Pugwall Pty Ltd v Arthur McKenzie Investments Pty Ltd

SUPREME COURT OF VICTORIA

COURT OF APPEAL

S EAPCI 2022 0008

PUGWALL PTY LTD (ACN 073 554 453)	Applicant
v
ARTHUR MCKENZIE INVESTMENTS PTY LTD (ACN 089 248 082)	First Respondent
ARTHUR CHARLES MCKENZIE	Second Respondent

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JUDGES:	KYROU, SIFRIS and KENNEDY JJA
WHERE HELD:	Melbourne
DATE OF HEARING:	16 November 2022
DATE OF JUDGMENT:	9 December 2022
MEDIUM NEUTRAL CITATION:	[2022] VSCA 272
JUDGMENT APPEALED FROM:	[2021] VCC 2053 (Judge Burchell)

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CONTRACTS – Joint venture – Whether objective intention of director to be personally liable under guarantee – Whether guarantee unenforceable pursuant to Instruments Act 1958 s 126 – TW Timber Treatment Pty Ltd v Giddings [2022] VSCA 147 applied – Clark Equipment Credit of Australia Ltd v Kiyose Holdings Pty Ltd (1989) 21 NSWLR 160, Alonso v SRS Investments (WA) Pty Ltd [2012] WASC 168, Scottish Amicable Life Assurance Society v Reg Austin Insurances Pty Ltd (1985) 9 ACLR 909, Padstow Corporation v Fleming (No 2) (2011) 86 ACSR 636 considered – Leave to appeal granted – Appeal allowed.

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Counsel
Applicant:		Mr P Willis SC
First Respondent:		No attendance
Second Respondent:		Mr E Cinar, solicitor
Solicitors
Applicant:	Shayne Daley & Associates Lawyers
First Respondent:	Erol Cinar Lawyers
Second Respondent:	Erol Cinar Lawyers

KYROU JA
SIFRIS JA
KENNEDY JA:

This application arises from a dispute between the applicant (‘Pugwall’) and the first respondent (‘AMI’) as to their respective liabilities under a joint venture agreement (‘JVA’). The JVA concerned a development for the construction of 19 residential units in Seaford.
At trial, it was common ground that AMI was liable for 50 per cent of the loss incurred under the JVA, but there was a dispute as to the quantum. Pugwall also claimed that the second respondent (‘McKenzie’), the director of AMI, was liable for the loss by reason of a personal guarantee contained in the JVA.
The judge made orders that AMI pay Pugwall the sum of $1,347,969.82. This figure included an amount that constituted specific loss arising from AMI’s breach of an implied term to exercise reasonable skill and care. However, she also found that McKenzie did not intend to be personally liable under the guarantee in the JVA.
In this application, Pugwall initially submitted that the judge made three errors: first, in finding that McKenzie was not personally liable under the guarantee (grounds 1–3); secondly, in the calculation of interest (grounds 4–8); and thirdly, in failing to take account of the future contingent liability of Pugwall for the rectification of defects pursuant to warranty claims made after the completion of the JVA (ground 9).
However, shortly prior to the hearing, Pugwall abandoned grounds 4–8 and, in relation to ground 9, only sought to ‘preserve the right’, if and when warranty claims materialised, to recover against McKenzie under the guarantee.
In the result, the only remaining issue is whether the judge erred in finding that McKenzie was not personally liable under the guarantee. Given that AMI had filed a notice of intention not to respond, only McKenzie sought to oppose the application.
For the following reasons, the judge erred in finding that McKenzie was not bound by the guarantee. We have also rejected a further submission made by McKenzie — which the judge did not decide — that s 126 of the Instruments Act 1958 operates as a bar to prevent recovery on the guarantee.[1]
[1]Pugwall did not submit that McKenzie should have filed a notice of contention in relation to this matter. In such circumstances, we will consider this issue, which was the subject of detailed submissions by both parties.
We will therefore grant leave to appeal on grounds 1 and 2 and allow the appeal.

Background[2]

Preliminary

[2]Adapted from Agreed Summary of Facts dated 31 August 2022.

Both Pugwall and AMI were sole director companies. Martin Clark (‘Clark’) was the sole director, secretary and effective controller of Pugwall, while McKenzie was the sole director, secretary and effective controller of AMI. Both companies were commercial builders. Clark operated a number of companies and had incorporated Pugwall for the purpose of acquiring the Seaford land and developing it. He had extensive experience in building industrial and commercial buildings, but not in residential buildings. McKenzie had previous experience in constructing residential developments, but had not previously undertaken a project of this size.
Pugwall had acquired the Seaford land some years before and had obtained a planning permit for a 19-unit development. The parties subsequently discussed working together on the development. McKenzie agreed to manage matters on the site on a day-to-day basis, to engage his own labour and contractors and to arrange suppliers. Clark agreed to manage the finances. They both agreed to contribute an initial sum of $150,000.00 to cover establishment costs and other contingencies on the basis that:
(a)Pugwall would contribute the value of the land at an agreed amount of $480,000.00 together with interest and that these monies would be paid prior to the calculation of profits;
(b)they would both cooperate in obtaining external funding secured by a mortgage over the land to discharge an existing mortgage Pugwall held with National Australia Bank for the remainder of the development costs; and
(c)they would both share equally in the profits and losses of the development.
In early 2016, the parties’ lawyers drew up a joint venture agreement ‘to reflect these terms [above] and other matters’.[3] There was no other evidence about the circumstances in which the JVA, described below, came into existence.

Joint Venture Agreement

[3]Ibid [5].

The cover page of the JVA is dated 2016 without specifying a day or month;[4] includes the title ‘Joint Venture Agreement’; and identifies Pugwall, AMI and Ponza Nominees Pty Ltd (‘Ponza’). As highlighted by McKenzie, he is not separately identified. Ponza was a new company which was incorporated to act as a Manager. The JVA conferred broad powers on Ponza to make decisions about the management of the joint venture. McKenzie and Clark equally owned and controlled Ponza. The cover page also provides the details of D B Legal, who were the solicitors acting for Pugwall.
[4]It was common ground that the JVA took effect in 2016. The precise day and month are not presently relevant.
The first page of the JVA is again dated 2016 without specifying a day or month, and is titled ‘Joint Venture Agreement’. It states that the agreement is ‘Between’ the (following) ‘Parties’: Pugwall, AMI and Ponza (with no reference to McKenzie). It also includes the following recital:
D. In consideration of the mutual promises set out in this Agreement, the parties agree to be bound by the terms and conditions of this Agreement.
The ‘parties’ are not defined, but the definition clause (cl 1) contains an incomplete definition of ‘Parties’ which distinguishes them from the ‘Joint Venturers’ as follows:
‘Joint Venturers’ means Pugwall as to 50% and AMI as to 50% and ‘Joint Venturer’ means one of them (cl 1.14);
‘Parties’ means and ‘party’ means one of them (cl 1.15).
Clause 1 also includes a further definition of a ‘Guarantor’ which names both McKenzie and Clark as follows:
‘Guarantor’ means either Clark or McKenzie in respect of their respective guarantees of the obligation of the Joint Venturers (cl 1.10);
Further, a machinery clause, cl 28.1 (entitled ‘Notice’), also makes reference to the concept of a ‘party’ as follows:
A notice that must be given to a party under this document is only given if it is:
(a)      Delivered or posted to that party at the following addresses:
-         Pugwall         2 Winding Way, Warrandyte 3113;
-         AMI             7/13 18 Vista Drive, Cape Woolamai 3925;
-         Clark            2 Winding Way, Warrandyte 3113;
-         McKenzie      7/13 – 18 Vista Drive, Cape Woolamai 3925;
-         The Manager 2 Winding Way, Warrandyte 3113;[5]
[5]Emphasis added.
Clause 2 provides for the basis on which profits and losses are to be shared. In particular, (after allowance for Pugwall’s contribution of the agreed value of the Seaford land) it provides that the Joint Venturers should contribute to the costs, and be entitled to the profits, on a 50/50 per cent basis (cl 2.2).
Clause 3 deals with the Manager, Ponza, which is to have two named directors, being Clark and McKenzie (cl 3.2). Clause 4 then details the scope of the obligations of each Joint Venturer which include:
The Joint Venturers shall assume severally the Development Costs relating to the Development or the Manager in their respective ownership proportion. In the event that the mortgagee of the Property requires that the Joint Venturers and/or Guarantors provide joint and several guarantees, the Joint Venturers and/or Guarantors indemnify one another for their respective percentage interest as set out in clause 2.2 (cl 4.2);[6]
[6]Emphasis added.
The next relevant clause is clause 19 which is titled ‘Guarantee’, and relevantly provides:
19.1. Clark guarantees the obligations of Pugwall under the Agreement. McKenzie guarantees the obligations of AMI under this Agreement.
19.2 If at any time default shall be made by the respective Joint Venturer (the ‘Defaulting Joint Venturer’) in payment to the Manager or to a third party of a required payment, under this Agreement, and such default shall continue for the period of seven (7) days after the date provided by the Manager for the payment thereof, the Guarantor will forthwith pay to the Manager or to the required third party such moneys owing in respect of which default shall have been made by the Defaulting Joint Venturer and the Guarantor shall indemnify and keep indemnified the other Joint Venturer against all losses and other moneys payable by the Defaulting Joint Venturer under this Agreement and also against all losses costs charges and expenses whatsoever which the other Joint Venturer may suffer or incur by reason of any default or breach or in the observance of performance by the Defaulting Joint Venturer of the agreements and obligations of the Defaulting Joint Venturer under this Agreement.
…
19.4The guarantee hereby given shall be a principal obligation and shall not be treated as ancillary or collateral with any other obligation howsoever created to the intent that the guarantee shall be enforceable by the remaining Joint Venturer without first taking any steps or proceedings against the Defaulting Joint Venturer and notwithstanding the loss by the remaining Joint Venturer of any security and notwithstanding any laches, acts or omissions on the part of the Defaulting Joint Venturer.[7]
[7]Emphasis added.
Pugwall’s case was that, having regard to the words in bold, above, contained in both cls 19 and 4.2, McKenzie’s guarantor obligations were immediately binding when the JVA came into existence.
Finally, cl 34 of the JVA is titled ‘Independent Legal and Financial Advice’ and provides:
Upon signing this Agreement each Joint Venturer or party acknowledges and warrants that they have each received independent legal and financial advice regarding this Agreement and in respect to all obligations under this Agreement and their rights and obligations as a Joint Venturer or party to this Agreement.[8]
[8]Emphasis added.
As emphasised by McKenzie, the JVA does not contain a separate execution block for each of Clark and McKenzie to sign as guarantors. It does contain an execution block whereby they signed as directors for their respective (named) companies. In particular, McKenzie’s signature appears (twice) underneath the phrase ‘Executed by [company] in accordance with Section 127 of the Corporations Act 2001 by being signed by the person authorised to sign for the company’, in respect of both AMI and Ponza. In respect of AMI, it appears above the phrase ‘Sole Director and Company Secretary’. In respect of Ponza, it appears above the word ‘Director’.

Post-JVA conduct

The only other conduct relied upon by Pugwall was a ‘Deed of Agreement’ proffered by the solicitors for the respondents in or around 2019, after the date of the JVA, once the parties had fallen into dispute (the ‘proposed Deed’). The proposed Deed is not signed or dated, but was prepared by the respondents’ lawyers after construction had stopped and funding was in issue, in an attempt to resolve matters.
In particular, Pugwall relied upon para 7 of the proposed Deed which reads:
The Joint Ventures [sic] and the Manager release Arthur McKenzie form [sic] his personal guarantee provided in the JVA and from all personal liability that would otherwise arise by reason of the JVA. It is agreed that Arthur McKenzie does not personally guarantee the performance of AMI’s obligations and he shall not be personally liable for the performance of AMI’s obligations.

Judge’s reasons

The judge recorded the submissions of the parties. In particular, she identified that McKenzie had submitted that he was not bound by the guarantee because it did not comply with s 126 of the Instruments Act and that he did not intend to be bound by the obligations contained in the JVA in his personal capacity.
The judge then said:
The primary question for the Court to address in relation to the proceeding against Mr McKenzie is whether, in spite of not being named as a party to the JVA and the absence of an execution block for Messrs Clark and McKenzie, [McKenzie] somehow otherwise evinced an intention to be bound personally as a guarantor of AMI’s obligations under the JVA. The onus of proof lies on Pugwall.[9]
[9]Pugwall Pty Ltd v Arthur McKenzie Investments Pty Ltd [2021] VCC 2053, [305] (‘Reasons’).
The judge then summarised the (agreed) applicable principles as follows:
The question of intention relevant to the present dispute is in light of ‘the subject matter of the agreement, the status of the parties to it, their relationship to one another, and other surrounding circumstances’.[10]
[10]Ibid, [306]; citing Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95, 105 [25] (Gaudron, McHugh, Hayne and Callinan JJ); [2002] HCA 8 (‘Ermogenous’).
She then proceeded to summarise various cases before concluding:
Mr McKenzie accepted that the responsibility for the JVA was 50:50 for the two corporations and not the individuals. He said that the guarantees were given by the corporate entities.
I accept the submissions of Mr McKenzie and find that the cases of B & D v Lay and Alonso can be distinguished on the present facts. Although clause 19 of the JVA expressly deals with guarantees, the alleged guarantors were not named as parties in the written JVA and no personal execution block is provided. Messrs McKenzie and Clark are not personally a party to the JVA and signed solely in their capacity as directors of their respective companies. There is no privity of contract between the individuals. Objectively construed, Mr McKenzie did not intend to be personally liable to 50% of the liabilities of the JVA. As such, he is not personally liable for any breach under the JVA by AMI.[11]
[11]Reasons, [316]–[317] (citations omitted).
McKenzie submitted that the judge should also be taken to have rejected his submissions concerning s 126 of the Instruments Act. The matter is not clear, but, to the extent it is necessary to consider, we do not read the judge’s reasons that way. Rather, it appears that the judge did not consider it necessary to deal with s 126 of the Instruments Act due to her finding that McKenzie had not evinced an intention to be bound by the guarantee in any event.

Whether guarantee binding on McKenzie, personally

Pugwall advanced the following relevant proposed grounds of appeal:
1Her Honour erred in holding that ‘objectively construed, Mr McKenzie did not intend to be personally liable to 50% of the liabilities of the JVA. As such, he is not personally liable for any breach under the JVA by AMI’ [317].
2Her Honour, in reaching the conclusions described in ground 1 above, failed to give sufficient weight to:
(a)cl. 19.1 of the JVA which states ‘McKenzie guarantees the obligations of AMI under this Agreement’;
(b)the execution of the JVA by McKenzie;
3Her Honour, in reaching the conclusions described in ground 1 above, failed to give sufficient weight to the conduct of and communications between McKenzie and Martin Clark in the administration of the JV to the extent such conduct disclosed an intention by McKenzie to be bound by the guarantee.

Pugwall’s submissions

Pugwall placed primary reliance on the terms of the JVA set out above, particularly cl 19.1. It submitted that these clauses showed that McKenzie evinced an intention to be personally bound.
Pugwall also emphasised that each party had received legal advice about the JVA and would have been aware of the guarantee provisions. Further, that every part of the JVA was expressed as a 50/50 breakdown, including development costs, profits and losses. Ponza was also owned and controlled on a 50/50 basis.
Pugwall submitted that the presence of a signature on a guarantee document is a relevant circumstance in assessing the existence of an objective intention, but it is not determinative. Pugwall noted that in cases such as Scottish AmicableLife Assurance Society v Reg Austin Insurances Pty Ltd,[12] Padstow Corporation v Fleming (No 2)[13] and Alonso v SRS Investments (WA) Pty Ltd,[14] persons who signed agreements as directors of, or agents for, a company were held to be bound by a guarantee notwithstanding the absence of a separate signature in respect of the guarantee.
[12](1985) 9 ACLR 909 (‘Scottish Amicable’).
[13](2011) 86 ACSR 636 (‘Padstow’).
[14][2012] WASC 168 (‘Alonso’).
In oral submissions, Pugwall particularly criticised the judge’s identification of the ‘primary question’ at para 305 of her reasons, which predisposed her to find in favour of McKenzie. It contended that she failed to properly consider the question of intention in the light of all of the circumstances, particularly the clauses of the JVA which suggested that McKenzie was in fact a party. It also submitted that the judge’s findings (at para 316 of her reasons) about the subjective intentions of McKenzie were irrelevant, and acted as a ‘jumping off point’ for the conclusory statements contained in para 317. Those statements contained no analysis of the various provisions of the JVA, including cl 19.
In relation to the submission that s 126 of the Instruments Act was fatal, Pugwall relied on a number of cases, especially Alonso,[15] which established that the capacity in which McKenzie signed the lease was not relevant to s 126.
[15]Ibid. See also Scottish Amicable (1985) 9 ACLR 909.
Pugwall also placed reliance on the proposed Deed. This was said to constitute evidence that a contract of guarantee had been in existence, as well as being an acknowledgement from the respondents’ solicitors which would satisfy s 126.

McKenzie’s submissions

In written submissions McKenzie contended that it was open for the judge to find that he and Clark were not named parties to the JVA. In particular he highlighted two matters:
•page one of the JVA defined three corporate entities as parties. Neither Clark nor McKenzie was defined as a party anywhere else in the JVA;
•the text of the execution provisions showed that the company was meticulously identified by its full name including with the letters ‘Pty Ltd,’ as well as its ACN. It also included reference to s 127 of the Corporations Act 2001, which does not apply to natural persons. The last three words of the execution provisions explicitly stipulated that the contract was executed ‘for the company’.

McKenzie acknowledged that cl 19.1 made reference to him by name, but submitted that the naming of a third party in a contract does not of itself bind that third party. A distinction must be drawn between the mere naming of third parties in contracts and the naming of parties to contracts. The judge’s finding that he and Clark were not named parties simply reflects this distinction, and consequently there was no privity of contract.
McKenzie submitted that Pugwall’s reliance on the fact that the two directors obtained legal advice prior to signing the contract did not assist it. The only inference capable of being drawn from the fact that the corporate entities obtained legal advice is that no effort was exerted to secure any personal guarantee in a sufficiently certain manner (by having the director sign in his personal name). McKenzie submitted that Pugwall had attempted to conflate two distinct legal personalities into one, and in so doing had failed to distinguish between his conduct as a natural person and his separate capacity as a director and secretary of a corporate entity in a pre-Salomon v Salomon & Co Ltd[16] manner.
[16][1897] AC 22.
In an outline of oral submissions (filed shortly prior to the hearing), McKenzie reiterated that he entered into the JVA solely in his capacity as director and secretary, and did not manifest an intention to be personally bound. He again placed particular reliance on the execution block, and emphasised that only the three corporate entities were named as ‘parties,’ highlighting page one of the JVA.
McKenzie additionally relied on his earlier submission (made to the judge) that the personal guarantee contained in the JVA was not enforceable against him by reason of s 126 of the Instruments Act. He submitted that to read down the meaning of s 126 of the Instruments Act is to conflate the doctrine of separate legal personality of a company with the personality of the members or office holders of a company, in a different context here, but in the same manner which various courts did for approximately 127 years prior to the decision in Sons of Gwalia v Margaretic.[17] He submitted that s 126 must be read in a manner that enhances the guarantor’s property rights recognised under s 20 of the Charter of Human Rights and Responsibilities Act 2006 (the ‘Charter’), and not in a manner that diminishes those protected rights. In oral submissions he contended that the Charter meant that s 126 should be interpreted with care, ‘consistently with … property rights’.
[17](2007) 231 CLR 160.
In oral submissions, McKenzie argued that the judge applied the correct principles, and placed particular reliance on Clark Equipment Credit of Australia Ltd v Kiyose Holdings Pty Ltd,[18] which found that a similar guarantee clause was not binding on the directors personally. He also submitted that in cases where personal liability has been found, ‘something more’ was present beyond the guarantee being embedded in the contract and/or the naming of the ‘third party’ in the document.

Principles

[18](1989) 21 NSWLR 160 (‘Clark’).

The relevant legal principles were summarised by this Court in the recent case of
[19][2021] VSCA 147 (‘TW Timber’).
TW Timber Treatment Pty Ltd v Giddings.[19] The issue in that case was whether a guarantee contained in an application for trading terms bound a director personally. In denying liability, the director relied on a number of factors, including that he only signed as a director (and not in his capacity as an individual). Further that, in reply to a question in the application as to whether a director was prepared to be personally bound, the answer given was ‘NO’. However, the Court found that the ‘NO’ response did not operate as any form of qualification to the capacity in which the director signed, having regard to the whole document, including the placement of the signature beneath the express terms of the guarantee.
In summarising the applicable legal principles, the Court said:[20]
Akin to the way the meaning of the terms of a contract are construed,[21] a person’s intention to be legally bound by any contract, including a contract of guarantee, is to be determined objectively and not by reference to uncommunicated subjective motives or intentions of the parties.[22] The intention is manifested in light of ‘the subject matter of the agreement, the status of the parties to it, their relationship to one another, and other surrounding circumstances’.[23]
[20]Ibid [43] (McLeish, T Forrest and Macaulay JJA).
[21]Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451, 461–2 [22] (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ); [2004] HCA 35; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165, 179 [40] (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ) (‘Toll’).
[22]Ermogenous (2002) 209 CLR 95, 105 [25] (Gaudron, McHugh, Hayne and Callinan JJ).
[23]Ibid.
The Court also observed that the presence of a person’s signature ‘ordinarily conveys a representation to the reasonable reader that the person who signs the document has either read and approved its contents or is willing to take the chance of being bound by them’, and that this is all the more so if the signature appears below a clear written request to read the document before signing it.[24] Nevertheless, as the Court acknowledged, a signature on a document may be applied for a limited purpose or in a qualified way.[25] In deciding whether a person should be bound regardless of any such qualification, the Court referred to the statements of Giles J in Clark as follows:
… [t]he 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.[26]
[24]TW Timber [2021] VSCA 147, [47]; citing Toll (2004) 219 CLR 165, 180–1 [45] (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ).
[25]TW Timber [2021] VSCA 147, [48].
[26]Ibid [49]; citing Clark (1989) 21 NSWLR 160, 174.
The Court considered that this approach has received extensive intermediate appellate support since,[27] and should be taken as settled. The Court also observed that Giles J had drawn on various passages from McHugh JA (when on the New South Wales Court of Appeal) in Scottish Amicable, which included the following remarks:
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.[28]
[27]Citing James Thane Pty Ltd v Conrad International Hotels Corp [1999] QCA 516, [59] (McMurdo P, Thomas JA and Williams J); Harris v Burrell & Family Pty Ltd [2010] SASCFC 12, [20] (Doyle CJ, Bleby J agreeing at [34], Sulan J agreeing at [35]) (‘Harris’); Bond v Rees Corporate Advisory Pty Ltd [2013] VSCA 13, [57]–[58] (Tate JA, Maxwell P agreeing at [1]) (‘Bond’); SAS Realty Developments Pty Ltdv Kerr [2013] NSWCA 56, [77] (Ward JA, Macfarlan JA agreeing at [1], Sackar J agreeing at [131]); Pannozzo v Fowler [2013] NSWCA 269, [59] (Hammerschlag J, Ward JA agreeing at [1], Leeming JA agreeing at [2]); Singh v De Castro [2017] NSWCA 241, [86] (Sackville AJA, Macfarlan JA agreeing at [1], Gleeson JA agreeing at [2]); The Owners — Strata Plan No 66375 v King [2018] NSWCA 170, [223] (Ward JA, Leeming relevantly agreeing at [336], White JA agreeing at [388]) (‘Owners Strata Plan’).
[28]TW Timber [2021] VSCA 147, [50]; citing Scottish Amicable (1985) 9 ACLR 909, 923.
The Court concluded:
In other words, in each case it is a question of fact whether, viewed objectively, the strength of the disavowal of personal responsibility prevails over contrary indicia found in the document and the surrounding circumstances, or vice versa.[29]

Analysis

[29]TW Timber [2021] VSCA 147, [51].

Both parties made extensive reference to other cases. As indicated already, McKenzie placed particular reliance on the case of Clark.
Insofar as the other cases are concerned, there are many examples where a director has been found to be personally liable under a guarantee, despite a submission that he/she had only executed the relevant document in a limited capacity (as a director).[30] The decision of Clark stands in marked contrast to these cases given that Giles J found that the directors were not personally bound by a guarantee.
[30]See, eg, Alonso [2012] WASC 168; Scottish Amicable (1985) 9 ACLR 909; Padstow (2011) 86 ACSR 636; B & D Gippsland Investments Pty Ltd v Lay [2021] VCC 993; TW Timber [2021] VSCA 147; Follacchio v Harvard Securities (Aust) Pty Ltd [2002] FCA 1067 (‘Follacchio’); Harris [2010] SASCFC 12.
Turning first to Clark, then, there were certainly features that were similar to the present case. For example, the relevant agreement included a guarantee by the directors by name, and there was no separate execution clause for the directors as individuals. However, other features were also present. For example, Giles J considered that the placement of the common seal of the company suggested that the directors signed solely in their capacity as directors of the company. There was also evidence of preliminary advice that the directors needed to sign on behalf of the company ‘and by … both as guarantors’. Giles J ultimately found that, although the Clark company (a public company) had wanted a signature from both directors it did not ‘get it’. He considered that the transaction was not ‘fully implemented’ and found, in the light of all the circumstances, that the agreement was not executed by the directors so as to bind them as guarantors.
The decision of Clark hence turns on its own facts, as do the other group of cases where a director has been found to be bound. It may be, as McKenzie submitted, that a number of these other cases included ‘extra’ features which extended beyond the embedding of the guarantee in an agreement. This included the existence of further correspondence[31] and/or evidence of a conversation about the existence of a personal guarantee.[32] However, this of itself is of limited significance. First, it is hardly surprising in circumstances where the principles, above, suggest that consideration of surrounding circumstances may be relevant. The examples do not alter the fundamental principles such that further correspondence and/or conversations become a prerequisite for personal liability. Secondly, the finding of liability in TW Timber was primarily, if not solely, made by reference to the relevant facsimile document. Thus, in that case, a relevant letter only ‘reinforce[d]’ the conclusion as to personal liability which was ‘more readily found’ from an analysis of the text of the document.[33] Finally, as identified below, there are relevant surrounding circumstances in this case in any event.
[31]See, eg, Alonso [2012] WASC 168, [63]–[65] (Edelman J); Scottish Amicable (1985) 9 ACLR 909, 910–11 (Kirby P); TW Timber [2021] VSCA 147, [64] (McLeish, T Forrest and Macaulay JJA).
[32]See, eg, Padstow (2011) 86 ACSR 636, 644 [48], [50] (Gzell J); Scottish Amicable (1985) 9 ACLR 909, 910 (Kirby P).
[33]TW Timber [2021] VSCA 147, [64] (McLeish, T Forrest and Macaulay JJA). See also Follacchio [2002] FCA 1067, where the conclusion was based on the provisions in the relevant agreement alone.
It is otherwise not appropriate to engage in any lengthy analysis of other cases. Rather, it is necessary to undertake an analysis of the merits of the present case, according to the principles outlined above.
The starting point is that, as McKenzie emphasised, there appears to be a qualification attached to the signatures of McKenzie. In particular, they are expressed to be ‘for the [relevant] company’. However, this is not the end point of the analysis, given that the inquiry is not limited to a consideration of the signature and its qualification. Rather, the issue which then arises is whether, having regard to all relevant matters, McKenzie intended to be personally bound notwithstanding this apparent qualification.
A key concern of the judge was whether McKenzie was really a party to the JVA. It is true that he is not named as a party on the cover sheet or the first operative page. Nor is there provision for a separate execution clause in his name. Despite this, a ‘party’ is clearly intended to extend beyond the ‘Joint Venturers’ (which are separately defined in cl 1.14). Although a ‘party’ could extend only to the ‘Manager’, it is readily apparent that it is intended to have broader application. This is made clear by cl 28.1 which provides for the method of giving a notice to a ‘party’. It expressly stipulates that the notice may be delivered or posted to ‘that party’ at various addresses which are defined in respect of each of Pugwall, AMI, Clark, McKenzie and the Manager. The clause thereby expressly includes McKenzie, personally, as a separate ‘party’ in addition to AMI. Clause 28.1(a) further provides that any notice may be given at the same address (7/13 18 Vista Drive, Cape Woolamai) in respect of both AMI and McKenzie. If McKenzie was only intended to have capacity as a director, the additional entry for McKenzie would be redundant (given he would receive the notice already at the address given for AMI). Rather, the provision for ‘McKenzie’ to be also served at the same address is consistent with the fact that he is intended to be included as a party in his own personal capacity.
This inclusion of McKenzie as a separate party is further supported by the fact that he is expressly made subject to obligations contained in the JVA. Thus, cl 1.10 expressly defines and names McKenzie as a Guarantor in respect of his guarantee of the obligations of the Joint Venture. Clause 19.1 critically provides that McKenzie ‘guarantees’ the obligations of AMI under the JVA. The clause thereby applies directly and in plain terms to McKenzie. The existence of his immediately binding obligation is further reinforced by cl 19.4 which makes reference to the guarantee ‘hereby given’. Clause 4.2 also imposes further obligations on the Guarantors to indemnity each other in the event that the mortgagee requires the Guarantors to provide guarantees.
Finally, under cl 34 each party expressly acknowledged that they had received independent legal and financial advice in respect of ‘all obligations’ under the JVA. Given those obligations expressly included terms which imposed guarantee obligations, McKenzie’s signature suggests that he read and approved these terms, or was ‘willing to take the chance of being bound by them’.[34]
[34]TW Timber [2021] VSCA 147, [47] (McLeish, T Forrest and Macaulay JJA).
Despite the apparent qualification attached to his signatures, then, the body of the JVA suggests that McKenzie intended to be personally bound as a party to the JVA and subject to the guarantee obligations contained within it.
In terms of other surrounding circumstances, it is true that there is no evidence about any negotiations which gave rise to the JVA. However, the subject matter of the agreement was a 50/50 joint venture where it was clearly intended that there be an equal share of both profits and losses. The arrangement was reached between two men with significant experience in the building industry who had equal standing. Although the Joint Venturers were corporate entities, it was the two men who effectively entered into a business venture together (given they controlled and owned both corporate entities). It would be consistent with this commercial context that each single director could look to the other to account for any losses of the venture.
Having regard then to all the circumstances, we consider that there was an objectively manifested intention for McKenzie to be personally bound and that the judge erred in finding otherwise. The result is that grounds 1 and 2 will be upheld.
In terms of ground 3, Pugwall seeks to rely on general ‘conduct… and communications’ in the administration of the JVA. However, the only such ‘communication’ relied upon before us was the proposed Deed. Having reached our conclusion from the terms of the JVA and the matters already cited, we have not found it necessary to rely upon the proposed Deed. Given that the proposed Deed was dated some three years after the JVA and was also proffered in the context of discussions to resolve a dispute, it provides no real assistance in determining the intentions of the parties at the time of the JVA (in 2016). Leave to appeal will therefore be refused in respect of ground 3.
However, it remains for us to deal with the alternative submission made by McKenzie that the judge’s conclusions were otherwise justified by reason of s 126 of the Instruments Act.

Section 126 of the Instruments Act

Section 126(1) of the Instruments Act relevantly provides as follows:
126 Certain agreements to be in writing
(1)An action must not be brought to charge a person upon a special promise to answer for the debt, default or miscarriage of another person….. unless the agreement on which the action is brought, or a memorandum or note of the agreement, is in writing signed by the person to be charged or by a person lawfully authorised in writing by that person to sign such an agreement, memorandum or note.
McKenzie signed the JVA in two places, but says that he only signed in his capacity as a director of AMI and Ponza. However, this does not assist him as the capacity in which he signed the JVA is not relevant to the meaning of s 126.[35] The reasons behind this are helpfully explained by Edelman J (when on the Supreme Court of Western Australia) in the case of Alonso.
[35]Section 126 of the Instruments Act re-enacts s 4 of the Statute of Frauds 1677 (‘Statute of Frauds’) in Victoria in relation to guarantees and interests in land. See N C Seddon and R A Bigwood, Cheshire and Fifoot Law of Contract (LexisNexis Butterworths, 11^th ed, 2017) 882.
In Alonso, Edelman J identified that the mischief which the Statute of Frauds legislation aimed to prevent was to avoid the need to decide which person was telling the truth about whether an oral promise had been made.[36] However, as many of the cases demonstrated, a literal meaning of the Act tended to have the opposite effect of protecting, rather than preventing, frauds. So as to avoid this result, the cases tended to take a broad approach where qualifications were imposed upon a signature.
[36]Alonso [2012] WASC 168, [74].
Edelman J provided some examples of this approach with particular reference to the case of Delaney v Purves.[37] In that case, directors had signed a lease, but their signatures appeared only alongside a clause which attested to their presence at the fixing of the company seal. Macrossan SPJ rejected the directors’ submission that a guarantee provision contained in the lease could not be enforced against them personally because there was no writing signed by them personally. In so doing he said:
I am of the opinion that the document is one single and indivisible whole, and that the signatures of the defendants, even as directors merely, would be sufficient to bind them as sureties ... The question is not one of intention, but simply one of evidence against them. The Court is in quest of evidence, under the hands of the defendants, that they in fact entered into the contract of suretyship. This document signed by them and containing the contract is sufficient for the purpose.[38]
[37][1930] QWN 6.
[38]Ibid [7].

Edelman J explained that the decision in Delaney was approved by Mahoney JA in the majority of the NSW Court of Appeal in Scottish Amicable, as well as by Giles J in Clark.[39] The House of Lords also reached the same conclusion and found that the capacity in which a signature is made is irrelevant to the question of enforceability which is the subject of the Statute of Frauds legislation.[40] Edelman J said:
These authorities, particularly the decision in Delaney, concerned a similar issue to this case. In each case, the signature of a person, although qualified on the basis that the signature was as director or broker, was held also to be sufficient to satisfy s 4 of the Statute of Frauds.[41]
[39]Alonso [2012] WASC 168, [80].
[40]Elpis Maritime Co Ltd v Marti Chartering Co Inc [1992] 1 AC 21.
[41]Alonso [2012] WASC 168, [82] (emphasis in original).
The Statute of Frauds was ultimately no bar to the action in Alonso, although the director had not signed in the signature block applicable to her personally. Edelman J concluded that the capacity in which she signed the document was not relevant to s 4 of the Statute of Frauds.[42]
[42]There was also a second reason in that case: the second defendant had signed a letter with an unqualified signature, and that letter clearly referred to the lease agreement. See Alonso [2012] WASC 168, [69].
For similar reasons, then, s 126 does not assist McKenzie in this case as the JVA was clearly ‘signed by the party to be charged’ for the purposes of s 126.
McKenzie’s reliance on the Charter is misconceived. Section 32 of the Charter provides that, as far as possible, statutory provisions should be interpreted in a way that is compatible with human rights. However, the only ‘human right’ identified in this case was the right to property (which was said to be affected by the personal guarantee). Section 20 of the Charter states that ‘[a] person must not be deprived of that person’s property other than in accordance with law’. However, insofar as it applies to guarantees, s 126 of the Instruments Act is concerned with the enforceability of certain agreements and has nothing to do with deprivation of a person’s property.
In the result, then, s 126 of the Instruments Act does not operate as a bar to recovery on the guarantee.

Conclusion

For the reasons given, the application for leave to appeal will be granted in respect of grounds 1 and 2 and otherwise refused, and the appeal will be allowed.
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[2022] VSCA 272

9 December 2022