Silvestro v S R Factors Pty Ltd

CATCHWORDS: TRADE PRACTICES- unconscionable conduct- whether "unconscionable conduct" under s 51AA and s 51AC Trade Practices Act 1974 for respondent to delay in taking action to recover debt and suing the appellant so that appellant's rights of subrogation for recovery of debts against customer and insurer statute barred by Limitation Act 1969- on facts claim not made out- in any event no evidence of reaction of appellant to respondent's alleged conduct.

Contracts Review Act 1980 LEGISLATION CITED: Limitation Act 1969 Trade Practices Act 1974 (Cth), ss 51AA, 51AC

Brueckner v The Satellite Group (Ultimo) Pty Ltd [2002] NSWSC 378 CASES CITED: Garry Rogers Motors (Aust) Pty Ltd v Subaru (Aust) Pty Ltd (1999) ATPR 41-703 West v AGC (Advances) Ltd (1986) 5 NSWLR 610

PARTIES: Paul Silvestro (Appellant) S R Factors Pty Limited (Respondent)

COUNSEL: J T Johnson and J Paingakulam (Appellant) P Bolster (Respondent)

SOLICITORS: Brydens Law Office (Appellant) Peninsula Law (Respondent)

IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 2009/00298375

MACFARLAN JA YOUNG JA SACKVILLE AJA

Thursday 22 April 2010 SILVESTRO v S R FACTORS PTY LTD Judgment 1 MACFARLAN JA: I agree with Young JA. 2 YOUNG JA: This is an appeal from his Honour Judge Elkaim in a commercial matter in the District Court over the factoring of the debts of a smash repairer. 3 An agreement headed "Factoring Agreement" was entered into on 14 February 1997. It provided that its parties were S R Factors Pty Ltd described as "the Purchaser" and Holroyd Smash Repairs Pty Ltd described as "the Vendor". It was signed for and on behalf of the vendor, "Paul Silvestro Director" and was also signed by Mr Boyer a director of the purchaser. 4 There was a guarantee which provided that in consideration of S R Factors Pty Ltd having entered into a factoring agreement with the party referred to in schedule A at the request of the party referred to in schedule B that the latter guaranteed jointly and severally the performance of those in schedule A. Schedule A contained the words "Shafana Pty Ltd and Holroyd Smash Repairs Pty Limited". 5 There are various odd things about that agreement. These included the fact that there was never any such corporate entity as Holroyd Smash Repairs Pty Ltd. There was a business name Holroyd Smash Repairs which appears to be that of Mr Silvestro though there is some suggestion that Shafana Pty Ltd ran that business as trustee of some discretionary trust. Furthermore, although Patricia Silvestro was named in schedule B as a guarantor, the primary judge found that her signature had been forged on the document by Mr Silvestro (the appellant). Accordingly, the judge dismissed her from the proceedings. 6 The respondent factored various invoices of the smash repair business up until about April 2000. 7 In an affidavit which was read to the primary judge and cross-examined upon, but not the subject of any assessment by the primary judge (though Mr Silvestro did not give any evidence in the case), Mr Boyer said: "In 1999 huge storms hit Sydney resulting in hail damage to thousands of cars. Paul Silvestro quoted on a large number of these cars, which were subsequently removed by the customer or insurance companies as work was not being completed. Paul Silvestro invoiced and factored work on these cars in advance, which resulted in numerous unpaid accounts. I spoke to him on numerous occasions about the arrears and he said to me 'I will repay them out of future work' but the business closed down. When I confronted him about the business closing down he said to me 'My brothers have leased the premises to another smash repairer for a period of one year. At the expiration of the one year I'm going to go back into the business again.' I kept on chasing him up about the outstanding invoices. At the expiration of the one year period I contacted him and said 'What's happening about you going back into the premises, the year's up'. He then replied 'My brothers have extended the lease to the tenants but I'll get back into the premises and when I do I'll repay you all the money that's outstanding.' He never did. I kept in contact with him and threatened legal action and he said 'Don't take legal proceedings because my wife and brother's wife will cause problems and close down the business completely. My father will help me but he has a trust. You will be paid.' These promises continued over a period of time but no payments were made." 8 Not only is this useful background material, it is also relevant when I have to consider the main argument placed on this appeal. 9 The primary judge skilfully wove his way along the various pathways through the difficulties in the case. He held that Mrs Silvestro had not signed as a guarantor, that Mr Silvestro was estopped from denying that the contract was made with his business and that he was liable on the guarantee. However, in one respect, the judge acknowledged validity in the position taken by Mr Silvestro and declined to award the plaintiff the full amount claimed. 10 That discount came about because the Factoring Agreement provided that monies due under the indemnity to the factoring company were to carry interest at 20% per annum. The factoring company took about six years before it commenced action and the judge thought it was unconscionable that it should also claim that 20% interest for the whole period. The primary judge did not give reasons for this view, but there is no appeal on this aspect of the case and indeed, on the appeal, counsel for the appellant based one of his submissions on that finding. 11 There was a cross-claim before the District Court and that was to the effect that the Factoring Agreement as implemented was unconscionable and that the defendant should be relieved of paying what was otherwise due pursuant to ss 51AA and 51AC of the Trade Practices Act 1974 (Cth). That cross-claim was dismissed by the learned judge. The primary judge found that the appellant was liable for the base amount of the plaintiff/respondent's claim of $174,579.10 and reckoned that interest should be charged for 3 years at 20% and from the end of that period a judgment at 10% so the total verdict was $382,729.76. 12 The appeal is only in respect of the cross-claim. Essentially the notice of appeal raised the following matters:

(1) that the primary judge erred in holding that there could be no unconscionability in relation to dealings with a non-existent entity;

(2) the primary judge erred in failing to have any regard to the fact that the respondent failed to take any action for the recovery of the debts that were factored until such time as the Limitation Act 1969 made them statute barred;

(3) that the primary judge erred in drawing unfavourable inferences against the appellant by virtue of his failure to give evidence where the appellant's evidence could have no bearing on the issue of unconscionability;

(4) that the judge found unconscionability in terms of interest but gave no adequate reasons for such determination. 13 At the hearing of the appeal, Mr J T Johnson and Ms J Paingakulam appeared for the appellant, and Mr P Bolster appeared for the respondent. 14 The appeal was very concisely argued and the oral hearing took a little more than half an hour. Mr Johnson made it clear that the key point was that in not taking action for over six years to recover the debt and to sue the appellant, the respondent had denied the appellant his rights of subrogation because the debts were now irrecoverable against the customer or insurer of the smash repair business. Mr Johnson submitted that the delay by the respondent constituted "unconscionable conduct" within the meaning of s 51AA and s 51AC of the Trade Practices Act. 15 That submission must fail for a number of reasons. 16 First, as a matter of fact, the appellant not only gave no evidence as to the effect of any conduct by the respondent being unconscionable towards him, but there was the unanswered material which I have set out earlier which tended to negate any unconscionability. The evidence tends to show that the respondent did not simply stand by until the limitation period expired, but actively pursued the matter. Indeed the primary judge found (at [61]) that the respondent had made genuine efforts to recover the moneys from the insurer, but was unsuccessful. 17 Secondly, the appellant gave no evidence at all as to how he would have reacted had he been given more information by the respondent. On the evidence, it seems unlikely that he would have taken any action. Even if he did, there is no evidence to suggest that he would have recovered anything from the insurer or any customer. 18 A third argument involving estoppel is a non sequitur. The question really is whether there was any unconscionable conduct towards Mr Silvestro as guarantor. 19 Fourthly, it is put that unconscionable conduct under either s 51AA or s 51AC can affect a commercial arrangement with respect to goods or services, not only in the making of the contract but also in its implementation. 20 It is clear that in situations under the Contacts Review Act 1980 a contract may be unjust either in its making or in the way in which it operates in relation to the claimant: see West v AGC (Advances) Ltd (1986) 5 NSWLR 610. However, the instant statute is not focused on contracts. 21 I agree that it would be the exceptional case that the court would look at the implementation of a contract to see whether it was unconscionable when dealing with commercial people of full age and responsibility because normally the terms of the contract agreed to without any disability would govern. 22 However, there will be cases where people have capriciously exercised their legal contractual rights contrary, for instance, to the franchise code of conduct where the court may intervene: cf Garry Rogers Motors (Aust) Pty Ltd v Subaru (Aust) Pty Ltd (1999) ATPR 41-703 (an unsuccessful case), and there may be cases where mortgagees unconscionably exercise their legal rights. However, generally speaking, if a defence in contract law lies to the alleged unconscientious person's claim, then there is no call to resort to ss 51AA or 51AC of the Trade Practices Act 1974 (Cth). 23 It is the position that the ambit of both ss 51AA and 51AC has not yet been closely defined. It is also the situation that in equity relief can be given to a guarantor against a creditor if the creditor has through neglect, caused the security to be lost or impaired or diminished the value of the guarantor's right of subrogation: see Brueckner v The Satellite Group (Ultimo) Pty Ltd [2002] NSWSC 378 at [132] and Young, Croft and Smith On Equity (Law Book Co, Sydney, 2009) at [4.800]. Whether that equity comes within unconscionability under s 51AA is a question I would prefer to keep open. 24 Mr Bolster also put that the alleged unconscionable conduct was with respect to the administration of the Factoring Agreement and was insufficiently connected with the supply of goods or services. I myself consider there is a sufficient connection to the Factoring Agreement which is in itself a supply of services. 25 However, whatever the ambit of ss 51AA and 51AC of the Trade Practices Act 1974 (Cth), the facts of this case as found by the judge or not contested by the appellant show that the judge was correct in rejecting the cross-claim. 26 Accordingly, the appeal must be dismissed with costs. 27 SACKVILLE AJA: I agree with Young JA.

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