to do this proper" and she said "There's nothing to worry about, just sign it and send it back to us and we'll fill out the rest". I left it with Mark to send it back to them. That was it, that's the last of it. Q. So you gave it to Mark and what did you say to Mark when you gave it to him? A. Just to process it, whatever he had to do. Send it, post it, whatever he had to do. Q. Because you know it was needed because they were after you to sign it? A. They said they wanted it. Q. You knew that you weren't going to be able to continue to trade if you didn't have it signed and sent back? A. Of course I'd be able to trade, I can buy from other suppliers. Q. Yes, but you knew you couldn't buy from your brother anymore? A. Possibly. I don't know, we never got to that situation. Q. So if you weren't worried, why did you sign it? A. We were being pestered those few days, that was it. … Q. But when the personal guarantee came, the one that you got - I think your words were - a little bit bothered? A. Yeah. I thought it wasn't necessary. Q. Yes I know that but you told Mr Coomas because he was a shareholder with you in the company and his signature was required wasn't it? A. He alerted me that that was there because Lyn Butler was on the phone. Q. What did he say? A. He said "Lyn Butler's on the phone about this paperwork again" and I said "Fine, what's the problem?" I got Lyn on the phone and said "Are these proper? What's the story with it? Why does he want it?" And I said "Shouldn't we have a witness?" Q. Mr Coomas said "Lyn Butler's on the phone again about these documents". That was your evidence just then? A. Hm-mm." 18 There is also the evidence that Jaff informed Harry in writing that if he did not sign the credit application, which included the guarantee by 10 January 2004, then "no stock will be split or delivered to your store" and that Harry knew that if he had not signed the guarantee, he "possibly" could not buy from his brother. 19 Harry Zafiropoulos submitted that as there is an invoice dated 12 January 2004 and the alleged guarantee was signed on 15 January 2004 without the threat being carried out, it is ineffective to prove acceptance by conduct. However, while the invoice is dated 12 January 2004, the delivery date is not stipulated and the letter referred to delivery date not invoice date and the Magistrate referred to the significance of this invoice in his reasons below. Lastly, Harry Zafiropoulos says that the non-communication of acceptance of the application for credit and the guarantee render the guarantee unenforceable, and that the absence of evidence on which to base a finding is an error of law. 20 At [57] The Magistrate stated: "57. It is clear from the course of dealings between the parties that the Plaintiff's terms for conducting business with Homeware and the Defendants changed in December 2003. Both Defendants were aware of this. The Plaintiff's terms of business at that time depended on a credit application and guarantee being finalised. The letter of 15 December 2003 cannot be viewed in isolation. It must have been plain to the Defendants that it was essential to the continued business between Jaff and Homeware that the company execute the credit applications by its duly authorised officers and that the guarantees be signed and would be relied upon by the Plaintiff. The fact that one invoice was issued shortly after the deadline of 10 January 2004 passed, but three days before the guarantees were received by Jaff, in my view is not sufficient to say that goods would still have been supplied without the guarantee. The evidence satisfies me otherwise. I am satisfied on the balance of probabilities that Jaff would have changed its conduct had the credit applications and guarantees not been received. The argument to the contrary by the Defendants flies in the face of the evidence and their completion and signing of the documents, and their return to Jaff. That was essential for the continued business relationship with Homeware and the two Defendants. The Defendants knew this to be the case, this had been made clear to them and they knew the effect of what they were doing. That is, the company, of which they were directors, would be able to continue to receive stock from the Plaintiff but it was to be on terms that a credit application and guarantees were in place. Jaff accepted the offer by its conduct in continuing to supply the goods, knowing that a credit application was in place and that if Homeware failed to meet its obligations it would be protected by the personal guarantees. This would be unexceptional in the commercial world, in which all parties were operating. The parties had all been in business, and in this type of business, at varying times for a number of years." 21 After quoting from Northstate Carpet Mills Pty Ltd v B R Industries Ltd [2006] NSWSC 1057 and ICTA Investments Pty Ltd t/as Jolly Roger v GE Commercial Corporation (Australia) Pty Ltd [2006] NSWCA 290, The Magistrate stated at [65]: "65. As I have indicated, the present case can be distinguished from Northstate on its facts. In Northstate the application form provided for acceptance by an officer of the plaintiff. That told against any suggestion that the offer implied that there could be acceptance by conduct or that one could infer acceptance by the actions of the parties. Here, the credit application and the personal guarantee were part of the same documents. There was no variation to the terms of the agreement by the plaintiff as happened in Northstate . Here, acceptance and consideration occurred when Jaff continued to supply goods to Homeware on credit knowing that the guarantees were in place. The Defendants continued to receive goods from Jaff knowing they had signed the guarantees and the credit application. They knew that the continued supply of goods by Jaff was to be on these new terms. For a time Homeware continued to pay for the goods it received from Jaff. Had the guarantees not been put in place I am satisfied on the evidence that Jaff would have stopped supplying goods to Homeware unless and until they were. Therefore I accept the plaintiff's submissions in this respect. The goods have not been paid for. Subject to the defence under the CRA by MC the two Defendants are liable jointly and severally to pay the amount not paid by Homeware pursuant to the guarantee." 22 In ICTA Investments, the Young AJA stated (at [71]-[72]: "71 In Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523, the Latec case was not cited to the Court nor referred to in any of the judgments. McHugh JA gave the leading judgment for the majority. Samuels JA agreed and Kirby P came to the same conclusion by a slightly different route. The case was between a property developer and an architect, the property developer having part of his code of behaviour that he would never sign a contract. However, with his consent the architect did a considerable amount of work for the developer and McHugh JA said at 535 that the ultimate issue is whether a reasonable bystander would regard the conduct of the offeree including his silence as signalling to the offeror that his offer had been accepted and that was sufficient. He said at 534: "The objective theory of contract requires an external manifestation of assent to an offer. Convenience, and especially commercial convenience, has given rise to the rule that the acceptance of the offer should be communicated to the offeror. After a reasonable period has elapsed, silence is seen as a rejection and not an acceptance of the offer. Nevertheless, communication of acceptance is not always necessary. The offeror will be bound if he dispenses with the need to communicate the acceptance of his offer … Nevertheless, the silence of an offeree in conjunction with the other circumstances of the case may indicate that he has accepted the offer … ".

72 These thoughts were picked up by Allsop J in Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd (2001) 117 FCR 424, 525 when giving the judgment of a Full Court of himself, Drummond and Mansfield JJ. He said that the essential question in this sort of case is "Whether the parties' conduct including what was said and not said and including the evident commercial aims and expectations of the parties, reveals an understanding or agreement or, as sometimes expressed, a manifestation of mutual assent, which bespeaks an intention to be legally bound to the essential elements of a contract." 23 Young CJ in Equity has made similar comments in Northstate. 24 In relation to whether there was acceptance, there was evidence firstly, that Harry Zafiropoulos knew if he did not sign the guarantee, he possibly could not buy from his brother; secondly, Jaff's letter was to the effect that if the credit application, which incorporated the guarantee, was not received by 10 January 2004 then no stock would be delivered to the store; thirdly, the urging of Jaff's accountant to sign the guarantee; fourthly, the actual signing of the guarantee by Harry Zafiropoulos; and finally, the continued supply of goods after the guarantee was signed. It was open to the Magistrate to find that there had been acceptance of the guarantee by the parties' conduct, namely that Jaff continued to deliver stock after 15 January 2004. 25 There is no error of law. The appeal is dismissed. The decision of his Honour Magistrate Connell dated 15 April 2008 is affirmed. The summons filed 13 May 2008 is dismissed. 26 Costs are discretionary. Costs normally follow the event. The plaintiff is to the pay the defendant's costs as agreed or assessed.

(2) The decision of his Honour Magistrate Connell dated 15 April 2008 is affirmed.

(4) The plaintiff is the pay to the defendant's costs as agreed or assessed. **********

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