Borg Manufacturing Pty Ltd v Van't Sant
[2021] TASSC 24
•23 June 2021
[2021] TASSC 24
COURT: SUPREME COURT OF TASMANIA
CITATION: Borg Manufacturing Pty Ltd v Van't Sant [2021] TASSC 24
PARTIES: BORG MANUFACTURING PTY LTD
v
VAN'T SANT, John
VAN'T SANT PTY LTD as trustee of the
Van't Sant Family Trust
FILE NO: 9999/2020
DELIVERED ON: 23 June 2021
DELIVERED AT: Hobart
HEARING DATES: 8, 9 June 2021
JUDGMENT OF: Blow CJ
CATCHWORDS:
Guarantee and Indemnity – Contract of guarantee – Parties and capacity – Guarantee of company's debts by director – Director also trustee of family trust – Whether guarantee and equitable charge given both in personal capacity and on behalf of trust.
Re Interwest Hotels Pty Ltd (in liq) (1993) 12 ACSR 78, followed.
Helvetic Investment Corporation Pty Ltd v Knight (1984) 9 ACLR 773; Scottish Amicable Life Assurance Society v Reg Austin Insurances Pty Ltd (1985) 9 ACLR 909, referred to.
Duckworth v Water Corporation (No 2) [2015] WASC 411, distinguished.
Aust Dig Guarantee and Indemnity [1009]
REPRESENTATION:
Counsel:
Plaintiff: M J Connor
Defendants: A Walker
Solicitors:
Plaintiff: Force Legal
Defendants: Shields Heritage
Judgment Number: [2021] TASSC 24
Number of paragraphs: 32
Serial No 24/2021
File No 9999/2020
BORG MANUFACTURING PTY LTD v JOHN VAN'T SANT
and VAN'T SANT PTY LTD as trustee of the Van't Sant Family Trust
REASONS FOR JUDGMENT BLOW CJ
23 June 2021
This case concerns an equitable charge given by a company director over his assets in conjunction with the provision of a guarantee. There is a dispute as to whether he gave the guarantee and the charge not only in his personal capacity, but also in his capacity as the trustee of a family trust, with the result that the assets of the trust became charged with the payment of a debt.
The plaintiff in this action, Borg Manufacturing Pty Ltd, manufactures and supplies melamine panels and other components used in joinery work. It is based in New South Wales. From about 2000 onwards, one of its customers was a Tasmanian company named Kingston Joinery Pty Ltd. That company was wound up on 4 February 2020. From 1990 until its winding up, the first defendant, John Van't Sant, was its sole director. As its name suggests, the company operated a joinery business.
Until 2017 Kingston Joinery operated that business as the trustee of a unit trust. During 2017 it began operating the business in its own right. After that change, in August 2017, the company entered into a credit agreement with Borg Manufacturing. The agreement provided for the supply and delivery of goods by Borg Manufacturing to Kingston Joinery on credit. It was signed by Mr Van't Sant on behalf of Kingston Joinery. At the same time he signed a document headed "GUARANTEE AND INDEMNITY" by which he gave Borg Manufacturing a guarantee of the punctual payment of Kingston Joinery's monetary liabilities, and charged his real estate to secure payment. The interpretation of that document is disputed in these proceedings.
Kingston Joinery continued to purchase goods from Borg Manufacturing, but encountered financial difficulties. As I have said, it was wound up on 4 February 2020. Borg Manufacturing sued Mr Van't Sant on his guarantee in the District Court of New South Wales, and obtained a default judgment against him on 2 April 2020 in the sum of $243,670.36. Mr Van't Sant was declared bankrupt on 23 February 2021.
When Mr Van't Sant executed the guarantee in August 2017 he was the trustee of a family trust named the Van't Sant Family Trust. That trust was established in 1992. At all material times its assets included two rental properties in Kingston and all the shares in Kingston Joinery. Mr Van't Sant was, and still is, the registered proprietor of the two properties. He held the shares in Kingston Joinery as trustee for the family trust. On 17 February 2021, six days before his bankruptcy, the second defendant, Van't Sant Pty Ltd, was appointed as the trustee of the family trust in his place.
In this action, Borg Manufacturing is seeking a declaration that Mr Van't Sant granted a charge to it over the two rental properties, and an order for their sale. It contends that Mr Van't Sant gave the guarantee and the equitable charge not just in his personal capacity, but also in his capacity as the trustee of the family trust. The defendants contend that he gave the guarantee and the equitable charge only in his personal capacity.
Mr Van't Sant signed seven pages of documentation on 29 August 2017. He signed each page. The date of signing has been filled in by hand on some pages. The final page bears a printed date 28/08/2017, but I infer that that is the date that the document was sent to Kingston Joinery, not the date of signing. Page 1 of the document reveals that the documentation was to be sent by email to Isaac Smith of Kingston Joinery. It is clear from the documentation that it was standard form documentation, prepared by Borg Manufacturing for routine use when customers arranged to purchase goods on credit. I have set out below some of the contractual terms and some of the printed instructions for completion of the documents. It is obvious that the standard form documentation was designed for use by different types of customers, including sole traders, partnerships, companies trading in their own right, and companies trading as trustees of trusts.
The critical contractual terms relied on by Borg Manufacturing in this action appear at the top of the seventh page of the documentation and read as follows:
"7 GUARANTEE AND INDEMNITY
this guarantee and indemnity is given by the Guarantor/s in favour of Borg Manufacturing Pty Ltd t/as Polytec (ABN 31 003 246 357) (Supplier).
introduction
A The Guarantor/s have asked the Supplier to supply Goods and Services to the Customer and to extend (or continue to extend) credit to the Customer.
B The Supplier has agreed to the request of the Guarantor/s in consideration of their agreement as follows:
it is agreed
1 The Guarantor/s guarantee to the Supplier the punctual payment of the monetary liabilities of the Customer (on any account and in any capacity whatsoever and including liabilities in respect of the Goods) which are now owing, or may from time to time be owing by the Customer to the Supplier (Debt). The Guarantor/s acknowledge and agree that the Debt includes any legal and other costs and expenses incurred or to be incurred by the Supplier in seeking payment from the Customer or in enforcing the Guarantee and Indemnity against the Guarantor/s.
2 For the purpose of securing payment of the Debt, the Guarantor/s hereby charge in favour of the Supplier all legal, equitable and beneficial interest in real property which it, he or she now or might subsequently acquire a legal or beneficial interest in, and authorise and consent the Supplier to lodge a Caveat upon Title of the Guarantor/s real property."
The first two pages of the documentation are headed "COMMERCIAL TRADING ACCOUNT". The first page sets out a lot of information, beginning with details of the business of Kingston Joinery and contact details for some of its staff. Then there is a section headed "Director/Principal Details" in which Mr Van't Sant's full name, date of birth, home address and contact details appear, as well as information that his residential property is mortgaged. That section is followed by some business addresses and details of three trade referees.
There follows a heading, "Documents". Under that heading the following appears:
"Trust Deed
If your company is NOT A TRUST please upload a blank page in this section.
PLEASE NOTE: TO COMPLETE YOUR APPLICATION, YOU MUST CONTINUE THROUGH THE REST OF THE FORM AFTER UPLOADING THE TRUST DEED
Directors Guarantee
To print the DG page, right click the mouse and select PRINT
If your company [sic] is a Sole Trader or Partnership, the DG is not required. HOWEVER the upload of a page is required to continue through the application process, please print the DG page, place a line through the page and upload.
PLEASE NOTE TO COMPLETE YOUR APPLICATION, YOU MUST CONTINUE THROUGH THE REST OF THE FORM AFTER UPLOADING THE GUARANTEE."
Pages 3, 4 and 5 of the documentation are headed "Credit Agreement". Those pages set out detailed provisions governing the contractual relationship between Borg Manufacturing and Kingston Joinery. Those provisions include the following:
"1 DEFINITIONS
1.1 'Customer' means a person or entity whose order for the purchase of Goods is accepted by the Supplier.
1.2 'Director' means where the customer is a corporation, all directors of that corporation and where the Customer is a trust that has a corporate trustee all directors of the trustee.
1.3 ...
1.4 'Guarantor' means that person (or persons) or entity who agrees herein to be liable for the debts of the Customer and includes all directors of the Customer where the Customer is a corporation and where the Customer is a trust all trustees of the trust and all directors of the trustee if there is a corporate trustee of the trust.
...
1.8 'Supplier' shall mean Borg Manufacturing Pty Ltd A.B.N. 31 003 246 357 and includes its successors and assigns.
...
2 INTERPRETATION
2.1 The headings used in this agreement do not form part of these Terms and are for convenience only.
...
15 TRUSTS AND TRUSTEES
15.1 Where the Customer is a trustee:
a) the Customer agrees to produce a stamped copy of the trust deed (with all amendments) and accounts of the trust if and when requested by the Supplier.
b) the Customer warrants that it has full power and authority to enter into this Agreement on behalf of the trust and that it shall be bound by these Terms both personally and in their capacity as trustees irrespective of whether or not it discloses to the Supplier that it is a trustee at the time of entering into any credit agreement with the Supplier.
c) the Customer warrants that the trust has agreed to indemnify the trustee in respect of all liability incurred by the trustee pursuant to this Agreement.
d) the trustee of the trust acknowledges that it has entered into this Agreement in its capacity as trustee of the trust and also its own capacity.
...
18 ACKNOWLEDGEMENT
18.1 Each of the Customer and the Directors hereby acknowledge, affirm and agree that:
a) this application has been provided to the Supplier to enable each of the Customer and the Directors to take it away and read it so that they may fully understand and comprehend the terms conditions and provisions contained herein;
b) they have read, fully understand and comprehend the terms, conditions and provisions contained in this application;
c) they have been advised by the Supplier prior to the execution of this application that a copy of this application form containing the forms of this application has been provided to the Customer and each Director to enable them to obtain independent legal advice and they have take [sic] such advice as to us has seemed appropriate;
d) they have full power and authority to enter into this Agreement;
e) this Agreement is signed and delivered as a Deed;
f) the Supplier will rely on all information given to the Supplier by the Customer and the Directors and this information is true and correct.
...
22.6 The Supplier and/or Customer and/or Guarantor agree and acknowledge that this Application may be completed by the Customer utilising the Supplier's online application process through the Supplier's website. This may include the insertion of the Customer's and/or Guarantor's electronic signature. Once this Application is completed in this method and if the Application is deemed acceptable by the Supplier, the Supplier and/or Customer and/or Guarantor agree that the Supplier may rely on this Application (and any accompanying Guarantee) as if it had been executed in writing by the Customer and/or Guarantor in writing. To be clear, once the Application is accepted by the Supplier, if Goods and/or Services are supplied by the Supplier to the Customer, the Customer and/or any Guarantor agree that such supply of Goods and Services are made on the basis of these Terms as if the Terms had been executed by the Supplier and/or Customer and/or Guarantor in writing."
After cl 22.6, there are spaces for four individuals to sign the document. In this case, only Mr Van't Sant has signed it. He filled in his name alongside printed text reading "Owner/Director (Print Name)". Below his name he signed his signature and dated the document.
The sixth page contains a privacy statement, again with spaces for four people to sign. Again, Mr Van't Sant filled in his name alongside printed text reading "Owner/Director (Print Name)".
The seventh and final page is headed "7 GUARANTEE AND INDEMNITY". It contains a number of clauses, some of which I have already set out. Again, the printed document provided spaces for four people to sign. Where Mr Van't Sant signed the document, the following printed matter appears:
"Owner Director (Guarantor)
(Print Name)JOHN VAN T SANT Owner Director
(Guarantor)
(signature)Please sign .........................
w[signature]
Date ........
w28 /08 /2017
Witness
(Print Name)Witness
(signature)Please sign ...... w[signature] "
In determining the meaning of a contractual term, a court must take an objective approach, determining the meaning that the parties intended the contract to have by reference to the objective facts, rather than evidence of their subjective intentions: Equuscorp Pty Ltd v Glengallan Investments Pty Ltd [2004] HCA 55, 218 CLR 471 at [34]; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52, 219 CLR 165 at [40]. In Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37, 256 CLR 104, French CJ, Nettle and Gordon JJ stated at [47]:
"In determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean. That enquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract." [Footnote omitted.]
When there is a dispute as to the identity of a contracting party, the issue is to be determined objectively in the same way as a dispute as to the meaning of a contractual term. In Air Tahiti Nui Pty Ltd v McKenzie [2009] NSWCA 429, 77 NSWLR 299, Allsop P (as he then was) and Handley AJA, with whom Hodgson JA agreed, said at [28]:
"The identity of the contracting party is to be determined looking at the matter objectively, examining and construing any relevant documents in the factual matrix in which they were created and ascertaining between whom the parties objectively intended to contract. This is, to a point, a process of construction similar to the task of identifying whether a clearly contractual document (such as a bill of lading) is made with one party or another (such as a shipowner or time charterer): Homburg Houtimport BV v Agrosin Private (at 770) and the cases considered in M Wilford, T Coghlin and J D Kimball, Time Charters 5th ed (2003) London, Lloyds of London Press, Ch 21. Where the documents are silent or ambiguous, but there is undoubtedly a contract, the identity of the parties must be determined objectively from the surrounding circumstances: see Barroora Pty Ltd v Provincial Insurance Ltd (1992) 26 NSWLR 170 at 174; Protean (Holdings) Ltd (receivers and managers appointed) v American Home Assurance Co (1985) 4 ANZ Insurance Cases 60–683 at 74,055–74,056; Coulls v Bagot's Executor and Trustee Company Ltd (1967) 119 CLR 460 at 477, 478–479 and 486."
Similarly, when an issue arises as to the capacity or capacities in which a person or corporation has executed a commercial document, that issue must be determined objectively, taking into account the commercial setting and the surrounding circumstances known to the parties: Helvetic Investment Corporation Pty Ltd v Knight (1984) 9 ACLR 773 per Mahoney JA, with whom Samuels JA agreed, at 778; Scottish Amicable Life Assurance Society v Reg Austin Insurances Pty Ltd (1985) 9 ACLR 909 per McHugh JA (as he then was), at 923; Re Interwest Hotels Pty Ltd (in liq) (1993) 12 ACSR 78 at 118-120 (Eames J).
In a number of cases, judges have expressed views to the effect that, as a general rule, a person or entity who contracts in one capacity should not be regarded as contracting in any additional capacity. In Rooper v Harrison (1855) 2 K & J 86, 69 ER 704, Wood VC said at K & J 112, ER 715:
"But it is well-known law that estates vested in a person in autre droit are so different from estates vested in him in his own right ... that an assignment by a person of all his goods and chattels will not pass those he holds as executor, unless he have none of his own; in which case, from the necessity of the thing, they are held to pass; the ground of that doctrine being that the two things are so clearly distinct in the party that the intention, when he speaks of his own simpliciter, is not to pass anything which he holds in autre droit."
That passage was cited with approval by Andrews CJ, with whom Shepherdson and Vasta JJ agreed, in Corozo Pty Ltd v Total Australia Ltd [1988] 2 Qd R 366 at 372-373.
In Re Interwest Hotels Pty Ltd (in liq) (above), Eames J said at 85:
"There is no presumption that a company is acting in any capacity other than on its own behalf when it contracts with another party. There is, therefore, no rule that that company is, without more, presumed to be acting in capacities other than in its personal right."
In Duckworth v Water Corporation (No 2) [2015] WASC 411 there was a dispute as to the capacity in which a developer had signed a contract for the construction of water headworks for a subdivisional development and also a bond agreement pursuant to which he provided a banker's undertaking to pay up to $3 million to the Water Corporation on demand. The developer was the trustee of a trust. The trust deed had been varied to empower him as trustee to develop the relevant property for subdivision, and to give him a right to be indemnified out of the trust assets for all costs incurred by him in relation to the purchase and development of the property. At [61], Mitchell J concluded that the man had entered into the two agreements in his capacity as trustee of the trust. At [57] his Honour observed that the only indicator that the man might have acted in his personal capacity was that he had used his ABN. At [48] his Honour noted that both parties accepted that the proper approach to determining the capacity in which the man had acted was that adopted by Eames J in Re Interwest Hotels Pty Ltd (in liq) (above). Counsel for Borg Manufacturing relied heavily on Duckworth but it is of no assistance since it turned on its own facts.
Clause 7(d) of the trust deed of the Van't Sant Family Trust gave the trustee the following powers:
"to give any guarantee for payment of money or the performance of any contract obligation or undertaking by any person firm company corporation or association and to give any security over any asset of the Trust Fund in support of any such guarantee".
Clearly Mr Van't Sant as trustee had the power to guarantee the debts of Kingston Joinery and the power to grant an equitable charge over trust assets. The question to be determined in this action is whether he exercised those powers, or whether he gave the guarantee and the equitable charge only in his personal capacity.
It is also clear that, provided that Kingston Joinery did not have financial problems that made such transactions too risky, giving the guarantee and the equitable charge to Borg Manufacturing in his capacity as trustee could not have involved a breach of trust. That is because the interests of Kingston Joinery and the interests of the trust coincided. Kingston Joinery was not the trustee of a trust. Mr Van't Sant was its sole director. He held all its shares, not in his personal capacity, but in his capacity as the trustee of the Van't Sant Family Trust. It was in the interests of the beneficiaries of that trust for Kingston Joinery to be able to acquire goods on credit from Borg Manufacturing. It follows that the giving of the guarantee and the equitable charge as trustee of the trust, if that is what Mr Van't Sant did, was not inherently improper.
The situation would have been very different if Mr Van't Sant had been the beneficial owner of the shares in Kingston Joinery. In that situation, giving both a guarantee and an equitable charge as the trustee of the trust would have imperilled the trust assets for purposes unrelated to the trust, and for the benefit only of Kingston Joinery and Mr Van't Sant. In that situation, Mr Van't Sant would have been in a position of conflict. Giving the guarantee and giving the equitable charge would have amounted to breaches of trust: Commonwealth v Colonial Combing Co (1922) 31 CLR 421 at 470; Chan v Zacharia (1984) 154 CLR 178 at 198.
I infer that the management of Borg Manufacturing did not know of the existence of the family trust when the documentation was prepared and signed in August 2017. There is no evidence before me of any such knowledge. If anyone involved in the management of Borg Manufacturing had known of the family trust at that time, I am sure that such evidence would have been presented.
The documentation that was sent to Kingston Joinery called for disclosure of a trust deed if the customer was a trustee, but not for information about the shareholders of a customer that was a company, nor for disclosure about the capacities in which they held their shares. Borg Manufacturing appears to have had a policy of asking its customers, or some of them, to sign standard form documentation. It appears to have been the policy of that company to ask incorporated customers, or some of them, to provide standard form guarantees from all their directors. In the case of Kingston Joinery, it is clear that Borg Manufacturing, as a condition of the provision of goods on credit, required a representative of Kingston Joinery to sign its standard form of credit agreement, and required Mr Van't Sant as the sole director to sign its standard form of guarantee and indemnity. However the evidence does not support a conclusion that Borg Manufacturing required anything further by way of security for the payment of the debts of Kingston Joinery.
It is true that, by cl 2 of the guarantee and indemnity agreement, Mr Van't Sant gave a charge over all his "legal, equitable and beneficial interest in real property", including future interests. However he does not hold any equitable or beneficial interest in either of the two rental properties that he holds upon trust. The family trust is a discretionary trust. He is within the class of beneficiaries to whom the income or assets of the trust may be distributed. But a potential beneficiary in his situation does not have an equitable or beneficial interest in any assets of the trust, as distinct from a right to have the trust properly administered, and an expectancy or hope of consideration by the trustee: Gartside v Inland Revenue Commissioners [1968] AC 553 per Lord Wilberforce at 617-618; Kennon v Spry [2008] HCA 56, 238 CLR 366 at [74], [125] and [160]-[161]. Although cl 2 of the guarantee, read literally, purported to charge the guarantor's "legal" interest in real property with the payment of the debts of Kingston Joinery, the clause could not properly be interpreted as creating a valid equitable charge over real property in which the guarantor had no equitable or beneficial interest.
It is true that Mr Van't Sant signed the guarantee and indemnity document in the space provided against the words "Owner Director (Guarantor)". It is clear that he was giving the guarantee to Borg Manufacturing because, as a matter of routine, that company required a personal guarantee from each director of each corporation that entered into the standard form of credit agreement. The definitions of "Director" and "Guarantor" appear in cl 1 of the credit agreement. Counsel for Borg Manufacturing argued that Mr Van't Sant signed the agreement as the "owner" of Kingston Joinery, and that that supported a conclusion that he was signing not just as a director of Kingston Joinery, but also as the trustee of the family trust. I reject that submission. I accept that the word "owner" beside the space for a guarantor's signature could only be interpreted as referring to an "owner" of a company whose debts were being guaranteed. I accept that no one other than Mr Van't Sant could have been described as the owner of Kingston Joinery in that sense. However it does not follow that a reasonable businessperson would treat his signing of the guarantee against the word "owner" as an indication that he was signing both in his personal capacity and in his capacity as the trustee of the family trust. Borg Manufacturing did not know that he held the shares upon trust. It could not have known whether charging real property held by the guarantor on trust would or would not involve a breach of trust. The equitable charge related not just to real estate held at the time of signing, but also to future interests in real estate. The possibility existed that if the guarantor held any real estate as a trustee, there might be a future conflict between the guarantor's personal interests and the guarantor's fiduciary duties as a trustee. In those respects, similar considerations would be relevant whenever Borg Manufacturing procured a guarantee by a director of a corporate customer using its standard form documentation. All of those matters weigh against Borg Manufacturing's argument as to the word "owner".
It is true that, when the guarantee was signed, the only interests that Mr Van't Sant had in any real property were his interests as the registered proprietor of the trust's two rental properties. Counsel for Borg Manufacturing argued that cl 2 of the guarantee must therefore have been intended to apply to those properties, and that a reasonable businessperson would have understood that Mr Van't Sant was granting charges over all interests in real property that he held in any capacity. I reject that submission. It is significant that the guarantee was a standard form document, not a bespoke document. Once again, it is significant that the giving of a guarantee and an equitable charge that were enforceable against trust assets might have involved breaches of trust.
It follows from all of this that any reasonable businessperson, aware of the circumstances in which the credit agreement and the guarantee were signed, would have concluded that Mr Van't Sant signed the guarantee in his personal capacity and not any other capacity. On that basis, I conclude that he signed the guarantee only in his personal capacity, and that he did not thereby charge any of the trust property with the payment of the debts of Kingston Joinery. It follows that this action must fail, and that judgment must be entered for the defendants.
There is a second proceeding before the Court that I need to mention. It relates to a caveat. On 5 December 2019 Borg Manufacturing lodged a caveat in relation to the two rental properties, claiming an estate or interest as chargee. Mr Van't Sant applied to the Recorder of Titles under s 136A(1) of the Land Titles Act 1980 for the caveat to be cancelled. Borg Manufacturing responded by applying to this Court for an order extending the operation of the caveat. On 31 March 2020 Holt AsJ made an order under s 136A(3)(a)(ii) of the Land Titles Act extending the operation of the caveat until further order. I expect that Mr Van't Sant will seek orders from me discharging that order and dismissing the originating application relating to the caveat. I will hear counsel as to what orders should be made in those proceedings, and when.
0
14
0