Bianco Hiring Services v Rams Development Pty Ltd, Monz & Rawcliffe No. DCCIV-00-344

Bianco Hiring Service Pty Ltd (plaintiff)
v Rams Development Pty Ltd (first defendant)
Stephen Heinrich Monz (second defendant)
and Angela Rose Rawcliffe (third defendant)
[2002] SADC 75
Civil
Judge David Smith
Introduction

Bianco Hiring Service Pty Ltd (“Bianco”) is a corporation which, at all material times, carried on business as a wholesale supplier of building materials and services. Rams Development Pty Ltd (“Rams”) was a building company, which was incorporated in early 1997 and after a relatively short life in the building industry was placed in liquidation in about July or August 2000. Stephen Heinrich Monz (“Monz”) and Angela Rose Rawcliffe (“Rawcliffe”) were the promoters, shareholders and directors of Rams. Monz is now bankrupt. There is no leave for the plaintiff, Bianco, to proceed against either Rams or Monz and so this action proceeded against only the third defendant, Rawcliffe.
Bianco in this action claims from Rawcliffe the sum of $56,093.90, being the cost of goods supplied by Bianco to Rams in the period from about November 1999 to January 2000. That sum has not been paid by Rams. It is alleged to be due and owing by Rawcliffe pursuant to a Deed of Guarantee dated in March 1997.
Further, Bianco claims from Rawcliffe collection expenses amounting to $5,895.00 alleged to have been incurred by it in pursuing the debt together with ongoing interest of 1% per month on the debt. These two items arise from the specific trading agreement entered into between Rams and Bianco.
The defendant, Rawcliffe, contends in her defence that as the common seal of Rams was affixed to the Deed of Guarantee adjacent to the place of the signatures of herself and Monz, they merely witnessed the affixing of the company seal and were not thereby personally guaranteeing the debts of Rams. She contends further that it follows that she was not personally liable to pay either the collection fees or the interest.
By way of alternative, Rawcliffe contends that the collection fees were excessive.
It is admitted that both Monz and Rawcliffe signed the Deed of Guarantee on the 27^th March 1997, (see paragraph 2 of the Defence), and further, the primary portion of the claim is agreed. In particular, it is agreed that $56,093.90 was indeed owing to Bianco for goods supplied to Rams in the period from about November 1999 to January 2000 and remains unpaid notwithstanding demands.
The legal principles
The issue for determination is the capacity in which Monz and Rawcliffe signed the Deed of Guarantee. So it is necessary for me to define my task and decide, inter alia, what evidence is relevant and admissible.
The exercise is to determine whether, in signing the Deed of Guarantee, Monz and Rawcliffe intended to make themselves personally liable for the debts of Rams or intended only to witness the affixing of the seal. Determining this issue of signing capacity is a matter of construction of the Deed; (see Summergreene v Parker (1950) 80 CLR 304 per Fullagar J at 323). It is an aspect of the overall precept that in construing a contract the object always is to give effect to the intention of the parties; (see River Wear Commissioners Adamson (1877) 2 App Cas 743 at 763). Further, the approach is objective and evidence of subjective intention or perception is to be disregarded; (see Goldsbrough, Mort and Co Ltd v Quinn (1910) 10 CLR 674; Taylor v Johnson (1983) 151 CLR 422 at 429; Summergreene v Parker (supra) per Fullagar J at 323; NEC Information Systems Australia Pty Ltd v John Linton (unreported) NSWSC 17 April 1985 Wood J at 9). So if one party subjectively intends a certain outcome, which is not in accord with all of the objective circumstances, then such would not afford a defence to an action to enforce the contract. Rather, the Court concerns itself with the interpretation, which would be placed upon the document or documents and/or the words and actions of the parties by a reasonable person. As Blackburn J said at p607 in Smith v Hughes (1871) LR 6QB 597:
“If, whatever a man’s real intention may be, he so conducts himself that a reasonable man would believe that he was assenting to the terms proposed by the other party, and that other party upon that belief enters into the contract with him, the man who thus conducting himself would be equally bound as if he had intended to agree to the other party’s terms”.
This is crucial in this case because it is the evidence of both Monz and Rawcliffe that they did not personally guarantee the due payment by Rams of its debts to Bianco. Their subjective views of the nature of the agreement, and, in particular, as to the capacity in which they signed, is to be disregarded other than to the extent that it draws attention to circumstances which may affect the objective assessment of what the parties intended.
Finally, I must decide whether I can have regard to external or extrinsic evidence in order to come to a view of what objectively understood the parties must have intended.
It is clear that I should have regard to all the contractual provisions and documents and not merely focus, for instance in this case, on the signing clauses of the Guarantee document; (see Tudor Marine Limited v Tradax Export SA [1976] 2 Lloyds Rep 135 per Megaw LJ at 143; NEC Information Systems Australia Pty Ltd v John Linton (supra) per Wood J at 7). So I am entitled to have regard to the Account Application, and the terms and conditions thereof, the Notice of Disclosure, the Guarantee, and the schedule thereto, and the Credit Check. So necessarily I reject the argument of counsel for the defendant, Mr Manetta, to the effect that the capacity in which a person signs a document is an issue of fact to be answered by considering in isolation the signing clauses and any conditions limitations or reservations there.
I turn to whether or not I can permissibly glean assistance from truly extrinsic circumstances such as evidence relating to the establishment of the new building company, the experience of the directors in providing such trade guarantees and the general historical matrix.
Quite apart from whether there is ambiguity, it has long been the case that the circumstances closely surrounding the execution of the contractual documents, that is the background circumstances or factual matrix, is clearly relevant and admissible; (see Reardon Smith Line Limited v Yngvar Hansen-Tangen (1976) 1 WLR 989 at 997). But further, in this case, there is, in my view, ambiguity as to the capacity in which Monz and Rawcliffe signed, and so evidence of the conduct, words and actions of the parties and any other documents which may throw light on the intention of the parties is admissible to resolve this ambiguity; (see Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337; see also Contract Law in Australia 3^rd Edition JW Carter and DJ Harland Chapter 7 paras 702-722; see also Helvetic Investment Corporation Pty Ltd v Knight (1984) 9 ACLR 774 per Mahoney JA at 4/5).
In my view the ambiguities which dictate the necessity to have resort to extrinsic evidence are as follows:
·the affixing of a company seal on a document, the terms of which and the signing clause of which envisages signing by natural persons only;
·if the guarantee is properly regarded as that of the company, it was superfluous given that in any event, the other contractual documents, and for that matter the common law, rendered Rams responsible to pay for what it purchased form Bianco; and
·the signatures of Monz and Rawcliffe were witnessed arguably indicating that either the seal was superfluous or the attesting witnesses’ signatures were superfluous.
In the unreported NSW Supreme Court decision of NEC Information Systems Australia Pty Ltd v John Linton (supra) per Wood J at page 9 of his judgment, in a case which was somewhat factually similar to this case, said as follows:
“I have accordingly reached the conclusion that the question in the present case is not to be determined by regard solely to the attestation clause and the actual signature placed on the document. In my assessment, the weight of authority favours the view that the question remains one of construction. As a result, despite the presumption attached to the actual signatures and the presence of the common seal, I consider that regard should be had to the remaining provisions of the deed, and to the circumstances surrounding its execution. The inquiry to be made by reference to these matters concerns what the parties must objectively and fairly be understood to have intended by the document once executed. Evidence of subjective intention is to be disregarded.”
Facts
I now turn to the facts. Unless indicated as contentious, I find that the facts are as set out below. I will identify any areas of contention and set out my findings in respect of those areas as I traverse the narrative of events.
Early history of Rams
As indicated, Rams was incorporated in February 1997. The promoters, shareholders and directors were the second and third defendants, Monz and Rawcliffe. The object of Rams was to develop property. Monz had experience in the building industry. He had been a building supervisor for two Adelaide builders. He knew Bianco and as at 1997 had been dealing with them for some six years. He decided that Rams needed to have an account at Bianco to better enable it to procure building hardware material for the various projects which were planned.
Account with Bianco – guarantee
So Monz approached Bianco and was informed that there were two options, namely cash on delivery, or a credit account. He opted for a credit account. Accordingly, in about March 1997, he received a number of account documents in the mail; (see Exhibit P1). What he received in the mail was as follows:
·Account Application (see Exhibit P1 pp1-4);
·Notice of Disclosure of your Credit Information to a Credit Reporting Agency (see Exhibit P1 p5); and
·Guarantee (Exhibit P1 pp6-8).
I find that Monz received the above documents on or about the 11^th March 1997. Rawcliffe at that time was out of the State holidaying in Queensland. Accordingly, Monz, in part, filled out the documents. In particular, he commenced by mistakenly filling out page 1 of the Account Application then realising his error he struck out the first section and moved on to completing page 2. Notably, he recorded that he and Angela Rawcliffe would give a personal guarantee “... if called upon to do so”. Part of the Account Application consisted of a schedule of terms and conditions, in particular paragraph 2.6 provided as follows:
“The Purchaser and the Supplier agree to the following terms of conditions:
....................
2.6The Purchaser will pay on demand interest at the rate of 2% per month on any overdue accounts and all collection charges including all debt collector’s expenses up to 17.5% of any amount entrusted to a debt collector to collect all legal fees, on a solicitor/client basis, incurred in collecting any overdue accounts from the Purchaser.”
The Application was completed on the 27^th March upon Ms Rawcliffe’s return from interstate. Notably, Leanne Pryor, who occupied neighbouring business premises on Unley Road, witnessed the two signatures of Monz and Rawcliffe at page 4 of the Account Application.
I now turn to the Guarantee. I find in particular that both pages of the Guarantee document were forwarded at the same time in the mail. In my view, Monz’s implied suggestion in his evidence that page 6 may not have been included in the documents forwarded to him was a disingenuous attempt to distance himself from the document, bearing in mind the word “guarantee” emblazoned in bold letters on the top of page 6. Rawcliffe had no specific memory of having her attention drawn to any particular document. She, like Monz, acknowledged her signature on the Guarantee document. She witnessed Monz’s signature and Leanne Pryor witnessed her signature. As can be seen, the company seal of Rams was affixed between the two signatures. Monz said that either he or Rawcliffe affixed the seal. There was no evidence adduced that the company had resolved to affix the seal on this document.
Both Monz and Rawcliffe gave evidence to the effect that they had entered into a number of guarantees in the course of setting up the building business. In particular, Ms Rawcliffe repeated in her evidence a number of times that the guarantees executed by them in respect of the company’s bank account and some real estate transactions were more formal documents in respect of which legal advice was given and careful explanations proffered about the fact that the guarantees were personal. She added that the Bianco guarantee was signed early in the history of Rams trading, that is before perhaps she and Monz had entered into guarantees in respect of accounts which Rams opened with, inter alia, a brick company and a tile company.
I return to the narrative.
The documents were then returned to Bianco. I find that the schedule to the Guarantee, found at page 6 of Exhibit P1, was completed in the office of Bianco by a Mrs Barbaro who also completed the “Office Use Only” portion of page 4 of the Account Application. The account was approved on the 11^th April 1997 which was the same day that the credit check of AMA was completed and presumably conveyed to Rams; (see Exhibit P1 pp9-11).
Demise of Rams – calling up of guarantees
So Rams undertook a number of projects culminating in a project at Tennyson, which for reasons immaterial to this matter, caused the company to founder. The company was firstly put in the hands of an Administrator and then was placed in liquidation. At the time of the liquidation, the company was indebted to Bianco in the sum of $56,093.90.
Aftermath – proceedings
On the 13^th March 2000, Bianco instructed the AMA to recover the outstanding money. Letters of demand were forwarded to Rams on the 13^th March 2000 claiming as follows:
Account balance   $56,093.90
Collection expenses   $5,850.00
Interest (continuing at 1% per month)             $1,578.00
Total   $63,521.90.
(see Exhibit P2)
The expenses and interest charged arose from clause 2.6 of the terms and conditions of trade agreed between Bianco and Rams. The sum of $5,850 was charged merely as a percentage of the quantum of the debt.
There was no response from Rams to the above demand and after a period of Administration Rams was placed into liquidation in July/August 2000.
The alleged guarantors, namely Monz and Rawcliffe, were also given notices by the AMA on the 13^th March 2000; (see Exhibit P2).
On the 14^th March 2000, these proceedings were instituted.
Conclusions
The contract documents, namely the Account Application, the Notice of Disclosure of Credit Information and Guarantee when considered as a whole, indicate clearly the intended execution of a personal guarantee.
The Account Application of Rams constitutes an offer to Bianco. After a credit check was conducted by AMA and conveyed to Bianco, the offer was accepted by Bianco on the 11^th April 1997. Thus an agreement was struck between the parties, Bianco and Rams. The offer of Rams, as embodied in the Application, also included an offer to provide personal guarantees of both Stephen Monz and Angela Rawcliffe “if called upon to do so”. The supply in the mail of the Guarantee document amounted to such a requirement and the objective circumstances indicate that it was accepted as such by Monz and Rawcliffe and so executed. To regard the Guarantee as another covenant by the company to pay what it owed to Bianco would be to deprive the whole transaction of commercial reality. The affixing of the seal does not subvert the obvious intent of the wider transaction which was to carry into effect the offer extracted from Monz and Rawcliffe to provide guarantees.
Further, a consideration of the Guarantee document itself indicates its clear purpose. Emblazoned on the first page in bold letters is the word “guarantee”. Again, immediately above the signing clauses is clause 9 of the document which again refers to the nature of the document indicating that it is “a guarantee”. On the Guarantee document itself there is no provision for the affixing of a seal and moreover it is notable that the signatures of Monz and Rawcliffe were witnessed by a natural person. Monz’s signature was witnessed by Rawcliffe and Rawcliffe’s signature was witnessed by, again, Leanne Pryor.
In such circumstances, I conclude that the seal is an immaterial inclusion with no significance other than perhaps to flag that the document was the personal guarantee of the two promoters, directors and shareholders of the corporation.
The other surrounding circumstances do not take the matter much further. The evidence of both Monz and Rawcliffe as to the affixing of the seal is unhelpful. The evidence of Rawcliffe is that she has virtually no recollection whatsoever of these documents or circumstances in which she signed them. She explained away the other trade guarantees by suggesting that they were executed after the Bianco guarantee and, as indicated, she explained that the bank account and real estate guarantees given in connection with Rams’ business activities were more formalised larger documents, the impact of which was explained by legal advice.
There was a faint suggestion in the defence case that the guarantees were signed by Monz and Rawcliffe in their capacity as directors of Rams and so signed as agents of the company, thereby incurring no personal liability. In all the circumstances of this case, as I note was the finding of Wood J in the NEC Information case at page 10, it is a distinction without a difference. Certainly the guarantee was required of Monz and Rawcliffe because they were the directors of Rams, but that is the extent of it.
If there is any presumption operating to the effect that because the company seal was included in the signing clause that the guarantee amounted to a company guarantee, then I find that all the evidence in this case rebuts that presumption.
Accordingly, I conclude that, on all the evidence viewed objectively, it is clear that the parties intended that the guarantee was to be executed as a personal guarantee under which Monz and Rawcliffe jointly and severally bound themselves to be personally liable for moneys owed by Rams to Bianco.
Accordingly, I find that the plaintiff is entitled to enforce the guarantee as against Rawcliffe.
Expenses and interest
I now turn to the claims for expenses and interest.
There is no challenge to the plaintiff’s claim for interest at 1% per month on the outstanding sum.
The pleaded response to the plaintiff’s claim for collection fees is “that the sum claimed of $5,895.00 is excessive and (the defendant) denies that the plaintiff is entitled to that sum from the defendants”; (see para 3 of the Defence).
So there was neither a plea nor evidence from the defendants suggesting that either interest and/or the quantum of expenses claimed constituted a penalty. The onus of proving that the clause enabling such claims is a penalty is borne by the defendant who has not sought to discharge it in this matter; (see Multiplex Constructions Pty Ltd v Abgarus Pty Ltd (1992) 33 NSWLR 504 at 527). Accordingly, there is no call to deal with the issue of whether clause 2.6 constitutes a penalty. I should indicate that I do not wish to imply by what I have said that the claimed interest is a penalty. Indeed, it is clear law that the mere fact that the claimed rate exceeds the marketplace rate is not of itself an indicator of a penal and therefore unenforceable provision; (see Dunlop Pneumatic Tyre Co. Ltd v New Garage and Motor Co Ltd (1915) AC 78).
The pleading raises then as an issue the claim for collection charges and debt collection expenses. In an unparticularised way, the defendant contends vaguely that the sum is excessive. In the trial the defendant did not further address this contention either by way of evidence or argument.

In view of the pleading, I intend to deal with it. The sum claimed, namely $5,895.00, is just in excess of 10% of the amount which AMA was briefed to collect. The witness from AMA, Mr Wilmott, made it clear that this claimed sum was indeed a percentage charge which was a immediately levied on the amount of the debt and bore no relationship whatsoever to any work done by his organization. Clause 2.6 allows the creditor, Bianco, to recover from the defaulting debtor, Rams, “... all collection charges including all debt collector’s expenses up to 17.5% of any amount entrusted to a debt collector to collect ...”. So 17.5% of the specified debt is a ceiling beyond which there can be no recovery. Further, the clause, and, in particular the use of the word in it of “expenditure”, presupposes that there has been some expenses incurred, or put another way, some expenditure of time and effort. The mere levying of a charge or fee calculated on a percentage of the claimed amount is not contemplated. So in my view, the proper construction of clause 2.6 of the terms of trade does not justify the claim.
Moreover, whilst it may be permissible for two contracting parties to agree that in the event of some breach certain specified expenses will be paid by the defaulting party, that such expenses, resembling as they do legal fees charged by other than a legal practitioner, should be exacted from a third party guarantor, is in my view questionable. This aspect of the matter was not argued and so I do not intend to further pursue it. In any event I hold that, as a matter of construction, the sum claimed of $5,895.00 is not properly money owed by Rams to Bianco and therefore cannot be claimed from Rams’ guarantor.
Final result
Accordingly, the plaintiff Bianco is entitled to enforce the guarantee and therefore is entitled to judgment in the claim against the third defendant in the sum of $56,093.90.
In the normal course the plaintiff would be entitled to prejudgment interest pursuant to s39 of the District Court Act on the above liquidated sum calculated from say January 2000, when it was agreed that the sum was due and owing by Rams to Bianco. However, without challenge, the plaintiff has claimed interest at 1% per month pursuant to the said clause 2.6. Therefore, I allow by way of interest the sum of $15,683.85 (ie $56,093.90 x 12% per annum x 2.33 years).
Accordingly, the plaintiff is entitled to judgment against the third defendant in the sum of $56,093.90 together with prejudgment interest which I fix in the sum of $15,683.85.
I will hear the parties as to costs.

[2002] SADC 75

31 May 2002