whether Deed Poll signed when debtor unable to see to read because of intoxication
whether predatory conduct by creditor
unconscionable dealing
Source
Original judgment source is linked above.
Catchwords
Deed Pollwhether Deed Poll signed when debtor unable to see to read because of intoxicationwhether predatory conduct by creditorunconscionable dealingarm's length commercial transactionnon-est factum(1992) 175 CLR 621
Effem v Lake Cumbeline [1999] HCA 15
Judgment (15 paragraphs)
[1]
NATURE OF DISPUTE
The parties joined in identifying the factual question for determination in these proceedings as whether or not the circumstances surrounding execution of a Deed Poll expressing third party guarantees given by the Defendants on the morning of 28 July 2017 justify the Defendants being relieved of the consequences of that document.
The Defendants acknowledge that they bear the positive burden of proving the factual bases for relief at law. The forms of relief are pleaded in the Amended Defence filed 29 August 2018. By Statement of Claim filed 29 May 2019, the Plaintiff pleads the Deed Poll as embodying guarantees granted by the First and Second Defendants upon which it proceeds. The principal debt due as sought in the Amended Statement of Claim at [15] is $314,980.05. Of this total debt for a particular job which can be called "Young Street", is proved by claim made under the Building and Construction Industry Security of Payment Act 1999 (NSW) (Exhibit PV1, Tab 21 p 153), and the operation of that Act: T p 163 Line 35.
The Plaintiff contracted concreting services to Citiwide Civil Engineering (NSW) Pty Ltd ('CWCE'). CWCE is in liquidation and not a party in these proceedings. The obligation guaranteed was described in the Deed Poll to be payment of the Plaintiff by CWCE of identified invoices and for the remaining Young Street works, then to be completed.
The Defendants concede execution of the document. There is no contest as to the construction of the document. The Defendants concede that it describes the guarantees upon which the Plaintiff sues.
The First Defendant was at the relevant time the sole director, company secretary and shareholder of each of CWCE and the Second Defendant, CWCN. The registered address of each company was the address of the home of the First Defendant, 31 Clarke Street, Earlwood, NSW. The Second Defendant was at the date of making of the Deed Poll the registered owner of that property.
Fundamentally, the defence case is that the First Defendant, Mr Mihalopoulos, signed the Deed Poll when he was incapacitated due to his being so heavily intoxicated as to be not capable of understanding the nature of what he was doing on his own behalf and for the Second Defendant. That occurred when the Deed Poll was delivered to him by Mr Valanidas, a principle officer of the Plaintiff, Structum Pty Ltd, at his home at around 8 am on 28 July 2017. The Defendants' case seeks to also prove, that at the time of execution, Mr Valanidas knew or ought to have known of the incapacity of the First Defendant when he executed the Deed Poll. The Defendants' allege that in those circumstances, the First Defendant, was unaware that the document expressed guarantees by him personally and by the Second Defendant.
[2]
PRINCIPLES - COMMON LAW
The common law recognises that the enforceability of the guarantees described in the Deed Poll depends upon the possession of the First Defendant of a degree of understanding relative to the nature of that which he was doing when he executed it. The law does not prescribe any fixed standard of presence of mind as requisite for the validity of all transactions. The mental capacity of the First Defendant required by the law in respect of the Deed Poll is the capacity to understand the nature of the transaction which the document described, when it is explained. Ordinarily this will mean the "general purport" of the Deed Poll: Gibbons v Wright (1954) 91 CLR 423 at 437 to 439; [1949] HCA 17. Proof that the First Defendant lacked the capacity to understand, which was necessary to complete the validity of the Deed Poll, would render it voidable: Gibbons v Wright at 449. However, such proof is not enough to entitle the Defendants to succeed because "an instrument voidable by reason of the incapacity of a party, or by reason of any form of imposition upon a party, is valid unless and until it is avoided by that party or his representatives.": Gibbons v Wright at 439. In Aldous v State of New South Wales [2018] NSWCA 261, Payne JA with whom the Court agreed, recently acknowledged that Gibbons v Wright "identified the relevant legal principles": at [77]. In Blomley v Ryan (1956) 99 CLR 362; [1956] HCA 81, a case applied in Aldous at [71], Kitto J said at 415:
"This is a well-known head of equity. It applies whenever one party to a transaction is at a special disadvantage in dealing with the other party because illness, inexperience, impaired faculties, financial need for other circumstances affect his ability to conserve his own interests, and the other party unconscientiously takes advantage of the opportunity thus placed in his hands."
Blomley was a case in which the relevant person's incapacity resulted from observed intoxication which was known and predated upon by the other party to the impugned and objectively unfair agreement. Drunkenness of a quality such that the person signing does not know what they are signing has long been recognised as a state of relevant incapacity: Gibbons v Wright at (1954) 91 CLR 423 at [42].
In Kakavas v Crown Melbourne Limited [2013] HCA 25; (2013) 250 CLR 392; 97 ALJR 708, at [151] to [161], the High Court emphasised that the underlying principle is applied when the enforcement of the legal rights of the creditor would, in all the circumstances, be unconscionable. Wilful ignorance by the creditor is at law not different from actual knowledge of the special disability. This is because the knowledge of the Plaintiff, by its representative Mr Valanidas, of the disability of the First Defendant is an aspect of the question whether the defendants have been "victimised". The High Court spoke with approval of the threshold test described by Deane J in Louth v Diprose [1992] HCA 61; (1992) 175 CLR 621 at 637 , where his Honour stated:
"sufficiently evident to the other party to make it prima facie unfair or "unconscionable" that that other party procure, accept or retain the benefit of, the disadvantaged parties assent to the impugned transaction in the circumstances in which he or she procured or accepted it."
In Kakavas, The High Court concluded with the following statement at [161]:
"Equitable intervention to deprive a party of the benefit of its bargain on the basis that it was procured by unfair exploitation of the weakness of the other party requires proof of a predatory state of mind. Heedlessness or indifference to, the best interests of the other party is not sufficient for this purpose. The principal is not engaged by mere inadvertence, or even indifference, to the circumstances of the other party to an arm's-length commercial transaction. Inadvertence, or indifference, falls short of the victimisation or exploitation with which the principle is concerned."
[3]
APPROACH TO EVIDENCE
Messrs Valanidas and Farmakis gave evidence for the Plaintiff. The First Defendant gave evidence for the Defendants. Substantial questions of credit arise in the determination of facts from their competing evidence.
In determining the issue of credit, I am assisted by employing consideration of the approach described by Tamberlin J and approved by the High Court in Effem v Lake Cumbeline [1999] HCA 15; (1999) 161 ALR 599 at 603 [15]. His Honour said:
"Credit in this matter assumes a significant role because almost all of the representations alleged are specifically and categorically denied. There are four principal witnesses whose credit is squarely in issue, and I propose to comment on each of them in turn.
I should add that my final conclusion is that having regard to the 7 to 8 year period that has elapsed between the events and conversations raised in the evidence and the hearing of the evidence before me, the only safe course is to place primary emphasis on the objective factual surrounding material and the inherent commercial probabilities, together with the documentation tendered in evidence. In circumstances where the events took place so long ago, it must be an exceptional witness whose undocumented testimony can be unreservedly relied on. The witnesses in this case unfortunately did not come within that exceptional class. The discussions referred to in evidence were capable of bearing quite opposed meanings depending on subtle differences of nuance and emphasis, and a proper appreciation of the significance of those matters must necessarily be considerably diminished over such a long time."
Here the Deed Poll is a document made in the course of arm's-length commercial dealing. Conversation at the time of the making of the Deed Poll and in discussions before its making are squarely in contest. Only one year, not the longer period of 8 years in Effem, had passed before the making of affidavits and 1 ½ before the giving of oral evidence at hearing, but no witness made a note at the time of the conversations or prior to the making of affidavits. As will be seen, I do not find any of the key witnesses, Messrs Valanidas and Farmakis for the Plaintiff or the First Defendant to have given evidence worthy of full acceptance of their version. Determination of what was said and proper appreciation of the meaning of words used in the conversations about which those key witnesses gave evidence in the process of fact-finding is assisted by considering the objective evidence of surrounding circumstances.
[4]
CIRCUMSTANCE LEADING UP TO DEED POLL
For about two years prior to the First Defendant signing the Deed Poll, the Plaintiff undertook concreting and related works for CWCE. At the time of the signing of the Deed Poll on 28 July 2017, the Young Street job was continuing and Plaintiff overdue invoices totalling approximately $250,000.00 remained unpaid by CWCE.
Mr Constantine Passas, Project Manager for CWCE, made an affidavit dated 12 February 2019. He was not cross examined. By paragraph 10 of his affidavit, Mr Passas deposed that in the week commencing Monday 24 July 2017, the First Defendant "was not physically at work" and only attended the office for the purpose of the meeting with the Plaintiff (Mr Valanidas and Mr Farmakis) on 27 July 2017 at 2pm.
The parties focussed their contest significantly on what occurred at the meeting on 27 July 2017. The Plaintiff case is that Mr Farmakis demanded and the First Defendant agreed to the provision of documented guarantees that CWCE would pay the Plaintiffs outstanding invoices and for continuing on the Young Street Job. The Plaintiff case is that the Deed Poll made by the First Defendant on the morning of 28 July 2017 is that document. The Defendants' case is that at the meeting on 27 July 2017 a schedule for payment of the Plaintiff's outstanding invoices by CWCE was agreed but that nothing was said about the provision of third party guarantees. On the Defendants' case, the First Defendant was not forewarned of and did not know the Deed Poll expressed guarantees when he signed it, without reading it, on that morning.
[5]
ASSESSMENT OF CREDIBILITY OF WITNESSES AND FACT FINDING
[6]
i) Evidence of Mr Valanidas
On 24 July 2017, outstanding payments due from CWCE to the Plaintiff were discussed at a meeting at CWCE offices at Padstow NSW. In attendance were Mr Valanidas for the Plaintiff and the First Defendant and Mr Passas for CWCE. At that meeting, the First Defendant asked for time explaining that CWCE suffered late payment by their clients and asked Mr Valanidas not to pull the Plaintiff's men off projects, assuring that payment would be made in the coming days or weeks.
In cross examination, Mr Valanidas agreed that there was no discussion at the meeting on 24 July 2017 concerning the provision of guarantees for payment of the debt owed by CWCE. He agreed that there had not, before that date, been discussion of guarantees.
Mr Valanidas said that he did not recall when he and Mr Farmakis for the Plaintiff came to a decision that guarantees would be required. He conceded that he and Mr Farmakis spoke daily about the business of the Plaintiff. He did not recall when the possibility of the provision of guarantees was first discussed with the First Defendant.
Mr Valanidas did join in drinking alcohol with the First Defendant, at or after the meeting of the 24th July 2017. He said that the First Defendant had one or two glasses and did not seem affected by alcohol. He said that he was unaware of what alcohol the First Defendant consumed outside of the drinks he observed at or following the 24 July 2017 meeting. Mr Valanidas denied that he had ever seen the First Defendant when he had had a lot of drink. His evidence was that he had never seen the First Defendant significantly affected by alcohol such as when slurring his words and that he did not recall ever having heard the First Defendant say that he was "fucked".
According to paragraph 28 of his affidavit, the meeting concluded with his agreeing with Mr Passas's suggestion that they meet at the Young Street job the next day, 25 July 2017, to determine the extent of the work required for completion of those works and to determine the extent of works completed for the issue of a progress claim.
The First Defendant did not attend the on-site meeting on 25 July 2017. Mr Passas attended for CWCE. The topic of the provision of guarantees was not discussed at the meeting on 25 July 2017.
Mr Valanidas, in paragraphs 28 and 29 of his affidavit made 29 August 2018, recorded in first person speech the discussion of those meetings on 24 and 25 July 2017. His affidavit is silent of consideration of the absence of the First Defendant at the site meeting on 25 July 2017 despite the importance of discussion of assessment of a progress claim and estimate of costs to completion, in the circumstances of CWCE being so greatly behind in payment that the 24 July meeting had been convened.
When this was addressed in cross examination, he first said that he did not recall whether he wanted to meet the First Defendant as well as Mr Passas on site on the 25th of July 2017 (Transcript day 2, page 42, Line 5). This was a curious answer given Mr Valanidas thought on 24 July 2017 that serious issues of payment required the First Defendant's attention.
He was then shown a copy of a text message (MFI 1) sent by him on 25 July 2017. At first he would not acknowledge the authenticity of the document. When asked if he recognised it, he answered "Without checking my phone, I would say yes" (Transcript Page 42, line 49). In response to my inquiry, counsel for the Plaintiff confirmed that the Plaintiff did not require formal proof of the document. Mr Valanidas's reluctance to concede the authenticity of what was apparently a copy of his own SMS message displayed inadequate frankness. Exposition of my assessment of the credibility of his evidence requires expansion on this point.
Before being shown his SMS message (MFI 1), his evidence had been pointedly that he had not tried to contact the First Defendant about the meeting on 25 July 2017, or that he did not recall and that he "had to meet with" only Mr Passas. When asked whether or not he required the First Defendant to be at the meeting as well, rather than answer directly, he responded that the First Defendant did not spend much time on building sites. His evidence at day 2, Transcript 41 Line 40 to Page 42 Line 43, was [Note: In transcript of evidence: "Peter" is Mr Valanidas; "Jim" is Mr Farmakis; "Bill" is the First Defendant; and "Con" is Mr Passas]:
"Q. After the meeting on Monday 24 July did you seek to have a meeting with Bill on the next day, the Tuesday, 25 July?
A. No.
HIS HONOUR
Q. What was that answer? No.
O'SHEA
Q. Are you sure about that, sir, that you didn't try to contact Bill to have a meeting on the Tuesday?
A. On Tuesday I had to meet with Con on site with his site foreman.
Q. So did you want to meet with Bill, though, as well on Tuesday 25 July?
A. I don't recall.
Q. You have annexed a lot of text messages in your exhibits to your affidavit. You recall that?
A. Yes.
Q. You believe that you've exhibited all the relevant text messages relating to meetings with Bill during that week?
OBJECTION. ADMISSIBILITY. QUESTION WITHDRAWN
Q. Were you made aware if Bill had been drinking during this week, starting from Monday 24 July to Friday 28 July?
A. Bill and I shared a drink at that meeting on the 24th..(not transcribable)..know of any other drinking.
Q. And when you say you shared a drink at - Bill being - was there any indication to you that Bill had been drinking before you got there?
A. No.
Q. And how much did Bill have to drink at that meeting. Do you recall?
A. One or two glasses.
Q. Did he seem affected by the alcohol at that meeting?
A. No.
Q. And you say then, on Tuesday - and I'll take you to your affidavit, you meet with Con. So I take you to page 36 of the court book, sir, which is page 6 of your affidavit at paragraph 29. You've got that, sir?
A. Yes.
Q. And you met with Mr Passas also known as Con at a work site at that meeting. You didn't require, did you, you didn't require Bill to be at that meeting as well?
A. Well, Bill doesn't spend much time on the sites.
Q. You're not aware that Bill couldn't attend for any other reason?"
A. ..(not transcribable)..
I now include the portion of transcript given when faced with his SMS (MFI 1) (Page 42 Line 45 to Page 44 Line 10):
"Q. You see the document in front of you, sir? Just take your time to read it. Do you recognise that as a text message sent by you on Tuesday 25 July 2017?
A. Without checking my phone I would say, yes.
HIS HONOUR: Just stop for a moment. Mr Robertson, does the Plaintiff require formal proof of a document?
ROBERTSON: No.
HIS HONOUR: Of course the evidence rules apply, I'm just flagging procedurally as to - for counsel to consider how we move with the documents if things like this are going to keep coming up.
ROBERTSON: The answer to your Honour's question is, at the moment, yes, but it may be that I can change that position if the witness is given an opportunity to view his own phone.
HIS HONOUR: That's why I raised it now, thank you. But I assume there'll be - this will repeatedly occur, that's all I was raising. Yes, go on.
O'SHEA
Q. So you do recall now that you've seen that, that the page I've shown you, do you recall that message being sent, sir?
A. Yes.
Q. And if you could just read it down to the end of today please.
A. "Please have a chat with Bill, he says he can't meet today. I think its cause he's out of action today".
Q. And today being Tuesday 25 July 2017. What did you mean by, "I think its cause he's out of action today"?
A. He's not at work.
Q. Then why didn't you say, "I think he's not at work"?
A. I don't know.
Q. Is it the case, sir, that you were aware that Bill - from talking to Bill you were aware he was intoxicated from that day?
A. I - I don't recall.
Q. Is it the case that you used - the language you used, "I think its cause he's out of action today," was a polite way of saying that you knew he was intoxicated?
A. I don't remember even sending the message so I can't tell you.
Q. Is it correct that, Bill has previously told you, prior to Tuesday 25 July 2017, he's told you at times that, "He has been intoxicated"?
A. I don't know.
HIS HONOUR: What date did you put on that?
O'SHEA: 25 July.
HIS HONOUR: Thank you.
O'SHEA: 2017.
Q. And you knew Bill reasonably well, didn't you?
A. Through work, yes.
Q. But it's correct, isn't it, that Bill has told you that he has a problem with drinking?
A. No."
Further observations of this passage of evidence are to be made. It is an example of how Mr Valanidas's giving of evidence indicated that he was a witness whose evidence is to be treated cautiously. After he reluctantly answered clearly "yes" that he recalled sending his SMS, after first questioning its authenticity (Transcript page 43 line 20); when faced with the proposition that the expression "out of action" was a reference to the First Defendant being intoxicated he volunteered the inconsistent and avoiding response that he did not remember the SMS being sent (T. p.43, line 41).
It will be recalled that Mr Valanidas had immediately before being shown his SMS (MFI 1), given evidence against the propositions that he sought the First Defendant be on site or that he expected the First Defendant to be on site and he had failed to concede that he had tried to contact the First Defendant for that purpose. His SMS showed he had asked Mr Passas to try to talk the First Defendant into attending. The surrounding circumstances of significant debt and ongoing work make it highly plausible that it was important to have the First Defendant on site. The plan was to continue discussion of these topics from the meeting on 24 July 2017.
I considered his answer that "out of action today" meant only that "he is not at work" to be less than frank and more likely an invention. Only 20 lines later he answered that he did not know whether "out of action" was a reference to being intoxicated (See transcript day 2, page 43 lines 25-45).
That Mr Valanidas was reluctant to disclose what he did know, which is my observation, is not evidence of the fact of what he knew but may make other evidence of circumstances inferring what he was aware of, more likely to be believed. The above transcript displayed a basis for these concerns in regard to his evidence on the topic of the First Defendant's drinking and intoxication.
[7]
ii) Evidence of Messrs Valanidas and Farmakis - Meeting 27 July 2018
Each of Mr Valanidas and Mr Farmakis deposed by affidavit, in first person what was said at the meeting.
On the afternoon of the 27th of July 2017, approximately 18 hours before the Deed Poll was signed, Messrs Valanidas and Farmakis met with the First Defendant and Mr Passas. No one made notes of the meeting.
Mr Farmakis was an assertive witness and his assertiveness was directed toward telling a story which he understood would advance the Plaintiff's interests rather than, on occasion, to respond accurately to questions asked.
I make the following observations of the evidence of Messrs Valanidas and Farmakis of the meeting on 27 July 2017:
1. Whilst each of them denied having discussed with the other evidence to be included in their affidavits, there is a striking similarity in their first person accounts of what was said given the passage of more than one year. Standing alone, this might not be of great significance; but with the other factors identified below, it caused me concern that there had been between them, despite their denials, some cooperation. For illustration, Mr Valanidas and Mr Farmakis deposed the key passage of what Mr Farmakis said concerning guarantees and the First Defendant's response of agreement, in the following obviously similar terms:
Valanidas affidavit 29 August 2018 paragraph 33: "…. Before Structum can commit any further resources for the Young Street Project we will need a specific payment plan from Citiwide Civil and personal guarantees for what we are owed. Until we receive that we aren't committing any further resources or completing the works. Too much money is owed."
[First Defendant said] "No worries. You draft what you want, and I will sign it."
Farmakis affidavit 29 May 2018 paragraph 7: "Before Structum commits any further resources for the Neutral Bay Project, we will need a payment plan from Citiwide, and personal guarantees for what we are owed. Until we have this in writing, we won't be committing any further resources or completing the works. There is too much money outstanding."
[First Defendant said] "Okay I will sign it."
1. Only a day or so before the 27 July 2017 meeting, Messrs Valanidas and Farmakis discovered the First Defendant's other company, the Second Defendant (CWCN). They had never traded with the company. They had never heard of the company. According to their evidence, despite their, by search, becoming aware that the First Defendant was the Second Defendant's sole director, company secretary and shareholder, and that the Second Defendant was the registered proprietor of the First Defendant's home property at 31 Clarke Street Earlwood; they did not make reference to the Second Defendant during their expressing the above referred to requirement for third party guarantees of payment by CWCE.
I found it surprising, their having discovered that the Second Defendant was the registered proprietor of the First Defendant's home; if they demanded a guarantee, that they did not mention the Second Defendant, because it would have been the ordinary thing to do.
Further, they did not disclose in their affidavits or to the First Defendant at the meeting, that prior to the meeting, they had instructed their solicitors to include the Second Defendant as a guarantor in the legal document being prepared. Each of them conceded in cross-examination that when at the meeting it was their intention to include the Second Defendant as a guarantor in the legal documentation being prepared. Their explanation for not speaking to the First Defendant of a guarantee to be provided by the Second Defendant was in the nature of: that it wasn't required to do so because at the meeting the First Defendant volunteered that he would sell his home, if he had to, in order to make sure the Plaintiff got its money.
I assessed this part of their evidence as counter intuitive because in circumstances of one party volunteering to ensure payment by sale of their home asset if necessary, the other party seeking guarantees in an arm's length commercial discussion would be expected to usually include in discussion of personal guarantee, the corporate registered proprietor of the party's home.
Mr Valanidas's evidence in cross examination was (T p 69 line 38 to p 71 line 25):
"Q. Do you agree that at the meeting of 27 July 2017 you came to that meeting prepared to talk about guarantees?
A. Yes.
Q. Because you said in your evidence you already discussed prior to the meeting with Mr Farmakis how the meeting would be planned out?
A. Yes, that he would take the lead.
Q. So when Mr Farmakis had not advised that CWCN would be a guarantor, you didn't seek to change that statement to Bill?
A. No, because the discussion was still general.
Q. It's correct that you did not want to mention CWCN as being a guarantor at that meeting because you did not want Bill to know at that stage, at that meeting, that the document you instructed him to prepare included CWCN?
A. The document that was being prepared hadn't been finalised. So no specific details were discussed.
Q. You have already said that you instructed your solicitors to draft a document‑‑
A. Yes.
Q. ‑‑prior to the 27 July 2017 meeting to include CWCN Pty Ltd.
A. Yes.
Q. And you went to the meeting of 27 July 2017 knowing that your intention was to take a guarantee including CWCN?
A. Yes.
Q. Yet when guarantees were discussed by Mr Farmakis in your presence, you did not step in and say, "It also includes CWCN Pty Ltd as being a guarantor," did you?
A. No.
Q. And that's because you wanted to surprise Bill about that fact, wasn't it?
A. No.
Q. You didn't say that to Bill because your families had a close relationship?
A. No.
Q. You said that both your fathers were friends for some years?
A. Yes.
Q. You said you have met Bill on social occasions previous?
A. Yes.
Q. Is it correct that you felt awkward about telling Bill about the company, CWCN, also guaranteeing this debt?
A. No.
HIS HONOUR
Q. You never, to my understanding, responded to the question, which to the best of my note - and counsel, correct me if I'm wrong - it was put to you, in other words, Dr O'Shea suggested to you, you did not mention CWCN because you did not want Bill to know that it was to be a guarantor.
A. That's false.
O'SHEA
Q. You understand, sir, what the nature of a guarantee is?
A. Yes.
Q. You understand that it's an important legal document?
A. Yes.
Q. You told us that you came to that meeting with you having already instructed your solicitor that CWCN would be a guarantor.
A. Yes.
Q. Your partner, Mr Farmakis, in your presence discussed the guarantee at the meeting, 27 July?
A. Yes.
Q. Yet it wasn't revealed by you who the actual guarantors were all going to be. That's correct, isn't it?
A. Yes.
Q. And you did that knowing that that was deceiving Bill as to the nature of who were going to be the guarantors. That's true, isn't it?
A. No.
Q. You intended to ambush Bill with the document later on which showed up CWCN and without his prior knowledge. Is that correct?
A. No.
Q. But, that's what actually happened on 28 July?
A. No."
Mr Farmakis gave the following evidence (T p 108 line 49 to p 109 line 14):
"Q. Before the meeting of 27 July 2017, you weren't aware that you would require a guarantee from CWCN Pty Ltd?
A. I was aware of CWCN, okay? But in that meeting I wanted a personal guarantee, okay? I don't understand the legal jargon, deed polls and stuff; I do not understand all that. I wanted a personal guarantee so we could carry on with business with Citywide. Simple as that.
Q. So it was a complete surprise to you, when the deed poll document arrived at some time on 27 July 2017, that there was a guarantee required by CWCN Pty Ltd?
A. I was aware of a CWCN before the - the 27th, okay? But to me, it is the same thing. A personal guarantee - the - the gentleman, Bill, is a director of CWCN. Whether you're going for someone personally, if they own ten businesses as - as directors, it's the same thing, in my opinion. I don't understand the difference."
Mr Farmakis rejected the proposition put to him in cross examination that he had not actually said "guarantees" to the First Defendant at the meeting on 27 July 2017. Having just been taken to paragraph 7 of his affidavit made 29 August 2018, wherein he included in first person speech that notification was given to the First Defendant (quoted above) he gave the following answers (at T. Day 3, P 104, l 25 to p 105 l 09):
"Q. Now you didn't actually say "guarantees" to Bill at that meeting did you?
A. Yes, I did.
Q. I say that that's a lie that you did not mention guarantees at all.
A. I reject your comment.
Q. It's correct to say that your company up to this time, which is July 2017, had not taken guarantees from other parties you do business with. Is that correct?
A. I think it's irrelevant, but‑‑
Q. Is it correct to say that your company, up to this time, had not taken guarantees from other parties they did business with?
A. I've used personal guarantees but I've written them myself and I pay someone a deposit.
Q. Is it correct to say that your company‑‑
HIS HONOUR: No, just stop for a second.
Q. That was when you've paid someone a deposit.
A. Yep.
Q. The question asked of you was, to my understanding and counsel will correct me if I'm wrong, was whether in the conduct of your business you had previously used guarantees?
A. For any parties, any involvement in the - like, are you - are you referring to Citywide or to any business?
O'SHEA
Q. Prior to the meeting on July 2017 is it correct to say that, Structum Pty Limited had not required business parties they deal with to provide guarantees?
A. I don't recall."
That passage of transcript includes my interjection to require Mr Farmakis to respond to a question asked in cross-examination. I did so because he evaded the question which focussed on personal guarantees in the business of the Plaintiff by referencing to personal guarantees he had given in dealings in his personal life.
Mr Farmakis assertively made complaint that the topic of the Plaintiff's practice of taking guarantees in business was "irrelevant", was a response given without inciting any protest from counsel for the Defendant. In my assessment, it was a complaint against making the concession that the Plaintiff had not previously required personal guarantees of parties in its business which, in the thinking of Mr Farmakis, might weigh against acceptance of the passage in his affidavit in which he claims to have made that demand on 27 July 2017. Given that Messrs Valanidas and Farmakis shared the management of the Plaintiff's business, it would be surprising if he simply did not recall that fact, when Mr Valanidas readily recalled that the Plaintiff had not (T day 2, p 48 lines 25-33). That is particularly so given that they had discussed before the meeting that Mr Farmakis was to take the lead in the discussions and they had instructed their lawyers to prepare the guarantee document. That engagement would likely be recalled by Mr Farmakis and have assisted him to recall whether or not it was the first time the Plaintiff had pursued personal guarantees in business.
1. Mr Valanidas and Mr Farmakis gave the unlikely evidence that they expected the First Defendant to "have no issue", as Mr Valanidas put it, in the Second Defendant being joined as a guarantor and therefore did not inform him: Mr Valanidas transcript day 2, page 67 line 43 - page 68 line 49: Mr Farmakis transcript day 3, page 103 line 6 to page 103 line 31.
2. Mr Valanidas and Mr Farmakis gave evidence they did not know what the word 'inebriated' meant: Mr Valanidas transcript day 2 page 51 line 25; Mr Farmakis transcript day 3 page 106 line 36. Each of them spoke in Australian accented, English language with fluency equal to it being their first language. There is nothing within their affidavits, nor was there in their use of the English language in oral evidence, to indicate that their use of it was in any way limited. It would be surprising for such individuals in the community to not understand the meaning of the commonly used word 'inebriated'. My assessment of their answers in that regard, was that each of them refrained from responding affirmatively to a question containing the word 'inebriated' because of their awareness that the First Defendant's consumption of alcohol was central to the determination of the case. In that way they were concerned not to agree to a word describing a state of intoxication as opposed to, for instance the evidence of Mr Valanidas concerning the 24 July 2017 meeting in which he conceded the First Defendant consumed a modest one or two drinks. In this way, they were willing to give evidence denying that the First Defendant was known to be 'drunk' or expected to be intoxicated at about the time of the signing of the Deed Poll: See evidence of Mr Farmakis day 3 page 106 line 40 to page 108 line 9; and Mr Valanidas Day 2 page 51 line 30.
[8]
iii) First Defendant Evidence of Meeting 27 July 2017
The First Defendant's evidence of the discussion at the meeting of 27 July 2017 was devoid of detail of actual recollection. In his affidavit made 30 October 2018 he denied that he agreed to provide a personal guarantee. He said it was "not my style" to do so. He described the content of his recall in the following terms: "As far as I remember that it was a schedule plan of payment document would be prepared, not a guarantee document." (As written): Paragraph 19. His affidavit of 30 October 2018 at paragraph 8, responding to the affidavit of Mr Farmakis made 29 August 2018 concerning that meeting, does not add anything of real value.
[9]
iv) Mr Passas Evidence of Meeting 27 July 2017
In his affidavit made 12 February 2019, Mr Passas gave the following unchallenged description of the state of intoxication of the First Defendant at the meeting on 27 July 2017:
[14] "Prior to the meeting it was clearly evident that Bill was intoxicated as he was walking around the office drinking alcohol and talking erratically, visibly sweating, waving his arms around and was clearly not his normal self."
[15]: Just before Peter [Valanidas] and Jim [Farmakis] arrived at the meeting, I said words to the following effect to Bill:
"You shouldn't drink that much."
At paragraph 16, Mr Passas said that after greeting Messrs Valanidas and Farmakis on their arrival, they walked into the First Defendants office and he said to them words to the effect:
"Would you like a drink?"
He said that Mr Valanidas responded "No" and Mr Farmakis said words to the effect of "You should not be drinking at work".
At paragraph 17, Mr Passas, with reference to the affidavit of evidence of Messrs Valanidas and Farmakis setting out in first person conversation at the meeting; denied any recollection of the words "personal guarantees" or "guarantee document" being used at the meeting.
Whereas Mr Valanidas conceded that the First Defendant offered a drink at the meeting of 27 July 2017 and at one point came into the room with glasses and/or a bottle of alcohol which was not accepted; Mr Farmakis denied that he was aware that the First Defendant had been drinking alcohol, denied that the First Defendant offered him a drink, and denied that he made the comment that the First Defendant shouldn't be drinking at work: Transcript p 104, lines 01 to 10 and p 118, lines 26 to 32. This inconsistency of evidence of a meeting in regard to which each of them claims a recollection sufficient for a first person recount of what was said; again displays Mr Farmakis reluctance to concede the First Defendant's intoxication.
[10]
WHAT OCCURRED AT THE MEETING 27 JULY 2017
The evidence of the First Defendant can be dealt with relative brevity. This is because he was a witness of incomplete, if not poor recollection of the meeting on 27 July 2017. However, unlike both Messrs Valanidas and Farmakis, he regularly answered against self-interest, questions going to topics obviously of significance.
Against interest he conceded that things could have been said at the 27 July 2017 meeting which he did not recall. A telling concession was that he could not recall whether or not it was suggested to him that he provide a personal guarantee. On the other hand, his denial that he said that he would sell his house if he had too in order to see the Plaintiff paid; whilst conceding that he had said that he would make sure the Plaintiff was paid, was accompanied by his unlikely explanation that he would not have used the words "house" because it was his "home" and that it was owned by the Second Defendant. Indeed, the First Defendant's use of "house" and "home" in paragraph 17 of his affidavit made 2 November 2018 shows his interchangeable use of "house" and home".
I assessed his answers as an effort to deny having agreed to the provision of a guarantee which would risk plaintiff recovery against his home; when in reality, he did not recall much of what was said at the meeting.
His recollection is that the meeting concluded with the Plaintiff to prepare a draft payment plan by CWCE for him to sign. This evidence is consistent with that of Mr Passas (Affidavit made 12 February 2019 at [12]).
In re-examination, the First Defendant said that the document which he did sign on the morning of 28 July 2017, he expected to be a payment plan. By this evidence, the Defendants' case was that he did not know that the Deed Poll expressed guarantees.
For the reasons stated above, I found the evidence of each of Messrs Mr Valanidas and Farmakis to lack veracity and to be unreliable on each of the topics of, the apparent state of intoxication of the First Defendant during the meeting, and their claim that the First Defendant agreed to sign a document of personal guarantee.
Against the unreliability of the evidence of Messrs Valanidas, Farmakis and the First Defendant, and in the absence of Mr Passas being cross examined, I find that the First Defendant was obviously intoxicated at the meeting on 27 July 2017 which intoxication was recognised to each of Mr Valanidas and Farmakis. The level of his intoxication, however, for the purposes of my making an assessment of his relevant incapacity to understand what was being discussed is not available on the evidence. Further, I am not satisfied that Mr Farmakis expressed the Plaintiff's requirement that the First Defendant provide a guarantee.
[11]
EXECUTION OF THE DEED POLL
Tab 17 in Exhibit PV1 includes a stream of SMS messages between Mr Valanidas and the First Defendant on the morning of 28 July 2017, commencing at 7:31am, prior to the execution of the Deed Poll at between about 8:00am and 8:30am. In response to an SMS enquiry from Mr Valanidas as to his whereabouts that morning, the First Defendant replied by SMS "I am at home come past for me to sign". Thereafter, the messages arrange for Mr Valanidas to come to the front of the house in about 20 minutes.
In his first affidavit made 30 October 2018, the First Defendant described the circumstances in which he executed the Deed Poll. I quote the whole of that description in paragraph 21 of his affidavit:
[After referring to the 29 August 2018 affidavit of Mr Valanidas] "I cannot recall the date. I was drinking all night and taking drugs and to my best recollection, Peter [Valanidas] knocked on the door early in the morning. Approximately between 6am to 8am, I am not certain [of] the time, I only remember it was very early in the morning. Peter asked me to sign some paper, I cannot remember what I signed, and Peter did not give me a copy. I was so drunk and under the influence of drugs, my head was not functioning, and I had no idea what I was signing." [Names and word in brackets inserted]
Particularly the last sentence of the paragraph is entirely self-serving. There was no evidence given orally of consumption of drugs. There was no evidence describing the type or dosage of drugs. There was no evidence of what the First Defendant claimed to "have been drinking all night", be it spirits, wine, or something other and there is no evidence whatsoever of the content or volume of that consumption. The Defendants did not rely on any expert opinion evidence assessing the First Defendant's mental capacity whilst under the influence of alcohol and/or substances at the time of his signing the Deed Poll. Quite obviously, it would not be available to an expert witness such as a medical practitioner with specialist knowledge of the effect of alcohol and/or drug consumption on the human mind, to assess the First Defendant's mental capacity that morning because of the absence of evidence of fact of what the First Defendant had consumed.
The significance of the SMS evidence is that it objectively shows that the First Defendant was able to read and understand the SMS messages sent by Mr Valanidas and to respond to them. The invitation by the First Defendant that Mr Valanidas come to his home for the First Defendant "to sign" is not on the evidence as I have found it, an invitation indicating an expectation that the signing would be of guarantees. It is to be remembered that the evidence of Mr Passas and the First Defendant, which I have preferred of the meeting of 27 July 2017, was that the meeting finished with a plan to only enter into a schedule for payment by CWCE to the Plaintiff.
In a subsequent affidavit of 2 November 2018, the First Defendant added to his evidence of that morning. I quote paragraphs 11 to 16:
"[11] At approximately 6am on Friday 28 July 2017, Peter Valanidas phoned me at the house I was living in and a conversation took place where words to the following effect were said:
Peter: "I want to come over and see you."
Me: "Okay. I am at home."
[12] Approximately ten minutes later, Peter Valanidas and Jim Farmakis arrived at the front door of my residence. The following conversation ensued where words to the following effect were said:
Peter: "You are fucked. You have not slept?"
Me: "No, I have not slept."
Peter: "Can I come in because I need you to sign some papers?"
Me: "Do you want a drink? (Whilst I was letting Peter and Jim into my house)"
Peter: (Laughs) "You need to read this document" (Showing what I now presume to be the Deed Poll)
Me: (Laughs) "I can't see in front of me. I have been drinking and on it all night. (Whilst I drink from a glass containing vodka)".
Peter: "You need a lot of help." (Handing a pen to me) "You need to sign the document down the bottom." (Peter pointing to where I was to sign). "You need to write your name here" (Peter pointing to the bottom of the document after it had been signed by me).
[13] I did not read the document before signing it because I was inebriated and was unable to see the document. I did not understand what the document was.
[14] I did not have the document explained to me by anyone.
[15] I would not have signed the document if I had understood what it was.
[16] Peter and Jim then left my house without providing me with a copy of the document that I had signed."
Mr Valanidas denied in cross examination that on his attendance at the First Defendant's home on the morning of 28 July 2017 shortly after 8:16am and with the Deed Poll in hand, the following occurred:
1. That the First Defendant was drunk: T day 3 page 91 line 15.
2. That the First Defendant told him he "was fucked": T page 87 line 45
3. That the First Defendant told him he had been drinking alcohol: T page 87 line 48
4. That the First Defendant smelt of alcohol: T page 88 line 29
5. That he said to the First Defendant "you are fucked": T page 88 line 36
6. That he said to the First Defendant "you have not slept" and that the First Defendant replied "No": T page 88 line 41 to 49
Mr Valanidas denied the discussion and version of events set out at [12] of the First Defendant's affidavit made 2 November 2018 quoted above: T Day 3 p 90, L 25-36. Mr Valanidas gave evidence that on his entering the house, he and the First Defendant sat at a table. He denied that there were empty glasses and bottles containing alcohol on it. He denied that the First Defendant asked if he wanted a drink. He denied that the First Defendant had a glass of alcohol in hand but conceded that he did not remember whether the First Defendant had a glass containing something in hand. He denied that he told the First Defendant that he had a document for the First Defendant to sign, answering that the First Defendant knew that he had a document, which answer is corroborated by the First Defendant's SMS message in Exhibit PV1 Tab 17 referred to above: T page 89, line 04 to line 38.
The common evidence is that Mr Valanidas invited the First Defendant to read and sign the document. It is common evidence that the First Defendant did not read the document.
Mr Valanidas maintained his affidavit evidence (29 August 2018, paragraph [36]) that he informed the First Defendant that the document included a personal Guarantee from the First Defendant and the First Defendant's "other company." I do not accept that evidence as accurate. I have not accepted the evidence of Messrs Valanidas and Farmakis that they advised of guarantees at the meeting on 27 July 2017. I do not accept that he gave the First Defendant an alert of the guarantees. Had Mr Valanidas provided that alert, given that CWCN was not mentioned at the meeting on the preceding afternoon; it would be surprising if he referred to CWCN only as the other "other company".
Mr Valanidas agreed that the event of the signing of the Deed Poll was the first time that the First Defendant would have been aware that a guarantee was required and the first time that mention was made of "another company" meaning the Second Defendant providing a guarantee: T day 3 page 90 line 45-49. Mr Valanidas agreed that he provided no other explanation of the document to the First Defendant.
The First Defendant, by later affidavit, conceded that Mr Farmakis (Jim) was not present. The First Defendant conceded that he could not recall when he had the conversation, timed in paragraph 11 of his 2 November 2018 affidavit at 6am, but maintained that in addition to the SMS messages contained in tab 17 of exhibit PV1, he and Mr Valanidas communicated by telephone.
In cross examination Mr Valanidas conceded that there had been a discussion by telephone between himself and the First Defendant, in addition to the SMS messages at Exhibit PV1 tab 17 omitted from his affidavit evidence. By reference to his telephone account records, annexure B to his affidavit of 20 November 2018, Mr Valanidas was able to identify that telephone discussion as occurring at 8:16am on 28 July 2017. The record shows the call was of a duration of 11 seconds. Mr Valanidas placed that call in the sequence of events as probably occurring when he was standing outside the First Defendant's front door: Transcript day 3 page 87 lines 15-35. He agreed that the First Defendant asked where he was and to the best of his recollection his answer was to the effect of "I am out the front": T day 3, page 87 lines 35-42. There is no significance in the omission.
The Deed Poll which is at tab 18 of exhibit PV1 bears the First Defendant's signatures appropriately, and I accept the Plaintiff's submission of "precisely", at the correct positions indicated in the document for his signature. The document was witnessed by Mr Valanidas. There was some evidence volunteered by the First Defendant that he had a friend in his home. That person did not give evidence.
There are two points to be made of particular relevance from the above quoted passage of the First Defendant's version of what occurred at the signing of the Deed Poll and they are:
1. Even if it be accepted that the First Defendant was significantly intoxicated and that he discussed his state of intoxication with Mr Valanidas in the terms set out in his affidavit made 2 November 2018 at [12], in the absence of expert evidence on the subject and indeed in the absence of evidence of the measure of his consumption of intoxicating substances; assessment of the effect on his mental capacity to understand the document had it been explained to him is an assessment beyond common knowledge in the ordinary course of mankind and of experience of a Judge of this Court: Piening v Wanless (1968) 117 CLR 498 at page 508; [1968] HCA 7. Likewise, it is beyond a matter of common knowledge and the experience of a Judge of this Court to assess level of his incapacity to understand the consequences of his actions such that it might be reasonably inferred that he would not have signed the Deed Poll had he not been so intoxicated.
2. Although Mr Valanidas recommended that he read the document, the First Defendant signed it without doing so at a time when, the Exhibit PV1 tab 17 text messages show that he could, to some extent, read and write and was capable of at least basic organisation and communication.
For the reasons given, most particularly my acceptance of the unchallenged evidence of Mr Passas, and as shown by Mr Valanidas's SMS message on 25 July 2017 after seeing the First Defendant drinking on the preceding day, that the First Defendant was intoxicated to some degree over the period 24 July 2017 to 27 July 2017; I accept that Mr Valanidas was aware of that fact. I accept that the First Defendant was significantly intoxicated at the meeting on 27 July 2017 which was obvious to both Messrs Valanidas and Farmakis.
I accept on all of the evidence that it is more likely than not that the First Defendant was intoxicated at the time of his execution of the Deed Poll and that his intoxication was obvious to Mr Valanidas. I do not find it necessary to determine whether the First Defendant described himself as "fucked" and as unable to "see in front of me", when speaking to Mr Valanidas, as claimed in his affidavit made 2 November 2018 at [12]. They knew each other to some extent socially. Their fathers' had known each other for 20 years. There was an obvious jocularity at the time of their discussion as indicated by the laughing. Even if words such as those were used, they may have indicated to Mr Valanidas not more than some (unattractive) bravado. They would have been heard by Mr Valanidas in the context of the First Defendant having been able to read and send messages by SMS.
That the First Defendant chose not to read the Deed Poll means that the assessment of the incapacity and/or disadvantage claimed by him in the proceedings and in regard to which the Defendants bear the onus of proof, is an incapacity of the most basic skill level of observation at a glance of a document of legal consequence, and not an assessment of incapacity to understand the legal consequence, had the document been read. I repeat, the evidence does not establish such a severe state of mental incapacity by intoxication.
Mr Valanidas said that he left a copy of the Deed Poll on the table for the First Defendant (Transcript day 3, page 95, line 9). The First Defendant denied having been provided with a copy of the document. Neither party made much of this fact, so in the absence of specific submission I make no more of it. There is no evidence that the First Defendant would have been refused time to consider the document had he requested it.
Mr Valanidas denied that he was surprised that the First Defendant signed the document without first seeking legal advice: T day 3 page 97, line 25. It was put to Mr Valanidas that he knew the First Defendant would be intoxicated on the morning of 28 July 2017 and that was "the only reason you came around that morning because you thought he might be drunk". The questioning expanded to suggest a deliberate decision to take advantage of the First Defendant being drunk: see transcript page 97.
There is no evidence of how Messrs Valanidas or Farmakis would have been aware that the First Defendant would be so drunk as to be mentally incapacitated on the morning of 28 July 2017. The evidence is insufficient to establish a positive inference of the fact of advance knowledge in the mind of either Mr Valanidas or Mr Farmakis that the First Defendant would be extremely drunk on the morning of 28 July 2017.
It is also necessary to recognise the notice which the Deed Poll would have provided to the First Defendant in the circumstances of 28 July 2017. The relevant consideration is the measure of observable notice of guarantees by the First and Second Defendants. The Deed Poll appears at tab 18 of Exhibit PV1.
In bold and upper case the title of the document identifies it as a Deed Poll and its subject as "MONIES OWED BY CITIWIDE CIVIL ENGINEERING … TO STRUCTUM…" Also on the front page, in bold lettering near to top, it describes itself as given by:
Basilios Mihalopoulos of 31 Clarke Street Earlwood NSW 2206 and
CWCN Pty Ltd (CAN 605827021) of 31 Clarke Street Earlwood NSW 2206
Immediately below it describes itself as provided in favour of and for the benefit of Structum.
Following recount of invoices and works in progress, near the bottom of the first page it includes the expression of guarantee given by the First Defendant personally and by CWCN of the payments by CWCE being made by regular fortnightly repayments, all outstanding monies to be paid in full by 30 September 2017.
In the very first line of the second page, being the page to which the First Defendant affixed his signature twice, the text reads that he and CWCN "indemnify Structum". The document bears the signature of the First Defendant placed precisely at the line for his signature under the clear descriptives: "EXECUTED by Basilios Mihalopoulos and below that EXECUTED by CWCN Pty Ltd…"
In my opinion, the two page document at a glance by the person signing it would identify to that person:
1. That it was given by both the First Defendant and CWCN; and
2. That it expressed guarantees by the First Defendant and by CWCN of payment by CWCE.
Whereas it was put to Mr Valanidas in cross examination at day 2 transcript pages 72-73, that he was involved in some artistry in the design of the document such that it would not alert the First Defendant to its nature of expressing guarantees to be given by him and CWCN, the appearance of the document does not support that proposition. Further, there is no evidence supportive of the proposition that Mr Valanidas or Mr Farmakis instructed the Plaintiff's solicitors in the design and style of the document.
When the Deed Poll was put to the First Defendant in cross examination, he acknowledged his having signed it but denied recalling what he signed: T Day 3 page 140 line 40-46. He denied that he could see the document clearly when he signed. He denied that he was able to see the dotted line above the words "Signature of Basilios Mihalopoulos" and above the words "Signature of Sole Director - Secretary" such that he was able to affix his signature very close to those lines: T day 3 page 140 line 48 to page 141 line 23. This claimed inability to see and read must be considered with the evidence of his displayed ability to communicate by SMS: exhibited in PV1 at tab 17, referred to above, including his making the deliberate choice when responding to Mr Valanidas with the invitation to come to his home to sign. The First Defendant accepted that proposition at T day 3 page 141 lines 33-39.
Whereas the First Defendant denied that he was aware that the document would have legal implications (T day 3 page 141 line 41-44); it is difficult to conceive that he could have thought otherwise. The surrounding circumstances known to him were that in the arm's length commercial relations between the Plaintiff and CWCE, the prior afternoon, the Plaintiff by its officers, including Mr Valanidas, had pursued payment of overdue invoices and, even on the Defendants' case, his expectation was that the document to be delivered would include at least a schedule for payments by CWCE to the Plaintiff. By SMS he invited Mr Valanidas to come to his home for the purpose of signing.
The First Defendant conceded that Mr Valanidas did not apply any physical pressure for him to sign. When it was put to him that he had a free choice to decide whether or not to sign the document, he answered: "I don't recall that": Transcript day 3 page 142 line 01. Whilst that answer might, standing alone, be evidence consistent with a memory shattered by a mental state of severe intoxication, as I have said, the evidence is insufficient for me to find that his mental capacity was diminished so severely; but also, his answer does not provide positive evidence of what his thinking or inability to think was. The First Defendant conceded with the words "I suppose not, no" that there was no reason why he could not have said: well, I want a legal adviser or other person to look at this document first: T Day 3 page 142 line 20-23.
The First Defendant acknowledged that at the time of signature of the document his company CWCE owed hundreds of thousands of dollars to the Plaintiff and that it needed the Plaintiff to continue working so that CWCE could meet its contractual obligation to others: T Day 3 Page 142 line 35.
In Closing Oral Submissions, counsel for the Defendants made the following frank concession which described the narrow factual argument underpinning the Defendant's case (T Day 4 P 169, L 05 to 10, and line 25 to line 44):
"HIS HONOUR: Let me put this to you, Dr O'Shea. Let's assume for the purposes of this inquiry of you that whatever the state of mind, affected as it might have been, of the First Defendant when Mr Valanidas dropped around with the deed, Mr Valanidas didn't read it, and on his own evidence - sorry, Mr Mihalopoulos didn't read it, and on his own evidence Mr Valanidas said, "Read it". That's right, isn't it?
O'SHEA: That's right, your Honour.
Is his case, on the evidence, so high as to say, "I was so drunk that if Valanidas had said to me, "Here's the document and it includes guarantees I would have refused to sign it"? Because there's no where in the evidence, is there, that he says that if it had been explained to him, it had guarantees in it he would have refused to sign it?
O'SHEA: That's correct, your Honour, that's not in the evidence. My client's evidence is that he cannot even see the document; that's why he didn't read the document. And his evidence prior to the Friday 28 July 2017 is that he would not give a guarantee to a subcontractor, he was expecting a day before for a payment schedule, is his evidence. And when the document was presented to him on the morning of the 28th his evidence is that he told the Plaintiff's director that he was drunk and that he couldn't see the document.
HIS HONOUR: Yes.
O'SHEA: And that's the extent to it, your Honour."
[12]
CONSIDERATION AND CONCLUSION
The common evidence is that despite having been invited to do so by Mr Valanidas for the Plaintiff, the First Defendant did not read the document of Deed Poll and proceeded to sign it.
The evidence does not satisfy me on the balance of probabilities that the First Defendant was mentally incapacitated by intoxication to the degree that he was unable to understand the Deed Poll if it had been explained to him. For completeness, the evidence does not satisfy me on the balance of probabilities that the First Defendant was so mentally incapacitated by intoxication that in fact he could not see sufficiently to observe that the document was to be made by himself and by CWCN and expressed guarantees.
That the First Defendant was in a state of intoxication observable by Mr Valanidas as I have accepted, is not evidence rising to the high bar of Mr Valanidas being aware of an inability of the First Defendant to comprehend that which he was signing. Mr Valanidas was entitled to accept, in the absence of the First Defendant asking for time to better consider the document or in order to obtain legal advice in relation to it, that the First Defendant competently elected to sign it. This is in circumstances of Mr Valanidas having invited him to read it.
The First Defendant was aware that it was a document of significance in the surrounding commercial circumstances of large indebtedness of CWCE to the Plaintiff and its need for the Plaintiff to continue delivery of services.
For completeness, I add that the objective evidence of SMS messages, that Mr Valanidas invited the First Defendant to read the Deed Poll and the precisely placed signatures of the First Defendant, is all against the proposition that he was incapable of seeing it sufficiently to be alert to its inclusion of CWCN and that it expressed guarantee obligations. That Mr Valanidas invited the First Defendant to read it is inconsistent with Mr Valanidas knowing that the First Defendant could not see.
This is not a case in which the impugned transaction requires consideration of the First Defendant's capacity to understand a legal document of complicated or sophisticated expression of concepts and obligations. In my opinion, it would have been obvious to the First Defendant that the document expressed a commercial obligation and his attention to it even at a glance and without a close reading, would have revealed the general nature of what he was doing by his act of signing. The evidence does not satisfy me of the alternative proposition, that being in the circumstances of a document so obviously speaking of its purpose, the First Defendant was so severely intoxicated that it was beyond his capability to understand its general nature. He chose not to read it on his own case.
As conceded by defence counsel, in order to achieve the relief sought, in the circumstances of the document to which I have just referred, the Defendants would have had to satisfy me that the First Defendant could not see the document to read it. For the reasons given, the evidence does not support a state of debilitation of mind approaching that level of incapacity to assent by signature. The evidence does not satisfy me on the balance of probabilities that had Mr Valanidas explained the document to express guarantees given by the First and Second Defendants, that the First Defendant would not have understood; Gibbons v Wright (1954) 91 CLR 423 at [437] to [442].
In Gibbons v Wright at [443], the majority said:
"In truth the plea does not deny the defendant's execution of the document. It assumes his execution of it. It concedes that his mind, such as it was, went with his act. What it asserts is that the state of his mind was such that if the other contracting party was aware of it, he ought not to be allowed to insist upon the contract."
Applying the principle as restated by the High Court in Kakavas v Crown Melbourne Ltd (2013) 250 CLR 392; 97 ALJR 708 at [151]; [2013] HCA 25 at [161]; the enforcement of the legal rights of the Plaintiff here, in all the circumstances will not be unconscionable. Albeit I have not accepted Mr Valanidas's evidence that he was not aware of the First Defendant's drunkenness at the time of his signing the Deed Poll, the evidence has not satisfied me that the First Defendant was acting under the requisite special disability such that it would be unconscionable for the Plaintiff to have the benefit of the Deed Poll. There is no law preventing the making of an agreement by a person affected by alcohol. In the circumstances as I have found them, the First Defendant was not "victimised" by "predatory" conduct of the Plaintiff at the making of the Deed Poll. As that paragraph of the High Court's judgment recognises, there was no obligation upon Mr Valanidas, being the other party to the arm's length commercial transaction expressed in the Deed Poll, to promote the best interests of the Defendants' as he witnessed the somewhat intoxicated First Defendant sign the document: See also Gibbons v Wright at page 438.
The above conclusion, as I understand the Defendants' closing submissions, is sufficient to deny all forms of relief pleaded in the Amended Defence set out in paragraph 11. Firstly, it denies the common law defence of unconscionable bargain. In specific response to the Defendants' plea of non est factum; on the facts as I have found them, the nature of the document was not unknown to the First Defendant because of a special disability but rather because of his own fault of failing to read it, indeed despite having been invited to do so. Those facts do not fall within the "narrow limits" within which defence of non est factum is available; Petelin v Cullen (1975) 132 CLR 355 at [359] to [360]; [1975] HCA 24. The defence is not available to persons who, like the First Defendant here, act unreasonably or negligently by signing: Ford BHT Ann Watkinson v Perpetual Trustees Victoria (Ltd) (2009) 75 NSWLR 42; [2009] NSWCA 186 at [39] and [88].
In paragraph 17 of the Amended Defence, the Defendants seek relief pursuant to ss 20, 21 or 22 of the Australian Consumer Law (ACL) or s 27 of the Fair Trading Act 1987 (NSW). By written Closing Submission in Reply emailed 27 February 2019, the Defendants conceded that the third party guarantees expressed in the Deed Poll do not fall within the supply or acquisition of goods and services, the essential elements of s 21 relief.
My determination that the Plaintiff did not engage in conduct which was unconscionable within the meaning of the common law denies the defendants the benefit of relief based upon a breach of s 20 ACL because in particular, the evidence has not satisfied me that the First Defendant was incapable of understanding the Deed Poll had he elected to read it and further, he was not subject to any undue influence or pressure or otherwise unfair tactics bringing him to signing it. The undertaking expressed in the Deed Poll was not unconscionable, unfair, or even abnormal in the surrounding commercial circumstances. The First Defendant as the controller of the Second Defendant and CWCE, and enjoying the benefit of the business of his alter ego CWCE, by signing the Deed Poll gave guarantees in order to achieve time for CWCE to pay to the Plaintiff monies in satisfaction of invoices of some hundreds of thousands of dollars and secured the Plaintiff's ongoing delivery of services to CWCE's Young Street site.
As to the Contracts Review Act 1980 (NSW) relief sought in paragraphs 13 to 16 of the Amended Defence, in Closing Written Submissions at paragraph 31, counsel for the Defendants properly conceded that only the First Defendant pressed the claim, the Second Defendant being a corporation. The circumstances of entering into the Deed Poll, being not unconscionable for the reasons I have explained, the contract was not unjust within the meaning of s 4(1) of the Contracts Review Act 1980 (NSW). For completeness I deal with each of the sub paragraphs of s 9(2) of that Act addressed in the First Defendant's Closing Written Submissions at [34]. I do not find a material inequality of bargaining positions because;
1. The evidence has not satisfied me that the First Defendant's state of intoxication rendered him incapable of recognising the nature of the undertakings expressed within the Deed Poll;
2. The First Defendant elected not to read the Deed Poll when he was aware that it was a document of commercial importance in the surrounding circumstances of significant indebtedness of CWCE to the Plaintiff and of his and CWCE's want for the Plaintiff to continue to deliver services to the Young Street site in which circumstances the transaction was neither harsh nor oppressive and was made when he was aware of the Plaintiff's spoken (negotiated) position that without assurance of payment, it would cease delivery of services;
3. I have found that the First Defendant was reasonably able to protect his interests in that all he had to do was look at the document to ascertain it contained the guarantees, which he was mentally capable of doing or have delayed until such time as he felt better composed;
4. The First Defendant conceded that he did not request the opportunity of seeking expert advice in relation to the document and on the evidence there is no basis for finding that he could not have done so;
5. There was no undue influence, unfair pressure, or unfair tactics exerted by Mr Valanidas and indeed, the common ground is, that he invited the First Defendant to read the document;
Again, only for completeness, were I required to do so, I would find the Deed Poll not to be a contract subject of the provisions of the Contracts Review Act 1980 (NSW) in any event. This is because the making of the guarantees in the Deed Poll did not put forward a promise as consideration for the doing of an act. The Deed Poll does not oblige the Plaintiff to do anything in response to or in consequence of the guarantees; Australian Woollen Mills Pty Ltd v Commonwealth (1954) 92 CLR 424 at [456] to [457]; [1954] HCA 20. If consideration is to be given of application of the Contracts Review Act to a transaction of the broader proposition, not expressed in the Deed Poll, that Structum through Messrs Valanidas and Farmakis at the meeting on 27 July 2017 had promised to continue delivery of services to the Young Street site in consideration of the First Defendant giving his personal guarantee; then, for the reasons given, the contract was not unjust in the circumstances.
[13]
PLAINTIFF'S SUBMISSIONS THAT THE COURT LACKS JURISDICTION TO MAKE ORDERS GRANTING THE RELIEF SOUGHT BY THE DEFENDANTS IN THE AMENDED DEFENCE
For the purposes of responding to the Plaintiff's submission that jurisdiction is limited to determination without power to make orders in this Court, it is appropriate to recognise that the nature of the relief sought by the Defendants is not by cross-claim for orders.
The Amended Defence at [5] pleads "there was no agreement" because the First Defendant was "drunk" when he executed the Deed Poll. At [11] to [13], the above referred to bases for relief are pleaded. The relief in its various formulations is only that the Deed Poll is void and of no effect and that the Defendants' never became liable (([11(e)] and [12(b)])). At [17], the Amended Defence pleads s 20 of the Australian Consumer Law, Schedule 2 to the Competition and Consumer Act 2010 (Cth)('ACL') and/or s 27 of the Fair Trading Act 1987 (NSW)('FTA'). No order setting aside or varying the Deed Poll is sought in the Amended Defence in consequence of the pleaded unconscionability under s 20 ACL.
This style of pleading fundamentally distinguishes this case from the decision of Parker J in the NTF Group Pty Ltd v PA Putney Finance Australia Pty Ltd (2017) 324 FLR 261 at [17]-[32], in which his Honour dealt with the question of jurisdiction for power to make orders for relief under s 237 ACL and s 27 FTA.
In this case, the Defendant elects to rescind on the basis that the Deed Poll was voidable from its formation. The Defendants thereby elect to render it void. For this type of rescission, intervention and order of the Court is not required: See Meagher, Gummow and Lehane's "Equity Doctrines and Remedies" (4th edition) at [24]-[15]. This case involves what the learned authors would identify as the third type of rescission in which equity and common law are concurrent jurisdictions. In this case, there is no cross claim seeking remedies in the form of equitable relief such as for account or delivery up. Here, the defence is that the contract was void ab initio, the Defendants having so elected to avoid it: See Gibbons v Wright supra at page 439.
That the Defendants do not seek orders of the type described by s 237 ACL or orders in the fashion of equitable relief, in my opinion, is a full answer to the Plaintiff's submission that the Court lacks jurisdiction and power. The Court is simply not asked to exercise the type of power to make orders the subject of the Plaintiff's opposition. The issues of jurisdiction and power raised by the Plaintiff, simply do not arise.
In any event, in my opinion, the Court does have jurisdiction and power to make orders pursuant to s 44 of the District Court Act 1973 (NSW)('DCA') as amended by the Justice Legislation Amendment Act (No 3) 2018 Schedule 1 Clause 1.16, given that this is an action arising out of a commercial transaction within the monetary limit of the Court's jurisdiction. The jurisdiction of the Court pursuant to s 44 DCA is deliberately described in the terms "to hear and dispose of the action". Whilst language of "mandatory" and "directory" description of statutory provisions is disfavoured, that language describes a jurisdiction to bring finality and certainty in the determination of actions before it. The word "dispose" could have no other meaning; See discussion on imperative use of language in statutory interpretation in Coffs Harbour and District Local Aboriginal Land Council v Lynwood [2017] NSWCATAP 62 at [8]-[14]. Save for statutory exceptions to the jurisdiction described in s 44(1) DCA, this Court would have jurisdiction to make such orders for relief as the Defendants might have sought. I should add that the exceptions at s 44(1)(b)-(e) are irrelevant.
Further, pursuant to s 135 of the DCA, this Court has the same jurisdiction as the Supreme Court and may exercise all the powers and authority of the Supreme Court in any proceeding in which relief is sought under the FTA and where the amount of the claim does not exceed the monetary limit of the jurisdiction. s 27 FTA, pleaded in the alternative to s 237 ACL at [17] of the Amended Defence, adopts as the law of the state of NSW the ACL, pursuant to s 28 FTA, as "may be referred to as the Australian Consumer Law (NSW)" and applying as part of the FTA. The provisions of the ACL are the law of NSW pursuant to the FTA.
The Plaintiff points to the definition of "Court" at s 30(3)(c) FTA. That provision provides, that for an order pursuant to the Australian Consumer Law (NSW), Division Number 4 of Part 5-2, "Court" means the Supreme Court. Had the Defendants by cross-claim sought orders for relief of that style consequent upon a determination in this Court of breach of s 20 ACL; then it would have been necessary to consider whether s 30(3)(c) FTA denied this Court the power to make that order. The Plaintiff submission does not refer to s 30(5) FTA. That subsection provides that s 30(3)(c) FTA is to be read "subject to any jurisdictional limits on the court concerned." That provision, of course, invites it to be read as to the Court's statutorily stated limits of jurisdiction including amount claimed in the action. In other words, s 30(5) FTA clearly provides that s 30 FTA does not expand this Court's jurisdictional limit. Neither does it limit it. Nothing in the Competition and Consumer Act 2010 (Cth) is inconsistent with this: s 138B of that Act.
In my opinion, the relevant jurisdiction is determined by observing that the primary object of statutory construction is to construe s 44 DCA so that it is consistent with the language and purpose of all provisions of the DCA: Project Blue Sky v Australian Broadcasting Authority (1998) 194 CLR 355 at [69]. The jurisdiction to determine actions arising out of commercial transactions provided by the amending legislation, when read with the s 44 power to "dispose" of actions and the s 135 provision that the Court may exercise all the powers and authorities of the Supreme Court in any proceeding sought under the Fair Trading Act; in my opinion includes to make orders under s 237, had such orders been sought. The Attorney's Second Reading Speech is consistent with this interpretation. The Attorney said; "This amendment is required to provide certainty to practitioners and litigants about whether they should be taking their matter to either the District Court or the Supreme Court; Legislative Assembly, Hansard, 24 October 2018.
I reject the Plaintiff's submission that in the event that this Court had found in favour of the Defendants on the Amended Defence by determining the Deed Poll to have been unconscionably made within the meaning of s 20 ACL (NSW); then, the Court would have been restricted to staying recovery under the guarantees expressed in the Deed Poll pending orders pursuant to s 237 being made in the Supreme Court.
[14]
Orders:
1. Judgment for the Plaintiff against the Defendants jointly and severably in the sum of $314,980.05.
2. Interest pursuant to s 100 Civil Procedure Act 2005 (NSW) in the sum (as agreed) of $26,518.73.
3. The Defendants to pay the Plaintiff's costs of the proceedings.
[15]
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Decision last updated: 12 April 2019