Cellnet v. Kong & Huang

[2007] QDC 5

DISTRICT COURT OF QUEENSLAND

CITATION:

Cellnet v Kong & Huang [2007] QDC 005

PARTIES:

CELLNET GROUP LIMITED
Plaintiff
v
FAN-MIN (MICHAEL) KONG
First Defendant
and
QIONG YAN HUANG
Second Defendant

FILE NO:

BD502 of 2005

DIVISION:

Civil

PROCEEDING:

ORIGINATING COURT:

District Court

DELIVERED ON:

31 January 2007

DELIVERED AT:

Brisbane

HEARING DATE:

24 January 2007

JUDGE:

Skoien SJDC

ORDER:

Judgment for plaintiff against second defendant

CATCHWORDS:

Action on guarantee; plea of non est factum; onus of proof

COUNSEL:

Mr Coulsen for appellant

Mr Nguyen for respondent

SOLICITORS:

Morgan Conley for plaintiff

Southside Solicitors for second defendant

1. This is an action on a guarantee by which Cellnet seeks to recover $56,495.43, being the price of goods sold and delivered by it to First Technology Cooperation Pty Ltd (“FTC”).  The defendants were, at material times, directors of FTC.

1. The first defendant Kong is bankrupt and the action against him is thereby stayed.  The second defendant, Mrs Huang, admits the sale and delivery, that the claimed sum is owed to Cellnet by FTC and that she signed a document which in fact guaranteed the payment of that sum by Kong and her jointly and severally.  However she sets up the defence of “non est factum”.

The Evidence

1. An agreed book of documents was tendered as exhibit 1.  The sole witness called was Mrs Huang.  In short her evidence was that:-

(a)        She came to Australia from the Republic of China in 1997;

(b)        Her native tongue is Cantonese;

(c)        She is effectively unable to speak, write or read English;

(d)        She was a director of FCT when she signed the guarantee on 25 June 2004;

(e)        Her duties with FCT were related to dealings with China; Kong handled the Australian side of the business;

(f)        Although she signed a large number of business documents which were in English, she did not know what they were, relying always on Kong (or their accountant Fung) to advise her;

(g)        When she signed the guarantee Kong told her that it was a document to make an insurance claim in respect of a recent robbery or theft of computer accessories from FCT;

(h)        She accepted what Kong told her and signed the guarantee in that belief;

(i)         She first learned the true nature of the guarantee when she received a letter of demand from Cellnet.

Non Est Factum

1. No allegation is made of any unconscionable conduct on the part of Cellnet.

1. The leading statement of the nature of the defence of non est factum is generally taken to be from the judgment of the High Court in Petelin v Cullen (1975) 132 CLR 355 at 359:-

“The class of persons who can avail themselves of the defence is limited.  It is available to those who are unable to read owing to blindness or illiteracy and who must rely on others for advice as to what they are signing; it is also available to those who through no fault of their own are unable to have any understanding of the purport of a particular document.  To make out the defence a defendant must show that he signed the document in the belief that it was radically different from what it was in fact and that, at least as against innocent persons, his failure to read and understand it was not due to carelessness on his part.  Finally, it is accepted that there is a heavy onus on a defendant who seeks to establish the defence.”

1. Thus Mrs Huang has the heavy onus of proving:-

(a)        that she was unable to read and understand the guarantee for herself.  Her evidence to that effect was not contested by Cellnet;

(b)        that she believed it to be an insurance form.  This was not conceded by Cellnet;

(c)        that an insurance form is radically different from a guarantee.  This was not contested by Cellnet;

(d)        that (Cellnet being an innocent person) her failure to obtain proper understanding of the guarantee was not due to carelessness on her part.

Incorrect Belief about Guarantee

1. Mrs Huang’s evidence on the circumstances of her signing the guarantee was, to say the least, brief.  It was:-

“Do you recall the time when you signed it or the place?--  I remember that in 2004 my business partner asked me to sign another document.  He said well, is nothing, just a claim for insurance and he also said that he has signed that.  He just asked me to sign it.

Who signed first?--  He signed first.  Actually, every time he signed first and that he would show me where is the space that I should sign on.

When you said every time, are you referring to every document?--  Yes, every time, if I need to sign, that’s the case.

In this instance, what did Mr Kong say to you before he signed it?--  Well, he asked me to go into the office and he told me that he got a document for me to sign.  Before I even ask anything he said, well, is just a general document to claim insurance and he said that I can sign on that.

Was it often for you to sign documents?--   Yes.

And on average, in one day, how many documents did you sign?--  Well, is not so frequent that every day I got document to sign.

When you signed this document, who was present?--   Is only him and me.”

1. Mr Coulsen, counsel for Cellnet, did not put it to Mrs Huang that she did not hold the belief which she claimed and I confidently accept that he lacked instructions to enable him to do so.  Nor did he investigate with her the circumstances giving rise to that belief and that was quite probably because he recognised the onus of proof and did not want to improve her evidence by raising matters which might help her case.

1. I have to say that I find it interesting that, whereas Mrs Huang said she could not remember signing various other documents which bear her signature which were shown to her in cross-examination, nor, it seems, the circumstances in which she signed them, she is able to remember that Kong told her that this particular document was an insurance form.  In her further and better particulars of her defence she says she was told of a theft by Kong’s wife and that this was “around the time” she signed the guarantee.  It would be easier to accept her evidence of her belief had she descended into detail about the theft, whether it was, for example, so serious as to make an insurance claim a memorable thing or some other reason why it remained in her memory.  In her further particulars of the defence she says that she has made reasonable enquiries and cannot obtain a copy of the “theft report”.  June 2004 (the date of the guarantee) was not so long ago.  Her amended defence was filed in May 2005 and enquiries of the Queensland Police then or soon after might have unearthed information tending to support the theft.  At the least it would have indicated a genuine attempt to gather such evidence.  There was no evidence of any such enquiry at any time.

1. The next matter which I find to be odd is also in Mrs Huang’s further and better particulars in which it is said that Kong told her that the document she was executing related to an insurance claim “by implication”.  In evidence (see para [7]) she said that he explicitly said it was a claim for insurance.  Even more puzzling is her further particulars of the words Kong spoke directly to her, face to face, on the relevant occasion, they being to the effect:-

“Please sign the bank document as every director has to sign it.”

1. These blatant discrepancies were not explained and raise serious doubt on her oral evidence.  As a result, Mrs Huang has not satisfied me that Kong gave her to understand that the guarantee was an insurance document, or anything else radically different from a guarantee.

1. That conclusion is enough to decide the matter, but I should give some attention also to the other point argued, that referred to in para [6](d) above.

Carelessness

1. It was urged on me by Mr Coulsen, indeed as his primary submission, that, assuming Kong to have misrepresented the true nature of the guarantee, Mrs Huang was negligent in simply accepting what he said.  He argued that the length of time she had spent in Australia and her active participation in the business of FCT should have made a reasonable person, even one with the linguistic deficit suffered by Mrs Huang, seek independent advice before signing a document which she could not understand.

1. That argument seems to me to beg the question, because it assumes that Mrs Huang had some reason not to trust Kong and that was not established by the evidence, nor even raised in it.  In my opinion the argument also misses the real point which is raised by the onus of proof.  It was really for Mrs Huang to establish that she had no reason to doubt Kong’s word.  Has she done that?

1. In my opinion to establish that she acted reasonably in relying on Kong’s word it was incumbent on her to go into such things as her experience of his honesty and reliability, their past relationship, their business dealings, his reputation as known to her.  She did not go into any such detail.  All she said about him was:-

“So, as a director how did you communicate when you were running your business?--  I was not the only director in the company.  There’s another director called Michael Kong.  Now, he actually was the real director because I only have 20 percent share in the company.  Though in terms of the difference in our roles, my role in the company was to import products from mainland China to here but Michael actually take care of many other things including the finance here.  The main thing is, well, he take care of the operation here in Australia and I take care of the part from China.

…

So, whenever there is a new document that requires your signature, how do you then be sure to yourself that you understood what you were signing?--  Well, normally what happens is if there is any legal documents, my partner, my business partner will say, “Well, this is” – he may simply generally say, “There are some things about banking.”, something like that and then, he will sign first.  He show me he sign – he has signed already and ask me to sign.

So, basically, you just follow what your codirector did?--  That’s correct.  It’s a matter of trust any, anyway, he got a bigger share and he take the lead; so if he think that’s correct, I just follow his lead.

…

Before you signed this document, was it given to you in advance?--  No.

So, the first time you saw it, that’s when you signed it?--  Yes.

Why didn’t you get legal advice?--  Well, because he – I work in this company and he is my business partner.  Now, I trust him and also he signed anyway.  If this is not okay, he would not have signed it.  So I simply follow his lead and also if I seek legal advice I suppose I need to pay.  Do you think so?

…

Where is Mr Kong now?--  I do not have contact with him.  I don’t know where he is.

When did you last know where he was?--  In Australia here.

Yes, but how long ago was it that you lost touch with him?--  I think in terms of time is over a year now.  That’s the time that when I received the prosecution paper.  I gave a call to him to ask him why he ask me to sign a guarantee like that and I said that he should fix the problem.

So what was his explanation?--  He said – well, he actually did not intend to ask me to sign.  Is only requested by the other company because the other company know that I was one of the directors so he asked me to sign without explaining to me.  In fact, I was very angry.  I was so angry that I did not want to talk to him any more.

1. On that paucity of evidence I am quite unable to conclude that Mrs Huang was reasonable in relying on the statement of Kong as to the nature of a document, and for that reason the plea of non est factum must also fail.

1. Mr Nguyen, for Mrs Huang, referred to s.189 of the Corporations Act 2001 which is relevantly:-

“189  Reliance on information or advice provided by others

If:

(a)a director relies on information, or professional or expert advice, given or prepared by:

…

(iii)another director or officer in relation to matters within the director’s or officer’s authority;

…
(b)         the reliance was made:

(i)        in good faith; and

(ii)after making an independent assessment of the information or advice, having regard to the director’s knowledge of the corporation and the complexity of the structure and operations of the corporation; and

(c)the reasonableness of the director’s reliance on the information or advice arises in proceedings brought to determine whether a director has performed a duty under this Part or an equivalent general law duty;

the director’s reliance on the information or advice is taken to be reasonable unless the contrary is proved.”

and argued that it operates to protect her in a case such as this.

1. In my opinion the wording of the section (particularly paragraph (c)) makes it clear that it does not.  Further, and alternatively, on the evidence, Mrs Huang has not satisfied the requirements of paragraph (b)(ii).

Conclusion

1. The plea of non est factum has not been made out.  I therefore give judgment for the plaintiff for $56,495.43 with interest thereon pursuant to the provisions of the Supreme Court Act 1995 from the date of the tendered statement of account (7 February 2005) to the date of judgment. I invite counsel to agree that figure and in the event of disagreement, to bring the matter on before me for further argument.

1. I order the second defendant to pay the costs of the plaintiff of and incidental to the action to be agreed or assessed on the standard basis.