Vadasz v Pioneer Concrete (SA) Pty Ltd

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
Adelaide No A37 of 1994

B e t w e e n -

MICHAEL CHRISTOPHER VADASZ

Appellant

and
PIONEER CONCRETE (SA) PTY LTD

Respondent

DEANE J
DAWSON J
TOOHEY J
GAUDRON J
McHUGH J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON THURSDAY, 9 MARCH 1995, AT 10.17 AM

MR S. WALSH, QC: If the Court pleases, I appear with my learned friend, MS J.E. CHOATE, for the appellant. (instructed by Elston & Gilchrist)

MR J.R. SULAN, QC: If the Court pleases, I appear with my learned friend, MR D.W. SMITH, for the respondent. (instructed by Gun & Davey)

McHUGH J: I have informed both counsel that I own shares in Pioneer International, and I understand there is no objection to me sitting in this case, because I assume Pioneer Concrete (SA) is a subsidiary of that company; is that so?

MR SULAN: That is so, your Honour.

DEANE J: Yes, Mr Walsh.

MR WALSH: If the Court pleases, in this case the respondent sought to enforce a contract of guarantee fraudulently obtained. The parties in short were the guarantor, Mr Vadasz, Pioneer Concrete, who had supplied concrete to a company, Vadipile Drilling Pty Ltd. Vadipile had commenced dealing with Pioneer Concrete in about 1986. A guarantee was proffered at that time but rejected by Mr Vadasz. That appears in the supplementary appeal book.

The company continued to trade with Pioneer Concrete, but for a gap in trading between 1987 and 1990, until 1992. In January 1992 Vadipile encountered cash flow problems, as appears in the findings that were made by the learned trial judge and referred to by the Full Court. Due to some design errors at the time at a Telecom site, which was a large contract, the company’s financial difficulties increased, such that on 30 July 1992 a meeting was held between Miller, Vadasz and another director of the company, a Mr Storer, a person who had been a director.

Vadasz suggested that the past debts that were then owing be frozen and paid off in instalments and that the future supplies be granted on a 45 day trading terms. That was actually agreed to, but subsequently the only issue that remained was the issue of whether the guarantee should be enforceable, and a guarantee was in fact entered into.

There was, and the judgments refer to another person, a Mr Bannah who was a servant or agent of Pioneer Concrete. He gave some evidence. It was not important evidence as it turned out but he subsequently sought some instructions by way of an internal memorandum from the respondent Pioneer Concrete’s head office in Sydney. And I will refer to that memorandum a little later because in that memorandum he made the point that attempts to coerce Mr Vadasz into giving the guarantee just were not fruitful and thereby gain access to his assets, namely his personal assets, and there was reference to that in that memorandum.

In that memorandum Mr Bannah recommended accepting the proposal that had been put by Mr Vadasz, namely that there would not be a guarantee, but there would be a continuation of trading terms and hopefully there would be evidence of a new contract which the company was hoping to get. So the actual recommendation did not include the guarantee, however, it became apparent that head office did want a guarantee.

In a telephone conversation on 3 August 1992, Mr Miller, who was the key servant or agent of Pioneer Concrete and who had been dealing with Mr Vadasz and the company, suggested that there might be a bill of sale but Mr Vadasz said, “No, Westpac had a debenture over the assets of the company”. On 4 August 1992, there were two telephone calls. Mr Miller, that is the servant or agent of Pioneer Concrete, mad two telephone calls with Mr Vadasz. In the first Miller sought information in relation to Vadipile’s capacity to repay the past in instalments of $30,000 and to meet future supply costs. He also said in that conversation that a guarantee would be required.

The head office provided instructions on 5 August 1992, and that is an important date because on 5 August 1992, a memorandum was sent from a Mr Hogan to Adelaide in effect saying that they wanted caveats over the properties and to investigate that issue. Miller sought some legal advice and learnt that he could not get a caveat over Mr Vadasz’s personal property. Yet it was on 7 August 1992, the meeting when a guarantee document was actually signed, that he proffered, that is Miller proffered, a document that would give Pioneer the right to place caveats over Mr Vadasz’s personal property and that would secure both past debts and future debts and by the side it actually provided for an indemnity so that Mr Vadasz would be primarily liable for the debt itself which is common in many guarantees.

This guarantee was in a new form. It had been sent by Mr Hogan from the head office about two weeks or possibly earlier to Mr Miller. The earlier guarantee which had been proffered to Mr Vadasz when they first started trading did not have a clause whereby they could gain access by way of a charge over personal assets and properties, but the new guarantee did have that. It had the ability to create a charge over personal assets. When Mr Vadasz signed a guarantee ultimately, he signed a document which was different in that respect and which gave Pioneer Concrete that which Mr Hogan had been seeking.

The defendant did not read the document when he signed it. Mr Miller, we say, was aware of that. Mr Miller did not expect Mr Vadasz to understand, he said, the guarantee any more than he did himself. He proffered the statement that he did not really understand this document yet he had been the credit manager for some years and he was involved in obtaining guarantees from time to time. After the signing of the guarantee on 7 August 1992 the company’s plight worsened and the basic fact was that unfortunately it was the worst winter on record. Mr Miller agreed with it. Mr Vadasz gave evidence of it and it was almost non‑stop rain and the company had fixed-term contracts and the company suffered very badly.

DEANE J: Mr Walsh, you started your submissions on the basis that it was a fraud case.

MR WALSH: Yes, your Honour.

DEANE J: Could you just identify for me the trial judge’s findings in that regard?

MR WALSH: Yes, your Honour. Your Honour, at page 13 of the appeal book, his Honour at line 31 found this, having determined that he should believe Mr Vadasz and not Mr Miller on a critical issue and his Honour continued:

It is now necessary to consider whether the plaintiff was aware that the defendant had misapprehended the extent of the guarantee.

DEANE J: But, that is a different question to whether the plaintiff had a fraudulent intent for making it.

MR WALSH: Oh, yes. He did not actually say that the plaintiff had a fraudulent intent, but what we say is that the conduct must amount to fraud, as found.

DEANE J: Because I had read the paragraph at page 14 as indicating that the trial judge had deliberately refrained from finding fraud.

MR WALSH: Well, your Honour, we can only put our case in this way: I should have said ‑ and I did say it at the leave to appeal occasion ‑ but, we say it is conduct amounting to fraud, actual fraud, and it must be so, we say.

DEANE J: Well, except there are problems about that, are there not? I mean, while the onus is now seen as the same, the approach in finding fraud may not be the knife balance exercise that the trial judge has obviously engaged in in finding the facts that he has found. It is not apparent to me that his Honour would have found fraud if he had regard himself and also, I notice there is no ground of appeal in the appeal to the Full Court against his Honour’s failure to find fraud.

MR WALSH: Well, I think the way in which it was argued was that it was conduct amounting to fraud. That was put to the Full Court as, indeed, it was put and not dissented from in relation to the leave to appeal application. It has been a matter that has been put.

DEANE J: We were not all at the leave application.

MR WALSH: No, I am sorry, your Honour, of course not.

TOOHEY J: It certainly troubled the Court on the special leave application, and there is quite a lot of discussion of that particular aspect.

MR WALSH: Yes, that is correct, your Honour. What we said was ‑ ‑ ‑

TOOHEY J: How high do you put your position in regard to fraud in any finding of fraud?

MR WALSH: Your Honours, we say that it is a factor that is important because it is a distinguishing factor from other cases, and it is important to look at cases where there is actual fraud as opposed to equitable fraud that is not actual fraud. But, we say that we are still, on the findings made by the learned trial judge, entitled to rescission. The way in which we argue the point is this way: if one looks at page 13, line 40, the learned trial judge had to consider whether, in fact, Mr Miller really understood what he was doing - namely, that which had been put to him persistently, that he proffered a document knowing that it had a term in it that was contrary to their agreement. The learned trial judge continued at line 40:

For some time prior to 30 July 1992, the plaintiff had been anxious to obtain security over the defendant’s assets with respect to the indebtedness of Vadipile. That much is clear from the internal memorandum dated 30 July 1992.

That is the memorandum I referred to where it used that word, “coerce”:

So the question of a guarantee was in the forefront of Miller’s mind. Miller was an experienced credit manager.

His Honour was making that point, which we say is important:

I am satisfied that, when he said “Yes, naturally” to Storer’s assertion at the meeting of 30 July 1992, he meant to convey that the guarantee would cover future debts only.

He also said in his evidence - and I think it was referred to by the trial judge - that he intended, by way of that document, to secure past debts. So, there could be no doubt that he was intending to do something with that document. Whether he read it or not, he was intending to secure past debts which the trial judge found was not part of the agreement.

TOOHEY J: Mr Walsh, when you were taking us through the history of the matter; when it came to the actual document which the parties signed, you fastened onto that aspect of the document which provided for the lodgment of the caveat against the appellant’s assets. To what extent did that aspect play a part as opposed to the past and future indebtedness?

MR WALSH: The learned trial judge did not actually make a finding in relation to that, which we accept, and the Full Court, even though the argument was again put in both forums, did not seem to place much weight on that, but what we say is this; that the learned trial judge had found that Mr Miller, we say, had been, in effect, guilty of some deceit in relation to the signing of this guarantee. Mr Vadasz had said he would not have signed a guarantee that he knew contained a caveat potential for a charge over his property as he would have torn it up.

One can safely accept, we say, with respect, that the learned trial judge, having found that Mr Miller quite clearly had proffered a document intending that it cover past debts as well as future when he knew, as the trial judge found, that the agreement was always that it would only be future ‑ we say it is a necessary corollary that, in fact, he, with the other documents available, intended to obtain a charge as well. If one looks at the history of the matter, namely the memorandum from Mr Hogan on 5 August, which says, “I want a charge on the properties”; the new guarantee document that came, that gave the charge over the properties, and then the proffering of the guarantee on 7 August, by Mr Miller, who admittedly denied that ‑ that he knew that it contained that ‑ and yet his Honour found he was an experienced credit manager, and he admitted on his evidence that he was used to getting guarantees from people; that was part of his job.

TOOHEY J: I am not sure that that answers my question. So far as the ability of the respondent to obtain charges over the appellant’s assets is concerned; was that an aspect that played any part in the trial judge’s findings that led him to grant rescission?

MR WALSH: If it did, it was not stated to be so, your Honour.

TOOHEY J: Does it have any part to play in this appeal?

MR WALSH: Only in this context: we say that it is not necessary for there to be any conclusion in relation to the issue. But it is relevant in the sense that a document was being proffered which gave a person who sought to obtain a benefit wrongfully a benefit which in fact, had it been known to Mr Vadasz, would have meant the guarantee never would have been signed.

TOOHEY J: Do we have any fact finding by the trial judge upon which we can build?

MR WALSH: No, your Honour; it is a matter of the evidence only.

TOOHEY J: Thank you.

MR WALSH: But if I may continue, at page 13 the learned trial judge continued at line 15 that Miller was an experienced credit manager.

I am satisfied that, when he said “Yes, naturally” to Storer’s assertion at the meeting of 30 July 1992, he meant to convey that the guarantee would cover future debts only.

So his Honour is making a finding, as it were, that he knew that Mr Vadasz was only agreeing to future, that that is what the agreement was and that in fact, when he said that he knew that he was proffering or getting a guarantee that secured past debts, that must have been deceitful. He continued:

I am satisfied that the plaintiff, through Hogan and Miller, formed the intention on or about 5 August 1992 to seek from the defendant a guarantee with respect to past indebtedness as well as future indebtedness ‑

contrary to what Mr Miller knew to be the position ‑

I am satisfied that the plaintiff, through Miller, was aware at all times between 30 July 1992 and 7 August 1992 that the defendant’s intention was to give a guarantee with respect to future indebtedness only.
We say, with respect, although his Honour did not make the final conclusion, it does not need to be made. It is apparent that he has determined, because he has directed his mind specifically to the topic of: did he know what he was doing or was it innocent or just a misapprehension, not being tainted with fraud or deceit. He has made the finding that we say means that that conduct of Mr Miller amounted to fraud. Then his Honour went on to say:

On my findings of fact, the defendant is entitled to equitable relief on the ground of the plaintiff’s misrepresentation. The defendant is entitled to rescission ‑

but then dealt with the issue of whether the respondent’s argument should be given heed to, namely that the guarantor should be bound by at least a portion of the obligation that they sought to obtain.

Now, his Honour accepted that the defendant’s decision to give a guarantee was a direct response to the insistence that the failure to do so would result in immediate cessation of supplies. There was an element of pressure and, in fact, duress was pleaded, but his Honour did not deal with that in the sense that it was argued, but I think his Honour really decided the case on the basis of, in effect, principles of equity and section 52 of the Trade Practices Act. His Honour distinguished this case after dealing with the case of Amadio because he said here at least Mr Vadasz was prepared to give a limited guarantee. Our response to that, our initial response is this: that given that Pioneer Concrete had made up its mind that it wished no less, no less, we say, than that which was obtained fraudulently, there would have been no guarantee but for that fraud. They wanted caveats, they wanted the past loss and they wanted the future loss covered by the guarantee.

DAWSON J: When you say there would have been no guarantee but for the fraud, there would have been a different guarantee if there had been no fraud.

MR WALSH: Well, that is so, your Honour. I accept that there is an argument about that proposition, but it is at least a point of distinction, in our respectful submission, or at least an argument that can be put as opposed to, for instance, another case where, if it was not fraud, the parties always intended some document in terms to be entered into but there was a unilateral mistake or an innocent misrepresentation or otherwise, but there is at least, we say, something in the point to help distinguish from another case where it could not be said that that was so.

The further point we make in initial response to that is that why is it that the respondent should benefit from its fraud, because what has happened here is that the respondent has proferred a document, obtained what it sought to achieve in a way which was fraudulent. Why should equity, we say rhetorically, help the fraudulent party in circumstances where it was clear that Adelaide office wanted the company Vadipile Drilling Pty Limited as a customer? Because it was a good customer. That was the evidence. Mr Miller accepted that. It wanted the customer. The benefit they got from this transaction had there been no guarantee was the continuation of what had been a good client up until that time and the hope that they would trade out of their difficulties.

Then, finally, we say, if, in fact, there is to be a determination that a part of the agreement should subsist, should it be on the terms that there was a charge over the property of the guarantor? I suppose time has passed now. The caveats were lodged on the property and time has passed now to where we are actually in the High Court arguing about what has happened in the past, but if one looks at it from the point of view of policy and looking at the rights of litigants at early stages of trial and determination of the rights of the parties, if we were back before his Honour Judge Lee, is it to be on the terms that there was a charge remaining over the property as soon as the judgment is delivered? The Full Court upheld the trial judge on a number of matters and in particular this one, but this is the only issue that was dealt with by the Full Court that we need to refer to. The others were matters that are not subject to cross‑appeals or otherwise.

The Full Court referred to a number of decisions which included Spence v Crawford and Taylor v Johnson and Bank of Victoria Limited v Mueller but we point out, and I will be going through some of those authorities shortly, that they were all cases where there was a direct contractual relationship, vendor/purchaser of shares or of property or the like. The Full Court also concluded, after dealing with Amadio’s Case, that it would be unconsionable to permit the appellant to retain the benefit but unconditionally eschew the financial responsibility which he personally accepted as a consideration for recovering it. They spoke in terms of unjust enrichment, but it could be said, we say with respect, that there was no unjust enrichment at all.

First of all Mr Vadasz was a, albeit we accept, shareholder and director of that company, but the company had its own legal personality and he did not obtain a personal benefit from it. He did not obtain any unjust enrichment and in the circumstances of this case it is clear from the evidence of Mr Miller that he wanted Vadipile to remain as a customer. It was a good customer up until that time. So there was consideration passing, as it were, even if there had been no guarantee.

If I may, I would like to refer just very briefly to some of the passages of evidence that support some of the propositions that I have been putting. There is a supplementary appeal book before you. My learned friend, I have spoken to him about this topic, it does not contain the evidence of Mr Bannah because it was not considered necessary to do so, but if my learned friend says it is important, and I do not think it is, then I apologise to the Court for that. But I do not think there will be any submissions in relation to his evidence, it was very short and it does not reflect on the issues.

TOOHEY J: I was going to ask you, just before you take us to that evidence, Mr Walsh, can you tell us how the Full Court express “unjust enrichment” as a consequence of setting aside the document.

MR WALSH: Your Honour, at page 61 of the appeal book his Honour Justice Olsson, with whom Justices Mohr and Nyland concurred, at line 5 said:

It would be unconsionable to permit the appellant to retain the benefit, but unconditionally eschew the financial responsibility which he personally accepted as a consideration for receiving it. It if were otherwise he would, in the equitable sense, have been unjustly enriched by virtue of the benefits -

TOOHEY J: But what is the benefit? How is the benefit defined?

MR WALSH; The benefit is the benefit to the company, your Honour.

TOOHEY J: Of?

MR WALSH: The benefit to the company of the supply of concrete; his company as it were.

TOOHEY J: Yes, thank you.

MR WALSH: If you look at page 60, I think that is what can be read into it because his Honour said at the foot:

The bargain made by the appellant with the respondent was that, in return for his personal guarantee of the due payment for future supplies, the respondent would make those supplies available and thereby enable the appellant to continue the business operations of Vadipile.

So, it can be seen that what he is talking about is the benefit in the sense that the business operations of Vadipile could continue.

DEANE J: Yes, thank you.

MR WALSH: Now, if I may then, I return very briefly to the supplementary appeal book and at page 57 at about line 5 ‑ I will deal with all these points sequentially so we do not have to go back to this book ‑ at about point 5, Mr Miller was questioned:

You have never ever shown Mr Vadasz a copy of that document, before that day.
No.

That was the new guarantee. And at page 59, at about line 8:

Vadipile was, as far as you were concerned up to 30 July 1992, a good customer.
Yes.
A customer that you wanted to keep on the books.
Yes.
A customer that you knew was likely, if the past continued, to continue to be involved in reasonably large jobs -

and he says -

From the information Mr Vadasz had given to me, yes, I would have liked the company to have been able to continue trading.

DEANE J: I do not quite follow. What are you trying to do by referring us to that evidence?

MR WALSH: Merely to show that one of the benefits to the company, Pioneer Concrete, was the continuation of a business relationship.

DEANE J: But the trial judge found that Pioneer regarded the company as a good one and wanted to keep it ‑ ‑ ‑

MR WALSH: Yes, that is so, your Honour. It was unnecessary for me to refer to the evidence, I suppose, but I thought that it would, at least, reinforce that point, your Honour.

DEANE J: I see.

MR WALSH: And your Honour, at page ‑ ‑ ‑

DEANE J: Well, if you are going to take us to these, if you could indicate as you do whether you are doing it to support a finding of the trial judge, or to introduce a new finding.

MR WALSH: Yes, your Honour, thank you. Now, page 84 ‑ and this is to assist in the introduction of a new finding in relation to caveats ‑ and at about line 20, the question was put:

What I am suggesting to you is that on 5 August 1992, you knew that Mr Hogan wanted you to look at the possibility of Pioneer placing caveats on property to prevent disposal.
Yes.
You knew that was a specific direction to you, didn’t you.
Yes.
You did not say anything to Mr Vadasz about that, did you.
That did not arise from the subject of a personal guarantee ‑

and so forth, and a little lower:

He said, `Are we able to get a caveat on property?’ The learned answer ‑

that is the answer from the solicitors ‑

that we received back was that a debt, as such, does not have any ability to place a caveat on property.

While I am on that topic, and for the same purpose, if I invite the Court’s attention to the exhibit which appears at page 269, that was the memorandum that was being referred to:

Des Hogan wants you to seek legal advice this morning ‑

and we know that he did ‑

regarding the possibility of Pioneer placing a caveat on each property to prevent disposal. Also does the floating charge over assets extend to the unencumbered balance or equity in the buildings.

And then reference to the $30,000, which was some instalment payments to be made, and then a property search.

If I may then turn back to the evidence, and the same topic, at page 86, line 15, the fact of the lodging of caveats is established:

Q. In fact, hasn’t Pioneer lodged caveats through its solicitors over his own property.
A. Not prior to this.
Q. After this.
A. You mean due to Mr Vadasz?
Q. Yes.
A. Yes.
Q. You instructed your solicitor to do that, didn’t you.
A. Yes, I found out, yes, I did.

GAUDRON J: There is a difficulty ‑ if you read further down that page, it may not be so easy to sustain a finding of actual fraud in relation to the caveats.

MR WALSH: Yes. He was always asserting that he did not, in relation to the caveats, know that the contents of the document would have given the right to a caveat. He also asserted consistently that he did not know what the document said, but he nevertheless knew by signing it that it was going to cover past debts, and that is the fraud, the primary fraud. We say that he was an experienced manager, dealing with guarantees, and he had been instructed to obtain a charge. He had spoken to his solicitor on the 5th, because of the instruction, and he had then proffered a document which gave the charge ‑ a new document. And all of that, we say, with the finding that his Honour made in relation to what must be the credibility of Mr Miller, the deceit, assists the proposition that I put.

DEANE J: It really is going a long way now to say that while the trial judge did not find fraud in relation to past debts, we should find fraud, and because of the view that the trial judge took of the witnesses in a context where he should have found fraud in relation to debts, we should now look at the evidence and make a finding of fraud in relation to the caveats.

WALSH: Yes, I understand the force of what your Honour is putting to me, but may I respond firstly by saying that there was, we say, a finding of fraud in relation to the past debts. That must be so, we say.

McHUGH J: You pleaded fraud, did you not?

MR WALSH: Yes, we did. We pleaded fraud and there was, in fact, no response by way after that pleading, seeking some alternative remedy, as opposed to the enforcement of the full guarantee. I will make a comment about that later. I suppose the proposition I am putting is this, to the Court - that it is implicit in his Honour’s finding about the past debt, that Mr Miller was deceitful. The facts that led to the granting of caveats over the properties were in circumstances which might lead to an irresistible inference that he must have known. Particularly so, in circumstances where that is exactly what he was being told to get.

DEANE J: I can see the force of that, but the other side of it is that in a context where his Honour did not make a formal finding of fraud, his approach was, as I put to you, really a knife‑edge balancing approach.

MR WALSH: I will not deal further - I put my argument on that.

DEANE J: I am not trying to stop you, I am just really trying to ‑ ‑ ‑

MR WALSH: Explore this, yes.

DEANE J: ‑ ‑ ‑ direct you to some problems I see in going into the question of whether a finding of fraud as to the caveat should be made, or as to,the charge?

MR WALSH: I do not need to do that, I say ultimately, for the purposes of my case, but if I was able to convince the Court that, in fact, it must have been done as part and parcel of the fraudulent exercise, then it makes the point that much stronger, that is all.

TOOHEY J: Except for this; you said in answer to Justice McHugh that, yes, you pleaded fraud; that is no doubt correct. But, was the question of caveats pleaded as a particular of fraud?

MR WALSH: No, it was not, your Honour.

TOOHEY J: So, it is really not just a matter of no finding, it is really a question of the case not having been run on the basis that there was fraud in relation to the caveat?

MR WALSH: It was argued before the trial judge and before the Full Court.

McHUGH J: Is not your difficulty in relation to fraud, generally, that the trial judge made no finding that Miller knew that his words would be reasonably understood by the defendant to mean that the guarantee was with respect to future indebtedness only.

MR WALSH: We say, with respect, that he has found that Miller knew. He has actually directed his attention to that topic.

McHUGH J: Did he? Where does he make that specific ‑ ‑ ‑

TOOHEY J: The foot of page 13 goes very close to it; as close as you can get. It may be close enough.

MR WALSH: That is so. But his Honour has actually said ‑ and it is in the context of the question that he is asking himself:

It is now necessary to consider whether the plaintiff was aware that the defendant had misapprehended the extent of the guarantee.

So he is directing his attention to knowledge ‑ ‑ ‑

McHUGH J: Where is that, Mr Walsh?

MR WALSH: Line 35, your Honour, on page 13. So what he has done is that he has been through the process in his judgment of saying, “Who do I prefer in all of this?”, and he has said, “Well, I prefer the evidence of Mr Vadasz”. Then he has said, “Well, I must go one step further. Did he know, in effect, that Mr Vadasz was only expecting and agreeing to sign to future as opposed to the past as well?”. We say that, having directed his attention to that topic, albeit not as pointedly as it could have been made, the result is the same.

DEANE J: You can only say that in the context of what this Court has recently said about onus of proof in that I would have thought there was a time when the failure of the trial judge to say anything at all about the seriousness of a finding of fraud and the fact that he did not make a finding of fraud would make it quite impossible to construct a finding of fraud from a judgment which seems to carefully avoid making the finding in those words. Whether, in the context of what has been said about the onus of proof, that removes all the problems that otherwise might have beset you is a different question.

MR WALSH: Your Honour, I put this in relation to the judgment itself, that if somebody says a person did something full well knowing that the other person believed that it was position X, proffered position Y, the irresistible conclusion is, with those findings ‑ and they are here ‑ that he did it intentionally with intention to deceive Mr Vadasz and it is actual fraud, if the Court pleases. As to the issue of the document being new, which supports his Honour’s findings, at page 104, line 25, the witness Miller was asked:

Q. You asked him to sign a document that you knew you hadn’t given him before, or shown him before, correct?
A. Yes.
Q. It was a new document, wasn’t it.
A. Yes.
Q. How long had you had access, you personally, to the document, part of which formed the guarantee.
A. I’m not sure of the exact time.....
Q. Days, weeks, months, years.
A. It would be a couple of weeks. Weeks or more.

If I may then turn very briefly to some evidence of Mr Vadasz at page 170, line 10, and this supports a conclusion reached by the learned trial judge:

Q. If you had known that it also included a liability on your part for the past debts up until that time, would you have signed that guarantee document.
A. No.

At page 176 on the topic of the caveat. That is the topic which we were discussing earlier. His evidence was at page 176:

Q. Did Mr Miller tell you, on 7 August 1992, that by signing the document, you would be giving Pioneer access to your freehold property or your properties.
A. No, definitely not.
Q. If you had known that, would you have signed that document.
A. I would have torn it up.

I remind the Court that this was a man who was known to Mr Miller on the evidence to have not been prepared to give a guarantee in the past. There had been a relationship between the parties and it was well known to Mr Miller that he was going to have to coerce, convince or whatever Mr Vadasz to signing a guarantee. Now, if the Court pleases, with that factual background, I turn briefly to the authorities and then I will give my comments on the way in which we say that the facts should be applied to the law. I have prepared, in order to avoid having to go from authority to authority, 10 copies of what I have called the appellant’s synopsis of the authorities. If I may hand those to the Court. My learned friend has a copy.

The general modus operandi in relation to this document is that I have referred to some textbooks and an article by Mr O’Donovan and it illustrates the different kinds of equitable fraud. It draws a distinction from equitable and an actual fraud. I refer to decisions that have been referred to by the Full Court on both lists of authorities and I seek to distinguish them as being cases of vendor, purchaser or the like, but where comments have been made about the topic of equitable fraud, and I have made some comments by way of points of distinction in some cases. If I may very briefly refer to some extracts from Meagher, Gummow and Lehane, which is in paragraph 1, and the point that I make, and the passages are generally underlined, is that there was a clear distinction to be drawn between:

contracts are voidable at law for fraudulent misrepresentation or duress -

as opposed to, for example, innocent misrepresentation, where:

The result is to dissolve the contract ab initio.

I refer to the learned author’s reference to Spence v Crawford and highlight the fact that a court is less ready to pull a transaction to pieces in a case of innocent misrepresentation whereas in cases of conscious fraud, the court will exercise its jurisdiction to the full. The learned author said:

“On the other hand, a defendant to a suit for rescission of a fraudulently induced conveyance will not be heard to complain that he effected improvements to the property whilst he had legal title to it; to a claim by him for an allowance or compensation by the plaintiff as a condition of rescission, the answer is equity will leave him to the consequences of his inequity.

In paragraph 1208:

it must not be forgotten that it is just as quick as a common law to detect the unblushing cheat and unmask red-blooded deceit.

Paragraph 1210 I will not take the Court through because that is simply the learned authors referring to the different kinds of misrepresentation that may lead to a determination that there was equitable fraud, but it is not necessarily actual fraud in the sense that we are speaking of today. There are cases where it has been determined that there has been equitable fraud, even though a person has not been the “red-blooded cheat”, as it were, in his transaction with the other party.

TOOHEY J: How vital was the particular type of fraud to, first, the question of rescission and, second, the question of adjustment as between the parties?

MR WALSH: Your Honour, it depends on certainly the factual circumstances. If it were a vendor/purchaser situation, equity will always seek, if there is unjust enrichment, as it were, in that sense, to ensure that there is an accounting.

TOOHEY J: That is the second question. What about the first?

MR WALSH: I am sorry, the first question?

TOOHEY J: Well, the question of rescission.

MR WALSH: The question of rescission is probably dealt with in the same way in each, except that you are more likely to obtain rescission in fraud even if there cannot be restitutio in integrum in the case of fraud than you would in the case of, say, innocent misrepresentation or equitable fraud that was not actual fraud.

TOOHEY J: Is that a consideration in this case?

MR WALSH: In this case we say that there is no issue of restitutio in integrum; there is simply an issue of fraud. We say that we are entitled to rescission and that there are no counter-balancing factors which require there to be any further orders.

TOOHEY J: I just ask you that because the language of the judgments below does not always perhaps make it clear what has been spoken of and there are references to “equitable fraud”. At least, I think there are. Can we come at it this way: there was an appeal and cross-appeal to the Full Court. Did the nature of the fraud feature in either the notice of appeal or the notice of cross‑appeal?

MR WALSH:: The actual notice of appeal included that the trial judge had erred ‑ and it is at page 45, your Honour, of the book:

having found that the respondent through its servant and agent Miller:-
(a) misrepresented the extent.....
(b) thereby inducing the appellant.....
(c) knowing that the appellant ‑

and it is the “knowing” that is my emphasis, of course ‑

intended to give a guarantee with respect to future indebtedness only:
erred in law in failing to rescind the guarantee in its entirety.

And then the second paragraph referred to Miller’s conduct aforesaid. And at the appeal itself, there is no doubt, because the court has referred to it, the position was put that this was a conduct amounting to fraud. And it was argued on that basis.

TOOHEY J: Not just to misrepresentation?

MR WALSH: Yes, your Honour.

TOOHEY J: Now, is a finding of fraud ‑ and I am not really going back to the ground that was covered before, in terms of whether there was a finding or not - but is a finding of fraud crucial to your argument that there should have been rescission only, with no adjustment between the parties?

MR WALSH: I say not necessarily, and the reason I say it is that, if this is not actual fraud, which we say it is, if it is not that, there is nevertheless a finding that he knowingly did something, when he knew that the other party was labouring under a mistake which was a mistake which he knew the contract guarantee would never proceed if that party had known ‑ if Mr Vadasz had known ‑ the true state of affairs.

TOOHEY J: Yes, I understand you have said that, but then what use do you make of that aspect? You see, I am just a bit concerned as to the question of rescission and the question of adjustment. They seem to have been run almost as if the first step was left over and attention focussed entirely on the question of whether there should be an adjustment or not.

MR WALSH: Yes, well, that is so and I cannot explain why that is so, your Honour.

TOOHEY J: But at any rate, you are putting your case, as I understand it, on the basis that it is the finding of fraud, or the fraud that you invite us to find, that deprives the respondent of any right to an adjustment between the parties.

MR WALSH: Yes, your Honour.

TOOHEY J: I understand that.

McHUGH J: Justice Olsson seemed to have proceeded on the basis that there was a finding of fraud, at page 57, line 45, when he puts the argument, he does not dissent from the assumption it was fraud.

MR WALSH: Yes. There is no doubt that was the argument that was put; that was the argument that was dealt with and with the greatest respect, we say that where the Full Court fell into error was in jumping over the finding that we say must be, namely, that there was a fraudulent misrepresentation in the sense that it was an actual fraud and then, looking at cases which spoke about restitutio or an account, without recognising the nature of the case that was before the court in truth.

So that, we say that, for instance, in the case of the trial judge, if he had stopped at the point that he said you are entitled to rescission, that would have been the correct decision, we say, in this case. But, what happened in fact, was that the Full Court seemed to have been influenced by a comment by your Honour Justice Deane in Amadio’s Case that, at one stage, your Honour might have been inclined, in effect, to require the Amadios to be bound by what they thought they were entering into but then decided, no, it was not a case where that was appropriate.

And we say, with respect, that again this is a case where it is not appropriate either because, unlike Amadio’s Case where your Honour was at pains to point out that there was no intent on the part of the manager in the Amadio’s Case to deceive the Amadios; in fact, he had been there and corrected one misapprehension. The bank’s failure in that case was based upon the fact that he ought to have realised, because of the circumstances of the case that, in fact, these people were in need of assistance, that they had a special disability.

Now, if we look at Amadio’s Case and compare it to this case, this is, we say, a stronger case for complete rescission because there was conduct amounting to fraud.

DAWSON J: Why do you concentrate on the word “fraud”? I mean, there was conduct which was deserving of condemnation. Is there any magic in the word “fraud”?

MR WALSH: Well, I suppose it does not have to be put that way, your Honour, no. I think that if I may refer in the booklet of authorities to the point that I am making, I suppose, to the discussion of Amadio’s Case which appears at page 11 and if I may refer very briefly to his Honour Justice Mason, as he then was, and the quote where his Honour said:

Historically, courts have exercised -

this is about point 5 -

jurisdiction to set aside contracts and other dealings on a variety of equitable grounds. They include fraud, misrepresentation, breach of fiduciary duty, undue influence and unconscionable conduct. In one sense they all constitute species of unconscionable conduct -

so, in a sense it does not matter if you ‑ ‑ ‑

DAWSON J: That is what I had in mind. You would say this was unconscionable conduct, and that is enough.

MR WALSH: Yes, and that is enough. Quite so, your Honour. Yes, that is so. If I may just turn over to page ‑ ‑ ‑

TOOHEY J: That is enough to do what? To get your rescission?

MR WALSH: In the circumstances of this case, to justify a rescission.

TOOHEY J: Yes, but that tends to conceal what the case is all about. You mean, I take it, to get rescission absolutely, with no obligation to account to the other side.

MR WALSH: Yes, in this case.

TOOHEY J: You really have to read that in each time you speak of rescission for the purposes of this appeal, do you not?

MR WALSH: Yes, for the purposes of this case, I do, your Honour, yes. I accept that there will be cases where it is not appropriate to do so. I accept that in cases of innocent misrepresentation it may not be appropriate to do so. I accept in cases where there is a vendor‑purchaser direct contractual relationship that it may not be appropriate to do so; and I accept that there are cases of breach of fiduciary duties and the like, where there is no real intent to mislead in any way, but where there is an unconscientious bargain, as it were, that it may not be appropriate to do so. But, there are those cases, even where it is an unconscientious bargain, such as in the case of Amadio, where even so, it is appropriate to grant full rescission. Even so. At page 12 of my outline of the authorities, when referring to your Honour Justice Deane’s comments in relation to Amadio’s Case, your Honour pointed out at the top at page 478:

“It must, in fairness, be stressed that there is no suggestion that Mr Virgo -

he is in the position of Mr Miller in this case:

or any other officer of the bank has been guilty of dishonesty or moral obliquity in the dealings with Mr and Mrs Amadio and the bank.

Whichever way you put it, we say in this case there has been some dishonesty or moral obliquity. That is the critical difference between this case and Amadio’s Case. Where the Full Court, we say, erred, was to follow down the path of Amadio’s Case; not recognise the distinction to be drawn between the facts of this case and that case, and to assume the suggestion that there be, in a sense, some form of restitution as between the parties or moulding of the remedy should take place.

We say, if one has to, that these are the - and I suppose I am jumping a little ahead of my argument, but it is convenient to do so - that these four factors are important in this case to show why it is that this is a case where the same result as was achieved in Amadio should be achieved here. But, it is not a vendor‑purchaser, that is a case of direct contract, but it is a case of moral obliquity or fraud, whatever it is called. At 3, that the benefit to Pioneer was to keep the client it wanted. Finally, the matter which I discussed with his Honour Justice Dawson, and it is, in a sense, a slight two‑edge sword, but that no guarantee at all would have been entered into had the true state of affairs been known,in circumstances where Pioneer wanted all that it sought to achieve and seemed to get in that document, and nothing less.

If I may say this in response to an argument in my learned friend’s outline of argument, the answer does not lie in some form of severance of the terms of this guarantee that Mr Vadasz never would have entered into. It is not right to say we will sever the debt, as it were, of the past from the future and require him to be bound to one and not the other. This is not an appropriate case in severance. This is a case in equity where the Court will look to see what is the proper and appropriate remedy. It is not a case, again, we say, of having to, as it were, lift the corporate veil to show that Mr Vadasz was behind the company and thereby received some benefit, as it were.

The fact of the matter remains that it was not a sham or a facade. This was a company. It was a trading company. It could not be put in that category. There was a benefit to the company. The only benefit that could be said to exist in favour of Mr Vadasz was that, of course, the company would continue, and we had discussed that earlier, but he retained, not in the sense that is often said is of benefit in vendor purchaser cases; he did not obtain that direct benefit. We also put this to the Court, that ‑ ‑ ‑

DEANE J: You just said this is a case in equity. If you mean that in the full sense, do you not automatically concede that you can be put on terms if equity thinks it appropriate?

MR WALSH: Yes, your Honour, if the circumstances of the case warrant that, then that can be so, as I have conceded previously.

DEANE J: I was just querying why you say this is a case in equity.

MR WALSH: I am sorry. I say that this is a case where equity will not or ought not to go further than simply determining that the contract should be rescinded.

DAWSON J: You are really saying you do not get to equity.

DEANE J: Why do you on your approach bring in equity? I am not suggesting you are wrong; I am just asking.

MR WALSH: Well, your Honour, the only point I think I was trying to make, maybe clumsily so, was that if we are entitled to rescission, there is no need on the facts of this case for equity to delve further into the matter, for equity to do anything more. It is not one of those cases where it needs to look at, as it would in a contract to purchase of shares or sale of business, some form of restitutio in integrum.

DEANE J: The case is absolutely bristling with problems, is it not, in that if you simply confine yourself to legal entitlement to rescind, how do you fit in the conversation with the solicitor where, knowing all the facts, you said, in effect, you accept that you are bound by the guarantee?

MR WALSH: Yes, but that was ‑ and his Honour must have found that he accepted Mr Vadasz’s position in that ‑ in the context of the existence of the guarantee. He was trying to make sure that the company might survive. He was not affirming the ‑ ‑ ‑

DEANE J: I think I have been a little obscure. There is a difference between the common law’s approach to somebody who knows of the facts entitling rescission and he does not rescind, and equity’s approach looking at all the circumstances, saying, “Oh, but,”. Well now, if we go to a common law solely, I have a little bit of trouble in fitting in the activities with the solicitor.

MR WALSH: Well, I can only put this to your Honour, that in the decision, I accept at common law, that if there was a finding that that was in the sense an affirmation of the true position, then we might be in difficulty. But there was no such finding. But, if we turn to equity on the other hand, it is a case, similar, I suppose, on that point, to O’Brien v Australian and New Zealand Bank, which was a case in South Australia of his Honour Justice Zelling, where there had been a long delay after the true state of affairs had become known, but the parties were hopeful that it could be resolved anyway.

DEANE J: But what I was really querying you about, Mr Walsh, was it seemed to me that on one approach, if it were fraud and there were rescission at common law, I have difficulty in seeing why one would be concerned about equity, but if one has to rely on equitable relief, I see difficulty in an argument that the court was not entitled to impose such terms as were appropriate. Obviously that would lead to the question of what was appropriate. But I am just trying to move my mind into what is the correct area that one should be dealing with. I will stop interrupting you after that.

MR WALSH: Well, I think everyone has treated it as being a case in equity, obviously.

TOOHEY J: Well, I wonder why. I must say I thought that your reliance upon equity was to cover yourself in case the findings of the trial judge were held to be something less than actual fraud, and you were therefore, as it were, invoking equity as a basis for rescission, because if there was a clear finding of fraud would you be concerned about equity at all?

MR WALSH: No, that is so, your Honour, but, in this case it has gone down the path of equity as a matter of fact, because of the way in which the court has looked at the argument that there should be some further analysis of that facts in equity, to see whether Pioneer Concrete were entitled to, in a sense, some equitable assistance themselves.

TOOHEY J: That rather reinforces the view that I put to your earlier on that rescission seems to have been left over and concentration focused on the question of adjustment rather than looking first at what was meant by rescission and the basis for rescission.

MR WALSH: I can see the dilemma, but I think it can be safely said that the appellant’s position on this point was referred to quite succinctly by the Full Court when it said at page 57 at line 40:

In essence the contention of the appellant was both simple and basic. It was pressed upon the Full Court that, the learned trial judge having held that the appellant was, in the circumstances, entitled to the remedy of rescission of the guarantee on the ground of the respondent’s fraudulent misrepresentation, then the right to rescission was absolute. There was, it was declaimed, no power to attach conditions to the rescission or, alternatively, it was inappropriate to do so.

And then his Honour went on to talk about the Commercial Bank v Amadio and the argument was that is not relevant to the case at Bar.

TOOHEY J: My comments were not intended as criticism of the appellant’s case but simply looking at the way in which the matter seems to have been dealt with by the Full Court as concentrating almost entirely upon whether an adjustment was appropriate in the circumstances.

MR WALSH: Yes, I did not take your Honour’s comment as a criticism.

TOOHEY J: Well, we are on common ground.

MR WALSH: I was really reinforcing that what your Honour was putting to me was correct, that there was no doubt what was being put to the Court, but for whatever reason, which we cannot explain, there was a leaping over of what we say is the complete answer. We say, that on any view of the matter, even if you leap over that submission, you go down the path of equity, that for those four reasons that I have already given this case, viewed in the light of those reasons, suggests that even equity, if you had to go down that path, should have granted rescission of the whole of the contract if one looks at the cases that are used to justify a moulding of the remedy.

If the Court pleases, there is, we say, another powerful reason why in this case there should be no moulding and that is to allow a party to a contract, in a sense a fall-back position, where it can enforce the portion of an agreement that the other party would have been prepared to agree to in circumstances where there is deceit, in a sense moral obloquity, is to encourage, in a sense, fraudulent conduct in commercial relationships because why not give it a try, we can always get back to the position that we knew this person was prepared to be at before we tricked him into signing the guarantee.

DEANE J: What would you say the position would be if, in addition to getting the concrete supplied to Pioneer, your client had been paid $10,000 for giving the guarantee? In other words, the consideration for the guarantee was $10,000 paid to your client plus the concrete supplied to Pioneer.

MR WALSH: There is a case, of course, that is directly on point and it is in my outline. In that case, the court commented that, in fact, the $10,000 or whatever the sum was had, in fact, been repaid. That having been so, the parties were entitled to a full rescission and not be bound by the agreement by which they had signed and they were not to be bound by that which they thought they might be liable for. So, there is the illustration of the case of the personal benefit that, if it had been this case, we accept would have demanded, if one is looking at equity, the return of the $10,000.

DEANE J: Or, if one was looking at common law, a verdict for the $10,000, if it had been pleaded in the alternative.

MR WALSH: Oh, yes, your Honour. And there is no difficulty with that sort of concept. That illustration and that case ‑and I will not go through all these authorities because I think I have made the point that I wished to make about them ‑ but that illustrates the point that we make about the failure ‑ this is not a case ‑ I am sorry, this is not a case where there has been a benefit which must be, a sense, divulged by Mr Vadasz.

MR TOOHEY: Mr Walsh, how did the question of an adjustment, to use a rather loose term, first surface? After all, you were sued, your client was sued for an amount; the defence was entered that the guarantee was void and of no effect. There is nothing in the papers to indicate that there was a reply filed or anything of that sort. So, on the face of it, you had an argument between the parties as to whether the guarantee was void or otherwise. Then, you have the trial judge coming to a conclusion, in effect, that the guarantee should be set aside as to future advances. Now, did that arise out of an argument that was put, what, in the course of final addresses, or opening addresses?

MR WALSH: Final addresses, your Honour. In fact, the argument that was put to the trial judge was this ‑ and it is made today and it was made in the Full Court ‑ that this case was in the context, or in a background of the respondent seeking to enforce its guarantee for the full amount. It did not back away from that position, even when confronted with a defence. It filed no reply. In the final addresses ‑ and I think it was even an additional written submission that was put in after final addresses ‑ there was an argument put that there should be rectification and his Honour, you might have observed, dealt with that issue of rectification and said, “It can’t be rectification because there’s no unanimity on this topic at all”. And the argument that was put, in final addresses, was that, well Amadio’s Case stands for the proposition that, where there is an unconscientious bargain, he who seeks equity must do equity and, therefore, there must be, as it were, a binding of the guarantor to that which he thought he was prepared to agree to.

So that is the way in which it arose and we still make the point, even here today, that the respondent nailed his colours to the mast from the very beginning. It never deviated from the position until final addresses that it wanted recovery of its full debt and if I may by analogy - and I know it is a decision that does not necessarily reflect directly upon the issue of the position in equity, but my learned friend has an authority which I have not referred to in my outline, of S.H. Lock (Australia) Ltd v Kennedy (1988) 12 NSWLR. It is a decision of the Court of Appeal in New South Wales.

In that case what had happened was that there was a partly written agreement, a partly oral agreement. If the written agreement had been enforced, it would have been a situation like ours where they were seeking recovery of past and future debts, whereas the debt orally was agreed to be limited to $100,000. Once the pleading had been put in that, look, in the defence this is limited to $100,000, the person claiming the money immediately responded, “Yes, that is so. We now accept that we are only entitled to the $100,000.” And your Honour Justice McHugh at page 499 at the foot in those circumstances had this to say in relation to the order to be made:

The real difficulty in the case is to determine what order should be made. If the true nature of Mrs Kennedy’s liability had only been disclosed after contested litigation, I have no doubt that the proper order would be to refuse to enforce the guarantee. It would make a mockery of the objects of the Contracts Review Act -

and true it was we are talking about Contracts Review Act in this case -

for a dishonest lender to be no worse off after his fraudulent documentation was revealed than he would be if he had acted honestly.

Now, in this case ‑ ‑ ‑

McHUGH J: But I dissented in that case in terms of the order, if I remember rightly. I think the majority ‑ ‑ ‑

MR WALSH: Yes. Well, the majority - and I know my friend refers to this - actually looked at the issue of equity and compared it to the Contracts Review Act at page 495 and at page 495 at about point 5 reference is made to:

Commercial Bank of Australia v Amadio (1983) 151 CLR 447, where the High Court, in exercise of its general law powers, set aside a guarantee unconditionally -

and continuing, after referring to your Honour Justice Deane:

on the ground that the circumstances in which the guarantee was obtained were unconscionable. The latter ground has some but insufficient factors in common with what occurred in the present case.

And then dealt with the facts of that case, of Amadio’s Case. What had happened in that case was that there was no, in a sense, moral turpitude or whatever it might be called because as soon as the parties realised, in a sense, the mistake that had been made they were in a position where they admitted immediately, “Yes, look, the oral contract was that it should be limited to 100,000 and the reason why it was that it was done this way was because a document just did not allow for this to be inserted in it.” And the trial judge accepted that there was, in fact, no moral obliquity, as it were.

But the point that we make is that whether it is true the Contracts Review Act can easily be distinguished through looking at particular circumstances in which contracts to be set aside, or dealt with in a particular way. But the point that your Honour Justice McHugh made, we say, is quite apposite in this case, and we rely upon that point, that it would make a mockery of the objects of justice for a dishonest lender, or a dishonest trader, in this case, to be no worse off after his fraudulent documentation was revealed than he would be if he had acted honestly.

That is the real point that we say that is important, in addition to the fact that we say the factors in this case, those four factors of it not being vendor purchaser, being actual fraud, no benefit to Mr Vadasz personally, no guarantee if the fraud had been known; it was always going to be that and nothing, justify whichever way you look at it, common law, equity or otherwise, in the conclusion that the contract should have been rescinded. Unless the Court wishes to hear me further, they are ‑ ‑ ‑

DEANE J: Mr Walsh, can I ask you this? In any of the cases that you refer us to, or any other case that you can refer us to, has there been a decision that a guarantee could be rescinded at common law, as distinct from in equity, after payments had been made or goods had been supplied, to the person guaranteed?

MR WALSH: Your Honour, I am not sure, at page 4 of my outline of argument, under the heading at the foot, and I am dealing there with categories that are referred to by Professor J O’Donovan, in an article in 66 ALJ 641, but he says, at the foot, under paragraph (3):

A failure to disclose material facts at any stage will not obviate the guarantee unless there is fraud or misrepresentation ‑

and cites Seaton v Heath. But I regret to say that I have now forgotten what the circumstances of that case were, but there are cases of innocent misrepresentation, where the court has said that a contract should be rescinded.

DEANE J: Well, there is a particular problem though, is there not, in that, if the concrete had been supplied to you and you had eaten it, or you could well have moved beyond the stage of common law rescission, even though you would not have moved beyond the stage of rescission in equity, but in the case of a guarantee where the concrete has been supplied to the entity guaranteed, who has disposed of it, one has a different problem about restitution, and it was that area that I was wondering whether the authorities gave any clear guidance?

MR WALSH: No, we have searched far and wide, with respect, your Honour, and I think it is fair to say that we have not been able to find anything that would assist the Court on that topic.

DEANE J: That consoles me in my ignorance anyway.

MR WALSH: I can assure your Honour my learned junior has most probably cried out that she has had to do too much to try and find something on that topic but, with respect, we were unable to find anything, your Honour. If the Court pleases, they are our submissions.

DEANE J: Thank you, Mr Walsh. Yes, Mr Sulan.

MR SULAN: If the Court pleases, my learned friend spent some time taking your Honours to the evidence and in particular in relation to the question of the caveat. Your Honours, we came to this Court today to argue this case on findings of fact and the findings of the trial judge in the Court of Appeal. It is our submission that it is quite unnecessary and the Court ought not to start to go into the evidence and make findings in relation to factual matters which were not made by the trial judge. They were not matters that are particulars of any grounds of appeal before this Court. I make that point ‑ not that that necessarily would stop this Court from actually going down a particular track if it wanted to do so.

It is our submission that really this case comes before your Honours on the very questions that I think your Honours were putting to my learned friend at the end of his submissions. That is the question of fraud, the inter-relationship between fraud, the common law and equitable remedies. We come to this Court on that basis and we come to this Court accepting the findings of course of his Honour the trial judge and accepting the findings in relation to factual matters of the Appeal Court which really said, when it looked at the findings of the trial judge, “We think that they were quite appropriate. We are not about to overturn them”.

Can I perhaps deal for a moment with this question of fraud. I think your Honour Justice Dawson in one of his questions to my learned friend put the finger on part of our submission. That is that it is very dangerous in cases of this nature, and it is our submission, to start to put labels on conduct and then to say this is fraud, this is innocent misrepresentation, this is undue influence. In fact the cases, when one starts to read them and analyse them, indicate that that label is very dangerous.

His Honour the Chief Justice in Amadio’s Case actually put his finger on that in the opening words of his judgment when he said in effect, that fraud, innocent misrepresentation, undue influence and unconsionable conduct are all really, at the end of the day, forms of unconsionable conduct when one starts to look at the equitable remedies that may exist. So really, one ought not to put labels on conduct. One ought to start to look and one needs to look at what the conduct was and what the remedies ought to be and what is just and equitable at the end of the day. That is when you are dealing with equity.

The difficulty my friend has in relation to the matters that your Honour Justice Deane put to him in relation to common law fraud here is that this case really never got to the position where one was talking about a common law fraud and the contract being void ab initio. It really always turned on the equitable remedies, because what was argued before the trial judge was the question of rescission. Of course, at common law you could only get rescission if you could return the parties back to their original position.

There was no flexibility in that, and that is really why the common law said in the case of common law fraud where the common law was applying the principles, you really got damages at the end of the day. It was a very rare case where you could get rescission, because the parties had moved their position. Therefore, the rules relating to equitable rescission and rescission in equity really developed.

This case was never, in our submission, a case of fraud at common law. It was certainly pleaded and we accept it was pleaded, but it was always argued on the basis that this was conduct pursuant to which the appellant was entitled to rescind and what were the consequences of that rescission. The argument of the appellant always was: in the light of the conduct as found by the learned trial judge, there ought not to be a balancing up, there ought not to be a putting of conditions on the rescission.

TOOHEY J: That rather puts the onus on the appellant, but all the appellant was asking for was rescission or some form of relief, declaratory or otherwise, that the guarantee was void and of no effect. If that is as far as the case had gone, that would be the end of it. But it is the respondent who comes in, is it not, and asks that the rescission be qualified?

MR SULAN: Yes, that is the case. It asks that the rescission be qualified because it says, “If there is going to be rescission in this case, then it ought to be conditional and qualified because the rules of equity would demand it”.

TOOHEY J: Yes, but just trying to look at it in terms of onus of proof for a moment, the respondent does not challenge the finding of rescission, as I understand it. Perhaps “rescission” may not be the right term. It is the respondent who argues for some qualification to what would otherwise be the relief granted by the Court.

MR SULAN: Yes, and it argues that on the basis that the defence of the appellant was, in effect, we are entitled to equitable relief, namely rescission.

TOOHEY J: Maybe, but in terms of the pleading, for what weight that carries, I think it was simply to say the guarantee was void and of no effect.

MR SULAN: Yes.

TOOHEY J: No doubt, as the argument progressed, it got into areas of rescission and so on.

MR SULAN: Yes. Your Honour, really it is a matter of playing around with the terms. If the respondent had actually filed a reply, which we would submit was unnecessary in this case, it would have filed a reply in terms that if rescission is appropriate, and if the Court grants rescission, then it ought to be on terms, or it ought to be on condition. A number of these cases turn on a plaintiff coming along seeking a declaration that a guarantee is void, and the response being, “No, it’s not. We will rescind, but may rescind on conditions”. I mean, Mueller’s Case is an example of that. In the case of Amadio, the bank sued under the guarantee. The guarantors in Amadio said, “This guarantee is unenforceable and there ought to be rescission”. In fact ‑ ‑ ‑

TOOHEY J: I was not suggesting the case stood or fell on the pleadings, but it is not all that easy to see how the case took the course that it did. In the end, or in a sense at the beginning, there was the decision of the trial judge which says:

I hold that the defendant is entitled to avoid liability under the guarantee, at least to the extent of Vadipile’s past indebtedness to the plaintiff.

That is page 18.

MR SULAN: Yes, but he is doing that really in the context of his earlier findings. That was a passage that was referred to at page 14, where his Honour found - and we have referred to it already:

On my findings of fact, the defendant is entitled to equitable relief on the ground of the plaintiff’s misrepresentation. The defendant is entitled to rescission, and therefore to resist the claim, irrespective of whether the misrepresentation was fraudulent, negligent or innocent.

That is the crux of his finding. He does not find anywhere that there was conduct in this case amounting to fraud, which resulted in this contract being void ab initio. His finding is really encompassed at page 14. He says, “Look, I don’t have to get into a characterisation because I find that the defendant is entitled to equitable relief, namely rescission.”. Now, having found that, and having given the defendant its equitable relief, namely rescission, should that be on condition or should it not?”. In the shorthand way he comes to the conclusion at page 18 - it might have been better expressed at page 18 - but he is basically saying the condition in this case of the defendant being entitled to rescind this contract, or the court ordering rescission, the condition is that the defendant is bound by what he intended to bargain for and what both parties bargained for.

MR TOOHEY: Because interestingly, the judgment itself that is extracted on page 43 is a judgment, not for any sort of declaratory or other relief, it is a money judgment for the sum which represents past indebtedness.

MR SULAN: Page 43, yes.

MR TOOHEY: Future indebtedness.

MR SULAN: Yes, well it is but, I imagine that, for example in Amadio’s Cas,e if the court had determined that the condition to be applied in that case should have been that the Amadios were bound to pay $50,000, because that is what they had agreed to do, then I assume that the way in which that would be expressed by the court would be in the form of a money judgment. I suppose one could express it on the basis that you have rescission upon you paying to the plaintiff in Amadio’s Case $50,000. Perhaps not expressed in that way, but what his Honour was saying is, in effect, in his judgment, was that the condition of you, the defendant, Vadasz, being able to avoid this contract, the condition of its rescission is that you have to pay, return Pioneer back to its position.

It has supplied concrete to Vadipile, Mr Vadasz’s company, and I will come to that in due course, it has supplied concrete to Vadipile. The just and equitable result in this case ‑ because we are into the question of equitable remedies ‑the just and equitable result is that Mr Vadasz who always intended and always believed that he was to guarantee future deliveries and Pioneer acted on that basis and actually delivered, Mr Vadasz ought to be bound by his bargain. And his bargain was to guarantee future deliveries.

DEANE J: But, if one reaches that stage, that sounds unanswerable as you put it, but then the other side of the coin is it could be put against you that, but for your client’s fraud, there would have been no guarantee and Mr Vadasz would not be facing any personal liability at all, which also sounds quite powerful when you put it.

MR SULAN: Well, if I may put this to your Honour in response: if one were to apply that form of reasoning, the courts would have never ever considered, in any of the cases of guarantee, of putting one party back into a position which it had lost as a result of the guarantee being entered into. For example, if one takes the decision in Lock v Kennedy but for the fraud, Mrs Kennedy would never have entered into the guarantee that she was seeking to challenge. But that is not really the question at the end of the day, if your Honour pleases, because one would strike down every guarantee and never ask the question in the case of a fraudulent misrepresentation. Or, even in the case of unconscionable conduct, one would just never ask the question.

DEANE J: Well, that does not necessarily follow. One would strike down the guarantees where one could identify no benefit remaining with the guarantor. It would be quite different in the case where one could identify some residual benefit remaining with the guarantor.

MR SULAN: But, for example, in the Amadio Case there was no benefit remaining with the guarantor. In the case of Reynolds there was no benefit remaining with the guarantor. In fact, those cases were, we would submit, really when one looks at it in equity, even one removed from the case at Bar because in Reynolds Case Mrs Reynolds ‑ ‑ ‑

McHUGH J: Reynolds is - you mean Kennedy or ‑ ‑ ‑

MR SULAN: I am sorry, yes, Kennedy. I apologise. In Lock v Kennedy Mrs Kennedy put up a guarantee for nothing other than the love and consideration of her son-in-law, Mr Goldberg, and the position was that here Mr Vadasz is putting up the guarantee for much more than the love and consideration of Vadipile. He is putting up the guarantee in order that Vadipile, his family operating company, could continue in business in an attempt to trade itself out of the difficulties in which it was. So if one looks at it in equitable and just terms, he is getting a benefit. The position is that Mr Vadasz got much more of a benefit out of entering into the guarantee, an indirect benefit, but a benefit, than, for example, Mrs Kennedy or Mr and Mrs Amadio, who really entered into the guarantees because of the love and consideration of their family.

So there was nothing left - if one struck down the guarantee as far as they were concerned, the residual position as far as the guarantors are concerned is that they are back to the position that they always were in, but what the Court looks at is not only the residual position of the guarantor, but the residual position of the person who gets the benefit of the guarantee, namely, in the Amadio Case the bank, in the Kennedy Case Lock, the moneylender, and in our case, we would submit, Pioneer Concrete, who actually delivered concrete pursuant to their agreement under the guarantee.

McHUGH J: Except that the agreement as now “rectified” is not the agreement that Pioneer ever wanted.

MR SULAN: No, it is not.

McHUGH J: It is a strange situation in some ways. As a result of the orders that have been made the parties have now in effect got an agreement between them which Pioneer did not want.

MR SULAN: Well, that is the case in all the guarantee cases, your Honour. The bank in Amadio’s Case did not want a $50,000 guarantee limited to a six-month period. The moneylender in Lock v Kennedy did not want a $100,000 guarantee limited to six months. The very fact that they entered into a document that gave effect to something more than the guarantor thought it was giving effect to knowingly, it follows, in our submission, that in those circumstances the beneficiary of the guarantee, the financier, the supplier, obviously wanted more than they were at the end of the day entitled to and really it is then looking, having taken into account all the circumstances, of whether one gives them something, does one give them something back that they are entitled to.

McHUGH J: I must say I find the competing equities very difficult. On the one hand, you have got your client on the findings being put in the same position it would have been if it had not been fraudulent. On the other hand, you have got the appellant now being required to pay money in a situation where he may never have been obliged to pay anything if your client had revealed what the true situation was.

MR SULAN: Your Honour, with respect, that is one way of looking at it. Another way of looking at it of course is to ask the question: what would have the appellant been prepared to do? The appellant was always, in the findings of the trial judge ‑ and I can take your Honour to the passage ‑ prepared to enter into a guarantee in respect of future deliveries, and Vadipile received those future deliveries. He was not induced by anything in the document to walk away from his belief that he was “on the hook”, so to speak, for future deliveries. In fact, his attitude when it all came about ‑ ‑ ‑

McHUGH J: I know. As Justice Deane put to you, if your client had been honest and not fraudulent, the appellant might have no liability at all. So what has happened is that he has now got a liability that he would have been prepared to have if your client had been honest.

MR SULAN: That, your Honour, is not the approach of course that the Courts have taken in Amadio’s Case. Your Honour Justice Deane in Amadio’s Case, with the assent of the majority of the Court, flirted with the idea of $50,000, as I read your Honour’s judgment, and Your Honour will undoubtedly correct me if I am wrong. Your Honour arrived at the conclusion that no, the Court will not place a condition in this case because the position is that if the Amadios had got the independent advice that they ought to have got, that is the unconsionable conduct. Any independent adviser in the circumstances, knowing the relationship between their son and their son’s company in the bank and all the circumstances that had taken place with the bank honouring and dishonouring some cheques of an insolvent company, would have advised the Amadios not to enter into any guarantee; not even for $50,000, not even for five cents.

This case illustrates exactly the other side of the coin because, if one asks the same question in this case, if Mr Vadasz had gone to a legal adviser and the legal adviser had said, “You’re on the hook for past indebtedness, future deliveries and there is a charge provision” ‑ I do not want to get into that but there are some arguments about that but the trial judge did not find it important and nor did the Court of Appeal.

So if we can go back to the future and past and the legal adviser had said, “Look, you’re on the hook on this guarantee, not only for the future but for the past”, the finding of the learned trial judge ‑ and it really has never been challenged ‑ was that Vadasz would have gone back and said, “Cross out the past. I want my supplies of concrete but only in respect of the future will I guarantee”.

It is not a case where Vadasz would have gone back and said, “Our relationship is no longer continuing; I am not going to sign any guarantee”. The factual findings of the trial judge were that he would have executed a guarantee on the basis of the agreement; and that was the situation in Lock’s Case. In fact, Lock’s Case went a little step even further away from the case at Bar, because, in Lock’s Case Mrs Kennedy had agreed to $100,000 for six months, and there it went beyond the six‑month period, as your Honours will recall; the loan was rolled over, and even in those circumstances the majority of the court were prepared to order that she should be bound to the $100,000, because that is what she always would have agreed to, and always had agreed to, and that is the same case as the case at Bar.

So, Your Honours, that is really the position. We say that this is not a case of common law fraud at all. This case, at the end of the day, turned on equity and the equitable rules relating to rescission, and the trial judge found that the conduct of Pioneer was unconscionable, or fraudulently misleading and on that basis he said he was prepared to order rescission, but rescission on conditions, and we would submit that the trial judge was correct in his findings and in his approach to the problem, and one can approach it in a number of ways, and really our outline of argument ‑ and I do not want to take your Honours through it ‑ but our outline of argument really sets out the different ways in which the courts have approached it from time to time.

We say that really, at the end of the day what the court will do is, it will sit back and it will say, “Given all the circumstances, what is the fair and just result in this case?” And the various circumstances that the court will look at are firstly, can restitution in toto be achieved? If it cannot, whether there should be a partial rescission, or whether the order for rescission should be on conditions, and in making that judgment the court will look at matters such as the conduct of the misrepresenter; the circumstances under which the misrepresentation was made; the effect of that misrepresentation upon the guarantor; the relationship between the guarantor and the principal debtor, and the relationship between the guarantor and the creditor. And it will look at all those circumstances, and then, at the end of the day, determine what is a fair result between the parties.

And that is, in our submission, what this case was all about, at the end of the day, and it turned on those very issues. It did not turn on the question, in our submission, of common law fraud, because there was no specific finding of fraud by the trial judge, in the sense of a common law fraud. He was talking about equitable remedies. He was talking about rescission. He was talking about equitable rescission.

DAWSON J: You say he in effect made an order for rescission?

MR SULAN: Yes, he did.

DAWSON J: It has to be in effect, does it not?

MR SULAN: In effect, yes. Really in effect what he did was he made an order for rescission and said it was conditional or he, in effect, made an order of partial rescission. He rescinded that part of the contract that related to past indebtedness.

TOOHEY J: So it was all done notionally, in a way, to end up with a money judgment for a certain amount.

MR SULAN: Yes, one asks oneself how else could it be done; how else would it have been done in Amadio, how was it done in Lock’s Case? That is exactly what happened notionally.

DAWSON J: It could have been a claim for rescission.

MR SULAN: By Vadasz?

DAWSON J: Yes.

MR SULAN: In effect that is what there was; a claim for rescission.

DAWSON J: There was not really. They just pleaded defence in Bar. They never had a counter-claim.

MR SULAN: No, but in fact the case proceeded on the basis that there was a counter-claim and that was how it was decided at the end of the day and that is how it continued to proceed before the Full Court. If one looks at the grounds of appeal before the Full Court, it really did proceed on that basis and the Full Court’s judgment proceeded on that basis. The Full Court really summarised the position at page 57, about point 40:

It was pressed upon the Full Court that, the learned trial judge having held that the appellant was, in the circumstances, entitled to remedy of rescission of the guarantee on the ground of the respondent’s fraudulent misrepresentation, then the right to rescission was absolute. There was, it was declaimed, no power to attach conditions to the rescission or, alternatively, it was inappropriate to do so.

That summarises the way in which it was argued on appeal before the Full Court, that really what the appellant was saying is that this is a case of rescission and, because of the conduct of Pioneer, rescission ought to be absolute, there ought not to be any conditions on it, it ought not to be partial. That is how the Full Court saw it and that is really, in our submission, the way in which the case turned in the Full Court. In many respects, your Honours, that is how it has been argued before your Honours this morning.

GAUDRON J: There is a problem about the way it has been argued though and the actual result is there not. What if it had been your client that had sued?

MR SULAN: It was our client.

GAUDRON J: It was.

MR SULAN: Yes. Our client sued on the guarantee and the response of the appellant was the guarantee is void, but it ran its argument in a number of ways, which included rescission, and that is the way in which the trial judge determined it.

GAUDRON J: Well, then it seems to me that the court should have decided whether it was void or not. It seems to me there has been a failure to determine an issue raised on the pleadings.

MR SULAN: Well, the court never made a finding that there was fraud.

GAUDRON J: Well, whether it did or it did not, it seems to me it was obliged to.

MR SULAN: Yes. The problem is that it did not and the case has never turned on it and the case has always turned on fraud in the terms of equitable fraud.

TOOHEY J: Well, that is not quite right, is it? If you look at page 14, line 15:

The defendant is entitled to rescission, and therefore to resist the claim, irrespective of whether the misrepresentation was fraudulent, negligent or innocent.

MR SULAN: Yes, but what he does not find, in our submission, is really what it was.

TOOHEY J: No, that is true.

MR SULAN: And in order to declare it void ab initio there has to be a very specific finding.

GAUDRON J: But was he not required to do that by the pleadings?

MR SULAN: Well, whether he was required to do so by the pleadings, your Honour, he did not do so and the case proceeded on the basis that there was misconduct on the part of the respondent which entitled the appellant to an order of rescission in equity.

McHUGH J: It is the appellant’s fault, I think, in a sense that they either should have had a cross‑action on for damages - you should have got your damages and they should have had a cross‑action on for damages or they should had a counter‑claim for rescission and then put on terms, but the defence has been pleaded in Bar and it just could not be pleaded in Bar because it was not a case of common law fraud.

MR SULAN: No, and it was not a case where - yes, it was always argued on the basis of unconscionable conduct, so it went off in that way. It went off in an Amadio-type argument and it never ever came back from that position and the Full Court dealt with it in that way as well and, in fact, it really started off before your Honours in that way this morning until your Honour ‑ ‑ ‑

McHUGH J: The guarantee not been void ab initio, then the defendants or the present appellants had no answer to the claim. They were required to seek to have it rescinded, in which case they be put on terms on the finding.

MR SULAN: They could be put on terms and their argument has been really, “In the circumstances of this case we ought not be put on terms,” and they put forward a number of reasons as to why they ought not to be put on terms. Might I say, your Honours, that once we get to that point, there was certainly sufficient evidence before the trial judge upon which he could put them on terms and it is a discretionary remedy and certainly there was sufficient evidence upon which he could make the findings that he did and put them on terms and the Full Court affirmed that position.

In many respects, we would be submitting to your Honours that there is nothing particularly new in this appeal. This Court has dealt with this situation in a number of cases; there are a number of authorities dealing with it and it really is a case that turns on its own facts. And when one starts to analyse those, there was a sufficient basis for the trial judge to make the orders that he did. And we would say that that is the way in which this Court really ought to deal with the matter.

It is a case, really, that has always been a case of unconscionable conduct in its wider sense, as his Honour the Chief Justice described it in Amadio and there is nothing particularly unique about it. In fact, if I could just take your Honours for a moment to the decision of Taylor v Johnson (1983) 151 CLR 422, which is a case which really shows the development in the approach of the High Court to these kind of problems, and if your Honours will recall ‑ my friend’s synopsis actually gives quite an accurate account of the facts ‑ but your Honours may recall that was a case where a vendor sold two pieces of land for $15,000, thinking that she was receiving $15,000 per acre when, in fact, the contract was for $15,000 per lot, and there were two lots. So, she thought the consideration was $150,000 and the defendant, knowing that she was mistaken and going ahead and allowing her to sign the contract, knew that the consideration on the contract was $30,000.

So, it is a case which is very much akin to the present case. There was a fraudulent misrepresentation by the plaintiff in that case sitting by and watching the defendant sign the contract, then they sued for specific performance. The question of unconscionable conduct and fraud was discussed and the Court of Appeal found there was fraud. The High Court dealt with the matter and, really, the passage that I wish to refer your Honours to is at page 432, at about point 7 where, in a joint judgment of Acting Chief Justice Mason, as he then was, his Honour Justice Murphy and your Honour Justice Deane, the Court said this:

The particular proposition of law which we see as appropriate and adequate for disposing of the present appeal may be narrowly stated. It is that a party who has entered into a written contract under a serious mistake about its contents in relation to a fundamental term will be entitled in equity to an order rescinding the contract if the other party is aware that the circumstances exist which indicate that the first party is entering the contract under some serious mistake or misapprehension about either the content or subject matter of that term and deliberately sets out to ensure that the first party does not become aware of the existence of his mistake or misapprehension. What we have said is sufficient to demonstrate the broad basis of support which the authorities provide for that proposition. Moreover, and perhaps more importantly, it is a principle which is best calculated to do justice between the parties to a contract in the situation which it contemplates. In such a situation it is unfair that the mistaken party should be held to the written contract by the other party whose lack of precise knowledge of the first party’s actual mistake proceeds from wilful ignorance because, knowing or having reason to know that there is some mistake or misapprehension, he engages deliberately in a course of conduct which is designed to inhibit discovery of it.

Your Honours, that is almost akin to the situation we have here. The Court then went on to say:

Our comment can, for present purposes, be limited in its application to the case where the second party has not materially altered his position and the rights of strangers have not intervened.

So, the Court limited the proposition to where the second party has not materially altered his position. Of course, in this case, the second party, being Pioneer, has materially altered its position. It has supplied $180,000 worth of concrete. It is our submission it should be entitled to hold the appellant to a guarantee that the appellant was quite prepared to enter into, to secure the very supply that his company secured. At the end of the day, in our submission, that really all comes back to the fundamental principle that is through all the cases that deal with this problem, and that is that at the end of the day, the court will look at what is just - what is fair, as between the parties. I think that your Honour might have indicated to me the competing equities.

In our submission, it is really as simple as that. What is just and fair between the parties, in these circumstances, is that the appellant ought to be held to what he always was prepared to do, because, he, indirectly, and his company, have received the benefit. Pioneer have materially altered their position. Why should the appellant and this company, in effect, be unjustly enriched by the position that has been arrived at?

Your Honours, even in the most blatant type of fraud cases the courts have said, and Amadio might have been one of them ‑ Amadio was not fraud, but it was highly unconscionable ‑ the courts have said, basically, that this is a question of compensation; it is not a question of penalty, and our submission is that in these circumstances, Pioneer are and ought to be compensated.

TOOHEY J: Is that a submission that you advance because of the absence of a finding of fraud, Mr Sulan, or would you advance it even if there were such a finding?

MR SULAN: I would advance it even if there were fraud, because when one talks about fraud, your Honour, one really has to characterise the conduct. A number of the cases which are in our authorities are cases of fraudulent misrepresentation. Taylor v Johnson is really a case of fraud. Here we have a party, knowing that the other party is about to sign a document which does not give effect to the agreement, and allows and encourages that party to do so. And that is why I submitted to your Honours very early in my submissions that really to talk about fraud and to try and put labels on conduct can be very very dangerous and misleading, because when one looks at the conduct, for example, in Taylor v Johnson, when one looks at the conduct in the very early decision of Spence v Crawford, really you are talking about fraud because the conduct is dishonest, it is intentionally so, but even in those circumstances the courts have been prepared to say, “Well, the person who is guilty of the fraudulent misrepresentation ought to be returned, as best we can do it, and the person who is the beneficiary ought not to be unjustly enriched ‑ the other side ought not be unjustly enriched”.

Now, obviously there are cases where the court cannot do that, and the court cannot return the parties and court cannot do the balancing act of exactly what is fair and just, and in those cases the courts have said, “Well if the party has been guilty of fraudulent misrepresentation, then we will be much more prepared to allow rescission and it is bad luck for the fraudster, if we cannot give him back what he should really get back, because events have passed by, for example, there has an assignment of the lease, and you cannot get it back. Well, so be it. If you cannot reverse the whole process, so be it, the fraudster loses out, but if you can ‑ ‑ ‑

TOOHEY J: Why would your argument not provide for an adjustment in money terms even if it were not possible to return the property?

MR SULAN: Well it can and it has. Of course a court of equity will not grant damages but it will allow for accounts and allow for compensation. The answer is it has, in certain cases, done so in money terms. In one case, I will take your Honour to the authority in a minute, where the defrauded party remained in a fruit shop, it was a fruit shop contract, for a period of time - it was a number of months I think, it might have been even a year ‑ ‑ ‑

TOOHEY J: Was it Alati v Kruger?

MR SULAN: Alati v Kruger, there the Court said you have got to pay rent for the period you have been there. So the Court did the best it could to return the parties to a fair position and really the test, at the end of the day, is what is fair and what is just between the parties. The Court will mould its order accordingly. It might be, as your Honour has pointed out, that it can only do so in money terms. In other situations it may not even be able to do so in money terms and if someone is to suffer, the party who committed the conduct might be the party that, at the end of the day, has to suffer the consequences of that.

We would submit that it would be a grossly unjust situation in this case for Pioneer, as a condition of the rescission, not be able to get back, at least in money terms, what the appellant always intended it should have and what it was really always agreed between the parties it should have.

And it is really very much, your Honours, on all fours with Lock v Kennedy. I mean even your Honour Justice McHugh in Lock v Kennedy did not argue with the principle, it was the manner in which the Court applied it in that case, and Your Honour found, if my reading of your Honour’s judgment is correct, that really, because the loan had been rolled over and not called up after the six month period, that was crucial to your Honour’s decision. Because your Honour said if it had been called up after the six months ‑ it was a limit of six months ‑ then the guarantor might have had rights against Goldberg which it lost because of the time and Goldberg’s position deteriorating.

I think that is the basis upon which your Honour was not prepared to adjust the position between the parties. The principle of adjustment and the principle ‑ I do not think your Honour ever argued with that principle ‑ and so that is really the balancing act of how we do justice between the parties. And we would submit to your Honours that that really is what this case is all about.

GAUDRON J: Your argument, may I ask, it simply allows no room for void ab initio, does it?

DAWSON J: Or necessary.

MR SULAN: Well, really, yes, I suppose that is right that, although there are cases, I think, where the Court would say, “Well, this contract is void; we’re going to allow rescission; it is void as far as we are concerned and there will be no adjustment, because the conduct of the fraudster was so fundamentally bad”.

GAUDRON J: But if it is void ab initio, it does not depend on the court’s declaration to that effect, does it?

MR SULAN: No.

GAUDRON J: This is where I am having some difficulty. I can understand that equitable rescission may depend on it or does depend on it, but there is ‑ ‑ ‑

MR SULAN: Well, at the moment I am having difficulty thinking of a case where a contract would be void ab initio.

GAUDRON J: Well, to some extent you suggest only where people have altered - your argument would suggest you allow that only where people have altered their position or where people have not altered their position.

MR SULAN: Well, there common law, of course, allowed rescission in those circumstances, but I have some difficulty with the concept of what is void ab initio.

DEANE J: Well, an illegal contract is void ab initio.

MR SULAN: An illegal contract, yes, but even there, of course, the courts - and a couple of our authorities have referred to them - even there the courts have been very careful and where a contract is illegal the courts have actually bent over backwards to sever the illegal parts of those contracts from the legal terms.

DEANE J: Are you aware of a case which says that there cannot be common law rescission because of the impossibility of restitutio in the case of a guarantee for the reason that money has been advanced under the guarantee?

MR SULAN: The answer is, no, I am not, and it is probably difficult to think of that situation because really the problem with the guarantee cases is that you have always got three parties.

DEANE J: One would have thought that it would have arisen all the same.

MR SULAN: That is perhaps why we are before your Honours. Our researches have not been able to find an authority to assist the Court. Can I say this, that our researches have gone beyond Australia and we have looked at the American and Canadian authorities, some of which are on our list not to be read. Maybe we have looked in the wrong places, but we have not been able to uncover an authority directly on point.

DEANE J: You have achieved something: you have turned up one proposition for which it is impossible to find a United States authority.

MR SULAN: That might be a fault in the researcher, your Honour, rather than the fact that there is not one. But we certainly have not been able to find one, and we have looked. Really, our argument is, your Honours, that the courts have characterised this question of what is just and fair in various ways: by partial rescission. We have drawn some analogy with the severance cases that the Court, we would submit, in this case could in fact sever the parts of this contract of guarantee which were never agreed to and which were induced by the fraudulent misrepresentation and leave the parts of the guarantee that were always intended.

In fact, one of the authorities to which we refer, which is the case of Bagot v Chapman, was a case where ‑ it is not exactly on point, but it is a case where there were in fact two deeds in one deed. It was a husband and wife case, and what had happened in Bagot v Chapman was that the wife had been induced to, in effect, enter into a guarantee for twelve thousand pounds, she thinking it was a guarantee only in respect of future debts and only in respect of a reversionary interest she had in an estate. In fact, it was a personal guarantee and it related both to past and future debts. It was all part of a deed to which her husband had entered into as well. The court in that case in effect said, “There are two deeds here”, and they struck down the deed relating to the wife.

So there are situations through the cases where the courts have severed the bad from the good, talked about, as your Honours have talked about, conditions on rescission, talked about partial rescission. But however one characterises it, it comes really back to the fundamental proposition as articulated in the earlier cases and, in particular, in Spence v Crawford and Alati’s Case, that the Court will do what is fair and just between the parties and, really, that is the basis of the argument we put before your Honours and we say that this case, really, falls right within those propositions.

There have been some submissions in respect of the fact that the guarantor actually did not get a benefit. We would say that a court of equity, when looking at this situation, looks at the guarantor’s relationship with the debtor and here, unlike the husband and wife cases and the nephew and niece’s cases, there is even a stronger connection here. Mr Vadasz was, in effect, for the purposes of equity, in these situations, he was Vadipile. Vadipile was his operating company. He knew everything about Vadipile. He knew everything about Vadipile’s relationship with pioneer. He was in a far advanced position to the Amadios of the world and to the Kennedys of the world and we would submit that the findings of the trial judge were correct and the findings of the Full Court should be upheld.

Unless there are any other matters that we can put to your Honours, that is - your Honours, I did not mention that the interplay between common law and equity, in these kinds of situations, is really dealt with in Alati at pages 222 and 223. At page 222, the passage commencing at about point 2, “He might sue for damages”. Really, that paragraph:

On the footing which must be accepted, that the contract had been induced by a fraudulent representation made by the appellant to the respondent, the latter had a choice of courses open to him. He might sue for damages for breach of warranty contained in cl. 21, for the statement in that clause, clearly formed one of the terms of the contract and was not only a representation; but he could not do this and rescind the contract for misrepresentation. Secondly, he might sue to recover as damages for fraud the difference between the price he had paid and the fair value of the property at the time of the contract (Holmes v Jones (1)), but that again would involve affirming the purchase. Or, thirdly, provided that he was in a position to restore to the appellant substantially that which he had received

under the contract, he might avoid the purchase and sue to recover his purchase money back from the appellant, with interest and also with damages for any loss which he may have suffered through carrying on the business in the meantime.

That really is the crux; providing he can return the appellant to the position. Again, at page 223, really the last paragraph, and I do not need to read it, but there the Court deals with the interplay between common law and equity, commencing, “If the case had to be decided”.

Really, the difficulty with a common law inequity, in the case of a guarantee, is that there is the tension that your Honour Justice Deane mentioned, because we have the third party interplay in that situation. It would be our submission that one is really, in the guarantee cases, driven back to the principles of equity. If the Court pleases.

DEANE J: Thank you, Mr Sulan. Mr Walsh.

MR WALSH: If the Court pleases, on two occasions, at least, my learned friend said that the decision of SH Lock (Australia) Limited v Kennedy was, in effect, the same as the case at Bar, and in fact I think he used the expression “on all fours” at one occasion. That is not so, in our respectful submission, and if I may remind the Court that that is illustrated by what his Honour Justice McHugh had to say about the case, because his Honour said, in relation to whether Mrs Kennedy’s liability should be the same as she thought it ought to be, that he had no doubt that the proper order would be to refuse to enforce the guarantee if that had been fraud; it would make a mockery of the objects of the Act in that case for a dishonest lender to be no worse off after his fraudulent documentation was revealed.

In fact, what happened, contrary to what my learned friend says, in Lock’s Case, was that the Court was ad idem that in that case there should not be relief granted to Mrs Kennedy, but for slightly differing reasons, and what his Honour Justice McHugh was saying was that, had it been a case of fraudulent misrepresentation, then clearly relief ought not to have been granted. So, the case is directly against my learned friend, and yet he purports to argue that it is on all fours.

The second point that I make is that my learned friend referred to cases in relation to the issue or the topic of benefit, and the benefit to Mr Vadasz in this case, as opposed to benefit to a person who is completely divorced. But, in truth, for example, the cases involving a spouse providing assistance by signing a guarantee to another spouse, the truth of the matter is that the benefit is almost exactly the same. True it is they might not be a

shareholder, but the benefit is there, in real terms, and the cases that are referred to in my outline have always been prepared to allow a person in that circumstance, even though there was some benefit flowing, have always been prepared to allow rescission in toto, even though there had been consideration moving on the basis of what had been given; if there, in fact, has been conduct, in a sense, amounting to fraud that can be visited through the person making the representation to the lender, as it were.

My learned friend relied heavily on the cases of Alaiti v Kruger and Johnson’s Case and I remind the Court that those again were cases of purchaser and vendor; direct contractual relationship, and that is the significant distinction between those cases and the case at Bar. So that when one looks at those cases that my learned friend has referred to the position remains, in our respectful submission, one of this case being unique, compared to those cases, requiring one answer, we say, that is, that policy must dictate that there ought to be rescission because of the conduct of the person who sought to gain from a fraud, if the Court pleases.

DEANE J: The Court will reserve its decision in this matter and will now adjourn.

AT 12.47 PM THE MATTER WAS ADJOURNED

[1995] HCATrans 39

Key Legal Topics

Areas of Law

Civil Procedure

Negligence & Tort

Legal Concepts

Appeal

Causation

Damages

Duty of Care

Negligence

Reliance