Plasterboard Central Pty Limited v Blain

Plasterboard Central Pty Limited v Blain - [2009] NSWDC 44 - NSWDC 2009 case summary — Zoe

[18]

11 At this stage it is worth setting out at some length the relevant transcript of Mrs Blain's cross-examination, omitting some immaterial parts: "Q. And before you swore that affidavit did you read your defence and satisfy yourself that the allegations you were making were truthful? A. Yes. Q. Could I invite you to go to paragraph 17D of your defence? A. Yes. Q. Do you see there you make an allegation as to what you were led to believe? A. Yes. Q. Should his Honour understand that paragraph as stating your belief that that would be the consequence of the plaintiff not providing credit to Plasterboard Sales Brisbane North? A. I knew if I didn't sign a credit application, he wouldn't get the goods to be able to sell to make money. Q. So you understood at the time you had to sign the credit application and until you signed the credit application and the guarantee that was with it, there wouldn't be any goods coming through to Plasterboard Sales Brisbane North, correct? A. Well I understood if I had to sign a credit application, that would be so as he could get goods. Q. Do you agree that you have not recorded anywhere in your affidavit sworn 26 November 2008 any statement made by any representative of the plaintiff to the effect of that set out in paragraph 17D of your defence? A. No, my husband was in the building industry for many years and I always knew that you had to buy goods to sell goods or he always bought stuff on credit when he was contracting, so there was always a credit thing where as in the building industry, you buy stuff on credit and you pay it at the end of the month. Q. That's okay. Do you agree with me that you haven't actually set out in your affidavit any statement made by any representative of the plaintiff to the effect of that set out in paragraph 17D of your defence? A. Nobody in my affidavit - nobody explained to me the consequences of the guarantee that was attached to the credit application. HIS HONOUR Q. I understand that Mrs Blain, but what Mr Jones is asking you about, you might want to look at paragraph 13 of your affidavit? A. Okay, yes.

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Q. In which you talk about Ms Ross? A. Yes. Q. And you say that you have no conversations with her related to the conduct of your husband's business or any documentation related to that business? A. That's correct. Q. I don't think Mr Jones is questioning that at this stage? A. Right. Q. But he is saying that there is nothing there that says that Ms Ross or anybody else told you anything about what would happen if you didn't sign the guarantee? A. That's true, that's true. JONES Q. And what you are recording in paragraph 17D of your defence is actually your understanding at the time you signed the guarantee, correct? A. My understanding was I had to sign stuff so he would get stock. Q. Yes? A. Correct, yes. Q. And you understood at the time you signed the guarantee that there was a relationship between the provision of credit by the plaintiff to Plasterboard Sales Brisbane North and the guarantee? A. No, not necessarily. Q. Well you understood there would be no-- HIS HONOUR: I think Mr Jones, it might be important to distinguish between the credit application and the guarantee, because I think the witness may be confused about that. JONES Q. You understood there would be no provision of credit without the provision of the guarantee? A. I knew there would be no provision of credit if there wasn't a credit application. Q. And you understood that there would be no provision of credit if there wasn't a guarantee? A. It was on the same form, I didn't distinguish between the two. I was told to sign there and sign there and I did. Q. Well you seem to have drawn a distinction in paragraph 17D of your defence where you've made specific reference to the guarantee, do you see that? A. I see that, yes. Q. What I'm asking you is whether you understood that without you signing the guarantee there would be no credit? A. That's what I say there, so I suppose I took it as one document, so I called it a guarantee there, so that's what I've said. Q. Do you agree that you understood at the time that without the guarantee there would be no credit? A. Well I've said it there, so yes I suppose. Q. And you understood that the guarantee was considered by the plaintiff as necessary security to provide the credit? A. Well it was my husband's business. Q. Yes, I'm asking you what your understanding was? A. I had-- HIS HONOUR: Mr Jones, I think these questions might be a little unfair; they might be putting words in the witness's mouth. I am not satisfied that at the time she signed these documents she was fully aware, and I think you have to prove, or she has to prove, that she was not fully aware of the nature of the documents. I know it's got the word 'guarantee' on the top, but what I'm concerned to find out is her understanding of what she was doing and in order for you to succeed, I have to be satisfied on the balance of probabilities that she was aware I think that what she was signing was, in fact, a guarantee. JONES: We'll come to that in submissions your Honour. HIS HONOUR: Pardon? JONES: We will come to that in submissions. HIS HONOUR: I think you will, yes. I hope you will, because I think it's crucial. JONES: As to what I need to establish and my friend needs to establish, but - HIS HONOUR: That's right, but I do think it's important to know what Mrs Blain understood at the time she signed this document about its nature. It may be - I'm making that point, not because it would ordinarily matter, but because of the nature of the defence that's been raised in these proceedings. JONES: Perhaps the best way to approach it then your Honour is to invite the witness to looked at exhibit E. HIS HONOUR: I think that might be the best way to do it. Q. I know you've seen that document before Mrs Blain, but just look through the whole of the document so that you are familiar with what it contains. A. Okay. HIS HONOUR: Yes, I think the witness has looked at the document. Mr Jones if you would like to go ahead. JONES Q. Now can you go across to the fourth page of that document please? A. Yes. Q. I think you've already agreed that you signed that document? A. Yes I have. Q. Do you agree that in 2004 you understood that if you signed a contract you became bound by the terms of the contract? A. Is this a contract?

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Q. Did you understand in 2004 that if you signed a document like this, you were bound by it? A. I didn't understand what this document was. Q. Is that a serious answer to his Honour? A. (No verbal reply). HIS HONOUR: The question has been asked and answered Mr Jones. JONES: Thank you your Honour. Q. Did you understand in general terms in 2004 that if you signed a document, you were bound by the document? A. Yes. Q. Do you agree that when you signed this document, you understood that it imposed obligations upon you? A. That wasn't explained. Q. I'm not asking you what was explained, I'm asking you your understanding? A. Well no. Q. Do you tell his Honour that you signed the fourth page of this document not understanding that it imposed personal obligations on you? A. I'm telling his Honour when I signed this document I didn't understand there were obligations under this document when I signed it on 6 March. Q. At that point in time you had a general understanding of what a guarantee was, correct? A. From the point of view of a bank, yes. Q. And you saw when you signed the document at the top of the page in bold was the word 'Guarantee'? A. Well I probably didn't read it when it was put under my nose to sign. I just signed it. Q. You saw that the document had something to do with credit to be provided to Plasterboard Sales Brisbane North Pty Limited, correct? A. At the time I may not have. I was just told to sign. Q. Don't you know? A. I don't know when I signed this. I signed it on 6 March when Cherylin Ross and I and my husband were at a function. I don't remember when, I just - that was the date I was with Cherylin Ross and my husband, so that must have been when I signed it. I don't remember actually signing it. Q. Do you agree that that document forms part of a credit application for Plasterboard Sales Brisbane North? A. Well it is on the back of the application for credit, so yes. Q. And you understood that at the time? A. No, I can't categorically say that, because I signed it on that date and I don't remember signing it, so I don't remember if it was an application for credit or just something I was asked to sign at that function. Q. You knew you were signing an application for credit for Plasterboard Sales Brisbane North, didn't you? A. Not on that day, because nobody would have even said this is the credit. I don't remember signing it, so it could have just been said ,'Here, you've got to sign this' and I would have gone and signed it - signed in two spots on that same day. Q. Do you agree that the guarantee and indemnity is on one page? A. It is. It could have been presented to me like this, I don't know. I might have been told to sign there and sign there, so I may not even have seen it. HIS HONOUR Q. I think Mrs Blain you've said on a number of occasions you don't remember signing it, so? A. No, so I don't know which way it was folded. This is actually dated 12 February, so it could have been pre-filled out. JONES Q. I suggest to you that it would have been obvious if you opened your eyes, that you would have seen at the top of the page the words 'Deed of Guarantee and Indemnity'? A. If I'd have read it, yes. If I'd have looked at it and anything or just seen where I had to sign where my name was. Q. It would have been obvious to you that it related to Plasterboard Sales Brisbane North Pty Limited because that is written on the one page, correct? A. If I'd looked at the top of the page when I actually signed it, it's written there, yes. Q. I suggest to you that at the time you signed this document you perfectly understood that what you were doing was agreeing to pay the plaintiff in the event that Plasterboard Sales Brisbane North did not pay, correct? A. No, no I disagree with that. Q. I suggest to you that you were prepared to do so because you knew that if you didn't give the guarantee there would be no credit provided by the plaintiff to Plasterboard Sales Brisbane North, correct? A. No, I had no operations in the Plasterboard Sales Brisane North business. I wasn't a director and I didn't work there, no. Q. Do you say you made an enquiry of your husband as to what you were about to sign ? A. No, I didn't, he told me to sign and I signed. Q. You could have asked him if you wanted to, couldn't you? A. Probably. We were at a function. I probably could have asked him, but I didn't. Q. You could have asked Cherylin Ross, correct? A. No, I never met Cherylin Ross. I saw her twice in the whole time my husband was involved in the three franchise businesses. Q. You never met her, is that your evidence? A. No I had never met her. I saw her at this function and she witnessed my signature, so she would have been there. Q. Do you want to change anything about paragraph 13 of your affidavit? HIS HONOUR Q. Just read it very carefully before you answer that. A. I would have been told who she was at the function and I just said there I met her, so my husband might have said, 'This is Cherylin Ross, she needs you to sign this', so that could be met."

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32 The defendant argued that she was not liable on three bases. The first was the principle established in Garcia v National Australia Bank Limited (1998) 194 CLR 395 where the majority said: "31 Yerkey v Jones [(1939) 63 CLR 649] begins with the recognition that the surety is a volunteer: a person who obtains no financial benefit from the transaction, performance of the obligations of which she agreed to guarantee. It holds, in what we have called the first kind of case, that to enforce that voluntary transaction against her when in fact she did not bring a free will to its execution would be unconscionable. It holds further, in the second kind of case, that to enforce it against her if it later emerges that she did not understand the purport and effect of the transaction of suretyship would be unconscionable (even though she is a willing party to it) if the lender took no steps itself to explain its purport and effect to her or did not reasonably believe that its purport and effect had been explained to her by a competent, independent and disinterested stranger. And what makes it unconscionable to enforce it in the second kind of case is the combination of circumstances that: (a) in fact the surety did not understand the purport and effect of the transaction; (b) the transaction was voluntary (in the sense that the surety obtained no gain from the contract the performance of which was guaranteed). (c) the lender is to be taken to have understood that, as a wife, the surety may repose trust and confidence in her husband in matters of business, and therefore to have understood that the husband may not fully and accurately explain the purport and effect of the transaction to his wife; and yet (d) the lender did not itself take steps to explain the transaction to the wife or find out that a stranger had explained it to her. 32 To hold, as Yerkey v Jones did, that in those circumstances the enforcement of the guarantee would be unconscionable represents no departure from accepted principle. Rather, it conforms to the fundamental principle according to which equity acts, namely that a party having a legal right shall not be permitted to exercise it in such a way that the exercise amounts to unconscionable conduct".

[49]

37 In Wenczel's case, the wife had guaranteed her husband's debt to the bank. No company or trust was involved. Habersberger J found that she executed the relevant documents under pressure from her ex-husband, and without receiving notice of the document or independent legal advice. His Honour said: "121 I turn first then to the question of whether the plaintiff was a volunteer. On behalf of the CBA, Ms Loughnan submitted that the plaintiff was not a volunteer because she obtained a benefit in two ways from the contract, the performance of which she guaranteed. First, a large part of the $76,000 lent by the CBA went to paying out the CBFC lease for the Ford Explorer. This was the vehicle used by the plaintiff, although it was registered in Mr Wenczel's name. Moreover, ownership of that vehicle by Mr Wenczel meant that it was part of the matrimonial property which was later the subject of the consent orders in the family law settlement under which the plaintiff had title to the Ford Explorer transferred to her. Secondly, payment of the sum of $22,032.40 into the WCS bank account enabled Mr Wenczel to repay to the plaintiff some $8,500 previously borrowed from her. 122 In my opinion the plaintiff was a volunteer. The fact that some of the loan funds may ultimately have been applied for her benefit is beside the point. As was stated in Garcia : 'Although the trial judge found that from time to time some benefit flowed to the family from the companies, he found that they were companies that were in the 'complete control' of the appellant's husband. Taken as a whole, those findings demonstrate that the appellant in fact obtained no real benefit from her entering the transaction; she was a volunteer. The fact that she was a director of the company is nothing to the point if, as the trial judge's findings show, she had no financial interest in the fortunes of the company.' 123 Here, the plaintiff was neither a director nor a shareholder in WCS. Clearly, she had no financial interest in its fortunes. Any benefit which flowed to the plaintiff from the loan of $76,000 arose not as of right but as a result of the exercise of discretion by Mr Wenczel, who in effect was WCS. If having paid out CBFC and WCS having received the $22,000 balance of the loan, Mr Wenczel had decided to sell the Ford Explorer and keep the proceeds for himself or WCS and if he had decided not to repay the plaintiff the $8,500 but spend the whole of the $22,000 on something else, the plaintiff was in no position to complain to the CBA. Thus, she 'obtained no financial benefit from the transaction, performance of the obligations of which she agreed to guarantee'."

[72]

49 The starting point in any consideration of this Act is what McHugh JA, with whom Kirby P and Hope JA agreed, in West v AGC (Advances) Limited (1986) 5 NSWLR 610 at pp 620 to 622: "Under s 7(1) a contract may be unjust in the circumstances existing when it was made because of the way it operates in relation to the claimant or because of the way in which it was made or both. Thus a contractual provision may be unjust simply because it imposes an unreasonable burden on the claimant when it was not reasonably necessary for the protection of the legitimate interests of the party seeking to enforce the provision: cf s 9(2)(d). In other cases the contract may not be unjust per se but may be unjust because in the circumstances the claimant did not have the capacity or opportunity to make an informed or real choice as to whether he should enter into the contract: cf s 9(2)(a), 9(2)(e), 9(2)(f), 9(2)(g), 9(2)(i), 9(2)(j). More often, it will be a combination of the operation of the contract and the manner in which it was made that renders the contract or one of its provisions unjust in the circumstances. Thus a contract may be unjust under the Act because its terms, consequences or effects are unjust. This is substantive injustice. Or a contract may be unjust because of the unfairness of the methods used to make it. This is procedural injustice. Most unjust contracts will be the product of both procedural and substantive injustice. The definition of 'unjust' in s 4 is not exclusive. It is in my opinion a mistake to think that a contract or one of its terms is only unjust when it is unconscionable, harsh or oppressive. Contracts which fall within any of those categories will be 'unjust'. But this latter expression is not limited to the so-called 'tautological trinity'. The Contracts Review Act 1980 is revolutionary legislation whose evident purpose is to overcome the common law's failure to provide a comprehensive doctrinal framework to deal with 'unjust' contracts. Very likely its provisions signal the end of much classical contract theory in New South Wales. Any contract or contractual provision, not excluded from the operation of the Act and which the court considers is unjust in the circumstances existing at the time when it was made, may be the subject of relief under the Act. Moreover, the provisions of s 9(2) do not exhaustively indicate the criteria as to what can be taken into account in determining whether a contract or any of its provisions is unjust. The provisions of s 9(2) of the Act are concerned for the most part with matters of procedural injustice. But the court is entitled to have regard to all the circumstances of the case, subject to s 9(4) and the public interest. In an appropriate case gross disparity between the price of goods or services and their value may render the contract unjust in the circumstances, even though none of the provisions of s 9(2) can be invoked by the applicant. Indeed, notions of unfairness and unreasonableness will, I think, generally be present when a contract or any of its provisions is declared unjust. This will particularly be the case where procedural injustice is relied on. If a contract or one of its relevant provisions is neither unfair nor unreasonable so far as the applicant is concerned, it is difficult to see how the existence of inequality in bargaining power or lack of independent advice, for example, can render the contract or a provision of the contract unjust. It is important to bear in mind that it is the contract or its provisions which must be unjust. As Professor Lang has pointed out 'it is not the transaction but the contract which must be initially examined'. The Contracts Review Act regulates contracts not investments. During the Second Reading debate the Minister, who introduced the Bill, quoted a statement of Professor Peden who said that the legislation was: '...intended to confer on the courts a new and wide discretion to determine the existence and extent of harshness in a contract and thereby develop a doctrine of unconscionability suitable to present and future business and community needs and standards' (my emphasis). If a defendant has not been engaged in conduct depriving the claimant of a real or informed choice to enter into a contract and the terms of the contract are reasonable as between the parties, I do not see how that contract can be considered unjust simply because it was not in the interest of the claimant to make the contract or because she had no independent advice. The late Professor Peden who was largely responsible for the drafting of the Act has said that in accordance with his recommendation: '...the Act does not include the term 'unfair' since this might have been interpreted to include situations in which, although the contract favours one party, there has been no abuse of power or unfair conduct on his part'. This passage brings out the important point that, under this Act, a contract will not be unjust as against a party unless the contract or one of its provisions is the product of unfair conduct on his part either in the terms which he has imposed or the means in which he has employed to make the contract. In this respect it stands in marked contrast with the provisions with of the Industrial Arbitration Act 1940, s 88F; which provides, inter alia, that the Industrial Commission may declare certain types of contract or arrangements void on the ground that they are 'unfair'. In his Second Reading Speech, the Minister pointed to the mischief which the Act was designed to remedy and the purpose which it sought to achieve. He said that the common law 'has failed to develop a general doctrine for relief against unconscionable contracts'. He went on to say that it was 'Parliament's duty to provide legislative power and guidelines within which justice in the matter of unconscionable bargains can be achieved'. In the present case Mrs West relies on both the operation of the terms of the deed of loan and guarantee as well as the circumstances in which it was made as indicating that the deed was unjust."

[75]

51 The relevant provisions of the Act are: " 4 Definitions (1) …'unjust' includes unconscionable, harsh or oppressive, and 'injustice' shall be construed in a corresponding manner. 7 Principal Relief (1) Where the Court finds a contract or a provision of a contract to have been unjust in the circumstances relating to the contract at the time it was made, the Court may, if it considers it just to do so, and for the purpose of avoiding as far as practicable an unjust consequence or result, do any one or more of the following: (a) it may decide to refuse to enforce any or all of the provisions of the contract, (b) it may make an order declaring the contract void, in whole or in part, (c) it may make an order varying, in whole or in part, any provision of the contract, (d) it may, in relation to a land instrument, make an order for or with respect to requiring the execution of an instrument that: (i) varies, or has the effect of varying, the provisions of the land instrument, or (ii) terminates or otherwise affects, or has the effect of terminating or otherwise affecting, the operation or effect of the land instrument. (2) Where the Court makes an order under subs (1) (b) or (c), the declaration or variation shall have effect as from the time when the contract was made or (as to the whole or any part or parts of the contract) from some other time or times as specified in the order. (3) The operation of this section is subject to the provisions of section 19. 9 Matters to be considered by Court (1) In determining whether a contract or a provision of a contract is unjust in the circumstances relating to the contract at the time it was made, the Court shall have regard to the public interest and to all the circumstances of the case, including such consequences or results as those arising in the event of: (a) compliance with any or all of the provisions of the contract, or (b) non-compliance with, or contravention of, any or all of the provisions of the contract. (2) Without in any way affecting the generality of subsection (1), the matters to which the Court shall have regard shall, to the extent that they are relevant to the circumstances, include the following: (a) whether or not there was any material inequality in bargaining power between the parties to the contract, (b) whether or not prior to or at the time the contract was made its provisions were the subject of negotiation, (c) whether or not it was reasonably practicable for the party seeking relief under this Act to negotiate for the alteration of or to reject any provisions of the contract, (d) whether or not any provisions of the contract impose conditions which are unreasonably difficult to comply with or not reasonably necessary for the protection of the legitimate interests of any party to the contract, (e) whether or not: (i) any party to the contract (other than a corporation) was not reasonably able to protect his or her interests, or (ii) any person who represented any of the parties to the contract was not able to protect the interests of any party whom he or she represented, because of his or her age or the state of his or her physical or mental capacity, (f) the relative economic circumstances, educational background and literacy of: (i) the parties to the contract (other than a corporation), and (ii) any person who represented any of the parties to the contract, (g) where the contract is wholly or partly in writing, the physical form of the contract, and the intelligibility of the language in which it is expressed, (h) whether or not and when independent legal or other expert advice was obtained by the party seeking relief under this Act, (i) the extent (if any) to which the provisions of the contract and their legal and practical effect were accurately explained by any person to the party seeking relief under this Act, and whether or not that party understood the provisions and their effect, (j) whether any undue influence, unfair pressure or unfair tactics were exerted on or used against the party seeking relief under this Act: (i) by any other party to the contract, (ii) by any person acting or appearing or purporting to act for or on behalf of any other party to the contract, or (iii) by any person to the knowledge (at the time the contract was made) of any other party to the contract or of any person acting or appearing or purporting to act for or on behalf of any other party to the contract, (k) the conduct of the parties to the proceedings in relation to similar contracts or courses of dealing to which any of them has been a party, and (l) the commercial or other setting, purpose and effect of the contract." I shall omit the rest of the section.

[141]

110 In his further submissions, counsel for the plaintiff says: "9.Certainly, from the plaintiff's perspective, the Court has identified the central authority that disposes of the defendant's discharge argument. The plaintiff points to the following matters: (a) First, the Court has found that the guarantee given was unlimited in nature. This was common ground between the parties. (b) Second, the Court has found no credit limit was set in the contract between creditor and debtor until after the unlimited guarantee came into existence. (c) Third, the form of the guarantee, as found by the Court is an "all moneys" guarantee; not being limited to any particular amount. The guarantee itself records that the defendant: 'UNCONDITIONALLY AND IRREVOCABLY GUARANTEE to you the due and punctual payment of all monies which are now or may at any time until we are released be owing to you by the Company including all costs, charges and expenses of every description which may be incurred by you in the exercise or attempted exercise of any power or remedy...' (d) Fourth, it is important to fully appreciate [sic] the extent of the principle relied upon in Ankar in the context of an 'all monies' guarantee.... (e) Finally, one notes the observations made by Dodds-Streeton J in [Common w ealth Bank of Australia v McArthur [2003] VSC 31 at [192]-[199] ] concerning the fact that the parties may by agreement avoid the consequences of the Ankar principle. This is further dealt with in Halsbury's Laws of Australia [220-310] in the following terms: 'Consent by the surety to precluding the rule from operating may be obtained by, for example, providing in the guarantee that the surety's liability is not to be affected by a particular variation such as the granting of time or indulgence.' That is precisely what the case is here. The guarantee further records: 'WE FURTHER AGREE that this guarantee shall be a continuing guarantee and shall not be considered wholly or partially satisfied or discharged by... any other means [sic] or thing whatsoever including a change in the terms on which you sell goods or provide services or extend credit to the Company but shall extend to cover and be security for all sums of money at any time due to you...'"

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