Sara v Adam

Breusch v Watts Development Division Pty Ltd (1987) 10 NSWLR 311 Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915] AC 847 CASES CITED: Kowalczuk v Accom Finance Pty Ltd [2008] NSWCA 343 Nicom Interiors Pty Ltd v Circuit Finance Pty Ltd [2004] NSWSC 728 Riz v Perpetual Trustee Australia Ltd [2007] NSWSC 1153 West v AGC (Advances) Ltd (1986) 5 NSWLR 610

TEXTS CITED: The Modern Contract of Guarantee (O'Donovan and Phillips, Legal Online ed, Thomson Reuters, 2008)

PARTIES: Edward Sara - Plaintiff Nadia Adam - Defendant

COUNSEL: Mr B Pluznyk for Plaintiff Mr DA Allen for Defendant

Joeph G Capogreco & Associates for SOLICITORS: Plaintiff Proctor & Associates for Defendant

1 In this action the plaintiff, Edward Sara, seeks to recover from the defendant Nadia Adam the amount of a loan plus interest made by him to Arteria Property Pty Limited on 27 October 2008. The initial loan was for $100,000 to be repayable on 8 November 2008 with $60,000 interest; it was not so repaid. The plaintiff and Arteria Property then agreed to vary the terms of the initial loan agreement so that Arteria Property would pay to the plaintiff in full satisfaction the sum of $340,000 by 16 February 2009. In consideration of the plaintiff entering into the initial agreement and the varied agreement, the defendant and two other persons agreed on 2 February 2009 to guarantee and indemnify the plaintiff in relation to the obligations of Arteria Property under the varied agreement on a joint and several basis. Arteria Property did not satisfy those obligations and, so, the plaintiff sought recovery of the $340,000 plus interest at the rate of 10 per cent per annum from the defendant; the two other guarantors have since been made bankrupt and Arteria Property was in liquidation.

2 The defendant resisted the contract of guarantee on the basis that there was no consideration given for it by the plaintiff and, in any event, it should be declared void as unjust from the time it was made pursuant to s 7 of the Contracts Review Act 1980.

3 The plaintiff was a builder engaged through his company, EJS Projects Pty Limited of which he was a director, in the building industry. He had known Magy Adam, the defendant's mother, and her parents as a family friend for over twenty years. Although the plaintiff at the time of the present events was aware the defendant was aged in her early twenties, she admitted to having first met him in August or September 2008 when he did some paving work at the family home; she felt intimidated by the plaintiff. The plaintiff knew the defendant lived with her mother and step-father, Danny Sarboukh, and understood that from November 2008 she managed her own business, Revera Group Pty Limited, whilst at the same time she was a full-time student in law.

4 Arteria Property was registered as a corporation on 8 December 2004 and was engaged in the cleaning industry under the control of Ms Adam; apparently, her husband, Mr Sarboukh, worked for it performing cleaning duties. The defendant did not express very much familiarity at all with the operations of Arteria Property but she was aware that from about November 2008 her mother was experiencing a lot of stress at work due to the default of a Mr Issam El Hilli in repaying money owed to Arteria Property. Indeed, at that time the financial position of Arteria Property was frail and Ms Adam conceded it then owed others about $6.0 million but with assets of only $1.5 million. Even so, Ms Adam was originally confident it could have repaid the October 2008 loan of $100,000 to the plaintiff were it not for Mr El Hilli's default; she said she had not advised the plaintiff of the financial circumstances of Arteria Property, only of the temporary need to borrow $100,000 for repayment within twelve days on 8 November 2008 in the amount of $160,000. In the result, however, the loan was not repaid and on 13 March 2009 Arteria Property was placed into voluntary liquidation.

5 It was asserted by the plaintiff that towards the end of November 2008, that is after the loan by him to Arteria Property, Ms Adam told him - "I am going to start a new business under my daughter's name just to give her a start and set her up for the future"; the new company was to be called "Revera Group". A search of the company showed it to have been registered on 1 December 2008 and to have commenced operations on 24 February 2010. The defendant was the sole shareholder and was appointed as a director and secretary on 21 April 2009. Revera Group was listed from 18 May 2010 in a Google search as being a "one stop shop for all maintenance, electrical, plumbing, cleaning, curtains, blinds, range hood and gardening services". The defendant denied that Revera Group was established to assume the business of Arteria Property and, although accepting initially she ran the business of Revera Group, the defendant said she was assisted by her mother and decided to commence the business when Arteria Property went into liquidation. The defendant maintained a lack of knowledge beforehand of the financial problems of Arteria Property and it was not until January 2009 she became aware it owed money to the plaintiff.

6 Interestingly, it seemed that Ms Adam was the driving and controlling force behind the business of Arteria Property and, it may be inferred, of Revera Group. She displayed influence over the defendant as her daughter. Mr Sarboukh worked as a cleaner for Revera Group.

7 The plaintiff said he made a number of inquiries regarding the financial position of the defendant but those inquiries were not advised in his affidavit nor were they otherwise stated in evidence. However, he expressed no concern about the defendant's financial position in acting as a guarantor as he understood she owned property. In fact, the defendant in 2008 purchased from her mother, Ms Adam, the property in which her grandparents lived for about $400,000 by borrowing $300,000 but, due to an inability to service the loan, the property was resold by her after about a year; it seems she herself had financial problems at the end of 2008. It is noteworthy that in proposing the defendant to be a guarantor of the loan to Arteria Property the plaintiff said his primary concern was to get her to agree to it and was not concerned how her agreement might be obtained.

8 As mentioned earlier, Ms Adam became bankrupt, from mid-2009 as understood by the plaintiff, and Mr Sarboukh was bankrupted from 25 March 2009. Arteria Property was placed into liquidation on 13 March 2009.

Circumstances of the loan and guarantee transactions

9 During the latter part of 2008, Arteria Property had admitted financial difficulties. It was common ground that the plaintiff made a loan to the company on 27 October 2008 of $100,000 to be repayable on 8 November 2008 in the total amount of $160,000. On the evidence of Ms Adam, she received in the mail a letter dated 27 January 2009 addressed to her from the plaintiff's solicitors, Mr Jon Easton of Warren F Ball & Co, in which a draft deed was enclosed and with strong advice that she, the defendant, Mr Sarboukh and Arteria Property each obtain independent legal advice prior to executing the document. It is to be noted that the document concerned, although styled as a deed in the solicitor's letter, was not in terms drawn as such - it was titled as "This Acknowledgment of Debt and Repayment of Loan/Debt Agreement and Guarantee"; it was not executed as being under seal. Plainly, in my view, it was not a deed but a mere contract in writing. I did not understand the parties to suggest otherwise. Ms Adam said she did not show the letter to the defendant nor did she advise her to obtain advice about the proposal for the defendant to execute the document as a guarantor for the monies owing by Arteria Property.

10 It seemed from Ms Adam's evidence that she arranged for the plaintiff to have the draft document prepared, as she said, "to get him to leave us alone", and for which she agreed to, and did, pay $3,300 for its preparation. She deposed in her affidavit that in late-January 2009, no doubt after receiving the document, she said to the defendant: "We have a slight issue at the moment. Edward Sara is causing me and our family a lot of grief and harassment, he's forcing me to hand over your house as security together with Danny's house for a loan he gave and is demanding if we don't sign the documentation he is going to make my life harder and has threatened to rape us both. Please Nadia sign these documentation, give him a caveat on your property, as I am really scared of what he could do. I am getting Danny to do the same thing. Don't worry, I will be able to pay the money."

11 To a not dissimilar effect in terms of what was said, the defendant deposed in her affidavit that Ms Adam then said to her in January 2009: "Nadia, the company may be going into liquidation as Issam El Hilli has not paid what he owes the company, the solicitors are currently trying to work this whole mess out, but what you really need to know is that Edward Sara who loaned the company $100,000, has been giving me a lot of grief. I am asking you please as Edward is beginning to frighten me with his harassments to myself and your grandparents and uncle. Please give him a caveat on your property and just sign a personal guarantee to ensure he got his money back. Edward has been threatening me and has said that if we don't give him what he wants he was going to rape both you and me. He is putting a lot of pressure on my parents and your uncle and myself especially and I am really scared he will go ahead with his threats. I will be speaking with Danny also to do the same thing as you, and hopefully Edward would leave us alone and not do anything to hurt anybody. I am really scared of him and I am scared for the family."

12 The plaintiff denied harassing and threatening the Adam family as Ms Adam alleged and stated his first knowledge of such conduct was after he read the defendant's affidavit sworn on 3 July 2009. Subsequently, on the complaint of Ms Adam and the defendant's uncle, Morris Adam, the plaintiff faced charges in the Bankstown Local Court of "stalk or intimidate intending to cause fear of physical violence or mental harm" and "use carriage service to menace/harass/offend" during the period from 12 March 2009 to 13 September 2009. Those charges were ultimately dismissed at a hearing on 21 May 2010. Statements were given by the members of the Adam family concerned to police in support of the charges but none of those statements dealt with events of alleged harassment and threats before March 2009 even though they concerned later conduct in relation to the non repayment to the plaintiff of the loan to Arteria Property.

13 The plaintiff's version of the circumstances in which the subject contract was signed was straightforward. He said that on 27 January 2009 he hand delivered to Ms Adam at her home the solicitors letter of that date together with the enclosed document of agreement and left it with her to obtain the signatures of the parties, namely, that of Arteria Property as borrower and those of herself, Mr Sarboukh and the defendant as guarantors. He agreed he did not speak to the defendant, or even to Mr Sarboukh, about being a guarantor and was not concerned how Ms Adam might obtain their agreement to do so as he simply wanted the document executed by them and returned. At about 5.00pm on 2 February 2009 at a gymnasium, Fitness First at Bankstown, the plaintiff in the company of a friend, Bilal Salameh, said Ms Adam handed to him the agreement signed by the parties and witnessed by Alex Kavgas; he retorted later to Mr Salameh, "Great, it has been signed". However, on showing the document the next day to Mr Easton he was advised to have the parties initial on the first page where the date had been changed from January 2009 to 2 February 2009 and then initialled only by Ms Adam. Thereupon, he telephoned Ms Adam that day and arranged to meet her, the guarantors and witness during the afternoon to do so at the Adam's home. At that meeting all of the persons concerned were present when the plaintiff placed the document on a table and each person initialled it as requested. The plaintiff said he asked whether all of them had had legal advice before signing it and was told they had. He then took the document and delivered it to his solicitors.

14 Mr Salameh confirmed he was with the plaintiff at the gymnasium at about 5.00pm in early-February 2009 when he first met Ms Adam who gave the plaintiff a document of over four pages. The document was not read by Mr Salameh, although he saw signatures on it and heard the plaintiff say, "Signed it, that's great". However, inconsistently with the plaintiff's evidence annexed to Mr Salameh's affidavit was a copy of the document concerned then given to the plaintiff but which document contained the initials on the first page of all the parties and of the witness - the plaintiff had said the initials were not so placed until the next day at the Adam family's home after the advice from his solicitor; he produced a photocopy of the agreement with the initials of only Ms Adam on it.

15 The finally executed agreement was sent by the plaintiff's solicitors to Ms Adam and to the guarantors, including the defendant, under cover of a letter dated 18 February 2009 in which it was confirmed that the plaintiff spoke with each of the signatories prior to them entering into the agreement about obtaining independent legal advice before doing so. However, the plaintiff said he did not so inform Mr Easton to that effect; therefore, he agreed the solicitor's letter was wrong in saying he had but he maintained his position that he did mention legal advice after the agreement was executed when the next day the initials were placed on it.

16 The circumstances of the signing and initialling of the agreement on the evidence led for the defendant was at issue with that of the plaintiff. The defendant, Ms Adam and Mr Sarboukh gave consistent evidence in that respect but the other person present at the time, Mr Kavgas, who was the defendant's partner and witness to the signatures, did not do so even though, as Ms Adam conceded, he was present in Sydney and able to give evidence. Correspondingly, there was no evidence from Mr Easton as to the state of the initials on the document when he first received the signed document.

17 The defendant deposed: "On 2 February 2009, Edward Sara came to our home with the document and I signed it. I have never taken any money from Edward Sara and I did not know that Edward Sara had even loaned my mother's company any money until my mother had approached me January 2009 and told me what Edward was doing. I signed the document because I feared what Edward would be capable of doing and I was extremely concerned because of my mother's stress and I could see what he was doing to the whole family. Throughout the whole process of me signing this document, Edward stood over my shoulder to ensure that I signed the document...I felt extremely intimidated by him whilst signing the guarantee."

18 In short, the defendant's evidence was based on a feeling of intimidation by the plaintiff in a situation where she was unaware of the circumstances of his loan to Arteria Property, she had had no prior negotiations or discussions with him about the guarantee, she executed the document at her mother's request and there was no opportunity to obtain independent legal or other advice. The initialling and signing of the document was said to have occurred on the single occasion at the Adam family's home in the company of the other signatories and Mr Kavgas but where the defendant did not read the document before signing and then left the meeting to go to her bedroom; she expressed a fear of continued threats by the plaintiff if she did not sign. Also, she could not explain the copy document of the agreement containing only her mother's initials as the defendant said she was the first person to initial and sign it.

19 Ms Adam agreed she did not show the defendant the letter from Mr Easton of 27 January 2009 regarding the need for legal advice which letter, she said, was received through the mail and not as the plaintiff said, hand delivered by him. There was no evidence from Mr Easton clarifying by what means he sent the letter to Ms Adam. Like the defendant, Ms Adam maintained the document was initialled and signed by all of those concerned at the meeting in the presence of the plaintiff; she said she was the last person to do so. Relevantly also, Ms Adam maintained the plaintiff had made threats against her and other family members before February 2009 if the document was not signed, although when and of what nature (other than the general allegation of rape) were not particularised.

20 Mr Sarboukh deposed that at the meeting on 2 February 2009 at his home the plaintiff attended with the document for signature and the proposed signatories and witness were all present. The plaintiff asked for it to be signed, Mr Sarboukh did so and then the plaintiff took the document and left. Mr Sarboukh said the defendant did so first and he initialled and signed it. He confirmed the other evidence led for the defendant that the defendant left the room after initialling and signing and that this was the only occasion he saw the plaintiff at his home. Strangely, and notwithstanding his earlier evidence, Mr Sarboukh agreed under cross-examination that he only signed the document and it was not until a later occasion he met the plaintiff to initial it.

21 It will be apparent that the plaintiff's version and that put for the defendant of the circumstances of the execution of the document of agreement cannot stand together. Importantly, there was a gap in the evidence due to Mr Kavgas and Mr Easton not giving evidence, respectively for the defendant and the plaintiff, but where Mr Salameh said the document he saw contained both the initials and signatures of all those concerned - that would support the defendant's version which more confidently could be drawn in the absence of evidence from Mr Easton. On the other hand, the existence of a document with only Ms Adam's initials would support the plaintiff's version - the absence of evidence from Mr Kavgas would also support this version but tempered by no evidence from Mr Easton. It has to be said, however, that the document containing Ms Adam's initials only was a photocopy which could have been produced by masking the other initials, although that was not suggested and the issue was simply left up in the air.

22 It has to be said that the circumstances of the execution of the document of agreement and guarantee are curious. They will have to be revisited, but in the meantime it may be observed that in a sense it matters not for present purposes because it was common ground the document was completed and where it was clear that the plaintiff relied exclusively on Ms Adam to obtain the guarantor's signatures where he had no concern how she might do so and he had not spoken to the guarantors. Significantly also, the transaction occurred in a context where the original loan to Arteria Property sought to be guaranteed had grown in a period of just under three months from $100,000 with interest of $240,000 to a sum of $340,000 - that represents interest of 240 per cent for three months which is equivalent to 960 per cent per annum. The course of dealing between the plaintiff and Arteria Property, significantly absent any suggestion or involvement of guarantors, showed a loan of $100,000 repayable in the sum of $160,000 within twelve days - that represents interest for the period of 60 per cent or a rate of 1,825 per cent per annum; on non-payment of the loan the amount repayable became $340,000 within fourteen days - that represents interest for the period of 112.5 per cent or a rate of 2,925 per cent per annum.

23 Regardless of what calculation is made, it is plain that the interest component, and for which the plaintiff sought to hold the defendant as guarantor liable, was wholly exorbitant. Indeed, it was so extreme as to make the understood practise of usury modest. More importantly, however, this aspect adds to the curious nature of the circumstances in which the document was signed and the signatures of the guarantors, including the defendant, obtained. I think one may be steered to a view that something else undisclosed was occurring. However, nothing otherwise appeared from the evidence and one should not take speculation too far. Of course, a view of the evidence of Ms Adam and the defendant as to the plaintiff's alleged threats and harassment towards them would suggest a view of what occurred as the plaintiff taking a financially advantageous position in a circumstance where the defendant was prepared to agree to anything to appease him. And so she signed the guarantee. But that does not explain the pre-existing loan arrangement with the extreme interest component. Further, and notwithstanding the allegations of the plaintiff's threats against the Adam family, particularly the defendant and Ms Adam, he was not challenged in those respects by any cross-examination at all. As I have said, this aspect of the circumstances will have to be revisited.

24 Made on 2 February 2009 between the plaintiff as lender, Arteria Property as borrower and the guarantors being Ms Adam, the defendant and Mr Sarboukh, the recitals to the written agreement stated: "A. On 27 October 2008 the Lender loaned to the Borrower the sum of one hundred thousand dollars ($100,000) ('the Principal Sum'). In consideration of the loan the Borrower agreed to repay the Principal Sum with an additional sixty thousand dollars ($60,000) interest to the Lender on 8 November 2008 ('the Initial Loan Agreement').

B. The Borrower did not repay the initial loan on 8 November 2008.

C. Because the Borrower failed to pay the Lender the Principal Sum plus interest, the Borrower and the Lender agreed to vary the terms and conditions of the Initial Loan Agreement and agreed that the Borrower will pay to the Lender in full satisfaction of the Original Loan Agreement the sum of three hundred and forty thousand dollars ($340,000) on or before 16/2/2009 ('the Varied Agreement').

D. The Borrower and Lender further agree that if the Borrower does not pay the sum of three hundred and forty thousand dollars ($340,000) by 16/02/2009 that interest will accrue on that amount at the rate of 10% per annum calculated monthly until the whole of the amount owing plus interest is repaid.

E. In consideration of the Lender entering into the Initial Loan and the Varied Agreement with the Borrower the Guarantors agree to guarantee and indemnify the Lender in relation to the Borrowers obligations under the Varied Agreement pursuant to the terms of this acknowledgement of Debt and Repayment of Loan/Debt and Guarantee."

25 The operative part of the loan agreement in principal respects required Arteria Property to pay the plaintiff $340,000 on or before 16 February 2009 with failure to do so to make the debt immediately due and payable plus interest at the rate of 10 per cent per annum: cl 1. Arteria Property on execution of the agreement was to pay all costs and expenses incurred by the plaintiff in connection with the agreement or as a result of any default by Arteria Property: cl 2. As to the contract of guarantee, the document recorded the agreement of the guarantors, jointly and severally and in consideration of Arteria Property entering into the initial loan agreement the varied agreement and "this Acknowledgment of Debt and Repayment of Loan/Debt Agreement", to be liable to the plaintiff if Arteria Property breaches the agreement and fails to repay to the plaintiff the monies due and owing: cl 3. Further, the guarantors agreed to be liable jointly and severally to fully indemnify the plaintiff against all liability, loss, costs and expenses arising from or in connection with a failure by Arteria Property to so repay to the plaintiff the monies due and owing: cl 4. The document contained other provisions but they have no present relevance.

26 In his amended statement of claim, the plaintiff pleaded the 2 February 2009 agreement as giving rise to a debt of $340,000 plus interest owing by Arteria Property to him which debt was not paid so that the defendant as guarantor was liable to pay it and to indemnify him against all costs and expenses incurred. On 24 March 2009, the plaintiff made a demand on the defendant for payment but that demand was not met. In the result, the plaintiff claimed $340,000 plus interest at the rate of 10 per cent per annum from 16 February 2009 plus costs.

27 The defendant, beyond admitting the unsatisfied demand for payment, did not admit the 2 February 2009 agreement or its terms and specifically denied the agreement was made at her request; the terms and conditions of the agreement as to their effect on the defendant were also denied. The relief claimed was wholly resisted.

28 The defendant in a cross-claim against the plaintiff relevantly claimed relief to the effect that the agreement concerned as made by the defendant on 2 February 2009 should be declared void pursuant to s 72 of the Fair Trading Act 1987 or s 7 of the Contracts Review Act 1980. At the hearing, the claim based on the Fair Trading Act was abandoned, correctly in my view, because the subject transaction was not made in trade or commerce. The Contracts Review Act relief was pursued on the pleaded basis that "the document is a contract the making of which or the provisions of which were unjust at the time it was made". In the alternative, it was pleaded that "the document is unenforceable as a contract as no consideration was given by Sara to Nadia Adam".

29 The plaintiff either did not admit or denied the allegations in the cross-claim which covered assertions that the defendant's signature was procured by the plaintiff standing over her while she was seated to ensure the agreement was signed, the defendant's fear from the plaintiff's threats against her and her mother, the plaintiff's indifference to the situation of the defendant, the lack of any benefit to the defendant other than ensuring the plaintiff's threats were not carried out, the plaintiff knowing the defendant was signing because she had been told to by Ms Adam and the inability to obtain prior independent legal advice. Also, the plaintiff did not admit that the terms of the guarantee were disproportionate with the risk the defendant was undertaking.

Whether any consideration for contract of guarantee

30 The self styled "blunt" submission of counsel for the defendant, Mr DA Allen, was that the guarantee contract was unenforceable because it was not given for any or any sufficient consideration. Counsel pointed to the terms of Recital C which, on the failure of Arteria Property to repay the initial loan of $100,000 plus interest of $60,000, stated in the past tense that "the Borrower and the Lender agreed to vary the terms and conditions of the Initial Loan Agreement and agreed that the Borrower will pay to the Lender in full satisfaction of the Original Loan Agreement the sum of three hundred and forty thousand dollars ($340,000) on or before 16/2/2009 ('the Varied Agreement')" (emphasis added). Counsel for the plaintiff, Mr B Pluznyk, in countering that argument, referred to the consideration for the guarantee as stated in Recital E as being in the present tense, that is "in consideration of the Lender entering into the Initial Loan and the Varied Agreement with the Borrower, the Guarantors agree to guarantee and indemnify the Lender in relation to the Borrowers obligations under the varied agreement pursuant to the terms of this Acknowledgment of Debt and Repayment of Loan/Debt and Guarantee" (emphasis added). In short, Mr Pluznyk put that consideration for the guarantee was the extension of time of two weeks for Arteria Property to repay the loan. Mr Allen, although not accepting it was open on the terms of the agreement here, conceded that a guarantee contract had sufficient consideration if it was given to extend the time for payment of an existing debt.

31 A contract of guarantee of the nature here involves a situation of three parties - the creditor (the plaintiff), debtor (Arteria Property) and guarantor (the defendant). However, the contract is between only two of those parties being the creditor and the guarantor and is a promise by the guarantor to pay to the creditor the debtor's debts if there be default. Like any contract not under seal, as here, a contract of guarantee must be supported by consideration to be enforceable: see Nicom Interiors Pty Ltd v Circuit Finance Pty Ltd [2004] NSWSC 728. It is trite as a fundamental principle that although consideration need not move to the promisor (here the defendant) it must move from the promisee (here the plaintiff): see Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915] AC 847. And as the learned authors of The Modern Contract of Guarantee (O'Donovan and Phillips, Legal Online ed, Thomson Reuters, 2008) observed (at para 2.1000) - "...an agreement...to extend the time for payment under an existing loan facility could clearly provide consideration for a guarantee of the principal debtor's new obligation".

32 Of course, and this was the point of challenge by Mr Allen, where a guarantee is given simply for past or executed consideration then it will fail. However in Breusch v Watts Development Division Pty Ltd (1987) 10 NSWLR 311 at 314 McHugh JA (with whom Hope JA and Glass JA concurred) said: "...the courts, where possible, have invariably held that the words of a guarantee imported an executory or future consideration rather than a past or executed consideration. The decided cases proceed upon the principle that the words of a guarantee document, referring to the supply of goods or credit, are to be construed, if possible, as including the future supply of those goods or that credit. The cases also establish that, in determining whether words of the guarantee were intended to have a future operation, it is permissible to ascertain what were the prior dealings between the parties and what was contemplated as to the future course of their dealings."

33 The terms of the recitals in the subject contract are not entirely clear and this is because they referred to the initial loan agreement and the varied loan agreement as having been "agreed". There was no suggestion the defendant had anything to do with the initial agreement which was made on 27 October 2008 and it was not until Arteria Property defaulted to repay the loan on 8 November 2008 that the issue of a variation arose. The recitals however, refer to consideration for the guarantee being the plaintiff entering both the initial and varied agreements, as to which the document was an "acknowledgment". Even so, the evidence was clear that before the document was executed on 2 February 2009, regardless of whose version of events is accepted, there had been no prior discussion about a guarantee between the plaintiff and the defendant as the plaintiff expected Ms Adam to obtain the defendant's signature.

34 The prior events to the execution of the agreement were dealt with in the plaintiff's evidence. He said he expected Arteria Property to pay the initially agreed sum of $160,000 on 8 November 2008 but by the end of December 2008 he became concerned when it had not done so and then asked her in early-January 2009 to get someone to guarantee it. He said it was Ms Adam who suggested her daughter be guarantor with others. The plaintiff thereupon instructed Mr Easton to draft the subject agreement which contained the higher repayment amount of $340,000 but with the repayment date left blank. The draft agreement was then either posted to Ms Adam, on her evidence, or hand delivered by the plaintiff to her, on his evidence. Discussions then ensued between Ms Adam and the defendant about the need for the document to be signed to remove the harassment and threats by the plaintiff. The agreement was then executed, in the manner according to the respective versions earlier outlined, with the insertion of the repayment date of 16 February 2009.

35 The only relevant consideration possible for the guarantee was the extension of time of two weeks from 2 February 2009, when the agreement was signed, to 16 February 2009. Up to 2 February 2009 there was, in my view, a debt owing by Arteria Property to the plaintiff of $160,000. From 2 February 2009, as I see the events, Arteria Property agreed to increase the amount owing to the plaintiff to $340,000 with repayment on or before 16 February 2009 subject to the giving of the guarantees. I find that the consideration given by the plaintiff for the contract of guarantee was the extension of time in that it was so given contemporaneously with the varied agreement as acknowledged by the executed document of debt and repayment.

36 The principal focus of these proceedings was the cross-claim by the defendant in seeking to avoid the guarantee pursuant to the Contracts Review Act. Of course, if the guarantee be so avoided then there was nothing to support the plaintiff's statement of claim.

37 Mr Allen's "blunt" submission was that the terms of the contract of guarantee in themselves spoke of "unjustness" as against the defendant and, so, should be declared void under s 7(1)(b) of the statute. Counsel developed the submission by reliance on the fact that the defendant gave a guarantee on 2 February 2009 for $340,000 to be paid in two weeks but where the original loan on 27 October 2008 to Arteria Property was $100,000 plus $60,000 interest payable in twelve days - thus, counsel emphasised, the debt in a period of less than three months had more than doubled and where the plaintiff sought the guarantee on becoming concerned Arteria Property would not repay the original debt. The circumstances in which the guarantee was obtained from the defendant were also said to be unjust and in that respect reference was made to the age of the defendant being only twenty-one years, the plaintiff was aware of the influence of Ms Adam over the defendant, the solicitor's letter suggesting legal advice was sent to Ms Adam and not to the defendant, the plaintiff was not concerned how Ms Adam might obtain the defendant's agreement to be a guarantor and Ms Adam was pressuring the defendant to do so to relieve the plaintiff's adverse conduct. Counsel added that, on the defendant's version, the contract was signed by her where she felt intimidated by the plaintiff as he stood over her in a threatening and menacing fashion and without regard to her own interests.

38 Mr Pluznyk urged acceptance of the plaintiff's version of the events in which the contract was signed and where he trusted Ms Adam in obtaining the defendant's agreement to be a guarantor with the suggestion of independent legal advice. Indeed the plaintiff had a solicitor draw the contractual document and asked the guarantors, including the defendant, if such advice had been obtained and was assured it had. Mr Pluznyk said the plaintiff was not a bank or a finance company and was simply seeking repayment of the loan made to Arteria Property through the defendant as guarantor on its default so that the claim should be upheld and the cross-claim dismissed. Counsel conceded, however, that it was open to the court under s 7(1)(c) of the Contracts Review Act to vary the contract by substituting for the amount due of $340,000 the amount of $160,000 or even $100,000 with an appropriate rate of interest.

39 Section 7 of the Contracts Review Act provides in presently relevant respects: "(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:

(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,

(2) Where the Court makes an order under subsection (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.

40 In determining whether a contract is unjust, s 9(1) of the Contracts Review Act provides that "the Court shall have regard to the public interest and to all the circumstances of the case". Sub-section (2) of the section sets out particular matters to which regard is to be had, including material inequality in bargaining power, whether negotiations occurred, whether it was reasonably practicable to negotiate alteration or rejection of any provision, whether and when independent legal advice was obtained, the extent to which the contract and its effect were accurately explained and understood, whether any undue influence or unfair pressure or unfair tactics were exerted and the setting in which the contract was made.

41 In Kowalczuk v Accom Finance Pty Ltd [2008] NSWCA 343 at [87]: (2008) 252 ALR 55 at 75, the Court of Appeal (per Campbell JA) approved the following statement by Brereton J in Riz v Perpetual Trustee Australia Ltd [2007] NSWSC 1153 at [51] as to relief under the Contracts Review Act: "Proceedings for relief under Contracts Review Act , s 7, involve two steps. The first is whether the contract was unjust in the circumstances in which it was made, having regard to the factors referred to in s 9. This is a conclusion of fact, albeit one of ultimate fact involving a broadly based value judgment...The second, which arises only if the first is resolved in the affirmative, is whether any and if so what relief should be granted; this involves the exercise of a judicial discretion..."

42 Circumstances productive of "unjustness" in a contract were explained by McHugh JA (as he then was) in West v AGC (Advances) Ltd (1986) 5 NSWLR 610 at 620-622 as being substantive or procedural. His Honour there said: "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...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…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".

43 In the present case, I have no difficulty at all in finding that the contract of guarantee between the plaintiff and the defendant was unjust in the substantive sense. In my view, it would be contrary to the public interest for a court to sanction a contract under which a party, the borrower, was to pay interest on a loan at the rates provided by this transaction - 1,825 per cent per annum on the original loan of $100,000 being $60,000 interest for a period of twelve days and 2,925 per cent per annum on the varied amount of $160,000 being $180,000 interest for a period of two weeks; over the period of nearly three months since the original loan the debt due became $340,000 being interest of $240,000 at the rate of 960 per cent per annum. It is all the more so where a third party to the loan transactions becomes involved in guaranteeing the borrower's compliance and assuming liability for the debt. Such a guarantee, in terms, and I am so satisfied, is simply unconscionable. In a word, the contract of guarantee here is unjust and should not be enforceable.

44 Further, I think the circumstances in which the contract of guarantee was made were manifestly unfair to the defendant in a procedural sense so as to result in injustice. The defendant had no dealings with the plaintiff prior to the guarantee being given on 2 February 2009 and where, whether one accepts the plaintiff's or the defendant's version of the events, there was no discussion, let alone any negotiation, between them as to the guarantee itself or the financial situation giving rise to the plaintiff seeking it. The plaintiff was aware of the age of the defendant and where, unconcerned how it might be achieved, was content for Ms Adam to obtain her daughter's agreement to be a guarantor of the monies owing to him by Arteria Property; the only suggestion of obtaining independent legal advice was made by the plaintiff's solicitor to Ms Adam and not to the defendant. It is true that the defendant was said to own a property, the house in which her grandparents lived, purchased from her mother in 2008 for about $400,000 with a mortgage of about $300,000 but which was retained only for a year or so due to financial difficulty in servicing the mortgage. It is plain too, it seems to me from the defendant's evidence which I accept, that she had a fear of the plaintiff, rightly or wrongly, and felt intimidated by him from what her mother told her about his alleged threats to the defendant and to other members of the Adam family.

45 On the plaintiff's version of the signing of the contract, he was not even present and left it to Ms Adam to arrange for the parties, including the defendant, to do so. His later attendance to obtain the initialling of the alteration to the date was perfunctory as the document had been signed already - that, in my view, was an unfair process to the defendant in what was the imposition of a very serious and important obligation on her. If one accepts the version of events stated for the defendant, which I do, I think the same result follows - again with little or no discussion with the defendant, the plaintiff obtained her signature and absent any explanation by him. I accept the defendant's evidence of a feeling of intimidation by the plaintiff as she proceeded to sign the document.

46 In accepting those aspects of the defendant's evidence, I do so by finding her a credible and satisfactory witness. She presented in a quite straightforward manner and answered questions directly and without any attempt at avoidance or exaggeration as to her view of the plaintiff. On the other hand, I found the plaintiff less than satisfactory in giving evidence and where he displayed a very cautious approach in responding to questions to the point where he appeared careful to give an answer consistent with his own interests. It was not unusual for him to take a very long period of time in responding, even up to a minute or so, and then answering with a simple "yes" or "no". As it happens, it is not necessary in deciding this matter to finally choose between the plaintiff's or the defendant's version of the events in the actual signing of the contract - the result as I have said is the same - as a view of the witnesses is only relevant in considering the defendant's impression of the plaintiff and thereby her motivation in signing the document. As I have said, I accept it. However, I expressly make no finding as to whether in fact the plaintiff threatened or harassed members of the Adam family, including the defendant, through Ms Adam.

47 It remains only to determine the appropriate relief in relation to the contract of guarantee. In the circumstances, I think the appropriate relief is to declare it void in whole from the time it was made. The degree of injustice found in the contract is of an extreme nature, particularly the interest rates, and in the circumstances of its making where the defendant was afforded no opportunity to negotiate or even discuss it with the plaintiff nor was she able to obtain independent legal advice. It is the fact she was no doubt influenced by Ms Adam but in a situation where the plaintiff was unconcerned how the guarantee might be obtained.

48 I find that the subject contract of guarantee between the plaintiff and the defendant was unjust in both a substantive sense as to its terms and in a procedural sense as to the methods used for it to be made. It should be declared void in whole from the time when it was made. In consequence, the plaintiff's claim under the guarantee for repayment of the monies owing to him by Arteria Property must fail as there is nothing to support it.

49 The parties were agreed that costs should follow the event in the ordinary way.

50 In the determination of this matter I make the following orders - (1) Declare that the contract of guarantee made between Edward Sara and Nadia Adam as set out in the document dated 2 February 2009 entitled "Acknowledgment of Debt and Repayment of Loan/Debt Agreement and Guarantee" is void in whole from the time when it was made.

(3) Plaintiff is to pay the defendant's costs of the proceedings on the ordinary basis in an amount as agreed or assessed.

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