AMTEL Limited v Melville Roofing (WA) Pty Ltd - [2005] WADC 34

JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CIVIL

LOCATION: PERTH

CITATION: AMTEL LIMITED -v- MELVILLE ROOFING (WA) PTY LTD [2005] WADC 34

CORAM: KENNEDY CJDC

HEARD: 24-26 NOVEMBER 2004

DELIVERED : 2 MARCH 2005

FILE NO/S: CIV 2663 of 1998

BETWEEN: AMTEL LIMITED
Plaintiff
AND
MELVILLE ROOFING (WA) PTY LTD
First Defendant
CAMPBELL LEIGH FAULDS
First Named Second Defendant
VALERIE VINCI
Second Named Second Defendant

Catchwords:

Guarantee - Allegation document not really a guarantee - Unconscionable conduct - Turns on its own facts

Legislation:

Nil

Result:

Judgment for the plaintiff against the first and second defendants in the sum of $68,938.85 with interest from the date of the issue of the writ at the rate of 6 per cent

Representation:

Counsel:

Plaintiff:     Mr I A Morison
First Defendant                :     No appearance
First Named Second Defendant      :     In person
Second Named Second Defendant   :     Mr I R Freeman

Solicitors:

Plaintiff:     Machlins Lawyers
First Defendant                :     Not applicable
First Named Second Defendant      :     Not applicable
Second Named Second Defendant   :     Phillips Fox

Case(s) referred to in judgment(s):

Garcia v National Australia Bank Ltd [1998] 194 CLR 395

Case(s) also cited:

Commercial Bank of Australia Ltd v Amadio (1982-1983) 151 CLR 447
Commonwealth Bank of Australia v Ridout Nominees Pty Ltd & Ors [2000] WASC 37
Daly v The Sydney Stock Exchange Ltd (1985-1986) 160 CLR 371
Dubois v Chee-Teong Ong [2004] QCA 185
State Bank of New South Wales Ltd v Chia (2000) 50 NSWLR 587
Yerkey v Jones (1938-1939) 63 CLR 649

KENNEDY CJDC: The plaintiff's claim is against the first defendant as purchaser and the second defendants as guarantors for the sum of $62,938.85, being the price of goods supplied by the plaintiff to the first defendant at the first defendant's request.
The first defendant is in liquidation and was unrepresented at the hearing. The hearing related to the alleged guarantee provided by the second defendants. The second defendants were, but are no longer, in a relationship. The first named second defendant ("Mr Faulds") acted for himself and the second named second defendant ("Ms Vinci") acted through counsel.
The amended papers for the Judge include a defence and counterclaim filed on 26 August 1998 for all defendants. They also include a defence for Ms Vinci but no defence for Mr Faulds. At the commencement of the hearing Mr Faulds said that he no longer relied on a set-off claim made by the first defendant in the sum of $42,000 and eventually led no evidence in relation to that. There was a further set-off claimed in relation to damages of $8,000 in relation to a delivery failure. This was pursued without much force and very little evidence, certainly insufficient to satisfy me on the probabilities. Ms Vinci led no evidence in relation to these matters.
The plaintiff's counsel was content for Mr Faulds to act for himself and to proceed even though no documentation had been filed but he did ask that the defence be reduced to writing and a written document was prepared by Mr Faulds during a brief adjournment.
Really there is no dispute that the plaintiff provided the first defendant with goods to the value claimed and payment has not bee made.
Mr Faulds said in effect that the guarantee was worthless from its inception and that he is therefore not bound by the guarantee. What he says is that the plaintiff knew that it was a worthless piece of paper when he signed it because he told them that he had no assets and he was never going to have any assets but he signed it with the plaintiff having full knowledge that he did not have means to pay and that he could not guarantee anything. The plaintiff told him it simply wanted to keep him interested.
Ms Vinci relies on a defence of unconscionability. The particulars of this defence are set out in pars 11 to 21 of Ms Vinci's defence.
Mr Faulds and his former wife, Mrs Susan Faulds, were both directors of a company called Melville Roofing Pty Ltd, a forerunner of the first defendant. That company was in the roofing business. Mrs Susan Faulds ran the office and Mr Faulds provided the trade skills.
That company appears to have been successful and it traded with the plaintiff. It was regarded as a good client by the plaintiff and was purchasing about $100,000 of goods a month.
In about 1996 the Faulds' marriage deteriorated and eventually Mrs Susan Faulds refused to continue to work in the office. Family Court proceedings were commenced. According to Mr Faulds another factor was greatly expanded competition in the roofing business. These factors caused Melville Roofing Pty Ltd to get into financial difficulty and fall behind in payment of its account with the plaintiff.
In 1996 Mr Faulds and Ms Vinci commenced a relationship and by early 1997 Ms Vinci was going into the office to help Mr Faulds. Some time prior to April 1997 they both went to see Mr Faulds' accountant. The accountant suggested that one way around the company's difficulties was to form a new company with Ms Vinci as the sole director. Mr Faulds would manage the new company and a fee would be paid to the old company for his services. In his evidence Mr Faulds said that the accountant advised Ms Vinci her assets could be at risk. In her evidence Ms Vinci agreed that she went to the meeting with the accountant who could have told her that her assets were at risk but she said she did not remember.
In the meantime on 31 March 1997 the plaintiff suspended Melville Roofing Pty Ltd credit facilities and advised that the company owed the plaintiff $46,022.15. According to the plaintiff's credit manager, Mr Steven Anderson, the company did that and would have done it in any event but Mr Faulds had in fact requested that it be closed. He had told Mr Anderson that he and his wife had separated and he was having trouble with his wife so he wanted to set up a new business with Valerie Vinci. Mr Anderson said that both Mr and Mrs Faulds had told him separately that the other was extravagant. At that time an appointment was made for Mr Faulds and Ms Vinci to see the credit manager.
The first defendant commenced business on 1 April 1997 with Ms Vinci as sole director.
On 2 April 1997 Mr Faulds and Ms Vinci attended upon Mr Anderson at the offices of the plaintiff. There is very little difference between what Mr Anderson and Mr Faulds say happened at that meeting. Insofar as there is a difference then generally I prefer the evidence of Mr Anderson. It is not that Mr Faulds is not an honest man but it is quite apparent that it is only now that Mr Faulds is recovering from the distress of his Family Court proceedings and a lot of what happened at that time does not appear to be clear to him. Furthermore, on occasions I thought he probably confused things he had said in the Family Court with things he has said in other places. So far as Ms Vinci is concerned, she claims to have very little memory of what occurred at the meeting and indeed very little memory of what was occurring at about this time. The only area where I would prefer the evidence of Mr Faulds is on the issue of who filled in Exhibit 5 and I will come to that shortly.
At the meeting with Mr Anderson, Mr Faulds explained again why he could not go on with the old company and that the advice they had was that it was best to start a new business in the name of Ms Vinci and that they wanted credit for that business. Mr Anderson pointed out to them that there was a pre-existing debt to be paid and that security had to be offered if there was to be continued trading. Ms Vinci said that she was prepared to give a guarantee. Mr Anderson told her that her assets would be at risk and she said that she knew that but she said she had every faith in Mr Faulds. Mr Anderson said it was quite a long discussion in which he took a list of assets from each of them.
There was a discussion about the assets that she had. There was then a discussion about Mr Faulds' assets. Mr Anderson denied that Mr Faulds said he would never have assets in his name again. He could not remember if Mr Faulds had actually said he had no assets but it soon became apparent that he had very little in the way of immediate assets available to him, however Mr Faulds had a boat. Mr Anderson was unaware that there was a Family Court injunction on the boat. Mr Faulds had money owed to the first company and he had a considerable earning capacity. His potential for earning money was very good indeed. Mr Anderson said that the first company frequently turned over a $100,000 a month and he assumed that the second company would replicate the business of the first company. He was told that the new company would take over ongoing contracts of the old company.
During the course of the discussions with Ms Vinci she said that Mr Faulds' former wife was an extravagant person, that she, Ms Vinci, would control the accounts and be the sole signatory to the cheque account. Indeed she gave him a cheque drawn on the new company for $11,000 towards the debt of the old company but did ask him to not present the cheque for some days.
So far as saying that he wanted to keep Mr Faulds interested, Mr Anderson said that he did not know if he used those words but as far as he was concerned Mr Faulds was the operative partner in the business but it was not the case that the guarantee was not really a guarantee at all.
During the course of that meeting it was agreed that while the new company would collect debts due to the old company the new company would forward that money to the plaintiff. The new company did indeed forward $46,000 to the plaintiff and that related to and was used for the debt of the old company and had nothing to do with the new debts incurred by the new company.
Mr Faulds said that the plaintiff wanted to keep him interested and he knew that without his signature the application would not be successful. However he says that he told them he had no money or assets and would never have another asset in his name again. Mr Anderson does not believe he said that he would never have assets in his name again and in any event Mr Anderson was relying on his proven ability to earn income, his proven work skills and the fact that he had a boat.
If Ms Vinci was suggesting in her evidence that the conversation with Mr Anderson was substantially limited to him telling her that she had to sign the document to help Mr Faulds and that it would be short term then I do not accept that. However, she did agree that she did say that she had complete trust in Mr Faulds and she admitted that she wanted Mr Anderson to give him the materials.
Exhibit 5 is a new account application signed by Ms Vinci on 2 April 1997. Mr Anderson believed that Ms Vinci filled in the form and signed it. Mr Faulds said that this was not so, the writing was his, and eventually Mr Anderson said it could be the case that Ms Vinci took the document but while they were talking Mr Faulds filled it in. It seems probable that Mr Faulds filled in the document but Ms Vinci signed it.
It was then necessary for Mr Anderson to put the application and the information he had before the management of the company and they agreed to a credit facility as specified.
Mr Faulds said that when they left the meeting of 2 April 1997 Ms Vinci said to him "You're not going to lose my house for me, are you?" He said that he assured her he would not.
Then the defendant ordered goods before the guarantee was actually signed. As a result Mr Anderson took the guarantee to the office of the first defendant. It was signed by both of the second defendants. Mr Anderson again said that signing the guarantee was placing personal assets at risk. He asked Ms Vinci if she understood what the guarantee was and she confirmed that she did. He admitted that he did not take her in detail to her obligations under the guarantee and did not at that time advise her to seek legal advice. He agreed in cross-examination that the guarantee was a complex document and he did not take any steps to test her knowledge of the guarantee, nor did he ever telephone her to ensure that she was happy with the guarantee.
The Deed of Guarantee is Exhibit 4 and was signed on 9 April 1997.
On 16 April 1997 Mr Anderson wrote to both Mr Faulds and Ms Vinci in separate letters which, omitting formal parts, says:
"Enclosed is a copy of the Deed of Guarantee and indemnity that you signed on the 9^th of April 1997.
Please read the document carefully and have any points on which you are unclear explained to you by your solicitors or accountants.
As the document is complex and puts your personal assets at risk, we feel you should seek advice so that you fully understand its implications.
If we have not heard from you by the 24^th of April 1997 we will assume all is in order and proceed to register the document."
By registering the document Mr Anderson meant having it stamped. Plainly in his mind it was not binding on them until it was "registered" to use his term. He did not have the document stamped until 6 May 1997.
Mr Faulds concedes that he received his copy of this letter but Ms Vinci says that she did not receive her copy, however she did see Mr Faulds' copy. I find it difficult to accept that she did not receive her copy. The letters are identical and are sent to the same address except that one of them is addressed to Mr Campbell Faulds and the other to Ms Valerie Vinci. In any event Ms Vinci saw Mr Faulds' copy of the letter.
Mr Faulds conceded that he had been advised to get legal advice and he said that he did ring a few solicitors but he did not tell Ms Vinci to get legal advice.
Ms Vinci said that she did not really think about her responsibilities under the guarantee. She did not understand the legalities and did not realise what was happening.
Mr Anderson said that he spoke to Ms Vinci many times on the telephone or at the office over the 12 months the account ran. When he called at the office he usually spoke to Ms Vinci. She gave him money and he spoke to both of them about money that was owing. On one occasion Ms Vinci said that they would put a purchase on her credit card and she faxed him details of her credit card and that fax is Exhibit 9.
Mr Faulds agreed that Ms Vinci answered the phones, kept appointments, did the book work, delivered materials and did banking. He said that at the time he believed she knew what she was doing but now he does not think so. However, he agreed she thought her house was at risk.
During the course of cross-examination a matter was raised which does not seem to me to be directly relevant to the issue but in Mr Faulds' mind it is a motivation for Mr Anderson seeking to have him sign a guarantee. I will therefore deal with this matter to a limited extent. I point out though, that as long as Mr Anderson had him sign a document which is a guarantee and they knew at the time that it was a guarantee and intended it to be a guarantee, that is all that the plaintiff must prove. If Mr Anderson had some other motivation as well it would not make any difference.
It seems that at some stage the plaintiff had a guarantee in place for the first company. That guarantee was lost. Mr and Mrs Faulds were asked to sign a subsequent guarantee but they never did. Mrs Faulds actually gave this evidence. It transpires that that all occurred before Mr Anderson became credit manager. Mr Anderson was unaware that they had ever signed a guarantee and he never asked them to sign a guarantee. He said that what they had during his time was a trade bill facility but that was eventually cancelled by the finance company because of defaults. All Mr Anderson knew of any security being asked for was that the finance company said that they would not reinstate the trade bill facility unless there was security put in place over property.
I accept that Mr and Mrs Faulds were not aware of this facility or the legalities of it. However, there is no doubt on the documentation that it existed and I accept Mr Anderson's evidence in that regard.
The guarantee the second defendants signed is no replacement for any lost guarantee. If the earlier guarantee existed it guaranteed the debt of the old company. The new guarantee only guaranteed the debt of the new company.
So far as Mr Faulds is concerned, he really has no defence to this matter. I accept the evidence of Mr Anderson. This was a guarantee. Mr Faulds knew it was a guarantee and he knew that the plaintiff would not give the first defendant credit unless he signed the guarantee. As a litigant in person, Mr Faulds behaved very well indeed. I am sure that he is an intelligent man and very good at his business but his experiences in the Family Court (and this should not be taken as any criticism by me of the Family Court) have caused him to be unreasonable about this matter. The reality is that the plaintiff lent him money. He needed it to lend him money and it sold him goods to the value that it now seeks from him and it is perfectly reasonable for it to do that and it would be perfectly reasonable and proper for him to pay.
Turning now to Ms Vinci it is difficult not to be sympathetic with the plight in which she now finds herself. However, that does not necessarily translate into a legal defence to this matter and the reality is that it is my finding that the plaintiff dealt with her in good faith and they provided the material and would not have provided the material had this document not been signed by her. Those matters of course are not necessarily an answer to her defence.
So far as Ms Vinci is concerned her background has some relevance to her defence. She has three children, two of whom have disabilities. She was educated to year 10 and worked as an office girl in a union office for seven or eight years. She left when she had children. When her marriage broke down she became a nursing aid and then worked as a checkout assistant at Coles. She met Mr Faulds in 1996. A relationship started and he asked her to help in the office of his company which she did.
While she was working in the company people were always ringing asking for money and Mr Faulds was in a bad way worrying about the matter. So she knew the state of the business. He then asked her if she could help out and she said she would.
She agreed that she had a meeting with the accountants and with Mr Anderson but she claims to have very little memory of what occurred and did not think about her responsibilities under the guarantees and did not understand the legalities of the matter.
I accept Mr Anderson's evidence in relation to this meeting and I also take into account that Ms Vinci had previously been to an accountant and when she came to Mr Anderson the plans had already been made. Furthermore, over the 12 months that the account ran she worked in this business on a regular basis. She took out of it what little income was available. I do not suggest from that that they lived well during this time. She had her own home rented out and they paid rent in another property and occasionally personal items were paid out of the business account.
Mr Anderson explained to her on two occasions that her assets were at risk and before she signed the guarantee she said to Mr Faulds "You won't let me lose my house, will you?" which clearly indicates that she knew exactly the risk that she was taking.
In his final address counsel for Ms Vinci expressly disclaimed any reliance on undue influence by Mr Faulds and while there were passing references to reassurances that Mr Faulds had given Ms Vinci, there was no evidence upon which I could make a finding in that regard. Certainly one would think that Mr Faulds would consider that he had a moral obligation to this woman to assist her in all the circumstances but that is a different matter from a pleading and evidence or a reliance on undue influence by Mr Faulds which could be answered by the plaintiff or Mr Faulds.

Ms Vinci relied on Garcia v National Australia Bank Ltd [1998] 194 CLR 395. In Garcia at 404 the majority of the High Court said:
"So far as Yerkey v Jones [(1939) 63 CLR 649] proceeded on the basis of the earlier decision of Cussen J in Bank of Victoria Ltd v Mueller ([1925] VLR 642), it is based on trust and confidence, in the ordinary sense of those words, between marriage partners. The marriage relationship is such that one, often the woman, may well leave many, perhaps all, business judgments to the other spouse. ...
It may be that the principles applied in Yerkey v Jones will find application to other relationships more common now than was the case in 1939 – to long term and publicly declared relationships short of marriage between members of the same or of opposite sex – but that is not a question that falls for decision in this case. ..."
It was not argued before me that any principles that may assist Ms Vinci from that case should not apply to her because she and Mr Faulds were not married.
The headnote in Garcia provides as follows:
"(1)In circumstances where there was no actual undue influence by a husband, it would nonetheless be unconscionable for a creditor to enforce a guarantee against a wife when (a) the wife did not understand the purport and effect of the transaction; (b) the transaction was voluntary, in the sense that the wife obtained no gain from the contract the performance of which was guaranteed; (c) the creditor is to be taken to have understood that the wife may repose trust and confidence in her husband in matters of business and therefore to have understood that the husband may not fully and accurately explain the purport and effect of the transaction to the wife; and (d) the creditor nonetheless did not take steps to explain the transaction to the wife or find out that a stranger had explained it to her."
Ms Vinci's counsel seeks to bring her within this. His immediate difficulty is the evidence which I accept that when she left the office after speaking to Mr Anderson she asked Mr Faulds for assurances that she would not lose her house and he gave her those assurances. She knew the risk she was taking was the risk of losing her house. Furthermore, Mr Anderson explained to her on two occasions that her assets were at risk. She herself said she had several meetings with the accountants and certainly she had one prior to the meeting with Mr Anderson.
The transaction cannot be said to have been voluntary. She was the only director and shareholder of the company and sole signatory to the cheque account. Had this company been successful then she would have stood to gain substantially.
It was never explained to me why the second company failed. It is plainly mixed up with the situation in the Family Court, presumably the competition that Mr Faulds referred to in relation to the earlier company but other than that I have no information as to why the second company failed and why the relationship between Mr Faulds and Ms Vinci failed.
In an affidavit filed in the Family Court, Ms Vinci said at par 9:
"Mr Faulds and I both attended the firm accountant Rita Agostino at GT Lean & Associates and she suggested that one way to keep going would be if a new company was set up in my name alone with my real estate as security. This company could then secure its own overdraft and employ the existing company to carry out the contracts paying a management fee which could be used to reduce the indebtedness to the bank. At the same time to keep the trade creditors at bay the new company would lend the old company enough money to pay off its existing creditors. I agreed to this and set up the new company Melville Roofing WA Pty Ltd which I managed on a full time basis. This company is approached by the people who wish to use it's services. The work is actually carried out by our subcontractors and the services of Mr Faulds are contracted to us by Melville Roofing Pty Ltd. For those services Melville Roofing WA Pty Ltd pays Melville Roofing Pty Ltd a management fee of $40,000.00 per annum. This management fee is paid in the first instance by my company meeting the interest and other payments due on the bank loans to Melville Roofing Pty Ltd by way of an advance to that company and these payments are then offset against the management fees which are earned. No wage is paid by my company directly to Mr Faulds."
It is quite true that Mr Anderson understood that Ms Vinci reposed trust and confidence in Mr Faulds. However, so far as him not explaining matters accurately to her the matters that were of relevance were discussed with her and in her presence by Mr Anderson. She knew that there was a debt to the previous company which had to be repaid and about that Ms Vinci really put the blame on Mrs Faulds for the situation and said that henceforth she would have control of the accounts and be the sole signatory to the cheques. The previous company had traded well until, as Mr Anderson understood, there were matrimonial problems and there was no reason to suspect that the new company which would really be a substitute for the old company would not trade in the same way.
It is certainly the case that he explained to her that her assets were at risk and that he did that on at least two occasions and Mr Faulds thought the accountants had also done it as well and it is clear from her conversation with Mr Faulds that she knew her assets were at risk.
Mr Freeman sought to argue that Mr Anderson had not gone through all the other parts of the guarantee with Ms Vinci and therefore saying that she knew her assets were at risk was not sufficient. In all the circumstances of this particular case it seems to me to be more than sufficient.
So far as the clause in the guarantee that says she had had legal advice, the plaintiff does not seek to rely on that and say that she has signed that she had had legal advice and therefore she must have had legal advice. What Mr Anderson said was that the guarantee had to be signed in a hurry because they ordered goods before it was in place. Subsequently he wrote to them suggesting that they get legal advice and indicating in effect that they would not be bound by the guarantee for a period of time. That was how Mr Anderson obviously understood the agreement and would have interpreted it even though on its face that is not the situation but if the document was read together with the letter then quite clearly they had a period of time to seek legal advice.
For these reasons there will be judgment against the defendants in the sum claimed.