Maione v Stramit Building Products Pty Ltd (Reg) - [2012] SADC 73

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil: Appeal Against a Master's Decision)
MAIONE & ANOR v STRAMIT BUILDING PRODUCTS PTY LTD (REG)
[2012] SADC 73
Reasons for Decision of His Honour Judge Tilmouth
13 June 2012
PROCEDURE - MISCELLANEOUS PROCEDURAL MATTERS
Appeal from a Master refusing to set aside a default judgment on the basis that the defendant (appellant) had no arguable defence.
Held: Appeal dismissed on the merits, no arguable defence identified. Alleged offensive or unconscionable terms of guarantee were not engaged and in any case are severable.
Trade Practices Act 1974 s 4L, s 52; Fair Trading Act 1987 s 56, s 59; Misrepresentation Act 1972 s 4, s 7; Watson v Anderson (1976) 13 SASR 329; Levett v Barclays Bank plc [1995] 2 All ER 651; The Commercial Bank of Australia Ltd v Amadio (1988) 151 CLR 447; Louth v Diprose (1992) 175 CLR 621 of 637; Westpac Banking Corporation v Robinson (1993) 30 NSWLR 668; McFarlane v Daniell (1938) 38 SR (NSW) 337; Carney v Herbert [1985] AC 301, referred to.
ACCC v C G Berbatis Holdings Pty Ltd (2003) 214 CLR 51; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 clr 165; SST Consulting Services Pty Ltd v Rieson (2006) 225 CLR 516, applied.
Levett v Barclays Bank [1995] 2 All ER 651; Westpac Banking Corporation v Robinson (1993) 30 NSWLR 668, distinguished.
Commercial Bank of Australia v Amadio & Another [1983] 151 CLR 447, discussed.

MAIONE & ANOR v STRAMIT BUILDING PRODUCTS PTY LTD (REG)
[2012] SADC 73
The facts

This is an appeal by Mr Maione from a decision of a Master refusing to set aside a default judgment against him. The Master held that the appellant (defendant) had no reasonably arguable defence.
The circumstances are that the respondent (plaintiff) Stramit Building Products Pty Ltd (Stramit) supplied building products to a corporation MWS Engineering Pty Ltd (MWS), of which the appellant Mr Maione is a Director. MWS has gone into administration.
On 26 June 2009 the appellant signed a document entitled ‘Commercial Credit Account Application’ on behalf of MWS with Stramit, whereby the credit limit of $250,000 previously extended by Stramit was increased to $500,000. The document is extensive and contains exhaustive terms as to such subjects as credit, privacy and sales. Part 7 thereof contains a ‘Deed of Guarantee & Indemnity’. The document itself was signed by the appellant as well as his wife, although the latter fact has become immaterial for the current purpose. The appellant’s signature was witnessed by the financial controller of MWS, a Mr Zhou.
In that part of the agreement relating to the guarantee and indemnity, Mr Maione agreed on the face of the document to ‘unconditionally and irrevocably guarantee to Stramit the due and punctual payment of all present and future debts and all other moneys which are payable’ by MWS.
The court proceedings
By summons filed in this court on 3 August 2011 supported by a statement of claim of the same date, Stramit sues on the guarantee for the sum of $265,263.57 plus interest. No appearance or defence was filed within due time, and so a default judgment was entered on 15 September 2011.[1] The appellant thereupon made application to set it aside. This was heard by Master Rice, and was dismissed for reasons delivered on 8 February 2012. As the Master pointed out in his judgment the delay on the part of Mr Maoine was ‘in reality … not significant’, because ‘as soon as judgment was entered the defendants’ solicitor swung into action to seek to set aside the default judgment’.[2] The Master was therefore satisfied of the explanation for the delay.
[1] FDN 9
[2] At [17]-[18]
However he determined against the appellant as to whether he had an arguable defence. In the latter part of his reasons the Master observed that ‘the defendant need(s) to show that there is an arguable defence but it needs to be clear that the plaintiff has an unassailable claim’,[3] correctly relying on Watson v Anderson.[4]
[3] [31]
[4] (1976) 13 SASR 329 at 337
Having observed ‘the document, to a lawyer, would obviously be a guarantee’,[5] he concluded there was no arguable defence, so he was not prepared to set aside the default judgment. The central point of his reasons for so ruling were these:[6]
As regards Mr Maione, the position seems to be quite different. He provided a guarantee in respect of existing and future liabilities, described in para 2.1 as present and future debts and all other moneys which are payable. He is bound by the terms of the document. He was a guarantor pursuant to the execution of the document, 29 June 2006.
[5] [26]
[6] [42]
Submissions on appeal
In the course of his submissions on appeal, Mr Coppola succinctly raised two matters on behalf of the appellant. Both arise from the proposed defence to be filed in the event that judgment is set aside.[7] In essence to paraphrase, the defences sought to be agitated are that Mr Maione:
·was not told the credit facility amounted to a guarantee;
·ought to first have been advised to obtain legal advice;
·did not receive an explanation of the terms of the guarantee; and
·did not intend to enter into a guarantee as opposed to a credit facility.
In addition it was argued that many provisions of the agreement were unconscionable and not reasonably necessary for the protection of the legitimate interests of Stramit.
[7] Appearing in the Trial Book as 91-102
The essence of the defence therefore distils into one based upon alleged misleading and deceptive conduct under s 52 of the Trade Practices Act 1974 (Cth), ss 56 & 59 of the Fair Trading Act 1987 (SA), or misrepresentations under s 4 & s 7 of the Misrepresentation Act 1972 (SA), unconscionability according to the principles established in The Commercial Bank of Australia v Amadio & Another,[8] and alternatively the entire contact was so replete with unconscionable terms that it must completely fail.
[8] [1983] 151 CLR 447
The subject agreement
Under Part 2 of the contract entitled ‘credit terms’, clause 13 provides:
If a clause in these credit terms is void or unenforceable, it may be severed without affecting the enforceability of any other provision.
There is an identical provision in the specific context of Part 7, entitled ‘Deed of Guarantee and Indemnity’, clause 16.
Mr Coppola went through in some detail a number of terms throughout the entire agreement of which he was highly critical. He variously contended some were ‘odious’, ‘extraordinarily draconion’ or ‘unconscionable’ and the like. Without going into the details it may be said that Stramit certainly struck a tough bargain. The provisions designed for the enforcement of debts owed to it are doubtless quite stringent and onerous.
With particular focus on the deed of guarantee and indemnity itself, Mr Coppola fastened on the extraordinary width of the guarantee encompassing ‘future debts and all other moneys which are payable’ (clause 2.1), the giving of effective priority over other debts in the event of insolvency (clause 7), allowing Stramit to postpone the payment of debts owing to Mr Maione until it ‘received 100 cents in the dollar for the guaranteed debts’ (clause 7), the capacity of Stramit to arbitrarily allocate moneys received to any liability (clause 10), the conclusive nature of the debt owed to Stramit upon certification of the sum due and owing (clause 15), and the provision of a charge over all the personal and real property of Mr Maione as guarantor (clause 11).
Analysis
Assuming for the moment – but without deciding - these clauses within the guarantee itself, or others within the wider agreement, are capable of being regarded as unconscionable or otherwise offend any of the statutory provisions referred to, the immediate problem facing the appellant is that the debt upon which he is sued under the guarantee in the within proceedings, is not in the slightest reliant upon any of the supposed offensive provisions. The defence makes no reference to any fact that could possibly suggest any of those provisions were invoked by Stramit. In point of fact the existence of the underlying debt is admitted without qualification in the defence.[9] When this was pointed out to Mr Coppola, leave was granted for him to file written submissions on the point. This he did in a document received by the court on 21 May 2012. A written submission was filed by Stramit on 16 May 2012 on the same issue.
[9] Para 4, p94 Trial Book
When the Master ruled as he did that the appellant was ‘bound by the terms of the document,’ his Honour no doubt had in mind the decision of the High Court in Toll [FGCT] Pty Ltd v Alphapharm Pty Ltd.[10]In that case Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ wrote this:
[45]     It should not be overlooked that to sign a document known and intended to affect legal relations is an act which itself ordinarily conveys a representation to a reasonable reader of the document. The representation is that the person who signs either has read and approved the contents of the document or is willing to take the chance of being bound by those contents, as Latham CJ put it, whatever they might be. That representation is even stronger where the signature appears below a perfectly legible written request to read the document before signing it.
[46]    The statements in the above authorities accord with the well-known principle stated by Scrutton LJ in L'Estrange v F Graucob Ltd that "[w]hen a document containing contractual terms is signed, then, in the absence of fraud, or, I will add, misrepresentation, the party signing it is bound, and it is wholly immaterial whether he has read the document or not".
[47]    The importance which, for a very long time, the common law has assigned to the act of signing is not limited to contractual documents. Wilton v Farnworth was not a contract case. The passage from the judgment of Latham CJ quoted above is preceded by a general statement that, where a man signs a document knowing that it is a legal document relating to an interest in property, he is in general bound by the act of signature. Legal instruments of various kinds take their efficacy from signature or execution. Such instruments are often signed by people who have not read and understood all their terms, but who are nevertheless committed to those terms by the act of signature or execution. It is that commitment which enables third parties to assume the legal efficacy of the instrument. To undermine that assumption would cause serious mischief.
[48]     In most common law jurisdictions, and throughout Australia, legislation has been enacted in recent years to confer on courts a capacity to ameliorate in individual cases hardship caused by the strict application of legal principle to contractual relations. As a result, there is no reason to depart from principle, and every reason to adhere to it, in cases where such legislation does not apply, or is not invoked.
[10] (2004) 219 CLR 165 (footnotes omitted)
Accordingly having executed the agreement and thereby being bound by it at common law, the sole remaining question is whether any of the statutory forms of relief arguably supply Mr Maione with a defence, despite the fact that none of the ‘offensive’ provisions are operative in this case. On this aspect of the matter his counsel relied upon the further statements of principle coming from the plurality judgment in Toll [FGCT] Pty Ltd v Alphapharm Pty Ltd:
[54] It appears from the reasoning of the primary judge and the Court of Appeal that the proposition was given a narrower focus, and was limited to exclusion clauses, or, perhaps, exclusion clauses which are regarded by a court as unusual and onerous. The present happens to be a case about exclusion clauses, but there is no apparent reason why the principle, if it exists, should apply only to them. Nor is the criterion by which a court might declare a contractual provision to be unusual or onerous always easy to identify. The origin of the proposition, clearly enough, is in the principles that apply to cases, such as ticket cases, in which one party has endeavoured to incorporate in a contract terms and conditions appearing in a notice or an unsigned document. When an attempt is made to introduce the concept of sufficient notice into the field of signed contracts, there is a danger of subverting fundamental principle based on sound legal policy. There are circumstances in which it is material to ask whether a person who has signed a document was given reasonable notice of what was in it. Cases where misrepresentation is alleged, or where mistake is claimed, provide examples. No one suggests that the fact that a document has been signed is for all purposes conclusive as to its legal effect. At the same time, where a person has signed a document, which is intended to affect legal relations, and there is no question of misrepresentation, duress, mistake, or any other vitiating element, the fact that the person has signed the document without reading it does not put the other party in the position of having to show that due notice was given of its terms. Furthermore, it may be asked, where would this leave a third party into whose hands the document might come?
[57] If there is a claim of misrepresentation, or non est factum, or if there is an issue as to whether a document was intended to affect legal relations or whether, on the other hand, it was tendered as a mere memorandum of a pre-existing contract, or a receipt, or if there is a claim for equitable or statutory relief, then even in the case of a signed document it may be material to know whether a person who has signed it was given sufficient notice of its contents. The general rule, which applies in the present case, is that where there is no suggested vitiating element, and no claim for equitable or statutory relief, a person who signs a document which is known by that person to contain contractual terms, and to affect legal relations, is bound by those terms, and it is immaterial that the person has not read the document…..
In effect it was submitted there were sufficiently identifiable ‘vitiating elements’ in the draconian nature of the subject agreement to furnish an arguable case. Reference was made to s 51AA of the Trade Practices Act forbidding ‘conduct that is unconscionable within the meaning of the unwritten law – of the States and Territories’. The effect of this provision is to import the concept of unconscionability as understood by the common law of Australia (including equity): ACCC v C G Berbatis Holdings Pty Ltd.[11] Gummow and Hayne JJ explained the concept of unconscionable conduct in this way in that case:
[42] The term "unconscionable" is used as a description of various grounds of equitable intervention to refuse enforcement of or to set aside transactions which offend equity and good conscience. The term is used across a broad range of the equity jurisdiction. Thus, a trustee of a settlement who misapplies the trust fund and the fiduciary agent who makes and withholds an unauthorised profit may properly be said to engage in unconscionable conduct. The relief given by equity against the imposition of monetary penalties and the forfeiture of proprietary interests has been said to reflect the attitude of equity to overreaching and unconscionable dealing, as well as to accident, mistake and surprise The remedy of rescission may reflect the characterisation as unconscionable of the conduct of the party seeking to hold the plaintiff to a contract entered into under the influence of innocent misrepresentation or unilateral mistake. Again, the various doctrines and remedies in the field of estoppel, at a general level, may be said to overcome the unconscionable conduct involved in resiling from the representation or expectation induced by the party estopped.
[43] It will be unconscientious for a party to refuse to accept the position which is required by the doctrines of equity. But those doctrines may represent, as the above examples indicate, the outcome of an interplay between various themes and values of concern to equity. The present editor of Snell has noted the use of the terms "unconscionable" and "unconscientious" "in areas as diverse as the nature of trusteeship and the doctrine of laches"; he rightly observed that "this may have masked rather than illuminated the underlying principles at stake".
[11] (2003) 214 CLR 51 at [38]-[40].
The common law focuses on the notion of ‘special disadvantage’ in dealing with the another party, because of such factors as illness, ignorance, inexperience, impaired facilities, financial need or other circumstances affecting a party’s ability to conserve his own interests, when the other party unconsciously takes advantage of the opportunity thus placed in his hands: Blomley v Ryan.[12] This concept has been reaffirmed several times by the High Court: Commercial Bank of Australia Ltd v Amadio,[13] Louth v Diprose.[14] It is a concept requiring a high level of moral obloquy so as to attract a measure of judicial opprobrium in order to justify relief: Attorney-General (New South Wales) v World Best Holdings Ltd;[15] Canon Australia Pty Ltd v Patton.[16]
[12] (1956) 99 CLR 362 at 415
[13] (1988) 151 CLR 447 at 461, 472
[14] (1992) 175 CLR 621 of 637
[15] (2005) 63 NSWLR 557 at [121]
[16] (2007) 244 ALR 759, 768 at [43]
Hence in Commercial Bank of Australia Ltd v Amadio,[17] special disability was found on account of age, unfamiliarity with written English and the failure to disclose unusual financial features. In Louth v Diprose,[18] it was the exploration of emotional dependence.
[17] Above
[18] Above
In this particular instance the parties were in an established arms length commercial relationship. There is nothing to suggest Mr Maione did not understand the nature of that existing relationship. The transaction in question was a straightforward extension of extant credit facilities, supported by conventional securities. The terms of Part 7 ‘Deed of Guarantee and Indemnity’ were writ large in the body of the agreement itself. No fact or circumstance is pleaded suggesting Mr Maione did not understand what he was entering into. Just because the content may be rigorous or indeed that he held little bargaining power, are an insufficient basis of themselves to amount to the necessary special disadvantage to form a basis for unconsciable conduct: ACCC v C G Berbatis Holdings Pty Ltd.[19]
[19] Above at [11], [15-16], [85-86], [92] and [113]
The other cases referred to by counsel are distinguishable. Levett v Barclays Bank plc[20] concerned the failure to disclose material information, and Westpac Banking Corporation v Robinson,[21] raised the duty to disclose only in circumstances the concealment of which, would misrepresent material aspects of the transactions. Neither case are in point here.
[20] [1995] 2 All ER 651
[21] (1993) 30 NSWLR 668
Severance
Section 4L of the Trade Practices Act states that if a contract:
… contravenes the Act by reason of the inclusion of a particular provision in the contract, then, ….nothing …affects the validity or enforceability of the contract otherwise than in relation to that provision in so far as that provision is severable’.
This provision has the effect of importing contractual notions of severability different from those at common law, once a contract is found to have breached the Act. The significant departure from the common law position is that s 4L requires (rather than permits) severance of offending provisions, so that the remaining portions remain valid and enforceable: SST Consulting Services Pty Ltd v Rieson.[22] There is no reason to suppose any of the offending provisions are inseverable under s 4L. As noted already, none were invoked or engaged in this case. The result would be precisely the same under the general law of contract, because in no sense would severance change the contracted intent or alter the nature of the subject agreement: McFarlane v Daniell;[23] Carney v Herbert.[24]
[22] (2006) 225 CLR 516 at [23-24], [34] and [52]
[23] (1938) 38 SR (NSW) 337 at 345
[24] [1985] AC 301 at 311

Accordingly it has not been established that the appellant has an arguable case upon which he could defend the action against him to enforce the guarantee. There is no basis upon which to infer the level of special disadvantage required or that there were any circumstances erecting an obligation to explain the terms of the guarantee. As there is no material suggesting any of the ‘offensive’ provisions are operative in causing any kind of unconscionability or disadvantage, he would have additionally failed on severance grounds.
Orders
The appeal must therefore be dismissed. The parties should be heard on the question of costs.