Lu & Anor v Boral Australian Gypsum Ltd

LOWER COURT Local Court JURISDICTION : LOWER COURT 17225/98 FILE NUMBER(S) : LOWER COURT P Sloane LCM JUDICIAL OFFICER :

IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION

13555/2001 - Xia Ping LU & Anor v BORAL AUSTRALIAN GYPSUM LIMITED

JUDGMENT 1 HIS HONOUR: This is an appeal from the decision of a magistrate in a civil claim. The appellants, Xia Ping Lu and Vasily Belomesoff, were two of three directors of Bel Ami Pty Limited ("Bel Ami"), which traded as a supplier and fixer of gyprock. In November 1994 Bel Ami entered into an arrangement with Boral Australian Gypsum Limited ("Boral") to supply it with plasterboard on credit. In April 1998 Bel Ami was placed into voluntary liquidation. It then owed Boral in excess of $32,000 for plasterboard supplied during the previous year. 2 Boral brought proceedings in the Local Court for debt against Bel Ami, and also against its three directors as guarantors. As Bel Ami was in liquidation, the proceedings against it were not pressed. The third director could not be served with the statement of claim. However, Boral obtained a judgment against Mr Lu and Mr Belomesoff and it is from that judgment that this appeal is brought. 3 The debt from Bel Ami to Boral was not in dispute. Nor was it in dispute that in late November 1994 Mr Lu and Mr Belomesoff signed two documents, an application by Bel Ami to Boral for credit and a form of guarantee. The only issue was the circumstances in which they signed those documents, particularly the guarantee. Their defence sought relief under the Contracts Review Act, and raised issues of non est factum and unconscionable conduct on the part of Boral. 4 Both the credit application and the guarantee were tendered in evidence. They are printed forms, to which certain information has been added in handwriting. It is obvious that the handwriting on the credit application is that of more than one person. Each document is dated 28 November 1994 and bears the signature of the three directors of Bel Ami, apparently witnessed by Mr Alistair Connell, then the manager of Boral's Minchinbury store. 5 Both appellants gave evidence. According to Mr Lu, he attended the Minchinbury store alone and Mr Connell suggested that he should open an account. He handed Mr Connell his driver's licence and supplied the names of the other directors, and Mr Connell filled in the forms. Mr Connell gave him the documents and indicated where he and his fellow directors should sign them. He offered no explanation of the guarantee. Mr Lu said that he took the documents to his fellow directors and had them sign them. He did so himself, although he did not understand the nature of the guarantee. He had come to this country from China in 1985, and at the relevant time he could not read or write English and his spoken English was poor. 6 Mr Belomesoff's evidence was to the same effect. He came to Australia from China in 1979, and he said that in 1994 he also could not read or write English and his spoken English was "very poor." According to him, Mr Lu came to his home and asked him to sign "a blank form", saying that it was for the purpose of opening an account with Boral. He also did not understand that he had signed a guarantee. 7 Mr Connell gave evidence that in November 1994 Mr Lu, with whom he had had previous dealings, called at the Minchinbury store and picked up the credit application and guarantee forms. On 28 November he returned with his two fellow directors. Mr Connell saw that most of the information required by the credit application form had been filled in, and he went through that form and himself filled in some missing details. This is consistent with the appearance of that document. 8 The guarantee form was blank and Mr Connell filled in the information required, which was no more than the name and address of Bel Ami and the names of the three directors. He said that he explained to them the legal effect of the guarantee. None of them asked any questions and he assumed that they understood what he had said. Each of the directors signed both documents in his presence, and he witnessed their signatures. 9 Mr Lu had earlier formed another company in pursuit of his trade, and Mr Connell had dealt with him in 1993 when that company opened an account with Boral. As a director of that company, Mr Lu had also signed a credit application and guarantee. In the course of his dealings with Mr Lu, Mr Connell observed that he was not confident in writing English but spoke the language reasonably well. That his spoken English was adequate was supported by the evidence of Ms Betty Brown, Boral's credit manager, who had had contact with him at relevant times. 10 Mr Connell had never met Mr Belomesoff before and, indeed, at the Local Court hearing in 2001 he did not recognise him. Neither appellant sought legal advice before signing the guarantee, and Mr Connell did not suggest that they should.

The decision 11 The learned magistrate rejected the evidence of the appellants, finding it lacking in credit for reasons which he identified in a careful and detailed judgment. In particular, his Worship found that Mr Lu had an adequate grasp of English at the relevant time and he accepted Mr Connell's account of the circumstances in which the credit application and guarantee were signed. 12 His Worship did not find the guarantee to be unjust, within the meaning of s 7 of the Contracts Review Act 1980. He noted that the appellants were directors of a trading company, although Mr Belomesoff was far less involved than Mr Lu in the company's business dealings. He did not find either appellant to be under a special disability as a guarantor: cf Commercial Bank of Australia Ltd v Amadio (1982-1983) 151 CLR 447. He was satisfied that both of them understood the guarantee, notwithstanding the lack of legal advice. He found no unusual features attending the transaction and no failure on Mr Connell's part to disclose any pertinent matter. His findings addressed relevant factors in s 9(2) of the Act and he referred to appropriate authority, including West v AGC (Advances) Ltd (1986) 5 NSWLR 610. 13 His Worship held that he had no jurisdiction to deal with the unconscionable conduct issue upon the basis that equitable remedies are not available in the Local Court. He went on to say, however, that he found no evidence of any unconscientious behaviour on Mr Connell's part. 14 In dealing with the defence of non est factum, his Worship again had recourse to relevant authority. He cited the following passage from Petelin v Cullen (1975) 132 CLR 355 at 359-60: "The class of persons who can avail themselves of the defence is limited. It is available to those who are unable to read owing to blindness or illiteracy and who must rely on others for advice as to what they are signing; it is also available to those who through no fault of their own are unable to have any understanding of the purport of a particular document. To make out the defence the defendant must show that he signed the document in the belief that it was radically different from that which it was in fact and that, at least as against innocent persons, his failure to read and understand it was not due to carelessness on his part. Finally, it is accepted that there is a heavy onus on a defendant who seeks to establish the defence." 15 As I have said, his Worship found that both appellants understood the guarantee, so that it could not be suggested that either of them "signed the document in the belief that it was radically different from what it was in fact …". He added that, in any event, Mr Connell was an "innocent person" and neither appellant could establish that any failure to read and understand the guarantee was not due to carelessness on his part.

The appeal 16 Argument on the appeal amounted to an examination of some aspects of the evidence and a challenge to his Worship's findings of fact and conclusions. In my view, however, those findings and conclusions were clearly available on the evidence. Given his findings about the circumstances in which the guarantee was signed, it was open to his Worship to conclude that it was not an unjust contract within the meaning of the Contracts Review Act. From that conclusion it necessarily followed that there was no unconscionable conduct on the part of Boral, and this is not the occasion to consider the extent to which equitable defences might be available in civil claim proceedings in the Local Court: see ss 6 and 7 of the Law Reform (Law and Equity) Act 1972, considered in Batley v Local Court (Bruce J, unreported, 4 February, 1998) and Taylor Farms (Aust) Pty Ltd v A Calkos Pty Ltd and Ors [1999] NSWSC 186 at para 73 ff (Kirby J). Similarly, the defence of non est factum was bound to fail. 17 An appeal such as this is confined to a question of law: s 69(2) of the Local Courts (Civil Claims) Act 1970. What is a question of law was examined in Azzopardi v Tasman UEB Industries Ltd (1985) 4 NSWLR 139, particularly per Glass JA at 156-7. No such question arises in the present case. 18 The appeal is dismissed. If necessary, I shall hear the parties on costs. **********

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