Aquawest Pty Ltd v Twynham

1. [1]

   By Summons filed on 24 March, the plaintiff sought leave to appeal from the decision of Magistrate Stewart of 25 February 2016.

2. [2]

   By Amended Summons filed 31 May 2016, the plaintiff converted its appeal to an appeal asserting only errors of law:

3. [3]

   If the errors identified are not errors of law, the appeal fails.

4. [4]

   The Defendant filed a Notice of Contention on 3 June 2016 contending that the decision of the Court below should be affirmed on grounds other than those relied upon by the Court below, but did not seek a discharge of variation of any part of the decision. I do not need to deal with this Notice of Contention in order to dispose of this appeal.

Background facts

1. [5]

   In February 2013, the Plaintiff entered into a credit contract titled “Credit Account Application” (‘the Contract’) with Chatoyer Holdings Pty Ltd (‘Chatoyer’) by which the plaintiff would provide irrigation services and equipment to Chatoyer. The contract was signed on behalf of Chatoyer by the Defendant to these proceedings.

2. [6]

   Above the signature of the Defendant were printed the following words:

3. [7]

   The Defendant, at the time he signed the contract, was a director of Chatoyer, but as borne out by the evidence at the first hearing it could not be shown that he held at least 15% of the shares in Chatoyer.

4. [8]

   After a series of part payments (the last one being in February 2014), $54,600.00 remained outstanding to the Plaintiff. In late March 2014, administrators were appointed to Chatoyer. In May 2014, Chatoyer went into liquidation.

5. [9]

   The Plaintiff commenced proceedings against the Defendant in the Dubbo Local Court, claiming the outstanding amount plus interest. The proceedings were heard by Magistrate Stewart on 12 November 2015, and judgment was delivered with reasons on 25 February 2016. The proceedings were dismissed with costs.

6. [10]

   The primary issue before the Magistrate was the meaning of the claim ‘I agree that if I am a director/shareholder (owning at least 15% of the shares) of the Customer I shall be personally liable for the performance of the customers’ obligations under the Contract’ which appeared in bold type in the Contract. In particular, the Magistrate was asked to determine whether the Defendant in these proceedings had signed the document as personally guaranteeing the line of credit extended to Chatoyer.

7. [11]

   It is the Magistrate’s findings in relation to that clause of the Contract that give rise to this appeal. The key issues were whether the phrase was ambiguous, and whether and in what circumstances it created a personal guarantee. His Honour noted that there were three potential interpretations of the clause as to when an obligation to guarantee the debt could occur:

   1. (1)

      A shareholder (owning at least 15% of the shares) of the Customer, but not a director of the Customer.

   2. (2)

      A shareholder (owning at least 15% of the shares) of the Customer, and also a director of the Customer.

   3. (3)

      A director of the customer, but not a shareholder of the Customer (or a shareholder owning fewer than 15% of the shares in the Customer).

8. [12]

   The Magistrate in his judgment described the Contract as ‘a very ambiguous document’ and ‘poorly drafted for a number of reasons’. In particular, the Magistrate found the phrase in question to be ‘truly ambiguous’. He stated:

These proceedings

1. [13]

   The appeal before me has been brought pursuant to the Local Court Act 2007 (NSW) which provides:

2. [14]

   In accordance with that section, the first factor I must consider in relation to this case is whether the appeal can properly be described as a question of law.

3. [15]

   The Plaintiff submitted that the issue of proper construction of that clause in the Contract is a question of law. In making that submission, the Plaintiff relied on the decision of Knox CJ in Life Assurance Co of Australia Ltd v Phillips (1925) 36 CLR 60 at 68. Counsel for the Plaintiff also cited from the judgment of Isaacs J in that case at 79:

4. [16]

   It was argued, in effect, that the proper construction of the operative provision is not an argument about interpretation of words or terms (which, it was conceded, would be a question of fact) but a matter of construction of a term of a contract, and therefore a question of law. The matter of construction in issue was the construction that ought be given to the forward-slash (‘/’) between the words ‘director’ and ‘shareholder’ in this sentence:

5. [17]

   The Plaintiff argued that the question of how that punctuation mark affects the phrase as a whole is a question of construction of a term in the contract, and therefore a question of law.

6. [18]

   Counsel for the Defendant submitted that ground 1A was not a question of law. He outlined that there was a need for a two-step process for the analysis of ground 1A of the appeal. This meant that the question of construction being considered was a mixed question of fact and law. The question of fact is whether the forward slash operates as conjunctive (‘and’) or inclusive-disjunctive (‘or’). The question of law is the effect of that punctuation in the context of that clause of the contract. He argued that, based on the judgment of Isaacs J in Phillips (at 78), the first consideration is a question of fact, and the second consideration is a question of law.

7. [19]

   The passage upon which the defendant relies is as follows:

8. [20]

   This distinction (between “interpretation” and “construction”) has however been criticised in obiter comments by the High Court in Collector of Customs v Agfa-Gavaert Ltd (1995) 186 CLR 389 at 396-397 commented:

9. [21]

   The difficulty the court identified in that case in which clearly they were discussing the distinction between questions of fact and law, is that the issue on appeal was whether the Full Court erred in finding that it is an error of law to construe a phrase in a legislative instrument by giving a trade meaning to some of the words in the phrase and the ordinary meaning to the rest of the words in the phrase. The High Court observed that there is no universally applicable test for distinguishing questions of law and fact (at 349). The Court confirmed (at 395) the five general propositions identified by the Federal Court in Collector of Customs v Pozzolanic Enterprises Pty Ltd (1993) 43 FCR 280 (at 289):

10. [22]

    It was submitted by the defendant that symbols such as the forward slash in the clause in question should be considered a “category two” of the Pozzolanic categories, and therefore on the same basis as the type of interpretation that needs to be applied to the ordinary meaning of a word or its non-legal technical meaning. It is therefore a question of fact what the forward slash means, as opposed to a question of construction which is the next task the Magistrate had to do in interpreting the clause in its entirety having made a factual finding about the ambiguity of the role of the forward slash, and was one which was a question of law.

Consideration

1. [23]

   The arguments of the defendant have some force, but problematic to the characterisation of the subject forward slash as category two of Pozzolanic propositions is that a forward slash is not a word, but a form of punctuation creating relationship between “director” and “shareholder” in the context of rights and liabilities contained in the contract clause. The phrase “director/shareholder” is a composite one – the forward slash may be conjunctive or disjunctive. It is arguable that its interpretation gives rise to a constructional choice.

2. [24]

   “Director/shareholder” may mean:

   1. (1)

      Director or shareholder – this is the construction put forward by the appellant.

   2. (2)

      Director and shareholder.

   3. (3)

      Director and/or shareholder.

3. [25]

   The defendant would urge me to find that the Magistrate hearing the matter, having been unable to determine as a matter of fact which of these alternatives is appropriate, then went on to decide as a matter of construction that the inability to solve that issue (as a question of fact) affected his ability to construe the clause at all, combined with the need for it to be construed contra proferentum given its nature was to create a guarantee on the part of the signatory.

4. [26]

   I accept that is the analysis that the Magistrate undertook and therefore I accept the defendant’s submission that the appeal ground 1A is, in effect, an question of mixed fact and law and accordingly as leave to appeal has not been sought, the appeal must fail.

5. [27]

   If I am wrong about that, ground 1A of the appeal grounds would fail in any event because, consistent with the submissions of the defendant on this appeal and as submitted in written submissions provided to the Magistrate on the hearing and as ultimately determined by the Magistrate in his judgment (at p 4), it is not clear due to the ambiguity of the contract that the director, Paul Twynham, the defendant in the proceedings, signed the contract as a personal guarantee.

6. [28]

   I note that the plaintiff maintained a position during the appeal that the clause was not ambiguous. The adoption of this position was surprising, given that at trial, the plaintiff appears to have run the case on the basis of an interpretation of the subject clause different to the one it now suggests this court should make. I cannot accept that submission. The Magistrate was correct to conclude that the clause is truly ambiguous. As submitted by the defendant, there is nothing wrong with the Magistrate’s approach. The Magistrate’s decision is consistent with the application of proper principles concerning the construction of guarantees where there is ambiguity. In construing the clause and the guarantee as a whole, the Court’s task is to construe it in its commercial setting in accordance with the surrounding circumstances known to both parties, Codelfa Constructions Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337.

7. [29]

   As the relevant clause constitutes a guarantee, it also falls to be construed strictly. “It is to be read contra proferentum; and in the case of ambiguity, is to be construed in favour of the surety”: Andar Transport Pty Ltd v Brambles Ltd (2004) 217 CLR 424 at [17]-[23] per Gleeson CJ, McHugh, Gummow, Hayne and Heydon JJ. See also Bofinger v Kingsway Group Ltd (2009) 239 CLR 269 at [53].

8. [30]

   It is not necessary to deal with any other aspects of the appeal.

9. [31]

   The Court orders that:

   1. (1)

      The Amended Summons is dismissed.

   2. (2)

      The Plaintiff is to pay the Defendant’s costs of the appeal.