Busic v Tokoragi

What does the lease say about a guarantee?

1. There are three parts to the lease - a 2-page lease form and two Annexures. Annexure A sets out the parties, the names of any guarantor, the rent and other details. Annexure B identifies the parties, the property, the lease period and sets out other information including the obligations of a guarantor. There is no separate written contract of guarantee.
2. Clause 13 of Annexure B to the lease is headed, "Guarantee". The critical provisions are sub-clauses 13.1 and 13.2: 13.1 This clause applies if a guarantor of the lessee is named in item 10A in the schedule and has signed or executed this lease or, if this lease is a renewal of an earlier lease, the earlier lease. 13.2 The guarantor guarantees to the lessor the performance by the lessee of all the lessee's obligations (including any obligation to pay rent, outgoings or damages) under this lease, under every extension of it or under any renewal of it or under any tenancy and including obligations that are later changed or created.
3. Item 10A states: A. The guarantor: Roger Franchi and Dolly Tokoragi
4. Ms Tokoragi signed the lease next to the words, "Signature of authorised person". Underneath that signature, next to the heading "Office held", the word "Director" is written. There was no other heading or other provision in the lease for her to sign her name as guarantor.

Tribunal's reasons

1. The Tribunal relied on the following principle as to the existence of a contract as set out by Heydon J in Brambles Holdings Limited v Bathurst City Council [2001] NSWCA 61 at [81]: … in all the circumstances can an agreement be inferred? Has mutual assent been manifested? What would a reasonable person in the position of the Council and a reasonable person in the position of the defendant think as to whether there was a concluded bargain?
2. The Tribunal also referred in detail to a decision of the Appeal Panel of the Administrative Decisions Tribunal - Plant v Meriton Properties Pty Ltd (RLD) [2009] NSWADTAP 62 - where the facts were said to be "not too dissimilar" to the present case. The Tribunal summarised the Appeal Panel's decision as concluding that although Mr Plant did not sign the lease as guarantor, he was a guarantor because he had adopted the lease and consequently the guarantee provisions. However, the Tribunal distinguished that decision because the lease in the present case states that a person is a guarantor if he or she "is named in item 10A in the schedule and has signed this lease". That wording did not appear in the lease between Mr Plant and Meriton Properties Pty Ltd.
3. The Tribunal's reasoning is set out at [50]-[52]: [50] Clause 13.1 requires execution of the lease by the named guarantors in item 10A. However, the first respondent (Ms Tokoragi) signed as an officer of the company, New Design to bind New Design to the terms of the lease. It is a fact that the First Respondent only signed once and did not sign in any other capacity. [51] It is the view of the Tribunal that it would be illogical to suggest that the first respondent is caught by clause 13.1 by her execution only as an officer of the lessee. For example, if the guarantor was not an officer of the lessee and therefore did not need to sign on behalf of the lessee and the guarantor had not signed the lease anywhere else, then that guarantor would not be bound because the clause does not operate, eg. This clause applies to a Guarantor ... and has signed … [52] To put it in other words, clause 13.1 cannot operate to make a guarantor liable, when such person is an officer of the lessee company and only signs in that capacity. The wording is quite clear. Mr McDonald is correct in submitting that a strict interpretation of the wording of clause 13.1 should apply. There is no ambiguity. Clause 13.1 requires the signing and executing of the lease to be by the guarantor in the personal capacity of the guarantor for the guarantee clause to apply.

Grounds of appeal

1. The lessors are entitled to appeal on questions of law: Civil and Administrative Tribunal Act 2013 (NSW), s 80(2)(b) (NCAT Act). The first ground of appeal is that the Tribunal made an error of law in concluding that Ms Tokoragi was not a party to the retail lease between the lessors and the lessee and therefore is not liable, pursuant to clause 13 of the lease, to guarantee the lessee's obligations under the lease.
2. With respect, this ground does not reflect the Tribunal's decision. The Tribunal's reasoning was that Ms Tokoragi was not liable because she did not sign or execute the lease in her personal capacity. The Tribunal's reasoning was not that Ms Tokoragi was not liable because she was not a party to the retail lease.
3. Ground 2 is that the Tribunal erred in law in concluding that Ms Tokoragi's execution of the lease as a director of the lessee did not give rise to acceptance on her part that she was bound pursuant to the guarantee.
4. This ground states the mistake that the Tribunal is said to have made but does not identify the faulty reasoning that gave rise to that mistake. We understand from this ground of appeal that the lessors are submitting that the Tribunal misconstrued clause 13.1 of Annexure B to the lease. Under that clause, a person is liable as guarantor if he or she "has signed or executed this lease". The Tribunal interpreted those words to mean, "has signed or executed this lease" in his or her personal capacity.
5. Ground 3 is that the Tribunal erred in law in failing to find that a reasonable person in the position of the parties would have concluded, in all the circumstances, that by signing the lease, Ms Tokoragi was agreeing to be bound by the terms of the guarantee contained in clause 13 of the lease. That is the situation regardless of whether there was a space for her to sign the lease as a guarantor.
6. Because we have found that the Tribunal did misconstrue the lease, we have decided to go on to ask the question posed by this ground of appeal.

Did the Tribunal misconstrue clause 13.1?

1. Clause 13.1 relevantly states that the guarantee clause applies "if a guarantor of the lessee is named in item 10A in the schedule and has signed or executed this lease ...". The key words are "this lease". It is this lease that must be signed in order for the guarantee to operate.
2. The Tribunal's error was to conclude at [52], that a guarantor had to sign or execute the lease "in the personal capacity of the guarantor for the guarantee clause to apply". That reasoning was based partly on the Tribunal's view that the contrary view was "illogical". If a guarantor named in Item 10A of Annexure B was not an officer of the lessee, then he or she would not have signed the lease and consequently would not be liable as a guarantor. While we agree that that interpretation is correct, it is not illogical for directors of corporate lessors to become liable as a guarantor by signing the lease.
3. The Tribunal has read in to clause 13.1, the words "in the personal capacity of the guarantor". The Tribunal was in error to do so. Those words do not appear in clause 13.1. There is only one place for a person to sign or execute the lease, and that is where Ms Tokoragi signed it on page 2. Construing the document as a whole, a reasonable person would conclude that the main purpose of the guarantee clause was to make a director of a corporate lessee liable as a guarantor if he or she signed the lease as a director.

How should the appeal be determined?

1. Our conclusion that the Tribunal misconstrued clause 13.1 does not necessarily mean that the decision should be set aside. There may be other factors which are relevant to determining whether a reasonable person would have considered that there was a contract of guarantee between the lessors and Ms Tokoragi. Rather than asking the Tribunal to re-determine the matter without misconstruing clause 13.1, the just, quick and cheap way to resolve this appeal is to deal with it by way of a new hearing based on the findings of fact made by the Tribunal: NCAT Act, s 36(1) and s 80.

What are the relevant findings of fact?

1. The Tribunal made the following relevant findings of fact. The lessee first leased the premises in 2008 from Prolet Enterprises Pty Ltd for 5 years ending on 27 July 2013. Mr Franchi and Ms Tokoragi guaranteed the obligations of the lessee under that lease. The lessors purchased the property from Prolet. In April 2013, negotiations were conducted for a new lease. Both Mr Franchi and Ms Tokoragi signed the lease as directors of the lessee. (See [4], [5], and [7]). But Ms Tokoragi "did not otherwise execute or sign" the lease. (See [30].) We understand that although the initials "DT" were written at the bottom of each page of the lease, the Tribunal was not satisfied that Ms Tokoragi herself had initialled any of those pages.
2. Annexure B, which contains the guarantee clause, uses exactly the same wording as Annexure B of the copyright Law Society Lease. As noted in Meriton Properties Pty Ltd v DCM Leases-Five Pty Ltd [2009] NSWADT 121 at [73], "… In accordance with common practice in lease documentation, the guarantee was not drafted as a separate and independent document …". There is no heading or other provision in the lease for a guarantor named in item 10A to sign his or her name as guarantor.
3. The final relevant finding is the finding we have made that a reasonable person would not have interpreted clause 13.1 to apply only when a guarantor signs the lease in his or her personal capacity.

Relevant principles

1. The test to be applied for ascertaining whether a bargain has been reached is the "reasonable person" test: Brambles Holdings Limited v Bathurst City Council [2001] NSWCA 61 at [81]. The Court of Appeal conveniently summarised the legal principles relevant to the interpretation of commercial contracts in Zhang v BM Sydney Building Materials Pty Ltd [2016] NSWCA 166 at [41]-[49].
2. The first principle is that interpretation is an objective exercise. It is not based on the parties' actual beliefs or intentions. [41] The primary duty of a court in construing a written contract is to endeavour to discover the intention of the parties from the words of the instrument in which the contract is embodied. This is an objective exercise in which regard may be had to the "text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose." The "legal rights and obligations of the parties turn upon what their words and conduct would be reasonably understood to convey, not upon actual beliefs or intentions." …
3. The second principle is that the test to be applied is what a reasonable business person would have understood the terms to mean. [43] In determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable business person would have understood its terms to mean. That enquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract. Unless a contrary intention is indicated, a commercial contract is to be construed to avoid "making commercial nonsense or working commercial inconvenience".
4. The third principle is that the process of construction is ordinarily governed by the terms of the contract alone. [46] The process of contractual construction ordinarily proceeds by reference to the contract alone. However recourse to events, circumstances and things external to the contract may be necessary in identifying the commercial purpose or objects of the contract where that task is facilitated by an understanding of the genesis of the transaction, the background, the context and the market in which the parties are operating, or in determining the proper construction where there is a constructional choice. Where such materials may be considered, the court may have regard to events, circumstances and things external to the contract which are known to the parties or which assist in identifying the purpose or object of the transaction, which may include its history, background and context and the market in which the parties were operating, but not to evidence of the parties' statements and actions reflecting their actual intentions and expectations.
5. The fourth relevant principle is that a guarantee is be read contra proferentem (against the offeror) if the words of the document are ambiguous; Zhang v BM Sydney Building Materials Pty Ltd [2016] NSWCA 166 at [47]. As we have found that the words of the document are not ambiguous, it is not necessary to apply this principle.

Application of these principles to the facts

1. One purpose of the guarantee clause is to ensure that where the lessee is a corporation, and it goes into liquidation as happened in this case, a director is personally liable if he or she is named at Item 10A. As the directors are the people who are authorised to sign the lease for the company, clause 13 is drafted to ensure that, when signing, they are also agreeing to be bound by the obligations in that clause.
2. If the Tribunal had found that Ms Tokoragi had initialled each page of the lease, that may have further supported a finding that a reasonable business person would have understood that she was bound as guarantor. But even in the absence of such a finding, in our view, a reasonable business person would have reached that view. That is apparent from the clear and unambiguous words in clause 13.1.
3. The appeal should be allowed and the Tribunal's decision set aside: NCAT Act, s 81. The Tribunal did not make a finding as to the exact amount that is owed. If the parties can agree on the outstanding amount, they should, within 28 days of these reasons for decision, ask the Appeal Panel to make consent orders in the following terms: 1. The First Respondent is to pay the Appellants (insert amount) within (insert time).
4. In the absence of an agreement, the proceedings are remitted to the Tribunal at first instance, with or without further evidence, to determine the precise amount owing under the guarantee and to make an order for the payment of that amount by the First Respondent to the Appellants.

Costs

1. Each party applied for costs of the appeal if they were successful. The costs rule for internal appeals from decisions of the Consumer and Commercial Division is that the Tribunal may award costs , even in the absence of special circumstances, if the amount claimed or in dispute in the proceedings is more than $30,000: Civil and Administrative Tribunal Rules 2014, cl 38 and 38A. The amount in dispute is more than $30,000. We exercise our discretion to award costs in favour of the lessors.

Orders 1. The appeal is allowed. 2. The Tribunal's decision dismissing the application is set aside. 3. Within 28 days of the date of these reasons, the parties are to confer and, if agreement is reached on the amount the First Respondent owes the Appellants, the parties are to lodge consent orders with the Tribunal. 4. If the parties do not lodge consent orders within 28 days, the issue of the amount owing is remitted to the Tribunal as originally constituted to make orders. 5. A hearing on costs is dispensed with pursuant to s 50(1)(c) of the Civil and Administrative Tribunal Act 2013 (NSW). 6. The First Respondent is to pay the Appellants' costs of this appeal as agreed or assessed.

I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales. Registrar 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. Decision last updated: 06 February 2019