Australian Photographic Engineering Pty Ltd v Dick & Anor [2012] QDC 63

DISTRICT COURT OF QUEENSLAND CITATION: Australian Photographic Engineering Pty Ltd v Dick & Anor [2012] QDC 63 PARTIES: AUSTRALIAN PHOTOGRAPHIC ENGINEERING PTY LTD (ACN010943021) (Plaintiff) v COLIN GEORGE DICK (First defendant) and TERRENCE PAUL MURPHY (Second defendant) FILE NO: 1562/2011 DIVISION: Civil PROCEEDING: Application ORIGINATING COURT: Brisbane DELIVERED ON: 24 April 2012 DELIVERED AT: Maroochydore HEARING DATE: 22 December 2011 JUDGE: Long SC, DCJ ORDER: The application is dismissed. CATCHWORDS: PRACTICE AND PROCEDURE – PROCEDURE UNDER RULES OF COURT – SUMMARY JUDGMENT – UNIFORM CIVIL PROCEDURE RULE 293 – where second defendant brought an application for summary judgment – where second defendant claims that the plaintiff can not make out any claim for debts incurred prior to giving the guarantee – where plaintiff contends that the interpretation of the guarantee through extrinsic evidence would allow for a broad interpretation of the guarantee to include past debt – whether there is a need for a trial of the claim or any part of the claim. CONTRACT – whether guarantee for past consideration – whether guarantee can be interpreted to extend to debts incurred prior to giving of the guarantee – whether extrinsic evidence can be admitted to assist the interpretation of the guarantee. -- 1 of 18 -- 2 LEGISLATION: Uniform Civil Procedure Rules 1999, r 149, 166(4), (5) and (6), 293 CASES: Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549. Bolton Properties Pty Ltd v JK Investments (Australia) Pty Ltd [2009] QCA 135. Breusch v Watts Development Diversion Pty Ltd (1987) 10 NSWLR 311. Daniels v Anderson (1995) 37 NSWLR 438. Deputy Commissioner of Taxation v Salcedo [2005] 2 Qd R 232. Elderslie Property Investments No. 2 Pty Ltd v Dunn [2008] QCA 158. Gutheridge v Coco [2002] QSC 392. Onesteel Trading Pty Ltd v Brassil [2005] VSC 401. Vale Belvedere Pty Ltd v BD Coal Pty Ltd & Anor [2012] QCA 77. Velvet Glove Holdings Pty Ltd v Mt Isa Mines Ltd [2011] QCA 312. COUNSEL: C. Upton on behalf of the plaintiff. D.G. Sushames on behalf of the first defendant. I. Erskine on behalf of the second defendant. SOLICITORS: MSB Lawyers on behalf of the plaintiff. Alan R. de Brenni & Co on behalf of the first defendant. Carl Blumen Solicitors on behalf of the second defendant. Introduction [1] On 7 December 2011, the second defendant filed an application seeking, pursuant to UCPR 293, “an order that the plaintiff‟s claim against the second defendant to the extent that it seeks payment for monies up to and including 3 July 2006 be dismissed”. [2] The plaintiff‟s claim was filed on 13 May 2011 and the pleadings closed upon the filing of a reply on 6 October 2011. In short, the plaintiff‟s claim is for payment of $242,702.26 as liability on a guarantee provided in support of a credit application dated 4 July 2006 and made to the plaintiff, by a company of which the second defendant was a director: Statewide Photos Pty Ltd (“Statewide”). -- 2 of 18 -- 3 [3] As succinctly summarised by the plaintiff, the essence of its claim is that: “The respondents supplied goods on credit to Statewide Photos Pty Ltd from at least 1994. By July 2006 the outstanding debts owed to the respondent by Statewide totalled approximately $169,000.00 (“pre-guarantee debts”). On 4 July 2006 a guarantee was entered into, pursuant to which the applicant guaranteed the performance of the principal debtors‟ obligations to the respondent. Subsequent to the entry into the guarantee the respondent supplied the principal debtor goods on credit (“post-guarantee debts”).” [4] That summary is effectively reflected in the plaintiff‟s statement of claim, except that it is pleaded that the credit application and guarantee were each executed on or about 4 July 2006. However the statement of claim is terse and is the subject of some criticism by the second defendant, on this application.1 [5] The effect of the second defendant‟s defence (filed on 5 August 2011) is that he: (a) Denies liability for the amount claimed; (b) Points out that in addition to himself and the first defendant, a Mr John James Ackfield was also a director of Statewide and also a director and shareholder of the plaintiff;2 and (c) Contends that: (i) He received both a “first credit application” and “first guarantee”, in July 2006. He did not execute the first guarantee but did execute the first credit application but his signature was never witnessed. He then received a “second credit application” and “second guarantee”, in September 2006. He executed both documents, in New South Wales on or about 19 September 2006 and authorised another person to witness his signature, in Queensland on 20 September 2006. He says that Mr Ackfield and the first defendant both signed the second guarantee in Queensland; 1 That issue is expanded upon below. 2 It can also be noted that the guarantee sued upon also appears to have been given, if given by the first and second defendants, by Mr Ackfield also. -- 3 of 18 -- 4 (ii) Mr Ackfield was relevantly in control of the affairs of Statewide, from about October 2006, as the second defendant was in New South Wales and the first defendant was ill and that, as such, Mr Ackfield failed to pursue outstanding debtors of Statewide (in the order of an amount of $467,129.00) and to repay his own debt to the company in an amount in the order of $50,000.00, with the result that administrators were appointed on 31 May 2007. Accordingly, the plaintiff was reckless (from and after about 17 March 2006) in supplying goods to Statewide, because of the knowledge of Mr Ackfield as to its inability to pay its debts and that any loss or damage of the plaintiff is due to the failure of Mr Ackfield to carry out his duties as a director of both companies; (iii) Alternatively, that the second guarantee is not binding for debts incurred before 19 September 2006 because the plaintiff gave no consideration for it and had, prior to that time, sold goods and rendered services to Statewide in an amount of $198,024.00. Otherwise the second defendant contends that nothing was supplied to Statewide after 31 May 2007 and the total amount of unpaid tax invoices for the period from 4 July 2006 to 18 September 2006 is in the order of $28,466.50 and for the period from 19 September 2006 until 1 July 2007, in the order of $6,766.15; and (iv) Satisfaction and discharge of any liability he may have had pursuant to any guarantee has occurred through an agreement reached between he and the plaintiff, acting through Mr Ackfield, and his involvement in a further project in the period from June 2007 until August 2008. The Summary Judgment Application [6] The essence of the second defendant‟s application is the contention that upon interpretation of the guarantee relied upon, the plaintiff cannot make out any claim, in respect of debts incurred prior to 4 July 2006, even if it be assumed that a -- 4 of 18 -- 5 guarantee was properly executed so as to bind the second defendant as from that date.3 [7] Accordingly, this application for summary judgment is brought pursuant to UCPR 293 and the second defendant bears the onus of satisfying the court that:- “(a) The plaintiff has no real prospect of succeeding on all or a part of the plaintiff‟s claim; and (b) There is no need for a trial of the claim or part of the claim.” [8] In Bolton Properties Pty Ltd v JK Investments (Australia) Pty Ltd,4 one of the more recent occasions upon which the Court of Appeal has dealt with the interpretation and application of UCPR 2925, it was reaffirmed that the rule is to be applied according to its language and that the phrase “no real prospect of successfully defending” was meant to distinguish from a fanciful prospect of success and that there is an additional requirement that there is no need for a trial of the claim or a part of the claim, before the discretion of the court may be exercised. Particular attention may be had to the observations of Daubney J (at [78]): “[78] …. Rule 292 also requires the judge to be satisfied that there is no need for a trial, and then, once the discretion arises, to exercise the discretion so conferred. The need to be satisfied in respect of this second element and, in any event, the proper judicial exercise of the discretion to grant or deny summary judgment are each matters which invoke the necessity for a judge to exercise great care, and proceed with appropriate caution, having regard to the patent seriousness of a decision to summarily terminate a proceeding by effectively denying a party the opportunity to present its case at a trial „in the ordinary way, and after taking advantage of the usual interlocutory processes‟” [9] Further there are the observations of McMurdo P in Deputy Commissioner of Taxation v Salcedo6: „[3] Nothing in the UCPR, however, detracts from the well established general principle that issues raised in proceedings will be determined summarily only in the clearest of cases. Gaudron, McHugh, Gummow and 3 Which assumptions are otherwise put into dispute by the defence. 4 [2009] QCA 135 at [2] and [72]-[78]. 5 Which applies an analogous test to summary judgment applications by plaintiffs. 6 [2005] 2 Qd R 232 at 233, [3]. -- 5 of 18 -- 6 Hayne JJ. said in Agar v. Hyde, recently cited with approval by Gleeson C.J., McHugh and Gummow JJ. in Rich v CGU Insurance Ltd: “…Ordinarily, a party is not to be denied the opportunity to place his or her case before the court in the ordinary way, and after taking advantage of the usual interlocutory processes. The test to be applied has been expressed in various ways, but all of the verbal formulae which have been used are intended to describe a high degree of certainty about the ultimate outcome of the proceeding if it were allowed to go to trial in the ordinary way.”‟ [10] Such observations are equally applicable to a defendant‟s application under UCPR 293 and, accordingly the plaintiff relies on what is described as “a well-established principle”, that issues raised in proceedings will be summarily determined only in the clearest of cases. The contentions [11] Whilst the second defendant deposes to receiving two guarantees, one in July and one in September,7 they are relevantly in the same terms, as follows: “IN CONSIDERATION of AUSTRALIAN PHOTOGRAPHIC ENGINEERING PTY LTD (“the Company”) supplying goods and/or services on credit to the customers named in the schedule … … Herby jointly and severally guarantee to the company due payment by the customer for all such goods and/or services that the company may from time to time supply to the customer. … 1. This agreement shall, subject to Clause 5 below, be a continuing guarantee to the Company for all debts contracted by the customer with the Company in respect of goods and/or services supplied to it and all other indebtedness by the customer to the Company whatsoever and howsoever arising including (but not limited to) any judgment debt payable by the customer to the Company and notwithstanding that from to time the customer may have repaid the monies outstanding. … 7 Each exhibited to his affidavit. -- 6 of 18 -- 7 5. Nothing in this guarantee is binding or conditional on the company continuing to supply goods and/or services to the customer. …” [12] The plaintiff accepts that the guarantee must be supported by consideration moving from the person to whom the guarantee is given and that past consideration will not suffice, but points out that consideration expressed in terms of the future supply of goods may support a guarantee of past indebtedness.8 The second defendant takes no issue with this, as a general proposition but contends that no case based on any identified consideration has been pleaded. Otherwise, the second defendant emphasizes the importance that identification of the plaintiff‟s case in respect of consideration may have in relation to the interpretation of the guarantee. [13] The essential contentions of the second defendant are that: (a) There is a principle that guarantees are to be interpreted strictly against the creditor;9 (b) The language of the relevant part of the guarantee is expressed “in futuro” rather than in reference to a guarantee of past indebtedness; and (c) No case is pleaded by the plaintiff to make out any legal basis for a claim to any amount incurred prior to 4 July 2006.10 [14] The first response is the contention that the usual principles of interpretation of commercial contracts are applicable to guarantees.11 [15] As to those usual principles of interpretation, the plaintiff refers to the observations of Muir J in Elderslie Property Investments No. 2 Pty Ltd v Dunn:12 “[20] The object of contractual construction is to „ascertain and give effect to the intentions of the contracting parties.‟ Those 8 One Steel Trading Pty Ltd v Brassil [2005] VSC 401 at [56] and Breusch v Watts Development Diversion Pty Ltd (1987) 10 NSWLR 311. 9 See Ankar Pty Ltd v National Westminster Finance (Australia) Limited (1987) 162 CLR 549 at 561 and Bridgestone Australia Limited v GAH Engineering Pty Ltd [1997] 2 Qd R 145. 10 Including the matters raised in Mr Ackfield‟s affidavit (as relied upon by the plaintiff) and also as to the consideration provided by the plaintiff for the guarantee. . 11 Eg. see Craig v Finance Consultants Pty Ltd [1964] NSWR 1012. 12 [2008] QCA 158 at [20]. -- 7 of 18 -- 8 intentions, to be determined objectively, are „what a reasonable person would have understood [the words of the contract] to mean.‟ And to ascertain that „normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction.‟ Such a reasonable person is one who has all the background knowledge which would reasonably have been available to the parties in the situation which they were in at the time of the contract.” [16] That statement of principle has recently been repeated to similar effect in Vale Belvedere Pty Ltd v BD Coal Pty Ltd & Anor13, with the further observation that: “…the construction which is chosen from the available meanings must accord with commercial efficacy and common sense.”14 [17] The plaintiff contends that the meaning which a document would convey to a reasonable person is not necessarily the same thing as the meaning of its words, with the meaning of words being a matter of dictionaries and grammars, whereas the meaning of the document is what the parties using those words against the relevant background would reasonably have understood them to mean.15 [18] In this context, the plaintiff contends that the proper interpretation of the relevant part of the guarantee is that it was given in reference to the past indebtedness or then existing indebtedness of the customer, as well as proposed future indebtedness, which further indebtedness transpired through further supplies on credit. [19] The plaintiff also relies upon the evidence deposed in the affidavit of Mr Ackfield and summarised to the following effect: “(a) Ackfield is the managing director of Australian Photographic Engineering Pty Ltd (“APE”). It was incorporated 26 years ago.16 13 [2012] QCA 77 at [35] and in each instance the majority decision in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at 179 [40] and consequently the decision in Pacific Carriers Pty Ltd v BNP Paribas (2004) 218 CLR 451 at 461-462 [22], are cited as authority. 14 Citing, Geroff & Ors v CAPD Enterprises Pty Ltd & Ors [2003] QCA 187 at [36] and authorities there cited; Gollin & Co Ltd v Karenlee Nominees P/L (1983) 153 CLR 455 at 463; [1983] HCA 38; McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579 at [22]; [2000] HCA 65. 15 Investor Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 All ER 98 at 114- 115; Mannai Investments Co Ltd v Eagle Star Life Assurance [1997] AC 749. 16 Affidavit of John James Ackfield sworn 15 December 2011, at para [1]-[2]. -- 8 of 18 -- 9 (b) APE provided goods to Statewide Photo Pty Ltd (“Statewide”) from the beginning of its corporate existence.17 (c) In approximately February 2006, Agfa Photo Australia, Statewide‟s supplier of photographic paper and processing chemistry stopped trading. As a result, Statewide did not have a supplier and came to APE to fill that void.18 From approximately March 2006, APE commenced providing photographic paper and processing chemistry to Statewide.19 (d) It was not standard practice for APE to require customers to execute an Application for Credit or a Guarantee when APE provided services on credit, however by June 2006 Ackfield had become concerned about the level of debt being built up by Statewide (which was then approximately $130,000.00).20 (e) In approximately June 2006, Ackfield had a conversation with the First Defendant about Statewide‟s outstanding accounts. During that conversation Ackfield told the first defendant that the reason for having the directors of Statewide execute the guarantee was because APE was concerned about the size of Statewide‟s outstanding debts to APE. Ackfield told the first defendant that APE needed the security of knowing that the performance of Statewide‟s obligations to APE, both past and future, were guaranteed by the directors of Statewide. The first defendant told Ackfield that he understood this was the reason APE required the guarantee to be signed.21 (f) On 4 July 2006, Ackfield had a meeting with the first defendant at Statewide‟s offices at Virginia. The meeting was after business hours. There were no other persons present. At that meeting Ackfield presented the first defendant with an application for credit and a guarantee for his signature. Both Ackfield and the first defendant signed the application for credit and guarantee at that meeting. (g) The first defendant told Ackfield that he would forward the documents to the second defendant for his signature.”22 [20] Otherwise Mr Ackfield simply deposes that he was “later notified that Murphy had signed the application for credit and the guarantee and had returned it to Dick”23 17 Supra at para [3]-[4]. 18 Supra at para [5]-[6]. 19 Supra at para [5]. 20 Supra at para [7]. 21 Supra at para [9]-[11]. 22 Supra at para [11]. 23 Supra at [12]. -- 9 of 18 -- 10 and that at some time after 4 July 2006, Mr Ackfield could not locate a copy of the guarantee he had signed on 4 July 2006 and because, on enquiry, the first defendant could also not locate his copy, he requested that the first defendant sign another copy of the guarantee and also arrange for the second defendant to sign as well and to return it to him. He states that he has not received a copy of that second copy guarantee but that he did eventually locate his copy of the guarantee he signed on 4 July 2006.24 He also produces a copy of the account of Statewide with the plaintiff from 30 November 1994 to 28 July 2007, as printed in statement form on 11 January 2011. [21] In an affidavit of the second defendant‟s solicitor and filed in response to Mr Ackfield‟s affidavit25 it is stated that the second defendant denies that there was any discussion with him by Mr Ackfield or the first defendant that any past debts were to be included in the guarantee and that he never returned the first guarantee, which he did not sign and still retains. [22] The first defendant appeared on this application through legal representatives and was given, without objection, leave to read and file his own affidavit, sworn on 22 December 2011. On the application, his counsel sought to make no submission other than to indicate support for the second defendant‟s application.26 The first defendant‟s affidavit is in direct response to that of Mr Ackfield and most relevantly, he asserts27 that he was presented with a “first application for credit” and “first guarantee” by Mr Ackfield but he refused to sign them saying, to Mr Ackfield, words to the effect “I won‟t sign them – I shall only sign them if all directors of Statewide had signed them”. The first defendant further states that: “…in mid September 2006 after a number of conversations in August and September 2006 with Ackfield about Statewide Trading Ackfield requested a guarantee be provided by all three directors of Statewide. I received such a guarantee („the second guarantee‟) and an Application for Credit Account („second Application for Credit Account‟) and that day or following day remitted it to the second defendant in Sydney by courier for signing as agreed that being on or 24 Although no copy of that document was exhibited to his affidavit. 25 See affidavit of Carl Blumen filed on 19 December 2011 at [7] and [9]. 26 Although there is no application made by the first defendant and before the court, he presumably anticipates the potentiality of a flow on effect, should the second defendant succeed in his application. 27 At paras [11] and [12]. -- 10 of 18 -- 11 about 18th September 2006 as being by all three directors of Statewide to be guarantors and to be witnessed by the second defendant returning this second guarantee being the only „guarantee‟ agreed to be signed and executed by all three directors of Statewide and returned it by courier to Statewide offices at Geebung Queensland on or about the 20th September 2006 where it was immediately signed by this deponent and Ackfield and witnessed by office book-keeper K Cook as requested by all Statewide directors.” [23] It can be noted, from the further and better particulars of his defence (filed on 27 October 2011) that the second defendant contends that each of the guarantees forwarded to him, contained the signature of Mr Ackfield, when they were delivered to him. From the copies attached to the second defendant‟s affidavit28, it can be further noted that: (a) The document identified as the first application for credit29 appears to bear: (i) The signatures of all three directors; and (ii) Both the typed date “4 July 06” and a handwritten entry “4 July” near to each signature; (b) The document identified as the first guarantee30 appears to bear: (i) Only the signatures of the first defendant and Mr Ackfield; and (ii) Only a typed reference “dated at Virginia on 4th July 2006”; (c) The document identified as the second application for credit31 appears to bear: (i) The signatures of all three directors; (ii) Typed references to the date “4 July 06”; and (iii) The name and signature of Kay Cook, as witness to each of the director‟s signatures, with a handwritten reference to the date “4 July 06” in reference to the signature of the first defendant and 28 Filed on 7 December 2011. 29 Op cit: Ex TPM1 30 Op cit: Ex TPM2. 31 Op cit: Ex TPM3. -- 11 of 18 -- 12 handwritten references to the date “20/9/06” in reference to each of the signatures of Mr Ackfield and the second defendant; and (d) The document identified as the second guarantee32 appears to bear; (i) The signatures of all three directors; (ii) The name and signature of Kay Cook as witness to each director‟s signature; and (iii) Only a typed reference “dated at Virginia on 4th of July 2006”. Interpreting the guarantee [24] It is essential to the second defendant‟s application that the court conclude that the relevant terms of the guarantee relied upon by the plaintiff are, on their face, to be properly interpreted as unambiguously guaranteeing only the future incidence of debt incurred by Statewide. [25] Whilst there appears to be some force to the second defendant‟s contention, on the material before the court, it is not possible to so conclude. [26] Any guarantee relied upon by the plaintiff, must have been given in conjunction with a credit application, which could only be an agreement as to then future supplies. This is important context to the guarantee document. [27] Further, the identification of the executory rather than past consideration, given for any such guarantee is of some obvious importance and the plaintiff relies upon the text of the guarantee: “In consideration of Australian Photographic Engineering Pty Ltd (“the Company”) supplying goods and/or services on credit to the customer/s named in the schedule …” However and as demonstrated in cases such as One Steel Trading Pty Ltd v Brassil and Breusch v Watts Development Division Pty Ltd33, it is also necessary to prove 32 Op cit: Ex TPM4. 33 See Footnote 8 above. -- 12 of 18 -- 13 that the promise was executed by further supplies on credit. The evidence here suggests that occurred to some extent. [28] In the absence of evidence of surrounding circumstances and as to the purpose and object of the transaction involving the credit application and the guarantee, the rule of strict interpretation in favour of the surety, may well prevent the interpretation sought by the plaintiff. [29] As submitted by the second defendant, the text of the guarantee is generally expressed in a futuristic sense and the only part which may be relied upon by the plaintiff to different effect, are the words: “… and all other indebtedness by the company whatsoever and howsoever arising …” These are clearly words capable of wide and general application but they must be read and construed in their immediate textual context of reference to the future supply of goods and services. They are therefore also capable of being limited in application to other indebtedness occurring incidentally to that ongoing relationship between the companies. [30] That situation is complicated by the issues relating to consideration for the guarantee. As noted by Muir J in Gutheridge v Coco34: “A guarantee for a past debt is prima facie a guarantee for past consideration.” Accordingly it might be expected that a guarantee that was intended to include liability for a past debt would clearly and expressly set this out, in conjunction with unequivocal identification of the present and/or future consideration for the guarantee.35 At least it can be said that if a state of unresolved ambiguity is reached, then the rule of strictness would favour the interpretation favouring the surety. Whilst so much is made clear by the High Court in Ankar Pty Ltd v National 34 [2002] QSC 392, at [30] and citing French v French (1841) 2 Man & G 644; (1841) 133 ER 903. 35 Eg: see the decision of the Court of Appeal in Morrell v Cowan (1877) 7 CH D 151, reversing the decision in Morrell v Cowan (1877) 6 Ch D 166. Although it can also be noted that the first instance decision was cited in Dalgety Australia Ltd v Harris [1977] 1 NSWLR 324 at 329 as authority for the proposition that a request to supply goods in the future may, once the request is acceded to, provide consideration for a guarantee given as to payment for such supplies. -- 13 of 18 -- 14 Westminster Finance (Australia) Ltd36, that decision also indicates that before ambiguity is concluded and in construing the contract generally “the court is entitled to look to the general setting in which the contract has come into existence”. [31] It can be noted that in the One Steel decision (the case relied upon by the plaintiff to support the contention that consideration in the form of ongoing supply may support a guarantee as to past or existing debt as well as future debt) the relevant clause in the guarantee was clearly so expressed, in terms of guarantee of: “…the due and punctual payment by the customer for all goods materials and/or services that may have been supplied or may in the future be supplied from time to time to the customer …”37 [32] In this case the plaintiff seeks to overcome these potential difficulties by making reference to circumstances extrinsic to the guarantee and the related credit application document. [33] The limitations upon resort to such extrinsic circumstances, is discussed in some detail in Velvet Glove Holdings Pty Ltd v Mount Isa Mines Ltd.38 In particular, the following is observed in respect of more recent High Court treatment of his issue: “[97] In Byrnes v Kendle the High Court reaffirmed the principle of objectivity by which the rights and liabilities of the parties to a contract are determined, as it did previously in Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at 461-462 and Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at 179 [40]. In Byrnes v Kendle Gummow and Hayne JJ at [59] endorsed the statement in Taylor v Johnson (1983) 151 CLR 422 at 429 that the objective theory of contract formation stands “in command of the field” and is concerned not with “the real intentions of the parties but with the outward manifestations of those intentions.” French CJ agreed with and adopted those remarks at [17]. Heydon and Crennan JJ stated at [98]: “Contractual construction depends on finding the meaning of the language of the contract – the intention which the parties expressed, not the subjective intentions which they may have had, but did not express. A contract means what a reasonable person having all the background knowledge of the „surrounding circumstances‟ 36 Supra at 561. 37 Onesteel Trading Pty Ltd v Brassil [2005] VSC 401 at [55]. 38 [2011] QCA 312. -- 14 of 18 -- 15 available to the parties would have understood them to be using the language in the contract to mean. But evidence of pre-contractual negotiations between the parties is inadmissible for the purpose of drawing inferences about what the contract meant unless it demonstrates knowledge of „surrounding circumstances‟” (footnotes omitted)”39 [34] An obvious difficulty with the evidence summarised above from Mr Ackfield‟s affidavit40 is the absence of proof of the knowledge of the second defendant, of, at least, some of the matters relied upon. To be considered as circumstances relevant to demonstrating the surrounding circumstances and purpose and object of the transaction, it must be shown that both parties had knowledge of the facts upon which reliance is placed.41 [35] Further there is an unresolved question as to the admissibility of at least some of this evidence. That is unresolved because of the nature of the application before the Court and the approach of the second defendant which is to submit that the evidence simply doesn‟t assist in circumstances where, as contended, the meaning of the contract is clear. [36] However and before any conclusion of ambiguity is reached (such as to invoke any rule of interpretation favouring the surety), proper regard to the appropriate surrounding circumstances and the purpose and object of the transaction involving the guarantee, as known to both parties, would be necessary. [37] Included as an exhibit to Mr Ackfield‟s affidavit42 is a computer generated statement of the account of Statewide, with the plaintiff as at 1 January 2011. The following circumstances can be discerned from the document: (a) In the period 30/11/94 - 5/10/99 the credit account was operated with payments of some regularity but with outstanding balances maintained in amounts ranging from approximately $2,000 to 39 Op cit: at [97], the citation of Byrnes v Kendle is [2011] HCA 26. 40 See: paragraph [18] above. 41 Codelfa Constructions Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337; The Movie Network Channels Pty Ltd v Optus Vision Pty Ltd [2010] NSWCA 111. 42 Affidavit of J J Ackfield filed 15 December 2011; Exhibit JJA–01. -- 15 of 18 -- 16 approximately $24,000. However and after payment of an amount of approximately $20,000 on 5/10/99 (and other general journal adjustments), the account was at a nil balance; (b) In the period 5/10/99 - 5/10/04 there was an obvious reduction in activity on the account and regular payments occurred to reduce the account to a nil balance, which was the position at 5/10/04. One change that may be noted as occurring in this period is that the last invoice (no. 5821, dated 23/7/04 in an amount of $6,228.75) is recorded as being due immediately, whereas a common feature of the earlier invoices was the apparent allowance of one month‟s credit (with many becoming overdue); (c) In the period 9/11/05 - 3/07/06 there is a sequence of regular invoices (all noted as being immediately due) which, despite only three payments, being:- $6,318.93 on 7/2/2006, $2,165.68 on 15/3/06; and $10,649.17 on 12/4/06, and a credit memorandum of $600.60 on 24/3/06, accumulated progressively to an outstanding balance of $169,921.12 on 3/7/06; (d) In the period 7/7/06 - 19/9/06 invoices continued to be regularly issued and despite payments apparently relating to some only of those invoices, the outstanding balance grew to an amount of $204,327.62, an increase of $34,406.50; and (e) The statement indicates that thereafter further invoices were issued, some of which were paid on the same or next day but the outstanding balance continued to grow until 31/5/07. [38] However, it is clear from the materials presented in this application that this document does not necessarily tell the full story in respect of the operation of the account and particularly as to any history of correspondence between the parties in respect of the operation of the account and the accumulating debt and as to any attempts to regularise the account, if that occurred. -- 16 of 18 -- 17 [39] Such circumstances are likely to be complicated by the apparent closeness of commercial association between the parties and whilst it could have been expected that any such evidence would have been identified and fully presented on this application, the circumstances as they have been disclosed indicate that there are disputes which will require the hearing of evidence including the cross-examination of witnesses, at trial. Most significantly, it is clear that there is dispute as to when and in what circumstances any guarantee that might be relied upon by the plaintiff, came to be executed by the second defendant. Further whilst the second defendant subjectively asserts a lack of knowledge of intended inclusion of past debt in any such guarantee, it is not clear as to what was his knowledge of relevant objective circumstances attending upon the giving of any such guarantee.43 [40] In these circumstances, a conclusion that there is no need for a trial of this claim, or any part of it, should not be reached. The state of the pleadings [41] As I have already noted, the second defendant was, on this application and with some justification, critical of the plaintiff‟s pleadings. [42] The statement of claim is particularly terse and does not set out all of the material facts which are relied upon so as to avoid taking the defendants by surprise.44 [43] More particularly the state of the reply to the defence of the second defendant and which largely repeats a series of non-admissions in the following form: “With respect to paragraph… of the Defence of the Second Defendant, the Plaintiff does not admit the allegations therein as: (a) The Plaintiff has made enquiries to find out whether the allegations are true or untrue; (b) Those enquiries have been reasonable having regard to the time limited for filing and serving this Reply under the Rules; and 43 In this regard the duty of a company director to be and remain informed of the activities of the corporation may be of some significance: see Daniels v Anderson (1995) 37 NSWLR 438 at 501-4. 44 As required pursuant to UCPR 149. -- 17 of 18 -- 18 (c) Despite the Plaintiff having made those enquiries, it remain [sic] uncertain as to the truth or falsity of the allegations contained in the abovementioned paragraphs of the Defence of the First Defendant [sic].” is inappropriate to the function in purpose of pleadings. It does not state with clarity the case that must be met or narrow the issues to be litigated.45 There are also potential implications arising pursuant to UCPR 166(4), (5) and (6). [44] Particularly now that the second defendant has provided the requested further and better particulars of his defence and the issues have been the subject of ventilation in this application, it is appropriate that some direction be given pursuant to chapter 10 of the UCPR, in order to have this matter ready for an efficient trial, if that is to occur. In the last respect it is noted that prior to this application being filed, the parties had sought and obtained a consent order for ADR, by mediation. [45] It would therefore be appropriate to hear the parties as to any further orders or directions to be made. Conclusion [46] Accordingly the second defendant‟s application is dismissed, I will further hear the parties as to any ancillary orders and as to costs. 45 Gould v Mt Oxide Mines Ltd (in liq) (1916) 22 CLR 490 at 517; Thiess Pty Ltd v FFE Minerals Australia Pty Ltd [2007] QSC 209 at [38]. -- 18 of 18 --