Interest guaranteed despite DOCA: T W Timber Treatment Pty Ltd v Giddings

T W Timber Treatment Pty Ltd v Giddings [2022] VSCA 147

The Victorian Court of Appeal has re-affirmed that a director’s signature can indicate an intention to personally guarantee a company’s obligations, even where that signature is qualified and accompanied by contrary indications in the signed document.

The Court also confirmed that a creditor’s rights under a director’s guarantee, including a right to interest, are not affected by a Deed of Company Arrangement (DOCA).

Background

The applicant, TW Timber, supplied timber to Aarons Outdoor Living Pty Ltd, a company that sold outdoor living products, (the Company). The respondent was a director and the secretary of the Company.

The timber was supplied following the Company completing an application to open a trading account on credit terms with the applicant (Application).

After being supplied with the timber, the Company was placed into voluntary administration, entered into a DOCA, and was consequently wound up and deregistered.

The applicant was largely not paid for the timber supplied. Following the deregistration of the Company, a debt of $282,868.06 remained owing to the applicant.

Relevant terms

The Application comprised five pages. On the first page, a question asked, “If a company, are directors prepared to sign directors guarantee?” An employee of the Company circled “no” and signed the first page.

The third and fourth pages of the Application contained a number of acknowledgements, including that the “director(s)” of the Company guaranteed “… the due and punctual payment and performance by the [Company] of all its obligations to [the applicant] at all times in respect of every order placed by the [Company] with [the applicant] and in respect of which credit is provided…”. The Respondent signed the fourth page, also writing the word “director” to describe his title.

The final page of the Application stated “We, being directors or proprietors, acknowledge the agreement to guarantee & indemnify and agree to your trading terms.” Following this printed text, the respondent signed and dated the page.

The Company’s trading terms (relevantly) provided that “if [the Company] does not pay [the applicant] by the due date, [the Company] shall pay interest on the moneys due, charged on a daily basis at 16% pa from the due date for payment until the actual date of payment”.

Issues on appeal

The applicant sought to enforce the guarantee. It was unsuccessful before a judicial registrar and later on de novo review by a judge of the County Court.

Two issues arose on appeal. First, whether there was a binding guarantee in the respondent’s personal capacity for the debts of the Company. Secondly, if so, whether the respondent would be liable in respect of the Company’s obligation to pay interest on the money owing after the effectuation of the DOCA.

The respondent provided a guarantee in his personal capacity to the applicant

Whether the respondent intended to be personally bound was to be determined by reference to orthodox principles of contractual interpretation. The question was therefore to be determined objectively, “by the construction of the [Application] situated in its surrounding circumstances”.

The Court concluded that there were “overwhelming” indications that the respondent intended to be bound as guarantor of the Company’s liability to the applicant, including:

• the respondent’s signature on the final page of the Application was only explicable as his written assent to giving a personal guarantee;
• even though the respondent’s signature on the fourth page was accompanied by the handwritten word “director”, it was clear that this signature was applied in dual capacities: on behalf of the Company and in his personal capacity;  
• the “no” circled on the first page did not operate to qualify or limit the capacity in which the respondent signed and assented to those parts of the document containing the guarantee; and
• a consideration of the surrounding circumstances (including a letter which enclosed the blank Application) reinforced the conclusion that the respondent intended to be personally bound.

The Court endorsed a long line of intermediate appellate decisions which confirm that the contents of a document may indicate that the signatory is personally bound even though a qualification attaches to their signature.     

The respondent’s ongoing liability for interest under the guarantee was not extinguished by operation of the DOCA

The combined effect of the Application and the applicant’s trading terms was that the respondent guaranteed the payment of interest, at the rate of 16 per cent per annum, on any moneys due and unpaid after 30 days of delivery, to be charged daily until actual payment.

Consistent with s 444H of the Corporations Act 2001 (Cth) (Act), the DOCA purported to release the Company from all claims by any creditor on the termination of the deed. Practically, this meant that the applicant’s claim for principal and interest against the Company was released on 24 October 2017 by operation of the DOCA.

The respondent accepted that his guarantee of the Company’s obligation to pay interest remained unaffected by the release in the DOCA. However, he argued that the effect of the release was that, after 24 October 2017, there was no money due. It followed that the guaranteed obligation from this date “was to pay 16 per cent [i.e., interest] of nothing”.  

The Court of Appeal rejected this argument. In doing so, it observed that the outcome contended for could only occur if the DOCA extinguished the Company’s debt. Given that s 444J of the Act provides that the release of a company’s debt “does not affect the creditor’s rights under a guarantee or indemnity”, the Court concluded that “such a result is precisely what [the provision] makes clear does not occur”. The Court concluded that this was also an established principle at common law.

The respondent’s contractual obligation to pay interest owing under the guarantee therefore remained unaffected by the release contained in the DOCA.

Mr Giddings has sought special leave to appeal on the first question (whether a contract of guarantee was formed).