NZI Capital Corp Ltd v Poignand, Roger James

[1997] FCA 963

FEDERAL COURT OF AUSTRALIA

Equity - unconscionability - mortgage and guarantee - lack of assistance where assistance or explanation necessary - serious disadvantage - right to set aside mortgage and guarantee - whether transaction sould be set aside conditionally - terms and conditions of any relief sought.

Blomley v Ryan (1956) 99 CLR 362 - considered

Commercial Bank of Australia Limited  v Amadio (1983) 151 CLR 447 - considered

Vadasz v Pioneer Concrete (SA) Pty Limited (1995) 184 CLR 102 - considered
Maguire v Makaronis (1997) 144 ALR 729 - considered

NZI CAPITAL CORPORATION LIMITED v ROGER JAMES POIGNAND & ORS
No. NG 620 of 1992

JUDGE:  BEAUMONT J
DATE OF JUDGEMENT:  20 AUGUST 1997
DATE OF ORDER:            8 SEPTEMBER 1997
PLACE:  SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NG 620  of   1992

BETWEEN:	NZI CAPITAL CORPORATION LIMITED APPLICANT
AND:	ROGER JAMES POIGNAND FIRST RESPONDENT
JOHN DALTON COURTNEY SECOND RESPONDENT
PETER WILLIAM METCALFE THIRD RESPONDENT
W L HAWKE HOLDINGS PTY LIMITED FOURTH RESPONDENT
ARTHUR JOHN EMMETT FIFTH RESPONDENT
VICTOR MALCOLM PANNIKOTE SIXTH RESPONDENT
VICTOR PANNIKOTE HOLDINGS PTY LIMITED SEVENTH RESPONDENT
HAROLD VICTOR HOLDEN EIGHTH RESPONDENT
MARGARET ISOBEL FULTON NINTH RESPONDENT
MARGARET FULTON ENTERPRISES PTY LIMITED TENTH RESPONDENT
AND BETWEEN:	MARGARET ISOBEL FULTON CROSS-CLAIMANT TO FOURTH CROSS-CLAIM
AND	NZI CAPITAL CORPORATION LIMITED FIRST CROSS-RESPONDENT TO FOURTH CROSS-CLAIM
ROGER JAMES POIGNAND SECOND CROSS-RESPONDENT TO FOURTH CROSS-CLAIM

JUDGE:	BEAUMONT J
DATE OF JUDGMENT:	20 AUGUST 1997
DATE OF ORDER:	8 SEPTEMBER 1997
WHERE MADE:	SYDNEY

ORDERS:

1.The deed of guarantee and indemnity between the applicant and the ninth and tenth respondents, dated 22 April 1987, and mortgage W868553 between the applicant and the tenth respondent dated 22 April 1987 set aside on condition that:

(a)The ninth respondent execute and deliver to the applicant a fresh deed of guarantee and indemnity, in relation to the facility agreement, dated 3 April 1987, in the sum of $25,000, upon terms to be settled by a Registrar of the Court in default of agreement between the parties as to those terms;  and

(b)The ninth respondent file in the registry of the Court a written undertaking to the Court not to enforce any rights that she may have in relation to the 5 per cent fee agreed to be paid by Ripoll Holdings Pty Limited for the provision of the said mortgage.

2.The applicant to deliver up to the tenth respondent for registration a discharge of the said mortgage and the certificate of title, upon the ninth and tenth respondents complying with the aforesaid conditions.

3.Proceedings to enforce these orders stayed until further order or the determination of any appeal from these orders .

4.Note the undertaking to the Court by the applicant that its appeal will be prosecuted with due diligence.

5.General liberty to apply.

6.The appeal be expedited.

7.Costs of the notice of motion, filed in Court this day, to be costs in the appeal.

8.The ninth respondent receive nine-tenths of her costs as between herself and the applicant.

9.The cross-claim, including any costs in that connection, stood over until further order.

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NG 620 of 1992

BETWEEN:	NZI CAPITAL CORPORATION LIMITED APPLICANT
AND:	ROGER JAMES POIGNAND FIRST RESPONDENT
JOHN DALTON COURTNEY SECOND RESPONDENT
PETER WILLIAM METCALFE THIRD RESPONDENT
W L HAWKE HOLDINGS PTY LIMITED FOURTH RESPONDENT
ARTHUR JOHN EMMETT FIFTH RESPONDENT
VICTOR MALCOLM PANNIKOTE SIXTH RESPONDENT
VICTOR PANNIKOTE HOLDINGS PTY LIMITED SEVENTH RESPONDENT
HAROLD VICTOR HOLDEN EIGHTH RESPONDENT
MARGARET ISOBEL FULTON NINTH RESPONDENT
MARGARET FULTON ENTERPRISES PTY LIMITED TENTH RESPONDENT
AND BETWEEN:	MARGARET ISOBEL FULTON CROSS-CLAIMANT TO FOURTH CROSS-CLAIM
AND	NZI CAPITAL CORPORATION LIMITED FIRST CROSS-RESPONDENT TO FOURTH CROSS-CLAIM
ROGER JAMES POIGNAND SECOND CROSS-RESPONDENT TO FOURTH CROSS-CLAIM

JUDGE:	BEAUMONT J
DATE OF JUDGMENT:	20 AUGUST 1997
DATE OF ORDER	8 SEPTEMBER 1997
PLACE:	SYDNEY

REASONS FOR JUDGMENT
(on the claim by the applicant against the ninth and tenth respondents and on the fourth cross-claim)

THE ISSUES FOR PRESENT DETERMINATION

These reasons deal with the claim by the applicant, NZI Capital Corporation Limited ("NZI"), against Margaret Isobel Fulton (“Ms Fulton”), the ninth respondent, and Margaret Fulton Enterprises Pty Limited ("Margaret Fulton Enterprises"), the tenth respondent, and the fourth cross-claim, brought by those respondents against the applicant.  The issues between these parties appear from their relevant pleadings as follows.

By its amended statement of claim, filed on 19 May 1997, NZI relevantly made the following claims against, inter alios, Ms Fulton and Margaret Fulton Enterprises:

·By a facility agreement dated 3 April 1987 ("the facility agreement"), made between NZI and Ripoll Holdings Pty Limited, receiver and manager appointed ("Ripoll"), NZI agreed to, and did thereby, provide to Ripoll certain financial accommodation. 

·Pursuant to the terms of the facility agreement, Ripoll covenanted to repay to NZI the financial accommodation on 3 April 1991.

·The financial accommodation made available by NZI to Ripoll, pursuant to the facility agreement, was not repaid by Ripoll.

·Ripoll has, accordingly, defaulted in its obligation under the facility agreement and the amount owed by it to NZI, as at 29 June 1995, was an amount in excess of $18 million.

·By a deed of guarantee and indemnity, dated 22 April 1987, made between NZI and the first to tenth respondents to these proceedings, the first to tenth respondents guaranteed the performance of Ripoll under the facility agreement ("the guarantee"). 

·By registered mortgage ("the mortgage"), Margaret Fulton Enterprises mortgaged to NZI a property at Balmain ("the Balmain property").

·It was a term of the mortgage that Margaret Fulton Enterprises would repay to NZI the “moneys thereby secured”, including moneys due by Ripoll under the facility agreement.

·The liability of Ms Fulton and of Margaret Fulton Enterprises, pursuant to the guarantee and the mortgage, is limited to the sum of $250,000 in respect of the period up to the date when demand was made, under the guarantee, upon Ms Fulton and Margaret Fulton Enterprises.

·On 19 December 1991, NZI made written demand on Ms Fulton and Margaret Fulton Enterprises for the amount of $250,000.

By its amended application, filed on 19 May 1997, NZI sought, relevantly, the following relief against Ms Fulton and Margaret Fulton Enterprises: 

·An order that they pay to the applicant the sum of $250,000 and interest.

·Judgment for possession of the Balmain property.

By her amended defence, Ms Fulton:

·Admits entry into the facility agreement.

·Admits that she and Margaret Fulton Enterprises executed the deed of guarantee, dated 22 April 1987, but denies its enforceability for the following reasons, of which it is alleged NZI was, or ought to have been, aware:

“(a)the First and Second Respondents were the directors and shareholders of Ripoll and the Third Respondent was the secretary of Ripoll;

(b)Ripoll was the trustee of the DYV Unit Trust and its affairs as trustee, including the promotion of, financing for and operation of the business of the Dee Why Gardens Project (‘the Project’), were controlled by the First to Third Respondents;

(c)the Ninth Respondent was not a director or shareholder of Ripoll;

(d)the Tenth Respondent was not a shareholder of Ripoll;

(e)the Ninth and Tenth Respondents were not unitholders in the DYV Unit Trust;

(f)the Tenth Respondent had no interest direct or indirect in the DYV Unit Trust;

(g)the only interest of the Ninth Respondent in the DYV Unit Trust was indirect and confined to her directorship of and shareholding in Nyrano Pty Limited, which ultimately held 16 out of 700 units issued in the DYV Unit Trust, constituting an entitlement of less than 2.29% of the issued units and further that at all material times Nyrano Pty Limited was not a unitholder but was just an unsecured creditor of Ripoll;

(h)the Ninth and Tenth Respondents did not participate in the decision making processes of Ripoll or in the promotion of, financing for or operation of the business of the Project;

(i)the Ninth and Tenth Respondents were clients of the accountancy practice conducted by the First Respondent;

(j)the Fourth to Seventh Respondents were clients of the accountancy practice conducted by the Second and Third Respondents;

(k)many investors in the project who invested substantially more than Nyrano Pty Limited who were ultimately unitholders in the DYV Unit Trust, including companies associated with the First to Third Respondents and including unitholders who ultimately held substantially more than 16 of the issued units, were not proposing to execute and did not execute any guarantee for the borrowings by Ripoll from the Applicant;

(l)apart from the Seventh and Tenth Respondents, no investor in the Project or unitholder in the DYV Unit Trust and no party proposing to or executing a guarantee was proposing to execute nor did execute a mortgage or provide other security for the borrowings by Ripoll from the Applicant;

(m)the amount proposed to be advanced under the Facility Agreement of approximately $15 million was substantially in excess of the amount previously advanced by AGC (Advances) Limited (‘AGC’) of approximately $6.9 million for the purposes of the Project;

(n)the directors of the Tenth Respondent were the Ninth Respondent and Suzanne Isobel Gibbs, the secretary of the Tenth Respondent was Suzanne Isobel Gibbs and the First Respondent was not a director or secretary of the Tenth Defendant;

(o)Ripoll was insolvent and unable to pay its debts as and when they fell due;

(p)Ripoll was in default of its obligations to AGC and a statutory demand had been served by AGC on Ripoll dated 18 March 1987;

(q)that proceedings had been commenced against Ripoll in the Supreme Court of New South Wales no. 3717 of 1985 in which orders were sought, inter alia, that a receiver/manager be appointed or in the alternative that the company be wound up;

(r)that from the proceeds of the advance, the sum of $230,000.00 had already been paid or was intended to be paid to the First Respondent;

(s)that from the proceeds of the advance, the sum of $350,000.00 had been paid or was intended to be paid to the Applicant by way of establishment fees;

(t)that from the advance, the amount required to be repaid to AGC had been paid and the obligations of the Ninth and Tenth Respondents to AGC had been discharged without their knowledge prior to the execution of the Deed of Guarantee and Indemnity;

(u)that Reliv Pty Limited, a company controlled by the First Respondent’s wife, had applied for and obtained approval of an advance of $500,000.00 to pay for outstanding consultants’ fees in connection with the project;”

Ms Fulton also pleaded that, prior to the execution of both the deed of guarantee and the mortgage, and for the purposes of obtaining execution of those documents, either the first respondent, Roger James Poignand (“Mr Poignand”), or Ripoll, acting through Mr Poignand, represented to Ms Fulton and Margaret Fulton Enterprises:

“(a)that the other investors in the project had provided or would be providing guarantees and mortgages for the lending by the applicant;  and

(b)that the mortgage and guarantee/indemnity were only needed for two (2) years.”

Ms Fulton further pleaded that NZI was under an obligation to disclose to herself and to Margaret Fulton Enterprises certain unusual features, alleged to be present in the transaction, which were not naturally to be expected in a transaction of this kind, with the result that the guarantee and the mortgage are unenforceable.

In her cross-claim against NZI, Ms Fulton, inter alia, repeats the allegations in her defence and seeks orders setting aside the guarantee.  By its amended defence and cross-claim, Margaret Fulton Enterprises pleads similar matters, and seeks similar relief, in respect of the guarantee and the mortgage.

BACKGROUND FACTS - INTRODUCTORY
Although much of the history of the present matter was recorded in documentary form, significant aspects of the evidence involved discussions between some of the parties.  As there was a measure of dispute as to what was actually said on some of these occasions, it will be necessary, in due course, to make some findings in the relevant areas of contention.  Some of these areas of dispute may arise in respect of the cross-claim made by Ms Fulton against Mr Hawkins, solicitor. The role of Mr Hawkins will be mentioned later, but for present purposes, it will suffice that it be noted that I am not, at this stage, dealing with that cross-claim.  This course is undertaken by the Court with the consent of the parties.

In the events which have occurred, it is not necessary for me - for reasons which will appear - to make a comprehensive finding on all the matters that were sought to be agitated in the course of the evidence in these proceedings, which extended over a period of five days.

In order to understand the way Ms Fulton and Margaret Fulton Enterprises presented their cases, it will be necessary to refer to the presently material parts of Ms Fulton's principal affidavit, sworn by her on 12 June 1992.  (I should interpolate here that the reason for the delay in the prosecution of this matter is twofold.  In the first instance, the proceedings were instituted in the Supreme Court of New South Wales, but were then cross-vested to this Court, under the cross-vesting legislation, because allied proceedings, which involved group proceedings, were thought more appropriately to be dealt with in this Court.  Secondly, although not of any present significance, those representative proceedings encountered novel procedural issues, which needed to be dealt with both at first instance and, on at least one occasion, before a Full Court of this Court.  In the result, regrettably, the affidavit relied upon principally by Ms Fulton for present purposes was sworn more than five years ago.  She is now 72 years of age and I bear that matter in mind when assessing the credibility of her evidence.  However, as will be seen, and as has already foreshadowed in the way in which I see the present issues, it has not been necessary for me to make extensive findings of fact.)

I will refer then to Ms Fulton’s principal affidavit to indicate the nature of the case sought to be made by Ms Fulton and without, at this stage, indicating that I accept her account or, indeed, any part of it.  It is her version of events only and, as I have noted, there is a dispute about some of the facts, especially where the evidence is not corroborated by the documentation.

MS FULTON'S VERSION OF THE EVENTS
In her affidavit Ms Fulton relevantly gave evidence to the following effect:

·   From the late 1970s until 1991, Ms Fulton and Margaret Fulton Enterprises retained Mr Poignand to act as her and its accountant and investment adviser.  His retainer included the establishment for her of a superannuation fund, known as the Nyrano Superannuation Fund.

·   In 1984, Mr Poignand told Ms Fulton that he was "working on plans for a retirement village project at Dee Why.  It is going to be marvellous.  It is a sure thing.  It is really going well."

·   Later in 1984, or in early 1985, the following conversation took place between Mr Poignand and Ms Fulton at her home.

“RP:‘The Dee Why Gardens project is going great, as a matter of fact Margaret it is the kind of investment suitable for you. You do not want income now as you are in a peak earning period, but in 8 to 10 years time as you consider retiring that is when the income from Dee Why Gardens as an investment would be needed.’

MF:‘How do you get an income or how do you get your money back from this?’

RP:‘Retired people buy units in the village at a certain price and when they die we pay their estate for the value of the unit but there is a safeguard for us that we can sell the unit if the market is at a higher price, then that money goes back into Dee Why Village so that as the value of real estate always increases your investment is increasing.’

MF‘Well Roger if I go into it what should I be putting into it?’

RP:‘Well right at the moment you have got money to spare not doing anything that would be a start.’

MF:‘Well Roger if you think it is a good investment then I will go‑into it.’

RP:‘I will make the arrangements as it really is a very sound investment that I am personally interested in. I am putting what I have got into it.’”

·   Shortly after that conversation, Ms Fulton drew a cheque on Nyrano Pty Limited's (“Nyrano”) cheque account for the investment.  Her belief was that the project was being promoted and run by Mr Poignand, and that the second respondent, John Dalton Courtney, now deceased, was also involved.  The first cheque was for the sum of $25,000 and was drawn on 25 October 1985.

·   Subsequently, Nyrano invested further moneys in the project.  No receipt for the payments, nor other documentation, was received at the time despite requests from Ms Fulton.  She says that in 1985 she did not understand that there was a unit trust, nor did she know the number of other investors, nor the proportion of the interest in the project held by Nyrano. 

Ms Fulton’s affidavit then proceeds as follows:

“14.Shortly after the cheque for $25,000 was drawn Roger Poignand came to my home with some documents to be signed and we had a conversation in words to the following effect

MF:‘What is it Roger ?’

RP:‘This is the documentation for the loan to start the project rolling. We need the signatures of the investors giving us permission to do this.’

I did not read the documents. I was not given copies of them. I did not know or understand at the time that the document was a guarantee. I believed that it was simply a permission of the investors to allow the borrowing of money to start the building. I didn't speak to anyone, apart from Roger Poignand, before signing the document. On 9 June 1992 I inspected some documents at the Supreme Court produced on subpoena by AGC, and I saw for the first time that a document signed by me bearing date 4 November [1988] was a guarantee. If I had known that it was a guarantee unlimited in amount I would not have signed it.  I signed the documents after the short conversation referred to above, and Roger Poignand was only at my home for a short time. Mr Anthony Hawkins was not present when I signed the document.”

The guarantee given to AGC (Advances) Limited (“AGC”) by Ms Fulton, dated 4 November 1985 is in evidence as exhibit 2.  This guarantee, which refers to "Existing" guarantors and to Ms Fulton and others as "Incoming" guarantors, was signed by, inter alios, Ms Fulton.  This guarantee referred to a "Primary Security", dated 30 September 1985, involving the "Existing" guarantors.  This deed also referred to further advances to be made by AGC, in the sum of $3.3 million.

The affidavit then proceeds in this way:

“15.In about late 1985 or early 1986 Roger Poignand came to my home and a conversation took place in words to the following effect:-

RP:‘Dee Why Gardens is doing very well but we need to raise some special finance.  The financiers are wanting assurances from the investors for the added money that is needed to go on with the development.  We have to assure the financiers that we are people of substance.  We are all doing it.  The collateral of your home would be a great assurance to the financier.’

MF:‘No Roger my home is all I have got.’

RP:‘There is no risk to it. It will only be required for about 2 years.’

MF:‘No I do not want to put my home at risk.  I am not young any more.  I could never get another home at my age if anything bad happened.’

This was the first occasion on which Roger Poignand had mentioned to me anything about giving a guarantee or security for the Dee Why Village project.  Over the following weeks Roger Poignand made a number of requests that I reconsider providing my home as collateral.  On each occasion I refused even after he made statements to me in words to the effect:­

RP:‘There is absolutely no risk to it.  All the investors have done it.  It is only needed for 2 years.’

16.In about early 1986 during a visit to my home by Roger Poignand, the following conversation took place in words to the effect:­

RP:‘Please reconsider.  If you are unsure about this phone a solicitor.  I suggest Anthony Hawkins, he knows all about it and he can assure you that it is okay.’

A friend Michael McKeage (now deceased) who was present at the time said words to the effect:­

MM:‘You should not do it.  You never put up your home on someone else's business.’

RP:‘There is absolutely no risk.  The other investors are all doing it.  We should be able to clear it after about 2 years.’

MF:‘Okay I will ring the solicitor.’

....

19.Following the conversation with Anthony Hawkins referred to in paragraph 17, I had a further conversation with Roger Poignand during one of his visits in words to the following effect:­

RP:‘There is absolutely no risk all the investors are doing it.’

MF:‘Roger I will satisfy you and my family by agreeing to your proposal but I will put a $250,000.00 limit on the agreement.’

RP:‘Fine that is all we will need.  We will pay you a 5% annual fee.  All that money and you do not have to put anything up for it.  That is not a bad return on an investment that is literally money for nothing.  I will arrange for the necessary documents to be prepared. Anthony Hawkins will ring you.’

MF:‘But I am putting something up, its my house.’

RP:‘No, but its still there and you can be using it while making money from it.’

20.This was the first occasion when I thought that I was giving a guarantee or security for a loan for the Dee Why Gardens project.  I agreed to provide my home as collateral on the basis of what Roger Poignand had told me and the assurances of Anthony Hawkins.  I understood and believed that all the other investors in the Dee Why Gardens project were providing mortgages over their properties, and were in a similar position to myself.  I would not have provided my home as collateral if this had not been the case as I believed that all investors should share both any benefits and any burdens of the project.  If I had been told or had known that only one other investor was providing a mortgage then I would not have gone ahead and provided my home as collateral.  This would have been particularly the case if I had known that other people had a larger investment than Nyrano's and had not provided any mortgage.  At this stage it was my understanding that there were a number of investors in the project.

21.I do not recall having any telephone conversation with Anthony Hawkins other than the one referred to in paragraph 17.  Annexed hereto and marked with the letter "A" is a true copy of a letter received, from Anthony Hawkins and Company dated 26th February, [1986].  I did not speak to Anthony Hawkins after receiving the letter. Subsequent to receiving this letter I found on one day a man walking about the property and on making inquiries I learnt that he was the surveyor that had been instructed to survey my property.  I was unaware of any surveyor or valuer coming to my home prior to this time.”

Mr Hawkins’ letter, dated 26 February 1986, addressed to “The Secretary, Margaret Fulton Enterprises Pty Limited”, was in these terms:

Dear Miss Fulton,

RE:Mortgage to A.G.C. ADVANCES in the sum of $250,000.00 as collateral security in connection with the Dee Why Village Project

We refer to our telephone discussions and we understand you are making available your title deed to the subject property to the extent of $250, 000.00 and we have written to the solicitors acting for A.G.C. supplying them with title particulars.  Mr. Roger Poignand has delivered to us the title deed to the subject property but it appears there is no survey presently in existence in relation to this property.  We have arranged for a surveyor Mr. T. Starr to carry out a survey as a matter of urgency and he may well contact you in order to obtain access.  We would comment perusing the certificate of title that there appears to be no cross‑easements for support between your property and the property immediately adjoining to the north in respect of the brick party wall between your property and the adjoining property.

The mortgagee A.G.C. will be required to be noted on the insurance policy in respect of the subject policy and perhaps you could arrange to deliver to Mr. Poignand, to whom we have sent a copy of this letter, the original policy of insurance so that he may make a photocopy thereof as it will be necessary to note the interests of A.G.C. as mortgagee on the insurance policy.

If you have any queries in relation to this property would you please let us know.”

In par 22 of her affidavit, Ms Fulton states:

“22.Shortly thereafter Roger Poignand came to my home with some documents to sign.  He said to me in words to the effect:-

RP:‘Margaret I am in a hurry.  I have got a lot to do.  These are A.G.C. documents.  Sign here.’

My daughter had come over to sign the documents.  I signed a number of documents where directed by Roger Poignand.  I did not read the documents.  Roger Poignand left my home virtually immediately following execution.  I was not given copies of the documents I signed.  I had not seen any AGC loan documents and I had not been told of the terms of the AGC loan.

Ms Fulton went on in her affidavit (in pars 23 to 24) to recount her request to Mr Poignand for copies of the documentation.

The affidavit then states:

“25.In about early 1987 during a visit to my home Roger Poignand and I had the following conversation in words to the effect:-

RP:‘We have decided that A.G.C. is not the best way of financing Dee Why Gardens and a far better proposal has been arranged through NZI Corporation.  It would mean transferring your guarantee and mortgage to NZI.  Everyone else is transferring their guarantees and mortgages as well’.

ME:‘But I have still not received any documents.  I want my guarantee rescinded.’

RP:‘Yes ultimately we will work to that end but we cannot do it just now.  This is terribly important that this gets done quickly if we are to take advantage of the offer from NZI.  We will be able to complete everything so much quicker.  I have got a lot to do.  I have got to see a lot of people about this.  Everything is going to be fine.  We just need your signature.’

26.Shortly after the conversation referred to in paragraph 24 Roger Poignand came to my home and produced some documents for my signature.  He said to me words to the effect:­

RP:‘I have been really busy.  I have got to be quick with this.  I have got to get out to Sutherland.  If we do not get this in quickly we will lose the finance.  I have been rushing all day and I have still got more signatures to get.  These are the new documents with NZI.  It is going to be so much better.  They are much better people to deal with.’

27.I then rang my daughter Suzanne Isobel Gibbs who lives three doors away and asked her to come to my home.  Whilst waiting for my daughter to arrive Roger Poignand and I had a conversation in words to the following effect:­

MF:‘You know Roger I really want my guarantee rescinded.  I have been asking about this for quite some time.  Why am I signing a new agreement?’

RP:‘I will look into that Margaret we will get it going, but signing this is very important because it will let us get on with the development of Dee Why Gardens and in the meantime you are still making money.’

MF:‘I am still only covering this for $250.000.00?’

RP:‘Yes. Here it is.’

In one of the documents he produced to me a clause which appeared to limit the liability of my company and I to $250.000.00.  Without reading the documents I then proceeded to execute them, as did my daughter.

28.At the time of signing the documents the only persons present were my daughter, Roger Poignand and myself.  Roger Poignand was at my home for only a short time.  At the time of signing the documents I had not seen any Facility Agreement with NZI Capital Corporation Limited ("NZI") or any Deed of Fixed and Floating Charge given to NZI.  I was not told and did not know the terms of the NZI loan.  I did not meet anyone from NZI in relation to the documents or the financing of the project and I had no discussion with anyone from NZI concerning those documents or the financing of the project.  I did not meet or speak with Anthony Hawkins in relation to the documents.

29.I signed the documents on the basis of what I had been told by Roger Poignand and I believed that all other investors in the project would be providing guarantees and mortgages to NZI.  If I had been told or I had known that any investors were not providing guarantees and mortgages then I would not have signed the documents.  This would have been particularly the case if investors having a larger investment than Nyrano were not giving guarantees and mortgages.  If I had been told or I had known that only one other investor was providing a mortgage to NZI then I would not have signed the documents.  I continued to believe that all the investors were doing the same as me and that all investors should have the same benefits and the same obligations.

30.Further, if I had known or been told that there was a real risk, a likelihood or some possibility of NZI calling on the guarantee or the mortgage then I would not have signed the documents.  Further if I had known or been told that NZI considered there was a significant risk or a likelihood that the guarantee and mortgage would be called on then I would not have signed the documents.  Based upon what I had been told I did not think that there was any prospect of NZI calling up the mortgage or the guarantee.  At the time of signing the documents I believed that there were other investors in the project.  At this time I still did not know that there was a unit trust, and that Nyrano's investment was in units in the unit trust.  I had not spoken to or met with anyone from NZI in respect of the documents or any financing of NZI.  I did not provide NZI with any statement of my financial position, and I did not authorise or consent to Roger Poignand providing such information to NZI.”

In her affidavit, Ms Fulton proceeds to identify the following documents:

(a)The deed of guarantee, now sued on in these proceedings, dated 22 April 1987, signed by herself and Margaret Fulton Enterprises and nine other guarantors, namely, Roger James Poignand, John Dalton Courtney, Peter William Metcalfe, W.L. Hawke Holdings Pty Limited, Dr. Arthur John Emmett, Dr. Victor Malcolm Pannikote, Victor Pannikote Holdings Pty. Limited, Harold Victor Holden and Chee Seng Lee.

(Mr Metcalfe, along with Messrs Poignand and Courtney, was a director of Ripoll, and one of the controllers of the Dee Why project.  W.L. Hawke Holdings Pty Limited is a family company, controlled by Mr William Hawke and his family.  Although Dr Emmett was shown as a guarantor and as a resident of Switzerland, he purportedly executed the guarantee by his attorney, Mr Courtney.  I was informed that there is a dispute and, as yet, unresolved litigation on this question.  Finally, it should be noted that, with the exception of Ms Fulton and Margaret Fulton Enterprises, the liability of the other guarantors remains unlimited.  It is also material to observe, at this point, that Dr Pannikote also provided a mortgage over real estate at Kogarah to support his guarantee.  He and Margaret Fulton Enterprises were the only guarantors to provide security.

Some other matters of background should be mentioned at this stage.  Ms Fulton's investment in the project took the form of an investment in a unit trust, as mentioned, and, in the name of her company, Nyrano, she subscribed for 16 out of 700 units issued, ie. 2.29 per cent.

It is also common ground that there were some 40 investors involved in the project and that in subscribing for her units, Ms Fulton paid a total of $167,000.)

Under the subject deed of guarantee, the guarantors guaranteed the repayment by Ripoll of all moneys owed by Ripoll to NZI.  However, in the case of Ms Fulton and Margaret Fulton Enterprises, it was provided that the total liability of Ms Fulton and Margaret Fulton Enterprise was limited to a sum not exceeding $250,000 (see cl 25). 

(b)The mortgage by Margaret Fulton Enterprises over the Balmain property, executed under the common seal of Margaret Fulton Enterprises.  The affixing of the seal was witnessed by Ms Fulton as a director and by Mr Poignand, apparently as acting secretary.  The secretary of the company at the time was Ms Fulton's daughter, Suzanne Isobel Gibbs, who gave evidence in the proceedings.  She, along with her mother, signed a certificate under s 230(8) of the Companies (NSW) Code, in respect of the mortgage.  The certificate was dated 14 April 1987.  The provisions of the mortgage limited the liability of Margaret Fulton Enterprises to a sum not exceeding $250,000 (see cl 5).

(c)A letter, dated 22 March 1988, which she received from Ripoll, signed by Mr Poignand to this effect:

“The Secretary -
Margaret Fulton Enterprises Pty Ltd.
7 Simmons Street
BALMAIN  NSW  2041

Dear Margaret,

RE:     SECURITY FACILITY $250,000 OVER PROPERTY

This letter confirms the undertaking that your company will receive a guarantee fee of 5% per annum payable on maturity from the 30th October, 1985.”

The words “hopefully 2 years”, acknowledged by Ms Fulton, in evidence, to be in her handwriting at the time, then appear on the letter.

.No payment of any part of the fee was received by Ms Fulton or her company.

As I have indicated, I have thus recorded this affidavit evidence so as to explain the nature of Ms Fulton's case, but without making any specific findings on contentious matters at this point.

FINDINGS
NZI elected not to call evidence.  It is possible, however, to reconstruct, substantially at least, its role in the events from the documentation.  I find the role of NZI to be as follows:

1.On 17 February 1987, a related company, NZI Securities Australia Limited, offered Ripoll a "refinancing and construction" facility of up to $15,000,000. A further offer, in substantially similar terms, was made by NZI on 3 April 1987.

2.The context in which these offers were made included the following:

(a)On 2 February 1987, Mr Goran Turner, an officer of NZI, sent an internal memorandum regarding Ripoll's credit application, to another NZI officer, Janine Middleton, seeking, inter alia, clarification as to why Ms Fulton and Dr Pannikote "support the project with their own assets".

(b)On 4 February 1987, Ms Middleton replied by an internal memorandum referring, inter alia, to "the issue of Margaret Fulton and Doctor Pannikote supporting the project with their own assets while other shareholders with greater percentage of shareholding have not offered additional security".  Ms Middleton advised that "It appears that Fulton and Pannikote have an internal arrangement with John Courtney and Roger Poignand that entitles them to take a greater percentage of profit than their shareholding would normally allow". 

The documentary material in evidence takes this matter no further.  Mr Poignand accepted in his oral evidence that he could have provided Ms Middleton with that information.  However, neither Ms Middleton, nor Mr Turner, was called to give evidence.  Nevertheless, it is plain, and I find as a fact, that there was no "arrangement" whereby Ms Fulton would "take a greater percentage of profit".  It appears that Mr Turner's understandable concern, as to why Ms Fulton would offer a mortgage over her home, was never raised by NZI with Ms Fulton.  It also appears that this question was never further pursued, let alone addressed by NZI.

3.NZI was aware of the following matters:

(i)That Mr Poignand was a director and shareholder of Ripoll, which was the trustee of the unit trust, and that he was a person directly interested in the success of the project;

(ii)That Ms Fulton was not a director or a shareholder of Ripoll, and was not involved, in any management sense, in the decision-making process in the carrying forward of the project;

(iii)That Nyrano Pty Limited held only 16 out of 700 units in the unit trust;

(iv)That NZI proposed to deduct a substantial establishment fee from the facility, namely, a sum of $350,000;  and

(v)That AGC was then owed a sum, in excess of $7 million, on its facility and that substantial amounts were needed to be paid immediately to Ripoll and to Mr Poignand, in respect of outstanding creditors of the project.

It appears that AGC formally gave a notice of default to Ripoll on 18 March 1987.  By that time, that is to say, March 1987, Mr Hawkins had written to NZI.  NZI and its solicitors, Messrs Mallesons Stephen Jaques, were aware that Mr Hawkins was indicating that Ripoll was "under extreme pressure to settle" with NZI.

There is evidence before me that Ripoll had been unable to pay AGC instalments, due under its financing arrangements, as early as October 1986.  It does not emerge specifically from the evidence that NZI was aware of this default.  However, an inference that NZI was aware of the default arises from the terms of Mr Hawkins' letter, written in March 1987, and from the circumstances that there would be deducted from the refinancing facility substantial amounts to pay outstanding creditors, details of which I will shortly give. 

It appears that an inference should be drawn that, as at March 1987, and, certainly before 3 April 1997, when the first draw-down under the new facility was to be made, NZI was aware that Ripoll had, at least, serious liquidity difficulties.  As I have said, it was arranged that there be deducted from the first draw-down certain amounts, which were to be used to pay outstanding creditors of Ripoll.  The details were as follows:  an amount of $250,012.76 was to be deducted to reimburse Ripoll for the payment of outstanding creditors.  In addition, the sum of $230,000 was to be deducted from that draw-down to be paid to Mr Poignand, apparently to reimburse him for amounts he had spent in paying creditors of the project for construction and development costs.  Also, NZI had proposed that a Certificate of Independent Advice, with respect to the Fulton interest, was to be obtained by its solicitors.  It is clear from NZI's and Mallesons' documentation in evidence that NZI contemplated that this course would be followed.  It is now accepted that the Certificate was never obtained or provided.  I treat this, however, as part of the factual context.  Its legal consequences will be a matter to be dealt with later.

MS FULTON'S CASE AGAINST NZI - THE MATERIAL FACTS CONTENDED FOR ON HER BEHALF
On behalf of Ms Fulton, it is submitted that NZI was aware, or must be taken to have been aware, that there were many unusual features in the re-finance transaction that could not naturally be expected and which had not been disclosed to Ms Fulton as follows:

(i)There were only a limited number of investors in the DYV Unit Trust that were providing guarantees to support the re-finance transaction, without any relationship to the size of their respective investments;

(ii)There were only two investors who were providing mortgages over real property to secure the re-finance transaction and, again, without any relationship to the size of their investments;

(iii)NZI was to receive an “establishment fee” in the sum of $350,000, Poignand was to receive from the proceeds of the re-finance advance the sum of $230,000 and Ripoll was to receive the sum of $250,012.76 to pay outstanding creditors;

(iv)The obligations to AGC would be discharged before NZI received the deed of guarantee and indemnity, requisitions on title in relation to Ms Fulton’s home and the mortgage, duly executed;  and

(v)The Dee Why Village project was not generating a cash flow and therefore interest and fees due to NZI would need to be capitalised for a considerable period, as Ripoll had no capacity to service the interest and fees.

CONCLUSIONS AND FINDINGS ON THE FACTS CONTENDED FOR BY MS FULTON
As I have already observed, for immediate purposes at least, it is not necessary to make any findings in other areas, bearing in mind, in particular, the cross-claim brought against Mr Hawkins.  I make findings on the specific sub-paragraphs above as follows:

As to (i):         With respect to NZI’s knowledge, I so find.  I do so having regard to the two internal memoranda mentioned above, and since, as has been said, NZI called no evidence, I infer that, if Mr Turner or Ms Middleton had been called, their evidence would not have assisted NZI’s case.

As for Ms Fulton's knowledge on this aspect, I accept Ms Fulton's evidence that she was not informed of the true position of the other investors and other guarantors in the present context.

As to (ii):        The position is the same as for (i) above.

As to (iii):Clearly these matters were known by NZI.  I accept Ms Fulton's evidence that she was not so informed.

As to (iv):This was, in fact, the course of events and NZI must have known of it.  Although an important detail, I accept and find that Ms Fulton was not informed of it.

As to (v):NZI knew that Mr Poignand was required to provide, in effect, bridging finance, in the sum of $230,000, to meet the demands of outstanding creditors.  NZI also knew, from the terms of the proposed deduction from the first draw-down, that Ripoll owed outstanding creditors approximately $250,000.  NZI must, I presume, in the absence of any evidence being called by it, have known the facts asserted in (v).  On the other hand, I accept and find, that Ms Fulton did not have this knowledge.

THE PRIMARY CASE ARGUED FOR MS FULTON OF “UNCONSCIONABLE CONDUCT”
The primary case sought to be made on behalf of Ms Fulton and her company is, as I follow the argument, that Ms Fulton and her company were “in an inferior bargaining position, lacked independent advice and were unaware of special or unusual terms of the principal loan agreement.”  It follows, the argument runs, that it would be “unconscionable” for NZI to rely upon a guarantee, and a mortgage supporting the guarantee, procured in such circumstances.  Reliance is placed in this connection, especially, upon the reasoning of the High Court in Commercial Bank of Australia Limited  v Amadio (1983) 151 CLR 447.

Other causes of action are relied upon, including statutory ones.  However, as I followed the submissions, as they emerged in the course of argument, the principles governing each of the other causes of action, and the scope of the relief that might be available, were regarded by counsel for each of the parties, correctly I think, as, in the present circumstances, similar to each other in all relevant respects.  It appears that in those circumstances, it is not necessary to consider the case sought to be made on those other causes of action.  Attention will, therefore, be confined to the case sought to be made on the equitable doctrine of "unconscionability".

CONCLUSIONS ON THE CASE SOUGHT TO BE MADE BY MS FULTON ON THE DOCTRINE OF "UNCONSCIONABILITY" 
The legal principles in this area are well settled.

In Amadio, above, itself a guarantee case, Mason J said (at 467):

"The concept of fraud in equity is not limited to common law deceit;  it extends to conduct of the kind engaged in by the respondents’ son when he took advantage of the confidence and reliance reposed in him to induce his parents to enter into a transaction in order to serve his ends, thereby depriving them of the ability to make a judgment as to what is in their interests.

As we have seen, if A having actual knowledge that B occupies a situation of special disadvantage in relation to an intended transaction, so that B cannot make a judgment as to what is in his own interests, takes unfair advantage of his (A’s) superior bargaining power or position by entering into that transaction, his conduct in so doing is unconscionable.  And if, instead of having actual knowledge of that situation, A is aware of the possibility that that situation may exist or is aware of facts that would raise that possibility in the mind of any reasonable person, the result will be the same."

In my opinion, as the material in the internal memoranda of Mr Goran and Ms Middleton indicates, there was knowledge of this kind in the minds of the officers of NZI. 

In Amadio, above, Deane J said (at 474-5):

"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 catalogue[d].  In Blomley v. Ryan, 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’.”

In my view, there was an unconscionable dealing in the present circumstances.  The unconscionability stems, I think, from the knowledge on the part of NZI, as contrasted with the lack of knowledge of Ms Fulton, and the rest of the specific circumstances of (i) to (v), set out above.

In the words of Fullagar J in Blomley v Ryan (1956) 99 CLR 362 (at 405), an example of disability is “a lack of assistance or explanation where assistance or explanation is necessary”. In the present case it is clear that Ms Fulton did not formally retain a solicitor to advise her. What she was told informally by Mr Hawkins did not amount, on any view, to proper advice on the complex questions, including questions of contribution as between co-guarantors, that might arise. Nor, it may be noted, does Mr Hawkins now suggest that it was such proper advice.

In the result, Ms Fulton was, in my view, placed at such a serious disadvantage vis-à-vis NZI, that prima facie, the guarantees given by her and her company, and the security given in that connection, should be set aside.

THE NATURE OF THE RELIEF SOUGHT
Although an entitlement to rescission in equity is indicated, it will not, in the circumstances, be possible to restore the parties entirely to their original position, as it was in 1987.  In the meantime, the project went forward, at least to some extent.  In other words, since an applicant for equitable relief must also "do equity", the question arises as to the terms upon which equitable relief ought to be granted, in a case such as the present, where the consideration is, as it were, at least partially executed.

Again, the principles in this area are well established by recent authority of the High Court.  In Amadio, above, Deane J said (at 481):

“Where appropriate, an order will be made which only partly nullifies a transaction liable to be set aside in equity pursuant to the principles of unconscionable dealing... Where an order is made setting aside the whole of a transaction on the ground of unconscionable dealing, the order will, in an appropriate case be made conditional upon the party obtaining relief doing equity.”

In Vadasz v Pioneer Concrete (SA) Pty Limited (1995) 184 CLR 102, Deane, Dawson, Toohey, Gaudron and McHugh JJ said (at 111):

“Where, as in this case, the court has granted equitable relief in the shape of rescission of a contract, the result is to set aside the contract ab initio.  While equity followed the law in requiring restitution as a condition of rescission where the contract had been wholly or partly executed, it allowed greater flexibility in the basis upon which restitution and accounting between the parties may be ordered.  Thus, equity did not require complete restitution of the position which existed before the contract but allowed its remedies, particularly an order for monetary accounts, to be utilised to achieve practical restitution and justice.”

Their Honours went on to say (at 113):

“The idea of a Court of Equity using its powers to do ‘what is practically just’ was referred to by Lord Blackburn in Erlanger v New Sombrero Phosphate Co well over 100 years ago.  In contrasting the relief available in law and in equity on rescission of a contract, in particular the ability of equity to take account of profits and make allowance for deterioration of property, his Lordship said:

‘And I think the practice has always been for a Court of Equity to give this relief whenever, by the exercise of its powers, it can do what is practically just, though it cannot restore the parties precisely to the state they were in before the contract.’”

See now, also, the recent decision of the High Court in Maguire v Makaronis (1997) 144 ALR 729 (at 740-6) per Brennan CJ, Gaudron, McHugh, and Gummow JJ.

THE SPECIFIC RELIEF TO BE GRANTED
In addressing the conditions or terms upon which relief ought to be granted, so as to do justice in a practical sense, as the Court is directed to do, I bear in mind that Ms Fulton made no attempt, at least in any formal sense, to seek the benefit of the services of independent, professional legal advice.  I also bear in mind that she obtained, at least indirectly, some benefit from the transaction in the form of the refinancing arrangement by NZI.  That is, her contingent liability to AGC, admittedly in a transaction of a smaller amount overall, was discharged.  I also note that it was, to some extent at least, although not to any substantial extent, in the interests of Ms Fulton, so far as it then appeared, that the Dee Why project should be given an opportunity, at least, to proceed to a further stage.  I further take into account the circumstance that, at her own suggestion, the amount of her liability and that of her company was limited to the sum of $250,000 and that it was proposed, at least on an accrued liability basis, that a fee of 5 per cent would be payable. 

Nonetheless, it is clear, on the face of the dealings between the parties, that the provision of a guarantee, even with a limit of $250,000, coupled with the further provision of security over her home at Balmain, was considerably disproportionate to Ms Fulton’s real economic interest in the project as a whole.

It is never an easy exercise for a court to endeavour to make an assessment of what will achieve practical justice in the circumstances of a particular case.  Opinions could reasonably differ as to the proper approach to be taken in a case as complex as the present one.

I have endeavoured to approach the matter in a practical way and have asked myself two questions.  First, what would an independent legal adviser have advised Ms Fulton in March 1987?;  and secondly, would it be likely that Ms Fulton would have acted on such advice, wholly or partially?

As to the first question, I am of the view that an independent legal practitioner would not have advised Ms Fulton, even with the knowledge that is now available of the full circumstances of these transactions, to walk away from the project.  As has been noted, she had already invested a substantial equity in the trust, in an amount of $167,000.  There would, at that stage, I think, have appeared to be at least some prospect of the project’s success.  On the other hand, I believe that the legal practitioner advising Ms Fulton, in the hypothetical circumstances postulated, would have informed her that she had substantial grounds for believing that, if the present questions were to be litigated, she would be successful.  On the whole, I am of the view that the practitioner would have advised Ms Fulton to endeavour to negotiate a far more limited exposure under her guarantee but to forego the promise to pay the 5 per cent guarantee fee, to obtain instead, a discharge or release of the mortgage security.

As to the second question, having observed Ms Fulton in the witness box, and given her background as a well-known and successful food writer and publisher, and, in my view, a person with common sense and a desire to act fairly, and to appear to act fairly, in her commercial dealings with others, it is my opinion that she would have accepted the legal adviser’s advice.

I am further of the view that, if the legal practitioner had raised these matters in negotiation with Mr Poignand, upon the footing that Ms Fulton had a strong, but admittedly not invincible, position in challenging any commitment that she might have appeared to have given to renew her guarantee, Mr Poignand would have appreciated the relative strength of her position and would have communicated this to NZI.

I am also of the view that, when seized of this information, especially in the light of the reservations already raised by Mr Goran and Ms Middleton in their memoranda, NZI would, in the end at least, have been disposed to take a similar line to that, which I believe, would have been advocated on Ms Fulton's behalf.

In my view then, the result is that a situation would have been reached, in those hypothetical circumstances where, instead of the guarantee, secured by mortgage given by Ms Fulton and her company in the sum of $250,000, there would have been negotiated a substituted guarantee by Ms Fulton alone, but limited to an amount of around $25,000.

I choose that figure of $25,000 as my assessment, on all of the evidence before me, of a figure that is, on the one hand, substantial from the viewpoint of a person in Ms Fulton's financial position, but on the other hand, looked at from the point of view of a very large project, by no means a token gesture in assisting the progress of the project.

I would also have anticipated that it would be a condition of any such negotiation that Ms Fulton and her company release any claim to the 5 per cent fee.  I would not, however, envisage that a condition would have been imposed or required by NZI that she hand over her interest in the unit trust to NZI.

In my view, the demands of practical justice indicate that the guarantees and the mortgage should be set aside on conditions along the lines which I have described above.  This approach is, in my view, analogous to the approach adopted in Vadasz, above, where a guarantee of a company’s past and future indebtedness was set aside, to the extent of the company’s past indebtedness.

I propose to make, in due course, orders as follows:  first, the setting aside of the guarantees by both Ms Fulton and her company;  secondly, the setting aside of the mortgage by her company, but upon condition:  (1) that Ms Fulton enter into a fresh guarantee in favour of NZI in the sum of $25,000 and upon terms otherwise appropriate;  and (2) that both Ms Fulton and her company release any claim to the 5 per cent fee.  The only formal order I make, at this stage, is that I direct counsel for the ninth and tenth respondents to prepare draft short minutes of order to reflect these reasons and  to file and serve those draft short minutes of order within seven days.  I  will reserve costs and direct that submissions on the question of costs be made by the parties by filing and serving written submissions within seven days.  The matter is stood over, to a date to be determined, to deal with those matters only.

I certify that this and the preceding twenty-five (25) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Beaumont

Associate:

Dated:            20 August 1997

Counsel for the Applicant:	B Coles QC with M Ashurst
Solicitor for the Applicant:	Holmes & Bevan
Counsel for the Ninth and Tenth Respondents:	C J Stevens QC with T A Alexis
Solicitor for the Ninth and Tenth Respondents:	Rockliffs
Counsel for the Sixth Cross-Respondent:	S R Donaldson
Solicitors for the Sixth Cross-Respondent:	Minter Ellison
Date of Hearing:	2-6 June 1997, 18, 19 August 1997
Date of Judgment:	20 August 1997
Date of Order:	8 September 1997