TW Timber Treatment Pty Ltd v Giddings
[2021] VCC 1286
•8 September 2021
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE | Revised Not Restricted Suitable for Publication |
GENERAL LIST
| Case No. Cl-20-01285 | |
| TW TIMBER TREATMENT PTY LTD | Plaintiff |
| v | |
| AARON GIDDINGS | Defendant |
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JUDGE: | HIS HONOUR JUDGE COSGRAVE | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 29 June 2021 | |
DATE OF RULING: | 8 September 2021 | |
CASE MAY BE CITED AS: | TW TIMBER TREATMENT PTY LTD V GIDDINGS | |
MEDIUM NEUTRAL CITATION: | [2021] VCC 1286 | |
RULING
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Subject:Review of Judicial Registrar’s decision
Catchwords: Review of Judicial Registrar's decision – guarantee – consideration – interest
Legislation Cited: Supreme Court Act 1986 (Vic); Acts Interpretation Act1901 (Cth); Corporations Act 2001 (Cth) Civil Procedure Act 2010 (Vic); County Court Civil Procedure Rules 2018 (Vic)
Cases Cited:Alonso v SRS Investments (WA) Pty Ltd [2012] WASC 168; Assurance Society v Reg Austin Insurances Pty Ltd (1985) 9 ACLR 909; Atco Controls Pty Ltd v Newtronics Pty Ltd (2009) 25 VR 4; Bendigo and Adelaide Bank Limited v Grahame [2020] VSC 86; Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256; Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95; Hanson Construction Materials Pty Ltd v Norlis Pty Ltd [2010] QCA 26; Loring v City of Boston (1844) 7 Metc 409; Padstow Corporation Pty Ltd v Fleming (No 2) [2011] NSWC 1572; R v Clarke (1927) 40 CLR 227; Temperzone Australia Pty Ltd v Amabile [2016] NSWSC 1197;Thomas v Thomas (1842) 114 ER 330; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | D Gration | James Partners Lawyers |
| For the Defendant | C E Shaw QC with | Peer Legal |
HIS HONOUR:
Nature of application
1 This matter involves an application by the plaintiff, pursuant to a notice filed on 29 March 2021, seeking to review the orders made by Judicial Registrar Burchell, as Her Honour then was, on 24 March 2021. The plaintiff’s application is made pursuant to Order 84.03 of the County Court Civil Procedure Rules 2018 (Vic).
2 Before JR Burchell, the plaintiff, TW Timber Treatments Pty Ltd (“TW Timber”) sought to enforce an alleged director’s guarantee of amounts owing by Aarons Outdoor Living Pty Ltd (“the Company”) for goods supplied pursuant to a trading account. JR Burchell dismissed TW Timber’s claim against the defendant, Aaron Giddings (“Giddings”), on the basis that the director’s guarantee was not enforceable because Giddings did not manifest an intention to enter into legal relations in his personal capacity as guarantor.
3 In this application, TW Timber contends that Giddings guaranteed payment for the goods supplied by them to the Company, and seeks the following orders:
1. The defendant pay the plaintiff:
(a) the sum of $282,868.06;
(b) interest pursuant to the Terms of Sale;
(c) alternatively, interest pursuant to section 58 of the Supreme Court Act1986 (Vic).
2. The defendant pay the plaintiff’s costs of the review and of the proceeding before the Judicial Registrar.
4 Giddings opposes the giving of judgment on the following grounds:
(a) he did not manifest an intention to enter into legal relations in his personal capacity as a guarantor;
(b) alternatively, TW Timber has not provided consideration for his (assumed) entry into the guarantee; and
(c) alternatively, Giddings was not liable for interest pursuant to the Terms of Sale where the interest accrued after the Company entered a Deed of Company Arrangement (“DOCA”).
Hearing de novo
5 This hearing is conducted as a hearing de novo.[1] In general terms, a hearing de novo is one which is heard again from the beginning. The court conducting the hearing is not confined to the evidence or materials which were relied upon at the original hearing. The matter is heard afresh and a decision is made on the basis of the evidence presented at the review hearing. The court is not fettered by the decision of JR Burchell and is not obliged to find any error in the decision of the Judicial Registrar in order to arrive at a different conclusion. It is nonetheless appropriate for this court to give such weight to the Judicial Registrar’s decision as appears proper in the circumstances.
[1]See generally the discussion in Bendigo and Adelaide Bank Limited v Grahame [2020] VSC 86 at [15] – [18].
6 The parties rely upon the evidence which was before JR Burchell and do not seek leave to rely on any other evidence under rule 84.03(7)(b).[2]
[2]See Plaintiff’s Submissions for Review, [3] – [4].
7 Neither party called witnesses at the hearing before JR Burchell. The evidence consisted of documents contained in the Court Book.
Background
8 TW Timber supplies outdoor timber products and trades under the name “Outdoor Timber Treatment”.
9 Between 11 August 2003 and 16 May 2018, Giddings was a director and secretary of the Company. Initially, it was called Aarons Outdoor Creations (Moorabbin) Pty Ltd before changing its name firstly to Giddings Holdings Pty Ltd and then, finally, to Aarons Outdoor Living Pty Ltd. Administrators were appointed to the Company on 31 January 2017 and it was deregistered on 16 May 2018.
10 TW Timber supplied timber to the Company and its predecessors for many years. The Company specialised in manufacturing outdoor living products and sold them through various outlets.
11 On or around 9 October 2010, the directors of the Company (then named Giddings Holdings Pty Ltd) made a request to open an account under a different entity. Garrie James, the managing director of TW Timber, responded to the request in a cover letter as follows:
“…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.
…
Please find enclosed an Acknowledgement 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.”
12 On 14 October 2010, Angela Stavrakis on behalf of the Company executed an “Application for 30 Day Trading Account” (“Trading Account Application”).[3] She completed the name of the Company applying for the trading account and included the name of the sole director, Giddings. At paragraph 4, the Trading Account Application provided “We agree to the trading terms issued by TW Timber Treatment Pty Ltd as issued by TW Timber Treatment Pty Ltd.”
[3]Court Book, 36-40.
13 The Trading Account Application also included a question: “If a company, are directors prepared to sign directors guarantee?”. In response, the answer “No” was circled.
14 Notwithstanding the indication that the director would not give a guarantee, Giddings completed an “Acknowledgement’s [sic] of Agreements” form within the Trading Account Application, which stated among other things that:
“I/We understand that in signing this form I/We give the following ACKNOWLEDGEMENT and enter into the following agreements and Guarantee.”
and at paragraph 6:
“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.”
15 It appeared that Ms Stavrakis also completed the document headed in bold type:
“Please note that if the below section is not fully completed, we may not consider offering a trading account.”
Again, she inserted the Company’s name as the customer and its ACN while also including the name and address of Giddings.
16 Section C of the form was headed “THE GUARANTORS: Please complete below, sign and have witnessed”. That part of the document goes on to state:
“We, being the directors or proprietors acknowledge the agreement to guarantee & indemnify and agree to your trading terms”.
The document is signed by Giddings and witnessed by Ms Stavrakis.
17 It was common ground between the parties that TW Timber supplied timber products to the Company and its predecessors over a period of years including from September to November 2016. The supplies the subject of the present proceeding totalled $301,504.87 in value.
18 On or about 11 November 2016, the Company made a payment of $1,504.87 to TW Timber.
19 On 1 December 2016, TW Timber’s solicitor made demands upon the Company and Giddings for payment of amounts said to be owing by the Company.
20 On 7 December 2016, TW Timber issued a statutory demand against the Company for the sum of $220,449.95.
21 TW Timber argued that, in a text sent to Alison Gebbing on about 14 December 2016, Giddings acknowledged his personal liability for the debt, saying:
“Hi Al,
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.
To avoid unnecessary legal costs and headaches can we please have a chat?
Thanks, Aaron.”
22 On 31 January 2017, the Company was placed into voluntary administration.
23 On 7 March 2017, TW Timber’s solicitor made a further demand for payment on the Company.
24 Also on 7 March 2017, the creditors of the Company resolved to approve the Company entering into a DOCA.
25 On 17 March 2017, the Company entered into a DOCA.
26 Pursuant to the terms of the DOCA, TW Timber received a payment of $17,131.94. The outstanding amount owing to TW Timber was $282,868.06.
27 On 16 May 2018, the Company was deregistered.
Issues in dispute
28 The parties agreed that there were three key issues in dispute for the purpose of the review. The parties formulated the issues to be determined as follows:
(a) did Giddings 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 TW Timber provide consideration for the Giddings’s guarantee?; and
(c) is Giddings liable under his guarantee for interest calculated at 16% per annum on the amounts outstanding in accordance with clause 5(h) of the Terms of Sale?
Did Giddings 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?
29 The parties agreed that Giddings signed the application form containing the guarantee. The point of contention is whether Giddings’s signature on the Trading Account Application form could be interpreted by a reasonable person in the position of TW Timber as an intention by Giddings to be bound by the guarantee in his personal capacity.
30 JR Burchell found that, despite having signed the application form for the 30 day trading account on 15 October 2010, Giddings did not intend to enter into legal relations in his personal capacity as guarantor.
TW Timber’s position
31 TW Timber contended that JR Burchell made the wrong decision in focusing upon the circling of the word “No” in responding to the request regarding directors’ guarantees. This led Her Honour to conclude that “the document must be read as though all references to the guarantee are struck out and [the defendant] is signing as agent of [the Company] only”.
32 TW Timber argued that this was too narrow an approach to the critical question and paid insufficient attention to the broader context of the document and the surrounding circumstances. The mere fact that a person denied an intention to guarantee in their personal capacity was not determinative of the issue. TW Timber said that the court should consider the whole of the document and the surrounding circumstances.
33 TW Timber also argued that it was commercially absurd to interpret Giddings’s signature as providing a guarantee on behalf of the Company because it would involve the Company effectively guaranteeing its own obligations.
34 TW Timber contended that the documentation made clear to Giddings that it was to be completed in full and that his signature was required as a guarantor. The document stated:
“Please note that if the below section is not fully completed, we may not consider offering a trading account.”
Giddings’s position
35 Giddings submitted that he did not signify his assent to being a guarantor of the obligations of the Company. His signature signified no more than his assent in his capacity as director of the Company to the Company making the application to TW Timber for credit.[4]
[4]See the Defendant’s Submissions for Review, [11].
36 Giddings referred to legal principles and passages from various cases. These were unexceptional.
37 He argued that the fact that the “Acknowledgement’s [sic] of Agreements” form contemplated and required a signature on behalf of the Company, whether or not a guarantee was required, meant that the signature of a director could mean two different things. First, it could be assenting to the terms of the document in both his personal capacity and as director of the company. Secondly, he could be signing only as the agent of the Company or as sole director of the Company.
38 Because “No” was marked on the document in relation to the question of a guarantee, he contended that a reasonable person should conclude that it meant the latter and not the former. Alternatively, the fact that there was considerable uncertainty about the situation and a reasonable person might properly be confused about the apparent inconsistency between the “No” indication and the signing of the guarantee meant that the question should be resolved in favour of the putative guarantor. Such a conclusion flowed from the failure by TW Timber to discharge its onus and the longstanding principle that doubts in the construction of a guarantee were to be resolved in favour of the surety.
39 Giddings relied also on the proposition that when dealing with contradictory provisions handwritten terms prevailed over standard printed terms to the extent of the inconsistency. Here, that meant that the hand-circling of “No” took priority over the printed words on the form.
Analysis
40 The question of a party’s intention to be legally bound is not answered by reference to subjective thoughts or intentions.[5] Uncommunicated subjective beliefs and intentions are irrelevant. The intention is an objective manifestation which appears from the subject matter of the agreement, the status of the parties, their relationship to one another and the surrounding circumstances.[6]
[5]Alonso v SRS Investments (WA) Pty Ltd [2012] WASC 168, [46] per Edelman J.
[6]Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95, [25] per Gaudron, McHugh, Hayne and Callinan JJ.
41 The presence of a signature on a guarantee document is a relevant circumstance in assessing the existence of an objective intention. A signature embodies a formal act which ordinarily conveys a representation to the reasonable reader of such a document. The person’s signature represents either that they have read and approved the contents of the document or they are willing to take the chance to be bound by those contents.[7] But the presence or absence of a signature is not determinative. For example, in cases such as Scottish Amicable Life Assurance Society v Reg Austin Insurances Pty Ltd[8] and Padstow Corporation Pty Ltd v Fleming (No 2),[9] persons who signed agreements as directors of, or agents for, a company were held to be bound by a guarantee notwithstanding the absence of a separate signature for the guarantee.
[7]Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165, [45].
[8](1985) 9 ACLR 909.
[9][2011] NSWC 1572.
42 When considering the broader context of the transaction I note the following features. First, TW Timber was a supplier of timber. The Company manufactured outdoor living products. Thus, the two of them had a commercial relationship centred on the supply of timber by TW Timber in order that the Company could make wooden products for use outside.
43 Secondly, in that commercial context of one party supplying goods to another, the Company sought to obtain a credit facility from TW Timber as the supplier. The documentation which TW Timber gave the Company included a guarantee.
44 Thirdly, I infer from the Company search that Giddings or a company controlled by him was the sole, or dominant, shareholder in 2016 when TW Timber supplied the timber to the Company.
45 Fourthly, Giddings had been in business for about 13 years when the Company conducted the particular transaction with TW Timber.
46 Fifthly, the acknowledgement document which Giddings signed specifically stated that, in signing the form, he gave certain acknowledgements and entered into the agreements and guarantee.
47 Sixthly, the acknowledgment document had a heading in capital letters at clause 6 saying “GUARANTEE OF PAYMENT AND PEFORMANCE”. Each refence to “Guarantee” in that paragraph was in capital letters and readily distinguishable from the other words in the paragraph.
48 Seventhly, the guarantee was filled out, signed, witnessed, and dated. None of it was struck out. Giddings signed the application documents in two places. Both signatures were proximate to those parts of the form which concerned the guarantee.
49 Finally, the Company circled “No” in response to the question about the willingness of the directors to give a guarantee.
50 I do not accept Giddings’s argument that circling “No” on the first page of the documentation received from TW Timber necessarily qualified everything that followed. Such an approach is too dogmatic and contrary to the notion of making an overall assessment of the document and the surrounding circumstances. However, it is significant.
51 Neither Stavrakis nor Giddings gave evidence about how the credit application came to be filled out and why Giddings signed the guarantee in favour of TW Timber. In circumstances where there was an absence of evidence from those directly involved and a lack of detail about the trading arrangements that existed between TW Timber and the Company before it changed names in 2010 for the third time, I consider that a reasonable person endeavouring to assess the parties’ manifest intention was most likely to be confused. The principal cause of confusion was the inconsistency in circling “No” regarding the giving of a director’s guarantee and actually executing the guarantee. On the evidence before me, there was no explanation for the conduct of the Company or Giddings and no appropriate follow-up by TW Timber to ascertain whether Giddings sought to guarantee the Company’s obligations or not. Also, there is something in the point that Giddings, as the sole director, probably had to sign the credit application on behalf of the Company whether or not he was giving a guarantee.
52 Because of the confusion, uncertainty and ambiguity, I do not consider that TW Timber has discharged its onus of establishing the guarantee on the balance of probabilities. To the extent that there is conflicting and inconsistent evidence, which in turn generates consequential doubt as to how the credit application document should be construed, the guarantee issue should be resolved in favour of Giddings.
Did TW Timber provide consideration for Giddings’s guarantee?
53 Despite having found that Giddings did not intend to enter into legal relations to give a guarantee in his personal capacity, I will consider whether, in the alternative, TW Timber could be said to have provided good consideration for Giddings’s personal guarantee.
54 JR Burchell found that, assuming that Giddings provided a personal guarantee, TW Timber gave good consideration for Giddings’s guarantee.
TW Timber’s position
55 At the hearing TW Timber adopted JR Burchell’s reasons in respect of this issue. TW Timber contended that, while there was no evidence of a formal acceptance by TW Timber of the Trading Account Application, there was an evident connection between the supply of the goods and the Terms of Sale on the one hand and the trading account on the other. That connection gave rise to the existence of an overarching contract between the parties under the trading account.
56 TW Timber submitted that in its cover letter dated 9 October 2010, it informed the directors of the Company, in response to their request for a trading account, that it would not offer an account without a director’s guarantee. TW Timber further contended that in granting the Trading Account Application, on the basis that Giddings was providing a director’s guarantee, it gave good consideration for that guarantee.
57 In addition, TW Timber argued that it entered into the contract with the Company and gave consideration for the guarantee by its conduct - namely, the delivery of the goods ordered, the sending of an invoice and the confirmation that the supply was on 30 day credit.
58 While TW Timber acknowledged that the Terms of Sale did not form part of the Trading Account Application, it contended that it could be inferred that those terms applied at the time of the Trading Account Application and that TW Timber provided the trading account to the Company in reliance upon the Trading Account Application. TW Timber noted that Giddings failed to provide any evidence to the contrary to show that there were any other terms of sale or that the Terms of Sale had changed materially, or at all, over time.
59 Further, as summarised by JR Burchell:
“The credit application was for a 30 day trading account. The invoices apply the 30 day credit contemplated by the Trading Account Application by TW Timber. I therefore accept TW Timber’s submissions that the Terms of Sale pursuant to clause 5(a) to (f) (inclusive) under the heading “Account Terms” indicate that without the acceptance of a Trading Account Application, the request for supply of goods would be on cash on delivery terms. A proper reading of clause 5 must be that any payment terms beyond cash on delivery must be the subject of an accepted credit account, whether it be 7, 14 or 30 days.”
Giddings’s position
60 Giddings contended that TW Timber did not provide consideration in return for a guarantee.
61 Giddings submitted that the Trading Account Application form contemplated that following the Company making an application, TW Timber could offer a trading account to the Company. He pointed to the fact that some conduct on the part of TW Timber after receipt of the Trading Account Application form would be required to bind the parties to the contract.
62 Giddings acknowledged that in the ordinary course, it may be expected that this would involve TW Timber communicating its acceptance of the Company’s application to the Company. However, in this case Giddings argued that:
· TW Timber did not adduce any evidence of a confirmatory communication to the Company after receiving the application; and
· neither the Trading Account Application form nor the Terms of Sale imposed any supply obligations on TW Timber.
63 Further, Giddings submitted that TW Timber failed to demonstrate that the actual supply of the goods to the Company was in return for the giving of the guarantee. Giddings relied on the statement in Atco Controls Pty Ltd v Newtronics Pty Ltd,[10] that:
“Since the nineteenth century the common law conception of consideration has been limited to a “reciprocal conventional inducement, each for the other, between consideration and promise”. Consequently, action in reliance upon an announcement of support is no longer sufficient in itself to create a contract to provide support. Now, in order to establish the existence of good consideration, it must be made to appear that the promise was really offered as the price or quid pro quo for the action taken. In this case, that required Newtronics to show that Atco in effect requested Newtronics to continue to trade in return for the undertaking of continued support and that Newtronics was moved by that request.”
[10](2009) 25 VR 411, Warren CJ, Nettle and Mandie JJA stated at [62].
64 Giddings argued that consideration must move from TW Timber and that there was no evidence to support the connection between the offer to provide the guarantee and the subsequent provision of consideration. In support of this proposition Giddings pointed to the fact that:
· there was a substantial time lapse between the time that the offer was made in 2010 and the time that the goods were provided to the Company in 2016[11];
[11]See similarly Loring v City of Boston (1844) 7 Metc 409 as summarised by Isaacs ACJ in R v Clarke (1927) 40 CLR 227 at 235.
· none of the eight tax invoices adduced by TW Timber refer to the Company’s Trading Account Application or a guarantee; and
· the account statement tendered by the TW Timber does not refer to the Company’s Trading Account Application or guarantee.
65 While Giddings conceded that the tax invoices state: “All purchase [sic] are subject to “Terms and Condition of Sale” – available on request” and the Terms of Sale governed the supply of the goods, Giddings submitted that this did not demonstrate any connection between the supply of the goods and the Company’s application.
66 Instead, Giddings contended that the proper characterisation of the transactions between the parties was that each supply of goods between September 2016 to November 2016 was under a single separate contract on the Terms of Sale, as contemplated in clause 3(b) of the Terms of Sale.
Analysis
67 The traditional approach to establishing an agreement between two parties is to identify an offer made by one party and an acceptance of that offer by the other. Under that analysis, a contract is said to come into existence when acceptance of an offer is communicated to the offeror.[12]
[12]Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256.
68 An acceptance generally has effect only when communicated to the offeror. An offeror may dispense with the need for actual communication where:
· the offeror agrees to treat the doing of an act as an effective acceptance; or
· the offeror treats the despatch of an acceptance by a particular method as effective.
69 However, conduct can also constitute acceptance of an offer. An offeree can be said to have accepted an offer if they have behaved in a way that a reasonable person would believe they are assenting to the terms of an offer. This is an objective test.
70 While there was no evidence of a formal acceptance by TW Timber of the Trading Account Application, I consider that there was a connection between TW Timber’s conduct, and the Terms of Sale on the one hand and the Trading Account Application on the other.
71 Given the overall context, TW Timber’s action in delivering the goods ordered by the Company was conduct that would have led a reasonable person in the position of the Company to believe that TW Timber accepted the Company’s Trading Account Application.
72 Further, when the Company received the invoices for the delivery of the goods, this provided written communication that the supply was on 30 day credit.[13]
[13]Temperzone Australia Pty Ltd v Amabile [2016] NSWSC 1197 at paragraph [16].
73 The delivery of the goods by TW Timber is sufficient to show that there was a connection between the supply of the goods and the Company’s Trading Account Application. Further, the supply of the goods constitutes good consideration, because the delivery of the goods clearly moves from the promise made by Giddings to provide a personal guarantee.[14]
[14]Thomas v Thomas (1842) 114 ER 330.
74 While I acknowledge that the Terms of Sale did not form part of the facsimile comprising the Trading Account Application, it can be inferred that those terms applied at the time of the Trading Account Application for the following reasons:
· the document was discovered as part of the “Copy Aarons Outdoor Creations – Application for a 30 Day Trading Account with TW Timber Treatment Pty Ltd” dated 14 October 2010;
· under those Terms of Sale, clause 5(a) to (f) (inclusive) under the heading “Account Terms” indicate that without the acceptance of a Trading Account Application, the request for supply of goods would be on cash on delivery terms. Therefore, a proper reading of clause 5 must be that any payment terms beyond cash on delivery must be the subject of an accepted credit account, whether it be 7, 14 or 30 days;
· the credit application was for a 30 day trading account; and
· the invoices apply the 30 day credit contemplated by the Trading Account Application by TW Timber.
75 Further, Giddings failed to provide any evidence of any other terms of sale or that any changes had been made to the Terms of Sale. I therefore find that it can be inferred that the Terms of Sale applied at the time of the Trading Account Application.
76 I acknowledge that there was a lengthy time between the completion of the Trading Account Application form by Giddings and the supply of the goods by TW Timber. While it is unusual that no evidence was provided of any communications between the parties during this time, the supply of the goods cannot be attributed to any other agreement that existed between the parties. Therefore, despite the time between the completion of the Trading Account Application form by Giddings and the delivery of the goods, commercially, there is no other documentary evidence to provide an explanation as to why the goods would have been provided to the Company except for the existence of the Company’s Trading Account Application form.
77 So, despite the matters raised by Giddings, namely:
· there was no evidence before the court of a formal acceptance by TW Timber of the Trading Account Application;
· there was nearly six years between the Trading Account Application and the supply of the goods; and
· the Terms of Sale contemplated replacing any previous terms and conditions of sale,
there was in my view a sufficient connection between the supply of the goods, the Terms of Sale and the Company’s Trading Account Application to justify the view that TW Timber gave good consideration for the guarantee.
Is Giddings’s liable under his guarantee for interest calculated at 16% per annum on the amounts outstanding in accordance with clause 5(h) of the Terms of Sale?
78 Again, for the purpose of this issue, I assume that Giddings gave a binding guarantee of the Company’s obligations in favour of TW Timber.
TW Timber’s position
79 TW Timber contended that Giddings was liable for interest on the Company’s debt as stipulated in the Terms of Sale. Clause 5(h) provided that:
“If the Customer does not pay the supplier by the due date, the Customer shall pay interest on monies due, charged on a daily basis at 16%pa from the due date for payment until the actual date of payment…”
80 In summary, TW Timber argued that, while the DOCA might release the Company from its debts, the same did not apply to Giddings as guarantor.
Giddings’s position
81 Giddings submitted that he could not be liable for any interest which accrued after the DOCA was effected. He said that under the terms of the guarantee, the surety’s liability was limited to “the due and punctual payment and performance by the application/customer of all its obligations” to the plaintiff. Because the Company’s obligation to pay interest under the Terms of Sale was discharged and extinguished upon the effectuation of the DOCA, the Company’s obligation to pay interest was discharged and extinguished. If the Company no longer had such an obligation, the surety likewise had no obligation in relation to interest to which the guarantee could attach. Giddings argued that the submission was supported by authorities which held that a guarantor’s obligation to pay interest ceased when an individual debtor was discharged from bankruptcy or the corporate debtor was deregistered.
Analysis
82 In my opinion, if there were a valid guarantee, Giddings would be liable for interest in accordance with clause 5(h) of the Terms of Sale.
83 The Company entered the DOCA on 17 March 2017. The effect of clauses 12.2 and 12.3 of the DOCA was that the Company was released from claims by creditors with effect from 24 October 2017. The parties agreed that this release extended to TW Timber’s claims against the Company. JR Burchell found that Giddings would be liable for interest at a rate of 16% per annum until this date and thereafter, interest was limited to the rate payable under section 58 of the Supreme Court Act 1986 (Vic).[15] In substance, the Court accepted Giddings’s argument that the guarantor’s obligation to pay interest ceased upon the DOCA being effectuated and the Company being released from all claims by any creditor.
[15]See JR Burchell’s reasons, [96].
84 I find in favour of TW Timber on this issue because of section 444J of the Corporations Act 2001 (Cth) (“Corporations Act”) which states that:
“Guarantees and indemnities
Section 444H does not affect a creditor’s rights under a guarantee or indemnity.”
The ordinary meaning of the provision appears to be clear. It is designed to protect and maintain the rights of a creditor against a third party under a guarantee or indemnity. However, an obvious issue arises when facing the argument made by Giddings. One might reasonably ask, what can the surety guarantee if all the creditor’s rights against the primary debtor have been extinguished under the DOCA. One might readily imagine that this could be a common problem – a creditor supplies goods or services on credit to a company and takes personal guarantees from the company’s directors. The Terms of Supply enable the creditor to claim interest on the debt from the time it first accrues until payment. Later, the company defaults on payment of the debt and ultimately enters a DOCA. Given the right to claim interest from the company would cease, how could the creditor claim interest from the guarantor. If this interpretation results in the provision having either no effect or an extremely limited effect because the debtor’s obligations to the creditor are extinguished, that would lead to a result which is absurd or unreasonable. Arguably, the problem arises from the provision being ambiguous or obscure in the context.
85 Accordingly, the question arises whether section 444J actually means what it appears to say. Under section 15AB of the Acts Interpretation Act1901 (Cth), in interpreting section 444J, I am permitted in some circumstances to have regard to material including parliamentary documents such as bills, second reading speeches, explanatory memoranda and certain reports. Circumstances include confirming the meaning of the provision is the ordinary meaning conveyed by the text, determining a meaning where the provision is ambiguous or obscure or where the ordinary meaning conveyed by the text (taking into account its context in the Act and the purpose or object underlying the Act) leads to a result which is manifestly absurd or unreasonable.
86 The explanatory memorandum for the Corporations Amendment (Insolvency) Bill 2007 which introduced the provision discussed the provision in section 7.8 regarding third party guarantees. The memo noted that a DOCA releases a company from a debt insofar as the deed provides for the release and the creditor is bound. In this way, it is said that the company’s debt is extinguished by the deed. Third parties may act as guarantors in favour of a creditor against loss sustained in respect of debts owed to the creditor by the company. A possible view is that the acceptance of a DOCA extinguished the liability of guarantors for the debts of the company by extinguishing the debt that is being guaranteed. The commentary in the explanatory memorandum noted that:
“ Key changes
7.12 Certainty 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.
Notes on items
7.13 Item 30 will insert new section 444J of the Corporations Act that makes it clear that creditors rights under a guarantee or indemnity are unaffected where a debt is released by acceptance of the terms of a deed of company arrangement (per section 444H of the Corporations Act).”
87 The explanatory memorandum confirms the special effect of section 444J. It ensures that the creditor retains its rights against the guarantor even where the debt of the primary debtor is released under the DOCA. Giddings referred to no equivalent provision which applies in bankruptcy or company deregistration This probably explains why the position is different in those contexts.
88 TW Timber in its submissions referred to the decision of the Queensland Court of Appeal in Hanson Construction Materials Pty Ltd v Norlis Pty Ltd[16]. In that case, the plaintiff and first defendant entered into a contract whereby the plaintiff agreed to supply its concrete to the first defendant on credit. The plaintiff required a guarantee of the first defendant’s obligations from its two directors, the second and third defendants. The first defendant defaulted under the credit contract and the plaintiff began proceedings against it and the two guarantors claiming the total amount owing under the contract.
[16][2010] QCA 26.
89 The statement of claim alleged that the first defendant was indebted for goods sold and delivered in the sum of $52,693.19 together with interest from the due date of payment until payment was made. The plaintiff also claimed the costs, charges and expense it accrued in pursuing payment.
90 Soon after the plaintiff served the first defendant, the latter executed a DOCA. The guarantors filed a defence which did not comply with the rules of court. As a result, the guarantors were deemed to have admitted the allegations of fact in the statement of claim. The plaintiff applied for summary judgment and the guarantors applied for leave to withdraw the deemed admissions. The trial judge refused the application to withdraw the admissions and gave the plaintiff judgment for the amount claimed on the summary judgment application. The guarantors appealed to the Court of Appeal.
91 The guarantors submitted that the effect of the terms of the DOCA was to discharge the first defendant from any indebtedness to the plaintiff with the result that there was no liability which the guarantors could be called upon to discharge.
92 Clause 8 of the DOCA was in the following terms:
“8.1 This Deed releases (Norlis) from all Claims.
8.2 This Deed also releases all indemnities, guarantees and other claims against the Directors to the same extent that the Claims against (Norlis) are released or satisfied by this Deed.”
93 Cause 9 was in the following terms:
“9.1 The releases provided by this Deed from all Claims shall occur upon execution of this Deed.
9.2 To remove any doubt, all liability shall have been deemed to have been paid and fully satisfied in full regardless of when any amount is actually received by each Creditor from the Deed Administrator.
9.3 Nothing in this clause affects the right of each creditor to share in any payment from the General Fund pursuant to this Deed, their right to vote as an Admitted Creditor pursuant to this Deed or their other rights under this Deed.”
94 Certain provisions of the Corporations Act were also referred to. Section 444D provides:
“(1) A deed of company arrangement binds all creditors of the company, so far as concerns claims arising on or before the day specified in the deed under paragraph 444A(4)(i).”
95 Section 444H provides:
“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.”
96 Chesterman JA, with whom Muir and Applegarth J agreed, delivered the judgment of the court. His Honour observed that clause 8.2 of the deed was void and contradicted section 444J of the Corporations Act. He said that the guarantors relied upon clauses 8.1 and 9.2. The former released the first defendant from all claims and the latter meant that all liabilities were deemed to have been paid and fully satisfied upon execution of the deed.
97 The court summarised the guarantors’ argument as follows:
· the DOCA binds all creditors of Norlis whether or not they voted in favour of administration;
· when the DOCA was executed, the respondent was a creditor of Norlis which had a claim or claims which arose prior to 4 August 2009 for money owing for goods sold and delivered prior to that date;
· clauses 9.1 and 9.2 of the DOCA released Norlis from all claims and provided that all liabilities were deemed to have been paid and fully satisfied in full with effect from 17 September 2009;
· accordingly, the DOCA operated to pay the respondent the amount of its claim. It cannot recover the amount a second time from the guarantors. The principal debt has been paid and its payment has discharged the guarantors’ liabilities;
· section 444J of the Corporations Act does not apply because it has effect only with respect to the release of a company from debts by a DOCA of company arrangement;
· Norlis’s debt to the respondent was not released, but paid in full.
98 Chesterman JA then concluded:
“The argument cannot be accepted. It is contrary to authority and would deprive s 444J of any effect. According to the submission, the section may be circumvented by drafting a deed in terms which do not release an insolvent company from its debts but binds the creditors to an agreement that they have been paid. The section is concerned with realities not forms of words. If the debts of the company are released by deed of company arrangement, whatever terms the deed uses to express the facts of release, s 444J operates to exempt a creditor’s rights under a guarantee or indemnity from the release.”
99 I adopt the reasoning of the Queensland Court of Appeal in the present case. I am satisfied that the purpose of section 444J is to protect creditors’ rights against guarantors as if the DOCA had not extinguished the debts and/or obligations which existed between the plaintiff and the first defendant as the primary debtor. To that extent, I disagree with JR Burchell and say that Giddings’s argument does fall foul of section 444J.[17] Accordingly, Giddings would have been liable for interest at the rate of 16% per annum from the due date until the date of payment.
[17]See JR Burchell’s reasons, [93].
Conclusion
100 For the reasons set out, I find that there was no valid guarantee in the plaintiff’s favour. But if the defendant had been bound as a surety, I find that there was good consideration, and he was liable for interest at 16% per annum.
101 I direct the parties to confer about the form of final order and costs in an effort to agree upon orders giving effect to this ruling. If they cannot agree, then by 4:00pm on 10 September 2021, each party is to file with my chambers and serve a written submission setting out the orders sought and the reasons therefor. The submissions are not to exceed four A4 pages, a minimum 12 point typeface, and 40mm margins on either side of the page. Unless I regard it as necessary or a party persuades me otherwise, I intend to determine the final orders and costs without a further hearing.
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