TW Timber Treatment Pty Ltd v Giddings

SUPREME COURT OF VICTORIA

COURT OF APPEAL

S EAPCI 2021 0112

TW TIMBER TREATMENT PTY LTD	Applicant
v
AARON LYALL GIDDINGS	Respondent

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JUDGES:	McLEISH, T FORREST and MACAULAY JJA
WHERE HELD:	Melbourne
DATE OF HEARING:	3 May 2022
DATE OF JUDGMENT:	29 July 2022
MEDIUM NEUTRAL CITATION:	[2022] VSCA 147
JUDGMENT APPEALED FROM:	[2021] VCC 1286 (Judge Cosgrave)

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GUARANTEE – Enforceability – Director’s guarantee – Application for credit trading terms – Where answer ‘no’ given to question whether director prepared to be personally bound – Intention to be personally bound inferred from whole of the document including the placement of signature beneath express terms – Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165, Clark Equipment Credit of Australia Ltd v Kiyose Holdings Pty Ltd (1989) 21 NSWLR 160, Scottish Amicable Life Assurance Society v Reg Austin Insurances Pty Ltd (1985) 9 ACLR 909 applied – Appeal allowed.

INSOLVENCY – Deed of company arrangement (DOCA) – Interest – Liability for interest on principal debtor’s debt pursuant to director’s guarantee – Whether ongoing liability for interest under guarantee terminated by operation of DOCA releasing principal debtor’s debt – Creditor’s rights under director’s guarantee including interest not affected by DOCA – Corporations Act 2001 (Cth) s 444H, s 444J – McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 applied – Perrott v Newton King Ltd [1933] NZLR 1131, Jowitt v Callaghan (1938) 38 SR (NSW) 512, Hill v Anderson Meat Industries Ltd [1971] 1 NSWLR 868, Hill v Anderson Meat Industries Ltd [1972] 2 NSWLR 704, Gan v Sanders (1994) 15 ACSR 298, Helou v PDM Mulligan Pty Ltd (2003) 57 NSWLR 74, Hanson Construction Materials Pty Ltd v Davey (2010) 79 ACSR 668 considered.

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Counsel
Applicant:		Dr O Bigos QC with Mr D Gration
Respondent:		Mr CE Shaw QC with Mr DP Lorbeer
Solicitors
Applicant:	James Partners Lawyers
Respondent:	Peer Legal

MCLEISH JA
T FORREST JA
MACAULAY JA:

Introduction

TW Timber Treatment Pty Ltd (the ‘applicant’ or ‘TW Timber’) supplied outdoor timber to a now deregistered company Aarons Outdoor Living Pty Ltd (and its predecessors) (the ‘Company’). Mr Aaron Lyall Giddings (the respondent) was the director and secretary of the Company. Not long after being supplied with the timber, the Company was placed into voluntary administration, entered a Deed of Company Arrangement (‘the DOCA’) and was ultimately wound up and deregistered without having paid the applicant $282,868.06 for the timber.
In the County Court, the applicant pursued the debt pursuant to what it alleged was a binding guarantee given by the respondent. For the guarantee, the applicant relied upon a facsimile transmission (‘the fax’) sent from the Company to the applicant containing an application for credit trading terms. A judge of the County Court dismissed the applicant’s claim[1] after finding that the respondent had not given a binding guarantee. Had the judge decided otherwise, his Honour would have found the respondent liable for interest on the debt at the rate of 16 per cent per annum after the DOCA was effected.
[1]TW Timber Treatment Pty Ltd v Giddings [2021] VCC 1286 (‘Reasons’).
The applicant seeks leave to appeal the judge’s decision about the existence of the guarantee and the respondent filed a notice of contention disputing the finding about the rate of interest.

Proposed grounds of appeal

The applicant expressed its two proposed grounds of appeal as follows:
1. The primary judge erred in finding that the respondent did not intend to enter into legal relations in his personal capacity as a guarantor and in failing to hold that the respondent was bound by the guarantee.
2. The primary judge erred in finding that the respondent was the sole director of the debtor company, and consequently that he probably had to sign the credit application on behalf of the company whether or not he was giving a guarantee.
The respondent’s grounds in his notice of contention were:
1. Properly construed, the fax was to the effect that the respondent intended not to offer to provide a personal guarantee, and the learned trial Judge erred to the extent that he concluded otherwise.
2. Alternatively, the respondent is not liable for interest accruing after [24] October 2017,[2] and the learned trial Judge erred in concluding otherwise.
[2]At the hearing of the application for leave to appeal, the respondent accepted that the relevant date was 24 October 2017 rather than 31 October 2017 as appeared in the text of the notice. No point was taken as to whether ground 2 should properly have been the subject of an application for leave to cross-appeal.
Arising from the proposed grounds of appeal and the notice of contention, in substance, there are two main issues:
(a)did the judge err in failing to find that the respondent gave a binding guarantee; and
(b)assuming a guarantee was given, did the judge err in finding that the rate of interest for which the respondent was liable after the DOCA had been effected was 16 per cent per annum as set out in the applicable terms of sale?

Background[3]

[3]The following is based on the Reasons, [8]–[27] and the parties’ agreed summary filed on 7 April 2022 in this proceeding.

The respondent was a director and secretary of the Company between 11 August 2003 and 16 May 2018. Matthew John Chapman was also a director of the Company at the time the Company sought new credit trading terms from the applicant as described below, but ceased being a director four days later. The applicant is a supplier of outdoor timber products and, both before and after 2010, supplied timber to the Company (and its predecessors). The Company specialised in manufacturing and selling outdoor living products.
Around October 2010, the directors of the Company made a request to open a new trading account on credit terms with the applicant. In response, on 9 October 2010 the applicant’s managing director wrote a letter to the directors of the Company (‘the letter’) in part as follows:[4]
[4]As is evident from the text, the letter enclosed some documents. The precise form of the documents sent by the applicant was not in evidence in the trial, but it was assumed that they at least included the documents which, when completed, were returned to the applicant in the form of the fax.
I have processed your request to open a new account under a different entity. As you have had a strong & favourable trading relationship with our company, your application is likely to be processed favourably. We do, however, require that you completed [sic] fully all the required forms as supplied. This was done for the previous company. If you require the same trading conditions, you will be required to fully complete ALL forms.
I require a completed Contact Details form. This includes the accounts payable & purchasing contacts with their relevant contact details. …
…
Please find enclosed an Acknowledgment of Terms of Sale form. This enables us to assess your creditworthiness …
…
Please also find enclosed an Account Application; the director’s guarantee section must be fully completed. In the present financial climate, we do not offer accounts without this fully completed.
We will extend the courtesy of a temporary account of $25,000 only. …

The fax

On 15 October 2010, the Company sent the fax to the applicant. It comprised five pages.
Pages 1 and 2 of the fax were titled ‘Application for a 30 Day Trading Account’. Those pages contained a completed application for credit made by the Company (‘the Application’), most likely in conformity with the ‘Account Application’ referred to in the letter. The completed Application took the form of details handwritten onto a printed form comprising a number of sections set out in outlined text-boxes. The Application was signed by Angela Stavrakis, an employee of the Company, and it was dated by hand on 14 October 2010.
One box on the first page of the Application contained details of the Company as the applicant for the trading account. Another box required the full names and residential addresses of all directors. In that box was entered the respondent’s name only, with his residential address. Underneath the director’s details, a question asked,
‘If a company, are directors prepared to sign directors guarantee? Yes No’,
and the word ‘No’ was circled.
Appearing above Ms Stavrakis’ signature to the Application were a number of printed paragraphs. Paragraph 4 provided ‘We agree to the trading terms issued by TW Timber Treatment Pty Ltd ….’
Pages 3 and 4 of the fax were in a different format without text-boxes. They were headed ‘ACKNOWLEDGMENT’S [sic] OF AGREEMENTS’ (‘the Acknowledgments’), preceded by an instruction, ‘Please complete these 2 pages & return’. It is probable that these pages comprised the ‘Acknowledgment of Terms of Sale’ referred to in the letter. The Acknowledgments were signed by the respondent as director. The Company name was written onto a space provided for the applicant’s name on both pages.
The Acknowledgments commenced with two introductory paragraphs: the first acknowledging that the signatory had read the Application and the Terms of Sale,[5] and the second in these terms:
I/We understand that in signing this form I/We give the following ACKNOWLEDGMENT and enter into the following agreements and Guarantee:
[5]The Terms of Sale was a four-page document containing 12 clauses. Those terms did not accompany the fax but an agreed copy of them was in evidence at the trial.
Six numbered paragraphs then followed by which, in the first five, the signatory acknowledged that the applicant could obtain and deal with various items of commercial information about the applicant. Paragraph 6, situated immediately above the respondent’s signature, was in these terms:

GUARANTEE OF PAYMENT AND PERFORMANCE
I/We being the Director(s) of the Applicant/Customer, hereby GUARANTEE TW Timber Treatment Pty Ltd the due and punctual payment and performance by the Applicant/Customer of all its obligations to TW Timber Treatment Pty Ltd at all times in respect of every order placed by the Applicant/Customer with TW Timber Treatment Pty Ltd and in respect of which credit is provided by Outdoor Timber Treatment. This GUARANTEE is a continuing GUARANTEE and is binding by [sic] my/our legal personal representative, successors and assigns.

The final page of the fax returned to the text-box format. The page was headed as follows:
Please note that if the below section is not fully completed, we may not consider offering a trading account.
Other than requiring the insertion of the name of the ‘customer’ (filled in as the Company), the balance of that page concerned the identity of the ‘Guarantors’. Given its format, it is possible that this page formed a part of the Application (but was included in the fax in the incorrect sequence). That inference is supported by the terms of the fourth paragraph of the letter which referred to the ‘director’s guarantee section’ of the Application which was to be ‘fully completed’.
In any event, after spaces for inserting the details of the supplier (Section A) and the customer (Section B), Section C contained these printed words:
THE GUARANTORS: Please complete below, sign & have witnessed.
We, being directors or proprietors, acknowledge the agreement to guarantee & indemnify and agree to your trading terms.
Then followed the respondent’s name and home address, adjacent to his signature witnessed by Ms Stavrakis. The page was dated 14 October 2010.

Further relevant events

Following the return of the fax to the applicant, the applicant supplied timber products to the Company, including from September to November 2016.[6] The supplies which were the subject of the proceeding totalled $301,504.87. The invoices in respect of those supplies showed that they were made on 30 day credit terms. At the time of the relevant supplies, cl 5(h) of the applicant’s terms of sale stipulated that if the customer did not pay the supplier by the due date, interest would accrue on the unpaid amount at 16 per cent per annum from the date the money was due until the actual date of payment.
[6]There was no evidence of the date of the first supply following 9 October 2010.
Around 11 November 2016, the Company paid $1,504.87 to the applicant. On 1 December 2016, the applicant’s solicitors made demands upon the Company and the respondent for payment of the amounts said to be owing by the Company and issued a statutory demand against the Company for $220,449.95 on 7 December 2016.[7]
[7]Presumably, as at 7 December 2016, goods to the value of approximately $80,000 had been supplied but still fell within the 30 day credit period.
A week later, the respondent sent a text message to a representative of the applicant, stating:
This matter has got out of control. I have every intention to pay you in full ...... I’ve never not paid my bills in 20 years.
As you know, my money comes through in the next 4 weeks so I’d like to propose a payment plan to have the full amount settled in a reasonable amount of time.
The Company was placed into voluntary administration on 31 January 2017. Its creditors resolved to approve the Company entering into a DOCA, which it did on 17 March 2017. Pursuant to the DOCA, the applicant received a payment of $17,131.94 leaving a debt owed by the Company to the applicant in the sum of $282,868.06 (‘the debt’). No other payments were made. On 24 October 2017, the administrators lodged a Notice of Termination with ASIC to the effect that the DOCA had been wholly effectuated. The Company was deregistered on 16 May 2018.

The judge’s reasons

The applicant commenced the proceeding against the respondent for enforcement of the director’s guarantee regarding the debt. At first instance, the trial was heard by a judicial registrar who gave judgment for the respondent by dismissing the applicant’s claim. The proceeding then came before a judge of the County Court by way of review of the judicial registrar’s decision.[8] Although the review was conducted as a hearing de novo the parties relied on the same evidence that had been tendered before the judicial registrar, which was solely documentary.
[8]County Court Civil Procedure Rules 2018 ord 84.03.
The three issues in dispute were framed as follows:
(a)did the respondent intend to enter into legal relations in his personal capacity as a guarantor by signing the documents and did he do so on his own behalf;
(b)did the applicant provide consideration for the respondent’s guarantee; and
(c)was the respondent liable under his guarantee for interest calculated at 16 per cent per annum on the amounts outstanding?
The judge dismissed the review application, deciding the two issues relevant to this appeal as follows:[9]
(a)first, the respondent did not enter a binding guarantee in his personal capacity for the debts of the Company (the ‘Guarantee Issue’); but
(b)secondly, if the respondent had been bound as a surety, he would be liable for interest on the outstanding sum at the rate of 16 per cent per annum from the date the money was due until the date of trial (the ‘Interest Issue’).

Guarantee Issue

[9]The issue concerning consideration was decided in the applicant’s favour and is not the subject of appeal.

On the review (as at trial), the parties agreed that the respondent had signed the Application forms containing the guarantee. The judge identified the point of contention to be whether the respondent’s signatures on the fax could be interpreted by a reasonable person in the applicant’s position as manifesting the respondent’s intention to be bound by the guarantee in his personal capacity.
The applicant argued that, on the proper construction of the fax when read as a whole in light of its surrounding circumstances, the respondent intended to be personally bound as guarantor of the debts of the Company. For the respondent’s part, he argued that, on a proper construction of the fax, his signatures on it signified no more than his assent, given in his capacity as a director, to the Company making the application for credit. To the extent there was ambiguity or doubt about the capacity in which he signed the documents, the respondent contended that the question should be resolved in favour of the putative guarantor, namely himself.
The judge began his analysis by referring to orthodox legal principles.[10] He observed, correctly, that the question of a party’s intention to be legally bound is not answered by reference to uncommunicated subjective thoughts or intentions;[11] rather, the parties’ intention is to be evaluated objectively from the subject matter of the agreement, the status of the parties, their relationship to one another and the surrounding circumstances.[12] The judge noted the relevance of a person’s signature on a document and what a signature ordinarily conveys.[13] But his Honour also observed that the presence or absence of such a signature is not always determinative of the issue.[14]
[10]Reasons, [40].
[11]Ibid; Alonso v SRS Investments (WA) Pty Ltd [2012] WASC 168, [46] (Edelman J).
[12]Reasons, [40]; Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95, 105 [25] (Gaudron, McHugh, Hayne and Callinan JJ); [2002] HCA 8 (‘Ermogenous’).
[13]Reasons, [41]; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165, 180–1 [45] (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ); [2004] HCA 52 (‘Toll’) .
[14]Reasons, [41].
His Honour considered the broader context of the transaction, noting the following matters in particular:[15]
(a)the applicant and the Company had a commercial relationship centred on the supply of timber by the applicant to the Company so the Company could make wooden products;
(b)the documentation for the Application provided by the applicant to the Company included a guarantee;
(c)the respondent was the sole, or dominant, shareholder of the Company in 2016 when the applicant supplied the timber to the Company;
(d)the respondent and the Company had been in business for about 13 years (under different names) before conducting the particular transaction with the applicant;
(e)the Acknowledgments that the respondent had signed specifically stated that he gave certain acknowledgments and entered into the agreements and guarantee;
(f)the Acknowledgments were under a heading in capital letters at clause 6 saying ‘GUARANTEE OF PAYMENT AND PERFORMANCE’ and each reference to ‘Guarantee’ in that paragraph was in capital letters;
(g)the respondent had signed the section of the document relating to the guarantee and this section had been witnessed and dated; but
(h)the word ‘No’ had been circled in response to the question about the willingness of the directors to give a guarantee.
[15]Ibid [42]–[49].
The judge did not think that the circling of the word ‘No’ on the Application ‘necessarily qualified everything that followed’, but nevertheless regarded it as ‘significant’. He held that, faced with the inconsistency between the circling of ‘No’ regarding a person’s preparedness to give a guarantee, and that person’s signature to the guarantee, a reasonable person would be confused as to the person’s intention whether or not to give such a guarantee. His Honour added that there was ‘something in the point’ that the respondent ‘as the sole director’ needed to sign the credit application on behalf of the Company whether giving a guarantee or not.
In the result, the judge held that the applicant had not discharged its onus of establishing the guarantee on the balance of probabilities. He accepted the proposition put by the respondent that any doubt caused by inconsistency in the documentation should be resolved in favour of the respondent.

Interest Issue

Assuming the respondent did guarantee the performance of the Company’s obligations to the applicant, there was no dispute that he was liable to the applicant for the principal debt, namely $282,868.06. Neither was there any dispute that the respondent would be liable for some interest on that debt. But the dispute concerned his liability to pay interest on the debt pursuant to the applicant’s terms of sale. Even more narrowly, the interest dispute between the parties only concerned the respondent’s liability to pay such interest after the date the DOCA was fully effectuated, namely 24 October 2017. It was agreed that the respondent was liable for interest at the rate provided by the applicant’s terms of sale — that is, 16 per cent per annum — up to 24 October 2017.
Thereafter, the rival contentions were that
(a)the rate of interest continued to be 16 per cent per annum on the outstanding debt (the applicant’s position), or
(b)the applicable rate of interest was that which was allowed under s 58(1) of the Supreme Court Act 1986 on the recovery of ‘a debt or sum certain’, calculated from the date the cause of action arose (usually, upon the demand) until the date of judgment (the respondent’s position).[16]
[16]Section 58(1) of the Supreme Court Act 1986 is in the following terms:
The reason for those different positions was not that the respondent denied that the applicant’s terms of sale or the respondent’s guarantee continued to have legal effect. Rather, it was due to what the respondent argued was the effect of the release of the Company’s debt to the applicant pursuant to the DOCA.
Because his liability under the terms of the guarantee (set out in paragraph 6 of the Acknowledgments) was to guarantee the ‘due and punctual payment and performance by [the Company] of all of its obligations to [the applicant]’, the respondent argued that his liability to pay interest on the debt rose no higher than the Company’s obligation to pay such interest. It followed, said the respondent, that because the Company’s debt to the applicant was released on 24 October 2017, after that date the respondent’s guarantee of the due and punctual performance of the Company’s interest obligation had no debt to fasten upon. In other words, the guaranteed obligation to pay interest after 24 October 2017 was to pay 16 per cent of nothing.
Properly understood, the dispute was not directly about rates of interest. Rather it was whether, so far as the guarantor was concerned, a principal debt remained in existence after 24 October 2017 upon which the contractual obligation to pay interest could fasten, thus attracting the contractual rate of interest. If so, interest would be accruing prospectively from 24 October 2017 until judgment at 16 per cent per annum. If not, if judgment was ultimately given against the respondent for the debt, interest would be applied retrospectively, from 24 October 2017 to the date of judgment, at the statutory rate.
The judge did not accept the respondent’s argument. In finding that, if liable under the guarantee, the respondent was liable to pay interest on $282,868.06 after 24 October 2017 at the rate of 16 per cent per annum, the judge reasoned as follows:
(a)clauses 12.2 and 12.3 of the DOCA had the effect that, from 24 October 2017, the Company was released from all claims by creditors (the circumstances giving rise to which arose on or before 31 January 2017) which, as the parties agreed, extended to the applicant’s claims against the Company for the principal debt;
(b)section 444J of the Corporations Act 2001 (Cth) provided that the release of a company’s debt pursuant to a DOCA (as provided by s 444H) ‘does not affect the creditor’s rights under a guarantee or indemnity’;
(c)the ‘plain meaning’ of s 444J, as confirmed by recourse to the Explanatory Memorandum accompanying the introduction of div 10 of the Corporations Act, is to preserve the creditor’s rights against the guarantor even where the primary debt of the debtor company is released (that is, as if the DOCA had not extinguished the debts and obligations which existed between the creditor and the debtor company); and
(d)that view was supported by the decision of the Queensland Court of Appeal in Hanson Construction Materials Pty Ltd v Davey.[17]
[17](2010) 79 ACSR 668; [2010] QCA 246 (‘Hanson Construction’).
In short, the judge considered that the DOCA had not extinguished the applicant’s rights under the guarantee against the respondent. This conclusion, the judge determined, necessarily extended to the right to recover interest as against the guarantor at the rate provided by the trading terms applied to the Company’s debt as if that debt had not been extinguished.[18]
[18]Reasons, [84]–[99].
Thus, the judge determined the interest issue in favour of the applicant.

Did the judge err in finding that the respondent did not intend to enter a guarantee?

The applicant’s contention that the judge erred in not finding that the respondent was bound by the guarantee was founded, in the proposed grounds of appeal, upon two premises. The first was that the judge was wrong to find that the respondent did not intend to enter legal relations in his personal capacity as guarantor. The second was that the judge wrongly thought that the respondent probably had to sign the credit application on behalf of the Company, in any event, because he was the only director of the Company.
The second premise is simply an element of the broader argument about the capacity in which the respondent intended to enter legal relations by signing the Application and associated documents. Before this Court, it was not in dispute that, on 14 October 2010 (the date the documents in the fax were signed), the Company had two directors — the second being Mr Chapman who remained a director until 18 October 2010.
If the judge thought that the respondent had to sign the document as the only director of the Company, and took that matter into account in determining the intended capacity in which the respondent applied his signature to the fax, the judge was in error to do so. But, as will be seen, in our view the judge made an error in finding that the respondent was not bound by the guarantee whether or not he was influenced by the number of directors at the time the application was made.

Legal principles

Akin to the way the meaning of the terms of a contract are construed,[19] 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.[20] 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’.[21]
[19]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 (2004) 219 CLR 165, 179 [40] (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ).
[20]Ermogenous (2002) 209 CLR 95, 105 [25] (Gaudron, McHugh, Hayne and Callinan JJ).
[21]Ibid.
Broadly speaking, the respondent’s arguments why he should not be taken to have intended to enter legal relations in his personal capacity as guarantor were threefold (although we consider that they tend to merge into the one argument), namely:
(a)first (as foreshadowed in the first ground of his notice of contention), properly construed, the fax contained no offer from the respondent to enter a guarantee which, were it to be accepted, could create a contract of guarantee;
(b)secondly, that the respondent’s signature to various parts of the fax did not signify his intention to be personally bound but merely that, as director of the Company, he assented to the Company being bound; and
(c)thirdly, that indications in the documents whether he intended to enter a guarantee were internally inconsistent and the consequence of that inconsistency should fall against the applicant.
In the context of the issues in this case, the first two arguments are different ways of expressing the same proposition: that is, that on the proper construction of the fax the respondent did not enter a personal contract of guarantee. Whether that is because he did not offer to do so or did not intend to do so has to be resolved by the construction of the fax situated in its surrounding circumstances. There is no dispute in this case that, whichever is the proper construction of the ‘offer’ or the ‘intention’ of the respondent, a contract to supply timber to the Company on 30 day credit terms came into existence when the applicant supplied the Company with timber products on the terms contained in the fax. The only question in this case was whether a contract of personal guarantee also came into existence between the respondent and the applicant at the same time.
The third argument is the reiteration of an argument accepted by the judge which we will deal with in the course of our analysis.
For the purpose of objectively determining the intention of parties to enter legal relations, the presence of a 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 — all the more so if the signature appears below a clear written request to read the document before signing it.[22]
[22]Toll (2004) 219 CLR 165, 180–1 [45] (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ).
Nevertheless, a signature on a document may be applied for a limited purpose or in a qualified way. A single signature, or several signatures in different places on the one document, may be applied by a person in more than one capacity — for example, in a personal capacity, as agent for another (eg, as director for a company), as a principal, or as a surety for the principal. Alternatively, the signature may be intended to be applied in only one, limited capacity.
There is a long line of cases discussing the approach to be applied when determining whether a signatory to a document intended to be personally bound and, if so, in what capacity, where there are words or signs of qualification to that signatory’s capacity. In Clark Equipment Credit of Australia Ltd v Kiyose Holdings Pty Ltd,[23] Giles J analysed the authorities and concluded:
… [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.[24]
[23](1989) 21 NSWLR 160.
[24]Ibid 174.
That approach has received extensive intermediate appellate support since,[25] and should be taken as settled. In reaching that conclusion, Giles J drew on a passage from McHugh JA (when on the New South Wales Court of Appeal) in Scottish Amicable Life Assurance Society v Reg Austin Insurances Pty Ltd[26] (which has also been relied upon by appellate courts).[27] McHugh JA said:
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]
Speaking of examples of cases where, because of a qualification, it was found that personal liability was not intended, his Honour explained that:
… this is because the express disavowal of responsibility in those examples is so strong that no other consideration, based on the terms of the document, can overcome it. In other cases, however, the qualification to the signature may be overcome by the terms of the document and the surrounding circumstances. In the end the decision must depend upon the terms of the document including the qualification attaching to the signature together with the surrounding circumstances. This is a question of fact, not of law.[29]
[25]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]); Bond v Rees Corporate Advisory Pty Ltd [2013] VSCA 13, [57]–[58] (Tate JA, Maxwell P agreeing at [1]) (‘Bond’); SAS Realty Developments Pty Ltd v 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’).
[26](1985) 9 ACLR 909 (‘Scottish Amicable’).
[27]For example, Bond [2013] VSCA 13, [59], Owners Strata Plan [2018] NSWCA 170, [223].
[28]Scottish Amicable (1985) 9 ACLR 909, 923.
[29]Ibid 923–4.
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.

Analysis

Applying that principle, we are unable to agree with the trial judge’s conclusion that the respondent did not intend to be personally bound as guarantor of the Company’s liability to the applicant. In our view, viewed objectively, the indications that the respondent intended to be so bound are overwhelming. We shall explain why.
The respondent’s signature appears in two places on the five pages comprising the fax. First, it appears on the fifth page of the fax (that is, possibly, as we have said, the third page of the Application). His signature on that page is only explicable as his written assent to giving a guarantee to the applicant of the Company’s liability. It served no other purpose.
Objectively, his signature on that page was clearly intended to signify a serious and vital undertaking in the context of the Company’s application for credit trading terms. As already noted, that page commenced in particularly large and prominent print, with the words, ‘Please note that if the below section is not fully completed, we may not consider offering a trading account.’ Those words were followed with five enumerated instructions including to ‘fully complete the below section’, to ensure that the signature was witnessed at the time of signing and to ‘keep a copy of the application for your own reference’.
Like the presence of a statement warning the signatory to read the document carefully, those words strengthen the representation conveyed to the ordinary reasonable reader of the document that the signatory read and approved its contents and, thus, intended to be bound or was at least willing to take the chance of being bound.
The operative provision on the page, in the section below those words, was clear and unequivocal — ‘We, being the directors or proprietors, acknowledge the agreement to guarantee and indemnify and agree to your trading terms’. The respondent’s signature immediately below that provision, witnessed by Ms Stavrakis, was not qualified or limited in any respect as to the capacity in which it was applied. Further, in its context, the respondent’s personal agreement to the ‘trading terms’ is only explicable because the applicant would wish to ensure that, as the intended surety for the Company, the respondent was aware of the precise obligations he was guaranteeing to be performed.
The respondent’s acknowledgment of the ‘agreement to guarantee’ is, as we construe the document, an internal reference to the earlier location where his signature appears in the faxed documents. As detailed at [13]–[15] above, the respondent’s signature (on page 4 of the fax) appears on the Acknowledgments directly beneath a paragraph introduced, in capital letters, ‘GUARANTEE OF PAYMENT AND PERFORMANCE’. In the paragraph that followed, the director-signatory/s expressly guaranteed the Company’s performance of its obligations to the applicant (TW Timber) in respect of every order it would place with the applicant.
True it is that the respondent’s signature in that location is accompanied by the handwritten word ‘Director’ appearing above the printed word ‘Title’. But, in context, that description in no way detracts from the representation that the respondent intended to be personally bound as guarantor. We agree with the view expressed by Finkelstein J in Follacchio v Harvard Securities (Australia) Pty Ltd[30] that there is no reason in principle why a signature cannot be applied in more than one capacity, so long as the capacity or capacities in which the signature is applied is clear.
[30][2002] FCA 1067, [9].
For two reasons, it is clear that the respondent’s signature as director on page 4 was applied both in an agency capacity, on behalf of the Company for the acknowledgments, and in a personal capacity, for the purpose of the guarantee. First, the terms of the guarantee on page 4 stipulated that it was to be given by a director of the Company; so adding the word ‘director’ to describe himself was consistent, rather than inconsistent, with the respondent accepting personal responsibility. Secondly, the acknowledgments preceding the guarantee were to be given on behalf of the Company itself so that the respondent’s signature as director was apt to bind the Company to them.
Giving each paragraph of the Acknowledgments meaning and effect, the respondent’s signature on page 4 of the fax conveyed to the reasonable reader the representation that he had read and assented to the Acknowledgments in each relevant capacity.
We next turn to consider the circled ‘No’ on the Application itself (page 1 of the fax). As a representation to the ordinary reasonable reader as to whether the respondent was intending to undertake personal liability as a guarantor, this part of the document is far weaker than the two we have already mentioned, for the obvious reason that he did not sign it. It was signed by Ms Stavrakis. There is no dispute that Ms Stavrakis was authorised to sign the Application on behalf of the Company. But, on its face, the Application did not contain any representation made by the respondent personally, nor any explicit representation that what was recorded in it was subscribed with his personal authority.
On that basis, we doubt that the circled ‘No’ operates as any form of qualification or limitation to the capacity in which the respondent signed and assented to those parts of the document containing the guarantee. But even if it did, from an examination of the whole of the document, the respondent’s signatures to the clear and unequivocal terms of the guarantee on pages 4 and 5 of the fax readily overcome and override any such qualification.
At the hearing of the application there were exchanges between the parties and the bench about whether it was appropriate to construe each part of the fax discretely, as if each part was a separate document, or whether the whole of the fax was to be construed as a complete whole. As we understood those exchanges, each party agreed that the fax should be construed as a composite whole. We agree. However, each part of the whole has its particular purpose. The nature and terms of each part, the identity of the person who signed it, and the capacity in which they did so, are all plainly relevant to the critical question in this case whether the respondent intended to personally enter legal relations as a guarantor of the Company’s obligations to the applicant.

A consideration of the surrounding circumstances powerfully reinforces the conclusion drawn from the text of the fax. Recall, the documents comprising the fax were first sent to the Company with a letter stating clearly that the applicant would not provide the requested trading terms without a director’s guarantee, emphasising that ‘the director’s guarantee section must be fully completed’. Viewed objectively, by signing the guarantee provisions in the fax, in the context of that letter, the respondent’s intention to be bound as guarantor is all the more readily found. We reject the respondent’s argument that the applicant’s insistence on the provision of a guarantee is somehow neutralised because the letter also stated that the Company’s application would be received favourably due to the past strong relationship between the two trading entities.
Rather than finding the various indications in the document ‘irreconcilable’ (as the respondent submitted we should do), leading to ‘confusion, uncertainty and ambiguity’ (as found by the judge), the issue of the respondent’s intention fell to be resolved on orthodox principles of construction, with particular reference to principles for determining the nature and strength of any qualification to the capacity in which a signature was applied.
This issue was not to be resolved by reference to the operation of the onus of proof, or by giving the benefit of the doubt to the putative guarantor because of so-called confusion or uncertainty (the respondent’s third argument). Insofar as the judge resorted to these analytical means to resolve the critical question, he was, with respect, in error to do so.
The respondent also submitted that the judge’s conclusion could be supported by reference to principles that stress the need for clarity and certainty in the words of any offer to enter a guarantee (the respondent’s first argument).[31] There is nothing uncertain about the language contained in the sixth paragraph of the Acknowledgments or on the fifth page of the fax as constituting an offer to enter a guarantee. The only uncertainty was whether, reading the document as a whole, the circled ‘No’ should, in some fashion, overcome the clear representation conveyed by the respondent’s signature in those two places. In short, the answer is that it does not.
[31]Referring, for example, to James O’Donovan and John Phillips, Thomson Reuters, Modern Contract of Guarantee (online at 27 July 2022) [2.300].
Finally, and for completion, we place no reliance on the text message sent by the respondent in December 2016 expressing his intention to pay the account in full. Even assuming it is to be admissible on the question of construction, that statement is ambiguous as to whether he was referring to himself personally or equating himself with the Company of which he was, by then, the sole director.
It follows that we would allow the appeal on both grounds and dismiss the first ground of the respondent’s notice of contention.

Did the judge err in finding that the respondent would be liable for interest at 16 per cent per annum after the DOCA was effected?

The Guarantee

Because a guarantor’s obligation is secondary or accessorial upon the principal debtor’s obligation to a creditor,[32] the guarantor’s obligations are to be understood by reference to both the terms of the guarantee and the terms of the principal debtor’s obligation which the guarantor assures.
[32]Wayne Courtney, John Phillips and James O’Donovan, The Modern Contract of Guarantee (Sweet & Maxwell, 4^th ed, 2020) 10 [1-022].
In this case, as noted, the relevant terms of the guarantee were that the respondent guaranteed
… the due and punctual payment and performance by [the Company] of all its obligations to [the applicant] at all times in respect of every order placed by [the Company] with [the applicant] and in respect of which credit is provided … .
Relevantly, for the purpose of the Interest Issue, the Company’s obligations were set out in the trading terms to which the respondent also agreed.[33] Having stated that the Company must pay for goods delivered to it within the period allowed under the credit terms noted on the invoices (in this case, 30 days), cl 5(h) of the trading terms further stipulated:
If [the Company] does not pay [the applicant] by the due date, [the Company] shall pay interest on the moneys due, charged on a daily basis at 16% pa from the due date for payment until the actual date of payment.
[33]Above at [18].
In summary, then, the respondent guaranteed the due and punctual payment of interest, at the rate of 16 per cent per annum, on so much of the moneys due for goods delivered to the Company as remained unpaid after 30 days of delivery, to be charged daily until actual payment.

The statutory provisions

Division 10 of pt 5.3A of the Corporations Act 2001 (Cth) (‘the Act’) concerns the execution and effect of a deed of company arrangement. A description of the scheme of the Part is set out in Lehman Bros Holdings v City of Swan.[34] Its provisions apply if, at a meeting convened under s 439A of the Act, a company’s creditors resolve by majority[35] that the company execute such a deed.[36] A deed of company arrangement is a form of voluntary administration (not requiring any order of the Court) the object of which is to
… provide for the business, property and affairs of an insolvent company to be administered in a way that:
(a)maximises the chances of the company, or as much as possible of its business, continuing in existence; or
(b)if it is not possible for the company or its business to continue in existence — results in a better return for the company’s creditors and members than would result from an immediate winding up of the company.[37]
[34]Lehman Bros Holdings v City of Swan (2010) 240 CLR 509, 520–3 [28]–[37]; [2010] HCA 11 (‘Lehman Bros’).
[35]Corporations Regulations 2001 (Cth) reg 5.6.21.
[36]Corporations Act 2001 (Cth) s 444A(1).
[37]Ibid s 435A.
In broad terms, the voluntary administration scheme achieves its purposes by restraining creditors from using the usual means of enforcing claims (such as debts) against the company during the administration period; placing the administration of the company in the hands of an independent insolvency practitioner (the administrator) for that period; establishing a pool of funds in which the creditors are to share, with the administrator being responsible for distributing entitlements from that pool to creditors; providing for the release of the claims against the company once those entitlements have been fully distributed; and binding all creditors of the company to that outcome.
Among other things, a deed of company arrangement must specify the day on or before which claims must have arisen to be admissible under the deed, the property to be available to pay creditors’ claims, the extent to which the company is to be released from its debts and the circumstances in which the deed terminates. Upon the company and administrator both executing the deed, following the resolution of creditors,[38] the deed binds all creditors (whether they voted for the resolution or not) so far as concerns claims arising on or before the day specified in the deed.[39]
[38]Ibid s 444B.
[39]Ibid s 444D(1).
While the deed is in force, no person bound by the deed can apply to wind the company up or bring a proceeding against the company or in relation to its property, without the leave of the Court.[40] However, except to the extent a deed limits the rights of a secured creditor who supported the deed to do so, or as expressly limited by an order of the Court, the deed does not prevent a secured creditor from realising or dealing with a security interest.[41]
[40]Ibid s 444E.
[41]Ibid s 444D(2).
Importantly for this case, the Act specifies the extent to which a deed may provide for the release of debts and the effect of such provision on creditors’ rights under a guarantee. Thus:
444H Extent of release of company’s debts
A deed of company arrangement releases the company from a debt only in so far as:
(a)the deed provides for the release; and
(b)the creditor concerned is bound by the deed.
444J Guarantees and indemnities
Section 444H does not affect a creditor’s rights under a guarantee or indemnity.
Section 444J was not contained in pt 5.3A of the Act when introduced in 1993.[42] The section was inserted by the Corporations Amendment (Insolvency) Bill 2007. Regarding the new s 444J, the Explanatory Memorandum noted that ‘[c]ertainty in this area is desirable. The law will be amended to unequivocally state that when creditors resolve to execute a DOCA, creditors’ rights under a guarantee or indemnity are unaffected’.[43]
[42]Pt 5.3A was first introduced into the Corporations Law of each State on 29 June 1993, and later enacted as Pt 5.3A of the Act.
[43]Explanatory Memorandum, Corporations Amendment (Insolvency) Bill 2007 (Cth) [7.12].
According to the recitals of the DOCA, the directors of the Company resolved on 31 January 2017 to enter the deed and appoint the administrator and a meeting of creditors resolved on 7 March 2017 that the administrator and the Company should enter the deed. They did so on 17 March 2017. Under the deed, the ‘Appointment Date’ was expressed to be 31 January 2017 and ‘Claims’ were defined to mean
… all actions, claims, suits, causes of action, arbitrations, debt, costs, demands, verdicts and judgments at law or in equity or under any statute, whether certain or contingent, present or future, ascertained or sounding only in damages, the circumstances giving rise to which occurred, or arose, on or before the Appointment Date.
By further provisions of the DOCA, the creditors of the Company were entitled to submit a proof of debt[44] to be adjudicated upon by the administrator.[45] The day on or before which the claims must have arisen in order to be admissible to participate in the deed was 31 January 2017. A Deed Fund, available for distribution among the creditors, was comprised of a sum of $580,000 contributed by the corporate trustee of the respondent’s family trust together with the net proceeds of any trading by the Company between 31 January 2017 and the date of execution of the deed. By cl 11 of the deed, the administrators were to apply the Deed Fund in a particular order of priority, ultimately distributing the balance pari passu among the admitted creditors.
[44]Cl 11.3.1.
[45]Cl 11.3.2.
Consistently with ss 444D and 444G of the Act, cl 12.1 of the DOCA provided that it bound ‘all parties to this Deed and all Creditors having a Claim against the Company’, as well as the administrator, Company and its officers and members. A Creditor was defined to be any person who had or may have had a Claim against the Company.
Clauses 12.2 and 12.3 of the deed dealt with the discharge of debts and the release and relinquishment of Claims, in the following terms:
12.2 Discharge of Debts
The Creditors must accept their entitlements under this Deed in full satisfaction and complete discharge of all Claims which they have or claim to have against the Company as at the Appointment Date and each of them will, if called upon to do so, execute and deliver to the Company such forms of release of any such claim as the Deed Administrators require.
12.3 Release and Extinguishment of Claims
Upon termination of this Deed pursuant to clause 14:
12.3.1 The Company will be released from all Claims by any Creditor;
12.3.2 All Claims by any Creditor will be discharged and extinguished; and
12.3.3 The Creditors accept the terms of this Deed in full and final satisfaction and complete discharge of all their Claims.
Subject to the arrangement achieving its purpose by providing the full entitlements under the deed to participating creditors – as occurred in this case – the deed was to be terminated upon the administrators lodging a certificate with ASIC of a notice of termination.[46] That step occurred on 24 October 2017.
[46]Cl 14.
It followed, as provided by cl 12.3, the Company was released from all Claims by any Creditor on the termination of the deed. In practical terms for the purpose of this proceeding, this meant that the applicant’s claim for principal and interest owing under its trading terms for the delivery of goods to the Company before 31 January 2017 was released on 24 October 2017 by operation of the deed. To the extent the release was provided by the deed, it was given statutory force by s 444H of the Act.

The common law

A number of decisions were cited in argument. The applicant relied on them in support of its argument that the DOCA did not affect its right to enforce the respondent’s guarantee of the payment of interest on the unpaid money for the goods. The respondent relied on them in support of a more nuanced principle that drew a distinction between, on the one hand, the existence of a guarantor’s obligation to the creditor and, on the other, the content of that obligation.
In McDonald v Dennys Lascelles Ltd,[47] Dixon J explained that, because of the accessory nature of a surety’s obligation, the extinguishment of the principal debtor’s obligation to the creditor similarly discharged the surety’s obligation to the creditor. But, as Dixon J further explained, that proposition did not
… extend to a discharge of the principal debtor’s personal liability by operation of law when the discharge is for the purpose of liquidating his affairs or transforming the rights of the creditor against him into rights against or in respect of his assets.[48]
[47](1933) 48 CLR 457 (‘Dennys Lascelles’).
[48]Ibid 479–80.
Rich J, agreeing, further explained:
In cases in which the bankruptcy law, or the law relating to the winding up of companies, or the law authorising compromises and schemes of arrangement among shareholders and creditors of companies, absolves the principal debtor from liability, the object is not to disentitle the creditor from the benefit which the principal obligation was intended to secure, but merely to change the nature of his right, in the interests as well of himself as of all others who have claims of like degree against the debtor.[49]
[49]Ibid 467.
In Perrott v Newton King Ltd,[50] the New Zealand Court of Appeal considered the liability of a guarantor in the context of the bankruptcy of the debtor. The guarantor had guaranteed payment of interest ‘while the money remains owing’ by the debtor. By majority, the Court held that, upon the bankrupt debtor’s discharge from bankruptcy, the liability of the guarantor to the creditor ceased. As explained by Kennedy J (with whom Myers CJ agreed), the release of the guarantor’s liability was not effected ipso facto because the debtor’s debt to the creditor was extinguished upon his discharge from bankruptcy. Rather, it was because, under the terms of the guarantee, the surety’s liability was to pay interest only upon the principal money which remained ‘owing’ by the debtor. Since no money remained owing by the discharged bankrupt, the surety had no ongoing liability.[51] By reference to In Re Moss, ex parte Hallet,[52] Kennedy J opined that had the guarantee been expressed to operate ‘until the repayment of the principal sum’, the result would likely have been different.[53]
[50][1933] NZLR 1131 (‘Perrott’).
[51]Ibid 1162.
[52][1905] 2 KB 307.
[53]Perrott [1933] NZLR 1131, 1162.
In short, in large part, this case turned upon an analysis of the language of the guarantee.
In Jowitt v Callaghan,[54] Jordan CJ arrived at the opposite conclusion to the one reached by the Court in New Zealand, holding that despite the bankruptcy of the principal debtor the surety remained liable under a guarantee for the interest claimed. In Jowitt, the bankruptcy was still in progress; that is, the sequestration order had been made but the bankrupt had not been discharged from bankruptcy. Nonetheless, the Chief Justice stated that the very purpose of a guarantee was to secure the creditor in the event the debtor became unwilling or unable to discharge his obligation.[55] His Honour continued:
… the fact that, by reason of a sequestration order, the principal obligation is no longer enforceable against the principal obligor by the ordinary machinery of the common law or that, by reason of an order of discharge, he is released from his personal liability, has never been regarded as operating to release a guarantor from liability … In such a case, the fact that the obligation has ceased to exist as a personal obligation binding the obligor himself does not annihilate its operation for all purposes. It continues to exist as the source of a right to obtain payment out of certain assets, just as, upon the death of the obligor, although any personal obligation on his part comes to an end, the obligation continues as the source of a right to obtain payment out of his assets. In neither case does the fact that the personal liability of the debtor has come to an end operate to discharge any guarantor of the debt.[56]
[54](1938) 38 SR (NSW) 512 (‘Jowitt’).
[55]Ibid 519.
[56]Ibid.
The scope of the principle stated in that case may be debated given that, as the Chief Justice held, the bankrupt’s obligation to pay the debt had not been released by the sequestration order but, instead, the creditor needed to resort to the special legal machinery prescribed by the Bankruptcy Act to obtain satisfaction of the debtor’s obligation out of his assets.[57]
[57]Ibid.
In Hill v Anderson Meat Industries Ltd,[58] the creditor, Mrs Hill, sought to enforce a guarantee given by a company for the obligations of its subsidiary. The subsidiary, the debtor, had entered a scheme of arrangement under s 181 of the Companies Act 1961. The judge at first instance (Street J), held that the discharge of the debtor’s debt to Mrs Hill effected by the scheme of arrangement did not affect the liability of the guarantor (the parent company) to pay the full amount of the debt guaranteed. The guarantor company sought to distinguish decisions which upheld the ongoing liability of a guarantor in the context of a bankruptcy or winding up, from those made in the context of a scheme of arrangement under which the primary debt obligation was wholly extinguished. The distinction, it was argued, lay, on the one hand, in the continuance of the debtor’s obligation but accompanied by a change to the creditor’s means of enforcing it (in bankruptcy and winding up) and, on the other, the complete annihilation of the primary liability of the debtor (for example, under a scheme of arrangement) upon which the guarantor’s liability depended.
[58][1971] 1 NSWLR 868 (Street J) (‘Hill First Instance’); [1972] 2 NSWLR 704 (‘Hill’).
Relying on what Rich J said in Dennys Lascelles (above [88]), and rejecting that distinction, Street J held:
… it is for present purposes an insubstantial exercise in semantics to attempt to distinguish between the discharge of the creditors’ claim and the discharge of the debtor’s obligation. The substance of the scheme is that the creditors’ right to payment from the company is translated to a right to participate in distributions under the scheme. For all presently relevant purposes this is a right which is not to be distinguished from the rights of creditors to distributions under bankruptcies, windings up, compositions or arrangements under the bankruptcy legislation, or scheme of compromise introduced in companies being wound up.[59]
[59]Hill First Instance [1971] 1 NSWLR 868, 875–6.
Street J’s decision was upheld on appeal.[60] Two of the judges (Hope JA and Hutley AJA)[61] were content to adopt Street J’s reasoning. Jacobs P also agreed with Street J that the case fell to be decided on the doctrine that the extinguishment of a principal obligation brought about by operation of law does not result in the discharge of the surety.[62]
[60]Hill [1972] 2 NSWLR 704.
[61]Ibid 708, 709.
[62]Ibid 706.

In Gan v Sanders,[63] Mandie J held that a guarantor remained liable to guarantee the repayment of a debt owed by a company to a lender, after the debt between the company and the lender was extinguished pursuant to a deed of company arrangement made under Part 5.3A of the then Corporations Law. Rejecting an argument that, upon the release and discharge of the debt, there was nothing left to guarantee, Mandie J relied upon the reasoning in Hill, concluding, in the case before him, that because the extinguishment of the principal debt occurred by the operation of law that extinguishment did not result in the discharge of the surety.[64]
[63](1994) 15 ACSR 298.
[64]Ibid 301.
Helou v PDM Mulligan Pty Ltd[65] was another case concerning a deed of company arrangement. A guarantor guaranteed payment of ‘moneys due and payable’ by the debtor, a company. The debtor-company entered a deed of company arrangement shortly before the creditor sued the guarantor for a debt owed by the company. The trial judge held that the deed did not release the rights of the creditor against the guarantor. On appeal, the debtor did not argue that the guarantee was discharged by force of the deed, but raised ‘an anterior question’ submitting that ‘the guarantee had ceased to engage the principal debt because the debt was no longer “payable” when the proceedings were commenced’.[66]
[65](2003) 57 NSWLR 74; [2003] NSWCA 92 (‘Helou’).
[66]Ibid 78 [26].
Mason P (Scheller JA and Davies AJA agreeing) held[67] that, under the deed of company arrangement, the creditor’s right to enforce the debt against the company was converted into a right to prove and to participate in the pooled funds. The debt remained both due and payable, the deed merely suspending any resort to taking the usual means of enforcement. The scheme was therefore ‘aimed at the continuance of a creditor’s just claim to receive immediate payment and not at its defeasance’.[68]
[67]Ibid 79 [28].
[68]Ibid 81 [35].
Finally, in Hanson Construction Materials Pty Ltd v Davey,[69] — the decision relied upon by the trial judge in this proceeding — two directors guaranteed the obligations of a company which had purchased goods from a supplier. The purchaser company, indebted to the supplier, entered a deed of company arrangement under pt 5.3A of the Act by which its debt to the creditor-supplier was released. Upon being sued under the guarantee, the guarantors pleaded that the effect of the deed of company arrangement was to discharge the debtor-company from indebtedness to the creditor, resulting in there being no liability which the guarantors could be called upon to discharge.
[69]Hanson Construction (2010) 79 ACSR 668.
In that case, the deed of company arrangement included a clause by which, not only were the claims of the creditor released, but the claims were deemed to have been ‘paid and fully satisfied’. Thus, the guarantors argued, s 444J did not apply because that section was only effective to preserve rights against the guarantors in the face of the release of a debt, not the payment of the debt. The Queensland Court of Appeal rejected that argument as being ‘contrary to authority’ and one that would, if accepted, deprive s 444J of any effect.[70] The fact that the deed deemed the creditor to have been paid did not alter the fact that the deed released the debtor from its debt to the creditor. The Court endorsed the proposition that a deed of company arrangement could only deal with company property and that an administration under Pt 5.3A was not competent to exempt directors from their personal guarantees.[71]
[70]Ibid [42].
[71]Ibid [48].
A number of points emerge from this examination of authorities on the subject:
•although each decision concerns the effect of the transformation of a principal debtor’s liability under an insolvency scheme on a guarantor’s liability, each scenario comprises its own rather unique combination of features;
•different courts have placed importance on different features to resolve arguments as to whether a guarantor’s liability survives the release of a debtor’s obligation including, for example, the particular language of the guarantee, the enduring nature of the principal obligation as the source of rights, or the nature and effect of the particular insolvency scheme;
•a number of decisions (Dennys Lascelles, Jowitt, Hill and Helou) emphasise the point that, in general, insolvency schemes implement a transformation of the creditor’s rights rather than their defeasance, with the debtor’s obligation continuing as a source of rights out of assets;
•notwithstanding the variety of approaches to the issue reflected in these decisions, the consistent underlying premise is that a surety’s obligation is not discharged by the release of the principal debtor’s obligation when that release is effected by operation of law; and
•in Hanson Construction, the Queensland Court of Appeal emphasised that the impact of a deed of company arrangement is intended to be confined to the property of the subject company (see also Lehman Bros),[72] and not (for example) the personal obligations of third party sureties.
[72]Lehman Bros (2010) 240 CLR 509, 527 [53] (French CJ, Gummow, Hayne and Kiefel JJ).
As we have mentioned, because of the perception of lingering uncertainty in this field of law, in 2007 Parliament evidently saw the need to clarify the effect of the release of a debt under a deed of company arrangement upon a creditor’s rights against a guarantor. It thus introduced s 444J intending to state an ‘unequivocal’ proposition.
The respondent argued that s 444J did not apply to the interest claimed in the present case because it uses the specific word ‘debt’ rather than the broader language of ‘claims’. It is not at all clear that a claim for payment of interest pursuant to contract is not a ‘debt' within the meaning of the section (albeit one contingent on payment of the amount due not having been made), or that ‘debt’ is intended to have a meaning narrower than ‘claim’, which is used in s 444D to define the effect of a deed on creditors. But in any case, as the applicant pointed out, the decision of the Queensland Court of Appeal in Hanson Construction extended to a guarantor’s obligation with respect to interest accruing before and after the deed of company arrangement in that case came into effect.[73] That authority suffices to dispose of this argument.

Analysis

[73]Hanson Construction (2010) 79 ACSR 668, 671–2 [5], 679 [40]–[43] (Chesterman JA, Muir JA relevantly agreeing at 670 [1], Applegarth J relevantly agreeing at 683 [60]).

To recapitulate the parties’ arguments in this case, the applicant contended that s 444J succinctly reflects the position at common law. That is to say, the release — achieved by operation of law — of the Company’s debt to the applicant did not affect the applicant’s right to enforce the respondent’s guarantee of the Company’s obligations, including its obligation to pay interest on the money due for the goods delivered.
For his part, the respondent argued that, although his obligation to guarantee the Company’s payment of interest upon any money due to the applicant remained unaffected by the release, the effect of the release of the Company’s debt to the applicant was that, after 24 October 2017, there was no money due. There being no money due upon which interest could accrue daily under cl 5(h) of the trading terms, the respondent’s guarantee of the Company’s obligation to pay interest was an empty vessel. The respondent argued that his analysis does not contradict s 444J because he accepts that the applicant’s right to enforce the guarantee remains in existence; it simply does not produce any monetary outcome beyond 24 October 2017.
In our view, the respondent’s argument on this issue is without merit.
If, as the respondent contends, he was not liable to pay interest under the trading terms because there was no longer any debt upon which the obligation to pay interest attached, that outcome would only occur because the DOCA, in conjunction with s 444H of the Act, operated to extinguish the Company’s debt. That is, it would only occur because, by operation of law, the Company’s debt to the applicant, as between the Company and the applicant, has been released, discharged, extinguished and satisfied in full. Such a result is precisely what s 444J makes clear does not occur. To permit such an outcome would plainly ‘affect’ the rights of the applicant (as creditor) to recover under the guarantee.
Further, the respondent does not improve his position by seeking to divide the guarantee obligation into two parts – one, his contract of guarantee with the applicant and the other, the Company’s contract with the applicant containing the guaranteed obligations – in order to maintain that s 444J is not offended because his contractual obligation to the applicant remains unaffected by the release. As explained above, the applicant’s rights under the guarantee derive from the combined operation of the respondent’s contract of guarantee and the Company’s contractual obligations towards the applicant: see [70]. The annihilation of the Company’s debt will inevitably affect the bundle that makes up the applicant’s rights under a guarantee. Thus, when s 444J states that the release of a debt as between debtor and creditor does not affect the creditor’s rights under the guarantee, it is addressing that bundle of rights produced by the combination of the two contracts.
Nor does any appeal to the precise language of the guaranteed obligation between the Company and the applicant change this analysis. Somewhat akin to the failed argument in Helou,[74] the respondent argued that the guaranteed obligation was not engaged because there was no ‘money due’ upon which the Company (and thus the respondent-guarantor) was obliged to pay interest after 24 October 2017. But the only potential reason why there was no ‘money due’ to which the guaranteed interest obligation could attach was the operation of the DOCA. So, again, the respondent’s argument directed to those particular words of the guaranteed obligation is just another way of contending that the release of the Company’s debt to the applicant under the DOCA does affect the guarantor’s obligation to the applicant under the guarantee — which, of course, it cannot do both because of the established principle that a release of the debtor’s obligation by operation of law does not release the surety, and because of the clear words of s 444J.
[74](2003) 57 NSWLR 74.
In any event, resort to the language of the guaranteed obligation suggests, if anything, that the case is distinguishable from cases such as Helou and Perrott, because the Company was obliged to pay interest ‘until the actual date of payment’, and not only while the principal amount was ‘due’. On that analysis, even more clearly, the respondent’s argument is at odds with s 444J.
Therefore, for the purpose of the respondent’s obligation to guarantee the punctual payment of interest, at the rate of 16 per cent per annum, on so much of the ‘moneys due’ for goods delivered to the Company, the ‘moneys due’ remains at $282,868.06.
Finally, holding that the extinguishment of the principal debt does not relieve the respondent of liability to guarantee payment of interest on the debt does not ‘improve’ the applicant’s position as contended by the respondent. Rather, it merely recognises that the scope of the DOCA’s operation only affects claims as against the subject company, and not the creditor’s rights against a guarantor.
It follows that we would dismiss the second ground of the respondent’s notice of contention.

Conclusion

In conclusion, we would give leave to appeal and allow the applicant’s appeal on both grounds and dismiss both grounds of the respondent’s notice of contention.
Given that outcome, the orders made by the judge dismissing the applicant’s review of the judicial registrar’s decision and the proceeding generally, and awarding costs in favour of the respondent, should be set aside. In their place, orders should be made awarding judgment in favour of the applicant in the sum of $282,868.06 together with interest calculated in conformity with these reasons. We will hear from the parties concerning the precise form of the orders.
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58 Interest to be allowed when debts or sums certain recovered
(1) If in a proceeding a debt or sum certain is recovered, the Court must on application, unless good cause is shown to the contrary, allow interest to the creditor on the debt or sum at a rate not exceeding the rate for the time being fixed under section 2 of the Penalty Interest Rates Act 1983 or, in respect of any bill of exchange or promissory note, at 2% per annum more than that rate from the time when the debt or sum was payable (if payable by virtue of some written instrument and at a date or time certain) or, if payable otherwise, then from the time when demand of payment was made.

[2022] VSCA 147

29 July 2022