NEEDHAM v TELEVISION AUSTRALIA SATELLITE SYSTEMS LTD and ANOR SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL KIRBY P, SHELLER and COLE JJA 10 October 1995, 4 December 1995 [1995] NSWCA 310 GUARANTEE — formalities required promise to "stand beside" or "stand behind" or "take care of" parties extending funds — whether promise constituted guarantee — held: It did not. At best it constituted an expression of comfort. But not a guarantee. CONTRACT — agreement — promise to make good shortfall — held: In its terms gave rise to entitlement. GUARANTEE — loan of funds — promise by accountant on behalf of company that it would "stand behind" the lenders or "stand beside" the lenders or "take care of" the lenders — whether such promise constituted a guarantee — held: It did not. Bank of New South Wales v Bowen Trustee Co of New South Wales Ltd (1943) 68 CLR | applied. CONTRACT - agreement between parties in business relationship - promise by one party to "make good any shortfall in interest payments due by [another company] for whatever reason when funds are available to the contractor" - funds later become available to the contractor - promise not limited to particular project - construction of promise - held: (Reversing HH Bell DCJ on this point): Upon its true construction, understood in the light of the language of the agreement between the parties viewed in its context, the promise gave its beneficiary the entitlement, in the circumstances which had occurred, to recovery of the payment of arrears of interest - such sum should be calculated, agree and incorporated in short minutes. ORDERS 1. Appeal upheld; 2. Orders and judgment of His Honour Bell DCJ be set aside; 3. Parties to agree upon the calculations referred to in these reasons. Judgment for the appellant against the first respondent in the sum so agreed; 4. Declaration that the first respondent is obliged to pay to the appellant such interest as may be due by Margan Delta Pty Ltd pursuant to the agreement for loan between those parties dated 1 January 1990, by monthly payments of interest at the rate of 2.3% per month less any payments made by Margan Delta Pty Ltd until such time as the principal due under that agreement is paid by the first respondent to the appellant; 5. The first respondent to pay the appellant's costs of this appeal and of the proceedings at first instance but is to have, in respect of the costs of the appeal, if qualified, a certificate under the Suitors' Fund Act 1951; and 6. Appellant to bring in short minutes of orders within seven days. Kirby P Because I am of the view, alike with Cole JA, that HH Bell DCJ erred in his construction of CL1 of the agreement between the parties of 31 August 1991, I agree with the declaration and orders which Cole JA has proposed. I express my agreement with Cole JA on the guarantee point. However, on the remaining points, as their resolution is not necessary to sustain the orders of this Court, I should prefer not to express a concluded opinion. 2 UNREPORTED JUDGMENTS I accept that the clause may be read in different ways, given the context. However, the words used are extremely wide ("any shortfall" and "for whatever reason"). The parties having put their agreement in writing against the background of the complicated dealings explained by Cole JA in his reasons, the law will hold them to that writing as construed from the language chosen, understood in its context. It was suggested for the respondents that if the Court reached this conclusion there was no basis for an order requiring the first respondent to make payment to the appellant. It was submitted that any order could only reflect the terms of CL1 and could only require payment upon its being agreed by the appellant and the first respondent that funds were available to make such payment. Alternatively, it was submitted that the matter should be remitted to the District Court for determination by Bell DCJ as to whether funds were available. Although I favour the orders and directions proposed by Cole JA, I would reserve to the first respondent the opportunity to elaborate its argument. I do not read the proposed orders as excluding that facility. Upon that footing I agree in the orders proposed by Cole JA. Sheller JA I agree with Cole JA. Cole JA Margaret Anne Needham, the appellant is the wife of Mr PFJ Needham. In 1987 Mr Needham joined Television Australia Satellite Systems Ltd (TASSL), the respondent, as its accountant. In March 1989 TASSL bought 6 radio transmitters from a company Motorolla. They were then sold to Margan Delta Pty Ltd (Margan). The invoiced price was $67,174.95. Margan was unable to pay the purchase price. By July 1989 TASSL was in financial difficulties. Mr FG Waldron, its managing director, informed Mr Needham that the company's principal shareholder would no longa support it with funds. By December 1989 TASSL was overdrawn beyond its banking limits by approximately $145,000. In circumstances which are not clear, Mr Needham applied to the National Australia Bank to borrow $160,000 on the security of his home. In making that application he informed the bank that "the funds will be loaned to provide the company with working capital". The letter of application dated 22 December 1989 stated that: [1] "Six transmitters which can now be used following the issue of licences have been purchased and are held in security in our storeroom at Neutral Bay. [2] [3] Security for the advance will be way of a charge over the transmitters presently in our store and aver which I have control. A charge will also be taken over the licences which are in my possession. [4] [5] Loan application fee, interest and loan service fee are to be paid to me in advance from current cash flows."! Much of that was untrue. The six transmitters had been sold to Margan and thus could not be used for security. Further the licences referred to had been issued to Margan?. The loan was approved. A cheque was issued in favour of Mr and Mrs Needham. It was endorsed by Mr Needham to TASSL and banked in TASSL's account on 28 December 1989. 1. Appeal book, at 349 2. Appeal book, at 354 UWAEEDHAM v TELEVISION AUSTRALIA SATELLITE SYSTEMS LTD and ANOR (Cole JAB On 29 December 1989 Mr Needham faxed an agreement to the principals of Margan3. The agreement became dated 1 January 1990 although it was returned by Margan on 3 January 1990 duly executed. That agreement provided: "In consideration of the loan of $160,000 made by Margaret Anne Needham.. and in further consideration of M A Needham forbearing to immediately demand and sue for payment of any money Margan Delta Pty Ltd... may owe her, Margan Delta irrevocably authorises the said MA Needham, her agents successors and assigns to appropriate at any time after 31 March 1990 all or pan of the transmitters and/or licences detailed in the schedule below and any other assets which are the property of Margan Delta and which may come into the possession of the said MA Needham from time to time in or towards repayment of the loan, accommodation, interest, charges or other money for which Margan Delta may be indebted or liable to the said MA Needham." By the agreement it was agreed: [6] * That if the loan of $160,000 was not repaid by 31 March 1990, Mrs Needham could sell or deal with the transmitters and licences. [7] * If the proceeds for sale were insufficient, Mrs Needham could take such action as she thought fit against Margan Delta. [8] * In consideration of the loan, Margan Delta would pay Mrs Needham interest at the rate of 2.3% per calendar month and all bank and other fees incurred in connection with the loan. The schedule referred to the 6 transmitters previously sold to Margan and the licences issued to it. At the time of these transactions Margan was indebted to TASSL. When the $160,000 was banked to TASSL's account, the accounts of TASSL reflected that sum as being received from Margan, and its indebtedness was reduced. Thus at least implicitly, the arrangement was that Margan directed Mrs Needham to pay the funds lent to it to TASSL. At about this time, Bell DCJ found, Mr Waldron said to Mr Needham words to the effect that TASSL would "stand beside the Needhams" or "stand behind the Needhams" or "take care of the Needhams". Mrs Needham argued that such expression as was used constituted a guarantee by TASSL of Margan's indebtedness to her. On 2 January 1990 TASSL paid the establishment fee of $1320 charged by the National Australia Bank for its loan to Mr and Mrs Needham, but invoiced that sum to Margan. On 29 January 1990 Margan made its first interest payment but this was made to TASSL. TASSL drew a cheque for a similar amount and paid it to Mrs Needham. On 27 February 1990 Mr Needham faxed Margan asking them to remit interest payments to the joint bank account of Mr and Mrs Needham with the National Australia Bank, and not to TASSL. On 31 March 1990 Margan defaulted in repayment of the $ 160,000 due to Mrs Needham. Interest continued to be paid by Margan but in June 1990 the interest cheque in favour of Mr and Mrs Needham was dishonoured. Mr Needham asked TASSL for an advance to pay that interest which was agreed to. However the Margan cheque was subsequently cleared and Mr Needham repaid the amount of interest to TASSL. 3. Appeal Book, at 482. 4 UNREPORTED JUDGMENTS On 23 October 1990 Margan was dissolved and deregistered. Nonetheless, in some unexplained fashion, it continued to pay interest until March 1991. In January 1991 Margan wrote a letter to TASSL advising it was indebted to Mrs Needham and stating that "you are holding on behalf of Margan the 6 radio transmitters". It continued: [9] "In order to reduce the indebtedness referred to above, we wish to sell the above transmitters and apply the net proceed against this debt". It authorised sale of the transmitters "at a figure no lower than the original cost price" and payment of the net proceeds to Mrs Needham+4. TASSL purported to sell the 6 transmitters for $67,200 and, after charging $200 selling costs, paid Mrs Needham $67,000. All this was apparently done by Mr Needham. In fact the transmitters remained with TASSLS. TASSL was hoping to engage in two projects in Indonesia, one called the Indomet project and the other the TIRS project. In May 1991 it was awarded the Indomet project. That gave it the right, at some future time, to draw down against the project the sum of $5.3 million. In August there were discussions between Mr Needham and Mr Waldron. They culminated in an agreement dated 31 August 1991 between Mrs Needham, described in the agreement as "the debtor', and TASSL, described as "the contractor'6. The agreement provided: [10] "WHEREAS the contractor is negotiating with developers in Indonesia for the supply and installation of a tourist information ratio service (TIRS) and WHEREAS the debtor loaned Margan Delta Pty Ltd a company incorporated in Victoria and having its registered office at 16-18 Barkly Place, Carlton certain moneys which moneys and related interest charges are overdue for repayment. NOW IT IS AGREED that the debtor wilL unless mutually agreed with the contractor to the contrary, refrain from initiating legal action for the recovery of debts owing by Margan Delta Pty Ltd as set out in Schedule | hereto on the condition that the contractor will: [11] 1. make good any short fall in interest payments due from Margan Delta Pty Ltd for whatever reason when funds are available to the contractor. [12] 2. arrange repayment of any principal and interest outstanding from Margan Delta Pty Ltd upon receipt of funds by the contractor from TIRS. [13] 3. until such time as repayment of the principal as set out in para2 above occurs the contractor will pay to the debtor interest on the value of transmitters held by the debtor for the exclusive use of the contractor at the rate of one point five per centum per month or at such other rate as may be mutually agreed between the parties. [14] 4. The debtor will be reimbursed by the contractor for all bank fees, stamp duties and related charges associated with this agreement."7 That agreement was signed by Mrs Needham and Mr Waldron on behalf of TASSL, each signature being witnessed by Mr Needham. It is to be observed that it restates the existence of a loan by Mrs Needham to Margan and contains a continuing obligation by TASSL to pay interest otherwise payable by Margan under its loan agreement with Mrs Needham (CL1). It also contains an obligation 4. Appeal book, at 336. 5. Appeal book at 337-338 6. Appeal Book, at 340 7. Appeal Book, at 340 WAEEDHAM v TELEVISION AUSTRALIA SATELLITE SYSTEMS LTD and ANOR (Cole JAB to repay principal under that loan due by Margan "upon receipt of funds by the contractor from TIRS". The TIRS project never proceeded. CL3 appears to acknowledge that the transmitters which TASSL had sold on the instructions of Margan, but apparently sold to itself, were in fact held by Mrs Needham for the exclusive use of TASSL. TASSL agreed to pay 1.5% per month on the value of the transmitters, presumably $67,000, until the principal due under the Margan loan was repaid which the transmitters were held be Mrs Needham. In approximately June 1992 there was some discussion between Mr Needham and Mr Waldron concerning TASSL purchasing the six transmitters from Mrs Needham. In fact TASSL agreed to buy those six transmitters for $67,000, and an additional two transmitters for $11,890 which latter sum roughly equated to monies which Mr Needham owed TASSL under an "advance account" against salary.8 $20,000, and perhaps more, was paid by TASSL to Mrs Needham on account of the sale, as well as Mr Needham's advance account being cleared. TASSL acknowledged its indebtedness to Mrs Needham for the balance of purchase price. That sum should be agreed by the parties. THE LITIGATION [15] Mrs Needham sued TASSL and Mr Waldron. Briefly stated, she alleged that TASSL impliedly guaranteed payment by Margan of its indebtedness to her in respect of the $160,000 loan to Margan, which monies were paid direct to TASSL. There were allegations that TASSL engaged in misleading and deceptive conduct contrary to s52 Trade Practices Act and unconscionable conduct contrary to s51AB of the Act. A claim based upon "estoppel to indemnify the plaintiff" was also mounted. Alternatively, it was alleged that on 31 August 1991 Mr Waldron as agent for TASSL represented that TASSL was willing to enter into an agreement confirming its guarantee, that it had prospects of receiving monies from the TIRS project and, ultimately, that it would "continue to guarantee Margan's performance of its obligations under an agreement between Margan and the plaintiff dated 1 January 1990". Those representations were said to be false, fraudulent, and negligent. Alternatively, it was contended that the agreement of 31 August 1991 was unjust and should be varied. Alternatively, pursuant to the agreement of 31 August 1991 TASSL was indebted to Mrs Needham in the sum of $47,547.62 and continuing interest. Alternatively, that TASSL had received the benefit of $160,000 and had been unjustly enriched. The sum of $160.000 plus interest was claimed. Judge Bell held: [16] "1. The first named defendant is to pay the plaintiffs the balance due on the purchase of the transmitters as agreed in July 1992 with interest on the unpaid purchase money from the end of April 1991 with all unpaid instalments of interest to carry interest at 1.5% per month until judgment. [17] 2. The Court notes the undertaking given to the plaintiff by the second defendant on behalf of the first defendant to make payments to plaintiff in accordance with CL1 and CL2 of the written agreement dated 31 August 1991, forthwith upon receipt by the first defendant of funds from a project known as TIRS. [18] 3. Verdict for the second defendant. [19] 4. Costs reserved for argument as to effects of offer(s) of compromise. [20] 5. Parties to bring in short minutes." 8. Appeal Book, at 101-112, 264-266, 372 6 UNREPORTED JUDGMENTS The appeal papers do not disclose any formal orders. Mrs Needham has appealed upon a number of grounds. By grounds 1,2 and 3 she has alleged that his Honour erred in not holding that TASSL had guaranteed the repayment to her of the amount due to her by Margan. Error was said to flow from absence of a finding that the assurance "TASSL will stand behind you" was given prior to payment to it of the $160,000. By ground 3A it is contended that the trial judge should have found for the appellant upon a money had and received count, and upon the basis of unjust enrichment. By ground 4 it is alleged that Bell DCJ erred in not finding that TASSL was estopped from denying the guarantee alleged. Ground 5 asserts error in finding that TASSL was not liable to pay any sum pursuant to CLI of the agreement between the appellant and TASSL dated 31 August 1991. Ground 6 alleges error in failing to find that that agreement was unjust within s7 Contracts Review Act 1980. Ground 7 asserts error in failing to find waiver of privilege in relation to a statement by Mr Waldron. THE GUARANTEE POINT [21] Bell DCJ accepted that Mr Waldron had said, at some time, that TASSL would "stand beside the Needhams" or "stand behind the Needhams" or "take care of the Needhams"?. He found that such expression as was used did not constitute a guarantee. His Honour was correct in that finding. At very best, the expressions might constitute some expression of comfort but they do not constitute a guarantee. A guarantee is "a collateral engagement to answer for the debt, default or miscarriage of another person"!°. The statements found to be made are not such an engagement. Grounds 1, 2, and 3 fail. MONIES HAD AND RECEIVED - UNJUST ENRICHMENT [22] Mrs Needham lent money to Margan. She formalised the terms of her loan which gave her security and the right to interest. Implicitly there was a direction by Margan to pay the amount of that loan to TASSL in reduction of Margan's indebtedness to TASSL. The mere receipt of that money by TASSL is not a sufficient ground to mount a claim for moneys had and received, nor a claim for unjust enrichment. There is no basis for denying commercial force to the formal agreement made in writing between Mr Needham and Margan. There was in fact no agreement between Mrs Needham and TASSL concerning the $160,000. There is no basis for the appellant's submission that there was: [23] "An agreement between Mrs Needham and TASSL for the advance of $160,000 by Mrs Needham to TASSL as working capital with Margan catering into an agreement with Mrs Needham by which the latter would pay an equivalent amount to Mrs Needham in 3 months with credit in that amount being given to Margan in respect of its then outstanding debts owed by it to TASSL." It follows that the claims based upon money had and received and unjust enrichment fail. So does the contention that it would be unconscionable for TASSL to retain the sum of $160,000. There are at least three additional bases upon which the claim in restitution based on unjust enrichment fails. First, TASSL was not unjustly enriched: it surrendered its claim against Margan for the $160,000 it received on behalf of that company from Mrs Needham. Second, Mrs Needham was not unjustly deprived: she lent $160,000 to Margan and received security over its property, and interest in consequence. Third, if there was any 9. Appeal Book, at 574 10. Bank of New South Wales v Bowen Trustee Co of New South Wales Ltd (1943) 68 CLR 1 at 11 per Latham CJ. UWAEEDHAM v TELEVISION AUSTRALIA SATELLITE SYSTEMS LTD and ANOR (Cole JAY obligation upon TASSL to pay Mrs Needham the $160,000 lent by her to Margan, she and TASSL by the agreement of 31 August 1991 (CL2) agreed when those monies would be paid. She is not entitled to recover that sum at any earlier time. Ground 3 fails. ESTOPPEL [24] Not having guaranteed the indebtedness of Margan, there is no evidentiary basis upon which TASSL should be held estopped from denying that it had in fact done so. Ground 4 fails. CONSTRUCTION OF THE AGREEMENT DATED 31 AUGUST 1991 [25] In my opinion Bell DCJ was in error in not giving CL1 full force. It obliged TASSL to "make good any shortfall in interest payments due from Margan Delta Pty Ltd for whatever reason when funds are available to the contractor." It is not restricted by reference to the TIRS project. TASSL received $5.3 million in June 1992 and obviously funds were available, at least by then, for payment of any arrears of interest. Thereafter dividends have been paid by TASSL. In my view Mrs Needham is entitled to judgment for all arrears of interest due by Margan to the appellant under the agreement between Mrs Needham and Margan at the rate of 2.3% per calendar month commencing from 28 December 1989 upon the principal outstanding from time to time and continuing. The parties should agree a calculation to the date of this appeal. It is true that CL1 and CL2 do not sit happily together. Doing the best one can, however, CL1 is to be interpreted to mean that TASSL, when it has available funds, must repay any existing shortfall of interest. Having "available funds" does not mean that Mrs Needham is to be denied payment until all other creditors of TASSL are paid. It means having cash available within TASSL's banking arrangements. That is a continuing obligation related solely to interest. CL2 contemplates a terminal payment discharging the agreement by payment of any outstanding principal and interest once funds are received by TASSL from the TIRS project. The reference to the word "interest" in CL2 is to be understood as referring to that small portion of interest which might be due between the period when interest payments made under CL1 were paid, and the date of the terminal payment concluding the contractual obligations between TASSL and Mrs Needham. Additionally, pursuant to CL3, Mrs Needham was entitled to recover interest at the rate of 1.5% per month upon the value of the transmitters, being $67,000 between 31 August 1991 and the date upon which those transmitters were sold to TASSL being 2 July 1992.1! The parties should agree upon that calculation. CONTRACTS REVIEW ACT [26] The submission was that Mrs Needham was in a disadvantageous position in negotiating the agreement on 31 August 1991 being forced to negotiate against the background of her commitments to the National Australia Bank. The agreement was entered into without legal advice. Neither of these matters is sufficient to entitle her to relief. On any view of the agreement it conferred upon her benefits to which she was not previously entitled.!2 EVIDENTIARY POINT 11. Appeal Book, at 372 12. AGC (Advances) Ltd v West (1984) 5 NSWLR 610 at 619-622 per McHugh J 8 UNREPORTED JUDGMENTS [27] The trial judge declined to permit inspection of a statement made by Mr Waldron which statement had been used to refresh his memory. His Honour may have been in error in so ruling!3 but, in the event, nothing could turn upon this as the trial judge accepted the evidence of Mr and Mrs Needham where it conflicted with that of Mr Waldron. ORDERS [28] 1. Appeal upheld. [29] 2. Orders and judgment of Bell DCJ be set aside. [30] 3. Parties to agree upon the calculations referred to in these reasons. Judgment for the appellant against the first respondent in the sum so agreed. [31] 4. Declaration that the first respondent is obliged to pay to the appellant such interest as may be due by Margan Delta Pty Ltd pursuant to the agreement for loan between those parties dated 1 January 1990, by monthly payments of interest at the rate of 2.3% per month less any payments made by Margan Delta Pty Ltd until such time as the principal due under that agreement is paid by the first respondent to the appellant. [32] 5. The first respondent to pay the appellant's costs of the this appeal and of the proceedings at first instance but is to have, if qualified, a certificate under the Suitors Fund Act. [33] 6. Appellant to bring in short minutes of order within 7 days. 1. Appeal upheld; 2. Orders and judgment of His Honour Bell DCJ be set aside; 3. Parties to agree upon the calculations referred to in these reasons. Judgment for the appellant against the first respondent in the sum so agreed; 4. Declaration that the first respondent is obliged to pay to the appellant such interest as may be due by Margan Delta Pty Ltd pursuant to the agreement for loan between those parties dated 1 January 1990, by monthly payments of interest at the rate of 2.3% per month less any payments made by Margan Delta Pty Ltd until such time as the principal due under that agreement is paid by the first respondent to the appellant; 5. The first respondent to pay the appellant's costs of this appeal and of the proceedings at first instance but is to have, in respect of the costs of the appeal, if qualified, a certificate under the Suitors' Fund Act 1951; and 6. Appellant to bring in short minutes of orders within seven days. Counsel for the Appellant: PM Hall QC/JB Pender Counsel for the Respondent: CJ Leggat Solicitors for the Appellant: Ferrier and Associates Solicitors for the Respondent: Mahony Galvin Rylah 13. Trade Practices Common v TNT Management Pty Ltd (1984) 56 ALR 647 at 687.