Gulzari v Fayazi - [2015] SADC 161

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
GULZARI v FAYAZI
[2015] SADC 161
Judgment of His Honour Auxiliary Judge Clayton
26 November 2015
CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - FORMATION OF CONTRACTUAL RELATIONS - MATTERS NOT GIVING RISE TO BINDING CONTRACT - STATEMENTS OF INTENTION, NEGOTIATIONS AND INVITATIONS TO TREAT
CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - FORMATION OF CONTRACTUAL RELATIONS - MATTERS NOT GIVING RISE TO BINDING CONTRACT - AGREEMENTS NOT INTENDED TO CREATE LEGAL RELATIONS - DOMESTIC, SOCIAL AND OTHER AGREEMENTS
The parties come from Afghanistan and observe strict Islamic culture. The plaintiff claimed repayment of a loan of $70,000 plus interest less payments made by the defendant.
The parties had executed two documents, one in English in the form of a statutory declaration and the other in Farsi. The plaintiff relied upon the document in English.
There was evidence that under Islamic law lending money in return for interest is usury and forbidden. For that reason the document in Farsi had been drafted "for religious reasons" to hide the fact that interest was being charged under a loan. The defendant denied that there had been a loan and asserted that the transaction was a partnership or joint venture to sell goods.
HELD:
The document in Farsi was a sham and at the time it was executed the parties did not intend to be bound by it. The parties did intend to be bound by the contract written in English. Defendant's evidence rejected.
Judgment for the plaintiff for the amount claimed.

GULZARI v FAYAZI
[2015] SADC 161

The parties both come from Afghanistan and observe strict Islamic culture.
On its face, the plaintiff’s claim is simple. It is a claim for the sum of $82,600 being a loan of $70,000 plus interest less amounts which the defendant has paid.
However there are complications. There are two written documents. One, a typed document in the English language is in the form of a statutory declaration pursuant to the Statutory Declarations Act 1959 (exhibit P1). That document was first signed by both parties on 6 August 2010 and signed again on 6 June 2012. The document sets out the agreement upon which the plaintiff's claim is based. It provides for the plaintiff to lend an amount of AU$70,000 for 12 months subject to interest "which is 7% for the year and will accumulate $6000 at the end". In the document the defendant declared:
I am the borrower of the above-mentioned loan and shall repay him at the end of the year (12 months) with its interests of $6000 Australian dollars.
The interest payment arrangement is flexible and can be paid monthly or at the end of the term. If paid on monthly basis it shall be the same as the accumulated monthly interest or as agreed otherwise.
The text of the document concluded with the statement that it is an offence to intentionally make a false statement in a statutory declaration, and a statement that the defendant believed that the statements in the declaration were true in every particular. It was signed by both parties and dated 6 August 2010.
The parties signed the document again on 6 June 2012.
The body of the typed document has been altered to state an interest-rate of 10% and the sum of $7000 for interest. Those alterations to the document were initialled.
The second document is handwritten in the Persian language. That was also dated 6 August 2010 but that date has been crossed out and the date 6 June 2012 inserted. A translation of the Persian language document certifies that the document reads:
In the name of God the compassionate the merciful
6 June 2012
We, namely, Ali Gulzari and Najeeb Fayazi hereby declare the following:
1-I, Najeeb Fayazi have sold Au $70,000 worth of goods which I had purchased in Iran to Mr Ali Gulzari.
2 – I have subsequently leased the said goods valued at au $70,000 from Mr Ali Gulzari for a period of one year as per the Gregorian calendar, starting from today for the amount of au $6000.
3-I will pay the said amount on monthly basis and Mr Gulzari can collect the amount due at the end of each month or alternatively every six months from me.
4-I will pay the principal money that is au $70,000 to Mr Ali Gulzari at the end of the year.
5. We will truly follow the terms and conditions as stated in this agreement. This agreement was endorsed and signed by both of us in the presence of friends."
The document was signed by the parties and dated.
What should have been a relatively straightforward transaction has been made complicated. By his Third Defence the defendant claims that the parties had agreed to purchase goods from Iran and that when the goods arrived in Australia they were out of date and not saleable. The defendant denies that he owes the amount claimed because the plaintiff only advanced amounts totalling $54,000, not $70,000. In addition the defendant pleads that a joint-venture to import goods from Iran to sell in Australia was frustrated by the goods being unsaleable. Those pleas were not raised until the third edition of the Defence.
The defendant has also pleaded in the alternative (Defence para 4) that he entered into a written agreement in the English language with the plaintiff on or about 6 June 2012 and that by that agreement the plaintiff was to lend the defendant the sum of $70,000 for the year and that the defendant was to repay that sum and interest of $7000 at the end of that year. That plea contradicts the defence raised at trial.
Both the plaintiff and defendant gave evidence. The plaintiff also called other witnesses who were present at the time the documents were executed. The evidence in chief for the plaintiff’s witnesses was led by affidavit. The defendant who was self represented did not avail himself of the opportunity to put forward affidavit evidence.
There is evidence that under Islamic law lending money in return for interest is usury and forbidden. In his affidavit the plaintiff said:
43. For that reason it is customary during business transactions in Islamic culture for a contract to be drafted to hide the fact that the interest is being charged under a loan
44. In relation to the agreement, both Mr Fayazi and I agreed to draw two separate contracts - one contract in English and enforceable under the Australian Law that reflected the true terms of the agreement (the Statutory Declaration), and one apparent contract in Persian that would be acceptable for religious reasons (the Persian Language Contract)
45. For this reason, the Persian Language Contract refers to the lease of goods to the value of $70,000.
46. The reference to the lease of goods was purely for religious reasons. There were never any goods that were leased. I am retired and not have any reason to purchase or lease $70,000 worth of goods.
…
48. The Persian Language Contract bears no reality to the agreement. I understood that this was the case at the time of entering the agreement."
The plaintiff claims to be illiterate and unable to speak English. There is no evidence to the contrary.
The defendant also claims that he cannot read or write in English or Persian, although he has conceded that his English is better now than it was in 2010 when the documents were first signed. The plaintiff challenges the defendant’s claim of illiteracy.
The plaintiff stated in his affidavit that there was never any agreement in relation to leasing goods and that "the reference to a lease in the Persian Language Contract is purely for religious reasons and has no substance in reality." (para 86)
If I accept the evidence of the plaintiff he would be entitled to judgement for the amount claimed.
The issue in the case is whether I should accept the evidence of the defendant. He gave his evidence through an interpreter, for whose assistance I am grateful. The defendant did appear to concede that he owed some amount to the plaintiff but the precise nature of the concession is not clear. That is inconsequential because the question is whether the plaintiff is entitled to the full amount of his claim.
I have no difficulty in interpreting exhibit P1 in a way which supports the plaintiff's claim. The question is whether exhibit P1 evidenced the agreement which was reached by the parties and exhibit P2, the Persian Language Contract, was a sham entered into for religious reasons.
The documentation was prepared by Mr Hassan Emad. In his affidavit Mr Emad stated that he was requested by the parties to assist in documenting the terms of an agreement that had been reached in relation to a loan. He had three separate meetings in relation to the loan.
Mr Emad said that by the time of the first meeting the parties had already reached agreement on the loan amount of $70,000 and the rate of interest that was to be paid monthly. (Affidavit para 14.3). The terms of the agreement were spoken aloud to him by the plaintiff with the defendant and others listening and affirming the instructions. There was no discussion between the parties of any form of partnership or joint-venture.
Mr Emad was asked by both parties to prepare a document in English which outlined the terms of the agreement. He also took notes in Persian for a Persian document to be drafted for Islamic reasons. He said:
14.8 I understood the need for the Persian document which did not mention interest as a customary requirement amongst Afghans in the community.
At the second meeting with the parties Mr Emad attended with the typed statutory declaration and the handwritten Persian language contract. He said that he read out the terms of the statutory declaration and the Persian language contract to the parties and they agreed with the terms (para 14.17). The parties signed the statutory declaration and Persian language contract and dated them on the day they were signed.
Mr Emad said that the practice of preparing a Persian language contract and an English contract was very common amongst the Afghan community. (Para 17).He had personally witnessed at least five commercial loan agreements between Afghan community members where a Persian language contract had been drafted to make "halal" (or "permissible" in the Islamic sense) the payment of interest under an English contract, where otherwise in the Afghani custom, the English contract alone might be considered as "haram" (or "sinful" in the Islamic sense) under Islamic law.
In his oral evidence Mr Emad said that it was the defendant who telephoned him saying he had agreed to borrow an amount of money from the plaintiff (T 31-12)
When asked to explain more fully why there was a need for Persian language contract as well is the English language contract Mr Emad gave the following evidence:
A. That's the document which asked me to draw one in English the other one is in Persian, and Persian in particular was not intended in this-at the time all the parties sign it in front of me-to be used for the purpose of this agreement. That has been taught more that because of the-if you heard the word of halal, which is usually more evident… We just say halal, and the other word opposite of that one is haram, which is not purified. That was only to get away from those non-purified of interest because interest under the Islamic law is not allowed to be paid directly. However there is a way to get away from that interest by kind of writing something and getting instead of money something else that can be used instead of the interest. That's what the purpose of the Persian document.
Q. Why was it necessary to have regard to Islamic law?
A. It was more, among the Afghan communities as a custom. It's not that only because we did it on the purpose to get away, but that it was more likely in the community I have seen more than a few times that one has been done it, and that was only because they believe, both parties we believe at the time to be Muslim and also relying on the Muslim faith, as relying on the Muslim faith in believing in those documentation as well is the religion faith, that they need to have in evidence, or something, a document that they should not get the interest in direct that way. However there was an English clearly says that one. But the both parties at the time, they did mention that this is not something, document, that you would rely on in the future.
Q. Which document was that.
A. The Persian document. (T 23)
Later in his evidence Mr Emad repeated that the document in Persian was to be ignored and that the parties were to give effect to the document in English. (T 24-13). He didn't advise the parties to have a document in Persian but that is what the parties asked him to do. He gave evidence that both parties said that there would need to be a contract in Persian as well is the English contract. (T 25-31)
He said "that the Persian contract was essentially to purify for religious reasons the English contract and the fact that interest was being charged".
He said that the statement in the first paragraph of the Persian document which reads "I Najib Fayazi have sold $70,000 Australian worth of goods which I had purchased in Iran to Mr Ali Gulzari" was not true as was the statement in the second paragraph "I have subsequently leased the said goods valued at $70,000 Australian from Mr Ali Gulzari".
Mr Emad said the purpose of the document in Persian was " To just purify the interest that Mr Gulzari received from Najib Fayazi" (T 28)). He said that the defendant did not sell goods to the plaintiff. (T 29-10)
Mr Emad also gave evidence as to the amount that was advanced. He referred to the loan amount of $70,000 (para 14.3) and said that he witnessed payment of $61,000 from the plaintiff to the defendant (para 14.9) (T 36-32). He also said that the plaintiff asked him to pay to the defendant the balance of $9000. The $9000 was repayment of a pre-existing debt due to the plaintiff. Mr Emad paid $9000 to the defendant at the third meeting (para 14.11) (T 26).
Mr Emad remembered that $61,000 was paid at the time. He said that the defendant was part of the process of counting the money and the defendant knew that there was $61,000. (T 37)
Mr Emad was referred to the statement in paragraph 5 of the Persian Language Contract which is translated as "We will truly follow the terms and conditions as stated in this agreement. This agreement was endorsed and signed by both of us in the presence of friends." Mr Emad said that provision was "like a template in Persian" and that the parties had no intention to truly follow the terms and conditions stated in the Persian Language Contract (T 38-9). He also said that the preliminary statement "In the name of God the compassionate the merciful", which is written at the top of the document, was a “template” which is written at the start of all documents.
There is nothing to suggest that Mr Emad was not independent. I have no difficulty in accepting his evidence without qualification. He had no relevant connection with either the plaintiff or the defendant. It was the defendant who telephoned Mr Emad and stated that the parties wanted him to go to the plaintiff's house to prepare an agreement for a loan from the plaintiff to the defendant. (T 31-12). The defendant told Mr Emad that he wanted to borrow money from the plaintiff. (T 34-21)
Mr Emad said he had prepared the typewritten document in English prior to the meeting and wrote out the Persian contract by hand. (T 33-7)
Mr Emad said that the defendant was not told, as the defendant suggested in cross-examination, that the statutory declaration was a translation of the Persian document. (T 15, T 36-8). Nor was the defendant told, as the defendant also suggested in cross-examination, that the statutory declaration was a copy of the original, that is the Persian contract. (T-28)
Mr Emad said that on the occasion when the statutory declaration was signed he read both documents, the English and the Persian. He said that apart from reading the statutory declaration in English he translated that document into Persian "making clear that the English is totally different than the Persian, as they instructed." (T 35-31)
The defendant told the court that the Persian agreement is the correct version of the agreement. He said the English one is incorrect (T 30-28)
In cross-examination the defendant maintained that he could not read or write the Persian language and that at the time he signed the agreement could not read the English language, although he later conceded that over the years since 2010 his English has improved.
The cross-examination of the defendant established that he has conducted the business of the supermarket and a labour hire business and that he has been granted a building supervisors licence. I am satisfied that the defendant must have a better command of the English language than he professes but the evidence does not enable me to make any finding as to the level of his proficiency.
The defendant was self represented at the trial but had previously been represented by a solicitor who prepared three Defences on his behalf.
In the first Defence, which is dated 23 April 2015, the defendant admitted that "he entered into an agreement with the plaintiff to borrow money from him (the plaintiff ) on certain terms" but denied that he owed the amount claimed by the plaintiff.
In a later Defence filed 16 July 2015 the defendant again admitted that he had entered into an agreement with the plaintiff to borrow money from him “on certain terms”. He pleaded "There were certain terms included that the period of the loan can be extended and that the interest rate on the loan can be a reduced rate after the first year of the loan."
In cross-examination, when confronted with the inconsistency between the original Defences and his current position, the defendant non responsively answered that he offered money to the plaintiff "to get rid of them" and "I just told my lawyer and I will give the monies so that they can leave me alone".
In those Defences there was no suggestion of the defendant’s current assertion that the plaintiff had only advanced $54,000, not $70,000.
The defendant gave evidence through an interpreter in which he said (T50 2FF):
·The contract was written at the request of the plaintiff.
·He only received $45,000 from the plaintiff and a further $9000 was transferred by Mr Emad.
·$16,000 was meant to be paid by someone else but that was not paid.
·The plaintiff would write his name in Sitarah Food. (Presumably that was the suggested joint-venture or partnership).
·The plaintiff did not put his name in the company because he said he would be questioned one day.
·The plaintiff did not lend him the money but he was a partner.
·Mr Emad told him that the contract written in English was "exactly the translation of the Persian one"
·The Persian contract was written "because they asked me how any person tax profit and I said 10% and half of that is written, probably 10% there, of the groceries. It wasn't the interest on the money, it was the interest that would be paid in partnership… We would bring things from outside and sell it”.
·It was at the end of 2012 when they brought a container from Iran. All of the goods were “expired”. That is why they incurred a loss.
·After the plaintiff asked for the money the defendant told him "You were a partner here".
·The amount credited for payments made by the defendant is incorrect.
·The payments that were made were not interest. "It was the money that I would pay him thinking that we will make a profit but at the end we did not make profit".
·Money that he offered the plaintiff was not the plaintiff’s right but was offered to stop the plaintiff’s family attending at the defendant’s premises.

In cross-examination the defendant said that at the time the contract was signed he did not know any English. (T 52-12). He said that the contract in English was not translated for him but that they read the Farsi contract and told him that was what had been translated into English. He cannot read Farsi. Mr Emad read the Farsi contract to him.
The defendant was asked whether he understood that the Farsi contract said that he would pay the principal money, that is $70,000 Australian, to the plaintiff at the end of the year. He replied:
The contract that was meant to be written was that he would put money in partnership, an investment, but his name will not be on the-under the company. And there might have been some tampering to this Persian contract as well as there was in the English contract. Mr Hassan Emad may have read the contract incorrectly to me."
When asked who had possession of the original Persian language contract the defendant he said:
It must be with Mr Gulzari. Even if the original one is the same as this one it won't make any difference, as the English version was read to me incorrectly it's possible that the Persian version was read to me incorrectly as well." (T 52)
He then said that Mr Emad read the contracts to him "Not the English one just the Persian" (T 53)
The defendant' s attention was drawn to clause 4 in the Persian contract which has been translated to read "The actual amount which is worth of $70,000 will be returned to Mr Gulzari at the end of the year. (T 53). The defendant said:
This is correct here (indicates) that you are reading to me but then the translation into English may have been incorrect and also it may have been misread to me. In other words the sentence was not read to me. It must have been something else." (T 53)
By that evidence the defendant is now asserting, for the first time, that he was misled as to the contents of the documents. It is a serious allegation. If I accepted the defendants evidence that would raise a defence of non-est factum.
I do not accept any of the evidence of the defendant unless it is corroborated by another witness. He displayed mental acuity and is obviously an intelligent person. However I cannot accept that he was an honest witness. There are inconsistencies between his pleadings and his oral testimony. There are internal inconsistencies in his oral testimony. His oral testimony is inconsistent with the objective facts.
The plaintiff gave his evidence in chief by affidavit and his oral evidence was given through an interpreter. He provided no reason to doubt his evidence which is consistent with the objective facts and is corroborated by other witnesses.
I specifically reject the evidence of the defendant that the contracts were incorrectly translated or misread to him. Mr Emad had no personal interest in the transaction and there was no reason for him to mislead the defendant. I accept that Mr Emad was an honest and reliable witness who had done his best to assist both parties.
The Persian Language Contract stated in paragraph 1 that the defendant had sold $70,000 worth of goods which he "had purchased in Iran" to Mr Gulzari. There is no evidence of the existence of any goods either prior to or at the date of the execution of the contract on 10 August 2010. Documents relating to goods which were produced by the defendant referred to a time much later than the time when the documents were executed.
As to paragraph 2 of the Persian contract there is no evidence consistent with a lease of goods from the plaintiff to the defendant.
I accept the evidence that the contract described in exhibit P2 is a sham brought into existence for the reasons described by the plaintiff and Mr Emad, that is for religious reasons.
It is unnecessary for me to make any comment about the practice of signing a sham contract for "religious reasons" to purify a transaction. What I am required to do is to decide whether the plaintiff has made out his claim under English law.
I observe that the Persian Language Contract does provide for payments of $6000 per year either on a monthly basis or alternatively every six months. (Clauses 2 and 3). It also provides for the defendant to repay the principal money, that is $70,000, to the plaintiff at the end of the year. It is a promise to repay $70,000 not $54,000.
Neither exhibit P1 nor exhibit P2 evidence a joint-venture or partnership of the nature claimed by the defendant. There is no documentation or other evidence which evidences such a transaction. The documents produced by the defendant do no more than to establish the admitted fact that the defendant had an interest in a grocery business. There is no evidence of sales, the calculation of profit or accounting to the plaintiff for the profit on sales.
There is no objective evidence of a partnership or joint-venture between the plaintiff and the defendant.
I find that on or about 10 August 2010 the plaintiff loaned the sum of $70,000 to the defendant on the terms set out in exhibit P1. That amount was made up of $61,000 provided by the plaintiff himself and $9000 from Mr Emed.
I find that after the money was loaned the defendant made interest payments of $500 per month (plaintiff's affidavit para 49). Those payments are consistent with the loan asserted by the plaintiff.
I find that in about the middle of 2012 the plaintiff approached the defendant requesting repayment of the money and that after a discussion, which is set out in paragraphs 53 and 54 of the plaintiffs affidavit, the original agreement (Ex P1) was varied so that the defendant could repay the money in one year from that time and that the rate of interest was increased to $7,000 per annum. Following that conversation the parties met again on 6 June 2012 and signed exhibit P1 again to evidence the variation.
I accept that there was no discussion about a variation to the Persian Language Contract because that "was essentially a fake drafted for religious reasons". (plaintiff’s Affidavit para 63)
I find that there was an acknowledgement by the defendant of the agreement evidenced by the statutory declaration in June 2012. That acknowledgement supports the plaintiff’s case.
The defendant has not produced any evidence of the payments made by him which causes me to reject the plaintiff’s evidence as to the amount paid. On this matter the defendant has the onus of proof.
I find that the intention of the parties was to be bound by a contract in terms of the statutory declaration (exhibit P1). I find that the parties never intended to be bound by the Persian Language Contract which was a sham entered into solely for "religious reasons".
If, as the defendant asserted, the true contract was the Persian Language Contract (exhibit P2) there would have been no reason for the statutory declaration (exhibit P1).
Furthermore, the Persian Language Contract does not evidence a joint-venture or partnership as asserted by the defendant but requires the defendant to repay "the principal money that is au $70,000 to Mr Ali Gulzari at the end of the year" (clause 4). That provision is consistent with the transaction being a loan. While exhibit P2 does refer to a lease of goods the document does not evidence a joint-venture or partnership. It is unnecessary to consider the legal complications which might be created by a lease of goods to be used for trading in a supermarket.
The plaintiffs claim therefore becomes:
Principal amount   $70,000
Interest   $34,600
Total     $104,600
Less payments made by the defendant            $21,300
Amount of the claim  $83,300
There will be judgment for the plaintiff for $83,300.