BIG RIVER TIMBERS PTY LTD v STEWART

LOWER COURT JURISDICTION : Supreme Court - Equity Division LOWER COURT FILE NUMBER(S) : Eq D 2243/98 LOWER COURT JUDICIAL OFFICER : Young J

COUNSEL : F G Lever (Appellant) P B Walsh (Respondent) SOLICITORS : Toomey Pegg Drevikovsky (Appellant) Lockhart Quinn & Co (Respondent) CATCHWORDS : Corporations Law; guarantee by company directors; construction of terms of guarantee ; joint and several guarantee ; scope of charge in guarantee; Real Property; charge to secure payment of monies; joint tenancy ACTS CITED : Real Property Act 1900 DECISION : Appeal Allowed

THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL

BIG RIVER TIMBERS PTY LTD v IAN MALCOLM STEWART & ANOR

Corporations Law - guarantee by company directors - construction of terms of guarantee - joint and several guarantee - scope of charge in guarantee

Real Property - caveat - charge to secure payment of monies - priority - joint tenancy

The claimant is a timber supplier. A construction company called Multiform Pty Limited was granted a credit account on 15 April 1994. Credit was given subject to the execution of a Guarantee by the company's two directors Douglas Crane and Ian Stewart. The issue was whether the charge given in the Guarantee (which was a joint and several Guarantee) extended to the interest of Mr Stewart as joint tenant with his wife.

That the charge extended to the guarantor's interest in the jointly owned property.

1. Grant leave to appeal.
2. Appeal allowed.
3. Set aside orders made by Young J on 22 May 1998.
4. Declare that the Guarantee dated 11 April 1994, made between the claimant, the first opponent and Douglas Crane created a charge over the first opponent's interest in the property described in folio identifier 386/755233 ("the property") in favour of the claimant.
5. Declare that the Guarantee created a caveatable interest in the property in favour of the claimant.
6. Second opponent to pay the claimant's costs of the appeal (including the application for leave) and of the proceedings below, but to have a certificate under the Suitors' Fund Act with respect to the costs of the appeal.
7. Proceedings remitted to Equity Division for further hearing if necessary.

1 MASON P: The Court heard full argument in this leave application, thereby enabling the appeal to be disposed of, subject to the grant of leave. 2 The claimant is a timber supplier. A construction company called Multiform Pty Limited ("Multiform") was granted a credit account on 15 April 1994. Credit was given subject to the execution of a Guarantee by the company's two directors Douglas Crane and Ian Stewart ("Mr Stewart"). Mr and Mrs Stewart are the opponents in these proceedings although only Mrs Stewart appeared. 3 The Guarantee was a printed form into which particulars relevant to the customer and guarantors were inserted in handwriting. Its relevant terms are set out below with the handwritten portions being indicated by italics. BIG RIVER TIMBERS PTY LTD GUARANTEE To: BIG RIVER TIMBERS PTY LIMITED IN CONSIDERATION of you having at my/our request agreed to supply and/or continue to supply to: MULTIFORM PTY LTD of: 83 OAKDALE ROAD GATESHEAD (hereinafter called "the debtor" with goods and/or services from time to time. I/we FULL NAME/S DOUGLAS CHARLES CRANE ADDRESS: 2A Ebsworth Street, Gateshead FULL NAME/S IAN MALCOLM STEWART ADDRESS: 16 Mallee Street, Gateshead HEREBY JOINTLY AND SEVERALLY agree with you as follows:

1. To guarantee to you the payment by the debtor for all goods and/or services as you may have hitherto supplied or as you may hereafter supply from time to time at his request and notwithstanding that I/we shall not have notice of any neglect or omission on the debtor's part to pay for such goods and/or services according to the terms agreed on between you and him.
2. This guarantee shall be a continuing guarantee to you for the whole of the debtor's indebtedness or liability to you in respect of goods and/or services supplied or to be supplied to the debtor as aforesaid or upon any other account howsoever or whensoever arising.
3. And to further secure all monies guaranteed to be paid by me/us (as Guarantors) to you, all the right, title, estate and interest which I/we now have or may hereafter during the currency of this Guarantee acquire to any freehold or leasehold property shall by the force of the execution of this Guarantee stand charged by me/us (as beneficial owner/s of the said property) with payment of all monies hereby guaranteed. …
4. This guarantee shall be enforceable against me/us jointly and each of us severally notwithstanding that any negotiable or other securities referred to herein or to which it shall relate or be applicable at the time of proceeding being taken against us or either of us by this guarantee may be intended it is expressly declared that notwithstanding the fact that this instrument of guarantee may be intended or expressed to be executed and given by more than one person the same, shall in fact, be valid and effectual instrument of guarantee binding against such person of (sic) persons notwithstanding the fact that any proposed or contemplated partly (sic) shall not in fact subsequently execute the same.
5. This guarantee shall be revocable at any time as to further transactions by one month's notice in writing given to you by me/us or in case of death by our respective personal representatives.
6. …. DATED THIS eleventh day of April 1994 NAME DOUG CRANE SIGNATURE Signature NAME IAN STEWART SIGNATURE Signature

4 Between July and September 1997 the claimant supplied goods to Multiform to a total invoice value of $291,820.46. Only $32,865.01 of that sum was paid, leaving a balance of $258,955.45 upon which interest has been accruing in accordance with the terms of the credit application. 5 An administrator was appointed to Multiform on 28 February 1998. It would appear that the company is insolvent. 6 On 30 January 1998 the claimant lodged a caveat against the title to property at 193 Ungala Road, Blacksmiths, being the whole of the land in Certificate of Title, Folio Identifier 386/755233 ("the land"). The land was at that time registered in the names of Mr and Mrs Stewart as joint tenants. The interest claimed in the caveat was a charge over Mr Stewart's right, title and estate in the land to secure payment of moneys owed to the claimant pursuant to the Guarantee. The source of the asserted charge is clause 3 of the Guarantee which is set out above. Cf Lyons v Lyons [1967] VR 169; Guthrie v Australia and New Zealand Banking Group Ltd (1991) 23 NSWLR 672; Bridge Wholesale Acceptance Corporation (Australia) Ltd v Burnard (1992) 27 NSWLR 415. 7 When the caveat came to the attention of Mrs Stewart, she caused her solicitors to write to the claimant asserting priority over the interest claimed in the caveat. She relied upon orders made on 16 August 1996 by the Family Court of Australia. These had been made by consent and by way of property settlement in proceedings between Mr and Mrs Stewart (who remained husband and wife). Relevantly, the orders required Mr Stewart to do all such acts and execute all such documents as were necessary to transfer to Mrs Stewart in fee simple all of his interest as joint tenant in the land. Pursuant to that order, Mr Stewart had executed a Transfer in registrable form to Mrs Stewart. However no steps were ever taken to register the Transfer. Rather, Mrs Stewart entered into a contract to sell the land, no doubt proposing to deliver to her purchasers the registrable transfer in her favour from her husband. 8 On 16 April 1998 Mrs Stewart caused a 21 day lapsing notice (cf Real Property Act 1900, s74J) to be served on the claimant. Attempts to resolve matters on an interim basis were unsuccessful. Accordingly, on 30 April 1998 the claimant commenced proceedings in the Equity Division seeking an order extending its caveat. During the pendency of those proceedings the claimant and Mrs Stewart agreed that the claimant would withdraw its caveat to allow the land to be sold on terms that $40,000 from the net proceeds of sale was paid into a trust account. This sum represented approximately half of the net proceeds of sale of the property after discharge of earlier mortgages. 9 The proceedings were heard and determined by Young J on 22 May 1998, effectively on a final basis. His Honour declined to extend the caveat and dismissed the summons with an order that the claimant pay Mrs Stewart's costs. 10 The claimant purported to appeal. When it was appreciated that leave may be required, the present application was filed. In these circumstances, it has not been suggested that the claimant should be penalised for not filing the summons for leave within the time stipulated in the Rules. 11 In the Court of Appeal the claimant reformulated its substantive claim as one for declaratory relief. The application was argued on the basis that the sole matter for determination was the scope of the charge granted by Mr Stewart in clause 3 of the Guarantee. Was it capable of engaging the legal interest which he held in the land at the relevant time, being that of a joint tenant together with his wife? 12 The parties were agreed that questions of priority as between the interest claimed by the claimant under the Guarantee and the interest accruing to Mrs Stewart under the order made by the Family Court and the unregistered Transfer subsequently executed by her husband would abide further proceedings in the Equity Division (unless resolved between the parties). 13 Young J's reasoning on the construction of the Guarantee involved two steps:

1. Clause 3 was interpreted as if "me/" and "I/" were struck out, and as if "owner/s" in the parentheses read "owners". Young J reached this construction by observing that the generic document was capable of amendment by deleting singular or plural references. Although none of the references to "me/us" and "I/we" in the Guarantee had been amended, his Honour concluded that: It would seem relatively clear that despite the inelegance of these expressions one must look at the plural alternative, remembering both under the words appearing before cl 1 and also by cl 6 the guarantee is enforceable against Douglas and Ian jointly and severally. On this basis clause 3 was to be construed as if it read: And to further secure all monies hereby guaranteed to be paid by us to you, all the right, title, estate and interest which we now have or may hereafter during the currency of this Guarantee acquire in any freehold or leasehold property shall by the force of the execution of this Guarantee stand charged by us (as beneficial owners of the said property) with payment of all monies hereby guaranteed.
2. Young J then considered what was meant by "us" or "we" in this context. Applying the contra proferentem maxim, he concluded that these pronouns were to be construed as referring to both of the men, Douglas Crane and Ian Stewart. Clause 3 could not be read as if "or either of us" were added after "we" in its first line. It followed that the land owned jointly by Mr and Mrs Stewart did not satisfy the description of land owned by the two male guarantors and, accordingly, the charge did not attach to that land. 14 In the Court of Appeal Mrs Stewart adopted this reasoning. 15 I respectfully disagree with Young J on the first point, finding it unnecessary to address the second. I would grant leave and allow the appeal for the following reasons. 16 It is well established that the task of construction of a written instrument requires the whole of the instrument to be considered (Re Media Entertainment and Arts Alliance; Ex parte Hoyts Corporation Pty Ltd (1993) 178 CLR 379 at 386-7). A corollary is that there is a presumption against surplusage, although it is not a strong presumption in the light of modern drafting techniques involving standard form commercial documents (cf Lewison, The Interpretation of Contracts 2nd ed, 1997 s6.03). 17 This was a standard form contract prepared to cover the eventuality of one or more guarantors. At several points in the printed form the singular/plural alternative was offered ("my/our", "I/we", "me/us"). The form did not instruct that the inappropriate alternative should be struck out. Nor was this done in the particular case, as it might have been. 18 The drafting device of offering two alternatives separated by a "/" is not uncommon. Sometimes the two linked concepts are true alternatives, as with "NAME/S" in the opening part of the Guarantee. At other times a broader choice is offered, as with "goods and/or services", also found in the Guarantee. The purist may decry the use of such an expression, but the meaning is clear, namely "goods or services or both of them". 19 Young J considered that the expression "my/our" in "my/our request" in the opening portion of the Guarantee was necessarily to be read solely as a plural. Likewise, with "I/we" before the names of the guarantors. In each case that result followed because the names of two guarantors were inserted. Thus read, the phrases "my/our" and "I/we" were necessarily true alternatives, one or other alternative being selected inferentially depending upon the number of guarantors' names added. The correctness of this reading of the opening part of the Guarantee may be assumed, although Giles JA indicates a reason for challenging the assumption. 20 Young J proceeded from this point to construe the Guarantee as a whole as if the plural alternative were chosen at each later point of choice, especially in clause 3. I respectfully disagree. 21 Even ignoring the joint and several nature of the Guarantee, one cannot construe the instrument as electing irrevocably in favour of the plural alternative simply because that election is made in the opening portion of the Guarantee if the names of two or more guarantors are introduced. This is not a situation where the same word is found in several places in a single instrument. The principle that the entirety of an instrument is to be taken into account in its construction requires each of the "I/we", "me/us" alternatives to be construed on their merits. If the particular context indicates that a true alternative is involved then so be it. But if the context is, read fairly, capable of a construction that gives effect to each word remaining in the instrument, then this is the correct approach. 22 This approach becomes compelling when it is recognised that the substantive part of the Guarantee commences with the words [WE] "HEREBY JOINTLY AND SEVERALLY agree". The Guarantee is explicit in its assertion that the promises made by the two guarantors are joint and several. With joint and several liability, there is one joint obligation and as many several obligations as there are joint and several promisors. This means that this particular Guarantee is in effect three contracts, one by each of the two several promisors and one by the two jointly (Williams, Joint Obligations pp34-5). It is in this context that the substantive promises in clauses 1-8 are to be applied and construed. 23 Approaching clause 3 in this manner, it is clear that "me/us" and "I/we" in the body of the Guarantee must be read distributively. In the context of the several guarantees, each guarantor promises in terms of clause 3 as if the word "me" appeared in "me/us" and as if the word "I" appeared in "I/we". (The plural "Guarantors" in "(as Guarantors)" cannot negate this singular reading where it is called for.) The words "us" and "we" apply to the joint promise. 24 In these circumstances there is no difficulty in applying the charge to Mr Stewart's interest in the land. 25 It is unnecessary to address the second step in the trial judge's reasoning. 26 Some weight was placed by Young J upon the express reiteration of joint and several liability in clause 6. This was said to reinforce the exclusive adoption of "the plural alternative" in clause 3. I do not agree. Clause 6 ensures that the Guarantee is enforceable, according to its terms, against any signing guarantors even if it was contemplated that more than one would sign and even if only one does so. If anything, the reiteration of the joint and several nature of the guarantors' obligations reinforces the conclusion I have reached, for the reasons set out in paras 22 and 23. 27 The following orders should be made:

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.