Sleaford v Worthing and Saunders
[2020] NSWDC 231
•22 May 2020
District Court
New South Wales
Medium Neutral Citation: Sleaford v Worthing & Saunders [2020] NSWDC 231 Hearing dates: 18 May 2020 Date of orders: 22 May 2020 Decision date: 22 May 2020 Jurisdiction: Civil Before: Priestley SC, DCJ Decision: See [44]
Catchwords: GUARANTEE AND INDEMNITY — Contract of guarantee — Deeds
Legislation Cited: Competition & Consumer Act 2010 (Cth)
Fair Trading Act 1987 (NSW)
Corporations Act 2001 (Cth)
Civil Procedure Act 2005 (NSW)Cases Cited: Shevill v Builders Licensing Board (1982) 149 CLR 620
Alonso v SRS investments (WA) Pty Ltd [2012] WASC 168
Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95Category: Principal judgment Parties: Sleaford (First Plaintiff)
Worthing (First Defendant)
Saunders (Second Defendant)Representation: Counsel:
Solicitors:
Mr Batley Counsel for the First Plaintiff
Mr Flehr Solicitor for the Second Defendant.
File Number(s): 2019/00200838 Publication restriction: Unrestricted.
Judgment
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The plaintiff seeks to recover from the defendants monies advanced by her to a company (“the company”) of which the first and second defendants were the directors. That company was a home building company and had financial difficulties and became insolvent and is now deregistered. The money was advanced by two advances the first of $100,000 and the second of $50,000. The bases of the claim are pursuant to a guarantee and indemnity or alternatively under the Australian Consumer Law (“ACL”).
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The plaintiff and her husband met the 2 defendants in the course of having their home built. They came to know the first defendant quite well. The evidence shows that their dealings were predominantly with the first defendant and only minimal with the second defendant. The plaintiff and her husband were prepared to invest in that company though on particular conditions which the first defendant assured them would be met. In particular the plaintiff sought an assurance that she would be repaid the money advanced.
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It is clear from the affidavit evidence of both the plaintiff and her husband which was not adversely affected by cross examination that prior to lending the money assurances had been received from the first defendant that the loan would be personally guaranteed by he and the second defendant. This was reflected in the first loan deed which contains a personal guarantee and indemnity provision referring to “guarantors” and referring to joint and several liability of those guarantors. There is no dispute however that the guarantee provision is only expressly signed by the first defendant and not the second defendant. A major argument in the case is whether viewed objectively the second defendant is a party to the guarantee and indemnity.
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A second major argument is whether it can be said that the second defendant engaged in misleading and deceptive conduct or unconscionable conduct. There is clear evidence of assurances by the first defendant that could be relied upon to support this part of the pleading but no direct evidence of similar assurances being made by the second defendant or on his behalf with his authority. The argument is that the second defendant should have made it clear that he declined to give a guarantee before the funds were advanced under the 2016 deed.
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$100,000 was provided in December 2016. I accept the evidence of the plaintiff that the balance of $40,000 was known to all as not being able to be paid at the time of the first loan deed but would be paid upon the expiration of a term deposit. That occurred and it was agreed that a further $50,000 rather than $40,000 would be advanced. There were similar conversations between the first defendant and the plaintiff and her husband in respect of this money as there was in respect of the $100,000. That is there were assurances by the first defendant that the repayment of the money would be personally guaranteed by the first defendant and the second defendant. Again there was nothing said by the second defendant to that effect. Furthermore on the second occasion there was no guarantee clause in the 2018 deed.
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The second defendant says that he signed the second deed of loan on behalf of the company knowing that there was not that guarantee. He similarly says he signed the first loan deed but not the guarantee provision because of his unwillingness to go as a guarantor.
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In late 2018 the company was placed in administration and subsequently was wound up. No repayment of the principal of the loans was made by the company resulting in this claim against the first and second defendants.
The issues
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The issues that emerge are the following:
Whether the 2016 guarantee is operative at all and if so whether it guarantees an amount of $140,000 or $150,000 or $100,000.
Whether the second defendant is liable under the guarantee of 2016. The issue here is whether despite not having signed the guarantee it can be said that he is a party to the guarantee.
Whether in respect of the $50,000 advanced in 2018 and which is the subject of the 2018 Deed there is any guarantee of the $50,000 advanced.
Whether there has been any conduct of one or both of the defendants in breach of the ACL by reason of being misleading and deceptive or unconscionable.
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The pleading proceeded on by the plaintiff was an amended statement of claim. That document pleads both deeds of loan but specifically pleads a guarantee and indemnity claim pursuant to the 2016 deed.
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The second claim is under the Australian Consumer Law. The claim is that in breach of either section 18 or section 21 of the ACL the defendants engaged in conduct that was misleading or deceptive (section 18) or engaged in unconscionable conduct (section 21)
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In addition to these claims there were final submissions made on behalf of the plaintiff arguing that the 2018 deed effected a variation of the 2016 deed with the effect that the guarantee and indemnity of the earlier deed covers the entire $150,000. It was submitted that there were 3 possibilities, the other 2 being that the 2016 deed was limited to the money advanced at that time of $100,000 or to a total of $140,000 as expressed in the deed, albeit not provided in the manner of the express terms of the 2016 deed. In a statement of issues provided by the plaintiff the date of which is not stated an issue was identified as to what amount was secured by the guarantee and indemnity which must be a reference to the 2016 deed. I make these observations as to assist in determining whether the plaintiff’s case was fairly set out to include the variation argument. I think this is particularly relevant given the unrepresented status of the first defendant.
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The defence of first defendant is to simply to plead “admit”, “deny” or “does not admit” to the various paragraphs. He filed no evidence. The best the first defendant can hope for is that the arguments concerning the construction of the deed somehow favour him, for example by finding that the guarantee provisions only apply to the $100,000 initially advanced. He put up no case in answer to the misleading and deceptive conduct and unconscionability claim, so the issue there will be whether the plaintiff’s evidence makes out that case, assuming the ACL applies.
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The pleaded defence of the second defendant was to plead that the 2016 deed had been repudiated because the plaintiff did not advance the whole of the funds on the draw down date. The same argument is made in terms of the 2018 deed. The second defendant purports to accept this asserted repudiation and purports to terminate the agreements in the documents.
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As to the second argument the second defendant argues that the ACL does not apply; this was submitted to be due to section 131A of the ACL. That provision however applies to Commonwealth laws. It does not apply to state laws such as the Fair Trading Act of New South Wales which incorporates the ACL. Given that a significant characteristic of the Fair Trading Act is that it deals with individuals as opposed to the Commonwealth law dealing with corporations and given that all the parties to these proceedings are in fact individuals the reference to the ACL should have been understood to be a reference to its application via the Fair Trading Act. There was no argument that what was occurring here was occurring in trade or commerce. Section 18 of the ACL prohibits a person in trade or commerce engaging in misleading or deceptive conduct and section 21 applies to people in trade or commerce supplying goods or services. “Services” is defined by the ACL to include any contract for or in relation to the lending of monies. There is reference in the defence as to the defendants not being manufacturers or suppliers though it was never the subject of submission as to how on the facts of this case that renders the Act of no application. I find that the ACL applies.
the contractual issues
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I deal first with the argument that the second defendant was entitled to terminate either of the deeds on the basis that the money was not advanced in accordance with the terms of the deed. Firstly I accept that the date on the first deed does not represent the date it was signed as it was accepted that 6 November 2016 was a Sunday and the second defendant conceded that he was unlikely to have signed on a Sunday. The money was in fact advanced on 12 December and the evidence of the plaintiff and her husband was that the money was advanced some days after they received the signed deed. The 6 December was a Tuesday and I find the deed was signed that day. Accordingly the money has been provided within the timeframe specified in the deed.
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Next the second defendant says that because the funds advanced as at that time were $100,000 and not the stated $140,000 the parties have abandoned the contract. The idea of it being abandoned was made in submissions although it is not the subject of any pleading. I accept the evidence for the plaintiff given by both herself and her husband, and which as noted above was hardly in dispute, that it was well known to the company through the first defendant that the $140,000 would not be able to be provided because part of it was still on term deposit. At page 68 of the Court book there is a history of the payments made under the first deed for the period commencing July 2017 showing a constant payment of $375 each month which is 4 ½% on $100,000. It is obvious what has happened here. These parties were not involved in a highly sophisticated transaction and certainly so far as it concerned the first defendant and the plaintiff and her husband was a relationship bordering on friendship. The document was presented to the plaintiff by the first defendant as attested to by the plaintiff. The key element of interpreting any contract is to give effect to the intentions of the parties. The intention of the parties here so far as the advance was concerned was that a sum of money be advanced and interest be paid and, save for the position of the second defendant that I address below, that it be secured by way of a guarantee.
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Far from ending a contractual relationship, the parties have jointly proceeded in the way that they did with an intention to remain bound by the contract (whatever I may find its terms to be). To repudiate a contract at common law is to act in a way which evinces an intention to no longer be bound by the contract; see generally Shevill v Builders Licensing Board (1982) 149 CLR 620. In this case on the evidence right up until June 2018 the company paid interest on the money advanced at precisely the same rate as provided for in the deed of 2016.
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It is true of course that both parties acted in a way different to the deed in that only $100,000 was advanced in 2016, but that was on the basis of an agreement that the balance would be later advanced. The argument put by the second defendant extended to saying that the deed had been abandoned and some new oral contract had been entered into, but with it seems on this argument no terms other than that the company receive the money, and, one would hope, at least allows for some repayment, though that was not made clear in submissions. I accept that there was a variation of the 2016 deed, but only to the extent that it was agreed the $140,000 was to be advanced in two payments, not one. This varied contract otherwise retains all the terms of the 2016 Deed.
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I find that the oral agreement just outlined prevailed whether that be termed as a variation of the deed of 2016 or a new contract. Although this was not expressly pleaded by the plaintiff the case was argued on this basis with the plaintiffs outline of issues raising as an issue what amount was secured by the guarantee and indemnity, and with the second defendant making the argument just outlined. That the case was conducted this way renders inconsequential the passing suggestion made by the second defendant in the course of the hearing that the parole evidence rule assists him.
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Further and alternatively, my view is that the second defendant cannot, nor for that matter can the first defendant, be party as directors to the company accepting the money in December 2016 on the basis of it being subject to the terms of the deed (approbate) and then when the company is in default seek to free themselves from the terms of that deed (reprobate).
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By early 2018 the term deposit monies of the plaintiff had become available. A further Deed was then executed in respect of the advance of $50,000. The puzzle is why? This Deed has no guarantee clause. The Deed emanated from the company, and I find more specifically from the first defendant, via possibly a lawyer. There was no great degree of negotiation, just the requirement by the plaintiff that it be on the same conditions as the 2016 Deed; see her affidavit at [64]. There is no reference in that document to any connection to the earlier document.
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The answer to the puzzle is at [58]-[59] of the plaintiffs affidavit. There was a further Deed because the second instalment was to be $50,000, not $40,000. This is consistent with my finding above that the ultimate agreement arrived at in 2016 was for an advance of $140,000, by way of two instalments. The need for the 2018 Deed was to document the additional $10,000, and perhaps to acknowledge receipt of the second instalment of $40,000.
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Viewed at this way the result remains that there is no term relating to the additional $10,000 as making it subject to the guarantee and indemnity, though there has been a clear misrepresentation, relied on by the plaintiff, that there would be.
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In terms of the Deeds therefore my findings are these:
(a) The terms of the 2016 Deed remain on foot including its guarantee and indemnity provisions, either as a variation or as a fresh agreement to the extent that the payment of the principal sum is to be made by two instalments of $100,000 and $40,000.
(b) I note that if that conclusion be wrong, the result would be, in my view, that the 2016 Deed would remain on foot in respect of the initial $100,000 advance.
(2) (a) The 2018 Deed came about to accommodate the advance of the additional $10,000 (see the plaintiff’s affidavit at [59]), and was intended to extend the guarantee to that additional money, but by its terms did not.
(b) The 2018 Deed records the fact of the second instalment of the 2016 Deed / agreement being made, as well as a further $10,000, and does not detract from the existing guarantee in place for that amount.
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It follows that the plaintiff succeeds on the guarantee claim against the first defendant for $140,000.
Is the second defendant liable under the guarantee and indemnity?
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The issue here arises from the fact that the second defendant did not sign the guarantee and indemnity. I accept the submission that it is not necessary to sign a Deed in order to be bound by it. The acceptance of the terms of a contract or Deed can readily be evidenced by conduct. I was helpfully taken to the case of Alonso v SRS investments (WA) Pty Ltd [2012] WASC 168 a decision of Justice Edelman of the Western Australian Supreme Court as he then was. In that case a guarantee provision of a lease had not been signed and it was found nevertheless that the non signing second defendant had manifested an objective intention to be legally bound. A consideration of the facts and reasoning is of Alonso is instructive.
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In Alonso the plaintiff was the lessor Mr Alonso. The first defendant was the lessee, a company and the second defendant a guarantor and also the sole director, manager and shareholder of the lessee. The guarantor had signed her name above the word director. She also handwrote her name.
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At [50] Edelman J stated that the absence of a signature does not preclude a finding that there is a manifest intention to be legally bound. The question is decided 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; see at [47] citing Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95. It follows that the absence of a signature is not conclusive of whether or not the second defendant is bound. At [53] Edelman J said “nor is the signature of Ms Sandford [the director, second defendant], with the qualification “director” attached to it conclusive of an intention to be legally bound only in that capacity. The question is ultimately whether the parties conduct viewed objectively reveals a tacit understanding or agreement or a manifestation of mutual assent which evinces an intention to create legal relations”.
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Edelman J concluded there was an objective intention to be bound in Alonso for four reasons. Firstly because the second defendant was specifically identified in the particulars of the lease is the guarantor. In our current case on the front page of the deed the second defendant is named as a party and is specifically identified as a guarantor. In the body of the document when guarantors are referred to it is in the plural.
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Secondly his Honour found there was a peculiarity about the execution page which contradicted a suggestion that there was a clear absence of any signature by the second defendant in her personal capacity. In our present case the second defendant has executed every page of the deed except for the page with the guarantor execution clause provided for him. The second defendant has signed his name quite clearly as a director/secretary of the company borrower on the 5th page of the deed. Under that signature is an execution clause for the first defendant as a guarantor and unlike the earlier pages there is no signature of the second defendant at the bottom of that page. On the next page is the space for signing by the second defendant. The signature of the witness appears but there is no signature of the second defendant. That is an irregularity in itself that shows that the witness was purporting to witness a signature that she had in fact not witnessed. In my view there is not present here any confusion as to the clear absence of the second defendant’s in his personal capacity. The state in which that signature is expected to appear is blank. Where his signature otherwise appears it is above the line expressly identifying him as a director/secretary. His signature does also appear on the pages forming the body of the deed including the page with the guarantor clause. I do not consider that demonstrates he is signing those pages in his personal capacity given those pages refer to all of the terms the company is agreeing to. This conclusion is reinforced but the noted lack of the second defendant’s signature on the bottom of page 5, which would have been underneath the signature of the first defendant as guarantor. In other words, the second defendant stops signing his signature where the guarantor execution clauses begin.
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Paragraph [60] of Alonso makes clear that there is no signature by the second defendant in Alonso in a blank space which I infer is a reference to the guarantor signing clause. Factually therefore this case is very similar to our present case.
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The peculiarity of the signing clause in Alonso appears to be that not only had the second defendant signed as a director but she had also hand written her name and that handwritten name appeared to be witnessed. In Alonso in the space set aside for the unqualified signature of the second defendant she had handwritten her name; that handwritten name was witnessed and the words “Signed as a deed by [name of second defendant]” were not deleted, and the document instructed “delete if not applicable”. In our present case there is only the signatures of the second defendant as described above, culminating on the fifth page where it states “Executed for Integrity New Homes Coffs Coast Pty Ltd as borrower pursuant to section 127 of the Corporations Act 2001 by” and then underneath his signature and above his handwritten name is “director/secretary”. There is nothing additional as in Alonso. The handwritten name here is in the space provided for that person so as to identify the signature, and is not witnessed.
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The third indicator in Alonso was that the lease required all parties to initial any changes to the documents. The second defendant did this. She left the guarantee and indemnity provision unaffected, that is, she did not remove the guarantee clause. Put another way having gone through the document to make various handwritten changes and initialling them she did not remove from the agreement the provision stating there was a guarantor provision so that his Honour concluded she intended to be bound objectively by those provisions. That reasoning does not apply here because in Alonso there was only the one guarantor and only the one director. My view is the argument does not work where there is to be a guarantor namely the first defendant (Mr Worthing) so that the guarantee provisions need to remain. It could be said on the behalf of the plaintiff that the second defendant left in the reference to “guarantors” plural but in my view in all the circumstances of this case that would be to place too much emphasis on that one letter and the following reference to joint liability.
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The fourth indicator in Alonso was that 2 days before the lease was expressed to commence the second defendant wrote to Mr Alonso stating that the lease had been signed on the condition of the completion of the purchase of a business. The letter was signed with her unqualified signature which I take to mean without distinction as to whether she was signing in her capacity as a director or a guarantor. There was no suggestion that she did not agree to the term of the lease that she be guarantor. There was no such correspondence in our present case. Quite the contrary because in our present case, but for one matter, there was absolutely no involvement on the part of the second defendant in negotiations and other discussions concerning the guarantee and the loan with the plaintiff. That was all done by the first defendant the first defendant. The one matter was a letter from the company on its business letterhead stating $10,000 could be returned to the plaintiff. This was signed by the second defendant. I address this below and do not consider it shows an intention by the second defendant to be bound by the guarantee.
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It follows then on my analysis 3 of the 4 indicia relied upon to show an objective intention to be bound in Alonso are not present. Of course the facts of each case determine what might be relevant features and the list of indicia is not limited to these 4 matters. In the plaintiff’s submissions the matters relied upon are set out at paragraph 28. These were the identification of the second defendant as a guarantor on the front page of the 2016 deed which I have touched on above. Next is the reference to guarantors in the body of the document as discussed above but with the additional relevant point that that term states the guarantors “take on joint and several liability”. That adds to the weight of the plaintiff’s argument. I do not accept the plaintiff’s submission that the evidence makes out that it would be doubtful that the first defendant would take sole responsibility of guarantor; the evidence as to what the plaintiff knew in this regard at this time is not specific enough, and so far as the evidence did go, although unclear as to when the plaintiff knew this, it appeared to show the first defendant to be the one person who had not already contributed significantly to the capital of the company. Next is the various places on the document where the second defendant’s signature appears and I have addressed this above. Next is the fact that the second defendant did not tell the plaintiff or the first defendant before the loan was advanced that he would not provide a guarantee. I reject this submission for two reasons. Firstly there is no evidence of the first defendant that he did not know the second defendant’s position. Secondly in my view the second defendant did communicate he would not provide a guarantee before the loan was advanced because he did not sign that provision in the deed. Lastly there was reference to a document signed apparently on the same day which said that if the plaintiff needed $10,000 “we at Integrity New Homes Coffs Coast” can return that in 2 weeks. My view is that does not assist. If anything it tends against a guarantee because it shows that the money will be returned if requested. Further again the document is written on behalf of the company not in the personal capacity of anybody. It is on the letterhead of the company business and is referring to actions that the business will take, not the guarantors
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Thus the additional matters raised beyond those highlighted by Alonso discussed is the joint and several liability term that remained in the contract and the assertion of no communication of no guarantee by the second defendant before advancing the loan. I have rejected the latter due to the evidence showing that was not the case and indeed the evidence of the plaintiff’s husband at [37] and [38] of his affidavit makes it plain that the signed deed was provided before the money was advanced.
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The conclusion I reach is that the second defendant has not objectively bound himself to the guarantee provisions. There are aspects which are equivocal but on balance I do not find that he has objectively so bound himself. Furthermore I am comforted in coming to that conclusion because of the overwhelming involvement of the first defendant to the almost exclusion of the second defendant in the dealings with the plaintiff. I do not accept the argument that the second defendant was having the first defendant act as his agent. There is simply nothing in the evidence to support that. Plainly enough the first defendant was acting on behalf the company and involving the second defendant in that respect but when it came to their own personal obligations no such agency is evidenced.
The ACL claim
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For those same reasons any claim based on misleading and deceptive conduct or unconscionability against the second defendant also fails.
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The position is different with the first defendant. There was no challenge to the evidence of the plaintiff in this regard. At paragraph 20 of the plaintiff’s affidavit is evidence of a conversation of the plaintiff stating that she wants to make sure her money will be returned with the first defendant replying in words to the effect of “if the company goes bust which it won’t we will personally repay you the investment funds”. (In passing there is then reference to what would appear to be was later stated in the letter referred to above concerning the $10,000; I do not connect this statement and that document to demonstrate any involvement of the second defendant in this representation). At paragraph 23 the plaintiff says to her husband that the first defendant said “he will guarantee that we will have our money returned if anything went wrong”. At paragraph 42 the evidence was to a similar effect of Michael saying that he and the second defendant were guaranteeing the loan which means “even if the company doesn’t repay you Geoff and I will personally repay you. Your investment is secure you have nothing to worry about”. Again there are references to the second defendant here but they are not representations he is making nor is there any evidence to suggest that he authorised those statements being made in an unequivocal way. There is some ambiguous support for them by reason of the fact that the 2016 Deed contained the guarantee clause. For the reasons already discussed and in particular the non signing of that guarantee by the second defendant I do not find he made that representation.
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At paragraph 47 the plaintiff said “I relied on Michael’s assurances to Don and me that he and Geoff would personally guarantee the loan. I relied on Sandra’s assurance that I did not need my own lawyer to look over the agreement” (Sandra is an employee of the company). Confirming what I have said above it was a day or so later according to the plaintiff that the cheque was drawn for $100,000.
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I have noted above a similar assurance provided by the first defendant to the plaintiff at the time of the 2018 Deed, and I find that she similarly relied upon that assurance.
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As noted there is no challenge to these statements and they bear out the plaintiff’s case against the first defendant under section 18 of the ACL. There has been misleading conduct because there has been no repayment of the funds in the event of the company failing and the evidence makes it clear the assurances were relied upon by the plaintiff so that it is causative of the loss claimed to the extent that the loans made are not guaranteed.
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The result then is that the claim against the first defendant succeeds on the guarantee to $140,000 and for the balance under the ACL. The same overall result would arise on the alternative result of liability on the guarantee to only $100,000, and the balance under the ACL. The claim against the second defendant fails.
Orders
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Accordingly I make the following orders:
Verdict and judgment for the plaintiff against the first defendant in the sum of $150,000 together with interest on the outstanding amount of $140,000 at the 5% flat rate provided for in the 2016 Deed and as to the balance of $10,000 in accordance with the Civil Procedure Act.
Judgment for the second defendant against the plaintiff.
Subject to any submissions received from the parties within 7 days the costs orders will be such that they follow the event that is the first defendant is to pay the plaintiff’s costs and the plaintiff is to pay the second defendant’s costs, in each case as agreed within 28 days and if not so agreed then as assessed.
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Decision last updated: 04 September 2020
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