Hill Equipment and Refrigeration Co Pty Ltd v. Nuco Pty Ltd and Ors110 FLR 25
(Judgment by: Kearny)
Between: Hill Equipment and Refrigeration Co Pty Ltd
And: Nuco Pty Ltd & Ors
Judgment date: 29 September 1992
1. By Writ issued on 7 September 1989 the plaintiff (herein "Hill") sued the defendants for $65,829.45. The basis of the claim as formulated in the Writ was as follows. The first defendant (herein "Nuco") carried on business under the business name Omega Constructions. The second and third defendants (herein "Mr de Sousa" and "Mr Hetmanska", respectively) at all material times were directors of Nuco. Nuco had contracted with the Northern Territory of Australia to upgrade certain facilities at Casuarina Secondary College in Darwin. Hill contracted with Nuco to provide certain goods and services in respect of Nuco's contract with the Northern Territory; in other words, Hill was a subcontractor in respect of that contract. On 9 March 1989 Mr de Sousa and Mr Hetmanska guaranteed to Hill the payment of all monies which might become due to Hill by Nuco under this subcontract. Hill claimed against Nuco for goods sold, services rendered and work carried out under this subcontract, and against Mr de Sousa and Mr Hetmanska under their guarantee of 9 March 1989.
2. Hill signed default judgment against Nuco on 20 March 1990; see Exhibit P5. At trial, it sought to recover against Messrs de Sousa and Hetmanska, under their guarantee of 9 March 1989.
3. Mr Hetmanska entered an Appearance, but filed no Defence. At the trial, he appeared in person.
4. In his Defence, Mr de Sousa did not admit the contract alleged between Nuco and Hill. He denied that he had agreed to guarantee the payment of monies due by Nuco to Hill. He denied that he had signed the alleged guarantee of 9 March 1989, and that any purported signature of his on that document was in fact his signature. He contended that any such signature was a forgery, and had been placed on that document by someone unknown to him, without his knowledge, consent or authority. Alternatively, he pleaded that if he had signed that guarantee, Hill had given no consideration for his doing so.
The plaintiff's evidence
5. Mr Dunbar testified that in 1989 he was Hill's contract supervisor. He was experienced in entering into contracts. He testified that at Mr Hetmanska's request he submitted to Nuco a quotation he had earlier prepared, at $76,445.00, to carry certain works being part of the Casuarina College contract, and sent it to Nuco on 24 February 1989; see Exhibit P1. Mr Hetmanska then telephoned him, stating that the price quoted was acceptable and asking him to proceed with the details of the contract, which would include documentation, and the details of plant and equipment proposed to be used. Mr Dunbar said that he required an order which was acceptable to Hill. Mr Hetmanska subsequently brought in a handwritten purchase order dated 7 March 1989. This is Exhibit 3.
6. Mr Dunbar testified that he told Mr Hetmanska that this purchase order was unacceptable to Hill as solely constituting their subcontract agreement on the basis that it lacked detail and had no protection for Hill; he told Mr Hetmanska a "more professional style of contract" was required. Usually, he said, this would be the printed form of NPWC subcontract document. However, Mr Hetmanska said that Nuco did not have such a form. Mr Dunbar was aware that Nuco was a newly-formed company, and, accepting it would not have the proper form of subcontractor's agreement, asked for a directors' guarantee to ensure that Hill was paid. That is, he told Mr Hetmanska a guarantee by the directors of Nuco would be required, before Hill would proceed to carry out its work under the contract. He arranged for a form of guarantee to be faxed from Hill's accountant's office om Adelaide; he had it typed and handed the document to Mr Hetmanska, requesting that it be signed by the directors of Nuco and returned, so that Hill could proceed to order the equipment. A photocopy of the form of guarantee (Exhibit P4) is annexed to this judgment.
7. After receiving the signed guarantee from Mr Hetmanska, Hill proceeded to order equipment and carry out work under its subcontract. Progress claims by way of invoices (Exhibit P2) were submitted to Nuco from time to time, for work done and extras agreed. None had been paid. This was confirmed by a later witness, Hill's manager, Mr Westlund. The total amount unpaid was the amount claimed in the Writ, $65,829.45.
8. Mr Dunbar testified that on one occasion, date not recalled, he had telephoned a real estate company, that being the telephone number of Nuco's office as given to him by Mr Hetmanska; there he spoke to someone who introduced himself as de Sousa, said he was a partner in the business of Omega Constructions, and how financially sound it was.
9. I found Mr Dunbar a careful, accurate and reliable witness; I accept his evidence.
10. Mr Hetmanska testified, initially under subpoena by the plaintiff. His evidence was as follows. He was a director of Nuco at all relevant times. Before Nuco started trading as Omega Constructions, he and Mr deSousa, as partners, had traded under that business name. He denied that Mr de Sousa's first involvement with Omega Constructions occurred when he became a director of Nuco, and Nuco acquired the business name. He explained the history of their partnership, as follows. He had been living in one of Mr de Sousa's flats for some 18 months prior to March 1989. They spoke together. Mr Hetmanska was a builder, and had contracted for work for years. Mr de Sousa suggested that they go into partnership, if Mr Hetmanska secured a contract. In due course, Mr Hetmanska successfully bid for the contract with the Northern Territory for the works at Casuarina Secondary College, amounting to $476,000.00. About 2 weeks after he and Mr de Sousa signed that contract as partners, Mr de Sousa suggested to him that they change to a company structure, on the basis that such a structure would be safer for them from the point of view of their personal liability than a partnership. Hence, Nuco was formed.
11. Mr Hetmanska explained why he had approached Hill for a quotation for the subcontracted works. He confirmed Mr Dunbar's account that Hill had quoted in terms of Exhibit P1, that he had verbally accepted that quote, that he had given Mr Dunbar the purchase order (Exhibit P3) which he had signed, and that Mr Dunbar had then required that the directors of Nuco give their personal guarantee.
12. He explained the urgency from Nuco's point of view of getting the subcontracted work under way, as a previous subcontractor for that work had withdrawn. He said that he agreed to give the guarantee (Exhibit P4) in the form which was given to him by Mr Dunbar. He said he considered he had to agree, in order to get the work done. He took the document straight to Nuco's registered office at Suite No.1, 48 Woods Street Darwin. This was also Mr de Sousa's one-room office. When he arrived the office was not attended; he waited outside the office for several hours before Mr de Sousa arrived. Another man was also waiting outside Suite No.1 to see Mr de Sousa - he told Mr Hetmanska he was a builder, who had done work for Mr de Sousa before. Mr Hetmanska could not recall his name, though he described him as a small man and either of Portuguese or Timorese origin.
13. Mr de Sousa came in about 2pm or 3pm. Mr Hetmanska then explained to Mr de Sousa, in his office, that Hill would not go ahead with the subcontract unless the guarantee was signed. He had not raised the question of a guarantee with Mr de Sousa, before. He also pointed out that time was running out on their head contract, they had no-one else to do this work, and they were liable to pay a penalty to the Northern Territory if they were late in completing.
14. He said that having given this explanation he then signed the guarantee and handed it to Mr de Sousa who stood behind his desk and signed it in front of him. In cross-examination, he appeared to reverse this order of signing. He said that Mr de Sousa was in a hurry at the time. They had both already signed when they noticed that there had to be a witness to their signatures; accordingly, they called in the man from outside, the builder, who signed it as indicated in Exhibit P4, as a witness to both their signatures. No-one else was present. He agreed that the only persons who would know the identity of that witness were himself and Mr de Sousa. He did not recognize from the witness' signature, who that person was. Mr Hetmanska said that he saw Mr de Sousa sign the document; he identified both Mr de Sousa's signature and his own on the document, and said that the document was dated on the same day it was signed, 9 March 1989. He then drove back to Hill's office and handed over the guarantee. Hill then started work on its subcontract.
15. He was familiar with Mr de Sousa's signature, having seen him countersign Omega Constructions cheques. Mr de Sousa used different signatures for different accounts; Mr Hetmanska could say this because he had seen him sign various cheques. Sometimes Mr de Sousa would use one or two of his initials, instead of three, when signing. Mr Hetmanska was referred to Mr de Sousa's signed Notice of Dispute of 29May 1990 (Exhibit P6) in which Mr de Sousa disputed the authenticity of the guarantee; he said that he considered that the signature to the Notice of Dispute had the appearance of being Mrde Sousa's signature. He gave similar evidence in relation to the signature on Mr de Sousa's List of Documents (Exhibit P7).
16. He identified Exhibit P2 as comprising the progress claims which Nuco had received from Hill for the work it had carried out, and stated that Hill had not been paid therefor. He explained that Nuco encountered difficulties in that Mr de Sousa wanted him to sign a personal guarantee to the Westpac Bank for the purposes of obtaining the Bank security required by the contract with the Northern Territory; he had refused to sign. In response, Mr de Sousa declined to sign cheques to pay the subcontractors, with the result that the subcontractors would not carry out their work. Since the work was not done, the Northern Territory issued a notice to Nuco to show cause why the contract should not be taken away from it. Eventually, he had resigned as a director of Nuco, as he could not continue to run the company on that basis. The Northern Territory had eventually rescinded Nuco's contract.
17. He said that while he was a director of Nuco, the company had received from the Northern Territory a percentage of the monies claimed under the progress claims. At first he said that Nuco had been paid by the Northern Territory for two of the invoices in Exhibit P2, being $851.20 and $19,978.25 respectively; eventually, however, it appeared that he was unable to say one way or the other whether Nuco had been paid in respect of those amounts.
18. He said that personally he had paid nothing to Hill. By his account Mr de Sousa was the "financial backer" of Nuco while he was the company's technical expert. It was put to him in cross-examination that Hill had alleged that the attesting witness to the guarantee (Exhibit P4) was one George Pikos. (This stems from Exhibit D2; see later). Mr Hetmanska said that he knew a George Pikos, a real estate agent with DMK Nationwide Realty, and that that man was not the attesting witness to the guarantee. He said that he had never told the plaintiff that the attesting witness was George Pikos. He agreed that as a tenant of Mr de Sousa he had had in his possession as at 9 March 1989 a number of rent receipts signed by Mr de Sousa. He denied having signed Mr de Sousa's signature on Exhibit P4. He said that he had written in the two dates on the left-hand side of Exhibit P4. He could not recall who had made the alterations on the first line of Exhibit P4, but he had initialled the change to his Christian name.
19. Later, Mr Hetmanska further testified on his own behalf, as the third defendant. He first referred to matters designed to show he was of good character. He said that initially he and Mr de Sousa were partners; however, when they realized that Mr de Sousa would be liable for any actions of Mr Hetmanska, they changed to the company structure, Nuco. He said it was as a partnership that they entered into the contract with the Northern Territory. He said that during the contract Mr de Sousa gave a guarantee to a company G.E.C. in respect of one John Stevens, a bankrupt electrician who was a subcontractor, so that he could get the material to do the job. The second defendant's evidence
20. Mr Trigg of counsel for Mr de Sousa relied on Hill's particulars of 18 December 1989 (Exhibit D1); and a letter of 26 November 1990 from Messrs Close and Carter to Mr D. Norman and the reply 3 April 1991 from Hill's solicitor Mr McQueen to Messrs Close and Carter, supplying further particulars (Exhibit D2). In his letter of 26 November 1990 Mr Carter sought, inter alia, the following particulars:-
"2(v) State the name of the person whose signature appears beneath that of the Plaintiff as a witness."
Mr McQueen's answer on 3 April 1991 was as follows:-
"2(v) The plaintiff did not sign the guarantee. The other signature appearing on the face of the document apart from those of the second and third defendant is that of George Pikos."
I note that Mr Ford of counsel for Hill later informed me that Hill no longer contended that this particular, identifying George Pikos as the attesting witness, was correct. He had not sought to clear up the matter with Mr Hetmanska, in chief.
21. Mr de Sousa testified as follows. He had never spoken to Mr Dunbar on the telephone. He had never spoken to any officer of Hill about a guarantee; I note that this is not disputed. He had never spoken to Mr Hetmanska about giving a guarantee to Hill. He knew George Pikos in 1989; Mr Pikos was employed by DMK Nationwide Realty Pty Ltd to work on property management. That real estate company had offices at No.48 Woods Street where he also had an office. George Pikos had never witnessed his signature to any document. He had never seen the guarantee (Exhibit P4) until these Court proceedings were instituted. The signature in blue ink on Exhibit P4, purporting to be his signature, looked like his signature but "it is not mine, because I didn't do it". He had not signed Exhibit P4. He had never signed any directors' guarantee to Hill. He had only signed a guarantee to Westpac Bank, in connection with a Bank guarantee of $24,000.00 required by the Northern Territory for the purposes of its contract.
22. Mr Hetmanska had never told him that Hill would not undertake the subcontract without a directors' guarantee; nor had anyone else told him that. He did not know that Hill had been employed as a subcontractor in the Northern Territory contract. He had never had any contact at all with any of the officers of Hill.
23. He had never had any involvement with the Northern Territory contract for works at Casuarina Secondary College. Mr Hetmanska had secured that contract and had then approached him and talked him into guaranteeing the Bank so that he could obtain the Bank guarantee which was required under that contract; in return, Mr de Sousa was to have one-half of the profits of the contract. It was on this basis that he had given his guarantee to the Bank.
24. He denied that he had ever signed any document in the presence of a Portuguese builder. He was not aware that any Portuguese builders had visited him. He spoke Portuguese, Spanish and some Italian.
25. In cross-examination he said that Mr Hetmanska had held the Nuco cheque book. Mr de Sousa said that his own business was simply looking after his own properties. He was familiar with the use of company structures to carry on business ventures; in 1989 he was involved in three companies as well as in Nuco. He was aware of the advantage of limited liability conferred by a company structure; he understood why in commercial transactions with companies a directors' guarantee might be required. However, he had never guaranteed any companies. He agreed that Mr Hetmanska was the "front man" for Nuco as far as the contract for Casuarina Secondary College was concerned; Mr Hetmanska had got the project going for Nuco and dealt with the subcontractors.
26. Mr de Sousa could not recall what he was doing on 9 March 1989 but said that he was usually in his office. He did not keep a diary. He said that Mr Hetmanska had not approached him on that day; they had had no meeting. He had no recollection of coming into his office at 2pm or 3pm on 9 March 1989 and said he usually came in at about 8am or 9am. He said that his work did not entail any "rush"; it was "very quiet" since he was not "doing any developments", but simply receiving a few rents at the weekends. He went overseas "very often", four or five times a year to Timor; however, he did not think he had left for overseas on 9 March 1989, or shortly afterwards.
27. He agreed that the signature on Exhibit P4 looked remarkably like his own. He agreed that the signatures in blue ink on Exhibits P6 and P7 were in fact his signatures.
28. He said that he did not forget things; he had "a very clear recollection". He did not have "a faulty memory", and both Mr Dunbar and Mr Hetmanska were, in his opinion, mistaken in the accounts they had given of having spoken with him. He said that he had had no dealing with Timorese people, though he knew some of them from the Portuguese-Timorese Club. He himself came from the island of Madeira, in Europe.
29. He said that Mr Hetmanska:-
" ... never consulted me in anything. It was his condition for me not to interfere."
He said that Mr Hetmanska had never come to see him to sign a guarantee "because he knew I would refuse".
30. Mr. George Pikos testified as follows. He commenced work as a real estate agent in late August 1988, working for DMK Nationwide Realty. He knew Mr de Sousa and he had met Mr Hetmanska as at March 1989 but did not know him by name. The offices of DMK Nationwide Realty are at No. 48 Woods Street. On any occasion he had spoken with Mr de Sousa they had spoken only in the English language. He said that the two signatures as witness on Exhibit P4 looked like his signatures, but he did not recall witnessing the signatures of Mr de Sousa and Mr Hetmanska. He agreed that it was possible that he had done so, but he simply did not recall signing Exhibit P4. He had no recollection of ever having seen Exhibit P4 "apart from the last couple of days". He had no recollection of ever having gone into Mr de Sousa's office to witness signatures. He did not remember having waited outside Mr de Sousa's office in March 1989, waiting for him to attend. Finally, he had no financial involvement with Mr de Sousa or with the present dispute.
(a) The second defendant's submissions
31. Mr Trigg submitted that the onus lay on Hill to establish that Mr de Sousa signed the guarantee. The only evidence that he had, came from Mr Hetmanska, who clearly had a vested interest in saying so since he was himself liable under the guarantee. Dealing with Mr Hetmanska's evidence as to the circumstances in which the guarantee was allegedly signed by Mr de Sousa, Mr Trigg submitted that the evidence of Mr Pikos threw grave doubt on the accuracy of Mr Hetmanska's recollection of events. There was the conflict between Hill's solicitor's particularizing of MrPikos as the attesting witness, as opposed to Mr Hetmanska's evidence.
32. Mr Trigg submitted that Mr de Sousa's evidence was clear, and he had been unshaken. He had agreed that the signature in question on Exhibit P4 looked like his. In that connection it had to be remembered that Mr Hetmanska had had prior access to Mr de Sousa's signature, and had an interest in forging it.
33. Mr Trigg accordingly submitted that Hill had failed to discharge its onus of proving that Mr de Sousa had signed the guarantee.
34. If, contrary to this submission, it was held that Mr de Sousa had signed the guarantee, Mr Trigg submitted that there was no consideration for his having done so, and the guarantee was therefore void. The argument was as follows. The evidence showed an offer by Hill dated 24 February 1989 (Exhibit P1), which was accepted by Nuco by the purchase order of 7 March 1989 (Exhibit P3). The subcontract between them was then concluded. That subcontract was complete at that time; it was not conditional on the signing of a guarantee, a subject which was raised after the subcontract had been concluded. Insofar as the terms of the guarantee referred to past consideration it must fail for lack of consideration; I interpose that I accept that. The only other consideration upon which Hill could rely to support the guarantee was that it promised to the directors it would not refuse to supply to Nuco the goods and services which it was already bound by the subcontract to supply to that company. Such a promise, to perform an existing obligation, was not good consideration. For that proposition Mr Trigg relied on the discussion of 'Past Consideration' in "The Modern Contract of Guarantee" by O'Donovan and Phillips (1985 ed.), at pp 44-46. There it is stated, inter alia, at p 45:-
"... if the consideration as expressed in the guarantee is the act of the creditor in concluding the principal transaction the guarantee will be of no effect if the creditor enters into the principal transaction prior to the execution of the guarantee."
Astley Industrial Trust Ltd v Grimston Electric Tools Ltd (1965) 109 SJ 149; French v French (1841) 2 Man. and G. 644; 133 ER. 903.
Mr Trigg submitted that this was the case here; the subcontract had been concluded on or about 7 March 1989 before the guarantee was discussed, the consideration for the guarantee was Hill's concluding the subcontract with Nuco, a past consideration, and the guarantee was accordingly of no effect.
(b) The plaintiff's submissions
35. Mr Ford submitted that the onus on Hill was to show that, prima facie, the guarantee had been signed by both Mr Hetmanska and Mr de Sousa. He submitted that Mr Hetmanska should be believed and his evidence accepted to the effect that, as a person present at the time, he had seen Mr de Sousa sign the guarantee. Further, there was his evidence that in any event, in his opinion, based on his acquaintance with Mr de Sousa's signature on former occasions, the signature in question was that of Mr de Sousa. Acceptance of the evidence of Mr Hetmanska meant that Hill had established, prima facie, that the signature on the guarantee was that of Mr de Sousa. Mr Hetmanska's evidence should be accepted on the basis that it was the independent evidence of a more or less disinterested party. The consequence was that Mr de Sousa then had the onus of proving that his signature had been forged; in that connection he did not discharge that onus by simply swearing that what appeared to be his signature had in fact been forged. He had failed to discharge the onus on him.
36. Mr Ford informed me that Hill no longer contended, in the light of Mr Hetmanska's evidence, that Mr George Pikos had attested the guarantee.
37. As to Mr de Sousa's alternative submission that there was no consideration for the guarantee, Mr Ford submitted first that Hill's quotation of 24 February 1989 (Exhibit P1) was not an offer, but an invitation to treat. It was not capable of acceptance, so as to enable the creation of a binding contract.
38. Alternatively, he submitted, assuming the subcontract had been earlier concluded, the guarantee itself constituted an agreed change in the terms of the subcontract between the parties. At the time the guarantee was provided, Hill had not carried out any part of its subcontract with Nuco; that agreement was then wholly executory.
39. In later written submissions further addressing the alternative submission of the second defendant, Mr Ford submitted that, accepting that there was a binding subcontract in existence before the guarantee was entered into, the performance by Hill of its obligations under that subcontract was good consideration for the guarantee. He relied on New Zealand Shipping Co. Ltd. v AM Satterthwaithe and Co. Ltd (The Eurymedon) (1975) AC 154 at 168 and Pao On v Lau Yiu Long (1980) AC 614 at 632, and the cases cited in Cheshire and Fifoot's Law of Contract (5th Aust. ed.), par233.
40. There were also arguments founded on estoppel, but I consider that it is unnecessary to deal with them.
41. As Mr Trigg observed, the live issues in the case arose from the events of 7 and 9 March 1990; in particular, they arose from the circumstances surrounding the alleged signing of the guarantee Exhibit P4. Mr de Sousa's case was that he had not signed Exhibit P4.
42. Having heard and seen the witnesses give their evidence, I accept the evidence of Mr Hetmanska in preference to the evidence of Mr deSousa. In doing so, I bear in mind that Mr Hetmanska, the third defendant and clearly liable under the guarantee, is not a disinterested witness. Mr Hetmanska impressed me as an honest witness who was doing his best to tell the truth, and as one whose memory appeared to be reliable. Mr de Sousa was a very dogmatic witness and not impressive. At best it can be said of him that his recollection of the events surrounding the signing of the guarantee on 9 March 1989 was deficient, despite his assertion to the contrary. I accept Mr Dunbar as a witness of truth, as noted earlier; I accept MrPikos likewise. I do not consider that MrPikos' evidence throws doubt on Mr Hetmanska's evidence. Precisely how it came about that Hill's solicitor in Exhibit D2 specified MrGeorge Pikos as the attesting witness has never been clarified, but in any event Hill resiles from that position.
43. I find the following facts. Before Nuco became the registered proprietor of the business name Omega Constructions, Mr de Sousa and Mr Hetmanska as partners had owned that business name. Mr Hetmanska on behalf of Nuco approached Mr Dunbar of Hill, seeking a quote from Hill to carry out as subcontractor part of the works at the Casuarina College for which Nuco had successfully tendered. Hill quoted on 24 February 1989. A purchase order was sent by Mr Hetmanska to Hill on 7 March 1989. Hill considered that the purchase order lacked sufficient particularity to constitute a satisfactory subcontract between them, and required that Nuco provide a guarantee by its directors. Hill gave a pro forma of the guarantee it required to Mr Hetmanska, for signing; he took it away. Both he and Mr de Sousa signed it in Suite No.1, 48Woods Street, Darwin, in the presence of a person not identified, probably not Mr Pikos. Mr Hetmanska returned the guarantee to Hill on the same day, 9 March 1989. Hill then commenced the work under its subcontract with Nuco. As at the time of the later cancellation of Nuco's contract by the Northern Territory, Hill had invoiced Nuco for work carried out under their subcontract to the extent of the amount claimed in the Writ.
44. I consider that the onus lay on Hill to establish that Mr de Sousa signed the guarantee; I consider that Hill has discharged that onus. That is to say, I am satisfied on the balance of probabilities that Mr de Sousa signed the guarantee in the circumstances as described by Mr Hetmanska.
45. I consider, though with considerable doubt, that the better view is that the subcontract between Hill and Nuco was complete on or about 7 March 1989, when Hill received the purchase order. However, I reject the argument that as a consequence there was no consideration for the guarantee given by Mr Hetmanska and Mr de Sousa on 9 March. I consider that there was consideration by Hill for the guarantee. That consideration is to be found in Hill's performance of its then-existing obligations under its subcontract with Nuco. That is to say, I accept the submissions of Mr Ford in that respect based on The Eurymedon (supra), Pao On (supra), and the authorities cited in Cheshire and Fifoot.
46. In The Eurymedon (supra) the carrier was discharged (after a certain time limit had expired) from all liability for loss or damage, by a bill of lading which extended that immunity to the carrier's agents. Negligence of the stevedore, which was the carrier's agent, resulted in damage. The stevedore sought to rely on the time limit. The shipper contended that it was not bound in contract with the stevedore, because no consideration had moved from the stevedore. Further, the stevedore could not rely on the time limit because that was not contained in a contract to which the stevedore was a party. It was held that there was a full contract between them when the stevedore performed services by unloading the goods, the performance of those services for the benefit of the shipper being the consideration for the shipper's agreement (in the bill of lading) that the stevedore should have the benefit of the time limit. One argument relied on by the stevedore was that it had conferred a benefit on the shipper and it mattered not that it was a benefit which the stevedore by its contract with the carrier was compelled in any case to give. In that context the majority of the Privy Council said at p168:-
"An agreement to do an act which the promisor is under an existing obligation to a third party to do, may quite well amount to valid consideration and does so in the present case: the promisee obtains the benefit of a direct obligation which he can enforce. This proposition is illustrated and supported by Scotson v Pegg (1861) 6 H and N 295 which their Lordships consider to be good law".
47. The Eurymedon (supra) was applied in Port Jackson Stevedoring Pty. Ltd. v Salmond and Spraggon (Aust.) Pty. Ltd. (1977-78) 139 CLR 231, an authority which the High Court declined to reconsider in Rockwell Graphic Systems Ltd v Fremantle Terminals Ltd (1991) 65 ALJR 514.
48. In Pao On (supra) the plaintiffs sought from the defendants a guarantee by way of an indemnity for any loss in the value of the shareholding they had acquired as a result of their earlier agreement with the public company of which the defendants were the majority shareholders. The plaintiffs refused to complete the earlier agreement with the public company, unless the indemnity was given. It can be seen that this is closer to the present case. The defendants gave the indemnity and the plaintiffs then completed their agreement with the public company. Later, upon a drop in the value of their shareholding, they sought to rely on the indemnity. One question in the action was whether there was consideration for the indemnity. At p632 the Privy Council cited the extract from p168 of The Eurymedon set out above, as setting out the rule and the reason for the rule, stating:-
"Their Lordships do not doubt that a promise to perform, or the performance of, a pre-existing contractual obligation to a third party can be a valid consideration."
49. I consider that Astley Industrial Trust, Ltd (supra) is distinguishable. In that case a vehicle was let to W by the plaintiffs on hire purchase on 18May 1962; four days later, Y, the managing director of the defendant company, guaranteed W's payments. The plaintiffs sued on the guarantee. The brief report states, inter alia:-
" ... the guarantee by the defendants had not been given in consideration of any promise to hire made by the plaintiffs ...his Lordship knew nothing of the circumstances which had given rise to the signature of (Y). It seemed, therefore, that this was not a guarantee at all and that that which had been thought to have been a consideration was not a consideration at all, because a perfected contract had passed into an executed contract with effect when the car had been handed over. His Lordship could not, in those circumstances, avoid the conclusion that this was a past consideration."
50. In the present case, the consideration for the guarantee was not the act of Hill in "concluding" the subcontract with Nuco, but the performance of that subcontract.
51. There appears to be a lack of Australian authority on the question whether the performance of a binding obligation towards a third party may constitute consideration. The weight of authority in the United States seems to be against that proposition. The law became firmly established in England, by case law commencing with Shadwell v Shadwell (1860) 9 CBNS 159; 142 ER 62. The cases are discussed in the article "Promises to perform an existing duty" by A.G. Davis in (1937) 6 Cambridge LJ 202. The correctness of Shadwell (supra) "is likely to be forever debated", as the High Court put it in Australian Woollen Mills Pty Ltd v Commonwealth (1954) 92 CLR 424 at p 459. Nevertheless the rule in Shadwell in my view states the law in Australia. The rationale appears to be that there is consideration where the guarantor by entering into the guarantee thereby induces the other party to act to his detriment by doing something (i.e. performing the contract with the third party) which otherwise he might not have chosen to do. The subsequent performance by Hill after 9 March 1989 of its contractual obligations to Nuco under their concluded subcontract, is sufficient consideration to support the later guarantee by the directors of Nuco.
52. Accordingly, the plaintiff has established its claim. There will be judgment for the plaintiff against the second and third defendants in the amount claimed of $65,829.45, together with interest pursuant to s84(1) of the Supreme Court Act calculated at the rate of 12% from the date of issue of the Writ (2 September 1989) until today. The plaintiff must have its costs.
54. Orders accordingly.
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