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Important Lessons for Guarantors

In the recent Court of Appeal case of Rowe v Metroll SA Pty Ltd[1] a guarantor (the appellant) was unsuccessful in arguing that he was not liable to the respondent under a guarantee that he signed in 2018. His two primary grounds of appeal were around the law of agency and the wording of the guarantee.

The case provides valuable lessons for businesses to ensure they have an effective credit agreement and guarantee and indemnity in place, and to individuals when executing a guarantee and the obligations contained within it.

The Facts

Jeremy Rowe (Mr Rowe) was the sole director and secretary of Powerpark Systems Pty Ltd (Powerpark). In May 2018, Powerpark entered into design and construction contracts with a company for the manufacture and installation of structures holding solar panels above car park spaces at two shopping centres in South Australia. To satisfy this contract, in October 2018, Powerpark entered into a credit agreement with Metroll SA Pty Ltd (Metroll) for the supply of building materials. Powerpark’s obligations under the credit agreement were guaranteed by Mr Rowe.

Around that time, Scott Fitzpatrick (Mr Fitzpatrick), who was a director of PV Structures Pty Ltd began ordering material from Metroll on behalf of Powerpark. The orders placed by Mr Fitzpatrick were the ones that gave rise to the judgment debt.

In the initial trial, the primary judge found Mr Rowe was liable for the debt as Mr Fitzpatrick had ‘ostensible authority’ to order the material on behalf of (and bind) Powerpark. Furthermore, the guarantee signed by Mr Rowe guaranteed these obligations.

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Mr Rowe appealed the decision on the grounds of:

  1. Agency – that the primary judge erred in finding that Mr Fitzpatrick had ostensible authority.
  2. Guarantee construction – that the primary judge erred in constructing the guarantee which was expressed to be in favour of “Metroll Queensland Pty Ltd an each related body corporate that supplies goods or services to the Customer” as extending to Metroll South Australia.

Ground 1 – Agency

The primary judge found that Mr Fitzpatrick had ostensible authority partly because Mr Rowe was aware that Mr Fitzpatrick was emailing Metroll from a Powerpark email with a Powerpark email signature, as he was carbon copied into emails. However, this is a ground on which Mr Rowe claimed the primary judge erred as Mr Rowe claims he viewed the emails on his mobile phone and was therefore unable to see email signatures.

On appeal, the judge did not accept these submissions for a variety of reasons but essentially because common sense indicates that scrolling down and viewing the email signature must have been possible. Therefore, the grounds of appeal were not made out and the defence failed.

Ground 2 – Guarantee construction

Mr Rowe maintained that due to the wording of the guarantee “Metroll Queensland Pty Ltd and each related body corporate that supplies goods or services to the Customer”, Metroll South Australia (not Queensland) was not a party to the contract, and he was not a party to any guarantee with Metroll South Australia.

Although the appeal court acknowledged that the guarantee was not desirably drafted, they submitted that Mr Rowe’s submissions failed to consider the part of the guarantee that referred to “each related body corporate that supplies goods or services to the Customer”. The court established that there can be no doubt that a related body corporate that supplied goods to Powerpark was Metroll SA, and that Metroll SA was a party to the guarantee executed by Mr Rowe. Therefore, the grounds of appeal were not made out and this defence also failed.

Key Takeaways

As all grounds of appeal were not able to be made out, the defences failed and the appeal was dismissed. The lessons learnt from this case are:

  1. guarantors should take care when signing a guarantee that refers to “each related body corporate”;
  2. significant care should be taken by businesses when preparing their credit agreement and guarantee documents – specialised legal advice is a must; and
  3. directors should pay close attention to determine what email signature is being used by related companies.

[1] Rowe v Metroll South Pty Ltd [2021] NSWCA 196

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