Leslie v GE Commercial Corp (Australia) Pty Ltd
[2007] WASCA 65
•28 MARCH 2007
LESLIE -v- GE COMMERCIAL CORPORATION (AUSTRALIA) PTY LTD [2007] WASCA 65
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2007] WASCA 65 | |
| THE COURT OF APPEAL (WA) | |||
| Case No: | CACV:34/2005 | 12 DECEMBER 2006 | |
| Coram: | STEYTLER P McLURE JA BUSS JA | 28/03/07 | |
| 16 | Judgment Part: | 1 of 1 | |
| Result: | Appeal allowed | ||
| B | |||
| PDF Version |
| Parties: | ANNE ELIZABETH LESLIE GE COMMERCIAL CORPORATION (AUSTRALIA) PTY LTD (ACN 000 974 747) |
Catchwords: | Contract of guarantee Scope of guarantor's obligations Whether arguable claim of unconscionability or breach of the principle in Yerkey v Jones Turns on own facts |
Legislation: | Nil |
Case References: | Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 Garcia v National Australia Bank Ltd (1998) 194 CLR 395 Yerkey v Jones (1939) 63 CLR 649 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA TITLE OF COURT : THE COURT OF APPEAL (WA) CITATION : LESLIE -v- GE COMMERCIAL CORPORATION (AUSTRALIA) PTY LTD [2007] WASCA 65 CORAM : STEYTLER P
- McLURE JA
BUSS JA
- Appellant
AND
GE COMMERCIAL CORPORATION (AUSTRALIA) PTY LTD (ACN 000 974 747)
Respondent
ON APPEAL FROM:
Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA
Coram : BLAXELL J
Citation : GE COMMERCIAL CORPORATION AUSTRALIA PTY LTD -v- BREVTEX & ORS [2005] WASC 27
File No : CIV 2305 of 2004
(Page 2)
Catchwords:
Contract of guarantee - Scope of guarantor's obligations - Whether arguable claim of unconscionability or breach of the principle in Yerkey v Jones - Turns on own facts
Legislation:
Nil
Result:
Appeal allowed
Category: B
Representation:
Counsel:
Appellant : In person
Respondent : Mr P G Clifford
Solicitors:
Appellant : In person
Respondent : Lawton Gillon
Case(s) referred to in judgment(s):
Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447
Garcia v National Australia Bank Ltd (1998) 194 CLR 395
Yerkey v Jones (1939) 63 CLR 649
(Page 3)
1 STEYTLER P: I agree with McLure JA.
2 McLURE JA: The appellant appeals from orders made by Blaxell J on 4 March 2005 entering summary judgment against the appellant in the sum of $500,000 and interest thereon and requiring the appellant to execute a legal mortgage of her property at 59 Hobbs Avenue Dalkeith.
3 The respondent, GE Commercial Corporation (Australia) Pty Ltd ("GE"), claimed against the appellant and three other defendants (Brevtex Pty Ltd, Seabay Enterprises Pty Ltd and Jeffrey Leslie) under "Secured Guarantees" of moneys allegedly owing to GE by Brevtex Machine Tools Pty Ltd ("Brevtex").
4 Summary judgment was entered against the defendant companies and Mr Leslie in the sum of $1,514,173 and interest thereon. There is no appeal by those defendants.
5 At all material times, the appellant was married to but separated from Mr Leslie and was a director of Brevtex and a director and shareholder of the other corporate defendants. The appellant was not legally represented in the appeal.
Background
6 The background facts are as follows. Brevtex carried on the business of selling machine tools and equipment. By letter dated 16 June 2001 to Brevtex, GE approved an application for a wholesale credit facility of $500,000 for the purchase of new fabrication equipment under a floorplan arrangement on terms, some of which are specified in the letter. The approval was conditional on, inter alia, the execution of a Retail Bailment Agreement, four Secured Guarantees and four documents headed "Acknowledgement of Guarantor" all of which were enclosed with the approval letter. It was a further condition that caveats be placed on three properties including 369 Sandy Bay Road Sandy Bay Tasmania ("Sandy Bay Road property") and 61 Hobbs Avenue Dalkeith (the matrimonial home jointly owned by the appellant and Mr Leslie).
7 By letter of 8 August 2001 to Brevtex, GE approved a revised credit limit of $700,000 for the purchase of new and used fabrication equipment. The conditions of the earlier approval letter are incorporated in the revised offer. On or around 9 August 2001 the appellant and Mr Leslie signed the approval letter of 8 August 2001, the Retail Bailment Agreement on behalf of Brevtex, four separate Secured Guarantees (three on behalf of
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- related corporate entities and one in their personal capacity) and four Acknowledgements of Guarantor.
8 The Retail Bailment Agreement includes the following terms:
• Brevtex could request GE to purchase particular items of equipment to be taken on bailment by Brevtex (cl 2.1);
• GE could refuse any such request (cl 2.2) or agree to any request and impose such conditions as it deemed appropriate (cl 2.3);
• upon purchasing each item of equipment, GE would issue Brevtex with a copy of a Trust Receipt (cl 3.1.7);
• Brevtex was to take the equipment so purchased on the terms and conditions set out in the Retail Bailment Agreement, any conditions imposed by GE under cl 2.3 and the provisions of the Trust Receipt (cl 2.4);
• possession of each item of equipment by Brevtex was solely for the purpose of resale in the ordinary course of business (cl 3.1.9);
• pending resale of each item of equipment, Brevtex would pay GE monthly "rent" defined to mean the amount payable referred to in the Trust Receipt to be calculated at such rate as notified by GE to Brevtex from time to time (cl 4.1 - 4.3, cl 13);
• on the sale of any item of equipment, Brevtex would be deemed to have purchased the same immediately prior to the sale for the amount specified in the Trust Receipt, which amount was immediately due and payable to GE (cl 8.2);
• any amounts owing by Brevtex after the due date for payment were to bear interest at the Overdue Rate (defined as such rate as GE in its absolute discretion notified to Brevtex) (cl 4.5, cl 13);
• upon application by Brevtex, GE could grant an extension of time for payment upon such conditions as it in its sole discretion determined (cl 4.6);
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- • GE was entitled to terminate the agreement inter alia upon Brevtex's failure to pay any amount due and owing or upon an order being made for the winding up of Brevtex (cl 10.1.1, cl 10.1.6, cl 11.6).
9 All the Secured Guarantees are in the same terms. They recite that "the Guarantor has requested [GE] to enter into commercial transactions with [Brevtex]". The Secured Guarantees materially provide:
• "The Guarantor hereby guarantees to [GE] the due payment of all moneys that may now be due and payable or may hereafter become due and payable by [Brevtex] to [GE] and the due and punctual performance by [Brevtex] of all its obligations pursuant to the said commercial transactions" [emphasis added] (cl 1);
• "The liability of the Guarantor hereunder shall be a principal liability and shall not be affected by the granting of time or other indulgence or concessions to [Brevtex] or by the compounding compromise settlement avoidance disclaimer release abandonment waiver variation extinguishment or renewal of any of the rights of [GE] against [Brevtex] … " (cl 2);
• the Guarantor "shall grant to [GE] a legal mortgage of any land now or hereafter held by [the Guarantor] … such mortgage to be in the form set out in the 14th Schedule of the Transfer of Land Act, 1893 as amended" (cl 7(2)(b));
• that it is a continuing guarantee (cl 4).
10 The terms of the Acknowledgement of Guarantor are of surprising scope. They include the following:
"3. I understand that the guarantee applies to all monies due to you by [Brevtex] whether under the documents listed in Item 3 of the Schedule [the Retail Bailment Agreement] … or otherwise. I am aware that the guarantee is not limited to any amount or any period of time and includes all monies now owing to you or which later become due to you."
11 To the contrary, it is arguable that (1) the Acknowledgement of Guarantor cannot alter the proper construction of the contract; (2) on a
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- proper construction of the contract documents as a whole (the approval letters, the Retail Bailment Agreement and the Secured Guarantees) the Secured Guarantees are given solely in relation to commercial transactions under the Retail Bailment Agreement falling within the approved credit facility, alternatively, only commercial transactions under the Retail Bailment Agreement; (3) if the former, the Secured Guarantees cannot be varied without the agreement of the guarantors; (4) if the latter, the Secured Guarantees do not apply to non Retail Bailment Agreement transactions and an increase in the credit limit to accommodate further equipment purchases under the Retail Bailment Agreement is a material variation of the contract between Brevtex and GE. In the absence of clear terms to the contrary in the guarantee or the consent of the guarantor, a material variation of the principal's obligations has the effect of discharging the guarantor from all liability under the guarantee (see O'Donovan and Phillips, "The Modern Contract of Guarantee" 4th ed at [7.100] - [7.800]).
12 By letter dated 20 March 2002 to Brevtex, GE approved an increased credit limit of $2,200,000 of which $600,000 was in relation to what is described as a "business loan" for the purchase of a property in Tasmania by the first defendant (not the principal debtor under the Secured Guarantees). The business loan was the subject of a separate loan agreement and was unrelated to transactions under the Retail Bailment Agreement. It was a condition of approval of the revised credit limit that, inter alia,the approval letter and enclosed Acknowledgement of Guarantor of Further Liability ("Acknowledgement") be signed. The Acknowledgement provides that the signatories acknowledge that "the Secured Guarantee signed by me" extends to the total facility of $2,200,000.
13 By letter dated 8 July 2002 to Brevtex, GE approved an increased credit limit of $2,971,000, the increase being solely attributable to an increase in the amount of the business loan to $1,371,000. It is a condition of the revised approval that the approval letter, Acknowledgement and further Secured Guarantees be signed. The Acknowledgement was in the same terms as the earlier one save for a reference to the total facility of $2,950,000. No further Secured Guarantees were signed.
14 What purports to be the appellant's signature appears on copies of the March and July approval letters and the Acknowledgements enclosed with those letters. All GE's correspondence to which I have referred is directed to Mr Leslie.
(Page 7)
15 The final transaction concerns the purchase by the appellant of 59 Hobbs Avenue in February 2004. The former general manager of GE, Mr Shane Smith, deposed to relevant matters. He said that in February 2004 the first defendant (Brevtex Pty Ltd) refinanced the Sandy Bay Road property with the Commonwealth Bank. Pursuant to the refinancing, GE handed over a discharge of its first registered mortgage over that property in exchange for a payment of $828,296.50. From the funds received by GE from the refinancing of the Sandy Bay Road property, GE "advanced $327,844.94 to [the appellant] for her purchase of 59 Hobbs Avenue, Dalkeith".
16 There are no formal agreements relating to this transaction. The only material documents are two letters from GE to Mr Leslie. The first, dated 23 February 2004, advised that GE's intention was to forward $328,877 from the settlement of the Sandy Bay Road property for the settlement of 59 Hobbs Avenue. The letter continues that in order for GE to forward the funds it required confirmation "from both Anne and yourself" that GE could lodge a caveat on 59 Hobbs Avenue and the Sandy Bay Road property. The appellant and Mr Leslie confirmed their permission by signing that letter. GE wrote again to Mr Leslie on 24 February 2004. The letter states:
"Dear Jeff,
RE: Approval for the Purchase of 59 Hobbs Avenue Dalkeith
I am very pleased to advise that [GE] has granted approval for $328,877.25 to be refunded to you for the purchase of the above property."
17 After referring to the conditions of approval, which included a caveat on 59 Hobbs Avenue, the letter continues:
"[W]hen you sell 59 Hobbs Avenue and 369 Sandy Bay Road and the settlements proceed, it will be [GE's] intention to reduce the outstandings on your floorplan facility with the funds we will receive from discharging the Caveat security on the properties."
Aspects of the Evidence
18 The facts deposed to by the appellant and Mr Leslie are summarised by the primary Judge. The following is taken largely from his judgment.
(Page 8)
- Mr and Mrs Leslie both say that although the appellant was a director of Brevtex and the corporate defendants, she played no part in the management or the decisions made in the conduct of their respective businesses. The appellant was employed by Brevtex and performed general clerical duties such as answering the telephone, going to the post office and attending to banking. Although she was a signatory to the Brevtex cheque account, she only signed cheques when Mr Leslie was away and when he instructed her to do so.
19 From June 2001 the couple separated and the appellant was in a "fragile emotional state". She continued to repose trust and confidence in Mr Leslie in respect of all financial and business matters. The appellant swore that:
"In relation to every document signed by me, [Mr Leslie] in each case simply asked me to sign the document, and, by virtue of the trust that I had in him, I signed the document without having read the document and without knowing or understanding what I had signed or the implication thereof."
20 She continued:
"At no time did I believe or understand that by executing any document, I would be putting anything at risk beyond the assets of Brevtex Machine Tools, and certainly at no time did I believe or understand that by executing any document, my personal assets would or could be placed at risk."
21 No-one explained the documents to her or at any time warned her of the consequences of executing them. She said it was never suggested to her that she obtain independent legal or financial advice and she did not in fact obtain any such advice.
22 At the time of purchasing 59 Hobbs Avenue, the appellant was unaware of the fact that GE had released funds which were allocated towards the purchase price. She believed that the relevant funds had come from the Colonial Bank.
23 Mr Leslie largely corroborated his wife's evidence. Mr Leslie gave evidence of the control GE exercised in relation to the funds received from the sale by Brevtex of the equipment under the floorplan agreement. He deposed that:
(Page 9)
- "[GE] had total control over the manner in which funds received would be used under the floor plan (Bailment Agreement) entered into with Brevtex Machine Tools. It was Mr Smith that decided how the funds were to be allocated. I had no say in the matter. I trusted Mr Smith from the outset. I always did as he demanded or recommended. Mr Smith appeared to me to be very good with figures. He was often calculating numbers very quickly. I understood, at all times, that Mr Smith was helping Brevtex Machine Tools by allocating funds in the particular way he did. I could never understand completely why he did allocate funds in the manner he did. Brevtex Machine Tools, and myself, were entirely at the mercy of Mr Smith. He had almost total control over the funds of Brevtex Machine Tools. Neither Brevtex Machine Tools nor I had any real say or choice in how the funds received from machinery sales were to be allocated."
24 Mr Leslie also deposed to a number of particular instances where decisions as to what would happen to particular items of machinery or to the proceeds of their sale would be made by GE rather than by himself. I understand the thrust of Mr Leslie's evidence to be that GE controlled and determined when, how and in relation to what equipment payments were made by Brevtex to GE.
25 Mr Leslie also swore that he was the only defendant aware of the increases in credit limits granted by GE and confirmed that the letters of increase in credit limit were not passed by him to the appellant. In a later affidavit, Mr Leslie swore in relation to each Acknowledgement that:
"As far as I can tell, the signature which purports to be that of [the appellant] was not affixed to those documents by the [appellant], herself. It was commonplace for myself or Tony Celani [Brevtex's manager] to place the [appellant's] signatures on many documents. Whilst I cannot now recall whether it was Mr Celani or I who placed the [appellant's] signatures on those documents, I verily believe that it would have been one of us that did so."
26 Mr Leslie also said that Mr Smith of GE was present on one occasion when either Mr Celani or Mr Leslie signed for the appellant. According to Mr Leslie, Mr Smith said words to the effect "I will turn my head away then. I know Anne is not here. I need all these documents signed now".
(Page 10)
- Mr Leslie believed the document was the Acknowledgement enclosed with the March approval letter.
The Primary Judge's Reasons
27 The primary Judge correctly stated the legal principles governing an application for summary judgment. He said (at [27] - [29]):
"The power to grant summary judgment must be exercised with great care, and should never be exercised unless it is clear that there is no real question to be tried (Fancourt v Mercantile Credits Ltd (1983) 154 CLR 87, 99). In order to obtain leave to defend, all a defendant need do is show that there is an arguably good defence or that the case ought to be heard (Clarke v Union Bank of Australia Ltd (1917) 23 CLR 5, 8). Even when the facts asserted are inconclusive, if it is not possible to say without doubt on the whole of the material that there is no question to be tried, there should be leave to defend (Fancourt (ibid) at 99).
The Court does not dispose of the factual merits on a conflict of affidavits (Jacob v Booth Distillery Co [1901] 85 LT 262 [sic]) or by rejecting the defendants' affidavit evidence because of its arguable inconsistency with documentary evidence adduced by the plaintiff (Gillon v Kyle, unreported; FCt SCt of WA; Library No 9123; 16 October 1991).
If a version of the facts is put forward by the defendants which is not inherently incredible, then given the absence of any opportunity to cross-examine, it is incumbent upon the Court to proceed on the basis that that version will ultimately be accepted at the trial of the action (Webster v Lampard (1993) 177 CLR 598 at 608)."
28 The primary Judge considered the defences of the corporate entities and Mr Leslie separately from that of the appellant. In relation to the appellant's position, he confined his consideration to whether the evidence raised triable issues as to unconscionable conduct, undue influence (brought to bear through the agency of Mr Leslie) or breach of a duty of care by GE to ensure that the appellant was properly advised prior to executing the guarantee.
29 The primary Judge rejected the appellant's evidence that she did not know or understand what she was signing, describing it as inherently
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- incredible. After referring to his assessment of the appellant as a reasonably intelligent woman and to the number and description of the documents she signed in relation to the initial agreement, the primary Judge said (at [47]):
"Any adult of average intelligence understands the meaning of the words 'guarantee' and 'guarantor'. Mrs Leslie does not say that she was blindfolded or had her eyes closed when she was asked by her husband on at least two separate occasions to sign the relevant documents."
31 The primary Judge also concluded that this was not a case where GE had acted unfairly in "snaring the assets of a guarantor that otherwise would not have been available to it". He said the facts showed that by providing the guarantee, the appellant was able to join with her husband in obtaining moneys from GE which had been to her direct benefit. In particular, he said the appellant was a substantial beneficiary of the payments withdrawn from Brevtex while it was in breach of the Retail Bailment Agreement and had acquired 59 Hobbs Avenue. The primary Judge concluded that the facts failed to establish any undue influence on the appellant by her husband and that GE did not owe the appellant a duty of care to ensure she was independently advised. However, based on Mr Leslie's statements concerning the execution of the Acknowledgements relating to further increases, the primary Judge found there was an arguable case in relation to the advances in excess of $500,000.
32 Accordingly, the primary Judge ordered summary judgment against the appellant in the sum of $500,000 plus interest. As Mr Leslie's affidavit concerning execution of the Acknowledgements was filed late in the day, the primary Judge ordered that GE's application for summary judgment against the appellant in respect of the balance of the claim be adjourned to a special appointment before him and gave liberty to the
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- parties to file and serve further affidavits. The primary Judge also ordered that the appellant execute a legal mortgage of 59 Hobbs Avenue in favour of GE "securing the amount of the judgment sum against the [appellant]".
33 Prior to the appellant's former solicitors ceasing to act, they filed a notice of appeal (albeit foreshadowing an intention to seek leave to amend that did not eventuate). The grounds of appeal are that the primary Judge erred in not finding there was a triable issue. In particular, he erred in:
(a) rejecting the appellant's evidence that she did not know or understand what she was signing;
(b) failing to conclude that there was an arguable case of situational disability;
(c) focussing on whether the appellant had benefited from moneys advanced by GE in the purchase of 59 Hobbs Avenue and the fact she was legally represented at settlement;
(d) finding that the appellant by her own choice reposed trust in Mr Leslie;
(e) failing to consider whether the evidence relating to the execution of the Acknowledgements raised a triable issue in relation to the original guarantee and the purchase of 59 Hobbs Avenue.
34 GE has not progressed the action against the appellant. The reason for that became apparent from an affidavit of Mr Smith filed just prior to the hearing of the appeal in which he provides details of the amounts and sources of moneys received by GE that have been applied in reduction of Brevtex's debt. He swears that:
"[T]he Respondent has received the following amounts from the sale of the following properties over which the Respondent held securities, securing the obligations of Brevtex Machine Tools to the Respondent:
(a) the sum of $850,902.02 from the sale of 61 Hobbs Street, Dalkeith … owned by Jeffrey Leslie and the Appellant as joint tenants over which the Respondent held a second mortgage;
(Page 13)
- (b) the sum of $10,674.57 from the sale of 369 Sandy Bay Road, Hobart … owned by Brevtex Pty Ltd … over which the Respondent held a second mortgage; and
(c) the sum of $643,783.73 from the sale of 59 Hobbs Avenue, Dalkeith … owned by Anne Leslie over which the Respondent held a second mortgage."
35 The second mortgage of 59 Hobbs Avenue in favour of GE was a consequence of the summary judgment order made by the primary Judge. Based on the figures in Mr Smith's affidavit, it is apparent that GE has obtained from the appellant significantly more than the sum of $500,000 the subject of the summary judgment order.
Analysis
36 I am satisfied the appellant had a number of arguable defences to GE's claim and that the primary Judge erred in ordering summary judgment for $500,000 and interest and in ordering the appellant to execute a legal mortgage of 59 Hobbs Avenue. The error occurred because of the primary Judge's failure to consider all the arguable defences that arose on the evidence. In particular, the primary Judge did not consider the principle in Yerkey v Jones (1939) 63 CLR 649 subsequently approved and applied by the High Court in Garcia v National Australia Bank Ltd (1998) 194 CLR 395 or whether GE's conduct was unconscionable under s 51AC of the Trade Practices Act 1974 (Cth) ("TPA") (expressly relied on in the appellant's affidavit) or the contractual construction issues to which I have already adverted.
37 Further, the primary Judge erred in summarily rejecting the appellant's evidence that she did not read or understand the relevant documents supplied by GE. That evidence had to be assessed in a context where GE supplied a large number of documents to the appellant, through the agency of her husband, the majority of which had no bearing upon her personal liability as a third party security provider. Whether a person in the appellant's situation should be presumed to understand the meaning of the term "guarantee" or "guarantor" is not to the point. In any event, the Secured Guarantee was much more than a straightforward guarantee. It went well beyond mere personal covenants to pay in the event of Brevtex's default. It included an agreement to provide mortgage security over all land, present and future, held by the appellant. Moreover, GE was asserting that the Secured Guarantee covered all commercial transactions, present and future, between GE and Brevtex whether or not
(Page 14)
- connected with the floorplan agreement. These matters are relevant not only to the appropriateness of peremptorily rejecting the appellant's evidence that she did not read and understand the documents but also to the issue of whether the Secured Guarantee was substantively unconscionable or went beyond what was reasonably to be expected for the protection of GE's legitimate interests. Having regard to the circumstances in which the appellant signed the documents and the scope of the guarantors' alleged obligations, it was not open to summarily reject the appellant's evidence as inherently incredible.
38 The primary Judge's focus on the equitable doctrine of unconscionability was too narrow. The principle in Yerkey v Jones, although closely related to, is distinct from that doctrine. The High Court in Garcia held that the principle in Yerkey v Jones continues to apply and has not been subsumed by the decision in Commercial Bank v Amadio. In Garcia a married woman signed a number of guarantees at the request of her husband. The guarantees related to loans made by a bank to, inter alia, a company. The wife was a director of the company. The trial Judge found the wife was not directly involved in the company and in fact obtained no real benefit from entering into the transaction and was thus a volunteer. The trial Judge also found that the husband had assured his wife that there was no risk involved; that the wife did not understand the guarantee to be secured by a mortgage she had given over the matrimonial home; and that the bank did not explain the effect of the guarantees to her. The High Court held that it would have been unconscionable for the bank to enforce the guarantee against the wife as:
(a) she did not understand the purport or effect of the transaction;
(b) she was a volunteer because she did not obtain any financial benefit from the transaction;
(c) the bank was taken to have understood that, as a wife, the appellant may have reposed trust and confidence in her husband in matters of business and therefore to have understood that the husband may not have fully and accurately explained the purport and effect of the transaction to the appellant;
(d) the bank took no steps to explain the purport and effect of the transaction to the wife or to ascertain whether the effect of the transaction had been explained to her by a competent, independent and disinterested stranger.
(Page 15)
39 These are not essential elements of a claim for breach of the principle in Yerkey v Jones. Whether or not the appellant received any financial benefit may not be determinative if there are other relevant factors such as, for example, unconscionability in the terms of the guarantee. In any event, the evidence does not enable a determination of the extent of Brevtex's alleged breaches or the appellant's benefit. In my view there is an arguable case that GE breached the principle in Yerkey v Jones. In the circumstances it is unnecessary to consider the appellant's defence under s 51AC of the TPA.
40 Further, there are arguable issues as to the proper construction of the Secured Guarantee. As already noted, the appellant's contractual liability for the original and further indebtedness will depend upon whether the Second Guarantee is to be construed as relating solely to commercial transactions under the Retail Bailment Agreement falling within the approved credit facility; or to commercial transactions under the Retail Bailment Agreement; or, as GE contends, all commercial transactions of any nature between GE and Brevtex, both present and future. Another issue raised on the evidence is whether, having regard to Mr Leslie's evidence as to the nature and effect of the control in fact exercised by GE, the Retail Bailment Agreement had been abandoned and a new agreement entered into. Under the Retail Bailment Agreement, the equipment is the primary source of and security for the repayment of Brevtex's indebtedness to GE. Under the arrangement to which Mr Leslie deposes, that fundamental aspect of the Retail Bailment Agreement disappears and the arrangement begins to resemble an unsecured loan agreement with variable instalment payments. If that is borne out by the evidence, it is arguable that Brevtex's liability is not within the scope of the Secured Guarantee. In any event, the conduct is potentially relevant to the unconscionability claim.
41 I turn now to the evidence relating to GE's involvement with the purchase by the appellant of 59 Hobbs Avenue. There are a number of difficulties with the evidence. First, it is not clear that there was a loan from GE. On one view of the evidence, there may have been an agreement whereby GE waived its entitlement to all the funds from the sale of the third party security over the Sandy Bay Road property owned by the first defendant in return for permission to lodge caveats over that land and 59 Hobbs Avenue. If that is the case, the Secured Guarantee does not apply to this arrangement as there is no commercial transaction between GE and Brevtex. In any event, Mr Smith's evidence was that GE
(Page 16)
- lent money to the appellant not Brevtex. The letters of 23 and 24 February are addressed as follows:
Mr Jeff Leslie
Brevtex Machine Tools Pty Ltd
61 Hobbs Avenue
Dalkeith WA 6009
43 Counsel for GE informed the Court at the hearing of the appeal that the appellant sold 59 Hobbs Avenue (under pressure from mortgagees) and GE received the sum of $643,783 for lifting its caveat rather than as a result of the court-ordered mortgage. That raises the question of the purpose of the caveat. The letter of 23 February (counter-signed by the appellant) is silent on that question. That letter provides no arguable support for any claim that by agreeing to the caveat the appellant thereby agreed to provide 59 Hobbs Avenue as security for Brevtex's liability to GE. At best it may be arguable that the appellant agreed to provide security over 59 Hobbs Avenue to GE for the amount of the loan (and perhaps interest) to assist in the purchase of that property. However, the appellant's evidence was that she did not know of GE's involvement in financing the purchase.
44 Accordingly, the only basis for GE's claim to a legal mortgage of 59 Hobbs Avenue is cl 7(2)(b) of the Secured Guarantee. The arguable defences to which I have referred apply equally to that claim. Accordingly, the primary Judge erred in ordering the appellant to execute the mortgage. The appropriate course was for the primary Judge to order that the net balance from any sale of 59 Hobbs Avenue be paid into court (or other similar agreed arrangement) pending the determination of the action. An order to that effect, with necessary modifications in relation to interest, should now be made.
45 I would order that so much of the orders made by Blaxell J on 4 March 2005 (as varied by Murray J on 22 March 2005) as relate to the appellant be set aside. I would hear from the parties as to the terms of the order relating to the net proceeds of sale of 59 Hobbs Avenue.
46 BUSS JA: I agree with McLure JA.
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