Luttrell v Key 2 Ltd - [2006] WADC 130

JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CIVIL

LOCATION: PERTH

CITATION: LUTTRELL -v- KEY 2 LTD & ANOR [2006] WADC 130

CORAM: STAVRIANOU DCJ

HEARD: 27-28 APRIL & 10 MAY 2006

DELIVERED : 25 AUGUST 2006

FILE NO/S: CIV 752 of 2005

BETWEEN: GERARD MAJELLA LUTTRELL
Plaintiff
AND
KEY 2 LTD (ACN 009 264 699)
First Defendant
ANANDA KATHIRAVELU
Second Defendant

Catchwords:

Contract - Consideration - Whether illusory

Equity - Unconscionable conduct - Conduct in a commercial context - Whether unconscientious advantage of special disadvantage of another - inequality of bargaining power

Trade practices - Consumer protection - Trade Practices Act 1974 s 51A, s 52 and s 75B - Whether contractual promise which is later breached necessarily a representation as to future conduct when made - Action for damages against director of corporation involved in misleading and deceptive conduct - Accessorial liability - Onus of proof

Legislation:

Trade Practices Act 1974, s 51A, s 52, s 75B

Result:

Judgment for plaintiff against first defendant for $105,000

Claim against second defendant dismissed

Representation:

Counsel:

Plaintiff:     Mr B P Wheatley
First Defendant             :     Mr P N Bevilacqua
Second Defendant         :     Mr P N Bevilacqua

Solicitors:

Plaintiff:     Nicholson Clement
First Defendant             :     Fairweather & Lemonis
Second Defendant         :     Fairweather & Lemonis

Case(s) referred to in judgment(s):

Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Ltd (2003) HCA 18
Australian Competition and Consumer Commission v Michigan Group Pty Ltd [2002] FCA 1439
Blomley v Ryan (1956) 99 CLR 362
Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447
Concrete Constructions Group v Litevale Pty Limited & Ors [2002] NSWSC 670
New Zealand Shipping Co Ltd v AM Sattherwaite & Co Ltd [1975] AC 154
O'Rorke v Bolingbroke [1877] 2 App Cas 814
Quinlivan v Australian Competition and Consumer Commission [2004] FACFC 175
Serrata Investments Pty Ltd v Rajane Pty Ltd (1991) 6 WAR 419

Case(s) also cited:

Australian Woollen Mills v Commonwealth (1954) 92 CLR 424
Automasters Australia Pty Ltd v Bruness Pty Ltd & Anor [2002] WASC 286
The Commonwealth v Verwayen (1990) 170 CLR 394
Currie v Misa (1875) LR 10 Exch 153
Familiar Pty Ltd v Samarkos [1994] NTSC 22
Hart v O'Connor [1985] AC 1000
Parras Holdings Pty Ltd & Ors v Commonwealth Bank of Australia [1997] 1107 FCA (24 October 1997)
Walton Stores (Interstate) Ltd v Maher (1988) 164 CLR 387
Wigan v Edwards (1973) 1 ALR 497

STAVRIANOU DCJ:

Introduction

On 29 July 2004 the plaintiff and the first defendant entered into a written agreement pursuant to which the first defendant covenanted to pay the plaintiff $105,000. The payment was not made on the due date of 31 August 2004.
The plaintiff claims against the first defendant $105,000, damages and interest. The claims are made in contract, promissory estoppel and pursuant to s 82 of the Trade Practices Act 1974 ("the Act").
Liability in contract is denied on the grounds that:
(a)there was no consideration for the obligation giving rise to the alleged debt; and
(b)the agreement is void and unenforceable because of the plaintiff's unconscionable conduct.
The claim against the second defendant is for damages as an accessory under s 75B of the Act.

The parties to these proceedings

The plaintiff is a business broker.
The first defendant is a company associated with the second defendant, who was a director during the period to which this dispute relates.
The second defendant has many years experience as a stockbroker and investment banker working in financial services and funds management.
There have been a number of changes of name and structure of companies associated with the first and second defendant. No issue arises in relation to the changes. For present purposes it is sufficient to note that Key 2 Rental Management Ltd is a subsidiary of the first defendant. Between 6 July 2001 and 16 September 2003 the plaintiff was a director of Key 2 Rental Management Ltd.

The pleadings

The written agreement relied upon is pleaded as follows:
"By a written agreement dated 29 July 2004 made between the Plaintiff and the First Defendant, the Plaintiff agreed to continue his personal guarantee of the Facility with the Bank to 31 August 2004 in consideration for a payment of $105,000.00 by the First Defendant ('the agreement')."
The claim under s 82 of the Act is pleaded as follows:
"11.Further or alternatively, the Second Defendant on behalf of the First Defendant represented to the Plaintiff that if he agreed to continue his personal guarantee alternatively not to proceed with notice to the Bank to stop his further liability under the Guarantee until after 31 August 2004, the First Defendant would pay the Plaintiff the sum of $105,000.00 alternatively that it would perform the agreement ("the representation").
Particulars
The representation was made on a number of occasions during July 2004 in conversations between the Second Defendant on behalf of the First Defendant and the Plaintiff and was confirmed by the agreement.
11AAt the time of making the representation as to a future matter the Defendants did not have reasonable grounds for making the representation and the Plaintiff relies on section 51A of the Trade Practices Act 1974 (Commonwealth).
12.The representation was made by the First Defendant in trade or commerce.
13.In reliance upon the representation the Plaintiff continued his personal guarantee alternatively withdrew his written notice to the Bank to stop his further liabilities under the Guarantee incurred legal fees, took legal action to recover the sum of $105,000 and suffered increased stress, anxiety and inconvenience.
14.On 31 August 2004, the Second Defendant on behalf of the First Defendant advised the Plaintiff that the First Defendant was unable to pay the Plaintiff and requested further time to pay.
15.The First Defendant now denies that it is liable to pay the sum of $105,000.00 or any sum to the Plaintiff.
16.By reason of the above, the First Defendant has engaged in misleading or deceptive conduct in contravention ("the contravention) of Section 52 of the Trade Practices Act Commonwealth) 1974 ("the Act").
17.The Second Defendant has aided, abetted, counselled, or procured or has been directly or indirectly, knowingly concerned in or party to the contravention pursuant to Section 75B of the Act."
The estoppel plea repeats paragraphs 11 and 13 to 15 and then pleads that:
"20.It would now be unconscionable to permit the First Defendant to depart from the representation, resulting in loss and damage to the Plaintiff so that the First Defendant is estopped from denying that it is liable to pay the Plaintiff the sum of $105,000.00 plus damages."
The defence admits that the first defendant entered into the written agreement sought to be relied upon by the plaintiff.
The defendants plead that there was no consideration for the plaintiff's promise to pay $105,000. The plea is as follows:
"As to paragraph 8 of the amended statement of claim, the defendants:
(a). . .
(b)say that the consideration stated in the Agreement to be provided by the plaintiff was to continue his personal guarantee of the Facility with the Bank to 31 August 2004 by not withdrawing his guarantee completely;
(c)deny that the consideration stated in the Agreement was for the plaintiff to withdraw the 7 July letter.
(d)say that the Agreement is not binding and enforceable by the plaintiff against the first defendant because the plaintiff was contractually obliged to continue his obligations under the Guarantee and could not unilaterally end its operation by withdrawing the guarantee."
The defendants plead that the circumstances of entering into the agreement constitute unconscionable conduct and that the agreement is therefore unenforceable and void.

The factual background

In or about early 2001 the plaintiff was approached by the second defendant about selling the rent roll for a business known as Joseph Charles Learmonth Duffy of which the plaintiff was a principal.
Terms of sale were agreed and before completion of the transaction the plaintiff was asked to be a director and licensee of the acquiring entity. This was in or about early 2002. The request for the plaintiff to be the licensee was made because the Real Estate and Business Agents Act 1978 imposed requirements in relation to the carrying on of business and the nomination of a licensee. As part of the agreement for the sale a fee of $30,000 per annum was to be paid to the plaintiff in relation to him acting as a director and the statutory licensee.
On or about 29 April 2002 the plaintiff executed a guarantee in favour of the National Australia Bank Limited to secure a bill facility to be made available to enable completion of the purchase. The second defendant and another were also guarantors. By providing the guarantee the plaintiff assisted the first defendant to complete the purchase of the rent roll business.
Subsequent to the completion of the acquisition of the rent roll of Joseph Charles Learmonth Duffy the second defendant acquired the rent rolls for other entities.
On 21 March 2003 the plaintiff wrote to the Real Estate Agents Supervisory Board resigning as nominated licensee for the first defendant.
On 16 September 2003 the plaintiff gave notice of resignation as a director of Key 2 Rental Management Ltd. However he remained as a guarantor for the National Australia Bank Limited facility notwithstanding that he had ceased to be a director. He had no further significant involvement in the business from about that time.
In December 2003 the first defendant became interested in and commenced negotiations for the acquisition of the rent roll of Aliquot Asset Management Ltd a company associated with a Mr Michael Perrott. At that time the plaintiff was no longer a director or licensee of the first defendant. An agreement was reached for the first defendant to acquire the rent roll. Its terms required payment of a deposit of $750,000 and the balance within six months. The first defendant proposed to obtain the balance of the purchase price of just over $1,000,000 by way of a capital raising by prospectus.
By mid‑July 2004 the final drafts of the prospectus for the acquisition of the rent roll for Aliquot Asset Management Ltd were being finalised.
The prospectus was completed and lodged with the relevant authority around mid‑July 2004 to raise $1.875 million of which approximately $1,000,000 was to complete the acquisition of the rent roll.
In or about the first half of 2004 the plaintiff was constructing a house and approached the National Australia Bank Limited concerning an extension to his home mortgage for that purpose. The plaintiff was told by an employee of the National Australia Bank Limited that there would be a problem with the extension because of the guarantee he had executed in relation to the bill facility.
There were discussions between the second defendant and the plaintiff in mid May 2004 about the plaintiff's position as guarantor and in particular his desire to be replaced. On 4 July 2004 the National Australia Bank Limited wrote to the first defendant and advised that the plaintiff would not be considered to be released as a guarantor until after the completion of the purchase of the rent roll business of Aliquot Asset Management Ltd. In the letter the National Australia Bank Limited stated a release before the capital raising would be considered subject to replacement security. The discussions between the plaintiff and the second defendant as to replacement as guarantor did not have any result so far as the plaintiff was concerned and on 7 July 2004 he wrote to the National Australia Bank Limited concerning the guarantee. The letter was in the following terms:
"Reference: LOAN GAURANTEE (sic) FOR KEY 2 PTY LTD
Please note that as of this date, and in reference to the existing loan that the National Australia Bank has with Key 2 Pty Ltd, I formally state that I limit my exposure to only the loan that was originally granted under the then conditions set. Under no circumstances are any extensions, adjustments, variations or waivers to be given with out my explicit knowledge and demand to know of any, if any have been given during the life of this loan.
Also, from this point on, as guarantor, I must be party to any correspondence involving this said loan.
Please confirm receipt of this letter and its context."
On 8 July 2004 the plaintiff wrote to the first defendant in the following terms:
"Re, key 2 accounts
Please make available either on Monday 12 July or Tuesday 13 July, your financial controller or your self to sit with me to go through ALL relevant general accounts. Items that I wish to see are,
A)All key performance indicators
B)trading accounts for each month for the preceding year
C)forward budgets
D)churn rate on monthly bases showing lost and gained properties
Also please provide minutes to meetings showing board approvals to further extend Key2 liabilities thru the acquisition to Aliquot on the bases of delayed payments and evidence the approvals of existing loan guarantors to do same.
Also please provide to me at this same meeting, copies of all correspondence which evidence any changes/variances to the original loan agreement including all changes to any key date changes for performance targets.
Also, please outline to me at what rate/cost are you offering to pay myself and Joseph Charles Learmonth Duffy for the two and a half years of being a guarantor for the Key2/national loan. I see it as 15% of 1/3 of $2m, ie $250,000, please outline your payment of same at our meeting."
Subsequent to the letter of 7 July 2004 the plaintiff had a meeting with officers of the National Australia Bank Limited.
Following a communication from the financial controller of the first defendant the second defendant telephoned the plaintiff. This was on or about 12 July 2004 and the second defendant rang the plaintiff from Europe .
There was a second telephone conversation which occurred on 13 July 2004. An agreement to pay $105,000 was reached subject to a written agreement being prepared.
What was said in each conversation is in issue.
On 15 July 2004 the plaintiff wrote to the National Australia Bank Limited in the following terms:
"Reference: LOAN GAURANTEE (sic) FOR KEY 2 PTY LTD
Please note that as of this date, and in reference to the existing loan that the National Australia Bank has with Key 2 Pty Ltd and in relation to the letter I sent on 7 July 04, please put on hold any action that I have requested due to the commercial arrangement that I am negotiating with key 2. I will inform you as to whether those negotiations are successful or not by Monday 19 July 04. I appreciate your patience."
A written agreement was prepared by solicitors and signed by the plaintiff and the first defendant on 29 July 2004.
On 31 August 2004 the plaintiff rang the second defendant concerning the payment of the $105,000 which was due on that date. The second defendant requested an extension of time for payment. There was no denial of liability and no objection to the request for payment.

The guarantee

The guarantee executed by the plaintiff as security for the bill facility is a printed form. It was for a facility to be provided to Key 2 Limited (ACN 092 356 842) subsequently known as Key 2 Management Rental Limited.
Clause 15 of the guarantee provides:
"15.1You may stop this guarantee and indemnity covering further liabilities the customer may incur to the Bank only by:
(a)giving the Bank notice in writing; and
(b)unless the Bank agrees to the contrary, either:
(i)if the amounts which the customer owes the Bank can be determined exactly, paying the Bank those amounts up to the maximum liability; or
(ii)if they cannot be determined exactly, making provision to pay the Bank up to the maximum liability in a manner and to an extent that the bank (acting reasonably) considers satisfactory to the Bank.
15.2The notice does not reduce your liability under this guarantee and indemnity in respect of the total of the amounts which the customer owes the Bank at the time of the notice.
15.3The notice does not prevent you becoming liable for any amounts that the bank had agreed to make available to the customer before the time of the notice but had not yet provided, but you may stop this guarantee and indemnity covering those amounts by paying them to the Bank or by making provision for their payment under 15.1 as if they were amounts which the customer owes the Bank.
15.4Even though you have given the Bank a notice, this guarantee and indemnity will be considered to be continuing in full if it is claimed later that any payment by the customer before the time of the notice is void or voidable for any reason or is a preference.
15.5The Bank may continue any existing accounts or open new accounts with the customer even though:
(a)you give the Bank notice to stop further liabilities; or
(b)the Bank makes a demand under this guarantee and indemnity; or
(c)this guarantee and indemnity stops being a continuing security.
As far as this guarantee and indemnity is concerned, any money paid into those accounts after that time will not be considered to discharge any amounts that the customer owes the Bank up to that time or to reduce your liability under this guarantee and indemnity."

The agreement

The agreement relied upon is constituted by a letter from the first and second defendants addressed to the plaintiff and dated 29 July 2004.
The letter is in the following terms:
"PERSONAL GUARANTEE
Key 2 Ltd (Key2) refers to discussions between Ananda Kathiravelu and you in relation to your personal guarantee of the facility with National Australia Bank (Facility) for Key2 Rental Management Ltd (Company). Key2 is pleased to agree the terms and conditions of your agreement to continue your personal guarantee to 31 August 2004.
Fee
In consideration for your agreement to continue your personal guarantee of the Company's Facility to 31 August 2004, Key2 shall pay $105,000 to you (Fee) on the earlier of:
(a)31 August 2004; or
(b)5 days after the offer contained in Key2's prospectus dated 20 July 2004 is closed.
For the voidance of doubt, the Fee will be payable to you whether or not you are released from the personal guarantee for the Facility before 31 August 2004.
Term
In consideration for the Fee payable by Key2 to you, you agree to continue your personal guarantee until 31 August 2004.

Relinquishment of Guarantee
You acknowledge that you will, at any time prior to 31 August 2004, do anything reasonably required of you by Key2 to relinquish your guarantee prior to 31 August 2004.
Events of Default
Without prejudice to any other terms of this letter, the following acts, omissions, or events are agreed to be a default of the terms of this letter, and the personal guarantee:
(a)the Company fails to perform or observe any material undertaking, obligation or agreement expressed or implied in this letter and that failure is not, in your reasonable opinion remediable;
(b)the Company fails to perform or observe any other material undertaking, obligation or agreement expressed or implied in this letter which is in your opinion, capable of being remedied, and the Company fails to remedy that conduct with 7 days after receipt by the Company of a notice from you specifying the failure;
(c)a receiver, receiver and manager, official manager, trustee, administrator or similar official is appointed, all steps taken for such appointment, over any of the assets or undertaking of the Company;

(d)the Company is or becomes unable to pay its debts when they are due or is or becomes unable to pay its debt within the meaning of the Corporations Act or is presumed to be insolvent under the Corporations Act;
(e)the Company enters into or resolves to enter into any arrangement, composition or compromise with, or assignment for the benefit of, its creditors or any class of them otherwise than whilst solvent and without your prior written consent;
(f)an administrator or a resolution is passed or any steps are taken to appoint, or to pass a resolution to appoint, an administrator to the Company;
(g)an application or order is made for the winding up or dissolution of the Company or a resolution is passed or any steps are taken to pass a resolution for the winding up or dissolution of the Company otherwise then for the purposes of an amalgamation or reconstruction which has your prior written consent.
(Event of Default).
Default

If there is an Event of Default, the Fee shall become immediately due and payable to you by Key2, without requirement for a demand to be made by you.
GST
To the extent that a taxable supply (as defined in A New Tax System (Goods and Services Tax) Act 1999 (GST Act) is made under this agreement, Key2 agrees to pay the GST amount for that taxable supply in addition to any other amount payable under this agreement. For the purposes of this agreement 'GST' has the same meaning as in the GST Act.
Stamp Duty and Expenses
The Company shall pay all costs, taxes and duties and all other expenses in connection with preparation, execution, delivery and stamping of this agreement and any ancillary and collateral documents relating to these documents.
Governing Law
This agreement shall be governed by and construed in accordance with the laws of Western Australia and the parties submit to the jurisdiction of the courts of that state.
Further Assurances
You, Key2 and the Company shall sign, execute and do all deeds, acts, documents and things as may reasonably be required by the other party to effectively carry out and give effect to the terms and intentions of this letter.
Variation
No modification or alteration of the terms of this letter shall be binding unless made in writing dated subsequent to the date of this letter and duly executed by the parties.
Time of the essence
Time shall be of the essence in this agreement in relation to any obligation of Key2 to pay any money to you.
Entire Agreement
This letter shall conclude the sole understanding of the parties with respect to the subject matter and replaces all other agreements with respect to the subject matter.
If you agree with the terms set out above, you must sign this letter and fax it to 9228 9766."

The letter was prepared by solicitors on the instructions of the first defendant. The agreement contains a covenant by the plaintiff that he would do anything reasonably required of him by the first defendant to relinquish his guarantee prior to 31 August 2004. A proper construction of the agreement is that the parties contemplated a release prior to 31 August 2004. Payment was to be made in the event of such early release being obtained. The release from the guarantee was what the plaintiff had been requesting from at least mid May 2004.

The evidence of the principal witnesses

The plaintiff gave evidence that in early 2001 he was approached by the second defendant about selling the rent roll for Joseph Charles Learmonth Duffy.
The plaintiff's evidence was that after completion of the purchase of the rent roll he was employed by the second defendant. Following completion of the purchase he became concerned that some of the clients who comprised part of the rent roll business were being lost. His involvement in the business following completion decreased.
On 21 March 2003 the plaintiff wrote to the Real Estate Agents Supervisory Board resigning as nominated licensee. On 16 September 2003 the plaintiff gave notice of resignation as a director.
The plaintiff gave evidence that he was concerned about the ability of the first defendant to raise the final payment for the purchase of the rent roll business of Aliquot Asset Management Ltd. This was towards the end of 2003.
In the first half of 2004 the plaintiff was building a house and approached the National Australia Bank Limited concerning an extension to his home mortgage. The plaintiff was told by an employee of the Bank that there would be a problem with the extension because of the guarantee in relation to the bill facility. The plaintiff said this became a major concern to himself and his family.
The plaintiff told me he had several discussions with the second defendant regarding the guarantee. He said he was told that the first defendant was moving to have him removed as a guarantor. The discussions did not resolve the matter so far as the plaintiff was concerned and it was his evidence that he therefore wrote to the National Australia Bank Limited on 7 July 2004. The plaintiff gave evidence that by his letter of 7 July 2004 he was trying to make sure that there were no further extensions, adjustments, variations or waivers of the guarantee. The plaintiff said he was concerned that his assets were at risk and "were propping up this business". On 8 July 2004 the plaintiff wrote to the first defendant. By that letter he sought $250,000 as a fee for "the two and a half years of being a guarantor…" The fee had not been negotiated in the initial purchase transaction.
Subsequent to the letter of 7 July 2004 the plaintiff had a meeting with officers of the National Australia Bank Limited.
The plaintiff's evidence was that the second defendant rang him from Europe. This was after 8 July 2004 and the second defendant said he had a problem with the plaintiff's advice to the National Australia Bank Limited in regards to the first defendant's capital raising and wanted to negotiate what the plaintiff described as an appeasement. The plaintiff's evidence was that the second defendant offered him shares in the first defendant. The plaintiff said he was not interested in shares and wanted a payment. A figure of $105,000 was discussed. The plaintiff denied he said he would torpedo the prospectus and was using it as leverage. He agreed he said to the second defendant that some arrangement would need to be made.
The plaintiff's evidence was that there was a second conversation the next day. In the second conversation an agreement was reached. The plaintiff's guarantee was to continue and he would be paid $105,000. A written document was to be prepared and executed. The written agreement was suggested by the second defendant.
The written agreement was prepared by solicitors and signed on 29 July 2004 although the document was incorrectly dated 29 August 2004.
On 31 August 2004 the plaintiff rang the second defendant. In the conversation the second defendant admitted that that he knew he owed the $105,000. On that same day the plaintiff gave notice to the National Australia Bank Limited to determine the guarantee.
The plaintiff said that the effect of non‑payment was that he had suffered stress and anxiety
The plaintiff's evidence was that he was not clear on what he could and couldn't do in relation to the guarantee and for that reason in July 2004 met with representatives of the National Australia Bank Limited. He said he was aware that terminating the guarantee would create significant problems for the first defendant's fund‑raising. He denied that he ever threatened the second defendant with torpedoing the prospectus.
I found the plaintiff to be a convincing witness. His evidence was given in a straightforward and concise manner. I accept him to be an honest and reliable witness. I accept his evidence that in the conversations with the second defendant he made it clear that he wanted to be replaced as a guarantor.
Michael Paul Glossop is a senior manager of the National Australia Bank Limited and gave evidence on behalf of behalf of the plaintiff. He told me that in June 2004 he became involved in the management of the facilities provided by the National Australia Bank Limited to the first defendant. He told me that the borrower was operating outside of the conditions of the facility. He said that when he received the letter of the 7 July 2004 he arranged an appointment with the plaintiff and two other employees of the Bank, a Mr Rocco Betti and a Mr Brian Brown. At the meeting which occurred on 12 July 2004 the Bank's requirements in relation to the letter of 7 July 2004 were discussed.
Mr Glossop's evidence was that at the meeting the plaintiff said that he wanted to determine the guarantee. Mr Glossop told me that he requested the plaintiff to clarify what he wanted the Bank to do. The consequences of the termination of the guarantee were discussed. Mr Glossop told me that it was always the Bank's position that the plaintiff would not be released as a guarantor without a suitable replacement and that in conversations he had with the plaintiff this was made plain to him. It was also made plain to the plaintiff that liability under the guarantee would remain, despite crystallisation of the debt.
On the 15 July 2004 the Bank received the letter from the plaintiff.
The plaintiff sought to reopen his case and adduce evidence of a typewritten memorandum dated 11 September 2001 and signed by a Mr Andrew Morgan an employee of the National Australia Bank Limited. The typewritten memorandum had a handwritten endorsement dated 31 December 2002 which concerned the plaintiff's involvement in the facility. The memorandum was sought to be tendered under s 79C and s 89 of the Evidence Act 1906. The tender under s 79C was not vigorously pursued. In my view the document could not be admitted under s 79C. The document sought to be tendered was not a banker's book and could not be admitted under s 89 of the Evidence Act 1906.
The second defendant gave evidence that he was an executive director of the first defendant.
The second defendant told me he and a Mr Fogarty became associated as investors and specifically in relation to the first defendant for the purpose of aggregating rent rolls and management authorities.
He told me that the first acquisition was the rent roll of Joseph Charles Learmonth Duffy and that the purchase was negotiated with the plaintiff over several months. At the time of executing the agreement for purchase or shortly before the plaintiff agreed to be the statutory licensee and a director of the acquiring entity Drive Consulting Pty Ltd.
The plaintiff's involvement in the business subsequent to completion of the purchase was as statutory licensee and attending board meetings.
In or around November 2001 the first defendant completed the acquisition of two further rent rolls.
The second defendant told me that if the purchase of the rent roll of Aliquot Asset Management Ltd was not completed the first defendant "would have been very close to having a solvency issue".
The second defendant said he had discussions with the plaintiff in mid May 2004 about his position as a guarantor and how he wished to not be a guarantor. At that stage the plaintiff wanted to be replaced as a guarantor and the second defendant told me that the plaintiff started agitating for a form of guarantee fee. A guarantee fee had never been agreed or paid prior to that date.
The second defendant said he considered it was reasonable for the plaintiff to be replaced but told him it would be difficult. The second defendant told me the plaintiff said he would like to be paid for past and future exposure for his guarantee. The second defendant's evidence was that there was no way that the first defendant would entertain any guarantor fee and that he told the plaintiff that. I pause to note that the plaintiff had provided his guarantee of the facility so that the purchase of the Joseph Charles Learmonth Duffy rent roll could proceed.
The plaintiff's response was to maintain that he wanted to be removed as a guarantor.
By mid July 2004 the final drafts of the prospectus for the acquisition of rent roll of Aliquot Asset Management Ltd were being done.
Following a communication from the financial controller of the first defendant the second defendant telephoned the plaintiff. In the telephone conversation the plaintiff said that he was using "the prospectus as leverage to make you do something to get me off this guarantee." The second defendant said that the plaintiff said that if he was not removed as a guarantor he would "torpedo the prospectus." At that stage the first defendant needed to make a payment of $1,100,000 to complete the purchase of the rent roll of Aliquot Asset Management Ltd.
The terms of the agreement were to be formalised upon the second defendant's return from overseas.
In examination‑in‑chief the second defendant said:
"So to confirm the agreement that was entered into was created by virtue of that conversation on 13 July 2004? ---Yes.
The first defendant was to make a payment to Mr Luttrell. What was Mr Luttrell to do?‑‑‑Not withdraw his guarantee, continue his guarantee.
And if he had withdrawn his guarantee, what would you have to have done, what would have been the consequence of that? ‑‑‑It would have been very difficult to find a replacement when you owe someone $1.1 million who would be looking to hammer you over the head with their charge in the process of a capital raising which was critical to the future success of the business. It would have been very difficult and we were very concerned about having to spend the time to find a replacement and also raise $1.875 million to finalise an acquisition. It would have really spread our resources quite thin and quite frankly the business was very reliant on me funding it and managing it, and to have that additional burden would have compromised the capital raising as well….."
The second defendant's evidence was that the first defendant's solicitors prepared the agreement of 29 July 2004 on his instructions.
The second defendant gave evidence that the purchase of the Aliquot Asset Management Ltd rent roll was completed.
The second defendant's evidence was that the plaintiff's guarantee was discharged in April 2006.
The second defendant gave evidence that he discussed payment with the plaintiff after the 31 August 2004 and that he requested an extension of time. There was no denial of liability and no objection made to the request for payment. The second defendant's evidence was unconvincing. I do not accept his evidence in relation to the continuation of the guarantee provided by the plaintiff. The second defendant's evidence was that he believed the plaintiff could withdraw his guarantee. I do not accept that evidence. It was unconvincing and given the second defendant's business experience I am not prepared to accept he believed that the plaintiff could withdraw his guarantee.
The agreement refers to replacement of the plaintiff as guarantor.
The second defendant had received the letter from the National Australia Bank Limited dated 4 July 2004. That made clear there could not be a replacement of a guarantor without adequate security. The first defendant was raising over $1,000,000 by way of an offer to public. Its finances and facilities needed to be in order. I do not accept as I have said that there was a reference to torpedoing of the prospectus. I have found that what was said was that the plaintiff wanted to be replaced as a guarantor of the National Australia Bank Limited facility.
The second defendant's evidence was that the letter of 7 July 2004 was referred to in the conversations with the plaintiff in a minor way. In the particulars of unconscionable conduct which I refer to subsequently in these reasons the first defendant puts its case on the basis that the plaintiff unreasonably took advantage of the first defendant's special disability by demanding the payment of monies from the first defendant to withdraw the 7 July letter. This difference between the particulars and the evidence leads me to question the reliability and accuracy of the second defendant's account.

Was there consideration for the agreement

In construing the agreement and in particular the expression of the consideration the Court will attempt to give business sense and efficacy to the agreement. Parol or other extrinsic evidence is admissible to interpret the expressed consideration where there is some ambiguity. In this case I am satisfied that the expression of consideration is not ambiguous.
The proper construction of the agreement of 29 July 2004 was that the plaintiff was to receive $105,000 on or before 31 August 2004. He was to continue the guarantee which he had executed to secure the bill facility. The guarantee secured all advances up to a limit of $2,000,000. Clause 15 enabled a guarantor to limit liability by giving notice. Clause 15.2 of the guarantee had the effect that a notice from the guarantor did not reduce liability in respect of the amounts owed at the time of the notice.
The defendant's submissions were that the plaintiff could not unilaterally terminate his obligations under the guarantee and withdraw it. It is said that the plaintiff had no ability to withdraw the guarantee and accordingly the consideration is illusory. I do not accept that submission. There was consideration. The plaintiff agreed to continue the guarantee. Whilst this involved performance of an existing contractual duty it was good consideration. The second defendant's facility with the National Australia Bank Limited was not disturbed.
An agreement to do an act which the promisor is under an existing obligation to a third party to do may amount to a valid consideration. (New Zealand Shipping Co Ltd v AM Sattherwaite & Co Ltd [1975] AC 154). That is the situation in this case. The promisee obtains the benefit of a direct obligation which can be enforced. By the agreement the plaintiff's guarantee granted in favour of the National Australia Bank Limited was to remain in place and would cover further advances over and above those which then existed.
By cl 13.1 of the guarantee the guarantee is expressed to be a continuing security for all amounts which the customer owes the Bank. By giving notice a guarantor could limit his liability in relation to future advances. However, liability in relation to past advances would have remained. This in my view is the proper construction of cl 15. By agreeing to continue the guarantee the plaintiff remained liable for further advances. This was a liability which he could have limited.
I am further satisfied that the first defendant was prepared to pay the plaintiff to compromise his claim that he was not bound to continue his guarantee. That was analogous to a compromise and constitutes good consideration.
If it were necessary to consider the extrinsic evidence in this case in my view it establishes that the consideration for the promise of payment of $105,000 was the continuation of the guarantee and that the plaintiff would not take steps to terminate the guarantee. The bill facility remained undisturbed as a result of the agreement.

The misleading and deceptive conduct claim

The conduct relied upon by the plaintiff is the representation of the first defendant that it would pay the plaintiff $105,000 alternatively that it would perform the agreement. Reliance is placed upon s 51A of the Act to establish that the making of the so called representation pleaded was misleading or deceptive conduct contrary to s 52 of the Act.
The plaintiff relies upon s 51A of the Act which provides:
"Interpretation
(1)For the purposes of this Division, where a corporation makes a representation with respect to any future matter (including the doing of, or the refusing to do, any act) and the corporation does not have reasonable grounds for making the representation, the representation shall be taken to be misleading.
(2)For the purposes of the application of subsection (1) in relation to a proceeding concerning a representation made by a corporation with respect to any future matter, the corporation shall, unless it adduces evidence to the contrary, be deemed not to have had reasonable grounds for making the representation.
(3)Subsection (1) shall be deemed not to limit by implication the meaning of a reference in this Division to a misleading representation, a representation that is misleading in a material particular or conduct that is misleading or is likely or liable to mislead."

The conduct must be considered at the time it was engaged in. Accordingly subsequent events including a breach of agreement do not establish a contravention. The mere non‑performance of a contractual obligation is not misleading and deceptive conduct. It is necessary to examine the contractual promise in the light of the circumstances surrounding the making of the offer and the circumstances as they have arisen, to see whether the conduct can be categorized as misleading or deceptive. Serrata Investments Pty Limited v Rajane Pty Limited (1991) 6 WAR 419 at 432 – 434.
The authorities in relation to s 51A of the Act were reviewed comprehensively by Mason P in Concrete Constructions Group v Litevale Pty Limited & Ors [2002] NSWSC 670 (1 August 2002). The learned President's analysis of s 51A was as follows:
"165Section 51A provides a method for considering whether a representation with respect to any future matter shall be taken to be misleading. Absence of reasonable grounds for making the representation will deem the representation to be misleading (subsection (1)); and for that purpose, a corporation shall be deemed not to have reasonable grounds for making a representation unless it adduces evidence to the contrary (subsection (2)).
166But this provision does not say in what circumstances a representation as to a future matter shall be implied for a contractual promise (Futuretronics at 239). A fortiori, it does not import into every contractual promise an implied representation as to intent and capacity to perform; nor does it prove that any such implied representation was relied upon by the other contracting party.
167I readily accept that it will be comparatively easy to establish that a contracting party is implicitly representing a present intention to perform it according to its tenor. If the other party can establish causation and loss then damages should ensue, although there is usually little point in addressing such a claim because the law of contract will compensate the innocent party for the consequences of non‑performance without even having to prove misleading intent from the inception.
168But when one turns to an alleged implicit representation as to capacity to perform things are not so simple, nor should they be. There are policy reasons for restraint. The law arms the parties to a contract with rights to damages and other forms of relief if breach occurs or is threatened. A complex set of common law, equitable and statutory rights are superimposed on the terms of the bargain chosen by the parties. That bargain may have the simplicity as a contract to sell a loaf of bread or the complexity of a building agreement such as the one in question in this case.
169Why should the parties be found or presumed to have intended more by what they expressly represented and understood? Of course, s 52 goes beyond intentionally misleading or deceptive conduct, but it does not follow that the innocent party understood or relied upon anything more than the express representations and the usually adequate consequences stemming from breach of them stemming from the law touching the mutually chosen regime, ie contract.
170As Ormiston J put it in Futuretronics (at 239):
'...the mere acceptance of the promise by a promisee cannot ordinarily be characterised as being led into error. In the usual case the consequence would be that the promisee had enforceable rights. It is hard to believe that normally any promisee with ordinary contractual rights would then describe himself as having been deceived or misled.'
His Honour added:
'It is only when it became apparent that the promise cannot be enforced, because, for example, it is either unenforceable or the promisee’s rights are valueless or diminished, that one may return to the original promise to inquire whether that promise was of so little substance that it can be concluded that the promisee was indeed misled or deceived in the first place, at the time of his acceptance of the promise. Thus it may then be seen that the promisor originally had no intention to perform his promise or that he originally had no capacity or ability to perform it.'
171It would be erroneous to read the latter two sentences as stating that it will always be possible to return to the original promise after breach has occurred in a search for misleading or deceptive conduct ab initio in representing capacity to perform it. Section 51A does not provide otherwise, because it is only engaged after answering the prior questions concerning the nature of the implied representation and reliance. To apply s51A to an imputed 'contractual representation' as to capacity to perform without first determining whether such representation was truly made and acted upon is to miss a vital step."
I respectfully adopt what his Honour Mason P has said. I have found that the agreement in this case was enforceable. I am not satisfied that there was any misleading and deceptive conduct engaged in.
The onus is on the plaintiff to show the second defendant had actual knowledge that:
•the representation was made and
•it was misleading or
•the corporation had no reasonable grounds for making it.
(See Australian Competition and Consumer Commission v Michigan Group Pty Ltd [2002] FCA 1439 at [303]; Quinlivan v Australian Competition and Consumer Commission [2004] FACFC 175.)
The evidence in this case does not establish that the alleged representation was misleading and deceptive or that the first defendant had no reasonable grounds for making it. The first defendant intended to perform the agreement.
Further I am not satisfied that there is any causal link between any loss alleged to have been sustained and the conduct. There is no evidence sufficient to satisfy me as to the damage suffered.
There is no substance in the claim based upon a contravention of s 52 of the Act. The claim is based upon the non‑performance of a contractual obligation without more. The claim against the second defendant based as it is upon accessorial liability under s 75B of the Act must be dismissed.

The defence of unconscionable conduct

The defence does not rely upon any form of statutory unconscionable conduct. The agreement entered into was made by two experienced businessmen.

Legal principles

In Commercial Bank of Australia Limited v Amadio (1983) 151 CLR 447 Gibbs J [at p 459] outlined the principles in relation to non‑statutory unconscionable conduct as follows:
"The principle of equity applies 'whenever one party to a transaction is at a special disadvantage in dealing with the other party because illness, ignorance, inexperience, impaired faculties, financial need or other circumstances affect his ability to conserve his own interests, and the other party unconscientiously takes advantage of the opportunity thus placed in his hands': Blomley v Ryan (1956) 99 CLR 362, at p 415, per Kitto J, and see at pp 405‑406, per Fullagar J."
Mason J also referred to the judgment of Fullagar J in Blomley v Ryan (1956) 99 CLR 362 and said [at p 462]:
"It is made plain enough, especially by Fullagar J, that the situations mentioned are no more than particular exemplifications of an underlying general principle which may be invoked whenever one party by reason of some condition of circumstance is placed at a special disadvantage vis-à-vis another and unfair or unconscientious advantage is then taken of the opportunity thereby created. I qualify the word 'disadvantage' by the adjective 'special' in order to disavow any suggestion that the principle applies whenever there is some difference in the bargaining power of the parties and in order to emphasise that the disabling condition or circumstance is one which seriously affects the ability of the innocent party to make a judgment as to his own best interests, when the other party knows or ought to know of the existence of that condition or circumstance and of its effect on the innocent party."
Mason J said [at p 461]:
"…relief on the ground of 'unconscionable conduct' is usually taken to refer to the class of case in which a party makes unconscientious use of his superior position or bargaining power to the detriment of a party who suffers from some special disability or is placed in some special situation of disadvantage…"
Deane J summarised the position [at p 474]:
"The jurisdiction is long established as extending generally to circumstances in which (i) a party to a transaction was under a special disability in dealing with the other party with the consequence that there was an absence of any reasonable degree of equality between them and (ii) that disability was sufficiently evidence to the stronger party to make it prima facie unfair or 'unconscientious' that he procure, or accept, the weaker party's assent to the impugned transaction in the circumstances in which he procured or accepted it. Where such circumstances are shown to have existed, an onus is cast upon the stronger party to show that the transaction was fair, just and reasonable: 'the burthen of shewing the fairness of the transaction is thrown on the person who seeks to obtain the benefit of the contract' (see per Lord Hatherley, O'Rorke v Bolingbroke (1877) 2 App Cas 814 at 823; Fry v Lane (1888) 40 Ch D 312; Blomley v Ryan (1956) 99 CLR 362 at 428‑429).
The equitable principles relating to relief against unconscionable dealing and the principles relating to undue influence are closely related. The two doctrines are, however, distinct. Undue influence, like common law duress, looks to the quality of the consent or assent of the weaker party (see Union Bank of Australia Limited v Whitelow [1906] VLR 711 at 720; Watkins v Combes (1922) 30 CLR 180 at 193‑4; Morrison v Coast Finance Limited (1965) 55 DLR (2d) 710 at 713). Unconscionable dealing looks to the conduct of the stronger party in attempting to enforce, or retain the benefit of, a dealing with a person under a special disability in circumstances where it is not consistent with equity or good conscience that he should do so. The adverse circumstances which may constitute a special disability for the purposes of the principles relating to relief against unconscionable dealing may take a wide variety of forms and are not susceptible to being comprehensively catalogued. In Blomley v Ryan (supra, at 405) Fullagar J listed some examples of such disability: 'poverty or need of any kind, sickness, age, sex, infirmity of body or mind, drunkenness, illiteracy or lack of education, lack of assistance or explanation where assistance or explanation is necessary'. As Fullagar J remarked, the common characteristic of such adverse circumstances 'seems to be that they have the effect of placing one party at a serious disadvantage vis-à-vis the other'."
Courts of equity will relieve against unconscionable transactions resulting from pressure placed on persons in a state of poverty. See O'Rorke v Bolingbroke [1877] 2 App Cas 814 at 822. In this case the second defendant's evidence was that the non‑completion of the acquisition of the rent roll business of Aliquot Rental Management Ltd would have created a solvency issue.
The High Court considered the content of the unwritten law in the context of s 51AA of the Act dealing with statutory unconscionability in Australian Competition and Consumer Commission v CG Berbatis Holdings Pty Limited (2003) HCA 18.
In that case it was held that a landlord did not engage in unconscionable conduct by requiring a tenant to agree to abandon claims against it as a condition of giving consent to the assignment of a lease, in circumstances where the tenant had sold the business subject to the lease being granted.
Gleeson CJ stated at [11]:
"A person is not in a position of relevant disadvantage, constitutional, situational, or otherwise, simply because of inequality of bargaining power. Many, perhaps even most, contracts are made between parties of unequal bargaining power, and good conscience does not require parties to contractual negotiations to forfeit their advantages, or neglect their own interests.
…
Unconscientious exploitation of another's inability, or diminished ability, to conserve his or her own interests is not to be confused with taking advantage of a superior bargaining position. There may be cases where both elements are involved, but, in such cases, it is the first, not the second, element that is of legal consequence."
Callinan J said at [184]:
"… Two circumstances which almost always will have the capacity to affect a person's ability to protect or further his or her own interests, are the financial capacity of that person, and its relativity to the financial capacity of a person with a competing interest. Mason J was conscious of this in Amadio, and accordingly qualified the word 'disadvantage' by the adjective 'special' in order to disavow any suggestion that the principle applies whenever, and because there is some difference, even substantial, in the bargaining power of the parties. His Honour also obviously thought it necessary to emphasise that the relevant conditions or circumstances calling for the application of the doctrine be ones which seriously affect the ability of an innocent party to make the judgment as to his or her own best interests, when the other party knows, or ought to know of that condition or circumstance, and its effect on the innocent party."

The conduct claimed to be unconscionable

The conduct claimed to be unconscionable, is particularised in par 7(dd) of the Defence. It is alleged to comprise the following:
"(dd)say that if the Agreement is enforceable by the plaintiff against the first defendant, which is denied, the Agreement is unenforceable and void because the first defendant's entry into the Agreement was a result of the plaintiff's unconscionable conduct;
Particulars
On or about 12 July 2004, during a telephone call from the second defendant to the plaintiff, the second defendant said words to the effect 'I think your letter might derail the upcoming prospectus'. During the same conversation, the plaintiff said words to the effect that 'I am not going to support the NAB loan as a guarantor. Because you are lodging your prospectus, I am using that as leverage to make you do something to get me off the guarantee. If you don't, I will pull my guarantee and torpedo the prospectus'.
On or about 13 July 2004, during a telephone call from the second defendant to the plaintiff, the second defendant said words to the effect 'If you don't pull this letter I can't raise the money under the Prospectus'. During the same conversation, the plaintiff said words to the effect that 'Then we are going to have to come to some sort of arrangement. I want you to pay me a Guarantee fee'.
The plaintiff was in a higher bargaining power than the first defendant because the first defendant's fundraising efforts were dependant upon its ability to roll over the Facility.
As a consequence, the first defendant was under a special disadvantage during the negotiations which ensued after the 7 July Letter which culminated in the making of the Agreement.
The plaintiff unconscientiously took advantage of the first defendant's special disability by demanding the payment of moneys from the first defendant to the plaintiff to withdraw the 7 July Letter."

Was the defendant under a special disability?

The first defendant was a corporation which had been involved in a number of acquisitions subsequent to the purchase of the rent roll business of Joseph Charles Learmonth Duffy. It had a number of employees and one of its directors the second defendant had considerable commercial experience. As at July 2004 it was proceeding to finalise a purchase for a consideration of $1,875,000. Part of that purchase price was to be raised by a prospectus. The transaction was a significant one so far as the first defendant was concerned and the plaintiff knew of the proposed acquisition from about the end of 2003.
The particulars of unconscionable conduct delivered by the first defendant refer to "a higher bargaining power". This is pleaded to be because of "the first defendant's fundraising efforts were dependant upon its ability to roll over the Facility…" At trial the case put was that if its proposed capital raising did not proceed, the first defendant was facing insolvency.
Whilst the non‑completion of the acquisition of the rent roll of Aliquot Asset Management Ltd may have created "insolvency issues" the evidence did not support a finding that the second defendant's financial position was such as to constitute a special disability. There was evidence of difficulties financially at about the time including taxation liabilities but the evidence did not establish with sufficient precision what the financial position of the second defendant was at the relevant time.
Further there was no evidence which I accept as to an inability to "roll over the Facility".
I am not satisfied that the plaintiff was in "a higher bargaining power". The first defendant relies upon the timing of the plaintiff's requests for payment as demonstrative of the claim of unfair advantage being taken. However, the plaintiff had been agitating from at least May 2004 to be replaced as a guarantor for the facility. What emerges from the evidence of the second defendant is that replacing the plaintiff as guarantor would cause inconvenience.
The first defendant's decision to agree to pay the $105,000 was a commercial decision made by the directors after there had been discussion between them. By agreeing to pay the $105,000 the facility remained undisturbed. Whilst it is unclear what the National Australia Bank Limited would have done if the plaintiff had given a notice in accordance with cl 15 of the guarantee the position was that by agreeing to pay the $105,000 the status quo was maintained. There was no acceptable evidence that this arrangement was the only available option at the time or that other options were considered by the directors of the first defendant.
The second defendant had solicitors prepare the written agreement. The second defendant subsequently admitted the money was owed to the plaintiff and told the plaintiff that only sufficient money to complete the purchase of the Aliquot Property Management Ltd rent roll business had been raised. The second defendant at that stage asked if another deal could be done.

Was the conduct unconscionable

The agreement was a commercial transaction between parties who had had dealings with each other before. I am not satisfied that either the plaintiff or the second defendant would have been misled by the other. They were experienced businessmen. The agreement reached was after there had been negotiations and conversations where the plaintiff had been agitating to secure a release from the guarantee for a number of months.
The figure of $105,000 was a negotiated sum. The second defendant had initially offered shares. The sum of $105,000 was a figure which the second defendant was prepared to accept. I do not accept that there was any unfair advantage taken by the plaintiff.
There had been discussions about the removal and replacement of the plaintiff as a guarantor from at least May 2004. The plaintiff did not wish to be involved in the business and this had been made clear to the second defendant. The plaintiff was concerned about the financial viability of the business as conducted by the first defendant from a date soon after the completion of the sale of the Joseph Charles Learmonth Duffy rent roll. He became further concerned after the purchase of the business of Aliquot Rental Management Ltd was announced at the end of 2003. The second defendant had told the plaintiff that he would have him removed as a guarantor.
Whilst the plaintiff in executing the guarantee enabled the purchase of the business to proceed he soon became concerned about the operation.

I prefer the evidence of the plaintiff to that of the second defendant. It was consistent with the background facts. The plaintiff wanted to be replaced as guarantor and the written agreement reflected that desire.
The first defendant was not under a special disability which affected its ability to make a judgment as to its own best interests. There was nothing unconscionable in the plaintiff's conduct.

Other claims made by the plaintiff

The plaintiff also made a claim for damages for stress, inconvenience, anxiety and legal costs incurred.
The plaintiff's evidence as to stress, inconvenience and anxiety was brief and is not sufficient to establish an award of damages. I am not prepared to rely upon his evidence in this respect.
The evidence as to legal costs was imprecise and unconvincing. It related to money expended to recover the sum of $105,000 including statutory demands prior to this action and costs in relation to the preparation of the agreement. I would make no award in relation to those costs.
The estoppel plea was not the subject of detailed submissions at trial. It is unnecessary to consider the claim given my other findings.

Conclusion

There will be judgment for the plaintiff against the first defendant in the sum of $105,000 together with interest pursuant to s 32 of the Supreme Court Act 1935 from 31 August 2004.
The claim against the second defendant is dismissed.