Re: Haddad, Garry
[1997] FCA 800
•20 August, 1997
FEDERAL COURT OF AUSTRALIA
BANKRUPTCY – Creditor’s petition – opposition to creditor’s petition – petition based on default judgment debt – no adjudication of the merits of the case - whether appropriate to go behind judgment to determine if true debt – principles to be applied.
BANKRUPTCY - Guarantees - judgment debt based on two guarantees - whether guarantee not signed on behalf of principal debtor enforceable - whether standard form guarantee left incomplete in certain respects ineffective - economic duress - whether illegitimate or unconscionable pressure exerted by creditor to force debtor to sign guarantees.
Bankruptcy Act 1966 (Cth), s 52.
Bankruptcy Rules, r 20.
Wolff v Donovan (1991) 29 FCR 480, cited
Wren v Mahony (1972) 126 CLR 212, applied.
Corney v Brien (1951) 84 CLR 343, applied.
In re Hawkins, Ex parte Troup [1895] 1 QB 404, cited.
Re Johnson; Ex parte Greendale Engineering and Cables Ltd (1967) 11 FLR 335, cited.
Caltex Oil (Aust) Pty Limited v Alderton (1964) 81 WN (Pt 1) NSW 297, cited.
Lisciandro v Official Trustee in Bankruptcy (1996) 139 ALR 689, cited.
Walsh v Westpac Banking Corporation (1991) 104 ACTR 30, cited.
Breusch v Watts Development Division Pty Ltd (1987) 10 NSWLR 311, cited.
Equiticorp Finance Ltd (in liq) v Bank of New Zealand (1993) 32 NSWLR 50, cited.
Crescendo Management Pty Ltd v Westpac Banking Corporation (1988) 19 NSWLR 40, cited.
Equiticorp Financial Services Ltd (NSW) v Equiticorp Financial Services Ltd (NZ) (1992) 29 NSWLR 260, cited.
Re GARRY HADDAD; Ex parte R W JORDAN PTY LIMITED
NG 7015 of 1996
Sackville J.
20 August 1997
Sydney
IN THE FEDERAL COURT OF AUSTRALIA ) ) NEW SOUTH WALES DISTRICT REGISTRY ) NG 7015 of 1996 ) GENERAL DIVISION )
RE: GARY HADDAD
EX PARTE: R W JORDAN PTY LIMITED
JUDGE(S): SACKVILLE J. PLACE: SYDNEY DATED: 20 AUGUST, 1997
MINUTES OF ORDER
THE COURT ORDERS THAT:
The estate of the debtor be sequestrated.
The petitioning creditor’s costs, including any reserved costs, be taxed and paid in accordance with the Bankruptcy Act 1966.
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 7015 of 1996 ) GENERAL DIVISION )
RE: GARY HADDAD
EX PARTE: R W JORDAN PTY LIMITED
JUDGE(S): SACKVILLE J. PLACE: SYDNEY DATED: 20 AUGUST, 1997
REASONS FOR JUDGMENT
Introduction
R W Jordan Pty Ltd (“the creditor”) petitions the Court for a sequestration order against the estate of Gary Haddad (“the debtor”). The debtor filed a notice in accordance with r 20 of the Bankruptcy Rules giving notice that he intended to appear at the hearing of the creditor’s petition. The ground of opposition to the petition, stated in the notice, is that
“the judgment referred to in paragraph 2 of the...creditor’s petition was obtained by default and that the debtor is not indebted to the creditor.”
Paragraph 2 of the creditor’s petition filed on 19 December 1996, is as follows:
“2.The debtor is truly indebted to the petitioner in the sum of $93,118.30 calculated in accordance with the attached schedule being the amount due under the final judgment recovered in the District Court of New South Wales at Liverpool No. 81 of 1992 on 28 October, 1992 together with interest thereof at the rate prescribed by the District Court Act and Rules in accordance with the Certificate of Judgment dated 30 July, 1996 being an order the execution of which has not been stayed.”
The judgment against the debtor and two other persons, namely, Mr Tony Hadidi and Mr Victor El Bayeh (to whom I refer collectively as “the guarantors”) was obtained on two guarantees said to have been executed by the guarantors in June 1991 and October 1991, respectively. The judgment was for the sum of $78,274.85 inclusive of costs. As will be seen, the debtor paid some of the judgment debt by instalments during the period February 1994 to May 1995. After taking into account these payments, the amount due on the debt is $60,874.85, to which $32,243.45 in interest to the date of the bankruptcy notice (18 December 1996) has been added, producing the amount of $93,118.30 referred to in the creditor’s petition.
The debtor’s ground of opposition does not provide particulars of the contention that the debtor was not indebted to the creditor. However, the brief written submissions filed on behalf of the debtor prior to the hearing, following directions made by a Registrar of the Court at a pre-hearing conference, identified several grounds on which the guarantees are said to be unenforceable. The June 1991 guarantee is said to “fail” as a contract of guarantee because it was not executed by the principal debtor. It is also said that, because certain parts of the June 1991 guarantee had not been completed, no concluded agreement had been reached between the creditor and the debtor. The debtor submits that the October 1991 guarantee is unenforceable because the creditor gave no consideration for the debtor’s guarantee and, in any event, the debtor’s signature to the guarantee had been obtained by duress. It is also said that, although the October 1991 guarantee is described as a deed poll, it cannot operate as such because it was not properly witnessed, as required by s 38 of the Conveyancing Act 1919 (NSW) (“Conveyancing Act”).
No application was made at either the pre-hearing conference or at the outset of the hearing, for a direction that the Court determine as a preliminary question whether the debtor has shown that there are grounds for going behind the default judgment obtained in the District Court: cf Wolff v Donovan (1991) 29 FCR 480 (Fed Ct/FC), at 486-487, per Lee and Hill JJ. At the hearing, the matter proceeded by the creditor and debtor reading their affidavit evidence. Mr Assi, the solicitor for the debtor, cross-examined Mr Jordan, the creditor’s principal witness. Mr Fotis, counsel for the creditor, cross-examined the two deponents whose affidavits were read on behalf of the debtor, namely the debtor himself and Mr El Bayeh. An affidavit sworn by Mr Hadidi was initially read on behalf of the creditor, but was withdrawn by Mr Assi when it emerged that Mr Hadidi was not available for cross-examination.
The Course of Events
The evidence in this case was sketchy and incomplete in significant respects. For example, it was common ground that the debtor applied in March 1997 to set aside the default judgment obtained in the District Court in October 1992. However, neither party adduced evidence of the material relied on by the debtor to support that application or of the reasons given by the District Court Judge for refusing the application. Similarly, the evidence of the circumstances in which the guarantees were executed was incomplete. It is therefore not altogether easy to piece together the events which give rise to the guarantees on which the creditor ultimately relies to establish the debt due to it by the debtor. However, I shall set out the significant events leading up to the hearing of the creditor’s petition.
The debtor is trained as an accountant. At all material times he has conducted an accountancy practice under the name “Comet Taxation Service”. Throughout 1991, the debtor, Mr Hadidi and Mr El Bayeh were directors of Chartspike Pty Ltd (“Chartspike”). Chartspike was apparently a construction company, and in 1991 it was involved in the building of about 25 townhouse in Castle Hill (the “Castle Hill project”). The creditor, which traded under the name Carramar Hardware, supplied merchandise, including stoves and sanitary ware, to Chartspike for the Castle Hill project.
As will be seen, one of the guarantees signed by the debtor is expressed to guarantee both moneys owing to the creditor on account of “Middle East Investments” and a separate amount of $19,609.79 owing by a Mr Fred Maroon to the creditor. According to Mr Jordan, a director of the creditor, Middle East Investments was the business name of a firm or company, the principal of which was Mr Karim Kaswaini. It appears that by mid-1991 Middle East Investments (or the firm or company trading under that name) had become indebted to the creditor for goods supplied to it in connection with the Castle Hill project.
Mr Maroon is Mr Kaswaini’s son-in-law. In 1991, Mr Maroon had provided his house to a third party as security for credit extended to Chartspike or Middle East Investments (the evidence does not establish which) in connection with the Castle Hill project. By October 1991, Mr Maroon owed the creditor the sum of $19,609.79, in respect of goods supplied by it for installation in Mr Maroon’s house.
In June 1991, the guarantors were asked to sign a document described as an “application for credit”. The debtor did not dispute that he signed the document on the second page. Mr El Bayeh also agreed that he had signed the document on the second page. The third guarantor, as I have said, did not give evidence. A copy of the June 1991 document is reproduced as follows:
It will be seen that the document was not executed at the foot of the second page by or on behalf of Chartspike. It will also be seen that the blank space in the seventh line of the second page (“will be paid by ........ ........ ....”) is not completed. Nor is the amount of credit required completed.
At some time in October 1991 (the precise date or dates were disputed), the same three guarantors signed a document described as a “deed poll”. Despite the fact that there was a dispute as to whether Mr Haddad signed the document at the same time as the other two guarantors (the document bears two different dates), the original deed poll was not produced to the Court. A copy of the deed poll is reproduced below:
In March 1992, Chartspike went into liquidation. On 18 June 1992, the creditor served the debtor with a statement of liquidated claim issued by the District Court of New South Wales. In those proceedings, the creditor claimed $76,349.88, plus costs, against the guarantors. The creditor’s case was pleaded as follows:
“1. The Plaintiff is incorporated pursuant to the Corporations Law.
2.By agreements in writing dated 13 June 1991 and 10 October 1991 the Defendants agreed to pay to the Plaintiff all monies owing by Chartspike Pty Ltd and Middle East Investments.
3.It was an expressed condition of the agreements that in addition to the amount owing the Defendants would pay to the Plaintiff interest of $3,000.00 as at 10 October 1991 and further additional interest on the amount outstanding at the rate of 1.5% per month.
4.It was a further expressed condition of the agreement of 10 October 1991 that the amount would be within trading terms of 30 days.
5.The Defendants have not maintained the account within trading terms and have defaulted in their promise to pay the Plaintiff the money due.
6.The Plaintiff claims:-
(a)$76,349.88 being the balance of the account as at 30 May 1992;
(b)further interest on the sum of $76,349.88 at the rate of 1.5% per month to judgment, and
(c) costs.”
The pleading does not identify which portion of the sum claimed was attributable to the June 1991 guarantee and which to the October 1991 guarantee. The creditor’s written submissions in these proceedings referred to a letter of 15 April 1992 calling upon the guarantors to meet their personal guarantees, although the letter was not tendered in these proceedings.
On 28 October 1992, the creditor obtained a default judgment against the debtor and, it would seem, the other guarantors. The affidavit of debt, sworn by Mr Jordan, shows that no payments in reduction of the judgment debt were made until February 1994. On 20 December 1993, the debtor applied to the District Court to pay the judgment debt by instalments. (It appears that, by this time, the remaining guarantors had been made bankrupt, although on whose petition was not made clear by the evidence.) On 21 January 1994, the District Court at Liverpool made an order that the debtor pay the judgment debt by instalments of $800 per month. On 14 July 1994, the District Court varied the order to require the debtor to pay monthly instalments of $1,250. The debtor complied with the orders until May 1995, when he ceased making the monthly payments. In total, the debtor paid $17,400 in respect of the judgment debt.
In September 1996, the creditor caused a bankruptcy notice to be served on the debtor, claiming the balance of the judgment debt then owing, together with accrued interest. The creditor’s petition was served on the debtor in December 1996. On 19 February 1997, the debtor filed the notice under r 20 of the Bankruptcy Rules, to which I have already referred, specifying the ground of opposition to the making of a sequestration order.
By a notice of motion dated 4 March 1997, the debtor moved the District Court at Liverpool to set aside the judgment entered in October 1992. This motion was supported by an affidavit from the debtor, which was not in evidence in the present proceedings. The motion was heard on 25 March 1997 by Judge J K O’Reilly QC, who dismissed the motion with costs. Neither the transcript of the proceedings before his Honour nor his Honour’s judgment was tendered in evidence in the present proceedings. Accordingly, as I have previously noted, there was no evidence as to the grounds for his Honour’s decision.
The Debtor’s Contentions
Mr Assi put the debtor’s case this way:
The Court is bound to exercise its power and discretion to go behind the default judgment, in order to ascertain whether there is a debt in fact owing to the creditor.
The June 1991 guarantee (contained in the credit application) could not be enforced against the debtor because,
(a)the principal debtor (Chartspike) had not executed the document; and
(b)the agreement was too vague and uncertain to be enforced.
The guarantee of October 1991 (the so-called “deed poll”) failed as a contract of guarantee, on two grounds:
(a)The creditor provided no consideration for the guarantee, since the guarantee was confined to past debts due to the creditor.
(b)The creditor applied undue pressure on the debtor to execute the guarantee, thereby rendering the agreement void or unenforceable on the principles of economic duress.
If the October 1991 document were to be considered as a deed poll, it was unenforceable because it had not been witnessed, as required by s 38 of the Conveyancing Act.
Going Behind the Default Judgment
Section 52(1)(c) of the Bankruptcy Act 1966 (Cth) (“Bankruptcy Act”) provides that, at the hearing of a creditor’s petition, the Court must require proof of the fact that the debt or debts on which the petitioning creditor relies are still owing. In Wren v Mahony (1972) 126 CLR 212, at 223, Barwick CJ (with whom Windeyer and Owen JJ agreed) emphasised the “dominant place the mandatory words of s 52(1) occupy in relation to the making of a sequestration order”. Wren v Mahony and the earlier decision of the High Court in Corney v Brien (1951) 84 CLR 343, demonstrate that a court exercising bankruptcy jurisdiction has the power to go behind a judgment to inquire whether the judgement is founded on a real debt. In Wren v Mahony, Barwick CJ (at 224-225) stated the principle as follows:
“The judgment is never conclusive in bankruptcy. It does not always represent itself as the relevant debt of the petitioning creditor, even though under the general law, the prior existing debt has merged in a judgment. But the Bankruptcy Court may accept the judgment as satisfactory proof of the petitioning creditor’s debt. In that sense that court has a discretion. It may or may not so accept the judgment. But it has been made quite clear by the decisions of the past that where reason is shown for questioning whether behind the judgment or as it is said, as the consideration for it, there was in truth and reality a debt due to the petitioning creditor, the Court of Bankruptcy can no longer accept the judgment as such satisfactory proof. It must then exercise its power, or if you will, its discretion to look at what is behind the judgment: to what is its consideration. It is not the law, in my opinion, that whether in any case the Court of Bankruptcy will consider whether there is satisfactory proof of the petitioning creditor’s debt is a mere matter of its own discretion. Nothing in Corney v Brien lends support for such a view. Rather the emphasis is upon the paramount need to have satisfactory proof of the petitioning creditor’s debt. The Court’s discretion in my opinion is a discretion to accept the judgment as satisfactory proof of that debt. That discretion is not well exercised where substantial reasons are given for questioning whether behind that judgment there was in truth and reality a debt due to the petitioner.”
The rationale for this approach is that the making of a bankruptcy order affects not merely the parties to the judgment, but the rights of all creditors: In re Hawkins, Ex parte Troup [1895] 1 QB 404, at 408-409, cited in Wren v Mahony, at 223; Corney v Brien, at 347, per Dixon, Williams, Webb and Kitto JJ, at 355, per Fullagar J.
The existence of the judgment is prima facie evidence of the debt and a court will not go behind the judgment as a matter of course: Wolff v Donovan, at 486. A court will, however, more readily go behind a judgment obtained by default, than one obtained following a hearing on the merits: Corney v Brien, at 347, 356-357; Wolff v Donovan at 486; J L Goldring, “Going Behind a Judgment” (1973) 47 ALJ 377, at 378-379. The fact that a debtor has unsuccessfully applied to set aside the judgment, does not necessarily mean that a Court hearing the creditor’s petition should not go behind the judgment, particularly where the refusal does not follow an investigation of the merits: Re Johnson; Ex parte Greendale Engineering and Cables Ltd (1967) 11 FLR 335 (Fed Ct of Bkpcy/Gibbs J), at 341. In Corney v Brien, Fullagar J said (at 358) that, where the judgment is by default, the Court will always go behind the judgment if there is what it regards as a bona fide allegation that no real debt lay behind the judgment. This may perhaps state the principle somewhat too strongly, but it emphasises that, if the merits of the case have not been considered, the Court exercising bankruptcy jurisdiction will be more willing to address whether the underlying debt exists.
In this case, the judgment was obtained by default. The debtor gave evidence that he gave instructions to lawyers to defend the claim, but they neglected to do so. I have considerable reservations about whether I should accept this explanation, but the debtor was not cross-examined on the issue and, in the absence of such cross-examination, I am not prepared to reject his account. In any event, it is a fair inference that the District Court did not address the validity or enforceability of the guarantees before the default judgment in favour of the creditor was entered in October 1992.
It was common ground that the debtor’s application in 1997 to set aside the judgment was dismissed by the District Court. However, neither party chose to adduce evidence of the proceedings before Judge O’Reilly or his Honour’s reasons for dismissing the debtor’s application. His Honour may have dismissed the application on discretionary grounds, or for reasons which did not require him to consider the enforceability of the guarantees. On the material before me, I am unable to find that his Honour reached his decision after considering the “merits” of the creditor’s claim to enforce the guarantees against the debtor.
The judgment of Barwick CJ in Wren v Mahony states (at 224-225) that the discretion to accept a judgment as satisfactory proof of the debt due to the creditor “is not well exercised where substantial reasons are given for questioning whether behind that judgment there was in truth and reality a debt due to the petition”. This language implies that the discretion is to be exercised prior to a final evaluation of the debtor’s contentions. Later in this judgment, I address the substance of the submissions put forward on behalf of the debtor challenging whether there was “in truth and reality” a debt due to the creditor. At this point it is necessary only to decide whether the debtor has shown sufficient reasons to go behind the default judgment. It seems to me that the debtor’s written submissions, sketchy though they may be, when considered in conjunction with the affidavit evidence, constitute substantial reasons for questioning whether a debt “in truth and reality” lay behind the judgment. It must be remembered that the debtor’s submissions do not dispute merely the quantum of the debt due to the creditor, but challenge whether the guarantees were capable of creating any antecedent debt owed by the debtor to the creditor.
In these circumstances, I think that the appropriate course is to exercise my discretion to examine the debt said to underlie the default judgment. I have not overlooked that fact that the debtor paid instalments in reduction of the judgment debt over a period of more than a year. However, he gave evidence that these payments were made on the advice of his legal representatives, despite his instructions to them that he wanted the judgment set aside. Again, while I have considerable reservations about accepting this explanation, the debtor was not cross-examined on the issue. I do not think his evidence is so inherently implausible that I should reject it without the creditor’s counsel having put to him that his explanation was false.
The Grounds
I have referred to the grounds relied upon by the debtor to challenge the validity or enforceability of the guarantees. In Corney v Brien, at 358, Fullagar J said this:
“But, when once the court decides that it will ‘go behind’ the judgment, the cases which I have cited show, in my opinion, that the whole matter is open. When once it is considered proper to ‘reopen’, the only question will be whether there was, in fact and in law, a debt which could legally found the judgment - whether there was in ‘Truth and Reality’ an obligation not of record before there was an obligation of record. If the case should be one of those rare cases (I have not actually found one in the Reports since 1888, when Fry L.J. said that knew of none) where it is legitimate to ‘go behind’ a judgment entered after trial in court, there would be, I think, no alternative but to re-try the whole case. The matter to be decided is the existence or non-existence of a debt antecedent to the judgment. It has been said on several occasions that the judgment is prima-facie evidence of the antecedent debt. But, when once the inquiry is undertaken, I think that the ultimate burden of proof rests on the person claiming to be a creditor.”
In Wolff v Donovan, Davies J (at 482) suggested that, although “correct and helpful” Fullagar J’s remarks had to be read in context. In particular, Davies J said that the remarks
“do not mean that, in every case in which the debtor casts doubt upon the judgment debt or some aspect thereof, a court of bankruptcy will determine again the whole of the creditor’s claim.... In bankruptcy proceedings, it is more common that the debtor will raise an issue or issues into which he alleges the bankruptcy court should inquire and that the bankruptcy court will examine that issue or those issues ” (at 482).
While the debtor’s ground of objection was in general terms, the issues he raises for consideration are those referred to in his written and oral submissions. I think that those are the matters that should be examined, rather than retry the whole of the creditor’s claim, including questions of quantum and issues not now contested by the debtor. To take a different course invites debtors to avoid specificity in stating the grounds of opposition, as required by Bankruptcy Rules, r 20 and Schedule 1, Form 8.
June 1991 Guarantee
The debtor’s first contention was that the June 1991 document was not enforceable as a guarantee against him because it was not signed or executed on behalf of the principal debtor, Chartspike. Mr Assi did not explain why the fact that Chartspike did not execute the application for credit rendered the personal guarantee given by the guarantors unenforceable or void. However, there can be circumstances in which a guarantor undertakes a liability only on condition that the principal debtor becomes a party to the instrument: J. Phillips and J. O’Donovan, The Modern Contract of Guarantee (2nd ed, 1992), at 85.
The debtor gave affidavit evidence that when he signed the June 1991 document the directors had not met to decide on the liability of each director and on “how much Chartspike should commit itself to”. Moreover, the debtor said that “as far as I was concerned the Application for Credit had not been completed and I was not aware that a copy had been given to the creditor”. However, in his oral evidence, the debtor did not deny that he had given the document to Mr Jordan, although he said he doubted whether he had. Mr Jordan gave evidence that the document was returned to him after it had been “filled” (by which I took him to mean after the guarantors had signed it). Although he could not be sure, he thought the document had been returned to him by the debtor. Mr Jordan said that his concern was to ensure that the directors had signed the document and he had not noticed the fact that Chartspike had not executed it.
I formed the view that Mr Jordan was a truthful witness, who was endeavouring to give an accurate account of the relevant events. Understandably enough, he did not recall all details of the transactions. However, subject to a minor exception, I accept his evidence. By contrast, I did not consider the debtor to be a reliable witness. Insofar as the debtor’s evidence and Mr Jordan’s evidence are in conflict, subject to the same exception, I prefer Mr Jordan’s evidence. In assessing the debtor’s evidence of matters in which Mr Jordan was not involved, it is necessary to take into account that there was no evidence to show that the debtor gave the same version of events at an earlier stage, when he might have been expected to do so, for example, when he was served with the statement of claim or when the creditor sought to enforce the judgment debt against him.
I do not accept the debtor’s evidence that he regarded the June 1991 guarantee as incomplete and therefore not binding on him when he signed it. One reason he gave was that Chartspike had not decided how much credit it should seek from the creditor. Yet it was in the hands of the guarantors, all of whom were directors of Chartspike, to determine the extent of the company’s purchases from the creditor. The debtor also said that he regarded the document as incomplete because the directors had not decided among themselves the extent of their respective liabilities as guarantors. But there was no independent or documentary evidence that this was an issue prior to the execution of the guarantee, and I do not accept the debtor’s evidence on this point. Furthermore, I do not accept that the debtor was unaware that the signed guarantee had been returned to the creditor, via Mr Jordan. I find that he intended and expected that the signed guarantee would be returned to the creditor and was aware that in fact it had been returned.
I should add that I did not think Mr El Bayeh was a reliable witness. I formed the impression that he tailored his evidence to advance what he perceived to be his own interests or those of the debtor. I would therefore not accept Mr El Bayeh’s evidence unless it was against his own interests or independently corroborated. I note that Mr El Bayeh admitted that he signed the June 1991 document and that he did so intending that it should be returned to the creditor. As I have noted, Mr Hadidi, the third co-guarantor, did not give evidence.
I find that the debtor and his co-guarantors signed the June 1991 guarantee intending it to operate as a guarantee. The document, duly signed by the guarantors, was returned by the debtor to Mr Jordan, on behalf of the creditor. There was no agreement or arrangement between the guarantors and the creditor that Chartspike should execute the document before the guarantee became effective or could be enforced by the creditor. Although Mr Assi raised no point concerning the consideration for the guarantee, I find that the creditor provided consideration by its agreement (subsequently implemented) to extend credit to Chartspike, the principal debtor. In these circumstances, the failure of Chartspike to execute the document does not prevent the creditor enforcing the guarantee against the debtor.
Mr Assi’s submission that the June 1991 agreement was too uncertain to be enforced as a guarantee rests on the failure to insert anything after the words “paid by” on page 2 of the document and the failure to complete the amount of credit which was required. It is, however, quite common for standard form agreements (such as the June 1991 guarantee) to be left incomplete in certain respects. Provided the elements of an enforceable contract of guarantee are present, the fact that all sections of the form are not completed does not necessarily render it ineffective as a guarantee.
In Caltex Oil (Aust) Pty Limited v Alderton (1964) 81 WN (Pt 1) NSW 297 (SCt NSW/In Banco), a deed contained a promise which constituted a guarantee unlimited as to amount. However, the form contained the following:
“but the amount ultimately payable by the guarantor hereunder shall not exceed the sum of: £ .”
The Court rejected an argument that the failure to complete this provision rendered the agreement void for uncertainty. Ferguson J, with whom Walsh and Sugerman JJ agreed, said (at 299) that the intention of the parties had to be gathered from the document shorn of the irrelevancies contended in it. See also Walsh v Westpac Banking Corporation (1991) 104 ACTR 30 (SCt ACT/Miles CJ), at 35; Lisciandro v Official Trustee in Bankruptcy (1996) 139 ALR 689 (Fed Ct/FC), at 699, per Ryan and Drummond JJ; at 706-707, per Cooper J.
The June 1991 agreement identifies the principal debtor, namely Chartspike. The intention to be gleaned from the document is that the guarantors agreed to guarantee the payment of amounts due to the creditor by Chartspike in respect of merchandise supplied by the creditor. In the absence of some express limitation on the amount of credit required, it seems to me that the intention of the parties was that the guarantors’ liability would be unlimited. As I have already observed, it was in the hands of the guarantors to determine how much credit would be extended by the creditor to Chartspike, since they were responsible for placing orders on its behalf with the creditor.
Nor do I think the failure to complete the words after “paid by” renders the guarantee void for uncertainty. It is not clear whether the drafter of the standard form intended a date to be inserted in the space or something else, such as the words “me” or “us”. If the former (as Mr Assi submitted was the case), the failure to insert a time for payment being inserted into the agreement does not seem to me to render it too uncertain to be valid. The debtor’s evidence shows that, even though Chartspike did not execute the June 1991 document, the arrangement between it and the creditor was that Chartspike would pay its account at the end of the month in which the goods were delivered. The guarantee was intended to have the effect that, if Chartspike defaulted in its obligations to pay the creditor at the end of the month, the guarantors then were to become liable to pay the creditor the amount due to it by Chartspike.
I should note two further matters. First, the debtor said in his affidavit that he told the person who delivered the June 1991 document to him for completion and signing that he was willing to guarantee Chartspike’s debt, provided that his liability was limited to one third of Chartspike’s debt. The debtor thought that person might have been Mr Kaswaini (to whom the debtor referred in his affidavit evidence as Mr Kesrewani). There was no evidence that Mr Kaswaini was the agent of the creditor for any purpose connected with the guarantee. Mr Assi did not make any submission founded on the debtor’s evidence that his liability was intended to be limited. In any event, I am not prepared to find that the debtor communicated any qualification to liability of the kind suggested in his evidence. Even if, contrary to this finding, the debtor did communicate such a qualification, there was no evidence that it was communicated to the creditor or to anyone authorised to act on its behalf.
Secondly, Mr Assi, in response to a question, specifically stated that he did not submit that the June 1991 document was signed by the debtor merely on behalf of Chartspike and not in his own right. Accordingly, I do not need to address this question or make findings of fact that might bear upon it.
The October 1991 Guarantee
Mr Assi submitted that the October 1991 guarantee could not be enforced because the creditor gave no consideration for the debtor’s guarantee. As I followed his argument, Mr Assi’s starting point was that the guarantee was limited to the pre-existing debt of $19,609.79 due by Mr Maroon to the creditor and the unquantified “monies owing on account of Middle East Investments”, which Mr Assi suggested should be construed as limited to monies then owing by Middle East Investments to the creditor. It was said that, because the guarantee was limited to pre-existing debts, the creditor gave no consideration for the debtor’s promise.
Assuming that the guarantee was limited, as a matter of construction, to pre-existing debts, Mr Assi did not make clear why that fact suggested that the creditor had provided no consideration for the debtor’s promise. In any event, the evidence of Mr Jordan was to the effect that he told each of the guarantors prior to the execution of the guarantee in October 1991 that he was concerned about the failure of Middle East Investments to keep its account up to date and that if he (meaning the creditor) was to continue supplying goods to Middle East Investments to finish the Castle Hill project, a guarantee from the debtor, Mr Hadidi and Mr El Bayeh was required. Mr Jordan said that the goods that the creditor would supply, if the guarantee were executed, included sanitary ware and cooking ware.
The debtor’s evidence was to the same effect, except that he identified Chartspike as the entity which had failed to keep its account up to date and said that Mr Jordan had agreed on behalf of the creditor to supply to Chartspike the goods required to complete the Castle Hill project. I think the likelihood is that Mr Jordan confused Middle East Investments with Chartspike, as the entity which was to receive the goods required to complete the project. It is therefore likely that the arrangement between the creditor and the guarantors was that the creditor agreed to deliver goods for the Castle Hill project to Chartspike if the guarantee were executed.
I do not think anything turns on the identity of the entity to which the creditor was to supply the goods. The evidence of both Mr Jordan and the debtor supports the proposition that the creditor agreed with each of the guarantors that, if they signed the guarantee, it would supply the goods required to complete the Castle Hill project. I infer from Mr Jordan’s evidence that in fact the creditor supplied the goods, either to Chartspike or Middle East Investments. The promise by the creditor provided the consideration for the execution of the guarantee by the guarantors, including the debtor. Consideration expressed in terms of the future supply of goods may support a guarantee of past indebtedness, as well as of future obligations: Phillips and O’Donovan, at 55-56; Breusch v Watts Development Division Pty Ltd (1987) 10 NSWLR 311 (SCt NSW/CA), at 314, per McHugh JA. It is not to the point that the consideration was not recorded in the guarantee itself, since the consideration for a guarantee need not appear on the face of the instrument of guarantee: cf Phillips and O’Donovan, at 51. (The Usury, Bills of Lading, and Written Memoranda Act 1902 (NSW), s 8, provided that the consideration for a guarantee need not appear in writing. That section was repealed in 1990, on the ground that it was unnecessary, having regard to the repeal of the Statute of Frauds requirement that a guarantee be in writing: Usury, Bills of Lading, and Written Memoranda (Repeal) Act 1900 (NSW); NSW Parl Deb, Leg Ass, 4 April 1990, at 1681.)
The debtor’s second ground of attack on the October 1991 guarantee was that it was vitiated by reason of economic duress. The evidence relied on by the debtor to support this claim was very slight. In his affidavit, the debtor said that the document was brought to him by someone who “may have been” Mr Jordan. According to the debtor, Mr Jordan said that he would not release twenty-five stoves or supply any more goods for the Castle Hill project unless the debtor signed the guarantee. Because the debtor considered that “we badly needed the stoves to complete the project” he signed the document.
The principles relating to economic duress have been described as incorporating “somewhat unsatisfactory criteria”, namely, whether the pressure exerted is “illegitimate” or “unconscionable”: Equiticorp Finance Ltd (In liq) v Bank of New Zealand (1993) 32 NSWLR 50 (SCt NSW/CA), at 106-109 per Kirby P; see also Crescendo Management Pty Ltd v Westpac Banking Corporation (1988) 19 NSWLR 40 (SCt NSW/CA), at 45-48, per McHugh JA; Equiticorp Financial Services Ltd (NSW) v Equiticorp Financial Services Ltd (NZ) (1992) 29 NSWLR 260 (SCt NSW/Giles J), at 296-301. Nonetheless, it is necessary for the party relying on a claim of economic duress to demonstrate that there was compulsion or absence of choice, by reason of pressure that is regarded as illegitimate: Equiticorp, at 296-297, per Giles J. Mr Assi did not attempt to explain how these principles were satisfied in the present case. In my view, the evidence, taken at its highest, is incapable of establishing that there was either an absence of choice, or pressure that can be characterised as illegitimate.
The Deed Poll Question
Having regard to the conclusion I have reached, it is not necessary for me to consider whether the October 1991 guarantee could operate as a deed poll. However, I think it appropriate to record, in considering the conflicting evidence as to the circumstances of the execution of the document, that I accept Mr Jordan’s evidence that all three guarantors executed the document at the same time, in the debtor’s office. I also accept Mr Jordan’s evidence that the signatures were witnessed at that time by Mr Fadi Badran, who was (and is) an employee of the debtor’s firm. I note that Mr Badran, although in the vicinity of the Court during the hearing, was not called on behalf of the debtor to give evidence. The factual foundation for Mr Assi’s submission on this point, was therefore wanting.
Conclusion
For the reasons I have given, I reject the debtor’s submissions that there was no debt underlying the default judgment obtained by the creditor from the District Court in October 1992. I am satisfied that the other requirements of s 52 of the Bankruptcy Act have been met. Accordingly, I make a sequestration order against the estate of the debtor. I order that the creditor’s costs, including any reserved costs, be taxed and paid in accordance with the Bankruptcy Act.
I certify that this and the preceding fourteen (14) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Sackville
Associate:
Dated: 20 August, 1997
Solicitor for the Applicant: Janus Lawyers Counsel for the Respondent: Mr C. Fotis Solicitor for the Respondent: Stoikovich Banfield & Macri Date of Hearing: 30 July, 1997 Date of Judgment: 20 August, 1997
0
11
0