Accu Ltd v Fellows
[2014] VCC 581
•9 May 2014
| IN THE COUNTY COURT OF VICTORIA | Revised Not Restricted Suitable for Publication |
AT MELBOURNE
CIVIL DIVISION
Case No. CI-13-03443
| AUSTRALIAN CENTRAL CREDIT UNION LIMITED (ABN 11087651125) | Plaintiff |
| v | |
| KERRIGAN CHARLES FELLOWS | Defendant |
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JUDGE: | HIS HONOUR JUDGE MACNAMARA | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 29, 30 April 2014 | |
DATE OF JUDGMENT: | 9 May 2014 | |
CASE MAY BE CITED AS: | ACCU Ltd v Fellows | |
MEDIUM NEUTRAL CITATION: | [2014] VCC 581 | |
REASONS FOR JUDGMENT
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Subject: Guarantee and Indemnity
Catchwords: Claim against guarantor; no guarantee and indemnity executed; previous loan agreement and guarantee with provision for further advance to be covered subject to certain procedural steps; relevant steps not taken; whether execution of agreement by borrower in the form of putative guarantor’s signature may bind guarantor personally; execution on behalf of borrower not by guarantor; no operative words of guarantee; proceeding dismissed.
Legislation Cited: Commonwealth Statute Financial Sector (Business Transfer and Group Restructure) Act 1999; s126 of the Instruments Act 1958
Cases Cited:Harris v Burrell & Family Pty Ltd [2010] SASCFC 12; Alonso v SRS Investments (WA) Pty Ltd [2012] WASC 168; Bradley West Solicitor Nominee Co Ltd v Keeman [1994] 2 NZLR 111; AA Davison Pty Ltd v Seabrook [1931] ALR 156; Moat Financial Services v Wilkinson [2005] EWCA 1253; Follacchio v Harvard Securities (Aust) Pty Ltd [2002] FCA 1067; Sorby v Gordon (1874) 30 LT 528; Compagnie Generale D’Industrie et de Participations v Myson (1984) 134 NLJ 788; Jones v Dunkel (1959) 101 CLR 298; Toll(FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 471; Ankar Pty Ltd v National Westminster Finance (Aust) Ltd (1987) 162 CLR 549, 561; Chan v Cresdon Pty Ltd (1989) 168 CLR 242, 256; Andar Transport Pty Ltd v Brambles Ltd (2004) 217 CLR 424, 561; Clark Equipment Credit of Australia Ltd v Kiyose Holdings Pty Ltd (1989) 21 NSWLR 160; Scottish Amicable Life Assurance Society v Reg Austin Pty Ltd (1985) 9 ACLR 909; NAB Ltd v Varagiannis [2007] VSC 331; Bond v Rees Corporate Advisory Pty Ltd [2013] VSCA 13
Judgment: The Plaintiff’s claim is dismissed.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr S. Stuckey | Dimos Lawyers |
| For the Defendant | Mr C. Northrop | Einsiedels |
HIS HONOUR:
Background
1 Mr Fellows is an operator in the property market. Through a number of companies he buys and sells pieces of real estate, derives income from letting and raises finance for the purposes of these businesses. On 23 December 2004, as the sole director and shareholder of Jaelyn Pty Ltd (“Jaelyn”), Mr Fellows enrolled as a member of Austral Credit Union Ltd (“Austral”).
2 This enrolment seems to have been a prelude to raising a loan from Austral in favour of Jaelyn in the sum of $598,650. Jaelyn executed a document styled “Offer and Loan Contract” whereby Austral, through one of its authorised officers, offered Jaelyn, as borrower, a loan of $598,650 for a term of 60 months at an annual percentage interest rate of 7.25 per cent. The loan was repayable by 60 monthly instalments with a total amount of interest calculated as payable over the term of the loan of $217,010.40. This loan was secured upon first mortgages over a variety of properties in Western Australia and also by a guarantee executed by Mr Fellows, the defendant in this proceeding.
3 Mr Fellows executed a guarantee and indemnity in favour of Austral in what appears to be a credit union standard form. It referred to a loan contract, being the loan contract constituted by the offer and loan contract referred to above. The guaranteed moneys were defined in Clause 2.2 to include inter alia “the unpaid balance of the Loan Contract and any Future Loan Contract …” Crucially, the guarantee included as Clause 3 the following:
“3.GUARANTEEING FUTURE LOAN CONTRACTS
3.1We may ask you to extend Guarantee
We may ask you to extend this Guarantee to cover any new loan contract between us and the Borrower. We will give you:
(a) a copy of the new loan contract or proposed new loan contract; and
(b) a form of written acceptance to extend this Guarantee to cover the new loan contract.
3.2Accepting extension of Guarantee
This Guarantee does not extend to cover the new loan contract unless you sign and give us the written acceptance. If you do:
(a) the new loan contract is a Future Loan Contract; and
(b) subject to clause 2.2, any amount payable by the Borrower under the Future Loan Contract is Guaranteed Moneys.
3.3No obligation to accept extension of Guarantee
You do not have to accept our request to extend the Guarantee.”[1]
[1]Court Book (“CB”) 28
4 The guarantee was signed by Mr Fellows over the designation “Guarantor” and was witnessed by a Mr Christopher Farrington who is the principal of a finance brokerage known as “Hyaline Finance”. On the execution page there were a number of notes enjoining guarantors to obtain independent advice, read an information statement, “Things You Should Know About Guarantees” etc. Under the heading, “Things You Must Know”, the following appeared as an asterisk point:
“You are not bound by a change to the credit contract, or by a new credit contract, that increases your liabilities under the guarantee unless you have agreed in writing and have been given written particulars of the change or a copy of the new credit contract document.”[2]
[2]CB 32
5 The liability under the 2004 loan contract seems to have been cleared and no issue arises in relation to it.
6 On 18 July 2006, Jaelyn executed a contract to purchase a number of allotments at 380 Clenton Road, Gidgegannup, Western Australia, and sought a further loan from Austral to complete that purchase.
7 The contract which Jaelyn signed included as a special annexure the following acknowledgments:
“1. The purchaser is aware that the vendor has acquired via a public auction the total project of 18 lots at 380 Clenton Road Gidgegannup from the agent for the mortgagee in possession.
2. It is condition of this sale that the property settles simultaneously with the settlement of purchase by the vendor.
3. The vendor is required to settle with the mortgagee within 3 days’ notice from the following:
(a)the removal of all caveats of the property
(b)vacant possession of the property.”
8 Austral, by one of its authorised officers, made an offer of loan by signing a document styled “Offer and Loan Contract Interest Only – Variable Interest Rate” on 15 August 2006. This provided for a principal advance of $1,152,000 with interest payable at an annual rate of 7.75 per cent per annum. Repayment was to be made by monthly instalments over a period of 360 months, commencing 1 September. Once again, the borrower was Jaelyn. The Schedule, under the heading “Guarantee”, provided as follows: “We require a guarantee from: Kerrigan Charles Fellows” [that is the defendant].”
9 Under the heading of “Mortgage” the schedule provided: “We require a mortgage over the goods or property described below from you/your guarantor:”.
10 There then followed stipulations for first mortgages over each of the four allotments. The real estate mortgages over the Western Australian property were to be provided by Kott Gunning Solicitors and the loan offer provided for disbursement of part of the loan advance to meet that firm’s costs and disbursements. The schedule of the offer and loan contract was executed, presumably by way of acceptance, by Jaelyn “in accordance with s127 of the Corporations Law” by what purported to be the signature of Mr Fellows as “sole director and sole secretary”. The document included a set of attached “Terms of the Loan Contract”. Paragraph 2 set out a series of what were described as “Funding Pre-Conditions” amongst which were the following:
“We will not lend you the Amount of Credit until, where specified in the Schedule:
(a)you give us a mortgage over the Mortgage Property that satisfies us;
(b)the Guarantor gives us a guarantee that satisfies us: …”
11 These terms and conditions were subscribed to by Mr Fellows over the designation “borrower”. That signature was witnessed by finance broker, Mr Farrington.
12 The loan appears to have been made by Austral as a result of a presentation made to it by Mr Farrington. The file of Hyaline Finance (“Hyaline”) (Mr Farrington’s company) was produced at trial on subpoena. I also had material from Austral’s records placed before me. The presentation from Hyaline appeared in both files without announcement. One might perhaps expect, in circumstances such as this, that the finance broker would provide the submission seeking finance under cover of a letter, facsimile or email along the lines of “I have pleasure in submitting the following application for funds on behalf of my client … “ No such document was to be found in either file. All that did appear was a series of pages which were to be found in the Court Book under the heading:
“General Comments and Justification
Name: Jaelyn Pty Ltd
Date: 20 July 2006”
13 Under the heading “Background” this document commenced:
“This application seeks approval of an Austral Residential Investment Loan (residentially backed) in name of Jaelyn Pty Ltd for $1,200,000.
Jaelyn Pty Ltd is an existing Austral customer.
The purpose of the facility is to assist with the purchase of four residential vacant blocks of land.”
14 Under the heading “Loan Structure”, it was stated:
“Sole Director of Jaelyn Pty Ltd is Kerrigan Charles Fellows, who is an existing customer of Austral Credit Union.”
15 Under the heading “Property Portfolio Strategy” it was stated:
“Kerry Fellows has established a large residential investment portfolio primarily in his personal name and Jaelyn Pty Ltd.
Until as recent (sic) as 2005 he traditionally held his portfolio as long term investments. Over the past 12 – 18 months he has realised significant profits from selling a number of his properties. These funds have been reinvested back into various family property trusts of which he is also beneficiary.
…
Austral has encountered first hand Mr Fellows’ success with the purchase and sale of properties in the name of Jaelyn Pty Ltd. It is estimated Mr Fellows generated a return of in excess of $100,000 on each property.
It has yet to be determined whether Mr Fellows will construct and hold or sell in the medium term.”
16 There then followed extended particulars of assets and `Return on Property Sales’ which seemed to relate both to Mr Fellows, himself, and Jaelyn Pty Ltd as well perhaps as to other corporate entities and trusts controlled by Mr Fellows.
17 Under the heading “Security” it is stated:
“The following is offer (sic) for security for purposes;
1.First registered mortgage over the subject properties.
2.Directors guarantee from Kerrigan Charles Fellows.”
18 The loan offer and contract seems to be a credit union standard form. The preparation of the Western Australian mortgage documents was put in the hands of Kott Gunning Lawyers and law clerk, Ms Florence Forshaw, seems to have acted at that firm. Austral’s end was being managed by Mr Kurt Macleod. Ms Forshaw sent an email to Mr Macleod as follows:
“Hi Kurt,
Emailing you documents as requested. As advised the Mortgage must be printed on both sides of the paper – I need two copies of the mortgages to be signed.
Don’t forget to include Plain English Mortgage Booklet with document.
Re: GUARANTEE which we understand you will prepare – if not please advise. PLEASE NOTE MR FELLOWS FIRST NAME ON THE COMPANY SEARCH is shown as KERRY CHARLES FELLOWS.”
19 As part of the documents for settlement of the loan advance, Mr Fellows signed a letter dated 15 August 2006 on the letterhead of Jaelyn addressed to Mr Macleod at Austral, directing the disbursement of $6,336 of Hyaline Finance, stating: “The funds are to be withdrawn from the proceeds of the drawdown of the facility.”
20 Mr Farrington gave evidence that he prepared this document.
21 Mr Fellows also executed a document styled “Borrower Acknowledgment (where independent legal advice not obtained)” dated 16 August 2006 on behalf of Jaelyn Pty Ltd as its “sole director and a sole secretary”, stating that he had been advised to take independent legal advise but had elected not to do so, had read and understood the documents, accepted the offer of loan freely and voluntarily and had “received a copy of the terms which will apply to my Mortgage and I have read and understand those terms.” Also dated 16 August 2006 was a loan disbursement authority signed by Mr Fellows on behalf of Jaelyn Pty Ltd which was described as “the member”. This document was on Austral stationery. Mr Fellows also signed an authority to complete documents on behalf of Jaelyn as its `sole director and sole secretary’, giving that authority to Austral and Kott Gunning.
22 Mr Farrington sent a memorandum dated 18 August 2006 to Mr Macleod stating inter alia “please find enclosed executed security documents and payment authority to Hyaline Finance for $6,336-00 …”
23 Also dated 18 August and on the letterhead of Jaelyn was a letter from Mr Fellows addressed to “Dear Kurt”, asking for any surplus funds from settlement to be deposited in Mr Fellows account at the Commonwealth Bank. At 3.08pm, presumably Melbourne time, Mr Macleod sent an email to Ms Forshaw in Perth stating:
“Hi Florence
I confirm receipt of satisfactorily signed documents.
Please arrange settlement.”
24 The mortgage documents were posted to Kott Gunning under cover of a letter of 21 August 2006 over Mr Macleod’s signature. Ms Forshaw of Kott Gunning, sent a facsimile to Mr Macleod dated 30 August stating that the matter was “now ready to proceed to settlement on Thursday, 31 August 2006”. Included was the solicitor’s certificate which referred to the mortgagor and borrower as “Jaelyn” and next to the heading “Cross Collateralisation” there was a statement “Nil”. The guarantor was described as `Kerry Charles Fellows’. The loan and purchase transactions appeared to have proceeded to settlement on 31 August as scheduled.
25 In accordance with the Commonwealth Statute Financial Sector (Business Transfer and Group Restructure) Act 1999, steps were taken which had the effect that from 1 November 2008, Austral’s assets and liabilities were vested in Savings and Loans Credit Union (SA) Ltd and from 1 December 2009, those same assets, including the assets and liabilities relative to Austral’s transactions with Jaelyn, were vested in the plaintiff. In the period November 2009 to December 2012, Jaelyn progressively sold the properties which stood as security for the second loan which it had obtained from Austral. As of December 2012, according to the plaintiff, this left a residual balance outstanding on the account of $407,156.47. It is this amount with further accrued interest which the plaintiff, as successor in law to Austral, seeks to recover from the defendant, Mr Fellows.
The present proceedings
26 The Writ commencing the proceedings is dated 3 July 2013. The Statement of Claim refers to the 2004 loan by Austral to Jaelyn and the guarantee executed by Mr Fellows at that time, described as “the first guarantee”. Next, it alleges the second loan made in August 2006, stating:
“On or about 15 August 2006 the defendant [viz Mr Fellows] agreed to extend the first guarantee to a further loan contract between Austral and Jaelyn pursuant to the terms of the first guarantee.”
27 The particulars to that allegation are as follows:
“The agreement was partly in writing and partly to be implied. Insofar as it is in writing it is contained in the Austral offer and loan contract accepting a loan application by Jaelyn for $1,152,000 signed by the defendant by way of acceptance of the terms that Second Loan Agreement.
Insofar as it was to be implied, it was to be implied from the acceptance of the offer containing the condition by the defendant and Jaelyn, and their completion of the loan, receipt of the funds and expenditure of them on the purchase of the Land. “
28 Next, it alleges the making of the second loan to Jaelyn and its failure to repay the whole of the amount outstanding. The Statement of Claim alleges that four security properties were sold pursuant to its (mortgagee’s) power of sale. The chronology, handed to me at the outset of the trial which formed the basis of the opening by Mr Stuckey of counsel for the plaintiff, said that the properties were sold by Jaelyn, presumably as mortgagor. Nothing seems to turn upon it and I merely note the disconformity between the two documents. The Statement of Claim alleged, therefore, that Mr Fellows remained
“… truly and justly indebted to the plaintiff pursuant to the First Guarantee in the amount of $439,624.20. It was alleged alternatively that “on or about 15 August 2006 the defendant agreed to guarantee Jaelyn’s performance of the second loan agreement to the plaintiff.” (“the second guarantee”)
29 The particulars to this allegation are:
“The agreement to guarantee the loan is contained in the offer and loan contract dated 15 August 2006 and signed by the defendant.”
30 The prayer for relief sought $439,624.20, indemnity for legal costs and enforcement expenses, interest under the terms of the guarantee or under statute and costs ‘on a solicitor and own client basis pursuant to the contract’.
Plaintiff’s contentions
31 Mr Stuckey, on behalf of the plaintiff, conceded that neither of the obvious steps which would have been appropriate to render Mr Fellows liable as guarantor of the second loan to Jaelyn had been taken. He had not been signed up on a new guarantee instrument, nor had documentation been specifically prepared with a view to invoking the machinery of clause 3 of the 2004 guarantee so as to extend its operation to that liability by constituting the 2006 loan contract Future Loan Contract for the purposes of that clause and the definition of `guaranteed moneys’ in the guarantee and indemnity. Mr Stuckey submitted, nevertheless, that what had occurred had achieved the same results as either of those steps taken directly would have done.
32 Mr Stuckey submitted:
“The actual question for determination as whether Mr Fellows’ conduct, objectively viewed, sufficiently evinced an offer by him to guarantee the loan to Jaelyn if the Plaintiff agreed to make it”.
33 He referred to Harris v Burrell & Family Pty Ltd [2010] SASCFC 12 [18]; Alonso v SRS Investments (WA) Pty Ltd [2012] WASC 168; Bradley West Solicitor Nominee Co Ltd v Keeman [1994] 2 NZLR 111, 116 [50]. He said that:
“In its application of 20 July 2006 there is no question that Jaelyn offered a guarantee by Fellows for the loan. Not only does the application unequivocally offer one as security for the loan, the financial analysis in the application makes sense only if Fellows’ assets and income are brought into account.”
34 He noted that Jaelyn, itself, on the material put forward by Mr Farrington, had sustained a loss in the then most recent financial year. He observed that, in his viva voce evidence Mr Farrington, who appeared on subpoena by the plaintiff, said that he submitted the application for finance to Austral “on behalf of Kerry”, that is, Mr Fellows, the defendant. In any event, said Mr Stuckey, if the offer was from Jaelyn it was owned and controlled by Mr Fellows and therefore it cannot be sensibly asserted that the offer of a guarantee by Fellows was only being made by the company and not by Fellows, himself.
35 Mr Fellows controlled Jaelyn. He authorised the making of the offer. “To suggest he authorised it without agreeing to it is an absurdity”, said Mr Stuckey. The document had to be construed as it would be understood by ordinary persons of business. He referred to the decision of Mann J, as he then was in, AA Davison Pty Ltd v Seabrook [1931] ALR 156. In light of Mr Farrington’s viva voce evidence and the other considerations, he said:
“The Court ought to be satisfied that the application was lodged with Fellows’ knowledge, authority and approval.”
36 To draw a distinction between an offer of a guarantee by Jaelyn and an offer of a guarantee by Fellows was, he said, “unreal”. He referred to Moat Financial Services v Wilkinson [2005] EWCA 1253. What occurred had to be considered in light of the surrounding circumstances. The offer of a guarantee made no commercial sense unless authorised by Mr Fellows. He noted that Mr Fellows gave no evidence in the case and made no denial of authority.
37 According to Mr Stuckey, Austral accepted the offer of the guarantee “and offered the loan on that basis”. Mr Fellows signed the offer from Austral.
38 Mr Stuckey said the true construction of the transactions and documents required reference to the surrounding circumstances known to the parties. A previous loan transaction between Austral and Jaelyn and the guarantee which Mr Fellows signed as part of that previous transaction “contemplated that, if there were further loans, the guarantee might be extended to them.” The provisions of clause 3 of the guarantee, he said, made it “conveniently easy” for future loans to be guaranteed by Mr Fellows. The circumstances surrounding the second loan included “the existing guarantee and its contemplated extension”.
39 Mr Stuckey said the second loan was made on the basis that Mr Fellows was to guarantee it. Tracking the terms of clause 3 of the guarantee, he noted that the first step for its invocation was a request by Austral to extend the guarantee. He continued:
“Strict conformity with those provisos was impossible from the start because it was Fellows and his company that proposed a guarantee by Fellows for the new loan. It was not a case of Austral requesting Fellows to extend a guarantee to a new loan: Fellows was proposing it.”
40 It was wrong, he said, to contend, as it appeared Mr Fellows was contending, that for the purposes of clause 3 of the guarantee there was no “form of written acceptance to extend this Guarantee to cover the new loan contract.” Mr Fellows had signed Austral’s offer of the second loan by way of acceptance. I took Mr Stuckey to be submitting, therefore, that the signature on the loan contract by Mr Fellows on behalf of Jaelyn constituted a form of written acceptance to extend the 2004 guarantee to cover the 2006 loan. He continued:
“To require the execution of a new guarantee on the same terms was both unnecessary, added nothing to either party’s rights and avoided precisely the convenient short-cut that the parties had agreed upon at the start of their relationship.”
41 He concluded on this point:
“If the guarantor makes an offer, the lender no longer needs to make a request. If the lender makes it clear that it accepts the offer and requires it, there is no need to formulate the exchange using “magic words” of “extension”. Objectively, the parties have simply exercised the mechanism they agreed upon earlier.”
42 As to the alternative formulation of the plaintiff’s case, Mr Stuckey submitted that:
“A director of a company may sign a document once in both their personal capacity and as a director of the company by virtue of one and the same signature.”
He referred to Follacchio v Harvard Securities (Aust) Pty Ltd [2002] FCA 1067 per Finkelstein J; Harris v Burrell & Family Pty Ltd [2010] SASCFC 12 [27]. He said that words indicating the preparedness to give a guarantee expressed in futurity were often accepted by courts as constituting a guarantee in itself. He referred to Sorby v Gordon (1874) 30 LT 528, the relevant words being:
“I am quite willing to guarantee the first shipment.”
And AA Davison Pty Ltd v Seabrook where the statement was:
“I am prepared to back him for one month credit to £30.”
43 No elaborate provisions were, he submitted, necessary to constitute a guarantee. He referred to Davison, Sorby, Bradley West Solicitors Nominee Company and Compagnie Generale D’Industrie et de Participations v Myson (1984) 134 NLJ 788. He submitted, therefore, if Mr Fellows signed the acceptance of the loan contract personally as well as on behalf of the company:
“The language used is sufficient to immediately guarantee the loan, without requiring a further document to be executed.”
44 He said that since equity deems done that which ought to be done, there was no effective or practical distinction between an agreement to give a guarantee and a guarantee itself. He referred to Myson’s case and the Moat Financial Services case.
45 In the absence of any pleas of the Statute of Frauds (s126 of the Instruments Act 1958), Mr Stuckey refrained from making submissions as to the sufficiency of a note or memorandum of guarantee. He concluded the loan contract could not have been understood by a reasonable person as being signed by Mr Fellows solely on behalf of Jaelyn. He referred to Moat Financial Services case, Davison’s case and National Australia Bank Ltd v Varagiannis [2007] VSC 331.
46 He concluded that the amount claimed in the writ stood as to quantum unchallenged.
Defendant’s submissions
47 In the circumstances, it is unnecessary for me to recite in detail the submissions made by Mr Northrop of Counsel on behalf of the defendant.
48 It is appropriate to note, however, that he challenged the entitlement of the plaintiff, on the state of the pleadings and the manner in which the case had been brought, to contend that the submission, application, call it what you will, lodged with Austral by Hyaline Finance in July 2006, could constitute a contractual document as being an offer which was accepted by Austral.
49 He noted, first, that this document was not mentioned in the Statement of Claim or in any particulars to the Statement of Claim. He referred me to a notice to produce in which his instructors had called for production of the documents referred to in the Statement of Claim and the response which produced the first loan agreement the guarantee and the second loan agreement but did not produce the broker’s loan application at all.
50 Mr Northrop submitted that the loan application should be treated as having no contractual effect, being no more than an invitation to treat. In any event, he said, that however it was characterised, Austral had produced, not an acceptance of any alleged offer constituted by the application, but rather its own offer which would be characterised as a counter offer. There was no pleading of the Statute of Frauds by the defendant; but, if the loan application were to be regarded as a contractual document invoked in the Statement of Claim, a Statute of Frauds point might have been taken.
51 In reply, Mr Stuckey appeared to concede that, on the cases as pleaded, the loan application by the broker could not be regarded as an operative contractual offer, but that it constituted one of the objective facts against the background of which the operation of the contractual documents must necessarily be considered.
Conclusions
52 The present plaintiff was not the organisation which broached the second loan. Mr Macleod, who appears to have been in control of the writing of the second loan at Austral, was not called as a witness. The plaintiff’s principal witness, Ms Pollidorou, said she did not know Mr Macleod’s present whereabouts. There was no suggestion, however, that any attempt had been made to seek him out and call him as a witness and no explanation for his absence. Mr Northrop correctly, in my view, submitted that the adverse inference explained by the High Court in Jones v Dunkel (1959) 101 CLR 298, viz, that his evidence, if called, would not have assisted the plaintiff, can and should be drawn in these circumstances.
53 On the present state of the evidence, why the documents for the second loan contract find themselves in their present state must be a matter of speculation. Ms Forshaw of Kott Gunning specifically raised the issue of the preparation of a new guarantee. The guarantee which was signed in 2004 was a standard credit union stationery item. It would have been easy enough, presumably, to have had Mr Fellows sign a further such guarantee in 2006. Mr Farrington, whilst he knew Mr Fellows was reluctant to give personal guarantees, conceded a loan of the type obtained in 2006 could not have been obtained by a small proprietary company such as Jaelyn Pty Ltd without a director’s guarantee unless there was a significant increase in the interest rate charged. Mr Farrington could not recall whether his proposal that Mr Fellows should guarantee the second loan was made on the basis of a specific authorisation given to him by Mr Fellows.
54 It may be that Mr Macleod proceeded on the basis and assumption that the 2004 guarantee by Mr Fellows was an “all moneys” guarantee and that it automatically extended to the second loan. He may have intended to prepare a document which specifically tracked the steps referred to in clause 3 of the guarantee but simply forgot to do so. He may have intended to instruct Ms Forshaw to prepare a guarantee but forgot to do so. He may have intended to have Mr Fellows sign a new credit union standard form guarantee relative to the second loan agreement but simply forgot. Again, he may have adopted the view urged upon me by Mr Stuckey that any of these steps would be needless duplication and concluded that the documents which were provided were sufficient to secure the result that Mr Fellows was liable as surety for the second loan to the same extent as he had been for the first. In a sense, however, Mr Macleod’s state of mind or any “corporate” state of mind of Austral might be thought to be beside the point. It is established by the highest authority that the effect of contractual relations between parties is to be judged, not by reference to their subjective intentions, but rather by reference to what an objective observer would regard the contracting parties as having committed themselves to, based principally upon the words of written instruments where contracts are reduced to writing, and the surrounding circumstances known to, and in the contemplation of, both parties. Both plaintiff and defendant were agreed on this principle at that high level of generality. It is established by a long line of authorities which for present purposes can be regarded as summed up and adopted for contemporary purposes by the decision of the High Court of Australia in Toll(FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 471.
55 Mr Northrop submitted that the liability of an alleged surety was regarded as strictissimi juris so that any ambiguities were to be resolved in favour of the alleged surety and against the creditor. He referred to Ankar Pty Ltd v National Westminster Finance (Aust) Ltd (1987) 162 CLR 549, 561; Chan v Cresdon Pty Ltd (1989) 168 CLR 242, 256; and Andar Transport Pty Ltd v Brambles Ltd (2004) 217 CLR 424, 561 [17]. I accept that submission and did not understand Mr Stuckey to submit otherwise.
56 The essence of the defendant’s resistance to the present claim is the contention that, whilst there are contractual arrangements which bind the borrower, Jaelyn Pty Ltd, there is, with respect to the second loan contract, no contract binding Mr Fellows as surety.
57 Both parties were agreed that the correct analysis in circumstances such as the present calls for an assessment of what the documents and surrounding circumstances indicate objectively was the intention of the parties. So much is established by Clark Equipment Credit of Australia Ltd v Kiyose Holdings Pty Ltd (1989) 21 NSWLR 160, a decision of Giles J, and the decision of the New South Wales Court of Appeal in Scottish Amicable Life Assurance Society v Reg Austin Pty Ltd (1985) 9 ACLR 909, particularly in the judgment of McHugh JA (as he then was). More recent examples of the same approach are to be found in the decision of Mandie J (as he then was) in NAB Ltd v Varagiannis [2007] VSC 331 [37] and Bond v Rees Corporate Advisory Pty Ltd [2013] VSCA 13 [58].
58 In Follacchio v Harvard Securities (Aust) Pty Ltd, Finkelstein J had to consider the operation of a general sales authority in the form published by the Real Estate Institute of Victoria Ltd which provided for the retainer of estate agencies to find buyers of real estate and for those agencies to derive commission. The authority included a provision:
“Any signatory for a proprietary company Vendor will be personally liable for the due performance of the Vendor’s obligations as if the signatory was the Vendor. If required by the Agent the signatory will procure the execution by all Vendor company directors of a guarantee to be prepared by or on behalf the Agent.”
59 It seems that no separate guarantee had been prepared in the particular case before His Honour. The claim was brought in the Federal Magistrates’ Court for commission, both against the vendor company and the appellant as a “signatory for a proprietary company Vendor”. The Magistrates’ Court found in favour of the agent and against the director. The director’s appeal to the Federal Court was unsuccessful. Finkelstein J rejected the contention that the signature of the appellant was applied solely for the purposes of binding the company and not himself. His Honour referred to the Scottish Amicable Life Assurance Society case and to the Kiyose Holdings case and concluded at [9] that it was possible for a person to affix a single signature and to have that signature operate in two capacities; one as agent for a principal and another to assume a personal responsibility, if those two capacities were clear in the circumstances. If it were clear that two capacities were intended, “there is no reason why that intention should not be given effect.”
60 In Harris v Burrell & Family Pty Ltd, Burrell lent money to Hardel Pty Ltd and sought to recover the money so lent from Mr Harris, Hardel’s sole director. The claim against Mr Harris was based on clause 4(d) of the relevant contract which stated:
“The director of the borrowing entities also acknowledges personal liability for all debt remaining after the loan repayment date inclusive of all interest and recovery costs.”
61 The agreement was executed by Hardel Pty Ltd by being signed by Mr Harris as its director. The trial Judge found in favour of Burrell and against Harris and an appeal to the Full Court of the Supreme Court of South Australia (Doyle CJ, Bleby and Sulan JJ) was unsuccessful. At paragraph 27, the Chief Justice said:
“Both parties must be taken to have intended that the 2008 Agreement would be brought into effect. That involved MrHarris acting in a dual capacity – as director of Hardel and in his personal capacity. As director of Hardel, he had the capacity to bind Hardel, and there is no doubt that considered objectively the circumstances indicate that he intended to do so. He also had the capacity to bind himself to the 2008 Agreement, to the extent that cl 4(d) imposed a personal liability, or appeared to do so. There is no particular reason why Mr Harris could not be understood as acting in both capacities, when placing the single signature on the 2008 Agreement as he did.”
62 It may be accepted, therefore, that the fact that the signature of the loan offer and contract by Mr Fellows appears, in isolation, to be made by him, only, as a corporate organ of Jaelyn Pty Ltd and not in his own personal capacity, is not conclusive of the case against him.
63 Mr Northrop on behalf of the defendant, however, submitted that cases such as Follacchio and Burrell differed from the matter before me now, because in those instances there were operative words of guarantee; that is, words and the relevant instrument which appeared to cast a personal liability on the relevant director. The clauses are quoted above as clause 5 of the agreement in Follacchio and clause 4(d) of the agreement in Burrell. Here, said Mr Northrop, there was no equivalent. Mr Northrop submitted that, merely to state, as the loan contract does, that there was to be no drawdown unless a guarantee from Mr Fellows were forthcoming, constitutes a condition precedent to performance but does not create an obligation on anyone, least of all Mr Fellows, himself, to give the guarantee or ipso facto and forthwith to bind himself as guarantor.
64 In the Scottish Amicable case, the insurance company entered into an agreement appointing agents. The counter parties to the agreement were Mr and Mrs Austin and their company Reg Austin Insurances Pty Ltd. The agreement provided for execution both by the company and by Mr and Mrs Austin. It included an indemnity by Mr and Mrs Austin whereby they :
“jointly and severally agree[d] to indemnify and hold indemnified the Society against any loss which it may sustain by reason of any default by the said REG AUSTIN INSURANCES PTY LTD …”
65 The indemnity was executed by the company under its common seal attested by Mr and Mrs Austin, rather than being simply subscribed to by Mr and Mrs Austin. McHugh JA said:
“A reasonable person, reading the document before the affixing of the company seal and the signature, would see that it imposed personal obligations on the Austins. No doubt a keen reader might be puzzled by the words ‘signed on behalf of: Reg Austin Insurances Pty Ltd’. Nevertheless, I think that, despite his puzzlement, he would understand that the Austins were indemnifying the appellant. Even the casual reader would, I think, have understood that the Indemnity imposed personal obligations on the Austins. He could not miss the heading and the words in ink.
The proper inference to draw, therefore, is that Mr Austin gave an indemnity to the appellant. It is also proper to infer that his wife gave a personal indemnity. She was a director of the company.” (1985) 9 ACLR 909, 924.
66 Earlier in his judgement, his Honour said:
“The qualification to the signature [as director] may be overcome by the terms of the document and the surrounding circumstances.” (1985) 9 ACLR 909, 923
67 In the Clark Equipment case, Giles J was concerned with the operation of a factoring agreement between Clark Equipment Credit of Australia Ltd and Kiyose Holdings Pty Ltd. The agreement provided for Clark to purchase debts from Kiyose but if a factored debt was not paid by the customer within 90 days, Kiyose would repurchase it. Clause 12 of the agreement provided:
“In consideration of this Deed, jointly and severally, Richard Guilford O’Sullivan of 27 Dodson Crescent, Winston Hills and Stephen Douglas Mould of 76 Walder Street, Hamondville (hereinafter called “the Guarantors”) hereby guarantee to the Purchaser … “
68 There was a further clause whereby the directors covenanted that they would not, during the currency of the factoring agreement, pay off or substantially reduce indebtedness of Kiyose to its directors or shareholders. Clause 14 was an agreement by “the guarantors” to execute an equitable mortgage over their assets. The factoring agreement was signed by Messrs O’Sullivan and Mould on behalf of Kiyose Holdings Pty Ltd but there was no execution separately on their own behalf.
69 Having considered the authorities, including the Scottish Amicable case, His Honour concluded that the intention or lack of intention of Messrs O’Sullivan and Mould to bind themselves as guarantors had to be judged, not merely by reference to the limit expressed in the capacity in which they signed, namely on behalf of Kiyose, but also in light of the surrounding circumstances. His Honour concluded that he should not find an intention by Mr O’Sullivan and Mr Mould to render themselves personally liable for the obligations of Kiyose under the factoring agreement.
70 His Honour interpreted the execution clause as one whereby Mr O’Sullivan signed on behalf of Kiyose and Mr Mould witnessed his signature. This form of execution pointed away from their accepting any personal liability. The form of execution was along the same lines and to the same effect as the execution on behalf of Clark Equipment Credit. The addition of the common seal of Kiyose, he felt, also pointed away from a personal liability being intended. As to the surrounding circumstances, he said:
“The more positive reason for finding an intention that Mr O’Sullivan and Mr Mould be personally bound is that the factoring agreement included a guarantee by them, by name rather than by description.” (1989) 21 NSWLR 160, 175
71 His Honour considered, however, it was unlikely that Mr Mould and Mr O’Sullivan were aware of the guarantee provision in the factoring agreement referred to above. He continued:
“To conclude that signature by Messrs O’Sullivan and Mould as the act of Kiyose in executing the factoring agreement should be taken as signature personally binding them because there was a clause in the factoring agreement in the fulfilment of which it would have been appropriate to find signature in their personal capacities would fail to give due recognition to there having been simply a want of execution by them. Clark wanted signature by Mr O’Sullivan and Mr Mould, as distinct from and in addition to execution by Kiyose. It did not get it. Nonetheless it traded with Kiyose. The transaction was not fully implemented, and the failure to fully implement it can not be now rectified by calling upon signature by Messrs O’Sullivan and Mould as the act of Kiyose to do double duty as signature on their own behalves.”
72 I should also note the decision of Edelman J in Alonso v SRS Investments (WA) Pty Ltd [2012] WASC 168. His Honour was there concerned with an attempt to enforce an alleged guarantee obligation relative to a lease of real estate in Western Australia. The lessee was SRS. The lease referred to a Ms Sandford as the guarantor and included clauses by way of guarantee and indemnity. Execution by SRS on the typescript was to be under common seal. As it was, the signature on behalf of SRS was by Ms Sandford as director. There was also a separate signature clause for Ms Sandford, presumably as guarantor. That clause had the signature of a witness and the name and address of the witness but no signature from Ms Sandford, despite there being a cross in the appropriate place to indicate where she should sign.
73 Edelman J concluded that Ms Sandford was personally bound. He referred to the Scottish Amicable case. At [2012] WASC 168 [52], he said:
“The approach of McHugh JA [in the Scottish Amicable case] has been applied or approved on numerous occasions by Australian courts. It has been iterated, and reiterated, that in considering whether there is an intention to be legally bound, qualification attached to a signature is only one relevant factor.”
74 At [57] – [66] he said there were four reasons why, in the circumstances, Ms Sandford should be regarded as personally binding herself. First, she was specifically identified in the document as a guarantor. Secondly, whilst there was an absence of a personal signature in the appropriate place, His Honour observed:
“There is a peculiarity about the execution clause which contradicts the suggestion that there is a clear absence of any signature by the second defendant in her personal capacity.”
75 The peculiarity was the completion of the personal signature clause by the witness. His Honour said at [60]:
“If Ms Sandford’s signature as a director were not evidence of an intention to be bound personally, or if the handwriting of her name were not evidence of that fact, then there would have been no purpose for Mr Screaigh [the witness] to have signed as a witness, in Ms Sandford’s presence, under the words ‘Signed as a deed by Sara Sandford.’”
76 He said a reasonable person would have concluded either that Ms Sandford’s signature as director also served as her signature in a personal capacity, or “that the handwritten name of `Sara Sandford’ served as Ms Sandford’s signature”.
77 Thirdly, His Honour noted that Ms Sandford made various handwritten changes and inserted initials in the lease; and finally, he noted a letter which she wrote to the effect that the lease had been:
“signed conditional on the completion of the purchase of the business known as Cavill Business Solutions. Should the purchase of the business not proceed then the signing of this lease is null and void.”
78 This letter, according to His Honour, was “signed … with her unqualified signature”.
79 What, then, am I to make of the present documentation in light of these principles? If I were to take the line followed by Giles J in Kiyose, I would say that Austral wanted a guarantee from Mr Fellows or an extension of the first guarantee, failed to get it, but nevertheless proceeded, with the result that Mr Fellows is under no personal liability. The other authorities seemed to be more favourable to the plaintiff. I agree, however, with Mr Northrop’s submission that what appears to have been ultimately important for those other cases, was that the documents in question purported to include the sureties as parties and purported to impose direct personal liability upon them in clear terms. Follacchio’s case might be regarded as going a step further because the agreement for the payment of sales commission did not in terms make the director of a proprietary company vendor party to the agreement.
80 Insofar as Giles J in Kiyose appeared to attach some significance to his view that Messrs Mould and O’Sullivan probably did not subjectively know of the contents of the factoring agreement in the guarantee clause, His Honour’s reasoning must be treated with caution. It seems to me at odds with the authoritative statements by the High Court in Toll that, by signing a contract, one objectively commits oneself to its terms independently of subjective knowledge.
81 Ultimately, I cannot accept Mr Northrop’s submission that the provision of the loan contract which has Austral stating “we require the guarantee” of Mr Fellows imposes no obligation on a party who accepts the offer. Acceptance of an offer which includes such a requirement, in my view, entails acceptance of an obligation to meet the requirement. It is more than a mere condition precedent to performance. There was also such a condition precedent because, according to the terms of the loan offer and contract, there was no obligation on Austral to advance funds unless the guarantee were provided.
82 This matter is very close to the line. Ultimately, however, I conclude that in the circumstances, Mr Fellows did not undertake a personal liability. First, as all of the cases indicate, the fact that he has in all places executed documents as a corporate organ of Jaelyn, whilst not conclusive, is a very weighty consideration indeed. Secondly, the only operative contractual document relative to the second loan which Mr Fellows executed on behalf of Jaelyn was a document which, according to its terms, was an offer by Austral to Jaelyn. It was not expressed to be a document to which Mr Fellows was party at all. This distinguishes the present situation from the Scottish Amicable case and Alonso’s though not, I accept, Follacchio’s case. Further, the document which Mr Fellows did sign did not, in terms, cast any obligation upon him.
83 For reasons already explained, the obligation to obtain Mr Fellows’ guarantee was cast upon Jaelyn and not upon Mr Fellows. Accepting that there may be in substance little difference between an agreement to give a guarantee and saying “I hereby guarantee”, there is a very significant difference between the putative guarantor agreeing to give a guarantee and the principal debtor agreeing to procure a guarantee of some other person.
84 Given that Jaelyn Pty Ltd has no substantial independence from Mr Fellows, all of this may be regarded as artificial in the extreme. It is, however, the type of artificiality which is required by our law to the extent that it recognises small proprietary companies as legal entities separate from their members and directors. Whilst Anglo-Australian law has always reserved an ultimate right to lift or pierce the corporate veil, this power is very rare and limited and has not been invoked here.
85 I believe these considerations require the rejection of both of the formulations of the Plaintiff’s claim. I should add I accept Mr Northrop’s submissions as to the standing of the broker’s written presentation. Ultimately, the point seemed to be conceded by Mr Stuckey.
86 In the circumstances the plaintiff’s claim is dismissed.
Costs
87 I have heard no submissions on costs and so I will reserve the question of costs.
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