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…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2010] SASCFC 12
Decision Date: 30 July 2010

CaseChat Overview and Summary

The appeal concerned a dispute between Burrell & Family Pty Ltd (the respondent) and Mr Harris (the appellant) regarding a written loan agreement. The respondent had advanced substantial sums of money to a company, Hardel Pty Ltd, of which the appellant was the sole director. The core of the dispute was whether the appellant was personally liable under the terms of a loan agreement, or if he had executed it solely in his capacity as director of Hardel. The appeal was heard by the Full Court of the Supreme Court of South Australia.

The legal issues before the court were whether a specific clause within the loan agreement, clause 4(d), imposed personal liability on the appellant, and consequently, whether the appellant's signature on the agreement rendered him personally bound to its terms, irrespective of Hardel's liability. The court was required to interpret the loan agreement and the effect of the appellant's signature in light of the surrounding circumstances.

The court reasoned that the objective effect of the appellant's signature, when considered in the context of the loan agreement and the parties' conduct, was to impose personal liability. The court found that clause 4(d) of the agreement was sufficiently clear and apt to create such a personal obligation on the appellant. The court applied principles of contractual interpretation, focusing on the objective meaning of the words used in the agreement and the appellant's actions in executing it. The court concluded that the appellant had bound himself personally to the loan agreement.

The appeal was dismissed, upholding the decision of the lower court that the appellant was personally liable under the loan agreement.

Orders

Orders of the court

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Background

Background to the litigation

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.

Evidence

Evidence Before The Court

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Decision

Reasons for decision

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.

Ratio Decidendi

Legal Principle Established

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