Objective Intention and the Dangers of Personal Liability Faced by Directors

Presented by Jones Partners

Pugwall Pty Ltd v Arthur McKenzie Investments Pty Ltd [2022] VSCA 272

FACTS

This case involved a joint venture agreement between two, sole director companies, Pugwall (lead by director Mr Clark) and AMI (led by Mr McKenzie). The two companies were the named joint venturers, whilst the two directors were described as ‘guarantors’ within the document. The agreement did not contain any block for a guarantors’ signature. The deal soured, and AMI begun pursuing McKenzie personally for the obligations of AMI.

CLAUSES OF SIGNIFICANCE

19.1        ‘McKenzie guarantees the obligations of AMI.’

34           ‘Each Joint Venturer or party has received independent legal advice in respect of all obligations.’

28.1        Describes the procedure to give notice to a ‘party’ which named both McKenzie and Clark personally.

4.2          ‘The Joint Venturers and/or Guarantors indemnify one another for their respective percentage interest.’

DECISION AND TAKEAWAYS

In a ground-breaking verdict delivered by the Court of Appeal, McKenzie was found personally liable as a guarantor, despite an absence of signature on the agreement. This precedent demonstrates the significant risks placed on directors when entering commercial relations on behalf of companies, and the failures of legal advisors to understand the wider commercial realities of surrounding circumstances, subject matters, and relationships. This case is a reminder to remain wary of the illusory safeguards promised by the Instruments Act, or the Statute of Frauds. The personal ramifications of personal liability can be long and enduring.

Call our specialists at Jones Partners to explore avenues for protecting personal indemnification and preventing a piercing of the corporate veil.