Pursuers and Respondents: Ower Advocate; Archibald Campbell & Harley

Defender and Appellant: Mackenzie; MacRoberts LLP

24 June 2010

[1] This is an appeal against a decision of the sheriff of North Strathclyde at Paisley by which he sustained the pursuers' first plea-in-law to the extent of refusing to admit certain of the defender's averments to proceed to probation.

[2] The dispute between the parties concerns a guarantee which, it is contended by the respondents, the appellant gave to them in respect of obligations owed to them by a company known as LMG Projects Services Limited (hereinafter referred to as "the company") under a contract whereby the company hired plant from the respondents. After hearing counsel we were able to reach the conclusion that the appeal fell to be refused and the case remitted to the sheriff to proceed as accords. We undertook to give our reasons for that decision in writing, in due course, which we now do.

[3] The action is concerned with the construction of a document, (number 1 in the Appendix), the first page of which is divided into five sections with five headings. The headings are "A. YOUR COMPANY", "B. IS YOUR COMPANY LIMITED", "C. SPECIAL INSTRUCTIONS", "D. BANK DETAILS" and "E. GUARANTEE". The full terms of Section E are as follows:

"Please read and sign the following declaration.

I (the undersigned) agree that all transactions of hire or sale entered into by my company (known as 'the Customer') shall be subject to Brandon Hire Plc's 'Conditions of Hire or Sale', as the case may be, operative at the time of any contract of hire or sale. I will make full settlement of all monies due within one month from the date of Brandon Hire's invoice and I have answered all questions on this application form truly and fully. I hereby, personally guarantee payment in respect of all sums due from my company ('the Customer') to Brandon Hire Plc, together with all ancillary costs incurred. I have retained a copy of this form for my records".

At the foot of the Section E is a space headed "Signature of Director" beneath which appears a signature, "Steven Russell", which is followed by the same name appearing in block capitals, and against the words "Position within company" the word "Director" is written. It is not in dispute that the appellant signed his name in the space in question, added, in block capitals, his name thereafter and inserted the word "Director". It is averred by the respondents that, on, or about, the 16 January 2009, Bristol County Court granted judgment in their favour against the company in the sum of £23,647.61. They now seek payment by the appellant of that sum by relying on the provisions of the said Section E referred to above. The defence, on the merits, to that claim by the appellant is to be found in his averments in answer 2 which are to the following effect:

"Accordingly the defender signed the Application Form in his capacity as Director of LMG Project Services Limited and did not sign in a personal capacity. Clause E does not constitute a personal guarantee from the Defender which is collateral to the obligations of LMG Projects Services Limited to the Pursuers. The terms of Clause E of the Application Form are not expressed so as to give fair notice to the defender that he was signing the Application Form in a personal capacity thereby incurring personal liability. There was insufficient notice to the defender that he was signing a personal guarantee in addition to the Application Form he was signing as a Director of LMG Projects Services Limited. The Defender believed that he was signing Clause E in his capacity as a Director of LMG Projects Services Ltd. The defender had no intention of entering into a personal guarantee. There is accordingly no legal basis for the pursuer's assertion that the defender is liable for the debts of LMG Projects Services Limited, which debts are not known and not admitted. Had the Defender appreciated that he was being invited to enter into a personal guarantee in respect of the obligations of LMG Projects Services Ltd then he would not have done so".

It is those averments which the sheriff, after debate, refused to allow to go to probation.

[4] After considering the competing submissions on the matter, and having considered certain authorities to which his attention was drawn, the sheriff in his Note, (at page 21 of the Appeal print) said

"Clause E is headed 'Guarantee' (which is highlighted). The words 'I hereby personally guarantee payment in respect of all sums due from my company...' are clear and unambiguous. The Defender is directed to read and sign the declaration. He is thereby directed to its terms. That the clause is also binding on the company does not prevent it being binding upon the Defender in his personal capacity. In my view the wording of Clause E is such that the obligations therein are binding upon both Company and the Defender in his personal capacity.

In my view the Defender is deemed to have read the Clause and to have accepted personal liability as a guarantor. While I accept that the Defender's signature appears in the box headed 'signature of director' the wording of the sentence relating to the guarantee is clear and unequivocal. The Defender 'personally guarantees' payment in respect of all sums due from his company to the Pursuers. The wording is clear and should by (sic) given effect. There was nothing to prevent the Defender from deleting the penultimate sentence of Clause E containing the 'personal guarantee'. He did not do so and is bound by its terms."

[5] Before this court counsel for the appellant argued that the question which arose was whether or not the wording of Section E of the document fell to be read as imposing liability on the appellant personally. Did the wording make it sufficiently clear that what the appellant was signing up to was an obligation on his part to guarantee, personally, the company's obligations? The distinction between the appellant in his capacity as a director of the company, and as an individual, it was submitted, was not made sufficiently clear, having regard to the terms of the document as a whole. Insufficient had been done by the respondents to bring to the attention of the appellant that, by adhibiting his signature at the end of Section E, he was undertaking personal liability to them. For these reasons the provision should be read as not conferring any personal liability on the appellant. The wording of Section E, after the words "Guarantee please read and sign the following declaration," is in very small print. It finds itself in the body of a document which is clearly designed to impose liability on the company qua Company. This simply added, it was contended, to the lack of clarity complained about. Nevertheless, counsel for the appellant informed the court that it was not contended that the case fell to be determined on the basis of whether or not the provisions of Section E had become part of the contract at all, whether between the respondents and the company only, or as among the respondents, the company and the appellant. It was accepted that the provisions of Section E had contractual effect. The question was whether that effect was to impose personal liability on the appellant as an individual.

[6] Before the sheriff, and before this court, the appellant relied heavily on the decision of the Extra Division in the case of Montgomery Litho Limited v Maxwell 2000 SC 56. In that case, the pursuers entered into a contract with a company of which the defender was the managing director, for the supply, to the company, of printing services. The contract for the printing services, itself, was never reduced to writing. An application had been presented to the pursuers for a credit account. It was held that that application formed part of the contract between the company and the pursuers. The application provided "I have read and accepted the company's Standard Terms and Conditions ... all transactions are subject to the company's Standard Terms and Conditions". The defender had signed the application. The defender, however, had at no time requested to see the Standard Terms and Conditions. Standard condition 7 of the pursuers' Terms and Conditions provided as follows:

"In the case of a Limited Company the Director responsible for opening a credit account with the printer and who signs the application shall be jointly and severally liable for any and all payments that become due to the printer".

The Standard Terms and Conditions defined the "printer" as the pursuers. The pursuers sought to recover from the defender payment of the company's debts, due to them, for printing services on the footing that he had guaranteed these. The Extra Division dismissed the action. It is clear to us that the Extra Division reached the decision, in that case, on the basis that the terms of the personal guarantee had not been made the subject of any contract between the pursuers and the defender. The mere reference to the standard terms and conditions of the pursuers was not sufficient for that purpose, particularly where the defender had never actually seen those terms and conditions. The principal reasoning of the court is to be found at page 59F to page 60A, in the Opinion of the Court delivered by Lord Sutherland where he said:

"The question really is whether a particular condition is of such an unusual nature that it should specifically be drawn to the attention of the other party rather than being left simply as part of a large collection of other terms and conditions which are of a fairly standard nature. We are quite satisfied that in the present case the imposition of a personal obligation of guarantee on a director of a company is something which is unusual, to say the least of it, to be found in terms and conditions which purport to regulate the contract as between the two companies. It is certainly not unusual for a director to be asked to sign an obligation guaranteeing the company's liability, particularly in the case of a small limited liability company. It is, however, distinctly unusual for this to be done under the guise of terms and conditions relating to the contract between the two companies. We accept that there is no reason in principle why a credit application form of this kind could not incorporate both an application for credit on behalf of the company and a personal guarantee by an individual of the company's obligations. The latter provision would, however, require in our view to be so expressed as to give fair notice that it concerned the individual as such and that it imported an obligation by him personally. In the present case there is nothing to indicate that the defender signed the form in any capacity other than as a director of Newtext. There is nothing to indicate that he signed it in a personal capacity, giving a personal guarantee for the company's obligations. It follows that there is no legal basis for the pursuers' assertion of joint and several liability..."

That that decision is one which arises from the approach of the law as to what is required to bring adequately to the notice of a person, a contractual obligation of an unusual or unduly onerous nature if he is to be bound by it, can be seen from the discussion in the court's opinion at page 58F to page 59E and the authorities referred to, in particular the decision of the Court of Appeal in Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1989] 1 QB 433 which the Extra Division followed. It should be noted that, in the passage cited from the judgment of the court in Montgomery Litho Limited, the court expressly recognised that there was nothing unusual for a director to be asked to sign an obligation guaranteeing the company's liability, particularly in the case of a small limited liability company. The problem in that case was that the obligation in question had not been brought adequately to the attention of the defender so as to produce an implied assent thereto by him.

[7] In the present case, as has been noted, it was not contended that it was not insufficient notice given to the appellant of the terms in question to render them as being of no contractual effect at all. That concession, in our view, was not surprising having regard to the bold heading of Section E. The argument rather was that, as a matter of construction, the provision should not be found to have imposed any personal liability on the appellant. We cannot agree with that submission. The wording "I will make full settlement of all monies due within one month from the date of Brandon Hire's invoice" and "I hereby, personally guarantee payment in respect of all sums due from my company" can, in our opinion, only be read as amounting to an agreement by the appellant to undertake personal liability for the company's obligations. To accept the approach advanced on behalf of the appellant, would mean that Section E had added virtually nothing to the contractual arrangements that would otherwise subsist in the circumstances. The present case is, in our judgment, clearly distinguishable from the circumstances in the case of Montgomery Litho Limited supra because in that case the director had never adhibited his signature underneath words which provided for joint and several liability between himself and his company. He had, in fact, never seen the wording of any such a provision. A mere reference to the company's Standard Terms and Conditions, in which the provision was to be found, was held not to provide sufficient notice to the director that not only was his company bound to pay for the printing charges, but that he too was jointly and severally liable therefor.

[8] It follows that we agree with the reasoning of the sheriff, in the passage from his Note cited above, for refusing to allow the appellant's averments relating to the defence on the merits to be admitted to probation. For the foregoing reasons the appeal fell to be refused.