WM Financial Trading Systems Pty Ltd v Zamac Property Holdings Pty Ltd
[2015] VSC 639
•20 November 2015
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
COMMERCIAL COURT
No. 5426 2012
BETWEEN
| WM FINANCIAL TRADING SYSTEMS PTY LTD ACN 075 786 195 | Plaintiff |
| and | |
| ZAMAC PROPERTY HOLDINGS PTY LTD ACN 125 774 870 & ORS | Defendants |
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JUDGE: | SIFRIS J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 12 November 2015 |
DATE OF JUDGMENT: | 20 November 2015 |
CASE MAY BE CITED AS: | WM Financial Trading Systems Pty Ltd v Zamac Property Holdings Pty Ltd |
MEDIUM NEUTRAL CITATION: | [2015] VSC 639 |
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CONTRACT – Guarantee – Whether director personally liable – Loan agreement requires director’s guarantee – No separate guarantee executed by director – Execution clause in Loan Agreement includes director in his capacity as guarantor – Director personally liable – Harris v Burrell and Family Pty Ltd [2010] SASCFC 12.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | LMF Watts | Ian G Hone |
| For the Third Defendant | No appearance |
HIS HONOUR:
Introduction
The plaintiff’s claim against the third defendant (Wray) is for the recovery of a debt standing in the sum of $1,461,195[1] arising out of the sale by the plaintiff of a broiler farm. The claim against the other defendants has been resolved.
[1]The amount was reduced to the sum of $1,376,301.93 being the amount of the Judgment against the first and second defendants (see paragraph 10).
Wray is a director of the first defendant (Zamac) and the second defendant (Sutherlands Creek).
The sale of the broiler farm was undertaken in two parts:
(a) The first part was the sale of the farm real estate by the plaintiff to Zamac by Contracts of Sale of Land dated 31 July 2007.
(b) The second part was the sale of the broiler business by the plaintiff to Sutherlands Creek by a Contract of Sale of Business dated 31 July 2007.
The broiler farm business was sold to Sutherlands Creek for $2,150,000. The sale was partially financed by the plaintiff vendor giving a loan to Sutherlands Creek of $1,250,000 (the Loan) pursuant to a Loan Agreement dated 31 July 2007 (the Loan Agreement).
The Loan Agreement and Securities
Clause 5 of the Loan Agreement provides:
Subject to giving priority to Suncorp Metway Limited for the sum of $3,320,000 the Borrower charges its interest in the property known as 1160 & 1170 Steiglitz Road, Sutherlands Creek. (Certificate of Title Volume 9445 Folio 609 & Volume 9606 Folio 783). In order to better secure the lenders interest the borrower agrees to grant the Lender a 2nd Mortgage or Caveat, and a directors guarantee from Peter Wray (emphasis added).
The Loan was secured by a Mortgage of the land given by Zamac on 7 July 2008, being collateral security for the repayment of the monies owing under the 31 July 2007 Loan Agreement and which was registered on 16 July 2008 in dealing number AF973898A.
Under the 7 July 2008 Mortgage, Zamac covenanted:
To pay the moneys secured to the mortgage as and when required in accordance with the agreement between WM Financial Trading Systems Pty Ltd and Sutherlands Creek Farm and/or Peter Wray dated 31 July 2007.
The 7 July 2008 Mortgage was replaced by a Mortgage dated 29 June 2012. Under the 29 June 2012 Mortgage, Zamac covenanted:
To pay the moneys secured to the mortgage as and when required in accordance with the agreement between WM Financial Trading Systems Pty Ltd and Sutherlands Creek Farm and/or Peter Wray dated 31 July 2007.
Zamac and Sutherlands Creek are in liquidation. The Liquidator of each company, presumably having investigated the matter, has consented to Judgment in the sum of $1,376,301.93. This consent is not without significance. It is a consent (to a specifically calculated amount) by the borrower (Sutherlands Creek) and security provider (Zamac) in respect of the Loan pursuant to the Loan Agreement.
Wray did not appear at the trial. Despite having filed a defence and counterclaim (together with the other Defendants) his solicitor was given leave to cease acting on 16 October 2015. Further, despite having been served with the order of the court dated 16 October 2015 fixing the matter for trial on 12 November 2015, Wray did not appear. His name was called outside court. The matter then proceeded on an unopposed basis.
I have, in accordance with the authorities, had regard to the defence and am satisfied that the plaintiff has established its case[2] for the reasons that follow.
[2]Mr Dominic Bertucci gave evidence. He adopted his witness statement which was admitted as exhibit P 2. The witness statement adduces evidence of all relevant matters by reference to the court book which was admitted into evidence as Exhibit P 1. None of the evidence was contradicted.
Peter Wray
The plaintiff’s claim against Wray is that he is personally liable as a guarantor of Sutherlands Creek’s liability to pay under the Loan Agreement. Wray contends that although he signed the Loan Agreement he did not do so in a personal capacity but only as a director of Sutherlands Creek.
The plaintiff submitted that Wray was personally liable under the Loan Agreement for the following reasons:
(a) The 25 May 2007 letter from Ashley Fenn to Dominic Bertucci contains a “Summary of Terms” for the Loan Agreement for the sale of the Sutherlands Creek broiler farm, the house property and the Broiler Farm Business. The document states that:
In consideration to the sale of the property and business known as 1160 & 1170 Steiglitz Road Sutherlands Creek VIC 3331 ....... .... (to) Peter Wray in two entities - Sutherlands Creek Farms Pty Ltd and Property Trust entity- Agrees to:
The security of the loan will be by way of 2nd mortgage over the Farm including the directors and personal guarantee, other properties as they become available.
(b) Wray is specifically referred to in clause 5 of the Loan Agreement as providing a director’s guarantee.
(c) The execution clause in the Loan Agreement above Wray’s signature was amended by the addition of the words “and guarantor for”.
(d) The Loan Agreement contemplates Wray accepting a personal liability.
(e) Both the 7 July 2008 Mortgage and the 29 June 2012 Mortgage refer to the agreement between “WM Financial Trading Systems Pty Ltd and Sutherlands Creek Farm and/or Peter Wray dated 31 July 2007”. Both these mortgages were signed by Wray on behalf of Zamac.
(f) Having regard to the nature of the transactions being effected, i.e. the purchase of both the land and the business with the sale of the business being partially financed by the vendor providing a loan, it is not surprising that Wray would provide a personal guarantee of Sutherlands Creek obligations under the Loan Agreement.
(g) There is no particular reason why Wray could not be understood as acting in both capacities, when placing the single signature on the Loan Agreement as he did .
In support of the above submission, the plaintiff referred to the Full Court of the Supreme Court of South Australia decision in Harris v Burrell and Family Pty Ltd (ACN 104 734 929)(Harris)[3] and the Victorian Court of Appeal decision in Bond v Rees Corporate Advisory Pty Ltd.[4]
[3][2010] SASCFC 12.
[4][2013] VSCA 13.
Consideration
In my opinion there is substance in the plaintiff’s submission.
Harris concerned a loan agreement which contained the following clause:
4. Repayment of the Principal Sum
(d)The director of the borrowing entities also acknowledges personal liability for all debt remaining after the loan repayment date inclusive of all interest and recovery costs.
The execution clause before the Court in Harris was in the following form:
EXEUTED [sic] by
HARDEL PTY LTD
(ACN 68 231 962 930)
(Peter Harris – – signed)
_________________________
PETER HARRIS
Director
The two issues on appeal in Harris were:
(i) Did Mr Harris bind himself to the agreement, or make himself personally liable, by signing the agreement in the manner in which he did?
(ii) Did cl 4(d) on its proper construction impose a personal liability on Mr Harris for the amount of Hardel Pty Ltd’s outstanding indebtedness?
Thus, the issue on appeal in Harris raised the same issues as are before this Court in respect of Wray’s personal liability.
In considering the first issue, the Court referred to the High Court decisions in Scottish Amicable Life Assurance Society v Reg Austin Insurances Pty Ltd (Scottish Amicable)[5] and Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd[6] and said:
[5](1985) 9 AC LR 909.
[6](2004) 219 CLR 165.
There is a body of case law relating to the effect of a qualification or limitation attaching to a person’s signature on a contract: Scottish Amicable Life Assurance Society v Reg Austin Insurances Pty Ltd (1985) 9 AC LR 909 at 913 Kirby P dissenting. But the issue presented by a case like the present must be decided by applying certain principles that are of general application. I consider that the correct approach was identified by McHugh JA in Scottish Amicable in the following passage at 923-9 24:
This appeal raises the question whether a person whose signature purports to be made on behalf of an incorporated company is nevertheless personally liable ...
The formation of a contract does not depend upon the actual intention of the parties. A contract exists because the law attaches rights and obligations to the external conduct of the parties, one at least of whom has expressly or impliedly made a promise ... The meaning which a party intends that his words or conduct should have is irrelevant. Words and conduct are interpreted according to what was said and not according to what was meant .. .
The present case, therefore, depends on what the parties did and not on what they intended to do when they signed the indemnity and the Agency Agreement. And what they did depends on the construction to be placed on the documents which they signed. A commercial document, however, must be construed in its commercial setting -- in accordance with the surrounding circumstances known to the parties ... This is so whether the issue concerns construction in the strict sense or whether, as here, the issue concerns the capacity in which a person signs a document ... 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. In the examples given by Atkin LJ (in a decision discussed in an omitted passage), it would usually follow that there was no liability on the part of the person signing. But 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.
This approach is consistent with the approach taken by the High Court to the meaning of contracts, as the court explained in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 at [40]:
[ 40]This Court, in Pacific Carriers Ltd v BNP Paribas, has recently reaffirmed the principle of objectivity by which the rights and liabilities of the parties to a contract are determined. It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party by words and conduct would have led a reasonable person in the position of the other party to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction.[7]
[7]Harris, [2010] SASCFC 12, [16]-[17].
The Full Court held[8] that the above observations by the High Court applied to a case like the one before it, where the issue is whether a person has made himself liable under a contract, as much as they apply to the construction of a contract.
[8] Ibid, [18].
In holding that Mr Harris had made himself liable under the agreement in question, the Full Court held:
Both parties must be taken to have intended that the 2008 Agreement would be brought into effect. That involved Mr Harris acting in a dual capacity -- as director of Hardel and in his personal capacity. As director of Hardel, he had the capacity to bind Hardel, and there is no doubt that considered objectively the circumstances indicate that he intended to do so. He also had the capacity to bind himself to the 2008 Agreement, to the extent that cl 4(d) imposed a personal liability, or appeared to do so. There is no particular reason why Mr Harris could not be understood as acting in both capacities, when placing the single signature on the 2008 Agreement as he did.
In agreeing with the Judge, I am influenced by the following matters. The 2008 Agreement was prepared without legal advice, and reflects that fact. It contemplates Mr Harris accepting a persona/liability [sic]. It is not surprising that he would.
The terms of the 2008 Agreement, and the circumstances in which it was signed, persuade me that, considering the circumstances objectively, Mr Harris was indicating an intention to be bound personally. The indication of this intention is sufficiently clear to outweigh the circumstance that the manner of execution by Mr Harris is capable of being treated as indicating that he signed the 2008 Agreement only on behalf of Hardel.[9]
[9] Ibid, [27]-[29].
To similar effect is the Victorian Court of Appeal (Maxwell P and Tate JA) decision in Bond v Rees Corporate Advisory Pty Ltd[10] (Bond).
[10] [2013] VSCA 13.
Mr Bond’s case was that he had only signed the consultancy agreement in question in his capacity as a director or agent of BBF and that he was not personally bound by it. The Court held that Mr Bond was a party to the agreement and personally bound by it.
After citing the same passage from the reasons in Scottish Amicable that the Full Court in Harris had cited, Tate JA held:
In Clark Equipment Credit of Australia Ltd v Kiyose Holdings Pty Ltd Giles J considered the approach that the Court should adopt in relation to ‘the execution of a contract where, on the face of the contract, the party executing it signified a limitation upon the measure of assent to be derived from his signature’. After an extensive review of the relevant authorities, including Scottish Amicable, he concluded:
the proper approach is to inquire whether there is to be found an intention that the signatory be personally bound to the contract evidenced in the document, meaning thereby not a subjective intention but an intention to be found objectively, notwithstanding a qualification attached to the signature. That intention, or lack thereof, is to be found upon the construction of the document as a whole, including but not being limited to the qualification attached to the signature, in the light of the surrounding circumstances to the extent to which evidence thereof is permissible. The inquiry is not limited to consideration of the signature and its qualification in order to determine whether or not the signature indicates an assent to be personally bound.
The approach of McHugh JA in Scottish Amicable and Giles J in Clark Equipment has been followed in a range of subsequent cases.
I have concluded that, although the inclusion of the name of “BBF” above Mr Bond’s signature on the signature page of the Consultancy Agreement may have attached a “qualification” to that signature in the sense referred to in Scottish Amicable and Clark Equipment, Mr Bond was a party to the agreement and personally bound by it. I have reached this conclusion for the following reasons:
…
oThe terms of the Consultancy Agreement refer to Mr Bond and purport to impose obligations upon him; obligations which would not be binding if he were not a party to the agreement. Mr Bond is referred to personally in cl 5 of the Consultancy Agreement (period of operation based on performance criteria with Mr Bond having to provide quarterly performance reports); cl 6 (disclosure), cl13 (superannuation) and cl14 (WorkCover) as well as in Sch 1 (remuneration, principal accountabilities, targets, critical competencies, and so on). Other provisions, such as cl 8 (hours of work) and 19 (restraint of trade), refer to the party upon whom obligations are imposed in the second person (“you”), and clearly appear to be directed at Mr Bond personally rather than BBF.
oThe terms of other prior or contemporaneous agreement s between the parties indicate that it was intended by them that Mr Bond would enter into the Consultancy Agreement in his personal capacity. In particular, cl 3 of the Heads of Agreement imposed an obligation on Mr Bond to enter into an agreement in the form of the Consultancy Agreement.[11]
[11] Ibid, [58] – [60].
In my opinion the decisions in Harris and in Bond support the plaintiff’s submission that in the circumstances of this case:
(a) Wray intended to make himself personally liable by signing the Loan Agreement for the reasons set out in paragraph 9 above including the words “and guarantor for” having been added to the execution clause in the Loan Agreement above Wray’s signature
(b) Alternatively, Wray’s intention to make himself personally liable arises irrespective of whether the words “and guarantor for” were added to the execution clause by reason of the other matters identified in paragraph 9 above.
(c) Clause 5 of the Loan Agreement on its proper construction imposes a personal liability on Mr Wray for the amount of Sutherland Creek’s outstanding indebtedness under the Loan Agreement.
For these reasons judgment was entered against Wray on 12 November 2015. I indicated that reasons would follow. These are the reasons.
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