National Australia Bank Limited v Varagiannis
[2007] VSC 331
•12 September 2007
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. 5848 of 2004
| NATIONAL AUSTRALIA BANK LIMITED | Plaintiff |
| v | |
| JOHN VARAGIANNIS and ELEFTHERIA VARAGIANNIS | Defendants |
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JUDGE: | MANDIE J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 29-30 August 2007 | |
DATE OF JUDGMENT: | 12 September 2007 | |
CASE MAY BE CITED AS: | National Australia Bank Ltd v Varagiannis | |
MEDIUM NEUTRAL CITATION: | [2007] VSC 331 | |
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CONTRACT – whether person who signed a guarantee under the designation or name of another was a party bound by the guarantee – construction of guarantee document in the light of the surrounding circumstances in order to ascertain the objective intention of the parties
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr G McEwen | Dibbs Abbott Stillman |
For the first Defendant | Mr M Strang | Clark & Toop |
| For the second Defendant | No Appearance |
HIS HONOUR:
Introduction
National Australia Bank (“the Bank”) claims the sum of $4,562,052.82[1] pursuant to a guarantee dated 23 June 1997. The Bank alleges that the guarantee, which related to the obligations of Artknitt Fabrics Pty. Ltd. (“Artknitt”)[2], is enforceable against the defendants, John Varagiannis (“John”) and his wife Eleftheria Varagiannis. John’s Greek first name is Ioannis but in Australia he adopted the name “John”. In Australia his wife adopted the first name “Rita” and it will be convenient to refer to her by that name. The proceeding was not defended by Rita. At all relevant times John and Rita were the sole directors of Artknitt.
[1]This sum represents principal and interest due as at 23 August 2007 according to a Certificate of that date from the Bank – the amount is not in dispute.
[2]This company, which was the trustee for the Artknitt Fabrics Unit Trust, went into liquidation and is now deregistered.
The guarantee was executed by three parties, who were named in the guarantee as “Leadros Varagiannis”, “Eleftheria Varagiannis” and “Artex Industries Pty. Ltd.” (“Artex”). It is not disputed that the guarantee was signed by Rita in the places requiring her signature. Nor is it disputed that the guarantee was duly executed under the seal of Artex in the presence of John, who signed as witness to the affixation of the common seal of Artex and under whose signature appears the description “John Varagiannis, Managing Director”. The issues in the proceeding arise from the fact that John signed the guarantee in the places appropriate for signature by the guarantor designated in the document as “Leadros Varagiannis”. Leadros Varagiannis is the son of John and Rita and was not a director of Artknitt.
John contends that the Bank has no enforceable contract of guarantee against him. The Bank contends to the contrary and also seeks rectification of the guarantee by substituting “John” for “Leadros” wherever the latter name appears.
Facts
For some fifteen years prior to 1996, John operated a successful business together with his cousin George, through another corporate entity. Their banker originally had been the ANZ but in or about late 1994 they changed to the plaintiff Bank at its Malvern Business Banking Centre in Glenferrie Road, Malvern. One of the Business Banking Managers at Malvern at the time was Noel George Drury (“Drury”). In or about mid-1996, John and George split up their business interests and John formed Artknitt to conduct a new business. John, on behalf of Artknitt, sought bank finance for the business from the Bank.
A six page internal Bank document relating to Artknitt entitled “Business Credit Submission” and dated 9 September 1996 set out the facilities provided or to be provided to Artknitt totalling $2.12M. The first page of the document listed the securities for these facilities as including a “G & I $2,120,000 given by: *John Varagiannis*Eleftheria Varagiannis*Leadros Varagiannis” and Artex. The same page showed the directors’ names, ages and shareholdings in Artknitt as “John Varagiannis (59) – 50%” and “Eleftheria Varagiannis (60) – 50%”[3] and was signed by Drury in a box dated 30 September 1996 under the heading “Securities in order…”. The next page of the document related to Artex in respect of which the “liability type” was referred to as “guarantee to bank” and the directors’ names, ages and shareholdings in Artex was referred to as “John Varagiannis (59) – 50%” and “Leadros Varagiannis (27) – 50%”. The next page of the document refered to a guarantee and registered mortgage of residential real estate given, or to be given, by Ioannis (John) Varagiannis (59) and Eleftheria (Rita) Varagiannis (60). The next page of the document refered to a guarantee given, or to be given by “Leadros Varagiannis (27)”. The final page of the document[4] refered to the “Key Contacts” for Artknitt as being John Varagiannis and Leadros Varagiannis, each with the same telephone number. They were each described as a director although the evidence is that Leadros was not a director of Artknitt but only a director of Artex.
[3]The evidence shows that John and Rita were not in fact shareholders of Artknitt. The sole shareholder of Artknitt was J & R Varagiannis Nominees Pty Ltd of which John and Rita were the sole directors and shareholders.
[4]The exhibit constituting this document is a photocopy and it may be that the pages were originally in a different order – the last sheet in the exhibit may well have been the front sheet of the original document.
On 28 September 1996 John, under the name “Ioannis Varagiannis” of 2-4 Erskine Crescent, Wheelers Hill, made a statutory declaration on behalf of Artknitt stating that the Bank had approved financial accommodation to Artknitt secured to a limit of $2.12M and that the security was constituted by a registered mortgage debenture over Artknitt and its trust assets, a guarantee and indemnity given by “Ioannis Varagiannis” and “Eleftheria Varagiannis” and a first mortgage over the property at Wheelers Hill. Drury testified in his witness statement that the reference in this statutory declaration to John and Rita having given a guarantee and indemnity was correct. I note that no guarantee (other than the one sued upon, dated 23 June 1997) was produced in evidence but neither was there any evidence from John that he had not signed such a guarantee[5]. The Bank did put into evidence two documents from this period. The first was a debenture given to the Bank by Artknitt dated 10 October 1996 and, although it is dated after the date of statutory declaration, it is no doubt the debenture referred to therein. The second was a real estate mortgage to the Bank executed by John and Rita dated 11 October 1994 but stamped on 10 October 1996 as collateral security for advances of $2.12M .
[5]Rita did not give evidence.
Drury testified that, by reason of a proposed joint venture between Artex (an “associated entity” of Artknitt), John had approached him to restructure the existing facilities for Artknitt. Drury recorded at the time that John had asked for financial accommodation totalling in excess of $2.5M (comprising various facilities including an overdraft, certain bill facilities, and a documentary letter of credit facility) and that the security provided for the Bank would continue to be, inter alia, a registered mortgage debenture from Artknitt and a “Guarantee and Indemnity from directors and associated company Artex”. Drury testified that he had only had dealings with John and could not recall having any dealings with Leadros and that he was not aware of the name “Leadros Varagiannis”. He said that he could not recall such a person (despite the reference to him in the Business Credit Submission of September 1996) but Drury did accept that at the time he probably would have seen the names of the directors of Artex.
In late 1996 and early 1997, Robert John Fillis (“Fillis”) was a relieving Bank Manager at the Bank’s Malvern Business Centre. A Bank document relating to Artknitt entitled “Line of Credit – Schedule of Securities (Guarantees)” dated 16 December 1996 was put in evidence during the cross-examination of a witness who was not involved at that stage (Lyons). The document refers to an undated guarantee given or to be given by “Ioannis Varagiannis, Eleftheria Vargannis (sic), Leadros Vargannis (sic)” and Artex. Despite the contents of this document, there was no evidence that Leadros had ever given a personal guarantee to the Bank to secure the liabilities of Artknitt (or, for that matter, of Artex) and neither Drury nor Fillis was cross-examined about this document despite the fact that they were the responsible bank officers at the relevant time.
Fillis signed a Bill Facility – Letter of Offer on behalf of the Bank dated 30 December 1996 and addressed to Artknitt. The letter offered a facility up to $1.2M on terms that included the provision and continuance of certain specified securities. The securities so specified were a registered mortgage debenture over Artknitt and its trust assets and a guarantee and indemnity for $2.67M given by “Ioannis (John) Varagiannis” and “Eleftheria (Rita) Varagiannis” and Artex, supported by a mortgage over the Wheelers Hill property and a debenture over Artex and its trust assets.
On 14 January 1997 John under the name “Ioannis Varagiannis” made a statutory declaration on behalf of Artknitt stating that the Bank had approved financial accommodation to Artknitt secured to a limit of $2.67M and that the security was constituted by a registered mortgage debenture over Artknitt and its trust assets, a guarantee and indemnity given by “Ioannis Varagiannis” and “Eleftheria Varagiannis” and by Artex, supported by a first mortgage over the Wheelers Hill property and further by a registered mortgage debenture over Artex and its trust assets. Fillis testified in his witness statement that the reference in the statutory declaration to John and Rita and Artex having given a guarantee and indemnity was correct. I note again that no guarantee (other than the one sued upon and dated 23 June 1997) was produced in evidence but again there was no evidence from John that he had not signed such a guarantee. However, the Bank did produce in evidence a Bill Facility Power of Attorney executed by Artknitt dated 14 January 1997 and a debenture executed by Artex of the same date. The debenture was executed under the common seal of Artex and the attesting parties were John, under whose name was written “Director – Ioannis (John) Varagiannis”, and Rita, who signed in her capacity as “Director/Secretary”.
In March 1997 Drury moved from the Malvern Business Banking Centre to a different office of the Bank and another Business Banking Manager at the Centre took over the Artknitt file. This was Darren Francis Lyons (“Lyons”). At some time prior to 23 June 1997, Lyons had a meeting with John in which John requested adjustments and increases to the facilities provided by the Bank to Artknitt. Lyons knew the first defendant as “John” although he was informed by John that his Greek name was “Ioannis”. Following that meeting, Lyons instructed Rebecca Jane Milnes (“Milnes”), who was employed by the Bank as a Business Manager’s Clerk, to prepare appropriate documentation to deal with the requests made to Lyons by John.
Milnes, who was born on 5 August 1970, was first employed by the Bank in 1993 and in 1997 was working at the Malvern Business Banking Centre and at the relevant time was working for Lyons. Milnes testified that she knew the first defendant as “John” and did not know his Greek name.
On or about 17 June 1997, Lyons requested Milnes to prepare certain bank documentation relating to Artknitt. One document prepared by Milnes was a letter dated 17 June 1997 acknowledging receipt of a Bill Facility - Letter of Offer from the Bank for signature by “John Varagiannis” and “Rita Varagiannis”. The Bill Facility - Letter of Offer provided in its printed conditions[6] that the Bank should not be obliged to accept any Bills unless the securities referred to in item 13 of the Schedule had been executed and delivered to the Bank and remained in full force and effect. Item 13 of the Schedule contained an insertion referring the reader to an Annexure A. Annexure A was an added typed sheet listing the required securities and which included a “Guarantee and Indemnity…given by…Ioannis (John) Varagiannis and Eleftheria (Rita) Varagiannis”[7]. An acknowledgement of receipt of that letter of offer was signed by John and Rita and dated 23 June 1997 when they attended the Bank to sign a number of documents (see later below).
[6]Clause 19.
[7]A similar annexure referring to a Guarantee and Indemnity given by Ioannis (John) Varagiannis and Eleftheria (Rita) Varagiannis was prepared by Milnes for insertion in a Fixed Rate Instalment Loan – Letter of Offer to Artknitt dated 19 June 1997.
A further document prepared by Milnes was an extract of Minutes of Meeting of the directors of Artknitt containing a resolution to arrange banking facilities as follows:
1. Overdraft Facility
$175,000
2. Fixed Interest Rate Instalment Loan
$300,000
3. Bills A/D – variable rate facility
$1,000,000
4. Bills A/D – fixed rate facility
$1,200,000
5. Documentary Letters of Credit
$150,000
6. Payroll Delivery
$20,000
7. Lease &/or Lease purchase facility
$300,000
The extract of minutes then contained a resolution that the above borrowings be secured by a debenture over Artknitt and its trust assets, a guarantee and indemnity for $2,845,000[8] “given by Ioannis (John) Varagiannis, Eleftheria (Rita) Varagiannis” and Artex, a mortgage over the Wheelers Hills property and a debenture over Artex and its trust assets[9].
[8]The evidence indicates that this amount related to the total of the items numbered 1-6 in the list of facilities to be provided.
[9]Artex was described as being the Trustee for the Unique Automotive Fabrics Trust.
Another document prepared by Milnes was a further “Business Credit Submission” dated 17 June 1997. This submission prepared by Milnes comprised a number of pages. A page headed “ALOC Checklist/Key Contacts” named the key contacts of Artknitt to be John Varagiannis, Director and Leadros Varagiannis, Director. Milnes was cross-examined as to her source for the name “Leadros Varagiannis” appearing on this page and she named a number of possible sources: a diary note, a previous credit submission, information contained in the customer’s file, previous security documents or from personal profiles in the “online” customer file.[10] Another page headed “Aggregate Approval Level” showed that existing exposure of $2.97M was to be reorganised but not increased. Other pages showed the detail of the facilities to be provided and also set out the securities given or to be given in support of those facilities, namely, a registered mortgage debenture, a guarantee and indemnity given by “Leadros (John) Varagiannis” together with Eleftheria Varagiannis and Artex, a registered mortgage – residential (over 2-4 Erskine Crescent, Wheelers Hill) and also a registered mortgage debenture to be given by Artex. Milnes was cross-examined as to the origin of her inserting “Leadros (John) Varagiannis” but was unable to offer an explanation save to say that the use of the name “John” would have been a “primary driver”. One of the other pages referred to the borrowing entity as Artknitt and gave the directors’ names, ages and percentage shareholdings as “John Varagiannis (59) – 50%“ and “Eleftheria Varagiannis (60) – 50%”. Another of the pages, dealing with the debenture to be given by Artex, gave its directors’ names, ages and percentage shareholdings as “John Varagiannis (59) – 50%” and “Leadros Varagiannis (27) – 50%”.
[10]The last mentioned source was identified by Milnes in answer to a question relating to the page in the Business Credit Submission dealing with the directors of Artex.
Another document prepared by Milnes was the guarantee the subject of this proceeding. This document was a printed booklet bearing the name of the Bank and headed “Guarantee and Indemnity” containing numerous printed conditions and various boxes and spaces needing to be filled in to complete the document. Milnes hand-printed in the document a number of the required details. In the spaces provided for the amount to be advanced she inserted in words and figures the sum of $2.845M. Milnes printed the names of the three proposed guarantors as “Leadros Varagiannis” of 2-4 Erskine Crescent, Wheelers Hill, Eleftheria Varagiannis of the same address, and Artex. Milnes also printed the names of the guarantors in three separate signature sections for individuals and in each case printed “Leadros Varagiannis” as well as Eleftheria Varagiannis.
At some stage, after some of the documents had been prepared by Milnes, it was agreed between John and Lyons that the total limit of the facilities to be provided would be $2.97M and not $2.845M, the change resulting from an increase in the overdraft limit from $175,000 to $300,000. Milnes testified that she prepared the guarantee from the information contained in the Business Credit Submission but was unable to explain how or why the Business Credit Submission referred to the total facilities in the said increased amount of $2.97M whereas the guarantee was prepared on the basis of the earlier limit of $2.845M, save that Milnes commented that it was a busy time of the year and a “high volume period of time for everyone”, being shortly prior to 30 June.
Milnes was asked why she had not inserted in the guarantee the name “Leadros (John) Varagiannis” and was unable to explain this. Milnes said that she had met John and always referred to him as John in conversations with Lyons or anyone else or in reference to the file. She said that she was not aware that he had a son called Leadros and she was sure that no-one had told her to put the name “Leadros Varagiannis” in the guarantee and had not had any conversations with Lyons as to the names of the guarantors. Milnes agreed in substance that she should have realised that John and Leadros were different individuals but maintained that her intention was that the guarantee was to be given by John and was unable to explain why she had inserted the name “Leadros Varagiannis” in the guarantee and not the name “Leadros (John) Varagiannis”.
On 23 June 1997 John and Rita attended the Bank’s Malvern Business Banking Centre and there saw Lyons. They signed a number of documents, including the acknowledgment of receipt of the Bill Facility - Letter of Offer, the extract of minutes of meeting and the guarantee, in the presence of Lyons. Lyons testified, and I accept, that prior to their signing the guarantee, he explained to John, whom he described as “a highly sophisticated businessman”, and to Rita, that each would be personally liable under the guarantee. John was unable to recall but did not deny, in cross-examination, that such an explanation had been given.
The increase in the total amount of the facilities was recorded in writing on the extract of the minutes of directors’ meeting of Artknitt by deleting 175,000 in relation to the overdraft facility and writing in the figure of 300,000 instead. This alteration was initialled by all three present at the meeting, namely, John, Rita and Lyons. However, they overlooked, in those minutes, correcting the amount stated as the limit of the guarantee, but that correction was made both in words and in figures in the guarantee itself in three places and initialled by John (twice) and by Rita (once).
In the “signature section for companies” in the guarantee, the common seal of Artex was affixed and John signed as a witness and printed his name underneath as “John Varagiannis” and he added the title of managing director. In each of the sections for signature by individual guarantors, John signed either above or below the hand-printed name “Leadros Varagiannis” and Rita signed either above or below the hand-printed name “Eleftheria Varagiannis”. Their signatures were in all cases witnessed by Lyons who signed as such and inserted the date of 23 June 1997.
By letter dated 26 June 1997 from the Bank to “The Directors” of Artknitt and commencing “Dear Mr and Mrs Varagiannis” the Bank advised of the ”renewal” of an overdraft facility for Artknitt of $300,000 secured or to be secured, inter alia, by a “Guarantee and Indemnity for $2,970,000 given by Leadros (John) Varagiannis and Eleftheria (Rita) Varagiannis….”. This letter was also prepared by Milnes and was signed by Lyons.
Lyons testified that he knew that the directors of Artknitt were John and Rita Varagiannis and that it was never the Bank’s intention to obtain a guarantee from Leadros Varagiannis. Indeed, Lyons testified that he had no knowledge of Leadros Varagiannis, whether as an individual or as a director of any company and had never heard of his name. He said that he could not recollect having given Milnes any information that might have led her to put the name of Leadros on any document.
In his witness statement[11], John said that the guarantee “does not name me as a guarantor”, that the guarantee named Leadros as a guarantor, and that Leadros was his son and was at that time a director of Artex, which was a co-guarantor. John said that, on 23 June 1997, he was instructed by the Bank’s officers to place his signature on numerous documents and that he did not have a chance to read them before he signed them. He said that the documents were “just provided to my wife and myself to sign with little explanation”. John testified that he did not know the exact nature of the documents that he was signing and only that they were required to be signed in order to satisfy the Bank in relation to financial accommodation provided to Artknitt. He denied that he was a sophisticated businessman[12].
[11]Exhibit 5.
[12]John also testified that Rita did not speak English very well and did not read English and that the documents were not explained to her. However no argument was advanced in reliance upon that evidence and Rita was not represented at the trial and did not give evidence.
It was evident when John was cross-examined that, ten or more years after the relevant events, he had little specific recollection of the facilities provided by the Bank, his communications with the Bank at that time or the nature of documents signed by him or when they were signed. He asserted that he had signed no document relating to Artknitt prior to June 1997 but this turned out to be incorrect as he had at least been involved in the execution of a debenture dated 10 October 1996. However, when asked to look at his statutory declaration dated 28 September 1996 and whether he recalled having made that declaration, his unprompted response was:
“Yes, my intention always was to give guarantees to the Bank…they can’t give you the money without security”.
When asked whether he had signed the guarantee mentioned in the statutory declaration of September 1996, John replied:
“I don’t remember. The only paperwork I remember I signed was in June when I had to sign all these guarantees”.
It seemed to me that John’s references in cross-examination to “guarantees” were intended by him to cover all of the documents that he signed but I am nevertheless satisfied from numerous answers that he gave that he intended to sign a personal guarantee and knew that he was doing so. He acknowledged in substance that the Bank was to “take” his and his wife’s assets (“money and my house”) – as security, saying:
“That was guarantee we give it as a guarantee to the Bank. I told them whatever I have I can – the Bank can take it as security. I never argue with that.”
This exchange also took place between John and counsel for the Bank:
“Q: Sir, I put to you again that the Bank for the purposes of the restructured facilities was seeking from you a guarantee [and] indemnity, you and your wife. That’s so, isn’t it?
A: That’s what they say there, yes.
Q: And that’s correct?
A: Of course. “
Further, John testified that when signing the documents on 23 June 1997 he did not see the name “Leadros” and that if he had seen that name he would not have “put my signature there”.
The evidence suggests that Milnes probably took the name “Leadros” from previous documents and information held by the Bank such as the Business Credit Submission dated 9 September 1996. I am satisfied that Milnes was not given the name by Lyons and it would seem that her belief must have been that Leadros and John were one and the same person – the person whom she knew as John Varagiannis. This is indicated by her insertion of the name “Leadros (John) Varagiannis” in the Business Credit Submission of June 1997. At any rate, I am satisfied that neither Lyons not Milnes had any intention to obtain a guarantee from Leadros Varagiannis – indeed I am satisfied that they were probably not conscious, in June 1997, of his existence. I am satisfied that neither Lyons nor John noticed the name “Leadros” when the guarantee was being signed on 23 June 1997. I am further satisfied that at their meeting on 23 June 1997 both Lyons, on behalf of the Bank, and John intended that John provide to the Bank a personal guarantee of the obligations of Artknitt by placing his signature on the guarantee document. Indeed, Mr Strang of counsel, who appeared for John, conceded that John had on 23 June 1997 intended to sign a guarantee of the liabilities of Artknitt to the Bank.
Pleadings
Under its further amended Statement of Claim dated 16 March 2006, the Bank’s primary cause of action was that based upon a guarantee in writing executed on or about 23 June 1997. In the alternative, the Bank pleaded that, if the guarantee was “unenforceable” (which was denied) then:
(a) [John] signed the guarantee; and
(b) the guarantee was at all material times intended by [the Bank and John] to be [John’s] guarantee of the obligations of [Artknitt]; and
(c) the guarantee was signed by [John] in the belief that it was his guarantee of the obligations of [Artknitt];
(d) the guarantee does not embody the actual agreement concluded between [the Bank] and [John] or does not embody or give effect to the concurrent intention of [the Bank] and [John] at the moment of execution of the guarantee. (particulars then referred to the references in the guarantee to Leadros Varagiannis whereas the guarantor should have been identified as John Varagiannis).
A number of defences were raised by John in his Amended Defence and Counterclaim dated 28 August 2007 but the only defence (as pleaded) ultimately relied upon was that “there is no such guarantee and indemnity in writing as alleged…”. This plea subsumed John’s principal contention that there was no contract binding upon him. In addition, submissions were made on John’s behalf that relief by way of rectification was not available in the circumstances.
Submissions
Mr Strang submitted that there was no contract, or insufficient evidence of a completed contract, between the Bank and John. Mr Strang said that, while John had signed the document, he was not named in it as the person upon whom there was any obligation and thus he was not a party to any contract. Mr Strang further submitted that if there was no contract then there was nothing that could be rectified.
Mr McEwen, who appeared as counsel for the Bank, submitted that, as a matter of construction, and certainly if the Court could have regard to extrinsic evidence, the guarantee document constituted a contract between the Bank and John (in addition, of course, to the other guarantors). Alternatively, Mr McEwen submitted that this was a classic case for rectification and that there was convincing proof of a mutual mistake in that the intention, of the Bank and of John (and not Leadros), was that John and not Leadros provide a guarantee (and thus named as guarantor) and therefore the Bank was entitled to obtain rectification of the guarantee document by deleting the mistaken reference to Leadros and substituting the name “John”.
Construction of the Guarantee
The Bank was provided with a written document that, on its face, constituted a guarantee of the obligations of Artknitt by three guarantors (two individuals and one company). Whereas no difficulty arises in identifying two of the guarantors who executed the document (Rita and Artex), there is a difficulty in identifying the third guarantor, even in the absence of any other evidence. That is because, on the face of the document, it is obvious, simply by looking at the signatures, that the signature of the person who witnessed the affixation of the common seal of Artex and signed as “John Varagiannis Managing Director” is the same signature as that of the person who signed as the guarantor named in the document as “Leadros Varagiannis”. In any event, the Court cannot for this purpose disregard the evidence that John Varagiannis and Leadros Varagiannis are separate individuals (in fact father and son) and that John was a director of Artknitt and Leadros was a director of Artex. In the light of that evidence the question arises whether this party to the guarantee was Leadros or John or, perhaps, neither of them. There is perhaps another question, namely, did John sign intending to be personally bound or, if not, in what capacity did he sign under the designation “Leadros Varagiannis”?
In my opinion the correct approach to the solution of this problem is that stated by Giles J in Clark Equipment Credit of Australia Ltd v Kiyose Holdings Pty Ltd[13]. In that case there were two individual defendants who signed a factoring agreement, that also contained a guarantee, and purportedly signed on behalf of the company of which they were directors. On the facts of that case, the plaintiff failed to establish the personal liability of the defendants on the guarantee, but Giles J, after considering a number of previous cases, said:[14]
“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.
…Whether a contract has been made, just as the meaning of a contract when made, is to be determined by seeking objectively the intention of the putative part[y] or parties; that must be so whether the question is whether a contract was made between A and B, whether a contract was made between A and B or A and C, or whether a contract was made between A and B in addition to A and C. To look only at the signature and any qualification thereto, whilst claiming to seek the objective intention of the parties, would be to throw overboard other possible factors relevant to showing that intention.”
[13](1989) 21 NSWLR 160.
[14](1989) 21 NSWLR 160, 174.
Giles J also referred with approval to what was said by Wood J in NEC Information Systems Australia Pty Ltd v Linton[15], a statement that I would also adopt:
“I have according 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.”[16]
[15](1985) NSW ConvR 55-240 at 56, 281.
[16]In that case, a document in the form of a guarantee by the defendant was executed by the affixing of the common seal of the principal debtor with the signatures of the defendant and his wife appended thereto. The defendant was a director of the company and his wife was a director and secretary. Wood J concluded that the parties intended that the document be signed by the defendant as a personal guarantee.
The above statements by Giles J and Wood J were adopted, as correctly stating the law, by Finkelstein J in Follacchio v Harvard Securities (Aust) Pty Ltd[17] and by Lander J (with whom Doyle CJ and Bleby J agreed) in Rawcliffe v Bianco Hiring Service Pty Ltd[18]. In the latter case, Lander J also said:[19]
[17][2002] FCA 1067; BC 200204931 (unreported, Finkelstein J, Federal Court of Australia, 7 August 2002).
[18][2002] SASC 430 (Full Court of the Supreme Court of South Australia).
[19][2002] SASC 430 at [129-[134].
“The question in this case is the capacity in which...Mr Monz and the appellant signed. That question is answered by determining the objective intention of Mr Monz and the appellant at the time they executed the contract.
In determining that intention regard may be had not only to the attestation clause but also to the document itself and the surrounding circumstances including the accompanying documents.
That approach is consistent with the general principles relating to the construction of documents.
In Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 Mason J said at 352:
“The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract when it has a plain meaning.”
Because of the ambiguity which I have identified the trial judge was permitted, in my opinion, to have regard to the extrinsic evidence.
Where there us an ambiguity as to the capacity in which a party has executed a contract the court may have regard to the surrounding matrix of facts to determine the contracting party. That is only one incident of the wider rule to which Mason J referred in Codelfa Construction Proprietary Limited v State Rail Authority of New South Wales (supra); Young v Schuler (1883) 11 QB 651; Edwards v Edwards (1918) 24 CLR 312; Mallinson v The Scottish Australian Investment Company Limited (1920) 28 CLR 66 at 75; Perpetual Trustee Co Ltd v Bligh (1940) 41 SR (NSW) 33.”
In the light of those principles, I turn to the facts of the present case. The insertion by the Bank of the name “Leadros Varagiannis” in the places requisite for one of the guarantors indicates an intention by the Bank that the person so named was to provide a guarantee by signing the same. A contrary indication in the document is the fact that John and not Leadros signed in each of those places. There are however a number of strong objective indications in the surrounding circumstances tending to show that it was intended both by the Bank and by John that John provide a guarantee and sign the guarantee document so as to be personally bound thereby. Those indications are:
·John was a director of Artknitt and Leadros was not;
·The Bank arranged for John and Rita, the directors of Artknitt, to attend and sign documents including the guarantee and they signed a guarantee as requested by and in the presence of Lyons;
·The Bill Facility – Letter of Offer dated 17 June 1997 referred to a guarantee and indemnity to be given by John and Rita and an acknowledgement of receipt of that letter of offer was signed by them on 23 June 1997;
·The extract of minutes of a meeting of the directors of Artknitt which referred to a guarantee and indemnity to be given by John and Rita was signed by them on 23 June 1997.
Looking at the transaction as a whole, I am satisfied that the Bank required John to provide and that he agreed to provide and did provide a personal guarantee as part of the security for the increased facilities to be made available to Artknitt, and the contemporaneous documents, other than the references to Leadros in the guarantee itself, point to that conclusion. Furthermore it should not be overlooked that Lyons explained to John and Rita that they were to be personally liable under the guarantee that they were about to sign immediately prior to their signing it. I am satisfied, looking at the contents of the document in the light of the surrounding circumstances and without having any recourse to inadmissible considerations of subjective intention, that, by placing his signature on the document in the spaces appropriate for an individual guarantor, John was assenting to personal liability thereunder.
I conclude that, as a matter of construction, John was a party to the guarantee and is liable as a guarantor and that the reference to Leadros was a misnomer. I do not think that rectification is necessary. However, as I have found[20], there is convincing evidence of a common continuing intention that John should be a party to the guarantee and I would, if I thought it necessary, grant rectification of the guarantee document by deleting “Leadros” wherever appearing and substituting “John”.
[20]See para [31].
Accordingly there will be judgment for the plaintiff against the first defendant for the sum of $4,562,052.82. The case against Rita, which as I have said was undefended, has been proved (including the making of a demand and a certificate as to the amount due) and there will accordingly be judgment for the plaintiff against the second defendant for the same amount.
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