National Australia Bank Ltd v Landmount Investments Pty Ltd
[2003] QDC 42
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- Unreported Judgment
- National Australia Bank Ltd v Landmount Investments Pty Ltd[2003] QDC 42
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National Australia Bank Ltd v Landmount Investments Pty Ltd[2003] QDC 42
National Australia Bank Ltd v Landmount Investments Pty Ltd[2003] QDC 42
DISTRICT COURT OF QUEENSLAND
CITATION: | National Australia Bank Ltd v Landmount Investments Pty Ltd & Ors [2003] QDC 042 |
PARTIES: | NATIONAL AUSTRALIA BANK LIMITED ABN 12 004 044 937 Plaintiff v LANDMONT INVESTMENTS PTY LTD ACN 080 672 251 First Defendant BAYMEER HOLDINGS PTY LTD ACN 078 066 645 Second Defendant VINUKI DEVELOPMENTS PTY LTD ACN 055 128 786 Third Defendant SHANE THOMAS VINCENT Fourth Defendant |
FILE NO/S: | D3919/02 |
DIVISION: | |
PROCEEDING: | Application |
ORIGINATING COURT: | District Court, Brisbane |
DELIVERED ON: | 24 April 2003 |
DELIVERED AT: | Brisbane |
HEARING DATE: | 31 March 2003 |
JUDGE: | McGill DCJ |
ORDER: | Judgment that each defendant pay the plaintiff $206,559.39, with costs. |
CATCHWORDS: | GUARANTEE AND INDEMNITY – Consideration – identification of relevant consideration – whether past consideration GUARANTEE AND INDEMNITY – Rights of Surety – against creditor – set-off of counterclaim – whether excluded – whether exclusion unconscionable DEED – Execution – whether duly witnessed – witness employee of party to deed – Property Law Act 1974 s 45(2) TRADE PRACTICES – Small business protection – unconscionability – whether section applies – two loans of over $1 million in total – Trade Practices Act 1974 s 51AC(9) TRADE PRACTICES – Small business protection – unconscionability – whether in connection with supply of services being loan of money – conduct towards guarantors TRADE PRACTICES – Small business protection – unconscionability – failure to disclose term in guarantee excluding set-off – guarantor not misled – not unconscionable Trade Practices Act 1974 s 51AC Re Farm Pride Foods Ltd [1999] QSC 174 – followed. George T Collins (Aust) Pty Ltd v H S Stevenson (Aust) Pty Ltd (1991) ATPR 41-104 – distinguished. Grundy v Lewis (1995) 62 FCR 567 – followed. Munroe Topple & Associates Pty Ltd v Institute of Chartered Accountants in Australia [2002] FCAFC 197 – not followed. |
COUNSEL: | G D Sheahan for the plaintiff P J Woods for the defendants |
SOLICITORS: | Mallesons Stephen Jaques for the plaintiff McLaughlins solicitors for the defendants |
- [1]This is an application for summary judgment by the plaintiff. By a claim filed on 20 September 2002 the plaintiff claimed against each of four defendants the sum payable pursuant to a guarantee of the liability of a company, together with interest. An amended statement of claim was filed on 26 September 2002, and a further amended statement of claim was filed on 7 November 2002. On 16 December 2002 the four defendants filed a notice of intention to defend to which was attached a defence and a counter-claim alleging that there had a breach of s 85 of the Property Law Act by the plaintiff in the exercise by the plaintiff of its power of sale of real property owned by the first defendant and subject to a mortgage to the plaintiff which was security for the debt guaranteed by the defendants. The counter-claim also alleged that there had been a breach by the plaintiff of the Australian Securities and Investments Commission Act 2001 or s 51AC of the Trade Practices Act.
- [2]The plaintiff filed a reply and answer on 5 February 2003, and on 18 February filed an application seeking a judgment under r 292 against each defendant. However that application had a return date the following day, which was a breach of r 296, and it may not have been served. That application was dismissed by consent with no order as to costs by the Deputy Registrar on 18 March 2003. The plaintiff filed another application on 26 February 2003 seeking judgment under r 292 against each defendant, returnable on 6 March 2003. When it came before the court on that date, Boyce DCJ gave the defendants leave to withdraw the admission of two paragraphs of the plaintiff’s statement of claim and to file an amended defence within seven days, and adjourned the application to 31 March 2003. An amended defence and counter-claim pursuant to that leave was filed on. 27 March 2003, although it was presumably served earlier because an amended reply and answer in response was filed on 21 March 2003. The application came before me on 31 March 2003.
Background to the claim
- [3]On 24 February 2000 the plaintiff provided[1] financial accommodation to Broadwalk Pty Limited, a company which acted as trustee for “The Vincent Family Trust,” in two ways, by way of a business mortgage overdraft facility up to a limit of $500,000, and by what is pleaded as a “bill facility loan”[2] pursuant to which the plaintiff advanced to that company the sum of $530,000. As at 1 December 2000 Broadwalk Pty Limited was in default under the business mortgage overdraft facility, and accordingly was deemed to be in default of its obligations under the bill facility which was that day terminated by a letter of demand from the plaintiff. On 3 January 2001 the plaintiff demanded that the particular amount then outstanding under the bill facility be paid immediately. It was not and has not been paid by Broadwalk Pty Ltd.
Pleadings
- [4]It was alleged[3] that “by a guarantee in writing dated 25 February 2000 and in consideration of the plaintiff granting and continuing to grant financial accommodation to Broadwalk the first, second, third and fourth defendants guaranteed payment to the plaintiff of the debts Broadwalk owed to the plaintiff ”. The pleading referred to limits on the guarantee both as to the principal sum and as to the interest recoverable, and alleged that on 8 January 2001 the plaintiff served written demand on each defendant under the guarantee for the principal owing as at 8 January 2001 plus an amount representing interest accrued and unpaid subject to the limit alleged. It was alleged that as at the date of the claim the defendants were indebted to the plaintiff under the guarantee in the sum of $189,717.49, particulars of which were said to be set out in annexure “A,”[4] on which interest was accruing at the rate of $60.52 capitalised monthly.
- [5]The amended defence alleges a breach of s 51AC of the Trade Practices Act by the plaintiff in connection with the execution of the guarantee, in failing to advert to the presence in the guarantee of a clause which restricted the defendants’ capacity to take action against the plaintiff unless and until the plaintiff was paid one hundred cents in the dollar, in circumstances where it was alleged that the plaintiff’s manager Mr McPhail had represented that it was not necessary to peruse the security documents which were not different from previous security documents signed by the fourth defendant, and had not advised the fourth defendant that he had the option of taking the documents away to receive independent legal advice. On this basis the defendants sought an order that the guarantee be set aside under s 87 of that Act.
- [6]In the alternative, the fourth defendant alleged that the guarantee was not enforceable, being neither given under seal nor supported by consideration, the only consideration being past consideration. The defendants also pursued the counter-claim, but dropped the allegation of a breach of the Australian Securities and Investments Commission Act 2001. It was however not disputed that, subject to the issue arising out of s 51AC of the Trade Practices Act, the first, second and third defendants were liable on the guarantee.
Was the guarantee a deed?
- [7]Logically the first issue which arises is whether the guarantee is enforceable against the fourth defendant, either as a deed or in contract. At the point where the guarantee was executed by the fourth defendant[5] it was said to be “signed, sealed and delivered as a deed by the guarantor in the presence of the guarantor’s solicitor or bank officer ”. It contains the fourth defendant’s signature, and the signature of Mr McPhail, and is dated 25 February 2000. The document does not appear to be sealed, but the plaintiff no doubt relies on s 45 of the Property Law Act 1974, which relevantly provides:
“(1)Where an individual executes a deed, the individual shall either sign or place the individual’s mark upon the same and sealing alone shall not be sufficient.
- (2)An instrument expressed –
- (a)to be an indenture or a deed. or
- (b)to be sealed,
shall, if it is signed and attested by at least one witness not being a party to the instrument, be deemed to be sealed and, subject to s 47, to have been duly executed.
- (3)No particular form of words shall be requisite for the attestation.”
- [8]Section 47 relevantly provides that execution of an instrument in the form provided in s 45 shall not of itself import delivery, nor shall delivery be presumed from the fact of such execution alone, unless it appears that execution of the document was intended to constitute delivery of the document, and delivery may be inferred from any fact or circumstance, including words or conduct, indicative of delivery. Hence the use of the expression used here, “signed, sealed and delivered”, is sufficient to make the deed effective on execution, without further delivery.[6] What matters therefore is whether s 45(2) has been complied with.
- [9]On the face of it s 45(2) has been complied with, but it was submitted on behalf of the fourth defendant that that was not the case on the ground that the witness who had attested the fourth defendant’s signature, Mr McPhail, should be treated as being a party to the instrument for the purposes of the subsection, because he was an employee and agent of the plaintiff, and was signing in his capacity as bank officer, that is in his capacity as an agent and employee of the plaintiff. It was submitted that the word “party” in the subsection should be given a wide interpretation, consistent with its purpose of ensuring that someone independent witnesses the signature.
- [10]There is some support for the proposition that the purpose of such a provision is to secure as a witness someone who is independent. In Burns v Lorac Mining Pty Ltd (1985) 4 FCR 301 Beaumont J said at p. 303. “The general position is that, apart from statute, it is not necessary to the validity of a deed that its execution be attested by any witness. If, however, attestation is required by statute, a party to the deed is incompetent as an attesting witness, the object of the rule being to ensure that the deed is voluntarily signed ”. In Mostyn v Mostyn (1989) 16 NSWLR 635 Young J at p. 639 speaking of the New South Wales equivalent to this subsection said. “In my view, the Conveyancing Act, s 38(1), requires with that with respect to each person who executes the deed, that his or her signature will be witnessed by an independent witness (that is a person not a party to the deed) and that such witness will attest overseeing the execution by that party of the deed by signing his or her own name in the appropriate place ”. On the other hand his Honour referred to a decision of the Court of Appeal in New South Wales Edwards v Skilled Engineering Pty Ltd (14 March 1989, unreported) where a deed was held duly executed by a particular person where that person’s signature had been witnessed by that person’s solicitor. In one sense a solicitor is an independent person, but not in another sense.
- [11]Insofar as the purpose of a requirement that the signature be witnessed by someone other than a party to the deed is to ensure that the execution of the document is voluntary, it could be seen as consistent with that interpretation to extend the meaning of the word “party” so that it included a person who was an employee of a corporate party. In Duncan & Vann “Property Law and Practice” para 6.190 the view is advanced that “party” in subsection (2) is not used in a technical sense and extends to include persons who receive benefits, undertake obligations in, or execute the deed. That extension however would not be wide enough to include an employee of a party.
- [12]The report of the Law Reform Commission which was the basis of the Property Law Act, when dealing with s 45, does not advance any specific justification for the requirement that the attesting witness be someone other than a party to the deed. It does not identify any particular mischief intended to be avoided by that provision. The report does refer to s 38 of the New South Wales Act, which contained that restriction. There is no definition of “party” in the Property Law Act. Section 36 of the Acts Interpretation Act 1954 says the term “party” includes an individual and a corporation, but does not on its face extend the reference to a corporation to include an employee or agent of the corporation.
- [13]Counsel for the plaintiff also referred to remarks by Chesterman J in Re Farm Pride Foods Ltd [1999] QSC 174 who was not prepared to hold, in the context of an application to remove a caveat, that a person who was a consultant or agent for one of the parties who had witnessed a signature was not a “party” for the purposes of s 45(2), and so was not prepared to find for the purposes of such an application that the document was a deed in reliance on that subsection. His Honour did not refer to authority, and was considering the matter only for the purpose of an application to remove a caveat, so that this does not represent a definitive decision on the point. Nevertheless, it stands as a warning against too ready an assumption that the term “party” in this subsection does not include an employee of a corporate party.
- [14]If I were deciding the matter in a final way I doubt whether I would be prepared to attribute to the term ”party” in s 45(2) a meaning wide enough to be of assistance to the fourth defendant in the circumstances of the present case. Bearing in mind the authorities to which I have referred however, I am ultimately not persuaded that this is a question which I should decide finally against the fourth defendant for the purposes of an application under r 292, so that I am not prepared to assume for the purposes of these proceedings that this document is a deed. It is therefore necessary for the plaintiff, in order to rely on the guarantee as against the fourth defendant, to show that the guarantee was supported by consideration.
Was there consideration?
- [15]When considering this issue it is necessary to identify the particular consideration specified in the guarantee, and consider a precise construction of the statement of consideration in order to determine if the relevant act has occurred: O'Donovan & Phillips “The Modern Contract of Guarantee” (3rd Edition) 1996 at p. 55. Hence where a guarantee of obligations by a lessee under a lease was expressed to be given in consideration for the lessor “entering into this lease”, consideration was not sufficient if no lease was executed by the lessor, even if the lessee was allowed into occupation and so had obtained some benefit. Gobblers Inc Pty Ltd v Stevens (1994) ANZ Conv. R 110. On the other hand, if “this lease” is actually entered into, in the sense of being executed, by the lessor, consideration will have been provided even if the lease is ineffectual to pass a legal estate in the land because it has not been registered. Chan v Cresdon Pty Ltd (1989) 168 CLR 242 at 247.
- [16]In the present case, the consideration for the guarantee is identified in clause 1 within Part A, in the following terms: “By signing this document, you ask the bank to give or to continue giving credit and banking facilities to the customer, whether alone or with any other person, and you give the bank this guarantee and indemnity in return for its agreeing to do so.” It was evidently on the basis of this clause that the plaintiff pleaded that the guarantee was given “in consideration of the plaintiff granting and continuing to grant financial accommodation to Broadwalk.” However, what the clause actually says is that the guarantor has asked the bank to give or continue giving credit and banking facilities to the customer, but the actual consideration identified by the clause, what the guarantors give the guarantee “in return for”, is the bank’s agreeing to do so, that is agreeing to give or to continue giving credit and banking facilities to the customer. What is specified therefore by way of consideration is not the actual provision of credit or banking facilities, or the continuation of them, but an agreement to do so. It is therefore necessary to identify whether the evidence before me shows that there was any agreement to give or continue to give credit or banking facilities to Broadwalk Pty Ltd, and if so when that agreement was made.
- [17]Mr Hollas in his affidavit filed 18 February 2003 referred[7] to the bank providing financial accommodation by way of a business mortgage overdraft facility “at all material times from 24 February 2000,” but does not in his affidavit identify when the bank agreed to do so. The business mortgage overdraft facility is exhibited to his affidavit. At p. 15 there is a letter dated 24 February 2000 addressed to the secretary, Broadwalk Pty Ltd and also signed by Mr McPhail, which was evidently attached to the “business mortgage overdraft facility,” and which included the sentence. “Please take some time to read it to ensure that you understand and accept the terms and conditions ”. The document is described as “business secured overdraft ”. On p. 13 of this document[8] there appears the follows. “The bank offers to provide you with the facility as set out in this agreement. The facility will be available seven days from the date of offer below or any earlier date agreed by you and the bank. Your first use of your account after the relevant date will be taken as your acceptance of the offer contained in this agreement ”. There is a similar statement in clause 2 on p. 23. The facility was therefore expressed as an offer by the bank to the principal debtor, and the agreement between the bank and the principal debtor to make the overdraft facility available dependent on acceptance by the principal debtor. The method of acceptance is specified, although more as a default method of acceptance than an exclusive method of acceptance.
- [18]On a consideration of the terms of the document it is a little difficult to identify just what it is the bank is actually agreeing to by entering into this overdraft facility, since the document expressly provides in clause 5 that “the bank may cancel the facility at any time whether or not you are in breach of this agreement.” In addition, by clause 16 the bank may make changes to practically everything in the agreement. Nevertheless within clause 3[9] the following appears. “The bank will allow you to overdraw your account to the agreed facility limit shown in the Details. However, the bank only has to allow you to overdraw if. [seven conditions are specified] ”. In the light of this provision, it appears that the bank is offering to agree to allow an overdraft on the account although that is subject to the bank’s right to terminate the agreement. In the absence of such termination there is on the face of it a contractual obligation to allow the overdraft. In any case, this document had been provided to Mr Vincent prior to the time when he executed the guarantees (on behalf of himself and each of the other defendants), and therefore it is reasonable to interpret the expression in the form of guarantee in the light of the actual terms of the document. What was required by way of an agreement by the bank was whatever sort of agreement by the bank would be produced as a result of the offer contained in this document being accepted.
- [19]One of the conditions referred to, indeed the first, within clause 3 is the requirement that: “The bank has received each security listed in the Details in a form satisfactory to it and none has been withdrawn without the bank’s consent.” The Details include under a heading ‘Securities’, “The following securities are to be or have been taken by the bank: refer annexure ‘A’.” Annexure ‘A’ which appears on p. 29 of the exhibits includes among other things: “guarantee and indemnity for $1,030 million given by [each of the four defendant].”
- [20]In my opinion what are specified in clause 3(c) to (i) are conditions precedent to the agreement, and had to be satisfied before there would be any agreement binding on the bank. It follows that there was no agreement binding on the bank until after the bank had received, among other things, the four guarantees including the guarantee of the fourth defendant which is sued on. It follows that the bank had not agreed to provide the loan and financial facility the subject of this overdraft agreement until at least after the guarantees had been signed and handed over. The consideration was therefore not past consideration.
- [21]Apart from this, it does not appear that there is any evidence that the offer contained in the business secured overdraft document was accepted by Broadwalk Pty Ltd prior to the execution of the guarantee by the fourth defendant. There is no evidence from the fourth defendant that there was any acceptance by Broadwalk Pty Ltd of the terms of the overdraft agreement prior to the time when he executed the guarantee. He says in his affidavits filed 6 March 2003 that the letter at p. 15 of the exhibit to the affidavit of Mr Hollas, the letter to which I referred earlier, was “included in the security documents signed by me at a branch in front of McPhail on 25 February 2000.” There does not appear to be any signature of the fourth defendant on either the letter at p. 15 or the business secured overdraft document; presumably what is meant is that this letter, and it follows the attached business secured overdraft agreement, were provided with the security documents which were signed that day. The affidavit indicates that on 25 February the fourth defendant’s attitude was that “I was therefore concerned that the documents were signed as quickly as possible and the money placed in my accounts so that I could disburse the funds.”[10] It is not clear when the account was first used by Broadwalk Pty Ltd, in terms of when a cheque was first drawn,[11] but Mr Hollas in his affidavit filed 28 March 2003 swears that financial accommodation was provided to Broadwalk Pty Ltd under the overdraft from time to time after 25 February 2000. para 6. Overall therefore on the evidence before me it seems clear that, so far as the overdraft was concerned, the plaintiff agreed to provide the overdraft after, rather than before, the guarantee was signed by the fourth defendant.
- [22]With regard to the bill facility, a copy of this also appears within the exhibit to the first affidavit of Mr Hollas. This was dated 24 February 2000, and it was also expressed as an offer by the bank to the company. Clause 29 provided: “The drawing of a bill by the drawer for acceptance by the bank after the date of this letter shall constitute acceptance by the drawer of the bank’s offer to provide the facility upon the terms and conditions hereinbefore set out and an acknowledgement that all prior arrangements are cancelled and that these terms and conditions apply to all bills so drawn and accepted prior to such date.” Accordingly the offer was to be accepted by drawing the first bill to be subjected to the facility, although it may well be that some other method of acceptance would have been effective.
- [23]Again there is reference to the requirement that securities be provided. Clause 20 provided. “Notwithstanding anything herein contained to the contrary the bank shall not be obliged to accept any bills presented for acceptance hereunder unless the securities referred to in item 13 of the schedule have been executed and have been delivered to the bank and remain in full force and effect in respect of all current bills accepted by the bank and bills so presented to the bank for acceptance ”. Item 13 contains a reference to annexure ‘A’ which is in the same terms as the other annexure ‘A’, and includes a reference to a guarantee and indemnity by each of the four defendants. Accordingly the agreement with the bank was subject to the condition that the guarantee be provided, so that there was no effective agreement by the bank until such time as the guarantee had been provided. Even if that is not the case however, there is no evidence that the offer contained in the document was accepted by Broadwalk Pty Ltd prior to the execution of the guarantee by the fourth defendant, or that Broadwalk Pty Ltd drew any bill for acceptance by the bank pursuant to the facility at any time prior to the execution of the guarantee. The natural inference of the wording of the fourth defendant’s affidavit, in my opinion, is that nothing was done actually to cause the money to be advanced until after the security documents including the guarantees were signed.
- [24]It was submitted on behalf of the fourth defendant that any consideration for the guarantee was past consideration, because the financial accommodation was provided on the day prior to the execution of the guarantee. Reference was made to the allegation in the amended defence, which referred to the business and mortgage overdraft facility being provided on 24 February 2000. But as I have shown by reference to the documents, that this is not to the point. What is crucial is when the nominated consideration of the guarantee was provided, that is, when the bank agreed to provide the loans and banking facilities. Even if the overdraft facility was in practice available on 24 February, there was no agreement to provide it in place at that time, because the offer had not been accepted by Broadwalk Pty Ltd, and in any event was subject to the condition that, inter alia, the guarantees be provided. The same applies to the bill facility. Although that is drafted on the basis that the commencement date for the facility was 24 February 2000, in my opinion it follows from the material before me that there had been no agreement binding on the bank until the securities were provided, and indeed until the offer contained in the facility document was accepted, which I am satisfied did not occur until after the guarantees had been signed. There is no doubt that at some point after the guarantees were signed at least one bill was drawn, and at least some use was made of the overdraft, and therefore at some point the offers were accepted. Once that occurred the bank had agreed to provide the relevant loan or banking facility, and consideration for the guarantee was provided. I am satisfied that that was not past consideration, and therefore the fourth defendant’s guarantee is supported by consideration.
Unconscionability
- [25]The next issue raised by the defendants is the issue of unconscionability. It is alleged that there was a breach of s 51AC of the Trade Practices Act on the part of the bank in engaging in conduct that was in all the circumstances unconscionable. Relevantly that section provides in subsection (1) that:
“A corporation must not, in trade or commerce, in connection with:
- (a)the supply or possible supply of goods or services to a person (other than a listed public company). or
- (b)the acquisition or possible acquisition of goods or services from a person (other than a listed public company);
engage in conduct that is, in all the circumstances, unconscionable.”
- [26]What is alleged in the amended defence paragraph 1C as amounting to unconscionable conduct on the part of the plaintiff was the representation allegedly made on behalf of the plaintiff that the security documents were not different from previous security documents signed by the fourth defendant, and it was therefore not necessary for him to peruse them before signing, without drawing his attention to the provisions of clause 14.2 of the guarantee, in circumstances where he had not in fact dealt with the plaintiff before and was not familiar with the plaintiff’s usual security documents. In order to understand the significance of this, it is necessary to note the terms of clause 14.2 of the guarantee. That clause is addressed to the guarantors and provides as follows. “You give up in favour of the bank any right against the bank and against any other person, estate or assets which would reduce your liability under this guarantee and indemnity, or would reduce the bank’s claims against the customer or any other person for the amounts which the customer owes to the bank, until the bank has received 100 cents in the dollar of all the amounts which the customer owes the bank and all amounts payable by you under this guarantee and indemnity.”
- [27]The fourth defendant in his affidavit[12] deposed to having attended the plaintiff’s branch and speaking to Mr McPhail, as referred to earlier, on 25 February 2000. I have already referred to his having stated there was some degree of urgency about the matter. He said (para 9) that Mr McPhail said among other things words to the effect that there was nothing here, referring to the guarantees, “that I would say you haven’t already dealt with before. Just you know the sort of things in these guarantees, you know your guaranteeing with these other companies that if one company doesn’t pay the bill … the bank can ask the other companies to make sure the moneys are paid under the guarantee. It is the normal cross-collateralised guarantee ”. He said he asked whether there was anything different from what he would be used to in signing a normal guarantee and was told that there was not, and that McPhail was sure he had done it many times before so there was no need to read through the documents. He said he did not read the documents.
- [28]He referred to a failure on McPhail’s part to say that he had the option of taking the documents away and getting independent legal advice. Nevertheless the front cover of the guarantee, on p. 40 of the exhibit to Mr Hollas’ affidavit contains under its title the word “Warning” and among other things says: “You should seek independent legal advice before signing this document.” This warning is prominently displayed; indeed the particular passage to which I have referred leapt to my eye when I first saw the exhibit. Furthermore, the fourth defendant did not say that if he had been told this expressly he would have obtained such advice.
- [29]The fourth defendant swore that, if he had been told that the guarantees contained clauses 14 and 18 and the effect of these clauses, he would not have signed the guarantee. Objection was taken to this paragraph in the affidavit but in my opinion it is clearly admissible, although not necessarily conclusive on this point.[13]For the purposes of this application, however, I will proceed on the basis that it is correct. The fourth defendant also swore in paragraph 18 that: “The plaintiff unreasonably failed to disclose to me the specific clauses of the guarantee which would prevent me from taking any action of the kind presently on foot ”. Objection was taken to this clause, but in my opinion the only part that is objectionable is the word “unreasonably” which is a conclusion and not a fact to which the witness can depose. What is in substance being said here is that the relevant clause, which it is conceded to have the effect of preventing a claim for breach of s 85 being maintained by the first defendant, for the benefit of all defendants, was not expressly adverted to by Mr McPhail during the course of this conversation.
The counter-claim : Property Law Act s 85
- [30]I should say something about the claim under s 85. The guarantee on the part of the first defendant was supported by a mortgage by that company in favour of the plaintiff of property situated at Woorim on Bribie Island. The first defendant had sought to sell the property, but a sale in June 2001 did not proceed due to the purchaser’s default. The plaintiff subsequently took possession of the property and indicated it intended to sell the property, although it agreed to give the fourth defendant additional time to attempt to sell the property himself. The fourth defendant swore that on 28 April 2002 the first defendant entered into a contract with Steve Mathews for the sale of the property for a price of $400,000 which was due to settle on 30 June 2002. The contract was not made subject to finance, but there is a special condition which appears to have the effect that the contract was subject to the settlement of another contract for the purchaser to sell another property. At that stage the purchase price of $400,000 was almost enough to clear the amount then owed to the plaintiff. It is apparent that the plaintiff was aware of the purchaser because the name is referred to in a fax sent by the first and fourth defendants on 9 May 2002.
- [31]The purchaser sought an extension of 30 days, and settlement was postponed to 31 July 2002. The purchaser requested a further extension to 15 August, which the fourth defendant passed on to the plaintiff’s manager, who declined to provide a further extension and said the property would be auctioned on 6 July. On 4 July the fourth defendant spoke to the purchaser who said he could come up with $300,000 but needed to complete the sale of the other property for the balance. According to the fourth defendant he telephoned the plaintiff’s manager the same day and requested that the bank accept $300,000 cash and enter into an arrangement with him to pay off the balance, but the manager refused and said the auction would proceed and no further correspondence or communication would be entered into with any of the defendants. On 6 July 2002 the property was sold at auction for $240,000.
- [32]The material is somewhat vague as to just what happened, and whether any attempt was made by the plaintiff to sell the property to this purchaser. On the face of the fourth defendant’s material it should have been possible to sell the property for $300,000 at least, which would have been better than the price actually achieved. It does not necessarily follow of course that the real market value of this property was $400,000, or even $300,000, but in circumstances where offers had been made to pay potentially more than the price at which the property was ultimately sold it may be dangerous for a mortgagee to sell at auction in reliance on expert valuation evidence without at least attempting to realise this higher price from the offeror.[14] It may be that a full investigation of the facts, which could not be conveniently carried out anyway on the hearing of an application under r 292, would throw some additional light on the matter and would show clearly either that the first defendant has no claim against the plaintiff for breach of s 85, or that the first defendant does have a good cause of action against the plaintiff for breach of s 85.
Responses of the plaintiff
- [33]It was however submitted on behalf of the plaintiff, and conceded on behalf of the defendants, that the effect of the clause of the guarantee to which I have referred is that any such claim cannot proceed until after the plaintiff has been fully paid out under the guarantees, and therefore such claim cannot be pleaded by way of set off against the plaintiff’s claim in the present action. It would therefore not be a barrier to the judgment. The plaintiff is therefore entitled to recover unless some relief is available under the Trade Practices Act as a result of the inclusion of these clauses in the guarantee, and the circumstances surrounding its execution.
- [34]The defendants allege that the matters referred to involved a breach by the plaintiff of that provision. In response, the plaintiff submitted that:
- (i)The section did not apply because of subsection (9), which excludes application to the supply or possible supply of services at a price in excess of $1million.[15]Reference was also made to subsection (11)(e) which provides that the price for the supply or possible supply of services comprising or including a loan or loan facility is taken to include the capital value of the loan or loan facility. Since the total value of the loans to be made available exceeded $1million in this case, the Act did not apply.
- (ii)Any conduct was not in connection with the supply or possible supply of services because the relevant conduct did not take place between the supplier and the business consumer, but between the supplier and a third party.
- (iii)What was alleged against the plaintiff could not amount to unconscionable conduct in breach of the section.
Was the transaction over the limit?
- [35]In response to the first point, the defendants submit that there were here two separate loans or loan facilities, and that the Act applied to each of them because each of them was within the statutory limit. I am not aware of any authorities as to the interpretation and application of the statutory limit in s 51AC in the context of price based on the capital value of the loan or loan facility under subsection (11)(e). In Grundy v Lewis (1995) 62 FCR 567 Kiefel J refused leave to amend a pleading to include a claim under s 38 of the Fair Trading Act, the state equivalent of the Trade Practices Act, where the claim was based on the proposition that the relevant parties to the transaction were consumers, because the consideration paid for the purchase of a quantity of pigs was in excess of $40,000. Her Honour held that in such circumstances they could not meet the requirement in the definition of a consumer that the price paid be not more than $40,000. Her Honour regarded as not even seriously arguable the proposition that the price should be assessed by reference to that part of the consideration which was applicable to each individual pig. p. 574. That was a more extreme case than the present, but it suggests an approach where a test referring to the commercial reality of the transaction ought to be applied, rather than seeking to give the statute as wide a scope as possible.
- [36]In my opinion in circumstances where the overall capital value of the loans or loan facilities being supplied or possibly supplied exceeds $1million the transaction will not, on the true construction of s 51AC(9) (as it was at the relevant time) be within that section. That is consistent with the purpose of the legislation, which is essentially to provide protection against unconscionable conduct directed against small business.[16] The section does not apply in all circumstances. it only operates to protect a person other than a listed public company, and also only operates subject to the price limited in subsection (9). In the context of a loan, if the business is borrowing more than $1 million, it is inappropriate for the question of whether or not the section applies to turn on whether that sum is advanced as one loan or two loans (or any number of loans). There is nothing in the purpose of the section which would justify drawing such a distinction.
- [37]In addition, in circumstances where a corporation engages in conduct that is unconscionable in connection with the supply or possible supply of services to a person, subsection (9) operates by reference to the price for the services supplied or possibly supplied. In a context where there are more than one service being supplied, and more than one price being charged, if the conduct is alleged to be unconscionable in connection with all of the services the applicability of the section should be assessed by reference to the total price, that is the sum of the prices of the individual services. It follows in my opinion that the plaintiff is correct in its submission that s 51AC did not operate in the circumstances of this transaction, because the “price” was above the limit. In case a different view may be taken elsewhere however I will deal with the other grounds advanced on behalf of the plaintiff.
Was the conduct not in connection with the supply of services?
- [38]The second ground was based on the decision of the Full Court of the Federal Court in Munroe Topple & Associates Pty Ltd v Institute of Chartered Accountants in Australia [2002] FCAFC 197. In this case the appellant had claimed relief against the respondent on the basis that, inter alia, the respondent had acted unconscionably in making changes in the training requirements which had to be satisfied by persons seeking admission to membership of it. The respondent is a body corporate responsible for regulating the use of the appellation “chartered accountant”, for which purpose it imposes appropriate academic qualifications or other requirements for membership. The applicant carried on the business of selling training materials to, and conducting training lectures at postgraduate level to assist, candidates undertaking studies to become so certified.
- [39]One of the matters alleged was that certain changes were made by the respondent in the training requirements for persons seeking admission to membership, which amounted to unconscionable conduct as against the appellant. It was held both at first instance[17] and on appeal that such conduct was not unconscionable for the purposes of the section anyway, but both courts also rejected the proposition that s 51AC could have applied, on the basis that there was no relevant transaction between the respondent and a person against whom any unconscionable conduct was directed. For this purpose consideration was given to the scope of the protection afforded by s 51AC.
- [40]In the Full Court Heerey J, with whom the other members of the Court agreed, said that s 51AC(1) is directed to conduct in connection with a particular kind of transaction, and that the considerations identified in subsections (3) and (4) are all concerned with dealings between persons involved in the supply or acquisition of goods or services. His Honour said that his conclusion that s 51AC was not concerned with the impact of conduct on third parties was confirmed by the legislative history. On its face that is a decision that the section is only concerned with unconscionability as between the two parties to the transaction by which goods or services are supplied or acquired.
- [41]However, a decision in those terms was plainly more sweeping than anything which arose for consideration in that case. The issue was considered at somewhat greater length by the trial judge, Lindgren J. His Honour examined in detail the considerations arising from the terms of the section itself, and the legislative history, and concluded at para [260] that the expression “in connection with” in the section: “requires that the conduct impugned accompany, go with or be involved in the supply of the goods or services, and that it is not sufficient that, as alleged in the present case, such a supply be the occasion of unconscionable conduct of the supplier directed to an unrelated third party with which the supplier has no dealings at all.”
- [42]The difficulty I have with this decision is this. It is easy enough to see that any unconscionable conduct on the part of the respondent in Monroe Topple was not in connection with the supply or possible supply of services to a person, simply because the expression “in connection with”, although potentially broad as acknowledged by Lindgren J at para [252], is not broad enough to encompass the situation in that case. It is however much more difficult for me to see why unconscionable conduct towards guarantors of a contract between a bank and a customer entered into in the course of carrying on as a banker of the business of banking, or of a contract for the lending of moneys, would not be seen as being unconscionable conduct in connection with that contract or that loan. It is clear from the material cited by Lindgren J that the intention was to provide a remedy for small business against unconscionable conduct. The definition of “services” indicates that the intention was to prohibit unconscionable conduct in connection with the borrowing of money by a small business, or a contract between a banker and a small business,[18] and it must have been recognised by the legislature that it was a very common incident of such a contract, or such a borrowing, that guarantees would be given of the indebtedness of the particular small business entity which made the borrowing.
- [43]It is difficult to believe that the legislature in enacting this provision was intending to draw the subtle distinction between the position of the small business entity which was the party to the contract and the position of the guarantors. One of the leading modern Australian cases on unconscionability, Commercial Bank of Australia Limited v Amadio (1983) 151 CLR 447, which indeed was cited by Heerey J, concerned a dispute between a bank and a guarantor of an advance to a small (and indeed financially insecure) business. I think the suggestion that the legislative protection being set in place by s 51AC would not have applied to the circumstances of Amadio, would have come as something of a surprise to the legislature.[19] The suggestion that the legislature, in an Act providing protection for small business, would have intended to prevent a bank from behaving unconscionably towards the small business borrower but not intended to prevent the bank from behaving unconscionably towards guarantors of the small business borrower is one I have considerable difficulty in accepting. The distinction is even more unreal in the present case where the human agent of all of the corporations concerned, including the borrower, was the fourth defendant. If the argument for the plaintiff is correct, it was by this section prohibited by the legislature from behaving unconscionably towards the fourth defendant in his capacity as agent for the borrower, but not in his capacity as agent for the first, second and third defendants, or on his own behalf. That cannot be right.
- [44]I accept that it will commonly be the case that s 51AC will apply in relation to unconscionable conduct in the course of a transaction of supply or acquisition between the party behaving unconscionably and the victim of the unconscionability, but it seems to me that the various considerations advanced in Monroe Topple do not require an interpretation for the section which is so strictly limited. For example, why should the section not apply if the corporation behaves unconscionably towards the agent of the person to whom the corporation is supplying goods or services. Why could that not be said to be unconscionable conduct in connection with that supply of services. Here the connection with the relevant supply of services, the contract between the bank and the customer, was very close. the defendants were required to enter into a guarantee as a condition of that contract, so that it was necessary for the guarantee to be given in order to enable the services to be supplied at all.
- [45]In my opinion it would be an unduly restrictive interpretation for this section to say that unconscionable conduct in relation to the giving of the guarantee in such circumstances is not conduct in connection with the contract between the banker and the customer. Insofar as the decision in Munroe Topple stands as authority to the contrary, I am not bound by the decision. With respect, I think it is an example of a court being so anxious to avoid the error of giving s 51AC an excessively wide operation that it has made the opposite mistake, of attributing to it an excessively narrow operation. I should add that I do not think this error was made by Lindgren J. his Honour’s formulation is not in my opinion too narrow to exclude a case such as the present. As far as I am aware the decision of the Full Court has not been followed by the High Court or the Queensland Court of Appeal. I would not reject the defence of the defendants on this ground.
Was the alleged conduct unconscionable?
- [46]The third issue raised is the question of whether, on the facts alleged by the defendants, the conduct of the plaintiff is capable of amounting to unconscionable conduct. It is true that a term such as the one presently relied on in the guarantee does put the guarantors at something of a disadvantage, and does mean that there is a risk that legitimate complaints against the creditor may be stifled. In the present case, if the first defendant has a good cause of action against the plaintiff for breach of s 85 of the Property Law Act, but the defendants do not have funds both to pay out the plaintiff’s demand and to pursue such a claim after doing so, the practical effect of requiring payment out of the plaintiff’s claim first will be to prevent such a claim from being pursued against the plaintiff. If the claim is a good one, that can be seen to be unfair.
- [47]On the other hand, such a term in a guarantee is by no means novel. Reference is made to such a term in O'Donovan & Phillips “The Modern Contract of Guarantee” (3rd Edition 1996) at p.560, where it is said to be effective.[20] It is a term I have seen previously in guarantees, and for all I know it is part of the standard form of guarantee normally used by the plaintiff,[21] or indeed normally used by all banks. There is no evidence to the contrary before me. I can see that from the bank’s point of view such a clause could be seen as having a legitimate commercial purpose.
- [48]It is possible for a clause in a standard form of contract, which is advantageous to the party putting forward the contract, to be so advantageous to that party or disadvantageous to the other party that it is unconscionable to use such a clause without specifically drawing attention to it: George T Collins (Aust) Pty Ltd v H S Stevenson (Aust) Pty Ltd (1991) ATPR 41-104. On the other hand, such a decision is unusual, and is perhaps inconsistent with more recent authorities on the content of unconscionability.[22] At a time when there are two appeals concerning the scope of the concept of unconscionability reserved before the High Court of Australia it is not particularly helpful to be here investigating the precise effect of the current authorities, and it is particularly inappropriate in proceedings of this nature. If there is any real prospect of the conduct being regarded as unconscionable the matter should proceed to trial.
- [49]Nevertheless, in the circumstances of this case it seems to me clear enough that the conduct alleged against the plaintiff does not and could not amount to unconscionable conduct for the purpose of s 51AC. The circumstances clearly would not satisfy the test of unconscionability expressed by Deane J in Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 at 474. the defendants were not under a special disability in dealing with the plaintiff, at least in any respect disclosed in the evidence before me, and there is therefore no reason to think that any such disability was evident to the plaintiff to an extent to make it prima facie unfair or unconscientious to procure or accept the defendants’ consent to the guarantee. The High Court has recently confirmed and emphasised this requirement of equitable unconscionability, in the context of an alleged breach of s 51AA of the Trade Practices Act, in ACCC v C G Berbatis Holdings Pty Ltd [2003] HCA 18. see [12] per Gleeson CJ; [55] per Gummow and Hayne JJ; [185] per Callinan J. In that case the judgments explain that a mere inequality of bargaining power does not amount to unconscionability. see for example [11] per Gleeson CJ.
- [50]At the moment however it is accepted that the concept for the purpose of s 51AC may be wider than the equitable concept, although there is still said to be a need for something which is clearly unfair or unreasonable, something which involves a pejorative moral judgement: Hurley v McDonalds Australia Ltd [1999] FCA 1728. Heerey J in Munroe Topple at para [118] dismissed the allegation of unconscionable conduct there on the ground that the conduct was not something which “shocked the conscience”. It seems to me that there was nothing done by Mr McPhail on the basis of the allegations made by the fourth defendant in his affidavit, which could satisfy any of these descriptions.
- [51]It must have been obvious to the fourth defendant that the guarantee was a lengthy and complex document, and it is inconceivable that he would not have appreciated that it was in that state because the bank considered that it was advantageous to its interest in various respects for it to be in that state. Nothing was said by Mr McPhail to suggest that the guarantee did not contain clauses which were favourable to the bank, and in various respects modified what would otherwise have been the operation of the law of guarantees. There are a number of clauses in the guarantee which have that effect, and there was nothing special about this particular clause which makes it unconscionable not to draw attention to it. The only significance of this clause in the present context is that it is the clause which is relevant to the particular difficulty which the defendants face as things have turned out.[23] That is not a circumstance which justifies particular attention to this clause. But it could hardly be said to be unconscionable for the bank to fail to draw the attention of potential guarantors to every clause in the guarantee which contains a provision favourable to the bank in the circumstances in which it operated.
- [52]There was nothing said to suggest that the reason why the guarantees ran to several pages of print was that the bank was going to some trouble to look after the guarantors’ interests, so that the existence of some particular provision which operated to the advantage of the bank might have come as a surprise to someone reading such a document. It is clear enough on the basis of the fourth defendant’s account of the events that he chose not to acquaint himself with the details of this guarantee, but that does not make the bank’s failure to acquaint him with them unconscientious.
- [53]I also have had regard to the various matters listed in subsection (3). It is true that the bank was in a much stronger bargaining position; the fourth defendant’s company needed to borrow money because it had pressing creditors, whereas no doubt the plaintiff had no particular need to make this loan. Whether a clause such as this is reasonably necessary to protect legitimate interests of the bank depends I think very much on the point of view from which it is assessed. There is no reason to think that the fourth defendant was incapable of understanding the documents put before him, although some aspects of their operation may well have required some exposition. But that that was the situation would have been obvious to him at the time. There was no undue influence or pressure exerted on him and no unfair tactics used to get him to sign. There is no suggestion that the bank was charging more than the market rate for this loan, or that the borrower would not have faced similar conditions elsewhere, or that the plaintiff would not have imposed similar conditions on other customers. It think it fair to assume that there was no willingness on the part of the bank to negotiate the terms of the guarantee, but that in itself does not mean that the use of this form was unconscionable. There is no reason to think that the bank was not acting as much in good faith as banks ever do when entering into transactions of this nature. Consideration of the matters referred to in subsection (3) leads me to the conclusion that the behaviour alleged was not unconscionable. Accordingly on this ground as well the defence raised under s 51AC cannot be made out.
- [54]It follows that the plaintiff is entitled to judgment for the amount claimed, which is $201,678.99 together with interest calculated in accordance with the guarantee of $69.72 per day from 13 February 2003. There were no submissions advanced on behalf of the defendants as to the calculation of these amounts. Interest to the date of judgment is based on 70 days at $69.72, $4,880.40. There will therefore be judgment for $206,559.39 against each defendant. I order each defendant to pay the plaintiffs costs of the action including this application to be assessed.
Footnotes
[1]This is alleged and admitted in the pleadings. Just what was done on 24 February by way of providing the accommodation is unclear – the evidence suggests that this was merely the date placed by the plaintiff on its documents.
[2]For the true nature of such a “loan” see Handevel Pty Ltd v Comptroller of Stamps (Vic) (1985) 157 CLR 177 at 194. Commissioner of Taxation v Hurley Holdings (NSW) Pty Ltd (1989) 23 FCR 435. Coles Myer Finance Ltd . Commissioner of Taxation (1993) 176 CLR 640.
[3]Second Amended Statement of Claim para 16.
[4]There is no Annexure A to the Second Amended Statement of Claim, but Annexure A to the Amended Statement of Claim shows how the amount alleged to have been owing as at 8 January 2001, the subject of the demand on the defendants, came to be this amount.
[5]Affidavit of Hollas filed 18 February 2003 Exhibit BH1 page 51.
[6]Duncan & Vann “Property Law and Practice” para 6.580.
[7]Para 9.
[8]Page 28 of the bundle of exhibits.
[9]Page 8 of the document, page 23 of the bundle.
[10]The inference is that the funds were not available “in my account” until after the guarantees were signed.
[11]The fourth defendant said he received an interim cheque book for the relevant account on 2.February, but does not say he drew a cheque prior to executing the guarantee. Affidavit of Vincent sworn 29 March 2003, filed by leave, para 2.
[12]Filed by leave on 6 March 2003.
[13]See Keeys v State of Queensland [1998] 2 Qd R 36 at 41, where there was no suggestion that this evidence of the plaintiff was inadmissible.
[14]See Cameron v Brisbane Fleet Sales Pty Ltd [2002] 1 Qd R 463.
[15]The limit was increased to $3 million later in 2000, but that is irrelevant.
[16]See Munroe Topple & Associates Pty Ltd v The Institute of Chartered Accountants in Australia [2001] FCA 1056 at [255] et seq., per Lindgren J.
[17][2001] FCA 1056.
[18]See section 4, especially paragraphs (c) and (d) within the definition.
[19]The Explanatory Memorandum for the amending Act which inserted s 51AC into the Trade Practices Act referred expressly to Amadio. see ACCC v Berbatis Holdings Pty Ltd [2003] HCA 18 at [6].
[20]Citing Continental Illinois National Bank & Trust Co of Chicago v Papanicolaou [1986] 2 Lloyds Law Reports 441, where it was said at p. 445 that the commercial purpose of the clause was to ensure the bank’s payment was not held up while a counterclaim was litigated.
[21]This is the plaintiff’s evidence. Affidavit of Hollas filed 28 March 2003, para 8. This evidence is uncontradicted.
[22]A very broad view of unconscionability is set out at p. 52,622.
[23]If it had any special significance to the fourth defendant, there is no evidence that Mr McPhail knew of that.