Supreme Court New South Wales

• Medium Neutral Citation: Druin Pty Ltd atf the Druin No 3 Trust trading as Harvey Norman Commercial Division v Corbin [2014] NSWSC 510
• Hearing dates: 14 - 25 April 2014
• Decision date: 08 May 2014
• Jurisdiction: Equity Division
• Before: Robb J

Decision

(1)Order that the proceedings be dismissed.

(2)Order the plaintiff to pay the defendant's costs.

(3)Order that the costs will be payable on the ordinary basis unless the defendant, within seven days of the date of publication of these reasons for judgment makes an application for an order for costs on some other basis.

(4)Orders the return of exhibits and documents produced on subpoena as set out in par 47

• Catchwords: GUARANTEE AND INDEMNITY - the contract of guarantee - construction and effect - whether there is an intention to be legally bound - objective intention - signature mistakenly affixed - whether to apply the parole evidence rule
• Cases Cited: Alonso v SRS Investments (WA) Pty Ltd [2012] WASC 168; Australian Woollen Mills Pty Ltd v The Commonwealth (1953-1954) 92 CLR 424; Baird v Magripilis (1925) 37 CLR 321; Curtis v Chemical Cleaning and Dyeing Co (1951) 1 KB 805; Ermogenous v Greek Orthodox Community of SA Inc (2001) 209 CLR 91; L'Estrange v F Graucob Ltd (1934) 2 K B 394; Scottish Amicable Life Assurance v Reg Austin Insurances Pty Ltd (1985) 9 ACLR 909
• Category: Principal judgment
• Parties: Druin Pty Ltd atf the Druin No 3 Trust trading as Harvey Norman Commercial Division (plaintiff); Mark Craig Corbin (defendant)
• Representation: Counsel: F Ashworth (plaintiff); Solicitors: Results Legal Solutions (plaintiff); Pagano Burlovich Lawyers (defendant)
• File Number(s): 2013/207922

Judgment

1 The plaintiff, Druin Pty Ltd, is the trustee for the Druin No 3 Trust. The trust trades as "Harvey Norman Commercial Division". Materially, it engages in the business, among other things, of the supply of plumbing products to plumbers.

2 The defendant, Mr Mark Craig Corbin, is a plumber by occupation. He was previously a director of APS Plumbing Services Pty Ltd, which was formerly known as Alliance Plumbing Services Pty Ltd (the "Company").

3 The Company was engaged in the business of providing plumbing services to its customers. There is no issue between the parties that, on or around 14 May 2007, the Company entered into an agreement with the plaintiff, after the plaintiff accepted an application signed on behalf of the Company (the "Application"), called an "Application for 30 Day Trading Account" (the "Credit Agreement"). The plaintiff provided plumbing products on credit to the Company under this agreement.

4 The plaintiff sues the defendant upon a guarantee that it alleges he entered into at the time the Company's application to the plaintiff for the plaintiff to supply plumbing products to it on the terms of the Credit Agreement was accepted by the plaintiff. The defendant claims that he is not bound by the guarantee, because he did not sign the Application in the capacity of a proposed guarantor, and accordingly he did not offer to the plaintiff to guarantee the Company's debts to the plaintiff if the plaintiff provided credit to the Company under the Credit Agreement.

5 If the defendant is liable to the plaintiff under the alleged guarantee, the amount owing was $360,862.89 as at 22 May 2013.

6 It is common ground that, on 14 May 2007, the Company signed a document called "Application For 30 Day Trading Account". The Application was signed under the heading "DIRECTOR/SOLE TRADER" by its two directors. One of those directors was the defendant. The other was Mr Sandy Quinn. Both stated their position to be "Director", and the date "14/5/07" was inserted beside the names of the two signatories.

7 There is no need to consider the terms of the Credit Agreement as between the plaintiff and the Company. There is no issue that the plaintiff supplied plumbing products to the Company, and that the Company is liable to pay to the plaintiff the net balance owing under the Credit Agreement. The Company has not paid the outstanding amount, and has been placed in voluntary administration. The voluntary administration commenced on 5 April 2013 and terminated on 3 June 2013. The Company entered into a deed of company arrangement on 3 June 2013.

8 Mr Quinn remains a director of the Company. The defendant ceased to be a director on 25 February 2013.

9 The Company, under its former name, was identified on the first page of the Application as the applicant and also as a "Pty Ltd Company". The credit limit requested was $100,000. The evidence shows that the credit limit was increased by the plaintiff on a number of occasions to an amount greater than the sum that the plaintiff now claims against the defendant. The defendant claims that he was not informed by the plaintiff that these increases in credit limit were being made available to the Company. The defendant has not, however, put that issue forward as a separate basis for his not being liable to the plaintiff under the alleged guarantee.

10 To use the expression used by counsel for the parties, the guarantee was embedded in the Application, after the Terms & Conditions of Sale, and before the heading "DIRECTOR/SOLE TRADER".

11 The wording intended to give rise to a guarantee in appropriate cases is contained on the fourth and fifth pages of the Application.

12 It appears that a probable reason for the confusion that has led to the present dispute is that the space for any proposed guarantor to sign the Application is immediately above the words "DIRECTOR/SOLE TRADER", under which the space for the directors to sign on behalf of the Company appears.

13 Clause 6 of the guarantee wording states: "The Guarantor hereby charges as beneficial owner of any freehold and leasehold interest in land which the Guarantor now has or in the future acquires with the whole of the Guarantor's obligation". In addition to its claim for a money judgment against the defendant, the plaintiff claims an entitlement to a charge securing the payment to it of the amount outstanding over four properties in which the defendant has a freehold interest that are listed in par 13 of the statement of claim. In his defence the defendant admits that he has a freehold interest in these properties, although he is not the sole person interested. The case was conducted by the defendant on the basis that, although he denied being bound by the guarantee, if he was found to be liable notwithstanding his denial, then clause 6 created a valid charge over the defendant's interest in the four properties.

14 It is not otherwise necessary to set out any of the terms of the guarantee wording. The formal parts of the guarantee wording in the Application, before its completion, were in the following terms:

"GUARANTEE

In consideration of Druin Pty Ltd as Trustee for the Druin No 3 Trust trading as Harvey Norman Commercial Division (here-in-after called "the Company"), granting credit

To....................................................................................

of....................................................................................

(here-in-after called "the Customer")

I/We.................................................................................

of....................................................................................

(here-in-after called "the Guarantor")

Hereby guarantee and bind myself jointly and severally with any Co-Guarantor and the Customer in favour of the Company for the payment of any amount which is now due or owing or which may hereafter become due or owing by the Customer to the Company.

It is hereby agreed:

[The 10 terms of the guarantee are then set out]

Dated this............... day of............ 200...

SIGNED by the said GUARANTOR:.......................................

In the presence of...............................................................

Signature of Witness:................. Name of Witness:..................

Address.......................................... Occupation.................."

15 The parts of the guarantee wording intended to be completed were all left blank, at the time the application was completed, except for the space described as "Signature of Witness". The defendant's signature was inserted by the defendant in this space. He wrote his name beside the words "Name of Witness". He wrote his address beside "Address", and inserted the word "Plumber" beside "Occupation". Neither the name and address of the Customer, nor the name and address of the Guarantor, were inserted in the spaces provided.

16 The issue in the present case distils to the simple one of whether the defendant's signing, and inserting the other information, in the space provided for the signature and details of the witness to the execution of the guarantee by the guarantor, are sufficient to make the defendant liable as guarantor of the Company's obligations to the plaintiff.

17 At the bottom of the page upon which provision for the signing of the guarantee appears there is a box marked "OFFICE USE ONLY". That box was partly completed to indicate that the sales representative was Mr Adam Snell. No other part of the box was completed, including that part intended to show that the credit limit was approved, and who made the approval on behalf of the plaintiff, and on what date.

18 The persons who were present at the time that the Application was completed were the defendant, Mr Corbin, his co-director Mr Quinn, and the sales representative, Mr Snell.

19 On 18 May 2007 the plaintiff sent a letter to the Company to advise that the Company's application for a credit limit of $100,000 had been approved. The letter enclosed a copy of the plaintiff's terms and conditions of trade. The letter was signed by Ms Karen Morris on behalf of the plaintiff's Credit Control.

20 In support of its case the plaintiff called evidence, essentially of a formal nature, to prove the documents upon which the plaintiff relies, including those which quantify the amount of the plaintiff's claim. The plaintiff did not call evidence from any person who took part in the approval process in relation to the Company's Application.

21 The defendant relied upon evidence given by himself, Mr Quinn and Mr Snell in relation to the circumstances in which the Application was completed. The defendant was able to call evidence from the plaintiff's representative who procured the completion of the Application.

22 The defendant swore that Mr Snell approached himself and Mr Quinn to solicit business on behalf of the plaintiff. Mr Snell said that he had an Application for Credit with him "which you guys will need to complete and sign, I can get it approved and get you trading with us in no time." In the context of the evidence, this was an invitation for the Company to apply for a credit limit in relation to its future purchases from the plaintiff. Nothing was mentioned about any requirement of the plaintiff that the defendant, or indeed Mr Quinn, offer to guarantee performance of the Company's obligations to the plaintiff. The defendant swore that he initially signed the Application beside the words "Signature of Witness", and then he handed the document back to Mr Snell. A conversation then took place as follows:

Adam said: "Mark, you have signed in the wrong spot, you don't need to worry about filling out the Guarantee section. Harvey don't need a guarantee from you, its builders that they want personal guarantees from. Can you re-sign here next to Sandy's signature."

I said: "Ok, no problem but will I cross this out here."

Adam said: "No, don't worry about it, you haven't completed the Guarantee section anyway so don't worry they can't do anything with that."

I said: "Ok."

Adam said: "I will take your Application with me back to Harvey's and have Luke, the Credit Manager look over it and do what he needs to do. If Harvey's want a guarantee from you, he will give the form back to me and I will be out again to see you and have you sign it. But it's unlikely to happen, Harvey's only seem to want personal guarantees from builders."

23 Mr Quinn and Mr Snell both swore to versions of this conversation that were substantially identical to the conversation as related by Mr Corbin. Mr Quinn recalled, in addition, that both he and Mr Corbin stated that they would not give a guarantee.

24 In cross-examination of the three witnesses it was suggested on behalf of the plaintiff that they had discussed their evidence together before their respective affidavits were prepared. Each witness strongly denied that that had occurred. It was not directly put to any of the three witnesses that the conversation had not taken place in the terms of the evidence that they gave. It was suggested that Mr Snell's credibility was impugned by the circumstances in which he was subsequently dismissed from the employment of the plaintiff. Those circumstances did not do Mr Snell great credit, but Mr Snell forthrightly conceded what had happened, and having heard his evidence, I do not find that this matter is a proper basis for not accepting the evidence that he gave of what happened at the time the Application was signed. There is no point in my disclosing in these reasons the basis upon which the plaintiff terminated Mr Snell's employment.

25 In essence, the plaintiff's position in its submissions was that the affixation of the defendant's signature to the guarantee embedded in the Application was the clearest manifestation of an intention to be legally bound by the terms of the guarantee. That was so, submitted the plaintiff, notwithstanding that the defendant's signature was placed in the position on the document set aside for the signature of the witness to the signing of the guarantee by the intended guarantor. The signature, albeit not in the correct place, manifested an intention, objectively ascertained, that the defendant would be bound by the terms of the guarantee. The objective intention of the defendant should be ascertained "within the four corners of the document itself", being the whole of the Application, and "consideration of the legal consequences which flow from that document". The objective intention of the parties is to be determined at the time the guarantee was entered into. The only evidence that can be relevant to that intention is evidence of matters between the time the defendant affixed his signature to the guarantee, and the approval of the credit application by the plaintiff. (I note that the evidence given of the conversation after the defendant signed the Application in the place provided for the witness to sign falls within this period). The subjective intention of the parties, or the opinion of the parties or third parties, as expressed at some later time, as to whether a contract of guarantee was formed, is not relevant and is inadmissible.

26 The defendant's position was simple. The guarantee embedded in the Application was not completed, and did not identify any proposed guarantor. The plaintiff did not sign as guarantor, in the space provided for the guarantor to sign. He signed the document in the space provided for the witness to sign. That was a simple mistake, as he intended to sign his name as a director of the Company. He would have crossed out his signature as witness to the guarantor, but Mr Snell told him that was not necessary. On the contemporaneous objective evidence, there was no intention that the defendant enter into a guarantee of the Company's obligations to the plaintiff.

27 Before I consider the proper resolution of this dispute, there is a subsidiary issue that must be resolved. On 25 February 2013, in conjunction with his resignation as a director of the Company, the defendant wrote a letter to the Credit Department of the plaintiff, in which he materially said:

"Please be advised that I have resigned as director of [the Company] effective today.

I forthwith from today's date withdraw any and all personal guarantees that I have provided guaranteeing the debts of [the Company].

Please remove me as a director and signatory from all [the Company's] credit accounts held with you..."

28 The plaintiff argued that this letter amounted to an admission by the defendant that he was bound by the guarantee upon which the plaintiff sues. Even if, properly construed, the letter did contain an admission that the defendant had entered into the guarantee, the admission would not be conclusive and it would remain open to the defendant to prove on the evidence that he had not entered into the guarantee: see Gannon v Gannon (1971) 125 CLR 629 per Menzies J at 640]. However, I find that the letter did not make the admission asserted by the plaintiff. First, by using the words "any and all personal guarantees", the defendant did not make an unqualified assertion that he had given a guarantee to the plaintiff. The proper way to construe those words is that the defendant wished to withdraw any guarantee that he had given to the plaintiff, if he had in fact given one. Secondly, the defendant tendered evidence that he had identified virtually all of the companies or persons - over 600 - that the Company may have had dealings with, and sent a circular letter to all of them in the same terms as the letter that he sent to the plaintiff. Those circumstances reinforce the conclusion that the defendant was only acting on a precautionary basis, and was not making any positive admission that he had given a guarantee to any particular person.

29 The issue in the present case is whether the defendant is bound by the terms of the guarantee embedded in the Application. That depends upon whether the circumstances in which the defendant placed his signature on the guarantee made him legally bound by the terms of the guarantee. The issue is not whether, the defendant having intentionally placed his signature on the document in circumstances where he knew, or ought to have known, that he was assenting to be bound by a contractual document, he should be bound by the terms notwithstanding that he was not aware of them. The well-known case of L'Estrange v F Graucob Ltd (1934) 2 K B 394 is not material.

30 In Ermogenous v Greek Orthodox Community of SA Inc (2001) 209 CLR 91 Gaudron, McHugh, Hayne and Callinan JJ said (footnotes omitted):

"[24] 'It is of the essence of contract, regarded as a class of obligations, that there is a voluntary assumption of a legally enforceable duty.' To be a legally enforceable duty there must, of course, be identifiable parties to the arrangement, the terms of the arrangement must be certain, and, unless recorded as a deed, there must generally be real consideration for the agreement. Yet '[t]he circumstances may show that [the parties] did not intend, or cannot be regarded as having intended, to subject their agreement to the adjudication of the courts'.

[25] Because the inquiry about this last aspect may take account of the subject matter of the agreement, the status of the parties to it, their relationship to one another, and other surrounding circumstances, not only is there obvious difficulty in formulating rules intended to prescribe the kinds of cases in which an intention to create contractual relations should, or should not, be found to exist, it would be wrong to do so. Because the search for the intention to create contract shall relations requires an objective assessment of the state of affairs between the parties (as distinct from the identification of any uncommunicated subjectivereservation or intention that either may harbour) the circumstances which might properly be taken into account in deciding whether there was the relevant intention are so varied as to preclude the formation of any prescriptive rules. Although the word 'intention' is used in this context, it is used in the same sense as it is used in other contractual contexts. It describes what it is that would objectively be conveyed by what was said or done, having regard to the circumstances in which those statements and actions happened. It is not a search for the uncommunicated subjective motives or intentions of the parties"

31 Their Honours were concerned with the issue of whether parties, who had in fact entered into an agreement, intended to create a binding and legally enforceable contract, but the principle stated by their Honours is of general application; that a legally binding contract will not come into existence unless the circumstances show that each party intended to be bound by the contract. That intention must be ascertained objectively.

32 As a matter of principle, the inquiry into whether the necessary objective intention exists should never be confined to the written document, or at least not necessarily be so confined, as it would be if the ascertainment of the existence of the intention was subject to the application of the parol evidence rule. If it is established that each party intended to be bound by the terms of a document that apparently sets out the whole of their intended bargain, then it is meaningful to determine the terms of the contract by generally having regard only to the wording of the document, although subject to the established exceptions. However, if, in a particular case, there is an antecedent inquiry as to whether there is a contract at all, it seems to be logically necessary to permit reference to all objective circumstances that may bear upon the existence of the necessary intention. In Alonso v SRS Investments (WA) Pty Ltd [2012] WASC 168 Edelman J noted at [47], that the plurality in Ermogenous "did not suggest that there was any requirement of ambiguity in the words of an agreement before resort could be had to surrounding circumstances to determine whether there is a manifest intention to be legally bound. The issue of manifest intention in entering an agreement may be different from the construction of words in an agreement" (emphasis in original).

33 The existence of the necessary intention depends upon the conclusions that should "be drawn by inference from the documents and the relevant surrounding circumstances", as stated by Mahoney JA in Scottish Amicable Life Assurance v Reg Austin Insurances Pty Ltd (1985) 9 ACLR 909 at 921; or depends "upon the terms of the document including the qualification attaching to the signature together with the surrounding circumstances" per McHugh JA (as his Honour then was) in the same case.

34 There are other statements of high authority, which appear to proceed upon the basis that, if the question is whether there was an objective intention on the part of the parties to enter into a legal contract, it is necessary to have regard not only to any contractual document, but also the surrounding circumstances. In Baird v Magripilis (1925) 37 CLR 321 at 333 Starke J said:

"Now, was this arrangement conditional; that is, was it intended that it should not operate as an agreement but should be suspended until the happening of the stated event? Or was the real intention of the parties, gathered from the documents and the surrounding circumstances, that the arrangement should operate and take effect as an agreement, but containing within itself the elements of its own discharge if the events stated did not happen within the time prescribed?"

35 In Australian Woollen Mills Pty Ltd v The Commonwealth (1953-1954) 92 CLR 424, the Full Court said at 457:

"The position has been stated above in terms of the technical doctrine of consideration, and this is, in our opinion, the correct way of stating it. But it may be referred to a principle which is fundamental to any conception of contract. It is of the essence of contract, regarded as a class of obligations, that there is a voluntary assumption of a legally enforceable duty. In such cases as the present, therefore, in order that a contract may be created by offer and acceptance, it is necessary that what is alleged to be an offer should have been intended to give rise, on the doing of the act, to an obligation. The intention must, of course, be judged in the light of the principles laid down in Freeman v Cooke, but, in the absence of such an intention, actual or imputed, the alleged 'offer' cannot lead to a contract: there is, indeed, in such a case no true 'offer'."

36 The question whether the evidence justifies a finding that a party objectively intended to be bound by the terms of an alleged contract is one of fact, not law: Scottish Amicable her McHugh JA at 924.

37 In the present case, as was also the situation in Alonso (see [47]), it does not matter whether or not uncertainty must be shown on the face of the document alleged to contain the terms of the offer, as to whether a party intended to be bound by signing the document, before it is proper to have regard to the surrounding circumstances to determine whether or not the necessary intention in fact existed. There is more than ample uncertainty in the present case.

38 First, the defendant did not sign in the space provided for the signature of the intended guarantor. If he had signed "as guarantor", that would have been a significant step towards a proper finding that he intended to bind himself as guarantor, irrespective of other omissions from the terms of the document. As he signed as a witness, the issue is entirely open as to what the obligation was that the defendant was witnessing.

39 Secondly, that conclusion is reinforced by the fact that no one signed in the place provided for the guarantor.

40 Thirdly, the name of the proposed guarantor was not inserted in the space provided in the embedded guarantee. It may not be difficult to infer from the circumstances that the Company was intended to be "the Customer", even though the Company's name was omitted from the space provided for the insertion of the name of the Customer. It is a different matter in relation to the identification of the proposed guarantor.

41 When regard is had to the surrounding circumstances, being the evidence of the three persons present at the time the defendant placed his signature in the position provided for the witness in the embedded guarantee, the necessary conclusion becomes overwhelming. The placing of the defendant's signature in the place provided for the witness was a mistake. No request was made on behalf of the plaintiff for anyone to give a guarantee of the Company's obligations.

42 Furthermore, the representative of the plaintiff present, Mr Snell, persuaded the defendant not to cross out his signature, by saying that it did not matter and would not be acted upon by the plaintiff. In those circumstances the plaintiff could not be permitted to assert that the defendant's signature on the guarantee bound him to the terms of the guarantee; see Curtis v Chemical Cleaning and Dyeing Co (1951) 1 KB 805.

43 Further grounds for rejecting the plaintiff's argument that the defendant is bound by the terms of the guarantee are not needed. However, there are additional circumstantial matters that support the conclusion that the plaintiff provided credit to the Company without the benefit of a guarantee by the defendant. First, the plaintiff did not ask anyone to guarantee the Company's debt. Secondly, Mr Quinn, the co-director, was not required also to sign the document. It is difficult to envisage a reason why the plaintiff would have required one director to give a guarantee, but not the other. It is equally difficult to see why one director would agree to give a guarantee, without the other also giving a guarantee. These considerations support the conclusion that the placing of the defendant's signature in the space provided for the signing of the guarantee by the witness was a mistake.

44 The plaintiff relied upon the decision in Alonso in support of its case. That decision is, however, distinguishable from the present. Edelman J noted that the second defendant in that case, Ms Sandford, was identified as a guarantor in the statement of the parties to the lease in question. Ms Sandford signed the lease as the sole director of the lessee company. She did not sign in the space provided for the signature of the guarantor, which was marked by a "x" on the document. However, where in that part of the lease the words "SIGNED as a deed by... in the presence of:-" appeared, someone had written the words "SARA SANDFORD" in handwriting in the place where the ellipsis appears in the extract from the execution page that I have just set out. Apart from finding that the name was not written on the document by the lessor, Edelman J made no finding as to who wrote those words. His Honour stated at [57] that there were "four cumulative reasons why the Lease in this case, construed in its surrounding circumstances, manifested an (objective) intention for the second defendant to be legally bound as guarantor". In subsequent paragraphs his Honour set out those reasons. First, the second defendant was specifically identified in Item 3 of the Particulars of Lease as the guarantor. Secondly, although the second defendant did not sign the execution page in the place provided for the signature of the guarantor, the words "SARA SANDFORD" had been inserted, as noted above, and the part of the execution page that related to the guarantee had been witnessed, in the presence of the second defendant. Thirdly, various provisions of the lease had been crossed out, and the crossing out initialled, but the statements relevant to the giving of the guarantee remained intact. Fourthly, shortly before the lease commenced, the second defendant wrote a letter to the lessor that effectively accepted the terms of the proposed lease, which indicated that she would give a guarantee.

45 The present case is completely different, and for the reasons given above, the signing of the guarantee by the defendant as a witness did not objectively establish that he intended to be bound by a guarantee in favour of the plaintiff.

46 The orders which the court will make are therefore:

(1) Order that the proceedings be dismissed.

(2) Order the plaintiff to pay the defendant's costs.

(3) Order that the costs will be payable on the ordinary basis unless the defendant, within seven days of the date of publication of these reasons for judgment makes an application for an order for costs on some other basis.

47 In addition, the court will make the following additional order concerning exhibits and documents produced on subpoena:

(4) Order pursuant to UCPR r 31.16A and r 33.10, and Practice Note No S C Gen 18 par 26:

(a) that the exhibits be returned forthwith to the parties who tendered the exhibits to be held by them in compliance with Practice Note No S C Gen 18 par 28;

(b) that the parties return any exhibits that were produced to the Court by any person in answer to a subpoena or notice to produce to the person who produced the document forthwith upon the expiry of any time for which the party to whom the exhibit is returned is required to retain the exhibit;

(c) that all material produced directly to the Court by any party in answer to any notice to produce that has not become an exhibit be returned forthwith to the party who produced the material; and

(d) that the Registry should forthwith return, or otherwise deal with in accordance with Practice Note No S C Gen 18 par 27, all material produced to the Registry in answer to any subpoena or notice to produce.

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Decision last updated: 07 May 2014