New South Wales District Court CITATION: Nicholson Petroleum Pty Ltd v NSW Pastoral Investments Pty Ltd [2009] NSWDC 90 HEARING DATE(S): 9 April 2009 EX TEMPORE JUDGMENT DATE : 9 April 2009 JURISDICTION: Civil JUDGMENT OF: Goldring DCJ DECISION: Verdict for the second defendant CATCHWORDS: GUARANTEE AND INDEMNITY - Construction - Ambiguity Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 Banque Brussells Lambert SA v Australian National Industries Limited (1989) 21 NSWLR 502 CASES CITED: Ankar Pty Ltd v National Westminster Finance (Australia) Limited (1987) 162 CLR 549 Andar Transport Pty Ltd v Brambles Ltd (2004) 217 CLR 424 Chan Cresdon Pty Ltd (1989) 168 CLR 242 Nicholson Petroleum Pty Ltd (Plaintiff) PARTIES: NSW Pastoral Investments Pty Ltd (First Defendant) Gregory Ian Atwells (Second Defendant) FILE NUMBER(S): 4006 of 2008 COUNSEL: J C Prowse (Plaintiff) S Gray (Second Defendant) SOLICITORS: MCW Lawyers (Plaintiff) Slater & Gordon Lawyers (Second Defendant) JUDGMENT 1 HIS HONOUR: In this matter, the plaintiff, Nicholson Petroleum Pty Ltd, seeks to recover a sum of money from the second defendant Mr Atwells. The claim arises out of money owing to the plaintiff by the first defendant, New South Wales Pastoral Investments Pty Ltd, which is now in liquidation, Mr Atwells was formerly a director of that company. It is not in dispute that the first defendant did incur a significant debt to the plaintiff and that that money is still owing. What is in dispute is the nature and effect of a document signed by Mr Atwells, the second defendant, on 25 April 2008. That is a document which I will read in full. It is on the letterhead of Nicholson Petroleum Pty Ltd with their address and various numbers. It is dated 23 April 2008, it is addressed to Mr J Benson, National Bank of Australia, Forbes, New South Wales, 2871, and it then bears a heading "Nicholson Petroleum Pty Ltd and Gregory Ian Atwells Payment Agreement". "I, Gregory Ian Atwells personally guarantee, or come to some agreement to pay the outstanding amount of $115,012.46 which was incurred by NSW Pastoral Investment Pty Ltd." 2 It is signed and dated by Mr Atwells. It is witnessed by someone called S G Nicholson, who is in fact Mrs Sandra Nicholson, the wife of Mr Nicholson, the director of Nicholson Petroleum Pty Ltd. At the bottom of the document in handwriting added by Mrs Nicholson, the following words occur, "it is agreed that no action will be taken in the next 60 days on this." Again, it is signed by Mr Atwells and witnessed by Mrs Nicholson. 3 The second defendant in his amended defence denies that the alleged personal guarantee is enforceable by the plaintiff against the second defendant, and he does so on a number of grounds. Those grounds really give rise to the issues in this case. It is quite clear, as Mr Prowse, who appears for the plaintiff, put it, that this document was devised by Mr Nicholson and entered into between him and Mr Atwells, neither of whom is a lawyer. 4 It appears that Mr Nicholson delivers fuel through his company, and Mr Atwells is a farmer. Because I considered that there was sufficient ambiguity about who this document was addressed to and who the parties were, I permitted Mr Prowse to adduce some evidence from Mr and Mrs Nicholson. When I made that decision, I considered that the ambiguity, which permitted me to receive evidence other than the document itself, was in the parties' agreement, not as to the content of the agreement, and that is significant for reasons that I will come to. 5 Mr and Mrs Nicholson gave evidence that Mr Nicholson had prepared the document on 25 April 2008. He took it to Mr Atwells' farm and said words to Mr Atwells to the effect that he was being pressed by the National Australia Bank to do something about his overdraft, and he told Mr Atwells that he needed something in writing from him, which he could present to the bank. Both he and his wife said that the word "guarantee" was used and, indeed, it appears in the document. Mr Atwells, after reading the document, agreed to sign it, provided that the rider, which I have read, was attached. Mrs Nicholson gave evidence that Mr Atwells had spoken about a proposed refinancing. 6 I should say that in evidence, there are two statements from Nicholson Petroleum addressed to a unit trust at the same address as Mr Atwells, but clearly referable to the same debt. They set out a balance said to be owing, and, in each case, they bear a notation in the following terms: "Please note that due to my supplier strictly enforcing 14 day trading terms, I have no choice but to pass this on. Accordingly, this account is now payable on the 14th of the month." 7 Now, I am not sure what the purpose of that tender was, but I suspect that Mr Gray tendered that to show that, notwithstanding the terms of the agreement, in the document which is exhibit E, the purported guarantee, the plaintiff, in fact, was in breach of the terms of that by seeking to enforce payment of the debts, even though the 60 days had not expired. It is not necessary for me to decide the effect of the demands by Nicholson Petroleum, because of the conclusions I have reached in respect of other matters. 8 The general rule relating to the reception of evidence where the obligation sued upon is reflected in the document, still, in my view, remains the decision of the High Court in Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337. The relevant passage, from the judgment of Mason J, as he then was, is at p 352: "The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract when it has a plain meaning. Generally speaking, facts existing when the contract was made will not be receivable as part of the surrounding circumstances as an aid to construction, unless they were known to both parties, although, as we have seen, if the facts are notorious knowledge of them will be presumed." 9 Although, in subsequent cases, the courts appear to take a rather more liberal approach in order to give business efficacy to a document, it does not seem to me that that rule has been significantly changed in any way. 10 The plaintiff relied on a statement of Rogers J, then the Chief Judge of the Commercial Division, in Banque Brussells Lambert SA v Australian National Industries Limited (1989) 21 NSWLR 502. At p 521 running onto 522, his Honour made a number of statements to the effect that the intentions of the parties are the overriding consideration, and that can be deduced against the background. In that case, a document was contended by one party not to be a guarantee, and that was a matter of some importance. I am not sure that anything else his Honour said in relation to the specific facts before him is directly relevant here, but I accept that, where the circumstances permit, account may be taken of relevant circumstances if it is necessary to give efficacy to a document. However, in relation to guarantees, the High Court has taken a very strong line. The leading statement is in Ankar Pty Ltd v National Westminster Finance (Australia) Limited (1987) 162 CLR 549 in the joint judgment of Mason ACJ, and Wilson, Brennan and Dawson JJ. It is this: "At law, as in equity, the traditional view is that the liability of the surety is strictissimi juris and that ambiguous contractual provisions should be construed in favour of the surety. The doctrine of strictissimi juris provides a counterpoise to the law's preference for a construction that reads a provision otherwise than as a condition. A doubt as to the status of a provision in a guarantee should therefore be resolved in favour of the surety and so the provision should be interpreted as a condition, or perhaps as an innominate term, instead of a mere warranty." 11 That passage was approved and applied by the High Court in the later case, Andar Transport Pty Ltd v Brambles Ltd (2004) 217 CLR 424 and the majority of the court at p 433 quoted the passage that I have just read. They also referred to a subsequent case, Chan v Cresdon Pty Ltd (1989) 168 CLR 242 and 256, where the statement in Ankar was described by the majority of the court as, "a settled principle governing the interpretation of contracts of guarantee." 12 In this case, what is set out in the guarantee is unusual. On its face, it cannot be construed as a document which is intended to be a guarantee and nothing else. The words "personally guarantee or come to some agreement to pay the outstanding amount" are clearly ambiguous, and, in my view, are sufficiently uncertain as to be incapable of constituting a personal guarantee. It is also unclear, even given the evidence of Mr and Mrs Nicholson, whether this document was addressed to Nicholson Petroleum Pty Ltd, as opposed to the bank, because the evidence merely was that Mr Nicholson required this document for the purpose of providing it to his bank. 13 In those circumstances, I cannot construe the document as a guarantee, and, accordingly, there must be a verdict for the second defendant. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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