PUNCTUATION MARK INVALIDATES PERSONAL GUARANTEE

Credit account applications commonly contain – in the case of companies – a director’s guarantee.

Frequently the guarantee is in the form of a very brief “add-on” that holds the signer liable as guarantor, if they happen to be a director or shareholder.

Such was the case of a western NSW landscaping company whose truncated version simply stated “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 customer’s obligations under this contract”.

Paul Twyman was indeed a director of Aquawest’s customer Chatoyer Pty Ltd but it could not be shown his holding exceeded 15% or more of its shares.

After a series of part payments of its debt – the last one being in February 2014 – $55k remained owing to Aquawest. In May 2014 Chatoyer went into liquidation.

The supplier sued Twyman under the guarantee.

When the matter first came before the court, the presiding magistrate ruled “I cannot be satisfied that Twyman signed the document intending to be bound as guarantor. There was no separate signing provisions and they could have been signing simply as someone accepting the terms and conditions.”

Twyman’s escape from the guarantee was affirmed on appeal to the Supreme Court of NSW.

It observed a forward slash is not a word but a form of punctuation that may be injunctive or disjunctive.

In this instance the phrase was capable of requiring the signer – to attract guarantor liability – to be both director and shareholder; or it may have intended to create such liability if the signer was either a director or a shareholder. Thirdly it was capable of referring to a signing director and/or shareholder, ie a person who is one or the other or both.

The phrase was thus “truly ambiguous” and was therefore void. Further, in a guarantee, it had to be construed strictly and contra proferentum such that Twyman could only be liable if he were proven to be a director and shareholder with at least 15% of the customer’s shares.

Thus according to multiple conclusions, Mr Twynam thus escaped liability under the purported personal guarantee.

Aquawest v Twynham Pty Ltd [2017 NSWSC 652, Lonergan J, 25 May 2017

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