Loans and Guarantees: It’s All About the Documents

Toyota Finance Australia Limited v Gardiner [2016] NSWCA 162

This case, recently decided by the New South Wales Court of Appeal, is a good of example what not to do when drafting multi-document agreements.

Toyota Finance Australia Limited (Toyota) entered into a number of hire purchase agreements with a corporate borrower (Borrower). The performance of the hire purchase agreements was allegedly guaranteed by a director of the Borrower (Guarantor).  By the time proceedings were commenced, the Borrower had been placed into liquidation. Toyota sought to enforce the guarantee against the Guarantor.

The hire purchase agreements were constituted by a number of purportedly interrelated documents. One of those documents (Term Purchase Schedule) was intended to incorporate a separate booklet (Booklet) by reference. The Booklet contained generic terms and conditions including the guarantee provisions. It was a pro forma document that could be filled out with the details of the parties to a particular hire purchase agreement.

The Term Purchase Schedule contained a clause which expressly stated that the signatory had received copies of two documents (Receipt Clause); one of those documents was the Booklet. The problem for Toyota, when seeking to enforce the guarantee, was that they could not locate and produce the actual Booklet that had been given to the Guarantor containing his particulars. It was therefore necessary to rely solely upon the Receipt Clause.

However, the description of the Booklet in the Receipt Clause was inconsistent with the title of the Booklet itself. The Booklet was titled “Term Purchase Agreement”, but it was described in the Receipt Clause as “the Booklet ‘Terms and Conditions’”. The inconsistency meant that the documents did not ‘speak for themselves’. Toyota was then required to adduce parol evidence to address the ambiguity and satisfy the court that the Term Purchase Agreement had in fact been provided to the Guarantor as claimed.

The need for additional evidence, although inconvenient, was by no means an insurmountable hurdle. Unfortunately, the evidence led by Toyota in this case was found to be inadequate. The evidence adduced was about the general procedures usually followed by Toyota when providing loan documents and it was given by someone who had no involvement with the particular transaction in issue.

In a world of automation and delegated responsibilities the takeaway lessons from this case are:

  • Pay careful attention to the way in which the constituent documents of an agreement are cross-referred. For example, if a document bears a particular title or heading then references to that document in other parts of an agreement should use that same description to avoid confusion, ambiguity or the need to adduce additional explanatory evidence;
  • Limit name changes to constituent documents;
  • Use identifiers, such as version numbers, to track the identity of documents that are subject to variation over the life of their use;
  • Cross-check receipt clauses with the actual constituent documents to ensure each document is uniquely identified; and
  • Keep file copies of all constituent document versions that can be produced when required.

If you have any queries or would like further information regarding this article, please contact:

Brett Cassidy
M: 0438 368 053

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