Plasterboard Central Pty Limited v Blain

Burt v Australia and New Zealand Banking Group Limited BC 940 2524 6 May 1994 Garcia v National Australia Bank Limited (1998) 194 CLR 395 State Bank of NSW v Chia (2000) 50 NSWLR 587 Wenzel v Commonwealth Bank of Australia [2006] VSC 324 Chandran v Narayan [2006] NSWSC 104 National Australia Bank v Satchithanantham [2009] NSWSC 21 Yerkey v Jones (1939) 63 CLR 649 Commonwealth Bank of Australia v Cohen (unrep) Cole J (22 July 1988) BC 8801713 Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549 Bakarich v Commonwealth Bank of Australia [2004] NSWSC 283; [2007] NSWCA 169 Andrews v Racken Pty Ltd [2007] NSWSC 1010 West v AGC (Advances) Limited (1986) 5 NSWLR 610 CIT Credit Pty Ltd v Keable [2006] NSWCA 130 Teachers Health Investments Pty Limited v Wynne (1996) NSW Conv R 55-785 CASES CITED: Perpetual Trustee Co Ltd v Khoshoba [2006] NSWCA 41 Nguyen v Taylor (1992) 27 NSWLR 48 Baltic Shipping Co v Dillon (1991) 22 NSWLR 1 L'Estrange v Graucob Ltd [1934] 2 KB 394 St Clair v Petricevic (1988) ASC 55-688 Elkofairi v Permanent Trustee Co [2002] NSWCA Spina v Conran Associates Pty Limited [2008] NSWSC 326 Gough v Commonwealth Bank of Australia [1994] ASC 56-270 Radan v Commonwealth Bank of Australia (unreported), Federal Court of Australia, 23 October 1998 Esanda Finance Corporation Ltd v Tong (1997) 41 NSWLR 482 SH Lock (Australia) Ltd v Kennedy (1988) NSWLR 482 Australian Guarantee Corporation Ltd v Bradbury (unreported, SCNSW, Dunford J, 9 August 1996) Schoenhoff v The Commonwealth Bank of Australia [2004] NSWCA 161 Valstar v Silversmith [2009] NSWCA 80 Commonwealth Bank of Australia v McArthur [2003] VSC 31 The Wardens and Commonality of the Mystery of Mercers of the City of London v New Hampshire Insurance Co [1992] 2 Lloyds Rep 365

TEXTS CITED: Halsbury's Laws of Australia vol, 14, 220-310

PARTIES: Plasterboard Central Pty Limited (Plaintiff) Janine Blain (Defendant)

COUNSEL: M A Jones (Plaintiff) P R Glissan (Defendant)

1 HIS HONOUR: The plaintiff, Plasterboard Central Pty Ltd, sues Janine Blain for a sum of $488,935 plus interest, which it says is due under a guarantee given by her on 6 March 2004. Mrs Blain does not dispute the amount of the debt, nor the fact that she signed a document that is headed "Deed of Indemnity and Guarantee". However, she seeks an order that the guarantee has been discharged, or other equitable relief, or relief under the provisions of the Contracts Review Act 1980.

2 Peter Blain, the defendant's husband, was originally a carpenter, but for some time has been involved in other aspects of the construction industry, particularly the supply and installation of walls and ceilings. For 10 years or so before 2007, he carried on business through a series of companies. He also established a family trust, of which he and Mrs Blain were the trustees. Through a company called Blaze Pty Ltd, Mr Blain conducted a very successful business supplying plasterboard in the suburbs of Brisbane.

3 In 2005 and 2006 Mr Blain decided to expand his business by opening new outlets for building products on the Gold Coast and in the northern suburbs of Brisbane. For this purpose he caused two companies to be formed. One of these companies was Plasterboard Suppliers (Brisbane North) Pty Limited, which I will refer to as PBSBN. It was intended that this company would obtain supplies of plasterboard from the plaintiff on credit. To enable this, Mr Blain completed an application for credit on behalf of PBSBN addressed to the plaintiff on or about 12 February 2004. The application is printed on a single sheet containing four pages. The application for credit is printed on three of the four pages and on the fourth sheet there is a further document entitled "Deed of Guarantee and Indemnity".

4 More probably than not, shortly after Mr Blain had completed the credit application form, he gave it to the plaintiff, whose then credit manager, Ms Cherylin Ross, took it and processed it. I find, more probably than not, that at the same time, with the completed form, Mr Blain sent to Ms Ross a copy of a balance sheet in respect of both him and his wife as at 31 January that year. This document had been prepared by his accountant on his instructions. His evidence was that it was available to any creditors, or potential creditors, who might wish to understand his financial position. The balance sheet shows that Mr and Mrs Blain together owned a residential property.

6 Mr Blain had previously entered into similar credit arrangements with the plaintiff in respect of the business of Blaze Pty Limited. Mrs Blain did not sign any document in relation to credit arrangements for that business.

7 Ms Ross's view was that the plaintiff should obtain a personal guarantee from Mrs Blain, because she was a joint owner of real estate, to which the plaintiff would look for security.

8 On 5 and 6 March 2004 the plaintiff held a conference or convention of its franchisees and other staff at the Fairmont Resort in the Blue Mountains. Mr and Mrs Blain attended and Mr Blain made a presentation. During a break in the proceedings at the conference, Ms Ross approached Mr and Mrs Blain with the form and asked them to sign it, which they did. Ms Ross was the witness to their signatures on the guarantee document.

9 Ms Ross and both Mr and Mrs Blain gave evidence about the execution of the document, but only Mr Blain has any specific memory of the occasion. He says that the whole business took less than a minute. He signed first, then his wife, and then Ms Ross as witness.

10 Mrs Blain says that she has no specific memory of the incident and asserted, even after vigorous cross examination, that she neither read nor understood the document. She knew that her husband wanted her to sign the document, because it was a condition of his new company obtaining credit from the plaintiff. She understood that if she did not sign as requested, her husband's company would not be able to commence doing business on credit. Her evidence was that she trusted her husband absolutely and that she left it to him to decide what was or was not necessary for the business. She understood that he would not permit her to sign a document which he thought was not in her interest.

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.

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?

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."

12 Mrs Blain's evidence specifically was that she did not know or understand that the document she signed included a guarantee. She did not know that the effect of the guarantee was that if the company did not pay its debts under the credit arrangements, she would be obliged to do so, and that further, she had given a charge over all her property, real and personal, to secure that obligation.

13 Mrs Blain said that she understood the general nature of a guarantee. She understood that a guarantor undertook to pay a debt if and when the principal debtor did not do so. She said that she had previously given guarantees, but maintained consistently that she had done so only in situations where the guarantee related to a business conducted by her husband, that it was given to a bank to secure an overdraft facility, and that when she executed the guarantee document, she had independent advice from a solicitor, as advised by the bank, and in each case she executed a mortgage in connection with the guarantee. In evidence there are a number of mortgages that are consistent with this version of events. The plaintiff says that it was not reasonable to distinguish between a guarantee executed in the context of a mortgage to a bank and a guarantee executed without the same degree of formality and independent advice. I shall consider this contention later.

14 Mrs Blain also gave evidence about her background. She left school after completing secondary school and did a secretarial course. Since her marriage and the birth of her children, she has been primarily a full-time mother and housekeeper, and she still gives home duties as her principal occupation. She had several children, one of whom had a developmental disability and who died at about age 14.

15 She has had some casual work as a receptionist for a chiropractor and a gymnasium. These have been casual part-time positions. She also said that she has done office work for a family company called Blain Investments Pty Limited, but this has been of a very minor nature, such as sorting mail and banking. She said that her husband kept the books of this company, whose director is her father-in-law, and that her husband arranges for payment of any bills.

16 It appears to be common ground that Mrs Blain has some basic knowledge of the conduct of business. She also understands that her husband's businesses have been conducted through various companies, and that at times she has been a shareholder and/or a director of such companies. She says that she has never been involved in the management or operation of these companies, other than in doing relatively minor office work.

17 It is not in issue that Mr and Mrs Blain jointly owned about 52% of the shares in PBSBN at all relevant times. Mrs Blain denied that she has any beneficial interest in the shares, but says that she holds them jointly with her husband as trustee, as they are both trustees of a family trust. She did not deny that the trust was for the benefit of herself, her husband and her children. Her evidence was that she did not understand that she was required to discover or produce the relevant trust deed, so it is not in evidence.

18 At a creditors meeting in mid 2007 she made a statement that the trust had no assets. I accept that this statement was inaccurate, although it is not necessary for me to find whether or not it was deliberately made. I would find, on the balance of probabilities, that the shares are still held by the trust, although, given the evidence about the financial position of Mr Blain, who has become bankrupt, and his businesses, those shares would have little, if any, value.

19 Mrs Blain, therefore, has some knowledge of business, and specifically of businesses conducted by her husband at various times. This not a detailed knowledge, and I am satisfied that she was not involved with the management or operation of any of these businesses. She has been both a director of a company and a trustee. I therefore assume that she has some knowledge of what these positions entail.

20 When making his submissions, Mr Jones for the plaintiff, suggested that the defendant, or her counsel, had made the concession that, when she signed the document, she knew it was a guarantee. I did not understand that either Mrs Blain or Mr Glissan, her counsel, had made this concession. I therefore delayed delivery of my reasons in this matter until such time as I had access to the transcript of her cross-examination and the addresses. The relevant passage of the transcript, other than those that I have already read, is this: " GLISSAN: I now wish to move to s 9 and take your Honour through the various factors that the court is required to have regard to in subs 2. Whether there was any material on the inequality in the bargaining power between the defendant and the plaintiff. In my submission there was and that would be quite apparent to your Honour, given that the defendant was trusting her husband in signing the guarantee. I mean it wasn't necessary that she signed the credit application. I don't know why she signed that. She wasn't a director of Plasterboard Sales Brisbane North Pty Limited, she didn't have any control over its activities and wasn't involved in the running of its business, but so far as the guarantee is concerned, she merely trusted her husband in that regard and didn't read the document. That's the finding I ask your Honour to make. She didn't read it. She knew it was a guarantee, but she didn't read it."

21 Mr Glissan later withdraw that concession, properly in my view. The passage from the transcript quoted above does not, I consider, amount to an admission by Mrs Blain that she signed a document which she later realised included a guarantee. I do not take it as meaning that, at the time she signed the guarantee, she was aware that the document she signed was a guarantee.

22 I find, on the balance of probabilities, that although Mrs Blain knew what a guarantee was at the time she signed the document presented to her by Ms Ross, she did not read the document, and she did not understand that it was a guarantee. She thought that it was a document that her husband had asked her to sign, and she signed it because she believed it was necessary for him to have her signature on the document if he were to obtain credit from the plaintiff, and thus be able to carry on his business in the way he planned.

23 There is no evidence, apart from what was elicited from Mrs Blain in her oral evidence, as to what she understood the nature of the document that she signed at the Fairmont Resort, nor of what she understood its consequences would be.

24 Mr Jones pointed to her sworn defence, particularly para 17D and to her affidavit filed in these proceedings. I do not understand either of these assertions to be inconsistent with the oral evidence Mrs Blain gave, particularly in cross-examination, except that possibly in her defence she uses the word "guarantee". By the time she filed the defence she was aware that the document was a guarantee, and she says in her affidavit, at para 20 that she only became aware of its nature when she was preparing to defend these proceedings.

25 Mrs Blain gave evidence that she prepared the defence and her affidavit in this case with the assistance of her sister, who has been admitted as a solicitor in Queensland and is employed in legal work, but does not practise as a solicitor in general practice. She gave an account of how the documents were prepared with her sister by downloading forms from the Internet and completing them in accordance with her recollection of what had happened.

26 In the circumstances, the situation might be different if Mrs Blain had been legally represented in the early stage of the proceedings, and had prepared the defence and the affidavit with proper legal advice. If that had been so, some of the matters, which probably should have been included, were more likely to have been so included, and the implied criticism by the plaintiff would not have been called for. In the circumstances, I am prepared to allow some latitude to the defendant if she has not meticulously observed the rules of pleading. It was made clear at the hearing that Mr Glissan came into the matter some four days before the hearing commenced, and had undertaken to represent the defendant under the Bar Association legal assistance scheme.

27 In the absence of any equitable defence, or relief under the Contracts Review Act, Mrs Blain would clearly be bound by a document that she had signed. She was aware that this was the consequence of her signing any document. However, in the circumstances, I need to consider the various defences that may be available to her.

28 I should consider the relevant law before I consider the various submissions of the plaintiff as to why I should find that, at the time she signed the relevant document, Mrs Blain was aware of the general nature of the guarantee, which was important because of what Bryson J (as he then was) said in Burt v Australia and New Zealand Banking Group Ltd, unrep NSWSC 6 May 1994, BC 9402524, that she had previously given guarantees, and that she had some familiarity with her husband's business. If I were to find for the defendant on these matters, this would have a significant effect on whether I would grant any of the relief she seeks. I shall, therefore, return to some of these facts later.

29 I need to consider a further matter that was raised by the defendant. She says that, because the plaintiff changed the nature of the principle obligation in a significant way, after she signed the document, the guarantee is discharged, as it were, by the operation of law.

30 There was evidence from an insurer, adduced by the plaintiff, that the plaintiff had obtained a policy of insurance covering the potential liability of PBSBN up to a sum of $200,000. Ms Ross apparently arranged this insurance cover through an insurance broker, who normally arranged such insurance cover for the plaintiff with QBE Insurance. In evidence, there is an email from Ms Ross, dated 15 March 2004, requesting such cover, and there are notations on various documents that the cover was approved and completed on or about 22 March 2004.

31 Mr Glissan submits that the placing of a limit on the credit to be extended to PBSBN was something that occurred after the guarantee document had been signed, and about which neither Mr nor Mrs Blain had been consulted. He says that this was a unilateral variation of the principal obligation, after it was executed, and that, because it amounted to the creation of a limit on the principle debtor's obligation, after the guarantee was executed, it operated to avoid the obligation of the defendant under the contract of guarantee.

Relevant legal principles - A. Garcia v National Australia Bank Ltd

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".

33 It is, therefore, important for me first to determine whether, in the circumstances of this case, Mrs Blain can be regarded as a "volunteer". She says that she is, because she was not a director of the company and did not hold the shares she held beneficially. She relies on two cases, State Bank of NSW v Chia (2000) 50 NSWLR 587, and Wenczel v Commonwealth Bank of Australia [2006] VSC 324.

34 In Chia's case, the bank sought recovery, under a guarantee of Dr Chia's debts, from his wife. No company or trust appeared to be involved in the transaction. Mrs Chia said that she did not understand the nature of the document she had signed, and had not received independent legal advice. Einstein J found, in a passage not reported in the published reports, but available on the internet, that is, http://www.austlii.edu.au/au/cases/nsw/supreme_ct/2000/552.html: "141 In my view Mrs Chia took pains to understate her knowledge and understanding of Dr Chia's financial affairs and relationship with the Bank. I do not find for a moment that she had a very detailed understanding of those financial affairs or of that relationship. But in my view she certainly knew far more than she accepted in the witness box. The plethora of correspondence and bank statements and materials relating to Dr Chia's business affairs which would have required to be filed must have been accepted by her as a fact of life over an extended period of time. And being, as I find, quite able at filing documents and having assisted Dr Chia in this way at least with respect to a number of categories of such documents, I cannot accept that she was ignorant of the general indebtedness which the bank statements time and time again must have made plain. On my finding she was, at the very least, clearly aware that Dr Chia had extensive business dealings involving borrowings from the Bank and from time to time required to and in fact varied his arrangements with the Bank. This is not to say that she knew of the intrinsic detail of these dealings and variations. But in my view the evidence establishes that her knowledge and understanding of Dr Chia's financial affairs and dealings with the Bank was more extensive than she would have the court accept. At the end of the day the question is one of degree."

35 In this case there is no evidence upon which I could find, or from which I could infer, that Mrs Blain had knowledge of a similar kind.

36 Einstein J went on to say, and this passage is reported at p 601 para 169, in respect of a defence relying on Garcia's case: "(2) The second requirement is that the wife is a volunteer. It is not sufficient that the wife has received consideration as would be recognised in the law of contract: Bank of Victoria Ltd v Mueller (at 649). The consideration for the guarantee must be of 'real benefit', to the wife: Garcia (at 412). Incidental benefit which accrues generally to the family of which the wife is a member is not sufficient benefit to render a transaction which does not otherwise contain a 'real benefit' non-voluntary: Armstrong v Commonwealth Bank of Australia (1999) 9 BPR 17,035; [2000] ANZ ConvR 470; Cranfield Pty Ltd v Commonwealth Bank of Australia (Supreme Court of Victoria, Mandie J, 20 November 1998, unrep). Where the wife expects to reap direct profit from the transaction, the transaction cannot be said to be voluntary : State Bank of New South Wales Ltd v Vecchio ( Kirby J, 10 November 1998, unrep). Neither can it be said to be voluntary where the moneys secured by the guarantee are used to purchase an asset in which the wife is equally interested with her husband: Commonwealth Bank of Australia v Khouri (Supreme Court of Victoria, Harper J, 4 November 1998 unrep). However, where the interest of the wife is a shareholding in the company through which her husband conducted his business and in which she has no real involvement, then a guarantee given by the wife over that company's debts will be voluntary: Commonwealth Bank of Australia v Khouri .",

and I emphasise this following passage from Einstein J's judgment: " But where the wife has an active and substantial interest in the conduct of, and the fortunes of, the business run by her husband, she will not be a volunteer in relation to any guarantee over the debts of that business: Radin v Commonwealth Bank of Australia (Federal Court of Australia, Lindgren J, 23 October 1998 Unreported). "

That is the end of the emphasis. "Where the transaction is not ex facie for the benefit of the wife, then the onus will lie on the party seeking to enforce the security to show that the wife was not, relevantly, a volunteer: Warburton v Whiteley (1989) NSW ConvR 55-453 at 48, per McHugh JA."

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'."

38 The defendant also relied on Chandran v Narayan [2006] NSWSC 104, especially at para 53 and following where Young CJ in Equity said: "53 There are a number of cases where courts have considered what is a voluntary transaction for the purpose of this sort of rule, and the matter was examined in Garcia itself. It is now accepted that the mere fact that the wife may own shares in the company which is the vehicle for her husband's business does not disqualify her from being a volunteer. Nor does the fact that the business produces benefit which accrues generally to the family of which the wife is a member; see, eg State Bank of New South Wales Ltd v Chia (2000) 50 NSWLR 587 at 601."

And I emphasise this, not Young CJ: " 54 But whilst each case must be dealt with on its own facts, where the wife has a more active interest in the conduct and fortunes of the husband's business she is not considered to be a volunteer for the purpose of the rule. "

That's the end of the emphasis. "55 In the instant case, although it is rather nebulous as to the exact involvement of Mrs Narayan in the business, it seems to me that the balance of probabilities favour that she was more than a mere despatcher of goods and payroll clerk, but not only was she the sole shareholder and director of the Productions company, she was also otherwise involved in the Sales company."

39 A similar question arose recently before McCallum J in the Supreme Court in National Australia Bank v Satchithanantham [2009] NSWSC 21. Her Honour said: "The majority in Garcia used the term 'voluntary' in the sense that the surety obtained 'no financial benefit' or 'no gain' from the contract the performance of which was guaranteed."

She is referring to another case here at para 31 and I think this is in reference to Yerkey v Jones (1939) 63 CLR 649: "Dixon J referred to principles he said were of special importance 'when the transaction in question is one of suretyship and the wife, without any recompense, except the advantage of her husband, saddles her separate property with a liability for his debt or debts' (at 676.4). What pricks good conscience, in such a case, is the complete absence of benefit; the fact that a person's separate assets are exposed entirely in the interests of another."

40 In my view, Commonwealth Bank of Australia v Cohen, (unrep) Cole J (22 July 1988) BC 8801713, with respect, does not consider the Garcia argument, and is distinguishable on the facts.

41 In each of the cases which I have cited, except for Chandran v Narayan, there was evidence that the wife played no active role in the management of the husband's business, whether carried on through a company, or not, and had for the purposes of the rule, no beneficial interest in the business. In this case, Mrs Blain was not only a trustee of the family trust, but was also a beneficiary of that trust. It may be true that, whether or not she received any material benefit from the trust, depended on the exercise of a discretion, but the potential benefits that she might receive, suggest that she did have a material and beneficial interest in the business. Those who choose, for reasons of taxation, or for reduction of the risk of exposure to liability, to use corporate forms or trusts in the conduct of the business, must accept the consequences of that choice, which may include exposure to a different type of liability.

42 In the circumstances, the interest of Mrs Blain as a beneficiary of the family trust, which was in turn the beneficial owner of shares in the company, lead me to the conclusion that she cannot be regarded as a volunteer. Although she may pass each of the other three tests laid down by the High Court in Garcia, a question which I do not have to consider, except in so far as those criteria arise under other defences, she does not pass one of the four vital tests and, therefore, is precluded from any remedy under the Garcia principles. It is, therefore, not necessary to consider any question as to the jurisdiction of this Court to grant equitable relief in respect of this issue.

Relevant legal principles - B. Discharge of guarantee by variation of principal obligation

43 The defendant says that the actions of the plaintiff, in relation to the establishment of a credit limit and the obtaining of credit insurance, operate to discharge the guarantee entirely, because the obligations of the principal debtor were changed significantly by that action, and this has the effect of discharging the guarantor.

44 The plaintiff adduced evidence relating to the obtaining of credit insurance by reading the affidavit of Scott Allan, a senior underwriter employed by QBE Insurance Ltd, which says: "An insurance limit was applied by Plasterboard in relation to PSBN on 16 March 2004…the PSBN application was approved on 22 March 2004 subject to the provision of guarantees from Peter Blain and Janine Agnes Blain."

This is borne out by the records annexed to Mr Allan's affidavit.

45 The defendant's case is that Mr and Mrs Blain signed the guarantee on 6 March. The evidence adduced by the plaintiff shows that the request for insurance cover was not made until 15 March and approved on 22 March. The application for credit does not specify a limit on the amount of credit to be granted, but it does indicate that the estimated monthly purchases would be $100,000. The application form has a note, "$200,000 cr/limit 22/3/04". There was no evidence about how this note came to appear on the form, nor whether it was on the form at the time Mr and Mrs Blain signed it. The defendants asked me to infer that this was a condition imposed by the plaintiff after the application form had been submitted. The application form, itself, can only constitute an offer to enter into contractual arrangements until such time as it is accepted by the other party. To impose a credit limit after the offer has been made, the defendant argues, is to alter the obligation being guaranteed in a material way, after the guarantee has been given, so that the effect is to discharge the guarantor from all obligations.

46 The defendant relies on a number of authorities. In my opinion, they do not support the contention. In Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549 at 559, the majority of the High Court said, omitting references: "According to the English cases, the principle applies so as to discharge the surety when conduct on the part of the creditor has the effect of altering the surety's rights, unless the alteration is unsubstantial and not prejudicial to the surety. The rule does not permit the courts to inquire into the effect of the alteration."

I emphasise this passage: " The consequence is that to hold the surety to its bargain, the creditor must show that the nature of the alteration can be beneficial to the surety only or that by its nature it cannot in any circumstances increase the surety's risk, e.g., a reduction in the debtor's debt or in the interest payable by the surety. "

The quote continues: "The mere possibility of detriment is enough to bring about the discharge of the surety. The foundation of the rule is that the creditor, by varying the principal contract or extending time, has altered the surety's rights without consulting it, though the surety has an interest in the principal contract, and that the creditor cannot be permitted to do."

Here, the imposition of a credit limit was certainly not to Mrs Blain's detriment. In Bakarich & Ors v Commonwealth Bank of Australia [2007] NSWCA 169, Hodgson JA, with whom Santow and Campbell JJA agreed, said: "109 In my opinion, the crucial question is whether the guarantees and mortgage can be considered unjust because they are not limited to guaranteeing Demson's performance of a contract having the terms of the contract as finally made between the Bank and Demson."

His Honour continued: "125 I think it would generally be unreasonable for a bank to take a guarantee of a company's liability to the bank from a family member of directors who is not otherwise associated with the business of the company, where the bank imposes explicit and readily enforceable contractual limits on the advances it is to make to the company but obtains a guarantee which extends to liabilities of the company going beyond those limits, unless the bank takes reasonable steps to ensure that the guarantor understands that this is what the bank is doing and assents to it. Indeed, if in such a case the bank represented to the guarantor that the bank had agreed to provide finance to the principal creditor, and that the guarantee was of repayment of money provided pursuant to that agreement, the representation would be misleading. In the present case, the limits were not determined until after the guarantees were obtained; but since the Bank intended to impose limits of that kind at the time the guarantee and the mortgage were signed, I do not think that makes a material difference."

The facts in this case point to a similar position. I infer that the plaintiff proposed to establish a credit limit and obtain insurance before it approved credit to PBSBN or Mr Blain. That limit on credit and insurance would not have been detrimental to Mrs Blain, or to the principal debtor, PBSBN, as was the case in Bakarich's case.

47 There are no grounds upon which I could find that the plaintiff's actions in setting a limit to the credit or obtaining credit insurance discharged the guarantor's obligations.

Relevant legal principles - C. The Contracts Review Act

48 The defendant also relies on the provisions of the Contracts Review Act. She seeks relief, in particular, pursuant to s 7(1)(a) and (b) in relation to the guarantee, either entirely, or in so far as it relates to the Blain's matrimonial home. I bear in mind that the threshold for relief under the Contracts Review Act is lower than under the general law of unconscionability. That was established by Bakarich & Ors v Commonwealth Bank of Australia, which I have referred to, at para [89], adopted by White J in Andrews v Racken Pty Ltd [2007] NSWSC 1010 at para [209].

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."

I must, therefore, look at both the operation of the guarantee and the circumstances in which it was made.

50 The relevant time, at which the Court must examine the transaction, is the time at which the contract was made. It is common ground that Mrs Blain signed the guarantee form on 6 March 2004. That is the relevant time. CIT Credit Pty Ltd v Keable [2006] NSWCA 130 at [65]. See also Teachers Health Investments Pty Limited v Wynne (1996) NSW Conv R 55-785.

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.

52 I must consider whether, in the light of any matter set out in s 9, or otherwise, the guarantee is "unjust". That is the first step; then if I am satisfied that the guarantee was unjust, I should consider whether to grant relief, and if so, what relief (see per Justice Handley in Perpetual Trustee Co Ltd v Khoshoba [2006] NSWCA 41 at [99]. It may be that the contract of guarantee was "unjust", but it does not necessarily follow that the Court should grant relief. Nguyen v Taylor (1992) 27 NSWLR 48 at pp 54-55 and 71.

53 Section 9(2)(a) - material inequality in bargaining power.The defendant says that there was a clear and significant inequality of bargaining power. I do not understand the plaintiff to have asserted the contrary. First, the defendant's husband required the plaintiff to provide him with supplies on credit in order to carry on his proposed business. The plaintiff was prepared to do so, provided Mr Blain applied for credit in the way required, and also that he provided security for performance of his obligations. The unchallenged evidence from Ms Ross is that this included a personal and continuing guarantee from Mrs Blain as well, as she was the joint owner of the matrimonial home. In economic terms, the defendant and her husband had far less economic power than the plaintiff, and depended on the plaintiff.

54 Section 9(2)(b) - negotiation. There clearly was no negotiation of the guarantee. In common with much commercial practice the plaintiff offered credit to its customers on a "take it or leave it" basis.

55 Section 9(2)(c) - negotiation for rejection or alteration of any part of the guarantee. I have dealt with this in the preceding paragraph.

56 Section 9(2)(d) did 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? The defendant says that while there was no difficulty in complying with the conditions, an unlimited and continuing guarantee was more than what was reasonably necessary to protect the plaintiff's interest in respect to credit, which, on the evidence, was to be limited to $200,000.

57 Section 9(2)(e) This is not relevant or relied upon by the defendant.

58 Section 9(2)(f) - relative economic circumstances, educational background and literacy of the parties Mrs Blain was educated to school leaving age, then had some but limited work and business experience. She was literate in English, aware of the general nature and purpose of guarantees and had, in fact, provided guarantees, secured by mortgages of real property, to secure the bank overdraft facilities of her husband's businesses in the past.

59 Section 9(2)(g) - physical form and intelligibility. The defendant gave evidence that she did not understand the meaning of a number of the more technical expressions used in the guarantee document. The document is printed in small type. It is in a form which I assume to be relatively common in contemporary commerce. The document is printed on both sides of a single sheet of B4 size paper folded in half. The document, therefore, appears to have four separate pages. The guarantee is the fourth page. It was obviously intended by the plaintiff that the credit application, which covers the first three pages, and the guarantee on the fourth page, should be regarded as a single document, representing a single transaction. If the plaintiff required security for performance of the obligations under the credit contract which would be formed if, and only if, the plaintiff accepted the offer constituted by the three-page document, then it would require the applicant for credit and, if appropriate, other persons, to execute the guarantee, which appears to be in the form of a deed. To someone who lacked legal training, the four pages would appear to be a single document representing a single transaction. Only a person with some experience in legal matters, if not legal training, would realise that the two parts of the document were legally quite separate, with separate terms and conditions and vastly difference consequences.

60 There are some other aspects of the Application for Credit document that I regard as important. On the front page the following notation appears twice: "PLEASE NOTE THIS CREDIT APPLICATION MUST BE 100% COMPLETED BY ALL APPICANTS OTHERWISE IT WILL NOT BE PROCESSED". It is not clear whether this is intended to refer only to the application for credit, or whether it applies to the deed of guarantee and indemnity, which is the last of the four pages.

61 Secondly, the application for credit, as opposed to the guarantee, contains the following words: " Security . In consideration of the Australian Plasterboard Company Pty Limited having agreed to sell goods and extend credit, the applicant/s hereby charge with the payment of all monies which at any time or from time to time are owing and payable or owing but not then presently payable by the applicant/s whether alone or jointly or jointly and severally with any person to the Australian Plasterboard Company Pty Limited (and where this application is signed by more than one person jointed and severally charge) as beneficial owner all freehold and leasehold interests in land which the applicant/s now has or may acquire."

This appears to be an offer to provide security that is different to the deed of guarantee and indemnity that forms the last page of the document.

62 The plaintiff clearly intended that the deed of guarantee and indemnity would be executed, not only by applicants for credit, who would commonly be corporations, but also by individual third parties, including directors and officers of the applicant, and other persons who owned property jointly with the applicant, or with directors and officers of the applicant, such as Mrs Blain.

63 The application appears to be in the name of Peter Blain, although the details show that PBSBN is the registered or trading name of the applicant. The names of both Peter and Janine Blain appear in the section entitled "full names and addresses of directors, partners, spouse and/or trustees". Both signed the credit application, as well as the guarantee.

64 Section 9(2)(h) - independent legal advice. There was none offered or obtained.

65 Section 9(2)(i) - explanation and understanding. There was no explanation to Mrs Blain, by the plaintiff, its representatives or anybody else, of the nature and effect of the guarantee. She said she did not know or understand that the document she signed was a guarantee, and in particular, she did not know or understand that the document created a charge over all her property, including her home.

66 Section 9(2)(j) - pressure and undue influence. Although the matter was raised in the pleadings, there was no evidence that the plaintiff, or anybody employed by it, imposed any undue influence on the defendant. She was aware that the document was necessary for her husband's proposed business to obtain supplies on credit, but that must be seen as a normal pressure of modern commerce, not as undue influence. Although Mrs Blain's evidence was that she trusted her husband, and accepted his advice and direction in matters of business, this cannot be regarded as "undue influence", especially as she had previously given guarantees for her husband and/or his businesses.

67 Section 9(2)(k) - previous dealings between the parties. The defendant had not previously had any dealings with the plaintiff, as opposed to her husband and his companies.

68 Section 9(2)(l) - the commercial or other setting, purpose and effect of the contract. In modern commerce it is common for suppliers to require customers that are companies to secure any credit arrangements by the provision of a personal guarantee by the directors and shareholders. See CIT Credit Limited v Keable [2006] NSWCA 130 at [42]. It might have been surprising if the plaintiff had not required Mr Blain to provide a personal guarantee in the circumstances that surrounded his application for credit. It is less common to require the spouse of a director to provide security by way of guarantee, but when that spouse is the joint proprietor of a major asset with a person, who proposes to operate a business through a corporation, one can understand why a potential creditor might require that security.

69 Of the matters set out in s 9(2), the defendant relies principally on paras (a), (b), (d), (e), (g), (j), (k) and (l), that is, the relative economic power of the parties, the lack of negotiation, the lack of proper explanation, the lack of independent legal advice as to the effect of the guarantee, and, combined with these factors, her lack of understanding of the nature of the document she was signing, particularly its status as a guarantee, which was unlimited, which was continuing, and which created a charge on all her property. She relies not only on the form of the document, but also on the circumstances in which it was signed. It was presented to her on an informal occasion, during a meal or coffee break at a sales convention. This, she says, reinforces the view she formed that a guarantee was a formal document usually given in connection with a registrable mortgage over land, after receipt of independent legal advice, combined with a full explanation of the terms in the document, which is what she said she had received when she guaranteed her husband's business obligations to a bank.

70 The plaintiff has pointed out there was no statement, in the pleadings or the defendant's affidavit, as to what she understood the nature of the document to be, nor of how she said it was "unjust" in the sense of being harsh, oppressive or unconscionable. That remained for her oral evidence in court, and for submissions by her counsel.

71 Although Mrs Blain was cross examined vigorously, she did not at any time resile from her evidence that, although she signed the document, she neither read nor understood it. She maintained that she did not know that it was a guarantee until well after these proceedings had commenced. Her evidence was that she only saw the document on the occasion she signed it, and she did that at the request of her husband whom she trusted, because her understanding was that if she did not sign it, he would not be able to commence his business.

72 In view of Mrs Blain's previous experience in the granting of guarantees for her husband's businesses, I accept that, in each previous case, when she had given a guarantee, she had signed the necessary documents in a relatively formal setting, after she had received independent legal advice and a full explanation of the transaction. I accept her evidence that, at the time she signed this document, she did not understand the nature and consequences of the deed of guarantee and indemnity in favour of the plaintiff.

73 In Baltic Shipping Co v Dillon (1991) 22 NSWLR 1 at 9, Gleeson CJ said that "…the general policy of the law is that people should honour their contract. That policy forms part of our idea of what is just." While this is sound as a general principle, the Contracts Review Act represents an exception to the general policy, in circumstances where a court finds that relief is justified. In general terms, a person who signs a document is bound by it, and a person who makes a contract is bound by it. However, the harshness of the common law, as demonstrated by cases such as L'Estrange v Graucob Ltd [1934] 2 KB 394, does not apply where there are exceptions, as a result either of the statutory changes such as the Act, or of rules developed by the courts, such as was demonstrated in Garcia's case.

74 In Perpetual Trustee Company Limited v Khoshaba [2006] NSWCA 41, Spigelman CJ said, "[68] In my opinion, the purpose for which a loan is advanced is a relevant circumstance." He applied what McHugh JA had said in West (above at 622) to the effect that a contract, which is "unfair", is not necessarily "unjust" at [72]. He referred to what Gleeson CJ said in Baltic Shipping Co v Dillon. Spigelman CJ continued: "76 Plainly, the conduct, whether by act or omission, of the party resisting a finding of unjustness under the Act is highly relevant, and will often be determinative. However, the scope of relevant circumstances is not confined to what the person resisting an order under s 7(1) did or did not do and knew or ought to have known. The critical phrase in s 7(1) - 'The circumstances relating to the contract at the time it was made' cannot be so limited. Section 9(1) provides that when determining unjustness 'the court shall have regard to the public interest and to all the circumstances of the case'. Furthermore s 9(2)(1) includes, as I have noted, amongst the relevant circumstances, 'the commercial or other setting purposes and effect of the contract'."

75 In the same case, Basten JA said: "117 An issue of central importance in this case is the weight which should be given to the lack of awareness of the lender with respect to the circumstances of the borrowers. Thus, for example, if the borrowers were labouring under a disability which rendered them reasonably able to protect their interests, for the purpose of s 9(2)(e), that fact may not be known to the other party.In Karavas (at 277C), Meagher JA stated: 'There is jurisdiction under the Act to make orders in favour of a party to a contract who proves that at the date of the contract he suffers from a relevant disability even though the other party to the contract is unaware of that disability, although in general it would be unsound to exercise the jurisdiction in those circumstances…The reason for the view is that it is hardly just to deprive an innocent person of valuable property of which contractual rights are a species. Nevertheless, such a jurisdiction undoubtedly exists. In the present case, for example, it is made quite clear from s 9(2)(i) of the Act that relief may be granted if a finding is made that a party to a contract did not understand 'the provisions and their effect' of a contract'."

Basten JA considered St Clair v Petricevic (1988) ASC 55-688, where the facts were significantly different from those before me. He continued: "119 Reading St Clair and Karavas together, the true position may be that a claimant can establish the unjustness of a contract by reliance on factors of which the other party was ignorant when the contract was entered into, but that such ignorance may be relevant in determining whether to grant relief. The fact that the power may be engaged by circumstances which were not known to the other party, at the time the contract was made is well established: see eg, St George Bank Ltd v Trimarchi [2004] NSWCA 120 at [36]."

76 In National Australia Bank v Satchithanantham [2009] NSWSC 21 McCallum J found that the contract of guarantee was "unjust" within the meaning of that expression in the Act. She said, after setting out some findings of fact and references to previous authority: "104 I am mindful of the fact that I was not able to conclude, in respect of the defence on the equitable ground of unconscionability, that the bank was sufficiently aware of any disability suffered by Mrs Satchithanantham to warrant a finding of unfairly taking advantage.The ignorance of the lender is relevant, but not determinative. Chief Justice Spigelman had regard to the same issue in Koshaba at [94] to [96], but reached the conclusion that relief should not be refused, placing greater reliance on the lender's indifference to the purpose of the loan; see also at [119] per Basten JA. Similarly, in Elkofairi, Beazley JA (at [79]), placed particular emphasis on the fact that it was a substantial loan, the security for which was the appellant's only asset and the respondent's knowledge that the appellant had no income or other assets."

77 In Andrews v Racken Pty Limited [2007] NSWSC 1010, White J said: "209. Although the present is not a case of wife and husband, the principles for granting relief on the grounds of unconscionability in such a case are relevant to considering whether the Agreement for Provision of Finance, so far as it concerns Barry Andrews, was unjust…To adapt the language of the majority of the High Court in Garcia , in the present case, there is the combination of circumstances that Barry Andrews did not understand the purport and effect of the transaction; the transaction was in substance a voluntary one in the sense that it was unlikely that he would obtain a benefit from it; he did not participate in any of the discussions in relation to the transaction or negotiations of it, although his son did; Racken may be taken to have understood that he might repose trust and confidence in his son in relation to the transaction as it related to the provision of working capital for Oxyman for which his son was a senior manager and beneficial shareholder. Racken may be taken to have understood that Garry Andrews might not fully and accurately explain the purport and effect of the transaction to Barry Andrews, and yet Racken did not itself take steps to explain the transaction to him or to find out that the transaction had been explained to him. Whether or not such considerations would justify relief at general law, in my view, they lead to the conclusion that the transaction was unjust in the circumstances in which it was made within the meaning of ss 7 and 9 of the Contracts Review Act ."

See also Elkofairi v Permanent Trustee Co Ltd [2002] NSWCA 413.

78 In this case, there was no suggestion that either the plaintiff or Mr Blain exercised any undue influence over Mrs Blain in order to induce her to sign the document. In this respect, the circumstances of this case differed from those cases where there was an actual or implied undue influence, such as Commonwealth Bank of Australia v Cohen, Wenczel's case and Spina v Conran Associates Pty Limited [2008] NSWSC 326 at [126].

79 I have set out the passages above in detail, as they illustrate the general principle that a court must consider the specific facts and circumstances of the particular case it is considering.

80 The unchallenged evidence here was that Mr Blain looked after the business affairs of the family, and that, apart from some minor office work, Mrs Blain was occupied either in domestic duties or casual part-time employment. Her evidence was that she trusted her husband absolutely, and accepted his judgment on all business matters. She accepted his judgment that it was necessary to sign the form presented by Ms Ross, which Mr Blain had himself filled in a couple of weeks previously, in order to obtain credit for the business.

81 In this case, I find that it was not unreasonable for the plaintiff to attempt to obtain security for performance of the principal debtor's obligation by way of a personal guarantee from Mr Blain. Given that Mr Blain's principal asset, other than his business interests, was his interest in the matrimonial home, it was not, in general terms, unreasonable for the plaintiff to seek also a guarantee from the other joint owner, that is Mrs Blain. However, to require a guarantee which was unlimited and indefinite, where it was proposed to grant and issue credit only for a limited amount, was unconscionable within the meaning of the principle established in Bakarich's case, to which I have referred.

82 There is no doubt that the parties did not have equal bargaining power, and that, as a commercial reality, the Blains could not seek to negotiate the terms of the agreement, nor any particular aspect of it. Also, as a matter of commercial reality, where the principal debtor is a corporation with a limited paid-up capital, some security arrangement is inevitable

83 The law does not require that a potential guarantor, even where the guarantee involves the granting of a charge or mortgage over real property or other significant assets, receive independent legal advice: see Gough v Commonwealth Bank of Australia [1994] ASC 56-270; Radan v Commonwealth Bank of Australia (unreported, Federal Court of Australia, 23 October 1998).

84 It is desirable, though not absolutely necessary, that the party obtaining the benefit of the guarantee should explain, in general terms at least, the effect and consequences of the granting of the guarantee.

85 In this case, I am satisfied that Mrs Blain understood in general terms what a guarantee was. She understood that it was necessary for her husband to sign the application for credit, as a condition of the plaintiff providing supplies to him on credit. I am not satisfied, on the balance of probabilities, that she understood that the document she was signing was a guarantee, despite the fact that the last of the four pages comprising the document had a heading to that effect; and I am certainly not satisfied, on the balance of probabilities, that she understood that the effect of her signing the document was to create a charge over her home.

86 I reach this conclusion, having regard to the legal principles set out above, because of three principal factors: (a) The document was signed on an informal occasion when there was no opportunity to explain it at all. The circumstances were such that, in reality, Mrs Blain thought that there was no alternative to her signing the document. (b) The form of the document was, in the circumstances of the transaction, misleading. It would have been otherwise if the page containing the guarantee had been printed on a separate sheet of paper, so that all persons looking at it would realise that, although it might be related to the application for credit, it was a separate document with separate legal effect. This is particularly so because of the section headed "Security", which I have set out above. (c) On every previous occasion, when Mrs Blain had executed a guarantee in respect to her husband's companies, the circumstances were materially different in that: (i) she received independent legal advice and the transaction had its consequences fully explained to her; and (ii) at the same time she executed a formal, registrable mortgage over her land.

It was, therefore, reasonable for her to associate the execution of a guarantee with a degree of formality, which was not present when she signed the guarantee in this case.

87 In the circumstances, while I find there was nothing unjust about the requiring of the guarantee itself, or the commercial circumstances which led to the plaintiff requiring a guarantee, the form and content of the document, and the manner in which Ms Ross, the plaintiff's employee, requested Mrs Blain to sign the document, lead to the inevitable conclusion that, within the meaning of the Act, the contract of guarantee is unjust.

88 I must, therefore, consider whether the court should grant relief, and if so, what relief.

Contracts Review Act: what relief should the court grant?

89 As I read the authorities, the court must consider all relevant circumstances, not only in determining whether or not a contract is unjust, but also in determining what relief should be granted. I consider, in this regard, not only the circumstances leading me to find that the guarantee was unjust, but also all the other relevant evidence.

90 The power to grant relief is limited to what is necessary to relieve the injustice. In Esanda Finance Corporation Ltd v Tong (1997) 41 NSWLR 482 at 489 Handley JA said: "Section 7 gives the Court powers to grant civil remedies to remove injustice. These powers are neither penal nor disciplinary, and should not be exercised for such purposes. Once injustice to the weaker party has been remedied, the Court should not further interfere with the rights of the parties. Interference beyond that point will cause injustice to the other party, and is not authorised by the section."

91 Samuels J in SH Lock (Australia) Ltd v Kennedy (1988) 12 NSWLR 482 said at 487: "If the Court were now to vary the contract of guarantee by reducing the amount of the respondent's liability, it would not be relieving the respondent from the consequences of injustice, but punishing the appellant for having brought about an injustice…I do not consider that this would be an authorised use of the powers which the Act provides: see the opening words of s 7(1)."

Similarly, Priestley JA at 492-494 said: "Once the Court finds a contract unjust… it is faced with the next and quite separate task, for which the Act provides less guidance: the relief the Court is empowered to give is, if it considers just to do so, to make appropriate orders 'for the purpose of avoiding as far as practicable an unjust consequence or result'. As I understand s 7(1), wide though the Court's powers are to find a contract unjust, the remedies it may grant in respect of such injustice are strictly limited to avoiding an unjust consequence or result of the unjust contract…"

See also Nguyen v Taylor (1992) 27 NSWLR 48 where Kirby P made similar remarks at 57.

92 The plaintiff submits that relief may be denied if the court is satisfied that the applicant would not have required any changes if the documents had been properly explained: Australian Guarantee Corporation Ltd v Bradbury (unrep, SCNSW, Dunford J, 9 August 1996); Burt v Australia and New Zealand Banking Group Ltd (unrep, SCNSW, Bryson J, 6 May 1994), or that the defendant would have entered into this guarantee, even if it was fully explained to her. Importantly, the defendant did not give evidence that she would not have entered into the guarantee if she had been aware, in substance, of the obligations contained in it. It is highly likely, given her relationship with her husband, that the defendant would have entered into it, as she had entered into security arrangements to support the family businesses over the years. I am satisfied, on the balance of probabilities, that if the plaintiff had presented Mrs Blain with a deed of guarantee and indemnity as a document separate from the application of credit, and in a more formal setting, for example, a meeting in the plaintiff's premises, or even a visit to the defendant's home by a representative of the plaintiff, she would still have signed it if her husband had requested her to do so.

93 One point remains. The plaintiff never intended, at the time of the signing of the guarantee, to extend credit to PBSBN to more than the amount of $200,000, and the credit application form specified that the company would not require credit of more than $100,000 per month. The fact that the principal obligation grew to nearly $500,000 must, to a large extent, be the responsibility of the plaintiff. Mr Glissan submitted that, in the circumstances, for the plaintiff to require a continuing and unlimited guarantee, was unconscionable. I agree with this submission. I infer that the plaintiff never intended to allow PBSBN to have credit in the amount of the debt it now sues for. I note what the Court of Appeal has said about "all monies" clauses in guarantees in such cases as Bakarich.

94 In the circumstances of this case, to order that the guarantee not be enforced at all, would be punishing the plaintiff for doing what was reasonable to protect its commercial interests, given that Mr Blain, on behalf of PBSBN, had applied for limited credit, and the evidence, adduced by the plaintiff itself, that it intended to limit the amount of credit. However, to allow the plaintiff to enforce the guarantee for the amount claimed would, in my view, be unconscionable. I propose to grant relief to the defendant to the extent that the claim extends beyond the sum of $200,000 plus reasonable interest.

95 Accordingly, there will be a verdict for the plaintiff for $200,000 plus interest from the date upon which the first demand was made.

96 On 6 April this year I delivered my reasons for deciding what I took to be the issues in this case. The reasons were delivered orally, but not extempore. I had prepared a detailed note of my reasons, which I read onto the court record. For that reason the case of Bar-Mordecai v Rotman [2000] NSWCA 123 is not directly in point. Nor is this a case of the application of the "slip rule".

97 After I concluded delivering these reasons, Mr Glissan, for the defendant, pointed out that my reasons did not deal with arguments based on the additional ground of defence (para 17A), which I gave him leave to file in court in the course of the proceedings. I immediately realised that I was either unaware of, or had overlooked, the substance of the arguments which he raised, and agreed that that issue required re-argument. The matter was accordingly listed for further argument on 20 May. Subsequently, I have read the further submissions provided by counsel for the parties. In my reasons delivered on 6 April, I did not properly consider the arguments raised by the defendant, and I consider it is appropriate to do so now.

98 Accordingly, if I have not formally done so, I revoke all orders made by me on 6 April.

99 The new ground of defence (para 17A) reads: "[i]f the guarantee dated the 6 March 2004 is not liable to be set aside in equity and/or is not void and/or unenforceable under the Contracts Review Act (NSW) 1980, then the Defendant is discharged from liability thereunder by the conduct of the Plaintiff. Particulars of conduct The plaintiff obtained the guarantee to support an agreement between the plaintiff and Plasterboard Sales Brisbane North Pty Ltd with a credit limit of $200,000, and thereafter extended credit to an amount of $488,935.48, without the defendant's consent, to the prejudice of the defendant."

100 This additional ground of defence was based on the decision of the High Court in Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549. That principle, as stated by Stein AJA (with whom the other members of the Court agreed) in Schoenhoff v The Commonwealth Bank of Australia [2004] NSWCA 161 at [5] is that "a guarantee is discharged when the creditor's conduct has the effect of altering the surety's rights, unless the alteration is unsubstantial and not prejudicial to the surety."

101 In the course of the reasons delivered on 6 April, I found that the imposition of a limit on the amount of credit to be extended by the plaintiff to Plasterboard Sales Brisbane North Pty Ltd (PBSBN) was not detrimental to the defendant. I did not consider whether the extension of credit beyond that limit was detrimental to the defendant, which is a point raised by the defendant.

102 What is alleged in the additional ground of defence was that the event, which operated to avoid the guarantee, was not the imposition of a credit limit, but rather the actions of the plaintiff in extending credit to PBSBN above the $200,000 limit. It is common ground that the plaintiff did so, resulting in the indebtedness of PBSBN in an amount which gave rise to the amount claimed in these proceedings.

103 The defendant's argument is that Ms Ross, in her oral evidence, agreed that she wrote the credit limit on the document and also placed the date on the document. PBSBN was subsequently notified of the credit arrangement. This happened a date some two weeks after Mr and Mrs Blain signed the document at the sales convention. The defendant says that until this action was completed, by Ms Ross on behalf of the plaintiff, there was no principal agreement, which could be the subject of the guarantee. Therefore, the guarantee did not begin to operate until the principal obligation was completed by the acceptance of the offer; that is, when the plaintiff accepted the written offer made by PBSBN in its application for credit. The guarantee document signed by Mrs Blain remained inchoate, or remained an offer, until such time as the principal obligation was complete.

104 In his additional submissions, counsel for the plaintiff put the following: "4.Necessarily, the defendant must establish that the combination of the matters that occurred post guarantee had the effect of effecting [sic] or altering her rights. That requires a precise identification of what those rights were, and a consideration as to how they were altered. 5.At T31/33, the defendant's argument is premised on a combination of three matters: (a) an acceptance that the guarantee was unlimited in nature; (b)a submission that the evidence showed a credit limit of $200,000 was subsequently imposed on the contract between debtor and creditor; (c)a submission that the evidence showed that credit was subsequently granted in a value of almost $500,000. 7.The defendant complains that the reasons direct attention to the wrong matter. The defendant says that the reasons focus upon the initial imposition of the credit limit, rather than the alleged additional provision of credit in excess of the credit limit after the credit limit was set."

105 Those submissions certainly reflect, at least in part, my understanding of the matter until I had delivered reasons and the matter was raised by counsel for the defendant. I was incorrect in relation to submission 5(b), and possibly 5(a). Paragraph 7 is correct. The submission of the defendant, as I now understand it, is that the credit limit was imposed after the offer in relation to the principal obligation had been signed by Mr and Mrs Blain, but before the contract, which constituted that principal obligation, had been formed by acceptance of the offer. The acceptance of the offer was part of the transaction, in the course of which Ms Ross wrote the credit limit on the document.

106 It follows, Mr Glissan submits, that the guarantee, which the defendant entered into, related to the principal obligation, which was the completed contract, that is, a contract by which the plaintiff would extend credit to PBSBN up to an amount of $200,000. By extending credit to PBSBN for more than $200,000, the plaintiff acted in a way that extended the defendant's obligation to the extent that the credit exceeded that sum, without the defendant's knowledge, in a way that was substantial and detrimental to her by increasing her potential liability to more than $200,000..

107 It does not seem to be in dispute that the terms of the guarantee document amounted to an "all moneys" guarantee. In terms, the guarantee was unlimited and extended to all obligations of PBSBN towards the plaintiff. The relevant issue, Mr Glissan submits, is the nature of the principal obligation of PBSBN, and the date upon which that obligation became complete, because it is only in relation to that obligation that the all monies provision operates.

108 The defendant relied on Schoenhoff's Case (above) and also on a more recent decision of Valstar v Silversmith [2009] NSWCA 80, in which the Court of Appeal applied the Ankar principle.

109 Schoenhoff was a case in which the guarantor guaranteed the performance of a debtor to a bank under a margin lending agreement. The debtor paid $30,000 to the guarantor to discharge a previous loan. The bank maintained that the margin lending agreement related to loans that could only be used to purchase shares, and that for the debtor to repay the loan to the appellants amounted to a breach of the agreement. The appellants said that the extension of a further loan of $30,000 to the debtor by the bank amounted to a variation of the principal agreement and avoided the guarantee. The Court of Appeal found that the further advance was detrimental to the guarantors, because it increased their potential liability, and the fact that they were repaid this sum of money did not alter the position. Stein AJA said (at [18]), "the fact of the matter is that the conduct of the bank in lending $30,000 to the debtor for a purpose other than to buy shares to be secured by it had the effect of altering the appellants' rights. It was prejudicial to the appellants in that the alteration was not unsubstantial." The Court applied the Ankar principle and found that the guarantee had been avoided by the bank' s conduct. The defendant says that this case is directly analogous to the present case. I am not certain that this analogy can be sustained completely, but it does apply to the extent that the extension of credit to the principal debtor beyond an agreed limit is detrimental to the guarantor. I accept that there is a strong analogy between the Schoenhoff case and this case. The facts of the Valstar case were significantly different.

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...'"

111 This submission is also founded on the assumption that I have found that no credit limit was set in the contract until after the guarantee came into existence, and further, that the guarantee was in law as well as in its terms unlimited. I do not think that it is explicit, or even implicit, in the reasons that were delivered, that I made a finding as to whether the guarantee operated before the credit limit was imposed, but even if I did, considering the arguments now made by the defendant as to the time at which the principal contract came into existence, namely, when it was accepted by Ms Ross on behalf of the plaintiff, I could not find that the guarantee came into existence until the principal contract was formed.

112 I accept the defendant's argument that, although the documents were signed at the same time, neither came into effect until the principal contract was complete. Until that acceptance was communicated to PBSBN and to the defendant, there was neither an existing principal contract nor a binding guarantee. Therefore, the assumption on which the plaintiff's submission is founded is incorrect. I shall consider whether or not that affects the final conclusion.

113 In the circumstances, I could not be satisfied, on the balance of probabilities, or as a matter of construction, that any amount advanced by the plaintiff to PBSBN in excess of the credit limit of $200,000 imposed when the offer was accepted, was advanced pursuant to the principal agreement between the plaintiff and PBSBN. That agreement was limited to credit of up to $200,000. Because of the circumstances in which the guarantee became effective, namely when the principal obligation was completed by communication of the acceptance of the offer, the guarantee also extends only to the sum of $200,000. That would be consistent with a finding I have made in respect of the Contracts Review Act. It does not, however, dispose of the argument based on Ankar.

114 The full terms of the "all moneys" provision are important. They are: "In consideration of you having agreed to sell goods or to provide services granting or giving credit to [PBSBN] … 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 of attempted exercise of any power or remedy AND UNDERTAKE as a separate and additional obligation under this instrument and as a principal Debtor to indemnify and keep you indemnified against any loss that you incur as a consequence of the failure for whatever reason of the due and punctual payment by the Company of any monies due to you as aforesaid and in consideration as aforesaid AND IN CONSIDERATION as aforesaid ... WE FURTHER AGREE that this guarantee shall be a continuing guarantee and shall not be considered as wholly or partially satisfied or discharged by... any other matters 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 as aforesaid ..." [my emphasis]

115 The consideration for the guarantee is "of you having agreed to sell goods or to provide services granting or giving credit to [PBSBN]". Until the application for credit was accepted by the plaintiff, there could be no consideration for the guarantee, because, until acceptance of the offer, the plaintiff had not agreed or promised to do anything. The principal obligation did not exist, and until it did, there was no basis or consideration for the guarantee. There was certainly no agreement to sell goods or provide credit to PBSBN. Because of the principle of strictissimi juris, in other words, where there is any ambiguity in a guarantee, it should be construed in favour of the surety, this provision must be construed so that the guarantee applies only to amounts owing under the actual principal obligation. There is an implied term that it applies only to "all monies" owing under the guaranteed obligation, and does not extend to moneys otherwise owing by the principal debtor to the creditor. If the amount owing under that principal obligation could not exceed $200,000, it follows that the liability of the guarantor under the guarantee could not exceed that amount either.

116 The words intended to ensure that the guarantee be a continuing guarantee, by including the words "as aforesaid", limit the continuation of the guarantee to the obligations under the principal credit contract, that is, to a guarantee of credit up to $200,000. Any extension of credit beyond that limit is a variation of the principal obligation, and is not "as aforesaid". After the principal obligation and guarantee had been concluded, the plaintiff, at variance with the terms of the credit agreement, as constituted by its acceptance of the offer, with the imposition of the credit limit, on behalf of PBSBN, which offer had been signed by the defendant and her husband, extended credit to PBSBN beyond that limit, without the consent of the defendant, and in a way that was both substantial and detrimental to the defendant -- to the extent of almost $300,000.

117 The guarantee is avoided by such extension of credit without the consent of the guarantor.

118 Even if that were not the case, I am dubious as to whether anything in McArthur or Bakarich leads to the conclusion that the Ankar principle does not apply. The provisions constituting the principal obligations considered in McArthur and Bakarich were the normal type of provisions common in bank lending documents, allowing the bank to vary amounts of credit, for example, extended to the principal debtor. The provisions in the credit agreement between the plaintiff and PBSBN were of a different character. Although the amount of credit extended at any time might vary, up to $200,000, the principal obligation did not allow for credit beyond that sum. It follows that if the plaintiff extended credit to PBSBN in amounts more than $200,000, the excess over $200,000 could not be the subject of the guarantee, which extended only to the amount owing under the principal obligation as it existed at the time the guarantee came into effect. The words of the particular guarantee must be construed, and if the words of the guarantee considered in those cases should be in any degree different, which they were, the reasoning of the courts may not apply.

119 I note also that in McArthur, Dodds-Streeton J relied on The Wardens and Commonalty of the Mystery of Mercers of the City of London v New Hampshire Insurance Co [1992] 2 Lloyds Rep 365. That case involved an obligation in the nature of a "performance bond", which the Court of Appeal in England found was not a guarantee. That enables the case to be distinguished, and in view of the High Court authority in Ankar, I consider that it should have been. McArthur, as a decision of the Supreme Court of Victoria, is not strictly binding on me, and because of my doubts as to whether its application to guarantees correctly applies the authority on which it purports to rely, I consider it does not apply to the facts of this case.

120 It is worth quoting the following passages from the judgment in McArthur: "192. In Ankar , the surety had secured the obligations of a lessee under a lease agreement. The surety agreement required the lessor to notify the surety of default under the lease or of the assignment of the lessee's interest. The lessor failed to fulfil those requirements. The High Court held that the breaches discharged the surety from liability. 193.In recognising the "special principle", the High Court majority construed the relevant requirements in the surety agreement as conditions, holding that the doctrine of strictissimi juris indicated that where there is doubt as to the status of a provision in a guarantee, it should be resolved in favour of the surety. 194.The special principle has application in cases where a particular liability is guaranteed, but it is altered or varied without consent, or the surety has certain contractual rights which are disregarded."

In my view, the case here is one where the rights of the surety were disregarded by the plaintiff and varied, without her consent, to her detriment. Dodds-Streeton J continued: "195.Limitations upon, or reservations concerning, the special principle endorsed in Ankar Pty Ltd v National Westminster Finance Australia Ltd have been applied. For example, in The Wardens and Commonality of the Mystery of the Mercers of the City of London v New Hampshire Insurance, [4] Phillips J considered that the principle applies only in relation to obligations arising under a specific contract which are guaranteed and not to obligations arising from a future course of dealings. Accordingly, if there is a guarantee in respect of all loans without reference to any particular contract, the creditor and principal could conclude a new loan and proceed to vary its terms without that variation operating to discharge the guarantor. 196.A further exception to the variation principle is where the contract of guarantee or third party mortgage expressly permits variation. In the present case, the CBA mortgage by cl9.12 expressly provided for the mortgagee's right to vary advances and accommodation."

In this case, I cannot construe the guarantee as permitting future variations, as a bank lending document might. She continued: "197.Similarly, the principle has no application to a subsequent independent agreement, as distinct from the variation of the terms of a particular original agreement. Whilst discharge will result from variation of the terms of a particular agreement unless it is unsubstantial and unprejudicial or the guarantor consents, the guarantor will remain liable in relation to entirely independent contracts, provided that they are within the scope of the guarantee. 198.Therefore, where there is a widely drafted "all moneys" guarantee or mortgage clause, as in the present case, and as widely employed in modern commercial practice, a fresh advance or a subsequent loan would be within the scope of the guarantee. Moreover, a variation of a single agreement would also appear to be within the scope of such a guarantee."

In the case before me, there was no subsequent independent agreement. "199.Where an "all moneys" guarantee or mortgage is executed, the guarantor has undertaken to guarantee an indefinite number of liabilities without limit. In such a context, it is artificial to distinguish between original and subsequent independent agreements, on the one hand, and variations of a single agreement, on the other hand. In the absence of misrepresentation as to the effect of the "all moneys" guarantee or mortgage, or other vitiating factors, there appears to be no reason why equity should require the discharge of the guarantor's obligation in either case."

There is an "all monies" provision in the guarantee here, but as I have construed it, its operation is limited to all monies owing under the principal obligation, not to amounts due because credit was allowed to PBSBN in excess of the agreed limit.

121 A decision of the High Court is binding on me without modification, in the absence of a binding decision of an intermediate court that is binding on me. My conclusion is that in this case the principle developed by the High Court in Ankar applies with full force and effect, and the consequence is that the action of the plaintiff in extending credit to PBSBN in excess of the agreed limit had the effect of rendering the guarantee void.

122 The effect of the High Court decision in Ankar is that if a creditor wishes to rely on a guarantee, and, after the formation of the principal obligation, substantially increases the obligation of the principal debtor, it must be meticulous in obtaining the consent of the surety to be bound by the increase in the obligation before doing so. If it fails to do so, the guarantee will be avoided. I am not saying that the surety may not agree to waive or dispose of the rights afforded by Ankar, but in order to do so the language used must be clear and precise. That was not the case here.

123 At paragraph [220 - 310] vol 14, the learned editors of Halsbury's Laws of Australia state the rule in Ankar most succinctly. They refer to some cases which criticise the rule in commercial transactions, but nothing contained in the commentary, in my view, alters the application of the Ankar rule to the fact before me. The words used are not apposite to support the plaintiff's claim.

124 There will, accordingly, be a verdict for the defendant.

125 That being so, I do not have to consider the plaintiff's application for costs on an indemnity basis.

126 If my reasoning and application of the principles in Ankar are found to be incorrect, then I would still hold that the defendant's liability is limited to $200,000 plus interest, for the reasons I delivered on 6 April.

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