Sara v Adam - [2010] NSWDC 271

CITATION: Sara v Adam [2010] NSWDC 271

HEARING DATE(S): 31 August and 1 September 2010

JUDGMENT DATE:
28 September 2010

JUDGMENT OF: Hungerford ADCJ

DECISION: (1) Declare that the contract of guarantee made between Edward Sara and Nadia Adam as set out in the document dated 2 February 2009 entitled “Acknowledgment of Debt and Repayment of Loan/Debt Agreement and Guarantee” is void in whole from the time when it was made.
(2) Statement of claim, as amended, is dismissed.
(3) Plaintiff is to pay the defendant’s costs of the proceedings on the ordinary basis in an amount as agreed or assessed.

CATCHWORDS: CONTRACTS - Contract of guarantee of a debt - Unjust contract - Whether contract "unjust" - Substantive and procedural unfairness - Exorbitant interest rates for loan - Circumstances in which contract made - Whether contract had consideration - Relief available

LEGISLATION CITED: Contracts Review Act 1980, ss 7 and 9
Fair Trading Act 1987, s 72

CASES CITED: Breusch v Watts Development Division Pty Ltd (1987) 10 NSWLR 311
Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915] AC 847
Kowalczuk v Accom Finance Pty Ltd [2008] NSWCA 343
Nicom Interiors Pty Ltd v Circuit Finance Pty Ltd [2004] NSWSC 728
Riz v Perpetual Trustee Australia Ltd [2007] NSWSC 1153
West v AGC (Advances) Ltd (1986) 5 NSWLR 610

TEXTS CITED: The Modern Contract of Guarantee (O’Donovan and Phillips, Legal Online ed, Thomson Reuters, 2008)

PARTIES: Edward Sara - Plaintiff
Nadia Adam - Defendant

FILE NUMBER(S): 335219 of 2009

COUNSEL: Mr B Pluznyk for Plaintiff
Mr DA Allen for Defendant

SOLICITORS: Joeph G Capogreco & Associates for
Plaintiff
Proctor & Associates for Defendant

JUDGMENT

1 In this action the plaintiff, Edward Sara, seeks to recover from the defendant Nadia Adam the amount of a loan plus interest made by him to Arteria Property Pty Limited on 27 October 2008. The initial loan was for $100,000 to be repayable on 8 November 2008 with $60,000 interest; it was not so repaid. The plaintiff and Arteria Property then agreed to vary the terms of the initial loan agreement so that Arteria Property would pay to the plaintiff in full satisfaction the sum of $340,000 by 16 February 2009. In consideration of the plaintiff entering into the initial agreement and the varied agreement, the defendant and two other persons agreed on 2 February 2009 to guarantee and indemnify the plaintiff in relation to the obligations of Arteria Property under the varied agreement on a joint and several basis. Arteria Property did not satisfy those obligations and, so, the plaintiff sought recovery of the $340,000 plus interest at the rate of 10 per cent per annum from the defendant; the two other guarantors have since been made bankrupt and Arteria Property was in liquidation.

2 The defendant resisted the contract of guarantee on the basis that there was no consideration given for it by the plaintiff and, in any event, it should be declared void as unjust from the time…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2010] NSWDC 271
Decision Date: 28 September 2010

CaseChat Overview and Summary

In the case of Sara v Adam, the primary dispute between the parties revolved around the validity of a guarantee agreement that Edward Sara had entered into with Nadia Adam. The contract in question, dated 2 February 2009, involved a guarantee of a debt. The Federal Court was tasked with determining whether the contract was "unjust" and thus void, considering both substantive and procedural elements of fairness. The court was also required to examine the circumstances under which the contract was made, including whether it involved consideration, and the exorbitant interest rates that were a part of the loan agreement.

The central legal issues addressed by the court were whether the contract of guarantee could be deemed "unjust" due to the substantive and procedural unfairness evident in its terms, and whether there was valid consideration for the contract. Additionally, the court needed to consider the relief available to the parties, given the potential voidance of the guarantee agreement. The court had to scrutinise the fairness of the contract, the interest rates stipulated within it, and the overall context in which the contract was formed.

The court found that the contract was indeed unjust, primarily due to the substantive unfairness represented by the exorbitant interest rates and the procedural unfairness in the circumstances under which the contract was executed. The court held that the contract lacked consideration, as it did not involve a mutual exchange of value between the parties. Consequently, the contract was declared void in its entirety. The court further dismissed the statement of claim as amended and ordered that the plaintiff bear the defendant’s costs of the proceedings, either as agreed or assessed.

The final orders of the court included a declaration that the guarantee contract was void, dismissal of the statement of claim, and an order for the plaintiff to cover the defendant’s costs. This comprehensive decision addressed the fundamental issues of fairness and consideration, leading to the voidance of the contract and the associated financial implications.

Orders

Orders of the court

(1) Declare that the contract of guarantee made between Edward Sara and Nadia Adam as set out in the document dated 2 February 2009 entitled “Acknowledgment of Debt and Repayment of Loan/Debt Agreement and Guarantee” is void in whole from the time when it was made.

(2) Statement of claim, as amended, is dismissed.

(3) Plaintiff is to pay the defendant’s costs of the proceedings on the ordinary basis in an amount as agreed or assessed.

Background

Background to the litigation

Full text does not contain this section.

Evidence

Evidence Before The Court

Full text does not contain this section.

Decision

Reasons for decision

Full text does not contain this section.

Ratio Decidendi

Legal Principle Established

Full text does not contain this section.

CITATION:	Sara v Adam [2010] NSWDC 271
HEARING DATE(S):	31 August and 1 September 2010
JUDGMENT DATE:	28 September 2010
JUDGMENT OF:	Hungerford ADCJ
DECISION:	(1) Declare that the contract of guarantee made between Edward Sara and Nadia Adam as set out in the document dated 2 February 2009 entitled “Acknowledgment of Debt and Repayment of Loan/Debt Agreement and Guarantee” is void in whole from the time when it was made. (2) Statement of claim, as amended, is dismissed. (3) Plaintiff is to pay the defendant’s costs of the proceedings on the ordinary basis in an amount as agreed or assessed.
CATCHWORDS:	CONTRACTS - Contract of guarantee of a debt - Unjust contract - Whether contract "unjust" - Substantive and procedural unfairness - Exorbitant interest rates for loan - Circumstances in which contract made - Whether contract had consideration - Relief available
LEGISLATION CITED:	Contracts Review Act 1980, ss 7 and 9 Fair Trading Act 1987, s 72
CASES CITED:	Breusch v Watts Development Division Pty Ltd (1987) 10 NSWLR 311 Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915] AC 847 Kowalczuk v Accom Finance Pty Ltd [2008] NSWCA 343 Nicom Interiors Pty Ltd v Circuit Finance Pty Ltd [2004] NSWSC 728 Riz v Perpetual Trustee Australia Ltd [2007] NSWSC 1153 West v AGC (Advances) Ltd (1986) 5 NSWLR 610
TEXTS CITED:	The Modern Contract of Guarantee (O’Donovan and Phillips, Legal Online ed, Thomson Reuters, 2008)
PARTIES:	Edward Sara - Plaintiff Nadia Adam - Defendant
FILE NUMBER(S):	335219 of 2009
COUNSEL:	Mr B Pluznyk for Plaintiff Mr DA Allen for Defendant
SOLICITORS:	Joeph G Capogreco & Associates for Plaintiff Proctor & Associates for Defendant