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Elders Rural Finance Ltd v Smith

Elders Rural Finance Ltd v Smith

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Case Copied 6 June 1997 7 min read

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IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Sydney No S214 of 1996

B e t w e e n -
ELDERS RURAL FINANCE LIMITED
Applicant
and
MURRAY JOHN SMITH, MAXWELL ERNEST WALTER SMITH, DARRYL JAMES SMITH and BERYL FLORENCE SMITH (as Co-Executrix of the Estate of the Late Ernest Henry Smith)

Respondents

Application for special leave to appeal

GAUDRON J
McHUGH J
GUMMOW J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 6 JUNE 1997, AT 11.27 AM

MR D.F. JACKSON, QC: If the Court pleases, I appear with my learned friend, MR J. BARTOS, for the applicant. (instructed by Corrs Chambers Westgarth)

MR P.G. HELY, QC: If the Court pleases, I appear with MR C.W.J. LEGGAT for the respondent. (instructed by Andrew Quigley & Co)

GAUDRON J: Yes, Mr Jackson.

MR JACKSON: Your Honours, this application concerns the Contracts Review Act 1980 and, in particular, section 7(1) of that Act. It concerns the ambit to be given to the expression in that Act, which your Honours should have at the front of the book, in section 7(1), the expression:

finds a contract or a provision of a contract to have been unjust in the circumstances relating to the contract at the time it was made -

Your Honours, there is, in our submission, in relation to the issue a conflict of decisions of the Court of Appeal meriting the grant of special leave. Could I just indicate to your Honours where that arises from. The starting point is a statement by your Honour Justice McHugh, with Mr Justice Hope agreeing, in West v AGC (Advances) Ltd (1986) 5 NSWLR 610, at pages 621 and 622. Your Honours, that should be about a third of the way through the book that your Honours have. It is the first case after, I think, the blue divider.

What your Honours will see at page 621, the paragraph commencing between D and E, is your Honour’s observation that:

It is important to bear in mind that it is the contract or its provisions which must be unjust.....“it is not the transaction but the contract which must be initially examined”.

We would invite your Honours to read the remainder of that paragraph, and the full passage to which I wish to refer goes over to the next page to the end of the first new paragraph on page 622.

GUMMOW J: Of course, one has section 9(2)(1), does one not?

MR JACKSON: Yes, your Honour, but what one is looking to see is whether in the end the contract is something that can be described as unjust.

GAUDRON J: The commercial setting, however, is quite different in each of these cases, is it not? In this case there was an ongoing relationship with respect to the pastoral activities or the farming and grazing activities that was expected would continue in relation to those activities. The purpose of the loan was…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [1997] HCATrans 148
Decision Date

CaseChat Overview and Summary

Elders Rural Finance Ltd (Elders) appealed to the High Court of Australia against a decision of the Full Federal Court concerning the enforceability of a guarantee provided by Mr. Smith. The dispute arose from a loan agreement between Elders and a company, which Mr. Smith had guaranteed. When the company defaulted on its loan obligations, Elders sought to enforce the guarantee against Mr. Smith.

The High Court was required to determine whether the guarantee provided by Mr. Smith was valid and enforceable, notwithstanding certain alleged misrepresentations or misleading conduct by Elders during the loan negotiation process. Specifically, the court considered whether any such conduct vitiated the guarantee or gave rise to a defence for Mr. Smith against its enforcement.

The Court held that the guarantee was enforceable. It reasoned that the principles of contractual interpretation required the guarantee to be given its ordinary meaning, and that any alleged misrepresentations did not, in the circumstances, amount to a legal defence that would invalidate the guarantee. The Court applied established principles of contract law regarding the construction of guarantees and the requirements for establishing a defence based on misrepresentation, finding that the evidence did not support Mr. Smith's claims.

The High Court allowed the appeal and ordered that the judgment of the Full Federal Court be set aside, with judgment to be entered for Elders Rural Finance Ltd against Mr. Smith.

Orders