3 Metals Pty Ltd v Belding[2021] QDC 261

DISTRICT COURT OF QUEENSLAND

Introduction

1. [1]
   The applicant plaintiff seeks summary judgment pursuant to r 292 of the Uniform Civil Procedure Rules 1999 (Qld) (UCPR), in the sum of $89,936.30, together with judgment to be entered in its favour on the defendant’s counterclaim pursuant to r 293.
2. [2]
   Broadly, the background is that the applicant’s claim relates to debts incurred by the company of which the respondent was the director.
3. [3]
   The plaintiff carries on a metal fabrication business and its sole director is Bryan Fletcher.  The defendant was the director of Junair Spraybooths Pty Ltd (Junair), which manufactured and supplied spraybooths.  The plaintiff provided materials and services to Junair in that context until April 2020 at which time Junair went into external administration.  Shortly thereafter the defendant commenced using Boston BPS Pty Ltd (Boston) to continue the business of manufacturing Junair Spraybooths and the defendant engaged the plaintiff to provide materials and services to Boston on a cash basis.
4. [4]
   By November 2020, the plaintiff had begun to extend credit to Boston under an agreement and was owed approximately $105,000.  Mr Fletcher became concerned about the debt and wished to obtain security for it.  Thus the plaintiff required the defendant to provide a personal guarantee for the debts of Boston.
5. [5]
   The deed of guarantee was executed by the defendant on 8 December 2020 after he had, by email, requested the plaintiff to correct the spelling of his name on the last page of the document.^[1]
6. [6]
   On 31 March 2021, the plaintiff served a statutory demand on Boston for a debt of $181,197.19.  Boston failed to respond.  By 28 April 2021, Boston owed the sum of $192,033.  Written demand was made of the defendant for payment of that amount under the guarantee, to which the defendant failed to respond.  He later responded on 7 May 2021 acknowledging the debt.^[2]
7. [7]
   On 10 June 2021, Boston was wound up in insolvency by order of Justice Williams in the Supreme Court.  The defendant represented Boston in that proceeding.
8. [8]
   The present action was commenced on 11 May 2021.  The defence and counterclaim were filed on 9 July.  There followed requests for particulars, and on 10 August 2021 the defendant was served with the present application and affidavit material, applying for summary judgment.  The matter came before the court on 6 September when it was adjourned to 14 October.  Each side relied on written outlines of argument and the matter was heard on 14 October.

Principles as to summary judgment

9. [9]
   The applicant acknowledges the well-known principles as to the test for summary judgment, including from Deputy Commissioner for Taxation v Salcedo^[3] where Williams JA said at page 235:

“The words ‘no real prospect of succeeding’ do not need any amplification, they speak for themselves.  The word ‘real’ distinguishes fanciful prospects of success or … they direct the court to the need to see whether there is a ‘realistic’ as opposed to a ‘fanciful’ prospect of success.”

10. [10]
    Reference is also made to Agar v Hyde^[4] to the effect that:

“Nothing in the UCPR … distracts from the well-established general principle that issues raised in proceedings will be determined summarily only in the clearest of cases.”^[5]

11. [11]
    Thus the applicant’s argument this is a clear case with the defendant having no realistic as opposed to fanciful prospects of success.

Is the debt outstanding?

12. [12]
    As the applicant acknowledges, the sum originally claimed of $192,033 has been reduced to $89,936.30 as a result of the applicant being able to recover money from third parties which stands to the credit of the respondent.
13. [13]
    The applicant contends that it has proved its pleaded claim.  The money is clearly owing, as established by the uncontradicted evidence of Mr Fletcher^[6] which proves the original debt, the two credit notes and the presently outstanding balance as outlined above. The defence makes a bare allegation of the applicant having breached the agreement between the parties, without any particulars or reference to evidence; and that there is no money owing for an unspecified, unproven reason. No such matters were raised in response to the statutory demand. When the demand for payment pursuant to the guarantee was made on 28 April 2021, this produced an acknowledgement the debt was owing.^[7] The winding up proceeding seems not to have been contested. Contrary to recent assertions in the respondent’s affidavit (not previously ventilated), no anomalies are evident in the applicant’s accounting records. An allegation has been raised as to possible misappropriation of some of Boston’s property, on a hearsay basis.^[8] In my view, there is no substance in this, and if there were, the remedy would lie in the hands of the liquidator of Boston. In my conclusion, no real doubt exists as to the amount of the debt being outstanding.
14. [14]
    This being the case, the next question is whether there is any properly triable issue as to whether the guarantee should be avoided or is ineffective.

Duress

15. [15]
    The first ground apparently advanced by the defendant to attack the guarantee is that it was signed under duress.^[9]  In this regard the applicant refers to Crescendo Management Pty Ltd v Westpac Banking Corporation (1988) 19 NSWLR 40 where McHugh JA set out the principles as follows:

“In my opinion the overbearing of the will theory of duress should be rejected.  A person who is the subject of duress usually knows only too well what he is doing.  But he chooses to submit to the demand or pressure rather than take an alternative course of action.  The proper approach in my opinion is to ask whether any applied pressure induced the victim to enter into the contract and then ask whether that pressure went beyond what the law is prepared to countenance as legitimate?  Pressure will be illegitimate if it consists of unlawful threats or amounts to unconscionable conduct.  But the categories are not closed.  Even overwhelming pressure, not amounting to unconscionable or unlawful conduct, however, will not necessarily constitute economic duress. …

It is unnecessary, however, for the victim to prove that the illegitimate pressure was the sole reason for him entering into the contract.  It is sufficient that the illegitimate pressure was one of the reasons for the person entering into the agreement.  Once the evidence establishes that the pressure exerted on the victim was illegitimate, the onus lies on the person applying the pressure to show that it made no contribution to the victim entering into the agreement… .”^[10]

16. [16]
    As the applicant argues, duress is difficult to prove in a commercial setting; see Australia and New Zealand Banking Group Ltd v Karam.^[11] The fact that one party is in financial difficulties, to the other party’s knowledge, is relevant but not sufficient to establish unconscionable conduct on the part of the stronger party. The greater the financial risk, the greater the justification for increased security^[12]. The applicant argues that in this case there was no pressure, and certainly no illegitimate pressure, applied to the defendant to execute the guarantee.  Mr Fletcher’s evidence is that the defendant expressed no objection to the plaintiff’s requests for the guarantee and was agreeable to it.^[13]
17. [17]
    The furthest the respondent goes on this factual issue is in his affidavit,^[14] where he described the entry into the personal guarantee at paragraphs [21] to [25].  This account does not, in my view, amount to duress; rather, if anything it advances the idea of signing the guarantee upon a misrepresentation, namely, that it would only persist in force for a limited time.  No features of duress are identified, although he does complain of an inequality of bargaining power. There is no illegitimate pressure, as conceived in Crescendo, identified.  The applicant further says that any pressure that was felt was legitimate in the circumstances where:

    1. (a)
       the applicant was in the difficult situation that both Junair and then Boston, were significantly indebted to the applicant;
    2. (b)
       if no security was provided by Boston or the defendant, the applicant stood to lose significant money;
    3. (c)
       the request for the guarantee was, as Mr Fletcher described it,

“nothing more than a commercial request for security and consistent with commercial practice, especially with regards to the level of unsecured credit and the previous losses suffered.”^[15] and

4. (d)
   in these circumstances the applicant was entitled to negotiate a favourable bargain to protect its commercial interests.

18. [18]
    As noted above, the respondent’s present position and affidavit do not seem to really support the idea of economic duress, in my view.  Therefore the applicant is correct to argue that this principle does not relieve the respondent from the burden of the guarantee; that is, that there is no significant triable issue in respect thereof, so as to raise a real as opposed to fanciful prospect of success.

Undue Influence

19. [19]
    The next basis for avoidance of the guarantee is said to be undue influence; this is much more clearly raised on the pleadings, being explicitly pleaded in paragraph 1(f) of the Defence and Counterclaim.  On this topic the applicant says there was no special relationship of influence between the parties and the relationship is properly categorised as an arms-length commercial relationship.  Thus it falls to the defendant to prove facts establishing that the entry into the guarantee was the outcome of actual influence of the applicant over the mind of the respondent to show that the guarantee was not the result of a free act.^[16]
20. [20]
    The applicant points to email exchanges revealing that the respondent had the opportunity to read and understand the terms of the guarantee.  It was emailed to the respondent on the evening of 7 December 2020 and the following day the respondent responded with only one change, being the spelling of his name.  The applicant also points to the fact that the defendant initialled each page of the document and signed it at the end, indicating he had read it.  Certainly, the applicant was not physically present in any sense applying pressure to the respondent at that stage.
21. [21]
    The applicant also points to the feature that the respondent did not express any objections to the guarantee, rather he was agreeable with it.  Mr Fletcher had only instructed his solicitors to prepare the guarantee after he discussed the matter with the respondent.  The respondent seemed to be familiar with it.^[17]  Mr Fletcher did not consider that he applied influence to the respondent, and the respondent was fully co‑operative.^[18]
22. [22]
    Again, the respondent’s version of these events is not one that, in my view, establishes undue influence.  Rather, his account, if anything, is that he acted on an oral assurance from Mr Fletcher that the guarantee was for a limited period prior to a joint venture agreement between the parties being signed sometime before the end of the first quarter in 2021.^[19] He does say that there was an inequality of bargaining power because of commercial pressures Boston was under,^[20] however this does not equate to undue influence in the context of a special relationship.
23. [23]
    Accordingly, in my view the respondent has not identified any basis to avoid the effect of the guarantee on the basis of undue influence; the prospects of success in such an issue at trial are fanciful rather than real.

Unconscionable conduct

24. [24]
    The next basis upon which the respondent seeks to rely is unconscionable conduct.  As referred to by the applicant the elements of such a defence are helpfully set out in Commercial Bank of Australia v Amadio.^[21] To establish unconscionable dealing:

“(a) the weaker party must, at the time of entering into the transaction, suffer from a special disadvantage vis a vis the stronger party;

2. (b)
   the special disadvantage must seriously affect the weaker the party’s capacity to judge or protect his or her own interests;

3. (c)
   the stronger party must know of the special advantage (or know of facts which would raise that possibility in the mind of any reasonable person);

4. (d)
   that party must take advantage of the opportunity presented by the disadvantage; and

5. (e)
   the taking of advantage must have been unconscientious.”

25. [25]
    None of these elements seem to be satisfied in the present case.  There is no identification of any special disadvantage.  The respondent was under some pressure because he wished two projects to proceed on time and this was apparently contingent on the future joint venture between the two companies.^[22]  However, there is no suggestion of this being a special disadvantage of which the applicant had knowledge and took advantage of, certainly in an unconscientious way.  Indeed, there is nothing really to contradict the applicant’s assertion through Mr Fletcher that the respondent expressed no objection to the request for a personal guarantee and was agreeable to it.  Indeed, at times during his oral submissions, the respondent seemed to assert that his state of mind was that there was no significant debt in truth owing to the applicant at the time (an issue which is pleaded), which raises the rhetorical question of what real pressure he could have been feeling.
26. [26]
    In the circumstances, in my conclusion the respondent has no viable recourse to the principles of unconscionable conduct to attempt to set aside the guarantee; again, the prospects of success on this issue are fanciful rather than real.

Misrepresentation

27. [27]
    The defence further pleads that, as outlined above, the respondent acted on the oral misrepresentation to him that the guarantee would only be operable for three months, until the parties entered into a joint venture at the expiration of that time, where upon the guarantee would have come to an end or been superseded by a written joint venture agreement.  The respondent in this context seeks to rely on s 18 of the Australian Consumer Law (which is enacted as a schedule to the Competition and Consumer Act 2010).  This is the present iteration of the former s 52 of the Trade Practices Act. It forbids misleading and deceptive conduct in trade or commerce. The consequent remedy sought is to have the guarantee declared void and for damages (the causation of which is unclear) pursuant to s 236 of the Australian Consumer Law.
28. [28]
    The respondent may also be attempting to rely on a pre-contractual misrepresentation at common law, in the sense that the relevant facts necessary to support such a claim are pleaded, that is, the representation is pleaded, as is the fact that he was thereby induced to enter the guarantee; the representation need not have been the sole inducement to do so. See generally Gould v Vaggelas.^[23]
29. [29]
    What is relied on by the respondent is the alleged conversation as to the guarantee only being in force for three months. Mr Belding refers to this in paragraph 25(a) of his affidavit.  If such a representation could be proven, and further that the respondent acted on it, he might have access to a defence such that the guarantee might be set aside.
30. [30]
    However, the applicant submits that there is simply no basis upon which the court could be satisfied that there was any reasonable prospect of success on this factual issue; in other words the respondent’s prospects would again be fanciful rather than realistic.  The applicant points to a number of things in this regard: 

• The letter from the applicant’s solicitors to the respondent of 25 November 2020^[24] clearly sets out the terms being considered for the guarantee and there is simply nothing to suggest that the term of the guarantee would be limited to three months, or indeed any particular term.  Rather, paragraph 8 of that letter tends to indicate that, if anything, the arrangements would persist for three to five years;
• Further, the guarantee itself is a reasonably concise and clear document and simply contains no such time limitation at all; nor is the guarantee expressed to be dependent or conditional on the joint venture agreement, or vice versa; 
• Finally, as noted above, Mr Fletcher’s evidence as to the execution of the document and the contemporaneous emails contained no suggestion of any such time limitation. 

In the circumstances, and recognising that the evidence of witnesses has not been tested in cross-examination, in my view the prospect of the respondent being able to establish such an operative misrepresentation is so negligible as to be no more than fanciful at best.

31. [31]
    It follows that the applicant should succeed in the application.  A further matter agitated by the respondent at the hearing of the application is that in some way the applicant had misappropriated some of the property of the company, Boston.  This was in the form of a number of metal floor grates that had apparently been the property of Boston and were said to have gone missing from a locked container at Yatala.  In relation to this, the applicant points out that the remedy for any such misappropriation would be one for exercise by the liquidator of Boston rather than the respondent.  Secondly, what is apparently attempted to be relied upon in relation to this (paragraph 54 of Mr Belding’s affidavit) is hearsay, based on conversations with the liquidator, and of almost negligible evidentiary value.  It is also pointed out that the alleged misappropriation is not part of the pleadings.  In my view, this argument is, therefore, equally without substance.
32. [32]
    It follows that in my conclusion the respondent has at best fanciful prospects of success in the action and relief should be granted to the applicant.  Thus, there will be judgment in favour of the plaintiff in relation to its claim in the sum of $89,936.30. There will also be judgment for the applicant on the respondent’s counterclaim and the respondent is to pay the applicant’s costs of the proceeding on the standard basis.