6 The debenture provided for the plaintiff to charge the whole of its undertaking with payments due under the debenture. Save in one potential respect, the debenture was not expressed to be a deed. The execution clauses stated, in the case of execution by the plaintiff, that the document was "executed in accordance with section 127 of the Australian Corporations Act 2001 by the said W & K Holdings (NSW) Pty Limited ABN 17 149 754 980 by the authority of the directors."
7 There was an attestation clause in which it was stated that Mr Leonard's signature, for the plaintiff, was affixed in the presence of a Mr Doberer, accountant. The document was executed by the defendant against a clause stating "Signed, Sealed and Delivered by the said Laureen Margaret Mayo, trading as 'Mayo Spirit' in the presence of" a witness.
8 It appears from Mr Leonard's affidavit that when the statutory demand was served it was accompanied by an affidavit from the defendant, also dated 18 March 2009. She deposed to the issue of what she called the debenture deed and annexed a copy of the first page of a letter of demand made by her on 21 November 2008. After reciting the covenant of the plaintiff to pay $310,000 together with any further or other sums advanced to the company by the defendant, she stated that as at 21 November 2008, "the total sum of the advance is $362,000."
9 The letter went on to say that "The total quantum of the advance specified herein is calculated as follows:", but the balance of the letter, which presumably contains the calculation of the quantum of the advance making up the sum of $362,000, is not in evidence.
10 Nonetheless, in her affidavit of 18 March 2009 the defendant said that the sum claimed was calculated by adding to the sum of $310,000, which was expressly provided for in the debenture, "the additional sum of $52,000 further advanced to the Debenture provider by the Debenture Holder on or about 24 June 2008, relative to an additional Commercial lease facility for a Kubota Excavator."
11 The defendant had entered into a number of finance leases with the plaintiff for the lease of commercial equipment. Some of these leases were entered into in 2005 but there were later leases. The Commercial Lease Facility for the Kubota Excavator entered into on or about 24 June 2008 provided for the defendant to lease that equipment to the plaintiff for a period of five years. The lease stated that the cost of goods was $52,000. It specified a "rate percentage per annum" of 11.15 percent and set out the monthly payments totalling $1,494.81, which were required to be made each month up to and including 24 June 2013.
12 Earlier schedules are in a similar form. They each specify the cost of the goods which were the subject of the lease, the monthly rentals and provide for a "rate percentage per annum". I infer from the form of the lease that those percentages are applied to what is called the "diminishing value". The residual value of the goods payable at the termination of the lease is stated in each case to be nil.
13 It is clearly established in the case of the sum of $52,000, that that amount is not a sum advanced by the defendant to the plaintiff in the sense of a sum which she lent to the plaintiff. As was submitted for the defendant, it was a sum which might be caught within the description of "advance" in clause 2 of the debenture. But it was not an advance of money made by the defendant to the plaintiff in anything except a notional sense.
14 I infer, and I do not understand it ultimately to be disputed, that the sum of $310,000 referred to in the debenture also comprises amounts which could be characterised as notional amounts of principal, if the equipment leases were treated, as they can in an economic sense be treated, as notional loans. That is to say, I can infer that the sum of $310,000 comprises the cost of goods paid by the defendant for the purchase of goods which were then leased by her to the plaintiff.
15 Ultimately, I did not understand that question to be disputed. Rather it was submitted for the defendant that clause 2 of the debenture treats such amounts financed through the leases as being advances, which are required to be repaid if demand is made pursuant to clause 1.
16 Mr Leonard deposed that the defendant did not lend and the plaintiff did not receive the sum of $310,000 from her, and that the defendant did not pay such moneys to a third party for or on behalf of the plaintiff. He deposed that small amounts of money previously borrowed from the defendant had been repaid. The defendant did not seek to contradict that evidence except through the tender of a minute of a Director's meeting signed by Mr Leonard and also dated 13 May 2008. The minute stated that the company had borrowed funds from Mayo Spirit pursuant to the terms of the debenture to the extent of $309,525.38.
17 Mr Leonard deposed that he has dyslexia and limited ability to read and write. He says that he signed the debenture on 13 May 2008 without reading the document and without the document being read to him. He says that at the time he was provided with the document by the defendant, she said to him words to the effect that Mr Doberer needed the document to be signed and that he agreed and signed the document. He said the contents of the document were not discussed and that he did not know what a debenture was, and that Mr Doberer was not there when he signed the document. His evidence is that Mr Doberer had been the plaintiff's accountant up to about March 2008 when he changed accountants to a Mr Douglas. Mr Leonard did not give evidence concerning the minutes of 13 May 2008. That minute was annexed by the defendant to a late affidavit sworn only two days before the hearing.
18 I do not draw any adverse inference from the fact that Mr Leonard did not deal with that minute in his evidence. If, as the evidence tends to suggest, the company did not borrow approximately $310,000 from the defendant as at 13 May 2008 his signature on the minute would tend to corroborate his evidence as to his inability to read such documents.
19 It was submitted for the plaintiff that there is a genuine dispute as to the existence of the claimed debt on a number of grounds. First, it is said that if the debenture is valid and it is not liable to be set aside, then on its proper construction, no moneys are owing under the debenture unless advances are made.
20 Alternatively, it was submitted that as the amount claimed of $362,000 was the amount representing the cost of goods purchased by the defendant, and leased to the plaintiff, then notwithstanding the terms of clause 1 of the debenture, demand could only be made for amounts which were owing and payable but not unpaid under the leases.
21 Next it was submitted that there was no consideration for the debenture and it did not operate as a deed. Next it was submitted that a defence of non est factum is available to a claim on the debenture. It was also submitted that the debenture was voidable because it was brought about by the defendant's acting in breach of a fiduciary duty she owed to the plaintiff.
22 Lastly, it was submitted that the plaintiff was entitled to relief to avoid the debenture pursuant to s 87 of the Trade Practices Act 1974 (Cth) because of an alleged breach by the defendant of s 51AC(2) of the Act. That section deals with unconscionable conduct.
23 On 9 July 2009 the plaintiff brought proceedings in this Court against the defendant seeking, amongst other things, relief by way of avoidance of the debenture dated 13 May 2008. It was submitted for the defendant that it was not open to the plaintiff to rely on a ground that the debenture was liable to be set aside. It was submitted that no such ground had been identified in the affidavits filed and served within 21 days in support of the originating process. However, those grounds of challenge are made on the basis of the matters deposed to by Mr Leonard in his supporting affidavit which was filed and served within the requisite time. It is not necessary that grounds be identified expressly or by necessary inference, provided that they are raised, even if by reasonable inference (see Hansmar Investments Pty Ltd v Perpetual Trustee Company Ltd [2007] NSWSC 103).
24 The defendant claims the various lease facilitates are irrelevant to the debt said to be owing under the debenture. She claims to be entitled to be paid or repaid the sum of $362,500 even though that sum relates to the moneys spent in buying the leased equipment and renting it to the plaintiff. She claims to be entitled to retain ownership of the equipment and the rental payments due under the leases, in addition to being paid the moneys claimed to be owing under the debenture. She also contends that she is not required to give credit for rental payments already made to the extent that they exceed the notional finance rate. If that contention is correct, the position would appear to be commercially absurd and would result in a substantial windfall to the defendant at the plaintiff's expense.
25 I will turn to the various challenges made by the plaintiff to the demand, although dealing with them in a different order. I will deal first with the claim that the debenture was liable to be avoided because it was procured by the defendant in breach of a fiduciary duty she owed to the plaintiff. As I have said, the evidence suggests that the plaintiff was employed as an office manager.
26 It was submitted for her that she was always subject to the direction of an accountant and that she did not occupy a position akin to a financial controller, or even bookkeeper. The question whether the defendant owed the plaintiff a fiduciary duty in connection with the entry into the commercial lease agreements of the debenture is a question which will depend upon a detailed factual investigation of the extent to which, if at all, she had undertaken or agreed to act for or on behalf of or in the interests of the plaintiff, or was in a position to exercise a discretion or power which might affect the plaintiff's rights, or the extent to which the plaintiff was dependant on, or vulnerable to, the exercise of any power or discretion by her, and the extent to which there was a relationship of confidence between the defendant and the director or other person in a management position with the plaintiff. I am not able to say on this application that the defendant would clearly not owe a fiduciary duty. I express no view as to the likelihood of its being found that she did owe such a duty. It is a question for investigation. I think there is a serious question to be investigated as to whether any fiduciary duty that might have been owed was breached by the defendant's arranging for Mr Leonard to sign a document having the effect which would provide her with a windfall profit and the plaintiff with a corresponding loss.
27 On the hearing of such a claim it may be said for the defendant that the document she asked Mr Leonard to sign was simply to update an earlier deed signed on 22 December 2005. That document is in a similar form to the debenture of 13 May 2008, save that it provides in clause 1 that a sum of $129,950 had been advanced to the plaintiff. There was no investigation in this hearing of the circumstances in which that document came to be entered into. The defendant was given leave, in her closing submissions, to tender the document. The fact that such a document was in existence prior to execution of the debenture of 13 May 2008 does not mean that there is no genuine dispute as to the validity of the 2008 document.
28 I also think there is a serious question to be tried as to whether the debenture is not enforceable against the plaintiff on the grounds of non est factum. To make out such a defence, the plaintiff would at least need to establish that when Mr Leonard signed the document, he did so in the belief that it was radically different from what it was in fact. But if that were established, it would not necessarily be an answer to the defence of non est factum that Mr Leonard signed the document without taking precautions to understand its contents, given that it may be established that the defendant was aware of the circumstances in which it came to be executed and knew or had reason to suspect that it was executed under some misapprehension as to its character (see Petelin v Cullen (1975) 132 CLR 355).
29 I infer from submissions made by the defendant that it might be the case that she, at the time the document was signed, may also have been under a misapprehension as to its character. If that were so then it would potentially open up further grounds for avoidance of the instrument.
30 I do not find it necessary to express a view in relation to the unconscionable conduct claim.
31 I also think that there is a serious question to be investigated as to whether the debenture is enforceable on the grounds that there is no consideration for the plaintiff's promises in the document and that it does not operate as a deed. It would be arguable at a contested hearing that the fact that the document is styled a debenture does not itself indicate that the document was intended to operate as a deed. It is true that the execution by a company under seal of the acknowledgment of a debt is an example of a debenture, but there are instruments not under seal which can also be so described (see for example English and Scottish Mercantile Investments Company Ltd v Brunton [1892] 2 QB 700 at 712). The document stated that it was executed for the plaintiff in accordance with s 127 of the Corporations Act and it does appear to have been executed in accordance with s 127(1)(c).
32 Section 127 (3) provides:
" A company may execute a document as a deed if the document is expressed to be executed as a deed and is executed in accordance with subsection (1) or (2). "