Harris v Burrell & Family Pty Ltd - [2010] SASCFC 12

SUPREME COURT OF SOUTH AUSTRALIA
(Full Court)
HARRIS v BURRELL & FAMILY PTY LTD (ACN 104 734 929)
[2010] SASCFC 12
Judgment of The Full Court
(The Honourable Chief Justice Doyle, The Honourable Justice Bleby and The Honourable Justice Sulan)
30 July 2010
CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - FORMATION OF CONTRACTUAL RELATIONS - ACCEPTANCE - BY WHOM
CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - CONSTRUCTION AND INTERPRETATION OF CONTRACTS - INTERPRETATION OF MISCELLANEOUS CONTRACTS AND OTHER MATTERS
GUARANTEE AND INDEMNITY - THE CONTRACT OF GUARANTEE - PARTIES AND CAPACITY
GUARANTEE AND INDEMNITY - THE CONTRACT OF GUARANTEE - CONSTRUCTION AND EFFECT - GENERALLY
Appeal against decision upholding respondent's claim - whether respondent personally liable under a written loan agreement - whether appellant bound himself to loan agreement - capacity in which appellant executed loan agreement - effect of appellant's signature - whether relevant clause in loan agreement imposed a personal liability on appellant - appeal dismissed.
Clark Equipment Credit of Australia Ltd v Kiyose Holdings Pty Ltd (1989) 21 NSWLR 160; Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95; Scottish Amicable Life Assurance Society v Reg Austin Insurances Pty Ltd (1985) 9 ACLR 909; Toll (FGCT) Pty Limited v Alphapharm Pty Limited (2004) 219 CLR 165, discussed.
NEC Information Systems Australia Pty Ltd v Linton (1985) NSW ConvR 55-240, considered.

HARRIS v BURRELL & FAMILY PTY LTD (ACN 104 734 929)
[2010] SASCFC 12
Full Court: Doyle CJ, Bleby and Sulan JJ

DOYLE CJ:          Burrell & Family Pty Ltd (Burrell) brought proceedings against Mr Harris to recover from him more than $2m (inclusive of interest) lent by Burrell to Hardel Pty Ltd (Hardel). Mr Harris was the sole director of Hardel, and also of 11 other companies. The group of companies was involved in property development. Burrell relied on a written loan agreement between Burrell and Hardel. The claim by Burrell against Mr Harris was based on clause 4(d), which provides as follows:
(d)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.
There was no dispute that Mr Harris was “[t]he director of the borrowing entities …”. However, as I have said, the agreement was between Burrell and Hardel “and associated entities”. The agreement was executed as follows:
EXECUTED by  EXECUTED by
BURRELL & FAMILY PTY LTD                   HARDEL PTY LTD
(ACN 104 734 929)  (ACN 68 231 962 930)
[Helen Burrell – signed]  [Peter Harris – signed]
____________________________                ____________________________
HELEN BURRELL  PETER HARRIS
Director  Director
In his reasons (Burrell & Family Pty Ltd v Harris [2010] SASC 184) the Judge found at [54]:
[54]… I am satisfied that when the 2008 Agreement is considered as a whole, and in the circumstances in which it was made, a reasonable person would have considered that Mr Harris was intending to be personally bound. Any other conclusion would fail to give effect to cl 4(d). … The parties, unassisted by legal advice, did not advert to the appropriateness of Mr Harris signing the document separately and identifiably in each of his two capacities. Instead, considered objectively, they contemplated that Mr Harris’s signature should have a dual effect.
The Judge further found at [71]:
[71]I see no reason not to give cl 4(d) the meaning which the words used suggest, namely, that Mr Harris acknowledged, in a formal way that, in addition to the recovery action which could be taken against Hardel, he would be personally liable for any amount of the loan and accrued interest which was unpaid at 1 June 2008. Accordingly cl 4(d) does contain an effective and enforceable commitment by Mr Harris to pay the amount of Hardel’s outstanding indebtedness to the plaintiff.
The Judge entered judgment for Burrell against Mr Harris. On appeal, both conclusions are challenged.
There are two issues. Did Mr Harris bind himself to the agreement, or make himself personally liable, by signing the agreement in the manner in which he did? No other basis for liability is suggested. If Mr Harris is bound in a personal capacity, he is bound only by cl 4(d). The second question is whether cl 4(d) on its proper construction imposes a personal liability on Mr Harris for the amount of Hardel’s outstanding indebtedness.
The second question is closely linked to the first question. Unless cl 4(d) is apt to impose a personal liability on Mr Harris, the effect of his signature on the agreement does not matter because it is not suggested that Hardel was not bound by the agreement.
Facts
There is no dispute as to the primary facts. The dispute relates to the effect of what the parties did, considered objectively, and in particular to the inference to be drawn from the manner in which Mr Harris executed the agreement, considered in the light of the surrounding circumstances.
Mr Roberts, counsel for Mr Harris, correctly submits that this Court is in as good a position as the trial Judge to decide that dispute. None of the trial Judge’s findings of fact are challenged. If this Court differs from the trial Judge then it can and should substitute its conclusion.
The background facts were summarised by the trial Judge. No criticism was made of this aspect of his reasons. Accordingly, it is convenient to set out the relevant findings. They are as follows:
[4]The plaintiff is a family owned company deriving its income from the provision of management services and property rentals. Mr Burrell’s wife, Helen, is its sole director. However, Mr Burrell has been its principal human agent in relation to the matters relevant in these proceedings. I am satisfied that Mr Burrell is an experienced businessman.
[5]Hardel Pty Ltd (Hardel) is a company which has been involved in some way in property development. At all times relevant to these proceedings, Mr Harris has been its sole director. Since 15 June 2009, Hardel has been in liquidation.
[6]Mr Harris is also the sole director of 11 other companies[1] which together can be referred to as the Hardel Group of Companies. The precise business activities or functions of these other companies is unclear. Some act as trustees of trusts, and some appear to be involved in property development. Some of the companies have borrowed substantial sums of money. I am satisfied that Mr Harris is also an experienced businessman and familiar with the documentation associated with financial transactions.
[7]The Burrells and Mr Harris came to know each other in early 2004 through their involvement in the Assemblies of God Church at Paradise. Mr Burrell and Mr Harris became friends and investigated the possibility of pursuing some business prospects together.
[8]In early January and February 2005, as a result of requests by Mr Harris to Mr Burrell, the plaintiff lent $100,000, and shortly afterwards $200,000, to Hardel. The first loan was to be for a period of four weeks, and the second for 12 months, in both cases commencing on 1 February 2005. Both loans were interest bearing. The plaintiff and Hardel entered into separate loan agreements, each dated 1 February 2005, in relation to these two loans. I accept Mr Burrell’s evidence that both these loan agreements were prepared by him without obtaining any legal assistance.
[9]In June and July 2005, the plaintiff lent further amounts to Hardel, again at the request of Mr Harris. It lent $750,000 in June and $150,000 in July. Each loan was for a period of 12 months. In addition, in June 2005 the plaintiff agreed to lend Hardel $10,000 per month for a period of 12 months. Under this arrangement, the plaintiff did lend $10,000 each month commencing with an advance on 22 June 2005 and concluding on 22 May 2006.
[10]The parties did not enter into any written loan agreements in relation to these additional loans. They appear to have been interest bearing.
[11]In total, as a result of the loans described above, the plaintiff advanced $1,320,000. None of the loans were secured in any way at all at the time that they were made. All of the loans were made to Hardel. The evidence does not disclose with any precision how Hardel applied the advances. …
[12]I have described the loans as being made to Hardel. However, it is very apparent that it was the personal relationship between Mr Burrell, on the one hand, and Mr Harris, on the other, which was central to the loans being made, and to the form in which they were made. This explains the absence of any written documentation at all in relation to the last three loans, the relative informality of the first two loan agreements, and the absence of any provision for security. I am satisfied that it was Mr Burrell’s trust of Mr Harris personally which was at the heart of the loan agreements.
[1] Agreed Fact No 10.
The 2006 Agreement
[13]Hardel did not make any payments whether of interest or of principal during 2006. Mr Burrell became concerned about this state of affairs and he pressed Mr Harris for repayment. In late September, or early October 2006, Mr Harris agreed to pay $1m by 30 October 2006, but he did not meet that commitment.
[14]Mr Burrell continued to press Mr Harris for repayment. It is not necessary to record the detail of their discussions or communications on this topic. In about November 2006, the two men agreed that the plaintiff and Hardel should enter into a new loan agreement consolidating all of the plaintiff’s loans to Hardel. The consideration for the new agreement was the plaintiff’s agreement to an extension of time in which the monies could be repaid.
[15]Messrs Burrell and Harris agreed that Mr Harris would draft the terms of the new agreement. However, when Mr Harris delayed doing so, Mr Burrell prepared a draft, again without legal assistance. Subsequently the parties entered into an agreement dated 30 November 2006 (the 2006 Agreement). Although bearing the date 30 November 2006, I find that the 2006 Agreement was not executed by Hardel until 29 December 2006.
During 2007 Hardel made repayments amounting to $309,000, but there was still a substantial amount outstanding. Mr Burrell repeatedly complained to Mr Harris about the failure to make repayment. The Judge made further findings relating to the agreement in question:
The 2008 Agreement
[19]In January 2008, Mr Harris raised with Mr Burrell the prospect of the parties entering into an updated loan agreement. This was very shortly after the payment of the substantial sum of $250,000 on 29 December 2007, referred to above. On 13 March 2008, Mr Burrell agreed that the parties enter into an updated agreement. Mr Harris agreed to have his solicitors draw up a “new simple agreement” to replace the 2006 Agreement. When Mr Burrell did not receive any draft from Mr Harris, he prepared his own draft, using the 2006 Agreement as its basis. This was done without seeking legal advice. The terms of the draft were very similar to, but not completely identical with, those in the 2006 Agreement.
[20]Although bearing the date 1 April 2008, the 2008 Agreement was executed by Mr Harris at a meeting with Mr Burrell on 21 April 2008. I infer that Mrs Burrell had previously signed the Agreement as director of the plaintiff.
After the execution of this Agreement Hardel made only one further payment of $3,000.
As at 30 November 2006 Hardel owed Burrell $1,484,511.28. As at 1 April 2008 the amount was $1,440,786.87. When judgment was entered it was for $2,162,793.85 inclusive of interest to 24 June 2010.
Hardel is in liquidation.
All four agreements referred to by the Judge were drawn up by Mr Burrell without legal advice. They are all in a similar form. The Agreement of 30 November 2006 has six handwritten clauses added by Mr Harris, but nothing in particular turns on these clauses.
The 2006 Agreement and the 2008 Agreement purport to be made by Hardel “and associated entities”, said to comprise some eight named trusts, but not being restricted to the named trusts. At trial it was accepted that none of these entities were bound by the Agreement. The references to them can be disregarded.
Apart from the frontsheet, the 2008 Agreement comprises two pages. Putting aside the front page, the Agreement is as follows:
MEMORANDUM OF AN AGREEMENT FOR LOAN
This Loan Agreement is dated the 1^st Day of April 2008
PARTIES:
BURRELL & FAMILY PTY LTD (ACN 104 734 929) of … in the said state of South Australia, jointly and severally together with their successors and assigns called (“The Lender”)
-and-
HARDEL PTY LTD (ACN 068 231 962 930) of … South Australia together with its successors, assigns and associated entities called (“The Borrower”)
NOW THIS AGREEMENT WITNESSES as follows:-
1.     The Loan
The lender agrees to lend to the Borrower and the Borrower agrees to borrow from the Lender the sum of ONE MILLION, FOUR HUNDRED AND FORTY THOUSAND, SEVEN HUNDRED AND EIGHTY-SIX DOLLARS AND EIGHTY-SEVEN CENTS (“the Principal Sum”) for a period of two months (“the Term”), commencing on Tuesday the 1^st of April 2008. ($1,440,786.87)
2.     Purpose of Loan
The Purpose of the loan facility is to continue the provision of short-term capital until the Borrower is able to re-finance for property development activity and in accordance with the time lines as advised by the borrower.
3.     Interest on Loan
The Borrower is required to pay interest on the Principal Sum + Any Outstanding Interest at a rate of 1.55 per centum (%) compounding per month or part thereof until the loan is paid in full.
4.     Repayment of The Principal Sum
(a)The Borrower must repay and fully discharge the loan on or before the Repayment Date of 1 June 2008. The Borrower must also pay any interest accrued on the loan and not then paid, and all other amounts payable under or as a consequence of this agreement and unpaid, to the Lender on or before the Repayment Date.
(b)The Borrower shall have the right from time to time and at any time during the term of the loan to repay to the Lender the whole or any portion of the Principal Sum.
(c)Failure to fully discharge the loan on the repayment date may result in recovery action and it is agreed that all costs associated with recovery will be charged to the borrower. Such recovery action will not be limited to Hardel Pty Ltd but will extend to include all related entities, parties and trusts and will continue until all of the debt is fully recovered.
(d)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.
6.Costs
The Borrower shall bear and pay all reasonable costs and expenses of and incidental to the negotiation and preparation and stamping of this agreement and of any incidental documents.
7.     Other
The parties agree that all moneys payable hereunder shall be payable in AUD – Australian Dollars.
8.     Governing Law
This agreement shall be construed in accordance with the laws of the State of South Australia and the law of that State will be the proper law of the contract. The parties agree to submit to the non-exclusive jurisdiction of the courts of that State and any courts that may hear appeals there from.
9.     Notices
Any notice to be given in relation to this agreement shall be in writing and may be delivered personally to either party at the last known address. If posted, the notice will operate from three (3) working days from the date of posting.
EXECUTED as an agreement the day and year first herein before mentioned.
EXECUTED by  EXECUTED by
BURRELL & FAMILY PTY LTD                HARDEL PTY LTD
(ACN 104 734 929)  (ACN 68 231 962 930)
[Signed by Helen Burrell]  [Signed by Peter Harris]
______________________________  ___________________________
HELEN BURRELL  PETER HARRIS
Director  Director
As I said, all four Agreements are in substantially the same form.
Applicable principles
There is a body of case law relating to the effect of a qualification or limitation attaching to a person’s signature on a contract: Scottish Amicable Life Assurance Society v Reg Austin Insurances Pty Ltd (1985) 9 ACLR 909 at 913 Kirby P dissenting. But the issue presented by a case like the present must be decided by applying certain principles that are of general application. I consider that the correct approach was identified by McHugh JA in Scottish Amicable in the following passage at 923-924:
This appeal raises the question whether a person whose signature purports to be made on behalf of an incorporated company is nevertheless personally liable. …
The formation of a contract does not depend upon the actual intention of the parties. A contract exists because the law attaches rights and obligations to the external conduct of the parties, one at least of whom has expressly or impliedly made a promise … The meaning which a party intends that his words or conduct should have is irrelevant. Words and conduct are interpreted according to what was said and not according to what was meant …
The present case, therefore, depends on what the parties did and not on what they intended to do when they signed the Indemnity and the Agency Agreement. And what they did depends on the construction to be placed on the documents which they signed. A commercial document, however, must be construed in its commercial setting – in accordance with the surrounding circumstances known to the parties … This is so whether the issue concerns construction in the strict sense or whether, as here, the issue concerns the capacity in which a person signs a document. … In some cases the contents of a document may indicate that the signatory is bound even though a qualification attaches to his signature. Expressly or by implication the body of the document may make it plain that the signatory is a party to the contract. In the examples given by Atkin LJ [in a decision discussed in an omitted passage], it would usually follow that there was no liability on the part of the person signing. But this is because the express disavowal of responsibility in those examples is so strong that no other consideration, based on the terms of the document, can overcome it. In other cases, however, the qualification to the signature may be overcome by the terms of the document and the surrounding circumstances. In the end the decision must depend upon the terms of the document including the qualification attaching to the signature together with the surrounding circumstances. This is a question of fact, not of law.
Citations omitted
This approach is consistent with the approach taken by the High Court to the meaning of contracts, as the Court explained in Toll (FGCT) Pty Limited v Alphapharm Pty Limited [2004] HCA 52; (2004) 219 CLR 165 at [40]:
[40]This Court, in Pacific Carriers Ltd v BNP Paribas, has recently reaffirmed the principle of objectivity by which the rights and liabilities of the parties to a contract are determined. It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction.
Footnotes omitted

These observations by the High Court apply to a case like the present, where the issue is whether a person has made himself liable under a contract, as much as they apply to the construction of a contract.
Some of Mr Roberts’ submissions were couched in terms of a prima facie presumption (arising from the qualified signature), and then by reference to a consideration of whether the case was sufficiently plain to rebut that presumption. In my opinion this approach is not desirable. It is a matter of considering what the parties did, in the light of the surrounding circumstances, and then considering what that would have led a reasonable person in the position of the other party to believe. As Gaudron, McHugh, Hayne and Callinan JJ said in a different context in Ermogenous v Greek Orthodox Community of SA Inc [2002] HCA 8; (2002) 209 CLR 95 at [26]:
[26]In this context of intention to create legal relations there is frequent reference to "presumptions". It is said that it may be presumed that there are some "family arrangements" which are not intended to give rise to legal obligations and it was said in this case that it should not be presumed that there was an intention to create legal relations because it was a matter concerning the engagement of a minister of religion. For our part, we doubt the utility of using the language of presumptions in this context. At best, the use of that language does no more than invite attention to identifying the party who bears the onus of proof. In this case, where issue was joined about the existence of a legally binding contract between the parties, there could be no doubt that it was for the appellant to demonstrate that there was such a contract. Reference to presumptions may serve only to distract attention from that more basic and important proposition.
For these reasons I prefer to avoid the approach suggested by Mr Roberts.
The approach taken by Giles J in Clark Equipment Credit of Australia Ltd v Kiyose Holdings Pty Ltd (1989) 21 NSWLR 160 is consistent with the approach taken by McHugh JA in Scottish Amicable. After an extensive consideration of decided cases, Giles J said at 174:
In the result, I conclude that the proper approach is to inquire whether there is to be found an intention that the signatory be personally bound to the contract evidenced in the document, meaning thereby not a subjective intention but an intention to be found objectively, notwithstanding a qualification attached to the signature. That intention, or lack thereof, is to be found upon the construction of the document as a whole, including but not being limited to the qualification attached to the signature, in the light of the surrounding circumstances to the extent to which evidence thereof is permissible. The inquiry is not limited to consideration of the signature and its qualification in order to determine whether or not the signature indicates an assent to be personally bound.
See also NEC Information Systems Australia Pty Ltd v Linton (1985) NSW ConvR 55-240 at 56,281 Wood J.
Effect of execution of the 2008 Agreement
I consider that the following matters support the conclusion reached by the Judge.
The Agreement was prepared without legal advice on either side. That makes the failure to identify Mr Harris as a party and as a separate signatory less significant than it would be had the Agreement been prepared by a solicitor. It equally makes less significant the failure to have Mr Harris sign the Agreement separately in his personal capacity, and the failure to use the term “guarantee” anywhere in the document. However, these are matters to be considered.
In cl 4 (d) the Agreement contains a provision that is apparently intended to impose a personal liability on the part of Mr Harris. There is no doubt that cl 4(d) refers to Mr Harris. I reject the submission by Mr Roberts that in some way this clause is to be read as a personal acknowledgement by Mr Harris of the company’s indebtedness. It is not surprising that Mr Harris would agree to bind himself personally. He was buying valuable time for his business entities.
I agree with the Judge’s conclusion at [50] and [51] that Mr Harris must have been aware of the presence of cl 4(d), in both the 2008 Agreement and in the 2006 Agreement. This is an aspect of the circumstances in which the 2008 Agreement was executed.
The manner in which Mr Harris executed the 2008 Agreement might suggest that he intended to bind Hardel only. But, in light of the presence of cl 4(d), and the fact that Mr Harris was the sole director of Hardel, the description of Mr Harris as director is capable of being treated as referable to cl 4(d). The description of Mr Harris as director fits the manner in which he is identified in cl 4(d). The qualification to the signature does not have the force that it otherwise might have.
Another relevant circumstance identified by the Judge was the personal friendship between Mr Burrell and Mr Harris. Having regard to this relationship, it is not surprising that Mr Harris would accept personal responsibility. As the Judge said at [52]:
[52]… The loans made by the plaintiff to Hardel had their origins and continuance in the personal friendship, mutual trust and shared religious views of Messrs Burrell and Harris. In those circumstances, it is natural that Mr Harris may have readily accepted a personal responsibility to repay his friend’s loans. I accept Mr Burrell’s evidence that an acceptance by Mr Harris of personal responsibility underpinned the discussions which he had with him concerning the loans. Mr Burrell’s inability to point to a specific discussion or to specific words does not matter in this respect. Mr Harris’ acceptance of his personal responsibility underpinned the discussions of the two men.
Both parties must be taken to have intended that the 2008 Agreement would be brought into effect. That involved Mr Harris 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.
In agreeing with the Judge, I am influenced by the following matters. The 2008 Agreement was prepared without legal advice, and reflects that fact. It contemplates Mr Harris accepting a personal liability. It is not surprising that he would.
The terms of the 2008 Agreement, and the circumstances in which it was signed, persuade me that, considering the circumstances objectively, Mr Harris was indicating an intention to be bound personally. The indication of this intention is sufficiently clear to outweigh the circumstance that the manner of execution by Mr Harris is capable of being treated as indicating that he signed the 2008 Agreement only on behalf of Hardel.
The fact that the 2008 Agreement contains a provision apt to and apparently intended to bind Mr Harris personally is a factor on which I have relied, as I have stated. But I have borne in mind the possibility that, although an assumption of personal liability was contemplated, the parties failed to give effect to that part of the Agreement by failing to have Mr Harris agree to be bound personally. It cannot be assumed that because the parties apparently contemplated a personal liability on the part of Mr Harris, that is what they achieved. But the facts to which I have referred satisfy me that, considered objectively, Mr Harris intended to be bound personally when he placed his signature on the 2008 Agreement.
Construction of cl 4(d)
I have already said that cl 4(d) is apt to impose a personal liability on Mr Harris. My conclusion to that effect was part of the process of deciding whether Mr Harris had bound himself personally. Some of the submissions before the Judge appear to have proceeded on the basis that cl 4(d) must be treated as making Mr Harris liable as a guarantor. There is no reason why cl 4(d) could not be read as imposing an independent liability as borrower jointly, or jointly and severally, with Hardel.
In any event, I agree with the Judge’s conclusion that cl 4(d) was effective to make Mr Harris liable for the amount claimed.
Conclusion
I would dismiss the appeal.
BLEBY J: I agree that the appeal should be dismissed for the reasons given by the Chief Justice.
SULAN J: I agree with the reasons of the Chief Justice. I would dismiss the appeal.