Prospa Advance Pty Ltd v Barnard

District Court of NSW|2022-03-16

Introduction

The plaintiff ('the lender') provides business loans to commercial customers, usually in small amounts ($5,000 to $300,000) and usually to borrowers seeking urgent finance. According to Ms Laura Bryant, who was responsible for 'loss recovery' it has a loan book in excess of $500 million, therefore, so far as she is concerned, it is a medium-size lender. The lender dealt with customers either directly (online) or through finance-brokers.
On 29 May 2018, Hi-Class Composites Pty Ltd (the borrower) made a written application for a loan, which application was supported by certain bank statements. The purpose of the loan was stated in an Application Data form sourced from Mr Wood, one of the directors and majority shareholder, in the following terms: "The customer has a new contract coming up worth 1.2mill over the year and needs funds to get the project up and running."
The loan agreement was executed by the defendant, who, according to the ASIC register, was the director, secretary, and member of the company.
The loan was for the sum of $92,250. By the terms of the loan agreement, it was for a term of 18 months and the borrower was required to make 78 weekly repayments of $1,478.37 to the lender. It was secured by personal guarantee of the defendant (hereafter 'Mr Barnard').
On 10 September 2018, the borrower defaulted and from that date, no further weekly repayments were made. Ms Bryant calculates that by 16 October 2019, the sum of $119,861.86 was outstanding, in accordance with the terms of the loan agreement. She contends that late fees are payable at the rate of $10 per day (or 0.11%) on the amount.
The borrower went into liquidation. A liquidator was appointed on 6 September 2018. By its statement of claim, filed on 30 October 2019, the lender seeks to enforce the guarantee against Mr Barnard, bringing a money claim for the sum of $119,861.86, and for liquidated damages for delay, from 16 October 2019.
The lender did not make a claim under the indemnity provision contained in the Contract (cl 13.3).

The loan agreement and guarantee

The loan agreement was in writing. Schedule 2 to the agreement identified Hi-Class Composites Pty Ltd as the borrower and Mr Christopher Douglas Wood and Steven Andrew Barnard as co-guarantors. The loan amount was identified as $92,250 and weekly repayments were identified as $1,478.37. The term of the loan was identified as 18 months, commencing from the Loan Date.
Clause 3.1 was titled 'Conditions precedent to Loan' and partly provided as follows: "The parties agree that each of the following are conditions which must be satisfied, to the Lender's absolute satisfaction prior to the advance of the Loan Amount to the borrower: (a) (Finance Documents) the Lender has received each Finance Document duly completed and executed by the Transaction Parties, and where applicable in registrable form, together with all things to register them in all relevant jurisdictions and having had all Taxes paid on them; (b) (Accounts and statements) the Lender has received the Accounts of each Transaction Party and the latest bank account statements and merchant statements of the Borrower….." 'Finance document' was defined broadly, to include, relevantly the loan agreement and 'security'. ('Security', in turn, included guarantee given to the lender as security for the obligations of the Transaction Parties' obligations under the Finance documents). 'Transaction Parties' included, relevantly, Mr Barnard as a guarantor. 'Accounts' relevantly meant (ie to an individual, like Mr Barnard) a certified group certificate and certified tax return, together with any other accounts, reports, returns, declarations and statements requested by the Lender from time to time.
By clause 3.2, the loan agreement provided that the conditions in clause 3 were for the "lender's sole benefit and may only be waived by notice from the Lender to the Borrower."
Clause 13 of the loan agreement contained provision for 'Guarantee and Indemnity'. The guarantee was provided for in cl 13.2. A separate and additional promise of indemnity was contained in cl 13.3. By cl 13.1 the guarantors acknowledged receiving valuable consideration for entering the document. By cl 13.6, the obligations of the guarantor were described as being 'absolute, unconditional and irrevocable' and the liability under the guarantee extended to a range of circumstances, including where there was any delay, or failure by the lender to exercise any of its rights, powers or remedies conferred on it by law, or by the loan agreement (or any other agreement).
By cl 13.8, the obligations on the part of Mr Wood and Mr Barnard were joint and several.
'Notices' were governed by cl 19 of the loan agreement. Clause 19 applied to all notices given by a party under or in connection with a 'Finance Document'. As indicated, by the definition of 'Finance Document', that included the guarantee. Clause 19.1 provided that such notices had to be in writing. By cl 19.4 for the avoidance of doubt, the requirement (in cl 19.1) that notices be in writing applied to all notices unless expressly excluded.

Mr Barnard's position

Mr Barnard has at all times represented himself in this proceeding. In order to assist him to understand the limits of the Court's capacity to assist self-represented litigants at hearings, and in accordance with my usual practice, on the eve of the hearing, I arranged to send to him a set of guidelines, which I marked for identification (MFI 1).
By his defence, Mr Barnard denied signing the loan agreement; although, he avers that he was bullied and coerced (or, as he said in his affidavit, 'pressured') by the co-guarantor, Mr Wood, into agreeing to enter into the loan. Alternatively, as I read his defence, he portrays himself as a passive director only: the entry into any loan agreement was all Mr Wood's doing.
No issue was taken with the lender's quantification of its money claim, including in particular quantification of the claim for liquidated damages for delay in repayment.
Mr Barnard affirmed an affidavit on 25 June 2021 in order to substantiate these assertions. Points that emerged from his affidavit were:

he was in no financial position to agree to be a guarantor and the lender did ask him (directly) to see financial documents;
he did not understand what he was agreeing to;
he did not receive the written loan agreement or the loan application (at the relevant time).
he had tried, ineffectually as it turned out, to resign from the borrower in April 2018, before the loan transaction was entered into;
Mr Wood pressured him into agreeing with the loan. In this regard, when given leave to give evidence about this belief, Mr Barnard said that Mr Wood kept talking to him about the $1.2m contract, the need to get money and to pay debts, and he perceived that Mr Wood kept 'pushing' him.
at the time the loan monies were advanced, the borrower had been trading insolvently. He believes that a lender, performing due diligence, would have ascertained that loan accommodation should not have been granted to the borrower and the lender should not have taken a guarantee from him, given his financial position.
the loan application Mr Barnard subsequently received contained "lies and omissions": among them, the non-disclosure of a $1.2m contract 'cancelled' by Mr Wood (although, when he gave his evidence, Mr Barnard indicated that the liquidator was the source of this information; a misstatement as to the extent of Mr Barnard's ownership stake in the borrower; non-disclosure of substantial debts (tax liabilities, superannuation guarantee, payroll tax and GST) and what Mr Barnard appeared to suggest were false (perhaps forged) bank statements.
Mr Barnard did not benefit from the loan proceeds; whereas he considers that Mr Wood entirely benefited from the making of the loan.

In particular, he annexed to that affidavit an unsigned letter of resignation, purportedly dated 16 April 2018, which he addressed to Mr Wood, but complains that Mr Wood never actioned this.

The lender's evidence in response

In response to Mr Barnard's affidavit evidence, through a subsequent affidavit by Ms Bryant, the lender accepted that Mr Wood was its point of contact, in relation to the making of the loan agreement, and relied upon the information supplied to it by Mr Wood.
Nevertheless, the loan agreement was emailed to the defendant at an email address (steve@hi-classcomposites.com.au) which would have brought the loan agreement to his notice at 1:55pm on 30 May 2018.
Ms Bryant annexed to an affidavit a 'Docusign certificate' indicating that the guarantor sighted the written loan agreement at 2:17pm and executed it at 2:31pm on 30 May 2018.

The lender's submissions

I have considered the lender's written submissions (MFI 5).

The guarantor's submissions

Mr Barnard verbally submitted that conditions precedent in the loan agreement had not been fulfilled. As I understood him, this was a reference to the 'Finance Documents' (cl 3.1(a) and 'Accounts and Statements' of each 'Transaction Party' (cl 3.1(b)), which was defined to include him.
He also verbally submitted that to the extent that it made any inquiry at all, the lender was only interested in ascertaining that he had a share in real property and, further, if the lender had investigated his position, it would have discovered that he was not, in effect, credit worthy.
These submissions were plainly limited. However, in deference to the content of his affidavit, and by reason of his status, I will consider additional matters in that affidavit which raised other arguments in his defence to the lender's claim.

Consideration

There is no issue with the quantification of the principal amount of debt. The issue is primarily one of Mr Barnard's liability.

Credit

I did not regard Mr Barnard as a reliable witness. His evidence to the effect that he did not see the loan agreement, or sight it, was inherently implausible in light of Ms Bryant's documentary proof indicating that he had 'viewed' it for a period of nearly 15 minutes before 'signing it'. His adherence to his position in the face of Ms Bryant's evidence was to his discredit. It seemed to me also that Mr Barnard was generally bent upon putting across to the Court a complete ignorance of the borrower's financial position, on the basis of his being 'excluded' by Mr Wood, which was not borne out in the documentation he was shown. This included but was not limited to the evidence from his conversation with the lender's representative that he was, in fact, aware of the loan application in train on behalf of the lender when his affidavit evidence was to the opposite effect. Generally, I formed the impression that he blames Mr Wood for the misfortunes that have befallen him (although that does not include his feelings towards his ex-wife). This is not to say that such belief is entirely unjustified, but it did lead me to be cautious in what he said; particularly where his evidence was apparently in conflict with objective evidence.

Did Mr Barnard enter into the guarantee?

I am comfortably satisfied that Mr Barnard entered into the guarantee. He accepted in cross-examination that the loan agreement, which contained the guarantee, was sent to his email address. Not only was his signature on the 'execution' form of the document, but his signature appeared in other parts, as well. More materially, I agree with the lender that it is inconsistent for him to set up a defence that he was not a party to, or was ignorant of an agreement when he alleged, he was pressured into entering into the agreement.
It is also incorrect for Mr Barnard to plead ignorance of the loan transaction more generally. He admitted his awareness of the borrower's business loan application when he spoke to the lender's representative over the phone, on 30 May 2018, before the lender approved the credit application. I also agree with the lender's submission that Mr Barnard was well aware of the borrower's commercial imperative to obtain the loan finance. If he was not actually aware of the statement of commercial purpose (in Exhibit A, also located in Mr Barnard's affidavit at Tab 'D') - the circumstance that the borrower had a new contract coming up worth $1.2 million over the year and needed the funds to get the project up and running - then he was aware of the fairly dire position of cashflow when Mr Woods presented him with a projected 'Cash Flow Outgoings May 2018' statement on 28 May 2018 (located in Mr Barnard's affidavit). That statement not only indicated amounts due to commercial suppliers, but significant tax liabilities to the Australian Taxation Office, payroll tax and super.
It matters not that Mr Barnard did not sight the document he signed. Absent any vitiating factor, where an action is brought on a written agreement signed by the defendant, the defendant is bound (Toll (FGGT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165). As it happens there are some other vitiating factors relied upon in this case by Mr Barnard, but for present purposes, it suffices to say that his professed ignorance of the content of the loan agreement, the guarantee and the indemnity does not assist him. In the same vein, the suggestion that Mr Barnard did not actually understand the transaction does not avail him unless he can demonstrate that the lender was aware of that circumstance (Gibbons v Wright (1954) 91 CLR 423 at 441).

Were conditions precedent not complied if and, if so, what are the consequences?

Mr Barnard points to the non-fulfilment of conditions precedent, in cl 3.1 of the loan agreement. Since the lender did receive a signed loan agreement by Mr Barnard (thus fulfilling cl 3.1(a)), the thrust of Mr Barnard's argument was that the lender did not receive his Accounts, for the purpose of cl 3.1(b). ('Accounts' is a defined term in cl 1.1 which, in the case of Mr Barnard, meant a certified group certificate and tax return, together with other documents requested by the lender from time to time).
I understand Mr Barnard to say that if the lender had received his Accounts, or conducted a proper due diligence, it would have uncovered that he did not have the capacity to act as guarantor.
In this case, the lender obtained bank statements of the borrower, which ostensibly indicated that it conducted a substantial operation. In my view, there is no basis for construing cl 3.1(h) as imposing upon the creditor some indeterminate obligation of due diligence to look behind documents supplied to sustain the borrower's position.
But there is no evidence to indicate that it received Mr Barnard's Accounts prior to advancing the loan to the borrower. Nor is there evidence that the lender waived the condition precedent that it received those Accounts before it made the loan: it did not provide written notice to the borrower (as required by cl 3.3, read with cl 19).
It certainly appears that the lender's omission to receive Mr Barnard's accounts, including, at least a certified tax return from him, in cl 3.1(a), meant that the condition precedent was not fulfilled. In this regard, it does not matter that the condition precedents in cl 3.1 (a) -(j) (incl) are for the lender's sole benefit. By cl 3.2 the lender has the power to waive compliance with the condition precedent by written notice, which it did not exercise.
But does that carry the consequence that Mr Barnard is relieved of liability? In my opinion, it does not. In Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537, Mason J (at 551-552) distinguished two types of condition precedents: the first being a condition which is precedent to the formation, or existence of a contract, and the second being precedent to a party's obligation to perform part of the contract. As the plurality said in Gange v Sullivan (1966) 116 CLR 418 at 441, there is a general predisposition in courts to treat the non-fulfilment of a condition as rendering a contract "voidable rather than void to forestall a party to a contract gaining some advantage from his own conduct in securing, or contributing to, the non-fulfilment of a condition bringing the contract to an end...". In that decision, concerning a contract for sale of land, the contract was subject to the purchaser obtaining development approval from a local council and in the event of council not granting approval by a certain date, the contract was to be at an end. By the nominated date, council's approval had not been obtained but the purchaser did not waive the condition. It was held that the contract did not automatically come to an end.
In my view, the conditions precedent in cl 3.1 (a)-(j) (inc), all for the lender's benefit, fall into the second category of condition precedent above. The omission in the lender of obtaining Mr Barnard's certified tax return meant that the contract was terminable at the election of the lender. In this case, the lender did not terminate, but affirmed the contract.
An alternative path to the same conclusion is that the breadth of the guarantee in cl 13.6 is such that Mr Barnard's obligations as guarantor extended to guarantee the borrower's obligations of repayment notwithstanding the lender's failure to exercise its rights, powers or remedies arising under cl 3.2 of the loan agreement, to waive compliance with the condition precedent in cl 3.1(b) before advancing the loan amount to the borrower.

Generalised complaint regarding absence of 'due diligence'

To the extent that Mr Barnard complains about the authenticity of the bank account statements of the borrower which Mr Wood apparently supplied to the lender, the lender was not obliged to look behind the bank statements. Putting the matter more generally, whatever be the accuracy of the information about the borrower supplied by Mr Wood to the lender, I do not accept that any misrepresentation by Mr Wood (or indeed Mr Barnard) prevented the loan agreement (and guarantee) from coming into operation.
It is, further, incorrect to say that the lender made no personal inquiry of Mr Barnard, even if it was informal. On the same day as the loan agreement and guarantee were executed, the lender's representative had a telephone conversation with Mr Barnard ascertaining that he had not previously personally defaulted on any prior loan and retained a half share ownership of property in New South Wales. It is simplistic to say that the lender was engaging in 'asset lending', but even if it was, Mr Barnard did not assert any legal consequence of it doing so.
It is also unfair to insinuate, as Mr Barnard does, that any supposed performance of due diligence would have revealed the borrower's insolvency. Mr Barnard was unable to prove his assertion that the borrower had been trading insolvently since 2017: there is nothing in the liquidator's report ('Tab A' in Mr Barnard's report, dated 16 March 2021) identifying a date, or even date range, from when the borrower traded insolvently.

Relevance of Mr Barnard's suggested passivity as director

At the time the loan was made, Mr Barnard was identified on the ASIC company register as being a director, a member and secretary of the borrower. Whether or not he was a passive director in the borrower, or even had tried to resign prior to the transaction being entered into, will not be a basis for removing his liability (B & F Papers v NZPC [2018] NZHC 35).
At any rate, I do not accept that Mr Barnard was as ignorant of the borrower's financial position - and urgent need for loan finance - as he sought to portray. I find that on the verge of receiving financial accommodation he knew enough of the borrower's position to understand that it had serious cashflow problems. He was also aware of the loan application being brought by the borrower, as he admitted to the lender's representative on the date the loan agreement was entered into.

Relevance of the question whether or not Mr Barnard obtained a benefit

It is unnecessary for a guarantor to obtain a direct advantage from the transaction. The usual form of consideration for the contract of guarantee is the provision of credit by the creditor to the principal (Macquarie Bank Ltd v Thomas [2010] NSWSC 843). At any rate, the factual premises for the contention were not established. The loan accommodation advanced by the lender assisted the borrower and Mr Barnard had several claims for entitlements on the borrower, including Annual Leave and other entitlements.

Mr Wood's conduct

As I understand him to argue, Mr Barnard argues two points. First, Mr Wood was responsible for misrepresentations or omissions in the loan application form. Secondly, Mr Barnard felt 'pressured' into agreeing with the loan.
Although there is no general duty of disclosure in contracts of guarantee (unlike contracts of insurance), it is arguable that a duty of disclosure to the guarantor may arise where there are unusual features of a transaction unknown by the guarantor, or where fraudulent practices of the principal debtor are known to the debtor, but not the guarantor: see J O'Donovan, Modern Contract of Guarantee (LexisNexis, electronic version, 4th ed) ('O'Donovan') at [4.200]. A creditor may also be liable to a guarantor generally for the conduct of the debtor where the debtor makes misrepresentations with its actual or ostensible authority: Enterprise Solutions Pty Ltd v Austec Pty Ltd [2013] FCA 491 at [68]. For the purpose of the application of these principles, the premise is that the borrower acted through the conduct of Mr Wood. That may be contestable but, for the purpose of the following analysis, that premise is accepted. Usually, where misrepresentations are made to a lender about a borrower's financial position, the transaction is voidable at the instance of the lender, not the borrower.
Mr Barnard has not demonstrated that there were any unusual features to this transaction or that any of the lies, misstatements or omissions which he contends were contained in the loan application were known by the lender. Further, there is no proof that Mr Wood acted as the lender's agent, actually or implicitly, or was held out by the lender as its agent.
As to Mr Barnard's second point, courts will not enforce guarantees against guarantors where the latter have entered into the transactions arising from undue influence in two circumstances (disregarding the Yerkey v Jones [1] category of case). First, under the 'agency' principle, where the lender has entrusted the task of procuring one co-guarantor's entry into a guarantee to another co-guarantor, if the creditor knew of circumstances which would lead to the exercise of dominion and influence by the latter over the former (Alderton v Prudential Assurance Co (1993) 41 FCR 435; Challenge Bank v Pandya (1993) 60 SASR 330). About this principle, it is to be emphasised that the creditor's knowledge must be actual; it is insufficient that it is constructive: Garcia v National Australia Bank (1998) 194 CLR 395 at 410-11. The second category of circumstance, which may be broader than the first, is that if the creditor has constructive notice that the guarantee, at the time of its execution, was procured by the exercise of undue influence, the creditor cannot enforce it (Bank of NSW v Rogers (1941) 65 CLR 42 at 51). The same principle applies where it has notice of misrepresentation to the guarantor or where Mr Wood preyed upon some special disadvantage in Mr Barnard: O'Donovan at [4.9600].
I accept, as the lender itself admits, that Mr Wood was its point of contact. Nevertheless, the lender sent the loan agreement, containing the guarantee and indemnity, to Mr Barnard directly, not through Mr Woods. The 'agency' principle is therefore not fully engaged, at least not in the sense of entrusting an agent to procure a third party's signature.
But more generally, there is no evidence to indicate that (a) undue influence was actually perpetrated by Wood overbearing his will and/or (b) the lender knew of circumstances that by which Mr Wood would exert dominion or undue influence over Mr Barnard, practised any deception upon him.
As to the former, Mr Barnard was invited to indicate the facts and circumstances indicating the 'pressure' or, as he termed it in his evidence, 'coercion' which Mr Wood applied to him. He was unable to descend to anything more specific than Mr Wood's apparent repetition (and/or power of persuasiveness) in asking him to enter into the transaction. But even if there was "pressure", I am not persuaded that his rational faculties were overborne. This was not a situation in which a presumption arises from a relationship of influence. There was nothing to indicate that his conduct in executing the guarantee was other than free and voluntary. Indeed, as I have indicated, the evidence indicated that he stood to enhance his own financial position by doing so in rectifying the borrower's cash-flow problem.
To reiterate, there was nothing to point to any notice of the lender to any undue influence in any event.
Accordingly, these principles do not assist Mr Barnard either.

Other matters relating to the Defence or Affidavit

There were other miscellaneous complaints. Mr Barnard complained that he did not receive a Financial Services Guide. However, even if this is true, there was nothing to suggest that this was consequential. He complained that he is living under strenuous conditions and that the lender had obtained a caveat against a property in which he was interested. These matters are irrelevant to the questions of the lender's entitlement to enforce the guarantee.

Other defences?

Mr Barnard represented himself. His defence did not frame the facts into recognisable defences, in equity or in law [2] . In fairness to him, I have striven in this judgment to identify the principles which I understood to apply to the scarce facts identified in the Defence and in his affidavit and which, in the Court's view, he could fairly be taken to be capable of relying upon, given the need for procedural fairness to the plaintiff. It is possible that (any) legal practitioners reading these reasons may conceive of other statutory or equitable defences that, given the existence of additional information, arguably may have applied to his situation had that information been investigated or pursued prior to the hearing. An example of this was the defendant's bare reference to the plaintiff's 'asset lending' [3] . However, there is only so much assistance that courts can provide to self-represented litigants at hearings, a matter alluded to in the guidelines document (MFI 1) supplied to the parties on the eve of the hearing, without compromising its impartiality.

Summary and orders

I find that none of the arguments raised by Mr Barnard in defence to the claim are established. There being no dispute on quantum, on the principal debt, the judgment to be awarded to the plaintiff will incorporate the principal of that debt, being $119,861.86 as at the date of Ms Bryant's first affidavit (22 April 2021).
Subsequent to the conclusion of the hearing, and without seeking the Court's leave in advance, the plaintiff's solicitor emailed my Associate, two schedules relating to the calculation of interest. This was improper - the time for submissions is at the hearing, absent a grant of leave - and especially so when the party's opponent is a self-represented litigant. It was, at any rate, unclear what distinction the plaintiff draws between "costs on the claim" and "costs to be assessed."
I propose to give Mr Barnard an opportunity to consider the plaintiff's schedules of interest, but not before the plaintiff has more meaningfully set out its position on costs.
Accordingly, I direct the following: 1. the plaintiff is to bring proposed short minutes clearly identifying its claims for interest on the debt of $119,861.86, as well as any claim for costs, within 3 days of these reasons, and after conferring with the defendant. 2. should short minutes be agreed to, orders will be made in chambers. 3. Should there be a dispute about dispositive orders: 1. the plaintiff should serve upon the defendant and email to my Associate short submissions not exceeding 2 pages within 3 days of these reasons; 2. the defendant should serve upon the plaintiff and email to my Associate short submissions not exceeding 2 pages within 3 days of these reasons; 3. orders will be made on the papers absent any indication to the contrary to the parties.

Endnotes

(1939) 63 CLR 649
Kirby v Sanderson Motors Pty Ltd (2001) 54 NSWLR 135 at [20]-[22]
As to which, see Stubbings v James 2 Pty Ltd [2022] HCA 6 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 18 March 2022

At a glance

Court

Decision date

Source

Judgment (18 paragraphs)

Parties

Legislation Cited (1)

Cases Cited (14)