Grace v Cartwright [2000] NSWSC 13 | Case summary

The Plaintiff's First Claim 5 The relevant background to this claim of the plaintiff is, broadly speaking, as follows. 6 At all material times the plaintiff was the operator of a number of businesses. In aid of his business dealings, the plaintiff operated a group of companies. At various times material for present purposes that group of companies embraced the following entities: Bertram & Son Pty Ltd; Drummoyne Investments Pty Ltd; J G Finance Pty Ltd; Pancrow Pty Ltd; Viewsit Pty Ltd; and Tunupo Pty Ltd. 7 At times material for present purposes, various of these companies were engaged in real estate development. Tunupo Pty Ltd was one such. The property development activities were financed, initially through a finance company controlled by Mr. Morgan, previously mentioned; and subsequently by arrangement with the ANZ Bank. In the case of any particular development project, the preferred method was to finance the project by borrowing the maximum amount that the finance provider would make available. When the plaintiff's group of companies established its business with the ANZ Bank, there came into being a fairly complex web of banking arrangements. It is best, I think, to explain it in the words of the plaintiff himself, and as follows: "Q. I understood you to give evidence, the effect of which was that there was a global facility available to your group of companies at all times that were material for my purposes, that is to say in 1990/1991 when you were having the problems which caused the deed to be brought into being and later on. That it was a standard feature of your financial business affairs that there was a global banking facility available to your group of companies, is that right or not? A. That is correct. Q. In other words, back in 1991 when the events occurred that gave immediate rise to the execution of the deed that we are arguing about in this case, there existed as between the Grace group of companies and the ANZ Bank a global facility of some kind, is that right? A. That is correct. Q. Can you tell me when it was first set in place? A. I cannot give you the exact date, some years before that. Q. Some years before that? A. That is correct. Q. What actually was it? It was a single line of credit, is that right? A. The ANZ Bank took cross-guarantees over every company that I had and used the securities of those companies to facilitate themselves. Q. But in return for that the bank established what, a single line of credit against which any of the companies could draw, is that the way in which it worked? A. It wasn't a direct line of credit in terms of that. What happened was that the bank had a lending facility of some 70 to 75 per cent loaned on the valuation of the assets that I had, so if my assets were less than that ratio I could draw against it. So, I had the facility to fall back on from time to time and as I purchased new properties into - I would take over that company and they were just added to a cross-guarantee to facilitate this security in a global view. They had total control over all my companies. Q. So that at any one time the bank required to have, first, the cross-guarantees that you have described; and to have under the shelter or the umbrella of those cross-guarantees actual property security on which the bank was not advancing more than whatever its lending ratio was, 70, 75 per cent, something of that amount? A. That is correct. Q. So that the amount that was actually drawn down from the bank would vary from time to time - is this the way it worked? A. That is correct. Q. Depending upon whether this or that company bought this or that land or built this or that block of units or sold this or that block of units? A. That is correct. Q. All of those things were in a constant state of flux but within the constraints of a lending facility never to exceed 70 or 75 per cent of the bank's valuation of the then assets held by the various companies in the group, is that the way it operated? A. That is exactly correct." [Trial Transcript, p 63(45)-64(55) ] 8 A little later in his evidence, the plaintiff gave the following additional description of the relevant banking arrangements: "Q. So to keep within your global facility for all of your companies you had to ensure that the amount that was owing by Tunupo in respect of its borrowings to the ANZ Bank came back within the overall picture of your group of companies? A. The funding to buy the properties in Tunupo was 100 per cent lent on the valuation of the properties, which meant that I had to have sufficient additional equity in my other properties to take up that full 100 per cent lend. Q. You were putting up your securities for the advantage of Tunupo, that is the global group of Grace company securities for the advantage of Tunupo so that Tunupo could have 100 per cent borrowing? A. I had to borrow 100 per cent against the properties and the value I didn't - I used my other equities to support the borrowing. HIS HONOUR: Yes, but you are not talking about 100 per cent as the bank's lend? A. They lent me the full 100 per cent on the values of the properties, but because they had the total control of all my other assets and I was under about a 60 per cent lend, there was sufficient for them to be comfortable that they would lend me 100 per cent on the Tunupo property. Q. Before the bank would lend you 100 pr cent on any proposed new project the bank required to be satisfied that that new 100 percent lending would keep the overall indebtedness of the group within the required limits? A. That is correct. Q. The required limits were that the total indebtedness was not to exceed a stated percentage of the bank's valuation of all the properties? A. That is correct. Q. The bank's percentage was 70, or something of the kind, per cent? A. Something in that order, yes. Q. So whenever you were wanting to start a new project you had first to work out what the group's assets were and work out what the bank's valuations of those assets were? A. That is correct. Q. Work out what the 70 per cent or whatever the percentage of it was? A. Right. Q. And the resulting figure determined whether or not the bank would then lend you 100 per cent of the proposed new project? A. That is correct. Q. They would not lend you 100 per cent if to do so would push the total indebtedness up above the 70 per cent, or whatever the ratio was, of the new valuation of the new collection of properties, is that right? A. That is correct." [Trial Transcript, p 65(5) - 66(5) ] 9 And later still: "Q. Subsequently Tunupo became involved in your lending facility with the ANZ Bank? A. Only when I disposed of the other shareholders in February. Q. That cannot be right because the guarantees that we are talking about are guarantees of an indebtedness to the ANZ Bank? A. Yes, on the securities of Tunupo. Q. Tunupo was not part of this global facility at the time of the deed? A. No. Q. That is, I think, what his Honour was asking you. So, in May 1991 Tunupo formed no part of this global facility? A. No. Q. But you had the same financier for your Grace group of companies as you had for Tunupo? A. We started off with Bill Corporation and we changed to the ANZ Bank. Q. The ANZ Bank was the same financier in May 1991 as you had for the other Grace group of companies? A. That is correct. Q. When in May 1991 they called upon you to reduce the indebtedness of Tunupo, you were concerned about the overall effect on the Grace group of companies? A. No, I wasn't, it had no effect on the Grace group of companies, only on the guarantees that Tunupo and directors of Tunupo signed with the ANZ Bank. HIS HONOUR: When Tunupo changed from Bill Acceptance Corporation to the bank as its financier, the bank took guarantees in relation to whatever facility it was going to make available to Tunupo, is that right? A. I took guarantees, yes. Q. Did Tunupo then, as it were, come into the fold -- A. No. Q. - of the Grace group of companies and the global facility that was available in the way that we have previously discussed from the bank to the Grace group of companies? A. No. Q. So after a change was made in Tunupo's financing , there were two separate arrangements, if you like, with the bank, global facility arrangements which covered the Grace group of companies outside Tunupo? A. That is correct. Q. And a separate accommodation which the bank had made available to Tunupo? A. That is correct." [Trial Transcript, p 67(22) - 68(21) ] 10 I am satisfied that the plaintiff was, at all material times, an experienced and tough-minded operator in the highly competitive field of real estate development. I am satisfied that, at all such times, the plaintiff had considerable experience in obtaining financial accommodation for his development projects; and that he had, in that connection, a well-established commercial profile with the ANZ Bank; and a well-established working rapport with Mr. Armstrong, the relevant Bank Manager. 11 The defendant was, between 1985 and 1993, employed by Australian Airlines, then one of the two major commercial domestic airline carriers in Australia. He was employed as a maintenance and building supervisor. His responsibilities were substantial and important. They entailed his being responsible for the supervision of the airport terminal, the cargo shed and house, and some of the sales offices. He was actively involved in the negotiation of tenders, although he was not himself responsible for the ultimate decision as to the letting of a particular tender. Once any maintenance tender had been let, the defendant was responsible, effectively, for ensuring that the successful tenderer carried out to an acceptable standard the requirements of the tender. 12 The defendant was at pains during the course of his evidence to emphasise his financial inexperience. I accept that his experience of business and financial matters was not comparable to the experience of the plaintiff in the particular field of real estate development. I do not accept, however, that the defendant was, at the material times, nothing more than, so to speak, a babe in the financial and commercial woods. I think that it is fair to understand the defendant as having had, at the material times, a reasonable capacity to understand, and a reasonable understanding in fact, of normal commercial documents. 13 There is no doubt that the plaintiff, the defendant and Mr. Morgan became associated, through the vehicle of Tunupo Pty Ltd, in the carrying out of certain residential property development. There is, however, a dispute as to the precise nature of the involvement, as between their two selves, of the plaintiff and the defendant. 14 The plaintiff's case is, essentially, that he, the defendant, and Mr. Morgan were equal partners in the relevant enterprise. That is to say, the plaintiff's essential case is that all three of them were entitled to share equally in the profits, if any, of the enterprise; and were liable to contribute equally to the losses, if any, of the enterprise. 15 The defendant's case is radically different. It is the defendant's case that, at least as between him and the plaintiff, it was always a mutual understanding that he, the defendant, would never be required actually to put up hard cash in connection with the relevant enterprise. The defendant seemed, during the course of the giving of his evidence, to be asserting that he had brought to the relevant enterprise particular expertise which was to be, as between himself and the plaintiff, his sole contribution to the relevant enterprise. The defendant appeared to be suggesting that, as between himself and the plaintiff, it was always the mutual understanding that the plaintiff, and he alone, would cover whatever financial exposure of the defendant might arise as a result of the correct technical interpretation of the particular legal and commercial arrangements that would be set in place in order to provide the necessary legal and financial framework for the carrying out of the relevant enterprise. 16 Any attempt to clarify now the nature of the relevant dealings between the plaintiff and the defendant is necessarily complicated by reason of the fact that, at the material times, the plaintiff and the defendant were the closest of personal friends; whereas they are now the bitterest of enemies. Their falling out derives from the plaintiff's divorce, which was apparently a very acrimonious affair. It is not clear what the defendant actually did, or failed to do, in connection with those proceedings; but whatever it was, it left the plaintiff bitterly affronted by what he saw as the defendant's disloyalty towards him. As Congreave famously, and all too accurately, observed: "Heav'n knows no rage like love to hatred turned". It is a proposition to be kept carefully in mind when assessing the evidence either of the plaintiff or of the defendant. 17 Given the foregoing background, it is now possible to look more closely at the circumstances giving rise to the execution of the Deed dated 9 May 1991. 18 The Deed in question is reproduced at pages 28-30 inclusive of Exhibit A. It is a comparatively brief document. It contains a number of recitals to the effect that the plaintiff and the defendant are two of the directors of Tunupo Pty Ltd; ; that the ANZ Bank has advanced certain moneys to that company, being advances exceeding in amount the sum of $226,608; that the plaintiff and the defendant are two of the guarantors to the bank for that loan; that the bank has requested repayment of the loan; that Tunupo Pty Ltd is unable to repay the loan; that the bank has requested the guarantors to pay the amount due to it under the loan; and then the following two recitals: "7. Grace has agreed to pay to the ANZ Bank the said sum of two hundred and twenty six thousand six hundred and eight dollars in consideration of which Cartwright acknowledges an indebtedness for his share of the amount paid by Grace to the ANZ Bank. 8. Cartwright acknowledges that Grace is making the payment of two hundred and twenty six thousand six hundred and eight dollars in reduction of the loan on behalf of the guarantors and for that purpose has entered into this Deed." 19 The Deed then witnesses that the defendant, in consideration of the payment made by the plaintiff to the bank, acknowledges that one-third of that amount, or seventy five thousand five hundred and eighty six dollars, was paid by the plaintiff on his, the defendant's behalf; and the defendant acknowledges an indebtedness accordingly to the plaintiff. 20 There is further provision for the sum of $75,536 to be paid on or before 15 January 1992, and for it to bear interest until paid. The interest is set at 14 per cent per annum on quarterly rests. It is provided that the interest is to be paid by quarterly instalments of $2,643.65 each effective from the date of the Deed, that is to say 9 May 1991. It is provided that the first payment is to be made "on the day of August 1991 and thereafter on the …………day of each quarter until all of the said sum ………(of $75,536) ………" has been paid by the defendant to the plaintiff. 21 The Deed provides, finally, for the charging by the defendant of his right, title and interest in certain nominated real estate with the due payment to the plaintiff of all the moneys that are payable to the plaintiff by the defendant, and "so as to create an estate or interest in the said property". In this latter connection, the Deed provides for the incorporation into its terms of the provisions of a Memorandum filed in the Land Titles Office under the Dealing No. 0860000. 22 Exhibit A contains, among other documents, copies of two sets of minutes of meetings held on 6 May 1991 and 9 May 1991 by the Directors of Tunupo Pty Ltd. I am satisfied that the contents of each such set of minutes are a true and correct record of what occurred at the meetings to which, respectively, they refer. 23 The meeting of 6 May 1991 was chaired by the plaintiff. Present were the defendant, Mr. Morgan, and a Mr. I. D. Stephenson, who was the company secretary. The principal business of the meeting was discussion of a debt due to the ANZ Bank. The plaintiff, as Chairman of the meeting, laid before the meeting the essential facts in that connection. He informed the meeting that the company, Tunupo Pty Ltd, owed the ANZ Bank a sum in the vicinity of $210,000 and that Mr. Armstrong, the relevant bank manager, "required a decision on the repayment of this debt by Friday May 10, 1991". 24 There was discussion concerning various ways of paying the required amount to the bank. That discussion continued, according to the minutes, in the following way: "Mr. Morgan indicated that with his mortgage overdraft and various bankcard commitments he had no equity left in his property to borrow further funds. However he did state that a deal he was involved in as a 25% shareholder should net him sufficient funds to repay his share of the $210,000. He indicated that the money may not be forthcoming till the end of September 1991. Mr. Cartwright also indicated he was in a similar position and would possibly have to sell the unit owned by Redcard Pty Limited at Garfield Street, Five Dock to cover his debt. Mr. Grace stated that he would be able to repay the full amount to the ANZ Bank on Friday May 10, 1991. The one condition attached to this repayment was that Messrs. Cartwright and Morgan signed an acknowledgment of debt to Mr. Grace stating that they each owed one third of the amount repaid on May 10 to Mr. Grace. Both Messrs. Cartwright and Morgan agreed to this request and Mr. Grace stated that he would obtain the payout figure from Mr. B. Armstrong of the ANZ Bank and instruct Mr. L. File to draw up the necessary acknowledgment of debt documentation. Mr. Grace also stated that Mr. Morgan owed him $114,848.47 for monies advanced to Ringem to assist in the payment of debts for the Garfield Street project and that also would be included in the acknowledgment of debt." 25 The meeting of 9 May 1991 was chaired by Mr. L. G. File, the company solicitor. The plaintiff, the defendant, Mr. Morgan and Mr. Stephenson were again present. There was further discussion concerning the debt to the ANZ Bank. The discussion was, to judge from the minutes, fairly heated. The relevant portions of the minutes record the following matters: "The Chairman tabled documents stating that Messrs. Cartwright and Morgan were each responsible for 1/3 of the debt that amount being $75,536 and that they would agree to repay this amount to Mr. J. W. Grace if he undertook to pay out the ANZ Bank on May 10, 1991. Mr. Cartwright agreed to sign his deed and did so in the presence of all the board members. Mr. Morgan stated that he wanted to know what made up the payment of the $226,608 as this was some $15,000 above the anticipated figure he had received a week ago. He stated that he wanted to know if the extra amount was for interest or for an early payout penalty. Mr. Morgan stated he would contact the ANZ Bank first thing on May 10, 1991 and when satisfied with the answer would sign the document and return it to Mr. Leigh File's office by 11.00 a.m. on May 10, 1991. A heated discussion followed between Messrs. Grace, Cartwright and Morgan, firstly because Mr. Morgan would not sign the document at the meeting virtually stating he did not trust the figures supplied by the Chairman. The outcome of the discussions held were that the board would give Mr. Morgan till 11.00 a.m. on May 10, 1991 to present the signed deed at the offices of Mr. Leigh File." 26 There was further discussion concerning debts allegedly due from Mr. Morgan; and concerning certain property described as the "Bay Road property". The concluding entry in the minutes reads: "All directors present warned Mr. Morgan that if he did not honour his undertaking by May 10, 1991 they agreed with the actions proposed by Mr. Grace." 27 On 15 September 1998 there was filed on behalf of the defendant an amended defence and amended cross-claim. This pleading runs to some forty-six numbered paragraphs. It is impossible to summarise the pleading in a few crisp sentences. The pleading lays down a barrage of defences of various kinds to the plaintiff's claim on the Deed of 9 May 1991. 28 The first of the defences pleaded by the defendant, and the principal defence upon which he relied at the hearing, asserts of the Deed of 9 May 1991 "that he executed the document as a result of a representation by the plaintiff that the document would not have any legal effect or be binding upon him and that he was to execute it only for the limited purpose of obtaining the agreement of James Sydney Morgan …………to a document in similar terms". 29 At the hearing, the defendant gave evidence, both by affidavit and orally, precisely to the effect of that pleading. The plaintiff, both by affidavit and by oral evidence, denied flatly any such understanding between him and the defendant. 30 It is trite that: "…………..when a trial judge resolves the conflict of evidence between witnesses, the subtle influence of demeanour on his or her determination cannot be overlooked": Abalos v Australian Postal Commission (1990) 171 CLR 167 per McHugh J at 179. In the present particular case, I have not found that criterion of any assistance. I do not think that there was anything to choose between the plaintiff and the defendant in terms of general demeanour. I think that this is one of those cases where the Court can only do its best to make an objective assessment of the probabilities by having regard to the evidence itself, unaffected by subjective, and professionally unqualified, psychological considerations. 31 Approaching the issue in that way, I reason as follows. 32 First, essential to the defendant's present case is the proposition that the plaintiff was so determined to get Mr. Morgan committed on paper to an acknowledged liability in the order of $75,000 that he was prepared to indemnify the defendant against any liability to which the defendant might otherwise be exposed to contribute, himself, an equal one-third share of the undoubted liability for the repayment of which the bank was pressing the directors of Tunupo Pty Ltd. 33 It seems to me that there can be, in practical terms, only two possible explanations for the plaintiff's being disposed to take such a stance. 34 The first possibility is that the plaintiff was prepared to do it out of considerations of friendship, pure and simple. This proposition simply does not make sense to me. Even accepting, as I do, that the two men were close personal friends at the relevant time, - indeed, according to the evidence, they treated each other as though they were brothers, - it seems to me to go, simply, against the grain of the probabilities that a commercial operator like the plaintiff would have introduced the defendant into real estate developments of the magnitude involved in the operations of Tunupo Pty Ltd, upon the basis that the defendant would be included, for reasons of friendship alone, in any profits, but would be unexposed to any risk of contributing to any losses. 35 The second possible explanation is that the plaintiff agreed, in effect, to indemnify the defendant against any technical, legal or commercial liability to put in funds, because the whole basis of their commercial arrangement, as between themselves, was that the plaintiff would be solely responsible for the funding, and the defendant would be responsible for contributing some other relevant expertise, the value of which to the overall enterprise was accepted by the plaintiff as being equivalent to an actual contribution of funds by the defendant. 36 Such an arrangement is not unknown to the law. The case of Pacanowski v Wygoda: Federal Court of Australia (Neaves, Wilcox and Spender JJ); unreported, 18 December 1992, a decision which was brought to the attention of this Court by learned counsel for the defendant, illustrates the point. 37 But that decision illustrates, also, the nature, and the precision, of the evidence that will be necessary in order to demonstrate the given proposition. It is true that the defendant, during the course of his oral evidence, made some fleeting responses suggestive of an assertion that his relevant relationship with the plaintiff was very much in the same mould as the relationship of the parties in Pacanowski. I do not accept such a proposition: first, because no such proposition was pleaded in a long and elaborately drafted defence and cross-claim; and secondly, because there is in the present case, in my opinion, no evidence having anything like the detail and precision that I consider would be necessary in order to bring the present case within the ambit of the Pacanowski principle. 38 I am troubled by the general cast of the case which the defendant makes in connection with the coming into being of the Deed of 9 May 1991. If what the defendant says is correct, then he was a knowing party to a deliberate charade intended to deceive a fellow director and shareholder of Tunupo Pty Ltd. That, without more, would make singularly unattractive the defendant's present contention with regard to his conduct in connection with the signing of the Deed. There is, however, more; and it greatly sharpens my sense of discomfort about the defendant's present stance. 39 As I have earlier pointed out, the plaintiff sued Mr. Morgan to judgment in the then Commercial Division of this Court in connection with Mr. Morgan's asserted liability to contribute one-third of the amount paid by the plaintiff to the bank. In connection with those proceedings, the present defendant swore an affidavit in support of the plaintiff's case against Mr. Morgan. The defendant was, not surprisingly it might be thought, cross-examined at great length about this affidavit. It is not necessary for me to repeat the find detail of that cross-examination. 40 The important point which was established by the cross-examination was that the defendant was prepared to have this Court deal with the plaintiff's claim against Mr. Morgan upon the footing that the defendant had been party to a genuine arrangement intended to create a legally enforceable engagement both by himself and by Mr. Morgan to pay to the plaintiff one-third of the amount which the plaintiff had paid to the bank. The point, for present purposes, is not that it is possible to identify any positive untruth put forward by the defendant in his earlier affidavit. The point is, rather, that he was prepared to swear an affidavit which created an impression about the Deed of 9 May 1991 that was, if his present assertions are correct, a wholly false and misleading impression. This state of affairs is, in my opinion, seriously damaging to the objective credit of the defendant. 41 For the whole of the foregoing reasons, I have come to the conclusion that the probabilities do not favour the contention now put forward by the defendant as to the true nature and intent of the plaintiff and the defendant in connection with the Deed of 9 May 1991. I think that the probabilities favour the plaintiff's contention that the Deed was executed as a genuine acknowledgment of a genuine engagement intended to be legally enforceable. 42 It then becomes necessary to consider what I might call the various subsidiary defences put forward by the defendant. 43 The first such subsidiary defence is pleaded in paragraph 34 of the amended defence. It is there asserted that in so far as any payment of $226,608 was made to the ANZ Bank, the payment was not made entirely by the plaintiff but was made in part by his then wife. 44 There is clear evidence that the plaintiff put together the sum of $226,608 from a number of sources available to him, one of which was an account in the name of his then wife. I do not see why that fact provides the defendant with any answer to the plaintiff's claim in so far as the claim is based upon the Deed of 9 May 1991. I am not satisfied on the probabilities that the plaintiff paid the sum of $226,608 to the bank upon a basis entailing that some part of that sum was not provided, in a real sense, out of the plaintiff's funds, and so that it would, in effect, unjustly enrich the plaintiff if he were now permitted to recover in accordance with the terms of the Deed. 45 The second subsidiary defence is raised by paragraphs 37A, B and C of the amended defence. The combined effect of those paragraphs is to plead an estoppel by representation. The representation upon which the defendant thus relies is a representation "………..prior to the execution of the document that it was not legally enforceable and that he would not rely upon it and that the defendant need only execute it to encourage or persuade Morgan to execute a document in similar terms". 46 For reasons already given, I am of the opinion that such an assertion cannot be supported on the probabilities. It follows that the premise upon which the estoppel is based has been rejected on the probabilities. The estoppel itself cannot, therefore, succeed. 47 The third subsidiary defence is, also, a defence of estoppel. 48 The fourth subsidiary defence is a defence of waiver. Both defences are pleaded in paragraphs 38A-40H inclusive of the amended defence. 49 These defences turn, essentially and simply, upon the proposition that the plaintiff eventually took over the defendant's shareholding in Tunupo Pty Ltd. The defendant's case is that this transaction was underpinned by the consideration of a release by the plaintiff of the defendant of any indebtedness of the defendant to the plaintiff or to Tunupo Pty Ltd, including any indebtedness then arising by reason of the terms of the Deed of 9 May 1991. 50 In my opinion there is a short and practical answer to this assertion of the defendant. It is that, in cross-examination, it was not put to the plaintiff that he had released the defendant from liability to him, the plaintiff, personally, and in connection with the Deed of 9 May 1991. The defendant so asserted in his evidence; but, as I have said, the proposition was not put in cross-examination to the plaintiff. I do not accept, on the probabilities, that the plaintiff did so release the defendant in connection with any then existing liability of the defendant pursuant to the terms of the Deed of 9 May 1991. 51 The fifth subsidiary defence is pleaded, more particularly, in paragraph 40A of the amended defence. The plea is to the effect that if the Deed is found to be legally enforceable, then "…………between May 1991 and 1996 the plaintiff made no demand upon the defendant and in the circumstances the plaintiff's silence was a representation that the plaintiff did not rely upon or seek to rely upon any right pursuant to the alleged Deed …………..". 52 I have earlier found, on the probabilities, that the plaintiff did not release the defendant from the latter's liability to the plaintiff personally in terms of the Deed of 9 May 1991. In that event, the plaintiff's silence amounts, in my opinion, to nothing more than a mere forbearance to sue, a circumstance giving rise to no binding contractual consequences: Electronic Industries Ltd v David Jones Ltd (1954) 54 SR (NSW) 102 at 109; Gray v Lang (1955) 56 SR (NSW) 7 at 12,13. 53 The amended cross-claim, also, goes to the enforceability of the Deed of 9 May 1991. The amended cross-claim is put, essentially, upon two alternative bases. 54 The first basis of the cross-claim depends upon a resourceful arithmetical calculation. It is asserted that the plaintiff induced the defendant to sign the Deed of 9 May 1991 by representing to the defendant that if he, the plaintiff, were to pay $226,608 to the bank, he would be paying three times his just liability in respect of that payment to the bank. This representation, it is said, was false. It was false because, as at 9 May 1991, the debt due to the bank by Tunupo Pty Ltd "……was likely to rise above $626,608". Hence, so the argument runs, the plaintiff's just proportion of that indebtedness was itself, at least, $208,869.33; in which event the plaintiff's true entitlement as between himself and the defendant was not $75,536 but $8,869. 55 This carefully constructed argument seems to me to come to grief upon the simple facts as established by the evidence. The bank made a peremptory demand for a reduction of $226,608 in the then indebtedness of Tunupo Pty Ltd. That demand was made in a context of cross-guaranteed financial arrangements of the kind earlier herein described. The relevant correspondence from the bank is in evidence, and is included in Exhibit A. There is, in my opinion, no room for doubt about what the bank was about. It was about having $226,608 paid immediately in reduction of the then indebtedness of Tunupo Pty Ltd which had risen, by $226,608, above the level of $400,000 which the bank was prepared to continue to finance in respect of the relevant activities of Tunupo Pty Ltd. It was imperative that the money be found. Nobody could find it except the plaintiff. He was unwilling to put in such a sum of money without having what he regarded as a sufficient acknowledgment by his two co-entrepreneurs of their respective indebtedness to cover, each, one-third of the total amount that he, the plaintiff, had found in order to satisfy the bank. Those facts are, in my opinion, sufficient to dispose of the first basis of the amended cross-claim. 56 The second basis of the amended cross-claim prays in aid the provisions of the Contracts Review Act. It is not necessary to set out in detail either the relevant portions of the amended cross-claim, which will be found in paragraphs 45, 45A, 45B and 46. Nor is it necessary to set out the detail of the Contracts Review Act. 57 Once it is found, as I have done on the probabilities, that the Deed of 9 May 1991 was intended to be a genuine engagement enforceable according to its tenor, then there is, on the given facts of the present case, no realistic room for the invoking by the defendant of the provisions of the Contracts Review Act. If the Minutes to which I have earlier referred be accepted as authentic, - and, as earlier indicated, I do so accept them, - then the pattern of the defendant's thinking is completely clear. The defendant, that is to say, had a completely realistic understanding of what was entailed in the peremptory demand then being made by the bank. He understood that, in plain terms, either some way was found to placate the bank, or the entire joint enterprise would unravel. The plaintiff was prepared to come to the rescue. The defendant understood what that entailed so far as he was concerned; and was content to acquiesce in the plaintiff's proposal and terms, he, the defendant, regarding that course as, in effect, the lesser of two evils. 58 Once it is found that the Deed of 9 May 1991 was a genuine contractual engagement, then I do not think that the defendant has demonstrated on the probabilities any just cause for the peremptory interference of this Court in the proper exercise of its statutory powers and discretions pursuant to the Unfair Contracts Act. 59 For the whole of the foregoing reasons, I have come to the conclusion that the plaintiff is entitled to succeed on the first of the three claims made by him against the defendant. He is entitled, in that regard, to judgment for $75,536, with appropriate interest.

The Plaintiff's Third Claim 68 The evidence in connection with this claim is, I think, deficient in a number of significant respects. 69 Certain things are, however, clear. It is clear that in October 1989 Tunupo Pty Ltd bought a motor vehicle for the sum of $82,000. It is clear, too, that the purchase was financed by a leasing finance advance made by Esanda Finance Ltd. The relevant documentation, which forms part of Exhibit A, establishes clearly that the plaintiff, the defendant and Mr. Morgan guaranteed to Esanda the due performance by Tunupo Pty Ltd of its obligations under the leasing finance arrangements. 70 The plaintiff's case is that by mid-November 1991 Tunupo Pty Ltd was in default under the leasing agreement; and that Esanda thereupon terminated that agreement and repossessed the vehicle. It is the plaintiff's case that Esanda subsequently made a formal demand upon Tunupo Pty Ltd; upon the plaintiff himself; upon the defendant; and upon Mr. Morgan to make good the amount due to Esanda upon the termination and repossession. I cannot find among the documentation constituting Exhibit A, nor can I locate elsewhere among the exhibits, documentation that supports those allegations of the plaintiff; but the allegations were not disputed in any serious way at the hearing, and I am prepared to assume for present purposes that they are correct. 71 What then happened is described as follows by the plaintiff in his affidavit sworn on 30 April 1998 in connection with the present proceedings: "Rather than have the vehicle sold at a repossession sale and incur the liability by Tunupo Pty Limited for the likely short-fall between the outstanding obligation under the lease and the sale price as a repossessed vehicle, for which I would be liable as a guarantor, I caused the company of which I was director, J. W. Grace Holdings Pty Limited, to obtain bank bill finance from the ANZ Banking Group in the sum of $70,000." 72 Subsequent paragraphs in the same affidavit establish that the plaintiff paid the $70,000 to Esanda which thereupon released Tunupo Pty Ltd, the plaintiff, the defendant and Mr. Morgan from any continuing liabilities to Esanda. All of this seems to have occurred on 21 January 1992: see Exhibit A at p.102. 73 It is the plaintiff's case that between that date and 25 August 1995 he attempted to sell the vehicle. He was not able to do so until 25 August 1995 when he effected a sale for $30,000. There is some dispute as to what use was actually made of the vehicle between 1992 and 1995, but, on the view that I take of the relevant transactions, nothing turns upon that detail. 74 It seems to me to be fundamental to the plaintiff's claim that he establish on the probabilities that the character in which he paid out the leasing agreement was that of a co-guarantor of that agreement. I am not satisfied on the probabilities that such was the case. It seems to me to have been, rather, the case that the plaintiff thought it worth his while to pay out Esanda for $70,000, and thereby acquire an asset of some value in his hands; rather than to leave Esanda to make the running, as it were, and thereby leave him in a less advantageous position. 75 The evidence about the pay-out of Esanda and the circumstances in which it took place, is very, very sparse. I think that the better view on the probabilities is that the plaintiff simply took matters into his own hands; and did what he could to salvage his position without any particular consultation with his co-guarantors. I am strengthened in that view by the absence of any evidence suggesting that the plaintiff, before paying out Esanda, sought in any way to tie down his co-guarantors in the way that he had previously done in connection with the Deed of 9 May 1991. 76 I am not satisfied on the probabilities that the plaintiff is entitled to recover under this particular claim.

Grace v Cartwright

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Judgment (14 paragraphs)

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Cases Cited (1)

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