CBFC v Austin

[1999] NSWSC 1025

CITATION:	CBFC v Austin [1999] NSWSC 1025
CURRENT JURISDICTION:	Common Law
FILE NUMBER(S):	11609/1994
HEARING DATE(S):	16-20 August 1999 20 September 1999
JUDGMENT DATE:	13 October 1999
PARTIES :	CBFC Limited (Plaintiff) v Kenneth James Austin (First Defendant) Diane Christina Austin (Second Defendant)
JUDGMENT OF:	Master Malpass

COUNSEL :	MR R Forster SC (Plaintiff) N/A (First Defendant) N/A (Second Defendant)
SOLICITORS:	Minter Ellison (Plaintiff) (First Defendant) - In person on his own behalf and on behalf of the Second Defendant)
CATCHWORDS:	Claim for judgment for possession and in a monetary sum; default under guarantee; mortgage and hire purchase agreement; various defences and cross-claims; no question of principle.
ACTS CITED:	Contracts Review Act 1980, s 7. Real Property Act 1900, s 57 (2) (b).
CASES CITED:	Lacey v Bank of New Zealand (Court of Appeal, unreported, 5 December 1997). Modderno v ANZ Bank (1999) NSWCA 13. Nguyen v Taylor (1992) 27 NSWLR 48. Younan & Anor v Beneficial Finance Corporation Limited (Court of Appeal, unreported, 21 November 1994).
DECISION:	See paragraphs 59 - 61.

THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISION

MASTER MALPASS

WEDNESDAY 13 OCTOBER 1999

11609/1994 CBFC LIMITED v KENNETH JAMES AUSTIN & DIANE CHRISTINA AUSTIN

JUDGMENT


1   These proceedings were commenced in 1994. The plaintiff’s case is as pleaded in the Amended Statement of Claim filed on 4 March 1996. The defendants both defend the plaintiff’s claim and bring their own Cross-claim. The pleading relied on at the trial is the Further Amended Defence and Cross-claim filed on 4 May 1995. It was filed by solicitors who had acted for the defendants earlier in the proceedings.

2   The hearing commenced on 16 August 1999. It concluded on 20 September 1999 (at the end of about six hearing days). The plaintiff has been represented by counsel. Both defendants are unrepresented. They are husband and wife. The second defendant (being the wife) has authorised the first defendant (being the husband) to conduct the case on her behalf. Without objection, the first defendant has in fact put the case on behalf of both defendants. This course was not without its problems. I shall return to one aspect in due course.

3   In presenting its case in chief, the plaintiff has relied on two affidavits. The first was sworn by Mr Huggins and the second was sworn by Mr Akhurst. Both deponents have been cross-examined.

4   The defendants have relied on a number of affidavits. These affidavits were relied on in support of both their Defence and the Cross-claim. Both defendants were cross-examined.

5   The parties have placed a formidable body of documentation before the court. In due course, I will make express reference to some of this material.

6   By way of reply and defence to the Cross-claim, the plaintiff relied on affidavits sworn by Messrs Barton, Jongeneelen and Moody. All of these deponents were cross-examined at length.

7   The defendants have been directors of Australian Padding Company Pty Limited (APC) and other corporations. They were shareholders in APC. In about October 1987, it had acquired the business and assets of Australian Cotton Manufacturing Company Limited for $2,000,000. On 20 November 1987 APC granted a Mortgage Debenture in favour of the Australia & New Zealand Banking Group Limited (ANZ). APC then needed finance to acquire the business and assets of “Upholstery & Wadding Supplies”. Westpac, who had been the banker for APC, was unresponsive to a request for a loan facility for this purpose. ANZ then became its banker.

8   On 31 January 1991, APC and Gelman Sciences Pty Ltd (Gelman) entered into an Asset Sale And Purchase Agreement (which the first defendant describes as the purchase of a non-woven production plant). The price was $792,000. Mr Moody was engaged to obtain finance for APC. He was a director of Moody Kiddell & Partners Pty limited (Lease, Finance and Mortgage Brokers). An approach was made to the plaintiff. A formal offer to provide finance made by the plaintiff was accepted (a resolution was passed at a meeting of directors held on 15 March 1991). The financial arrangements involved inter alia the defendants giving both a personal guarantee and a mortgage over a property now known as 51 Cummins Road Menangle Park (the property) to secure that guarantee. APC was to enter into a Hire Purchase Agreement.

9   At a meeting of directors held on 2 April 1991, it was resolved that the Hire Purchase Agreement be signed under the Common Seal. The Common Seal was affixed and it was signed by the defendants at the meeting. The guarantee (Exhibit A) was executed on the same day. On 5 April 1991 the mortgage was executed. The Asset Sale And Purchase Agreement was completed on 9 April 1991. The plant acquired from Gelman was located at Lot 2, Stonney Batter Road, Minto and APC operated a leased factory on those premises.

10   On 30 September 1992, ANZ appointed Mr Royal as Receiver to APC’s assets and undertakings. On 9 October 1992, APC failed to make an instalment under the Hire Purchase Agreement. On 9 November 1992, APC failed to make a further instalment under the Hire Purchase Agreement. The Hire Purchase Agreement was terminated on 25 November 1992. (by then it had paid 17 of the 59 monthly instalments). Subsequently, APC went into liquidation.

11 The plaintiff sold encumbered plant and equipment to Insulco Pty Limited (Insulco). The net proceeds of the sale left a shortfall. On 25 June 1993, demand was made under the guarantee. On 28 March 1994, s 57 (2) (b) notices under the provisions of the Real Property Act 1900 were served. The plaintiff’s claim has been recently the subject of an estimate in the order of $543,000. However, this is subject to a credit adjustment which the plaintiff (without conceding that the defendants have an entitlement to such adjustment) is prepared to allow. A judgment in the order of $493,000 is now sought. No payment has been made by the defendants. They take the view that if certain things had been done there would not have been any debt owed to the plaintiff.

12   I closely observed the demeanour of witnesses during the giving of oral evidence. In assessing credibility I have had regard to both evidence and demeanour.

13   The evidence given by Messrs Huggins and Akhurst was largely formal. An attack was made on the credibility of each of Messrs Barton, Jongeneelen and Moody. Largely, their evidence was unshaken. Mr Barton is a chartered accountant now employed by Pioneer USA Inc. He is now based overseas. He was required to return to Australia to give evidence in this case. I shall return to his evidence later in this judgment. Both Messrs Jongeneelen (a former employee of APC) and Moody were impressive witnesses. I accept them as credible and reliable witnesses. In particular, Mr Moody’s evidence demolished many of the red herrings which the defendants had sought to raise throughout the hearing. The defendants devoted much time to propounding the assertion that Mr Moody had been engaged by and was the agent of the plaintiff. This assertion was completely unfounded. There was overwhelming evidence to the contrary. Further there was evidence that he had acted in a similar capacity on previous occasions.

14   The first defendant was disposed at times to take an aggressive stance. He was accustomed to the role of Chairman of the Board of Directors and Managing Director. His wife says that he “has always had a dominant personality”. There is conflict between his evidence and that given by others. At times, his evidence was inaccurate. He was disposed to persist with assertions which must have been known to him to be untrue. He appeared to be concerned to throw up as much doubt and confusion as possible without directing his mind to the crucial consideration of whether or not the attack really assisted the defendants’ cause. He has given evidence that I do not accept.

15   The defendants were married in 1985. The second defendant says that since the marriage, she has been guided and advised by her husband. She has worked in various clerical and stenographic jobs (including with APC). Her employment was terminated by the Receiver in November 1992. She was a director of APC until 3 December 1992.

16   There was a lengthy cross-examination of the second defendant. Unfortunately, she presented as an evasive witness who persisted with a reluctance to give responsive answers to questions. This characteristic necessitated a repetition of questioning (sometimes it was necessary to ask the same or a similar question on a number of occasions). She has given evidence that I do not accept.

17   Her evidence in chief is to be found principally in the affidavit sworn on 20 June 1995. Largely, it deposes to matters relied on in support of a claim made pursuant to the Contracts Review Act 1980 (the Act). It seeks to present a picture of a wife who did what she was instructed to do by her husband. The affidavit contained inter alia the following:-
“On the business side of things, my husband instructed me to sign various lease agreements, hire purchase agreements and mortgages. My husband always told me to make myself available at a specified time and date to sign any such documents. I recall questioning this at some early stage, but I was told ‘If you don’t sign them, then I’ll get someone who will.’ In order to keep the peace within both my business life and my married life, I simply did as I was told and signed as instructed. It was always just a formality. I understood business was good, and prospects were good and never in my wildest dreams did I ever envisage that any one of these guarantees would ever be called up and I would be reduced to the sorry state I am in today. As a result, a number of guarantees were signed with my husband, Kenneth James Austin, and the parent, Glenora, when APC purchased cars, trucks and forklifts over a period of about five years from about July 1987 to some time before the 30 September 1992. Some of these were hire purchase agreements and some were leasing agreements. I do not have the details or records of these.”

18   At this point, it is convenient to briefly digress to deal with a related matter. This affidavit material threw up a potential conflict between her position and that of her husband (who was acting on her written authority to present her case). Further, this evidence cast doubt on the authority. She was made aware of the position and given an opportunity to seek independent legal advice. She declined that opportunity and informed the court that she wanted to proceed with the existing arrangements.

19   As both defendants have advanced a claim for relief under the Act, at this stage it is convenient to deal with those claims. I shall first deal with the wife’s claim.

20   There is no doubt that she knew that she had signed both a mortgage over the property and a personal guarantee. She had participated in the conduct of the meetings during which execution had taken place.

21   The contents of the affidavit do not suggest that she did not understand the effect of the documents signed by her (including documents such as mortgages and personal guarantees). It does reveal that previously she had been a party to various security documents (including mortgages and personal guarantees). A mortgage had been given to ANZ to enable the purchase of the property. A further mortgage had been given to ANZ over their home at Minto Heights. This was part of the collateral security given to ANZ for advances provided by it.

22   Initially in her cross-examination, she appeared to give the impression that she lacked understanding of the documents signed by her. Later she appeared to have moved to the position where she accepted that she did have understanding of documents signed by her. Even later she gave expression to a belief or understanding which differed from the actual effect of the security documents (a belief or understanding that the plaintiff should first pursue its rights against APC). This evidence was not impressive and I do not accept it. Further, it should be added that it was not said that the plaintiff bore any responsibility for her having such a belief or understanding. I am not satisfied that she lacked understanding as to the effect of the documents signed by her.

23   She had been a director of various companies (including APC and Glenora). It appears that the minutes of meetings of directors were not mere formalities but in fact recorded what actually happened at each meeting. She took notes during the meetings and prepared the minutes for signature by her husband (including the relevant meetings at which consideration was given to the matters of the mortgage and guarantee). There was a procedure which was followed where the execution of documents was to take place. Documents were either executed during or after the holding of the meeting.

24   In cross-examination, she conceded that she was prepared to leave it to her husband to make business decisions for both of them, and that she was content to do whatever he wanted her to do. She conceded that she would not do anything that she did not want to do. Also, she said that she signed documents because she saw it as being in her best interests to do so.

25   It appears that Mr Elvy of Henry Davis York had acted for both the Austin family and the companies over many years. He was employed in relation to the Gelman transaction. He was available to give any advice that may have been required by the Austins. If they did not get any advice from him concerning the transaction, it may well be that this was because they did not consider that any advice was necessary.

26   The property is not the home of the defendants. It was regarded as an investment. The first defendant had referred to it as their “Superannuation Fund”.

27   The relevant documentation was in standard form. Reference has been made to certain provisions (including Memorandum R361020). I am not satisfied that any of these provisions gave rise to injustice.

28   Whilst the challenge to this documentation occupied some considerable hearing time, the real thrust of the defendants’ complaints seemed to be largely directed at the aftermath of default and what was done by the plaintiff and ANZ in realising security. This aspect of the case generated the attack made in relation to the Hire Purchase Agreement.

29   The reasons for default being made both to ANZ and to the plaintiff appear to relate to poor business performance on the part of APC in circumstances where it became financially over-committed. It operated a number of factories both in NSW and Victoria. One of them (the factory located at Minto) had been operating at a loss for some time. It is not suggested that the default arose because of anything done by the plaintiff.

30 Section 7 of the Act confers a discretion on the court to grant any one or more of the heads of relief identified therein where it finds that certain threshold requirements have been satisfied (inter alia, where it finds a contract to have been unjust in the circumstances relating to it at the time it was made). See Nguyen v Taylor (1992) 27 NSWLR 48 at 55-57 and 71-72 and Younan & Anor v Beneficial Finance Corporation Limited (Court of Appeal, unreported, 21 November 1994). It may grant relief if it considers it just to do so and for the purpose of avoiding as far as practicable an unjust consequence or result.

31   I have had regard to all of the material advanced on behalf of the second defendant. In my view, she falls well short of satisfying the relevant threshold requirements and/or demonstrating an entitlement to relief.

32   The claim advanced on behalf of the first defendant is clearly hopeless. Largely, this was recognised by him during the conduct of the case. He was an experienced businessman who had been involved in a number of large transactions. He had been engaged in the raising of finance on previous occasions. He had been a party to many security documents. I am satisfied that he understood the nature and effect of both a mortgage and personal guarantee. Such evidence as he may have given to the contrary, I do not accept. In the course of the presentation of the case, he unwittingly described himself as “an experienced company director” (Transcript p 216). He had access to legal advice. He entered into the purchase from Gelman for what he regarded as very good business reasons (“it was like winning Lotto”).

33   I shall now deal with one of the other areas of Defence and/or Cross-claim. It is a discrete matter. It has been referred to as the “longfall” claim. It involves what was done in relation to three other Hire Purchase Agreements. These agreements dealt with the hiring of several forklifts and trucks. Mr Royal as Receiver for ANZ exercised the rights of the hirer under the agreements (rights of election pursuant to clause 5). The amounts owing to the plaintiff under each of the agreements were paid out and title to the assets passed to APC. APC subsequently sold the assets. The sale was said to produce a profit or surplus of $133,972.

34   The defendants contend that the amount of the surplus should be set-off against any amounts then owing by APC to the plaintiff under the subject Hire Purchase Agreement. At one stage of the proceedings, it was said that this argument was founded on the principle of marshalling. It was never really explained how the principle had application in the circumstances of this case. In my view, this contention is misconceived and should be rejected.

35   I shall now move to other areas of complaint which appear to emerge largely from the pleadings and were the subject of submissions. Other areas of complaint were raised from time to time during the hearing. However, these matters were not pleaded and/or the subject of supporting evidence. In any event, they did not give rise to any good Defence or Cross-claim.

36   One of the matters fervently agitated at length by the defendants during the hearing related to the execution and content of the Hire Purchase Agreement. The plaintiff has contended that the original is the document which is Exhibit C. The defendants propounded a contrary view. It was said that this document was suspect and not genuine. In endeavouring to establish that view the authenticity of the document was sought to be challenged in a variety of ways. For reasons I shall shortly give, it was not an exercise which could have assisted the defence of the plaintiff’s claim.

37   The case for the defendants rested largely on a document which was said to come into their possession at a time well after 2 April 1991. The defendants look to this document as being the Hire Purchase Agreement. This was really a pointless exercise, as the description of goods in all of the versions of the agreement (including the description contained in this document) were substantially similar. None of them included the spare parts. A copy of the document is Annexure A to the affidavit sworn by the first defendant on 4 November 1994. The defendants never did give a satisfactory account of how the document came into their possession. Initially the first defendant said that it came into his possession when a request was made to the plaintiff for a copy of the Hire Purchase Agreement. He later changed his stance and said that it was provided to him by Mr Moody. Mr Moody vigorously denies that suggestion and I accept his evidence on that matter. In the course of his evidence, Mr Moody provided an explanation for the coming into being of that document (an unexplained combination which came from various of the documents). The explanation was persuasive.

38   I now mention some of the ways in which the defendants sought to cast doubt on the authenticity of Exhibit C. The defendants have raised doubt as to whether or not their signatures appear on Exhibit C. The evidence given to that effect was unimpressive. It was not supported by any expert evidence. It was contrary to the evidence given by Mr Moody. The defendants raised doubt concerning the signature of Mr Staras (the Company Secretary at the time). There is evidence which suggests that Mr Staras was available to give evidence if required to do so. He was not called by the defendants to deal with this question. The minutes of the meeting of directors have been signed by the first defendant. Those minutes record that Mr Staras was present at the meeting. The defendants sought to make much of other minor discrepancies in form in the various versions. In my view these discrepancies have been explained and do not assist the defendants.

39   I may add that it seems absurd to suggest that the plaintiff engaged in an exercise of creating a document which in fact had the effect of giving it less security than it could have otherwise had (security over the spare parts as well). In my view, the suggestions made by the defendants are of no substance and lack significance.

40   I accept the evidence given by Mr Moody relating to the Hire Purchase Agreement. It was a document that he had prepared. There were in fact two originals (one of which was Exhibit C). He was present when execution took place at a meeting of directors of APC. He took the documents from the meeting and gave them to the plaintiff. He made a photocopy of one of the originals (Exhibit F).

41   The subject matter of the Asset Sale And Purchase Agreement included both equipment and spare parts. The plant and equipment was identified by schedules to the agreement.

42   The Hire Purchase Agreement had a schedule attached (Schedule B). There was no Schedule A (Mr Moody had prepared a Schedule A but it became the Schedule to an Authority to Complete). The Hire Purchase Agreement was in the standard form used by the plaintiff. The standard form did not contemplate the use of a schedule to describe the subject goods. Schedule B was similar to Schedule 2 to the Asset Sale And Purchase Agreement. In essence, it described the plant and equipment which has been described as the “non-woven production line”. Those items were part of the subject matter of a valuation prepared by Hymans. Schedule B did not contain the spare parts described in Schedule 3 to the Asset Sale And Purchase Agreement.

43   The defendants seek to mount a claim in relation to the spare parts. Both the nature of the claim itself and the basis upon which it was put was somewhat clouded. This aspect of the defendants’ case was referred to as the Misallocated Goods Claim.

44   It may be that it was sought to put a contention that the spare parts were “goods” within the meaning of the Hire Purchase Agreement. If that was the position, it was not a case that was pleaded. For a reason that was not made clear, it was said that they should have been made the subject of that agreement (and as a consequence the plaintiff gave away assets). There was a contention that there was negligence on the part of the plaintiff in failing to list them in the schedule.

45   If this ultimate contention is founded on the premise of a duty owed to a guarantor, the authorities make it clear that only a wilful act or neglect can absolve the surety ( Modderno v ANZ Bank (1999) NSWCA 13). The presence of these ingredients was not demonstrated in this case.

46   The spare parts were sold by the Receiver to Insulco and the proceeds of the sale applied to satisfy the indebtedness of ANZ. The defendants say that they should have had the benefit of those proceeds and that they should have been set off against the plaintiff’s claim.

47   Whilst the various contentions involved in this part of the defendants’ case were not the subject of any real argument, I am satisfied that there is no substance in any of them. I am satisfied that Exhibit C is an original of the Hire Purchase Agreement executed on 2 April 1991. Whatever may have brought about the situation, I am satisfied that the Hire Purchase Agreement did not cover the spare parts. Accordingly, the spare parts were not the subject of any security held by the plaintiff. I am not satisfied that there is any basis for the court reaching a view that they should have formed part of the encumbered goods. I am not satisfied that there was any breach of a duty of care. In my view, the Misallocated Goods Claim fails.

48   The defendants also claim that the plant and equipment (which was the subject of the Hire Purchase Agreement) was sold at an undervalue. Leaving aside any other considerations, this claim was doomed to failure by reason of evidentiary deficiencies.

49   The sale to Insulco had two distinct aspects. Firstly, there was the sale of the encumbered plant and equipment by the plaintiff (this was listed in Schedule 2 to the agreement and was largely the goods in the Hire Purchase Agreement (subject to a small discrepancy relating to 3 specific items) ). This property was sold for the sum of $405,000. Secondly, there was a sale by APC (by the Receiver) of balance plant, equipment etc (including the spare parts) which was listed in Schedule 1. This property was disposed of for a separate consideration ($195,000).

50   The steps taken to effect the sale (such as extensive advertising) may be found in the affidavit sworn by Mr Barton (who was an employee of Mr Royal). The affidavit is redolent with detail and it is not necessary to repeat it in this judgment. In cross-examination this evidence was not the subject of any real challenge. I accept his evidence on these matters.

51   I should digress to mention that the defendants complain that they were not allowed sufficient involvement in the sale process. They were permitted some involvement. However, it was clearly well below what the defendants required.

52   Be that as it may, there was no obligation to permit the defendants to have the conduct of the sale or even be involved in it. I am not satisfied that this complaint in any way advances the defendants’ case.

53   Evidence of value may be found in a valuation made by Grey Eisdell Timms Pty Limited (GET) dated 6 October 1992. This valuation had been obtained by Mr Barton. GET valued the goods on two bases. One was referred to as a “going concern” basis. The other was referred to as an “auction value”. The goods were valued on a “going concern” basis at $541,300. The goods were valued on an “auction value” basis at $89,150.

54   The substance of the defendants’ complaint seems to be that the goods were sold at a price below the “going concern” basis. The problem for the defendants is that the goods were not sold on that basis. Mr Barton had formed the view that the Minto operations were not a viable going concern and were not capable of being sold on such a basis in the light of the past poor financial performance. In his view a sale as a complete unit (without substantial removal expenses and auctioneer’s costs) would realise a higher value than GET’s auction valuation. Mr Royal concurred with a recommendation to that effect. This was the basis of the subsequent sale (which was completed on 26 November 1992). The price realised was in fact substantially above the auction value.

55   At the time of the sale, the obligations imposed at law upon the owner under a Hire Purchase Agreement was that it was obliged to act in good faith and was not to wilfully or recklessly sacrifice the interest of the hirer (see inter alia Lacey v Bank of New Zealand (Court of Appeal, unreported, 5 December 1997) ). Under clause 3 of the Hire Purchase Agreement, the plaintiff’s entitlement is calculated by reference to a formula. One component of that formula is “the value of goods” which is defined as “the best price that could reasonably be obtained ………….at the date of termination”. For the purposes of these proceedings, the plaintiff accepts that it is obliged to give credit to the defendants for an amount equal to such “best price”.

56   In relation to this aspect of the defendants’ case, they bear the relevant onus. I am not satisfied that this onus has been discharged. In my view, Mr Barton did get the best price that could reasonably be obtained in the sense required by the Hire Purchase Agreement. There was no wilful or reckless sacrifice or lack of good faith. Accordingly, the complaint as to a sale at an undervalue also fails.

57   This aspect of the defendants’ case did generate other contentions. It was contended that duties of care were owed by the plaintiff and that there had been breach of those duties. The matter of the existence of any such duties was not really argued. It involves questions that need not be pursued in this case. Largely, the alleged duties were similar to the obligations accepted by the plaintiff.

58   There was a challenge to the calculation of the amount of rebate for credit charges. The evidence as to calculation was provided by Mr Akhurst. Unfortunately for the defendants, I am of the view that this challenge is also unsuccessful. It was founded on certain misconceptions (including an erroneous assumption as to termination date).

59   In my view, the various matters raised by the defendants either by way of Defence or Cross-claim have failed. The plaintiff has established a case for judgment both for possession and in a monetary sum. The plaintiff is entitled to an order for the costs of the proceedings. The exhibits may be returned.

60   The plaintiff seeks leave for the issue of a Writ of Possession. This may be the subject of further argument and can be dealt with at a convenient time.

61   The plaintiff is to prepare Short Minutes of Order.
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Last Modified: 10/13/1999