Metal Manufacturers Pty Ltd v Group One Interiors Pty Ltd [1999] NSWCA 354

New South Wales Court of Appeal CITATION : Metal Manufacturers Pty Ltd v Group One Interiors Pty Ltd [1999] NSWCA 354 FILE NUMBER(S) : CA 40731/97 HEARING DATE(S) : 20 September 1999 JUDGMENT DATE : 20 September 1999

Metal Manufacturers Pty Ltd PARTIES : v Group One Interiors Pty Ltd JUDGMENT OF : Mason P at 1; Priestley JA at 38; Handley JA at 39

LOWER COURT JURISDICTION : District Court LOWER COURT FILE NUMBER(S) : DC 3843/97 LOWER COURT JUDICIAL OFFICER : Patten DCJ

COUNSEL : A: CRC Newlinds, J Johnson R: J Simpkins SOLICITORS : A: Kemp Strang, Sydney R: Conway MacCallum, Sydney CATCHWORDS : CONTRACT - Interpretation of particular contract - Limits of actual authority as regards the operation of a credit account - Tripartite arrangement - Doubtful creditworthiness of subcontractor - Whether respondent's conduct by silence amounted to holding out of its subcontractor as its agent - No question of principle; State Rail Authority of New South Wales v Heath Outdoor Pty Ltd (1986) 7 NSWLR 170; Brick and Pipe Industries Ltd v Occidental Life Nominees Pty Ltd (1991) 6 ACSR 464 DECISION : Appeal dismissed with costs

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL

CA 40731/97 DC 3843/97

MASON P PRIESTLEY JA HANDLEY JA

Monday, 20 September 1999

METAL MANUFACTURERS PTY LTD v GROUP ONE INTERIORS PTY LTD

JUDGMENT 1 MASON P: Mr Newlinds has put the appellant's case well and at its highest but I am of the view that the appeal should be dismissed. 2 The appellant carries on business under the name of TLE Electrical. It is a wholesale distributor of electrical goods. The respondent is a builder. In 1995 it was using Exel Contractors Pty Limited (Exel) as a principal electrical subcontractor. For this purpose Exel needed a regular supply of electrical goods and equipment. Exel had a poor credit history with the appellant and its application for a credit account with the appellant in April 1995 was refused. 3 Mr Burghard of Exel again approached the appellant's representative, Mr de Wall. The latter suggested that Mr Burghard approach Group One Interiors, that is the respondent, to see if it would open a credit account for Exel to operate and pay. What was held out was the prospect of Exel getting its own credit account if it demonstrated a good record over a trial period. Mr de Wall indicated that with an account in the name of Group One, Exel would be given a limit of $20,000 per month. The limit would be reviewed monthly and if Exel failed in any of its monthly payments, then the credit would be cancelled. 4 During one of these conversations, Mr Burghard told Mr de Wall that basically all the work he was doing was for Group One Interiors. "They are prepared to open an account for me to use for my purchasing for their jobs." 5 Mr de Wall spoke to his superior, Mr Watchorn who instructed him to provide Mr Burghard with an application for credit. Mr Burghard then approached Mr Patterson, a director of the respondent. He asked the respondent to do him the favour and open the account in its own name for Exel to operate. Not surprisingly, Mr Patterson told him that he did not want Group One to be exposed to Exel's liability. Various "controls" were then discussed, including the credit limit of the account. Mr Patterson said "I will agree to $20,000 limit, but I want you to impress on TLE that should there be any change at all from the agreement that we have reached today then Group One must be notified and agree to it". 6 Mr Burghard then prepared a letter from Exel to the respondent reflecting these discussions and he gave a copy to Mr Patterson who received it without adverse comment. The letter which was dated 26 April 1995 provided: The Directors Group one Interiors Pty Ltd 51-53 Chandos Street St Leonards NSW 2065 ATTENTION: MR M PATTERSON/J HARE TLE CREDIT ACCOUNT Arrangements for the opening and running of a trading account with TLE Electrical include the following:- · TRADING COMPANY TLE Electrical Metal Manufacturers Limited 444 Gardeners Road ALEXANDRIA phone 669 2522 · SUPERVISING BRANCH TLE Electrical 65 Rerserve Road ARTARMON phone 437 5844 · ACCOUNT NAME Group One Interiors Pty Ltd · ACCOUNT TERM 30 days · ACCOUNT LIMITED As nominated by TLE or Group One · PAYMENT By Exel at last trading day of month when accounts are due · STATEMENTS AND CORRESPONDENCE All correspondence and statements to PO Box 90 Pymble NSW 2074 · PROOF OF PAYMENT Copy of statement and cheque to be submitted to Directors of Group One on the working day of month · ACCOUNT OPERATORS Directors of Group One or their representative T Burghard - Exel Contractors Pty Ltd N Munro - Exel Contractors Pty Ltd · GUARANTEE Excel Contracts give Group One the right to use monies due to Exel, for payment of the Trading Account, should that be necessary. · DURATION OF ACCOUNT Six month or, Any time before, at the total discretion of Group One · ORDERS On order form only Exel acknowledges that the operation of the Trading Account is a trusted privilege and can be withdrawn at any time without further notice. We agree to the above conditions. T Burhard Director 7 On about 11 May 1995 Mr Burghard showed a copy of the letter to Mr de Wall. 8 Pausing there, the facts recorded thus far show the initiative stemming from the appellant and Exel, each of whom had a real interest in enabling Exel to trade on credit terms. The facts also disclose that the parties were moving towards a tripartite arrangement in which the respondent would lend its credit by assuming a direct contractual relationship with the appellant but on terms designed to protect the respondent's position in relation to Exel which was known by all to have a shaky credit history. 9 It is equally clear that the creation of the letter of 26 April and the showing of it to the appellant was seen by all as part of the process for inducing the respondent to proceed and for protecting the respondent in relation to its due exposure to the appellant. 10 The appellant submits that the letter of 26 April 1995 represents the only way in which the respondent sought to protect itself, ie by the recourse it reserved against Exel. That strikes me as quite unrealistic. I draw the exact opposite inference. The Exel letter of 26 April 1995 was an integral part of the tripartite arrangement that was coming about. The showing of it to Mr de Wall was part of the process leading up to the appellant's willingness to deal with Exel and to supply on credit to the respondent goods intended for Exel's use. 11 When Mr Burghard showed the letter to Mr de Wall, he told the latter: Burghard: Group One have nominated a credit limit of $20,000. They want to be informed if there are any changes to that agreement (as I said that I pointed to the letter of 26 April 1995).