Vitek v Estate Homes Pty Ltd

[2013] NSWSC 1764

Supreme Court

New South Wales

Medium Neutral Citation:	Peter Vitek & Anor v Estate Homes Pty Ltd & Ors [2013] NSWSC 1764
Hearing dates:	29 and 30 October 2013
Decision date:	22 November 2013
Jurisdiction:	Equity Division
Before:	Rein J
Decision:	The third defendant is liable on the guarantee claim for $881K plus interest to date at the Court rate set out in the Uniform Civil Procedure Rules 2005 (NSW) and the costs of the proceedings brought against Estate Homes but is not liable on a contractual basis for the plaintiffs' costs of pursuing the second defendant nor is the third defendant liable for the costs incurred in the proceedings before Bergin CJ in Eq or in these proceedings.
Catchwords:	EVIDENCE - whether the third defendant signed the guarantee EQUITY - whether the third defendant authorised her husband, the second defendant, to sign the guarantee in the third defendant's name under a general power of attorney - whether the power of attorney enabled the second defendant to execute documents on behalf of the third defendant where those documents confer a benefit on the second defendant and no benefit on the third defendant - whether the guarantee did confer a benefit on the third defendant EQUITY - whether the third defendant ratified the guarantee by taking no action after learning about its execution in her name and by her claims in a defence and cross claim EQUITY - whether the third defendant's actions after learning about the guarantee being signed in her name gives rise to estoppel
Legislation Cited:	Contracts Review Act 1980 (NSW) Conveyancing Act 1919 (NSW) Fair Trading Act 1987 (NSW) Powers of Attorney Act 2003 (NSW) Uniform Civil Procedure Rules 2005 (NSW)
Cases Cited:	Adler v ASIC [2003] NSWCA 131 Amaya v Everest Property Holdings Pty Ltd [2010] NSWCA 315 Andar Transport Pty Ltd v Brambles Ltd (2004) 217 CLR 424 Ankar Pty Ltd v National Westminster Finance (Aust) Ltd (1987) 162 CLR 549 Associated Midland Corporation v Sanderson Motors Pty Ltd [1983] 3 NSWLR 395 Chan v Cresdon Pty Ltd (1989) 168 CLR 242 City Bank of Sydney v McLaughlin (1909) 9 CLR 615 Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500 David Securities v Commonwealth Bank of Australia (1992) 175 CLR 353 Dickinson v The Motor Vehicle Insurance Trust (1987) 163 CLR 500 Ffrench v Sestili; Sestili v Triton Underwriting Insurance Agency Pty Ltd (2007) 98 SASR 28 Global Alliance Network Pty Ltd v Sensis Pty Ltd [2007] NSWCA 163 Guardian v Hughes [2011] NSWSC 729 Harrisons & Crossfield Ltd v L&NW Ry Co Ltd [1917] 2 KB 755 Howell v Macquarie University [2008] NSWCA 26 Hughes bht New South Wales Trustee and Greenwood v Martins Bank Ltd [1933] AC 51 Jones v Dunkel (1959) 101 CLR 298 Klement v Pencoal Ltd [2000] QCA 152 Learn & Play (Rhodes No1) Pty Ltd as Trustee for Rhodes 1 Childcare Centre Unit Trust v Lombe [2011] NSWSC 1506 Ledir Enterprises Pty Ltd [2013] NSWSC 1332 Leybourne v Permanent Custodians Ltd [2010] NSWCA 78 Life Savers (Aust) Ltd v Frigmobile Pty Ltd [1983] 1 NSWLR 431 Macmillan Inc v Bishopsgate Investment Trust Plc (No 3) [1995] 1 WLR 978 Manly City Council v Byrne [2004] NSWCA 123 New South Wales v Tempo Services Ltd [2004] NSWCA 4 Nicholson v Morningstar (St Lukes Garden Apartments) Ltd [2008] NZH 599 Permanent Trustee Co Ltd v Bernera Holdings Pty Ltd [2004] NSWSC 56 Perochinsky v Kirschner [2013] NSWSC 400 Perpetual Trustee Co Ltd v Gibson [2013] NSWSC 276 Re R [2000] NSWSC 886 Reckitt v Barnett, Pembroke & Slater Ltd [1928] 2 KB 244,268 Siahos v J. P. Morgan Trust Australia Limited [2009] NSWCA 20 Spina v Conran Associates Pty Ltd; Spina v M & V Endurance Pty Ltd [2008] NSWSC 326 Spina v Permanent [2009] NSWCA 206 Spina v Permanent Custodians Ltd [2008] NSWSC 561 State Government Insurance Office v Crittenden (1966) 117 CLR 412 Suncorp Insurance & Finance v Milano Assicurazioni SpA [1993] 2 Lloyd's Rep 225 Sweeney v Howard [2007] NSWSC 852 Technical Products Pty Ltd v State Government Insurance Office (1989) 167 CLR 45 Tobin v Broadbent (1947) 75 CLR 378 Yerkey v Jones (1939) 63 CLR 649
Texts Cited:	Dal Pont Law of Agency, 2nd ed, (2008) LexisNexis Butterworths Dal Pont, Powers of Attorney (2011) LexisNexis Butterworths Bowstead & Reynolds or Agency, 19th ed, (2010), Sweet & Maxwell Bowstead & Reynolds on Agency, 18th ed, (2006) Sweet and Maxell
Category:	Principal judgment
Parties:	Peter Vitek (first plaintiff) Shoshanna Vitek (second plaintiff) Veeda Taheri (third defendant)
Representation:	Counsel: Mr Pritchard SC and Mr B. Zipser (first and second plaintiff) Mr Coles and Mr Sneddon (third defendant) Solicitors: Farrar Lawyers (first and second plaintiff) McLaughlin & Riordan (third defendant)
File Number(s):	2005/258339

Judgment

1. REIN J: These proceedings have a long history. They concern the sale in September 2003 of property in Surry Hills NSW ("the property") by the plaintiffs ("the Viteks") to Estate Homes Pty Ltd ("Estate Homes") for $2.6M. The contract of sale was the subject of a guarantee given by Mr Siamac Taheri ("Mr Taheri") and, on its face, by Mrs Veeda Taheri ("Mrs Taheri"). Estate Homes defaulted on the sale and the Viteks brought proceedings against Estate Homes for breach of contract and against the Taheris on their guarantees. The proceedings were set down for hearing before Barrett J (as his Honour then was) in 2009.

1. Mrs Taheri, through her Amended Defence and an affidavit filed in the proceedings, claimed that she had not signed the guarantee, that she had not consented to the guarantee or known about it and that the guarantee was solely for the benefit of her husband and Estate Homes. Mrs Taheri was not a director or shareholder of Estate Homes and Mr Taheri was the sole shareholder and director. During the course of the hearing before Barrett J, the plaintiffs agreed not to proceed against Mrs Taheri and by consent, judgment was entered in her favour subject to the payment by her of $100K. Mrs Taheri had, along with Estate Homes and Mr Taheri, brought a cross claim against a solicitor, Mr Bernard O'Donnell ("Mr O'Donnell") and he paid $50K to Mrs Taheri as part of the settlement and was also released from the proceedings.

1. In the further course of the proceedings against Estate Homes and Mr Taheri, Mrs Taheri gave evidence in support of her husband and Estate Homes, which evidence contradicted the assertions that she had previously made that led to the consent judgment in her favour.

1. The claims against Estate Homes and Mr Taheri progressed and ultimately Estate Homes and Mr Taheri were found liable to the Viteks for the amount of $881,082.00. Estate Homes went into liquidation and has been deregistered and Mr Taheri was, on his own application, declared a bankrupt.

1. The Viteks subsequently brought proceedings against Mrs Taheri seeking to set aside the consent judgment on the grounds of fraudulent misrepresentation by Mrs Taheri and in May this year Bergin CJ in Eq found in favour of the Viteks and set aside the consent judgment.

1. The present proceedings are therefore the continuation of the proceedings commenced in 2005 as against Mrs Taheri, judgment having been obtained against Estate Homes and Mr Taheri, and that judgment not having been satisfied.

1. Mrs Taheri (for whom Mr Coles QC and Mr Sneddon appear) does not dispute that if she is liable as guarantor she is liable to the same extent as Estate Homes and Mr Taheri, but she disputes any liability as guarantor, denying that:

(1)   she signed the guarantee;

(2)   that Mr Taheri was, by virtue of a power of attorney given to him by Mrs Taheri, authorised to execute the guarantee on her behalf.

1. The Viteks (for whom Mr Pritchard SC and Mr B. Zipser appear) claim that Mrs Taheri is liable on the guarantee on the following alternative grounds:

(1)   she signed the guarantee;

(2)   if she did not sign the guarantee her husband, exercising a power of attorney granted to him by Mrs Taheri, executed the guarantee on her behalf.

(3)   even if Mr Taheri did not at the time of the execution of the guarantee have power to sign on her behalf:

(a)   she became aware by Mr Taheri in her name of the execution and ratified it;

(b)   she is estopped in all the circumstances from denying that she had executed the guarantee or had authorised the execution of it.

1. The affidavits of the plaintiffs, Mr Peter Vitek and Mrs Shoshanna Vitek, and that of Mr O'Donnell were read in the plaintiffs case. None of these witnesses were required for cross-examination. The only witnesses called by the defendant were Mr Paul Westwood, a forensic document examiner and, Mr Andrew Cameron, the solicitor acting for Mrs Taheri in these proceedings who gave evidence as to Mrs Taheri's having signed eleven documents which were then provided to Mr Westwood. Neither Mr Westwood nor Mr Cameron were required for cross examination.

Did Mrs Taheri sign the guarantee?

1. Mr Westwood, in his report (see Exhibit B1, pp 254-255), was not able to express a view as to which of three logical possibilities had occurred:

(1)   The questioned signatures were written in original form by the writer of the specimen signatures in a heavily disguised or distorted style;

(2)   The questioned signatures are an alternative signature style not represented by the specimen signatures or

(3)   The questioned signatures were written in original form by some other person without regard to the appearance of Ms Taheri's genuine signature style.,

I treat the report as offering no support for Mrs Taheri's case that she did not sign the guarantee.

1. I have compared the signature next to Mrs Taheri's name on the guarantee (see Exhibit B1, p 375) and observe it to be markedly different from the signature on each of pages S7 1-11 (see pp 276-287B Exhibit B1), the specimen signatures provided by Mrs Taheri through Mr Cameron to Mr Westwood and from her signature in two affidavits contained in the court bundle (see p 275 Exhibit B1, p 482 Exhibit B2) and to her signature on the power of attorney see p 324 Exhibit B1 and on an application to St George Bank (p 433 Exhibit B1). I note that the plaintiffs rely on paragraph 8 of Mrs Taheri's affidavit in which she says that her husband told her that he had signed the guarantee in her name pursuant to the power of attorney. That evidence tendered by the plaintiffs undermines the contention that Mrs Taheri herself signed the guarantee.

1. I do not accept that the plaintiffs can rely on Mrs Taheri's earlier inconsistent pleading to establish that she did sign the guarantee herself. By the amended defence which she was permitted to file she withdrew any implicit admission that she had executed the document: see Global Alliance Network Pty Ltd v Sensis Pty Ltd [2007] NSWCA 163 at [71] - [72] per Hodgson JA.

1. I am persuaded on the balance of probabilities that Mrs Taheri did not sign the guarantee. It is accepted by both parties that if Mrs Taheri did not sign the guarantee then her husband signed it in her name.

1. I find that Mr Taheri signed the guarantee in Mrs Taheri's name in reliance on, or in purported reliance on, the power of attorney dated 24 July 2001 and registered in the Land Titles Office on 16 August 2001. Mrs Taheri does not dispute that she executed that power of attorney and that it was as at all relevant times a valid power of attorney. The dispute is whether Mr Taheri was authorised to sign the guarantee in her name or is to be treated as having been so authorised.

The Power of Attorney

1. The power of attorney was a General Power of Attorney by which Mrs Taheri authorised Mr Taheri to:

Exercise, subject to any conditions and limitations specified in Part 2 of this instrument, the authority conferred on him/her/them by section 163B of the Conveyancing Act 1919, to do on my behalf anything I may lawfully authorise an attorney to do.

(see Exhibit B1, p 324)

There were no conditions or limitations stated in the schedule. Clause 2 of the Power of Attorney was not deleted and it authorised Mr Taheri in the exercise of the authority conferred on him by s 163B of the Conveyancing Act 1919 (NSW) ("the Act"):

to execute an assurance or other document, or do any other act, whereby a benefit is conferred on [him].

See Exhibit B1, p 324

This section has been replaced by the Powers of Attorney Act 2003 (NSW) but it was agreed that the power of attorney in question here is governed by s 163B of the Act.

1. Section 163B of the Act is in the following terms:

163B Power conferred by prescribed form of instrument

(1) Subject to this section, an instrument (whether or not under seal) in or to the effect of the form in Schedule 7 confers on the attorney thereby appointed authority to do on behalf of the person executing the instrument anything the person executing the instrument may lawfully authorise an attorney to do.

(2) The authority conferred by an instrument referred to in subsection does not include:

(a) authority to exercise or perform any power, authority, duty or function as a trustee conferred or imposed on the person executing the instrument, or

(b) unless it is expressly conferred by the instrument-authority to execute an assurance or other document, or do any other act, as a result of which a benefit would be conferred on the attorney appointed by the instrument.

(3) Where an instrument referred to in subsection (1) specifies any conditions or limitations to which the authority conferred by the instrument is to be subject, the authority is so conferred subject to compliance with those conditions or limitations.

(Emphasis added)

I shall refer to clause 2 of the power of attorney read with s 163B(2) as "the benefit clause" and use that expression in relation to similar clauses considered in other cases.

1. The plaintiffs contend that by the power of attorney Mrs Taheri authorised Mr Taheri to execute the guarantee in her name and on her behalf and that she is therefore bound by the execution of the guarantee on her behalf by Mr Taheri acting as her agent. Mrs Taheri contends that she obtained no benefit from the execution of the guarantee which was given to support a purchase by Estate Homes since she, in contrast to Mr Taheri, was neither a director, of or shareholder, in Estate Homes. Mr Coles relies on the decision of this court in Spina v Conran Associates Pty Ltd; Spina v M & V Endurance Pty Ltd [2008] NSWSC 326 per Austin J and Perochinsky v Kirschner [2013] NSWSC 400 per White J and two other cases which he submits express views supportive of Spina v Conran Associates Pty Ltd or its reasoning, namely Sweeney v Howard [2007] NSWSC 852 per Windeyer J and Hughes bht New South Wales Trustee and Guardian v Hughes [2011] NSWSC 729 ("Hughes v Hughes") per Gzell J who in clearly obiter dicta expressed a preference for the views of Austin J.

1. Mr Pritchard relies on the decision of Spina v Permanent Custodians Ltd [2008] NSWSC 561 in which Hammerschlag J, giving detailed reasons, declined to follow Spina v Conran. The case went on appeal on a different point: see Spina v Permanent [2009] NSWCA 206. The two Spina cases concerned the same power of attorney.

1. Both parties' arguments are based on the form of the power of attorney and no point is taken that the signature of Mr Taheri was not stated to be appended "per" or "for Mrs Taheri" or that the power of attorney was provided to the Viteks or cited: see G.E. Dal Pont, Powers of Attorney (2011) LexisNexis Butterworths [9.8] and s 159(2) of the Act (this section also now repealed) on how documents could be signed by an attorney under a power of attorney in this State. Mr Coles and Mr Pritchard agree that once it is clear that the power of attorney has met the requirements of the Act the relevant construction is that of the power conferred by the Act. They are also agreed that the words "anything the person executing the instrument may lawfully authorise an attorney to do" imposes no relevant restriction on what Mr Taheri could do subject only to the argument about benefit (T85.21-42).

1. Mr Pritchard, whilst maintaining that Hammerschlag J's approach in Spina v Permanent is the correct approach, alternatively submits that even on the approach which White J adopted in Perochinsky Mrs Taheri is still bound by the execution by her husband of the guarantee because Mrs Taheri must be taken to have regarded the purchase of the property by Estate Homes as of benefit to her, or to have wanted Mr Taheri to sign the guarantee on her behalf so that the sale to Estate Homes could proceed.

1. The matters which are relied on to support the benefit argument are also potentially relevant to ratification and estoppel arguments, and the salient material on which the plaintiffs rely for each of these points are:

(1)   Mr O'Donnell posted an unsigned copy of the Contract for Sale received from the Vitek's solicitor to Mr and Mrs Taheri at their residential address with instructions or how the guarantee clause was to be signed by Mr and Mrs Taheri (see letter 12 September 2003 Exhibit B1, p 352 and para 121 of Mr O'Donnell's affidavit Exhibit B1 p 68) and the contract (including the guarantees) was returned to Mr O'Donnell and forwarded by him to the plaintiff's solicitors.

(2)   Originally the purchasers of the property were to be Mr and Mrs Taheri. Mr Taheri, with Mrs Taheri's implicit consent, sought to alter the purchaser to Estate Homes which change the plaintiffs were willing to accept provided that Mr and Mrs Taheri gave personal guarantees. Estate Homes was a company formed in August or September 2003 for the purpose of the purchase of the property.

(3)   Mr O'Donnell met with Mr and Mrs Taheri on several occasions in August 2003. On or about 19 August 2003 he had the following conversation with the Taheris as part of the conference (BOD in the transcript set out here and below at (5) stands for Mr O'Donnell , ST stands for Mr Taheri and VT for Mrs Taheri):

BOD: "We should go through the terms of the contract and I can briefly explain those terms and if you have any questions then we can discuss them. The front page of the contract appears to correctly refer to the right property and all of the other details appear to be in order. Is there anything there that you want explained?"

ST: "No, we have looked at many contracts and bought and sold property often. We've seen contracts like this before."

BOD: "You should look at the second page which identifies what documents are attached to the contract, for example, the section 149 certificate, the title search, the sewerage connection diagram and the mains diagram. Have you looked at those?"

ST: "Yes, I have done a lot of research on the property and I know that the property was once a petrol station. We don't care much about what is there now, we're intending to demolish it to construct new units."

BOD: "It's still important to look at the 149 certificate because it tells you what uses are permitted and gives other information about the property."

ST: "Alright Bernie, we can go through it if you like."

(see Exhibit B, p 54)

(4)   In the course of discussions about the contract, as Mr O'Donnell went through the draft, Mr Taheri said many times (in Mrs Taheri's presence) in response to particular clauses and comments of Mr O'Donnell "we understand that" and "we have no problem with that" (see Exhibit B 1, p 60).

(5)   Mr O'Donnell read the guarantee indemnity clause in its entirety and had the following conversation (see Exhibit B1, p 61):

BOD: "This clause is important for the contract because you and Veeda are using a Company for the purchase. This provision means that you both will need to personally sign and be liable for ensuring the completing of the contract."

VT: "Is that necessary?"

BOD: "It is common for contracts where the Company is the purchaser."

ST & VT: "Yes, then that is OK."

(6)   In the course of the meeting and in discussing clause 34 Mrs Taheri said words to the following effect (see Exhibit B1, p 58):

"I am happy that Mac [Mr Taheri] knows what he is doing".

(7)   Mrs Taheri was aware that her husband was interested in purchasing a property suitable for redevelopment and said that she intended "to assist him by providing security over properties which I owned to enable him to obtain finance": p 738, Exhibit B2.

(8)   Shortly after 15 September 2003 Mr Taheri said to Mrs Taheri words to the effect:

the contract to purchase the Elizabeth Street property has been exchanged. The vendors wanted both of us to sign a guarantee for Estate Homes. I signed your name using the power of attorney.

See Exhibit B2, page 739

Mrs Taheri says that she asked Mr Taheri:

why did you do that?

and he replied

they would not proceed with only my signature. I had to do it.

(9)   In cross-examination on 16 February 2010 at the hearing before Barrett J (see Exhibit B2), Mrs Taheri gave answers to questions as follows:

Q (T347): You knew on 15 December 2006 that your husband signed your name on the guarantee provision in the contract relying upon the power of attorney that you had given him?

A: Yes.

...

Q (T350): At the time that you found out that he signed your name, is your position that you thought that that legally bind you to the guarantee?

A: Yes...

...

Q: How long after 15 September 2003 did he tell you that he may have had your signature on this?

A: I can't be exactly sure and I can't give you a date. Sometime after that, three weeks, four weeks, five weeks, I am not sure, next week, I can't remember.

Q: ... some time in 2003?

A: Yes. After he signed the contract he told me he has signed my name as a guarantor on the contract.

...

Q: Did you accept in 2003 and 2004 that you were bound as a guarantor of that contract.

A: ... Yes, I did of course because I thought he had the power of attorney he could sign my name and he has done it.

...

Q (T355): You found out in 2003 that your husband signed your name to the guarantee provisions?

A: That's right.

Q: You knew then that a contract to purchase the property had been entered into?

A: Yes. Why would he sign my name as guarantor if he didn't sign the contract?

...

(10)   Mr and Mrs Taheri had joint bank accounts between 2000 and 2005 (Exhibit B1, pp 300-323) and in and around 2003 acquired and jointly owned four properties with mortgages securing loans over the properties which they jointly serviced (see Exhibit B1, pp 418-428, 433 and Exhibit B2 pp 445-451 Exhibit B3 p 959 and 960 and Exhibit B3 p 1076).

(11)   In September 2004, Mr and Mrs Taheri applied to St George for a loan secured by a mortgage over property owned by Mrs Taheri (Exhibit B1, pp 418-428 and p 433) and income from Estate Homes of $150K for Mr Taheri was used in support of the application (see p 419, Exhibit B1). Although page 433 is separated it appears to be part of the application (see also pp 446-451). In September 2004 Mrs Taheri described herself as benefiting from Mr Taheri's income from Estate Homes. I think it is likely that the loan application relates to the balance of the purchase price for the property given the proximity to settlement and its reference to Mr O'Donnell as "the solicitor/conveyancer" (p 419) but, even it was not, it is an the example of the close financial relationship of Mr and Mrs Taheri and intermingling of their financial affairs.

(12)   In the 1990s the Taheris lived in a house at Cherrybrook built by Mr Taheri through his business (Exhibit B3 p 1076 line 28 and p 1077 line 12).

(13)   On 13 November 2003, Mrs Taheri paid an invoice of $4, 117 issued by the City of Sydney Council in respect of the development application lodged for the property with the Council (Exhibit B1, p 413).

(14)   Although Mrs Taheri had her own "dry ice" business she earned very little from it or any other source according to her tax returns (see Exhibit C) pointing to reliance on her husband's business activities for her economic well being.

(15)   Mr Taheri between at least 2001 and 2003 paid his earnings into a joint bank account and the earnings were used in part to service a mortgage over a property owned jointly by Mr and Mrs Taheri: see Exhibit B3, p 1076.

(16)   In her first defence to the Viteks' claim she did not assert that she had not signed or had not authorised the guarantee. Instead she claimed against the Viteks' that she had an interest in the contract and as against her solicitor that he had not properly advised her (and her husband and Estate Homes) about the contract before she (and the Estate Homes and her husband) entered into it: see pp 465-482 (which includes an affidavit verifying the allegations of fact in the defence and cross claim) and particularly pp 466-7, 474-478 and 482.

What is the effect of the benefit clause

1. I turn now to consider the question of whether Mr Taheri was authorised by the power of attorney to execute the guarantee and whether or not that step conferred a benefit on him (or his company) and no benefit on Mrs Taheri.

1. The power of attorney under consideration here is in the same form as the considered in the Spina cases.

1. There is clearly a divergence of opinion in this Division as to whether a power of attorney which contains a benefit clause can be utilised by the grantee to bestow a benefit on the grantee (or his or her company) which does not also benefit the grantor (or donor or principal). Austin J held that to be effective the benefit clause must expressley state that the grantee can enter into a transaction which benefits only the grantee. White J holds that the words "on behalf of" in clause 1 of the power of attorney and s 163B(1) of the Act require the transaction to be for the benefit of the grantor unless the grantor has manifested an intention that he authorises the transaction even though it is solely for the benefit of the grantee. Hammerschlag J held that in relation to the loan made by the bank to the son, the benefit clause was sufficient to authorise the grantee to enter into a transaction that confers no benefit on the grantor.

1. In Perpetual Trustee Co Ltd v Gibson [2013] NSWSC 276 I endeavoured to summarise the difference of opinion expressed in the two Spina cases. Because in Perpetual the issue did not concern a third party but rather was a dispute between the estate of the grantor and the grantee, I took the view, that I did not need to form a conclusion as to which of the two Spina cases I should follow.

1. In Perochinsky the Perochinskys, the aunt and uncle of their niece Mrs Kirschner, the first defendant, gave a power of attorney to Mrs Kirschner. Mrs Kirschner utilising the power of attorney, transferred assets of the Perochinskys to herself and her husband. Mrs Kirschner contended, inter alia, that she was empowered by the power of attorney to make gifts to herself and her husband. The power of attorney contained a clause in the same terms as is found in the schedule 7 draft power of attorney and as that used in the present case, and the Spina cases. It will be observed that it was Mrs Perochinsky (Mr Perochinsky had died) who was seeking to impugn the transactions effected by the niece and not a third party. The case is therefore of a similar type to Hughes v Hughes, and Perpetual Trustee v Gibson. Although in Perpetual Trustee v Gibson I regarded the distinction between a case where the grantor is suing the grantee and a case where a third party is suing the grantor as important (as did Gzell J in Hughes) Perochinsky suggests otherwise - a matter to which I shall return.

1. White J's approach to the Spina cases was predicated on:

(1)   A view, in contrast to Austin J, that the critical consideration was not the meaning of "attorney" but rather the scope of the authority bestowed by the words "to do on behalf of the person executing the instrument" and the words "to do on my behalf anything I may lawfully authorise an attorney to do"

(2)   A view that the words "on behalf of" and "on my behalf" connote the sense of acting in the interest of or for the benefit of another.

(3)   A view that the words "on behalf of" in the phrase authorised "to do on behalf of the person executing the instrument" and "on my behalf" in the phrase "to do on my behalf anything I may lawfully authorise an attorney to do" would be "mere surplusage" if interpreted in the manner adopted by Hammerschlag J.

(4)   That Russell J's approach in dissent in Reckitt v Barnett, Pembroke & Slater Ltd [1928] 2 KB 244, 268 which had been endorsed in the House of Lords and by Dixon J in Tobin v Broadbent (1947) 75 CLR 378 at 401 when his Honour said:

Something more specific and quite unambiguous is needed to justify such an interpretation. "The primary object of a power of attorney is to enable the attorney to act in the management of his principal's affairs. An attorney cannot, in the absence of a clear power so to do, make presents to himself or to others of his principal's property." Per Russell J in Reckitt v Barnett, Pembroke and Slater Ltd

should be applied to clause 1 of the power of attorney and s 163B(1) of the Act.

(5)   A perceived inconsistency in the approach of Hammerschlag J because in Spina his Honour had noted that his conclusion that the third party could rely on the power of attorney did not preclude a claim against the attorney: see Spina [181] and Perochinsky, [89].

1. In Perochinsky White J at [92] said:

The question in each case would be whether the attorney, although deriving a benefit for himself or herself was acting on behalf of the principal. In my view, in the hypothetical case posed by counsel [of a wife spending her husband's money to by clothes or groceries for herself], it could well be said that the wife was acting on her husband's behalf if she exercised the power of attorney to spend money on herself if she was thereby only doing what the husband would do himself if he were present and capable. In such a case, the wife would be discharging what would be at least a moral obligation of the husband to provide support.

His Honour accepted the Kirschners' evidence that the Perochinskys had told her that they wanted her and her husband to have the shares that they (the Perochinskys) owned and hence that even though the transfer of the shares effected pursuant to the power of attorney resulted in a benefit solely to Mrs Kirschner she was "acting in the interests of Mr and Mrs Perochinsky and acting on their behalf, by effectuating their intention". The position would have been different, his Honour indicated, if the Perochinskys had not said that they wanted to give their property to the Kirschners: see [93] of Perochinsky.

1. If the approach taken by White J is correct the question which needs to be addressed in this case is whether or not it can be inferred that Mr Taheri was effectuating Mrs Taheri's wishes by executing the guarantee in her name. In my view her presence and conduct at the meeting with Mr O'Donnell, without more, is sufficient indication that her intention was to support the guarantee but coupled with the other matters set out in [21] above, there is ample evidence to support the inference that she saw it as desirable to support her husband's venture and wished to support it either because she saw it as in her financial interest that the sale proceed as likely to produce an indirect benefit to her by virtue of her husband's company making a profit or for other personal reasons such as marital loyalty. This is reinforced by the absence of any evidence from Mrs Taheri to indicate that she informed her husband or Mr O'Donnell she would not agree to give the guarantee. Mrs Taheri was fully aware of the terms of the contract of sale and the guarantee clause. In forming a view as to how Mrs Taheri perceived her interests, I think it is permissible to have regard to matters occurring after September 2003, for example the fact that she paid the development application fee for the property, since it reinforces other evidence pointing to her involvement and interest in the project. The involvement and perception of interest is also confirmed by her claims against the Viteks and Mr O'Donnell by the cross claim which she filed in these proceedings. The power of attorney had been granted in 2001 (two years before it was utilised) and I do not accept that Mr O'Donnell in advising that Mr and Mrs Taheri needed to sign the guarantee was addressing the question of how execution was to be effected which is a proposition put by the defendant's written submissions.

1. I would add as a further matter that the failure of Mrs Taheri to disown the guarantee as soon as she learnt that Mr Taheri had signed it in her name is relevant to the inquiry of whether she thought the contract of sale to Estate Homes was in her interest or appropriate for her support quite apart from its significance on the issue of ratification and estoppel.

1. I conclude that Mrs Taheri regarded the purchase of the property as either in her financial interest or as something which she wanted to support and I conclude that this is the reason that she permitted Mr Taheri to execute the guarantee in her name and that Mr Taheri was entitled to proceed on the basis that in executing the guarantee in her name he was acting on her behalf. It is possible that Mrs Taheri did not know precisely when Mr Taheri had actually executed the guarantee in her name and that he did not confirm to her that he had done so until some days after he had sent the signed contract and guarantee to his solicitor. However, having regard to the fact that she attended the conference with Mr O'Donnell in August 2002 and to the content of the discussions that occurred at the conference, I do not accept that she did not know until after it was executed that he was going to, or was likely to, execute it in her name using the power of attorney.

1. Because in my view Mrs Taheri is bound by the guarantee executed in her name by her husband, the difficult question of whether a benefit clause can be utilised by the grantee of a power of attorney when no benefit is bestowed upon the grantor does not have the significance in this case which it might otherwise have. Any significance is further reduced by my conclusion expressed below that in any event Mrs Taheri ratified the contract of guarantee or is estopped from denying that Mr Taheri executed it with her authority. Nevertheless, since the matter was argued and is of importance I think it appropriate for me to express my preference for the conclusion that the combined effect of the benefit clause and s 163B of the Act permits a grantee to bestow a benefit on himself and to briefly explain why I respectfully disagree with the approach of Austin J in Spina and White J in Perochinsky and conclude, as did Hammerschlag J in Spina vPermanent that the use by a grantee of a power of attorney containing a valid benefit clause and by which the grantee obtains a benefit exclusive to himself or herself is an effective transaction vis a vis a third party.

1. In addition to broadly adopting what was said by Hammerschlag J in Spina v Permanent my reasons are as follows:

(1)   The power of attorney has the function of defining the authority conferred on the agent by the principal but it also provided third persons with evidence of the agency: see the discussion in Professor Dal Pont's Power of Attorney at [1.15]. To some degree there is a tension in the cases between the proposition that third parties should be protected in their dealings with persons authorised to act by the principal (assuming that the third party is not on notice of lack of authority) and a concern that the grantor of a power of attorney should not be deprived of property by the grantee's improper use of the power of attorney as evidenced by the different views in Reckitt in the Court of Appeal: see the summary of the two views in the judgment of Scrutton LJ at 257.

(2)   I do not think that Tobin or Reckitt or Sweeney are to be viewed as dealing with a power of attorney that expressly permits a use of power of attorney to confer a benefit. In the passage of Russell J's judgment in Reckitt cited in Tobin and set out in [21] above the words "in the absence of a clear power so to do" are very significant as are Dixon J's words "something more specific and quite unambiguous is needed to justify such an interpretation". In the citation from Bowstead & Reynolds on Agency, 18th ed, (2006) Sweet and Maxell at [3:008]:

unless otherwise agreed, authority to act as agent includes only authority to act for the benefit of the principal

Emphasis added

the words "unless otherwise agreed" are similarly significant. Clause 1 of the Power of Attorney cannot be read without regard to clause 2. These words "in the absence of a clear power so to do" and "unless otherwise agreed" make it clear that a power of attorney can be effective to permit benefits to be bestowed on the grantee.

(3)   In Sweeney the benefit clause had not been deleted but it had not been completed either - it read:

In the exercise of the authority conferred on him by Section 163B of the Conveyancing Act, 1919, my attorney is authorised to execute an assurance or other document, or do any other act, whereby a benefit is conferred on

Windeyer J at [47] described the powers of attorney to be:

very badly drawn documents to which it is apparent little attention could have been given. Had proper attention been given then para 3 would have been deleted and not left uncompleted and the limitations would have been better expressed.

I understand Windeyer J to have treated paragraph 3 in the case before him as ineffective and hence what his Honour was considering was a power of attorney which did not permit the attorney to enter into a transaction on behalf of the principal by which the attorney obtained a benefit. In my view Windeyer J's analysis of the cases and his conclusion that the case before him was on all fours with Tobin v Broadbent was, with respect, correct. Contrary to Austin J and White J I do not see Sweeney as providing support for the approach they take to a power of attorney that does contain a completed and effective benefit clause.

(4)   I take the common law to have sought to protect the grantor by rejecting the notion that an attorney can enter into a transaction on behalf of the grantor that in reality bestows a benefit on the attorney when such a power is not expressly granted by the power of attorney: Tobin, Reckitt, Sweeney are all examples of this.

(5) Section 163B makes it clear that the only way a benefit can be conferred on the attorney is if the power of attorney expressly confers the authority and the legislation therefore enshrines the common law position that in the absence of express conferral the attorney cannot obtain a benefit for himself.

(6)   The words authorising the attorney to do anything the grantor may lawfully authorise the attorney to do are words of very wide import and, it was agreed, imposed no relevant limitation on what Mr Taheri could do (other than in respect of the benefit argument).

(7) I do not agree that the words "on behalf of the person executing the instrument" in s 163B(1) or "on my behalf" in the power of attorney are mere surplusage. They describe the person on whose behalf the attorney is entitled to do the acts and as Hammerschlag J pointed out they signify the representative character of the acts which the attorney is to perform: see Spina v Permanent, [152]. Those "representative" words make it clear that the grantor is empowering the grantee to act in right of the grantor not in right of some other person such as, for example, the principal of the grantor.

(8)   It is important for third parties to be able to rely on the authority of the power of attorney - if the power expressly includes a power to benefit the attorney the third party is, on the interpretation I favour, not required to make inquiry as to whether the grantor's wishes are being effectuated, as the approach adopted by White J in Perochinsky would require. The only way that a grantee's right to enter into a particular transaction could be determined where the act was not patently for the benefit of the grantor would be to undertake an enquiry by some means as to whether the transaction did produce a benefit to the grantee and then to ascertain whether the donor did in fact express an intention to gift the shares to the attorney. In the Perochinsky proceedings, for example, the second issue was contested and ultimately determined favourably to the attorney. I cannot accept that it was intended that such enquiry would be needed to enable a third party to rely on the power of attorney that expressly permits the conferral of a benefit.

(9) This leads me to the meaning of s 163B(2). The approach taken by Austin J involves reading "a benefit" as being limited to the bestowal of a benefit on the attorney in conjunction with some benefit to the donor as well. In my view a transaction which yields a benefit solely to the grantee is, as a matter of construction, a transaction which yields a benefit to the grantee. If the grantor wishes the grantee to only have power to enter into a transaction that confers a benefit on the donee where the transaction also confers a benefit on the grantor that would need to be specified.

(10)   There appears to be a tension between the views of Austin J and White J because Austin J accepts that the power to enter into a transaction solely beneficial to the grantee is available if expressly stated but if White J's analysis of "on behalf of" is correct (i.e. "on behalf of" means the power is only to enter into a transaction that has some benefit for the donee) such a transaction could never be within the power of attorney.

(11)   There are instances of powers of attorney that are entered into expressly for the purpose of securing a benefit to the grantee of the authority (see Dal Pont, Powers of Attorney at [1.31] and see also [6.63] and Nicholson v Morningstar (St Lukes Garden Apartments) Ltd [2008] NZH 599 at [75]-[79] per Doogue AsJ.

(12)   My attention was drawn to the Court of Appeal's decision in Siahos v J. P. Morgan Trust Australia Limited [2009] NSWCA 20 per Macfarlan JA with whom Giles and McColl JJA agreed. That case concerned a power of attorney granted after the commencement of the Powers of Attorney Act 2003 (NSW) and which did not have a benefit clause authorising the attorney to enter into a transaction by which a benefit would be conferred on the attorney. Macfarlan JA drew attention to Sweeney and Spina v Conran Associates and expressly left open the question of whether the conclusion that the son in Siahos was not authorised to enter into the transaction would be the same under the earlier legislation: see [22] of Spina. I do not view the case as providing assistance in determining which of the two Spina decisions are correct.

(13)   I accept that there is an issue as to the extent to which a grantee of a power of attorney will be in breach of his fiduciary duty when the power expressly permits bestowal of a benefit but the distinction between the position as between the grantor and the third party and that between the grantor and grantee has been recognised in a number of cases: see Macmillan Inc v Bishopsgate Investment Trust Plc (No 3) [1995] 1 WLR 978, at 984 per Millett J; Re R [2000] NSWSC 998 [41] per Young J and Hughes per Gzell J. A discussion of a similar character, in the different context of the effect of ratification by a principal of a contract made by an agent without authority, is found in Suncorp Insurance & Finance v Milano Assicurazioni SpA [1993] 2 Lloyd's Rep 225 per Waller J ("Suncorp v Milano"). I accept that the circumstances in which use of the power of attorney containing a benefit clause will be an abuse of power may be rare but I am not persuaded that there is no room for such a possibility. If contrary to this approach it is theoretically impossible then the conclusion that the power was not breached is, in my view, more attractive then the proposition that there can be no such power.

1. I conclude therefore that Mr Taheri was authorised on behalf of Mrs Taheri to execute a guarantee in support of Estate Homes purchase of the property even if there was no benefit to her and she did not implicitly authorise Mr Taheri to sign her name.

Ratification

1. The plaintiffs contend that if, contrary to their contentions, it is held that Mrs Taheri did not sign the guarantee and that Mr Taheri did not have authority to execute the guarantee in Mrs Taheri's name, then she ratified the guarantee when learning, very shortly after 15 September 2003, of its execution in her name by Mr Taheri she took no action to disclose it.

1. Reference was made to Learn & Play (Rhodes No1) Pty Ltd as Trustee for Rhodes 1 Childcare Centre Unit Trust v Lombe [2011] NSWSC 1506 [21]-[24] per Pembroke J, Permanent Trustee Co Ltd v Bernera Holdings Pty Ltd [2004] NSWSC 56 [52]-[61] per Young CJ in Eq (as his Honour then was), Leybourne v Permanent Custodians Ltd [2010] NSWCA 78 [131]-[134] and a passage from Dal Pont, Powers of Attorney, [5.51] and Dal Pont Law of Agency, 2nd ed, (2008) [5.6] [5.23], [5.31]. Mrs Taheri relies on Learn & Play, Leybourne, Harrisons & Crossfield Ltd v L&NW Ry Co Ltd [1917] 2 KB 755, and City Bank of Sydney v McLaughlin (1909) 9 CLR 615, 626 and a passage in Bowstead & Reynolds or Agency Sweet & Maxwell, 19th ed, [2-050].

1. In Learn & Play Pembroke J summarised the position as follows:

[21] Ratification may be expressed or implied. It will be implied whenever the conduct of the person in whose name a transaction has been entered into is such as to show that the person adopts the transaction. Silence, acquiescence or inactivity may be sufficient to demonstrate implied ratification: Taylor v Smith (1926) 38 CLR 48 at 54 (Knox CJ); Suncorp Finance & Insurance Corp v Milano Assicurazioni SpA [1993] 2 Lloyd's Rep 225 at 234; Permanent Trustee Co Ltd v Bernera Holdings Pty Ltd [2004] NSWSC 56 at [53] - [61] (Young CJ in Eq); Pollard v Wilson [2010] NSWCA 68 at [121]; Victorian Professional Group Management Pty Ltd v The Proprietors "Surfers Aquarius" Building Units Plan No. 3881 (1987) 1 Qd R 487 at 496 (Connolly J); Brockway v Pando [2010] WASCA 192 at [1116] - [117]. If the principal is aware of all the material facts, takes no steps to disown the transaction within a reasonable time, or adopts no means of asserting his rights at the earliest opportunity, that may, in certain circumstances, amount to sufficient evidence of ratification.

[22] What is crucial however in any ratification is that it is necessary that the principal have full knowledge of all the material circumstances in which the transaction was purportedly entered into and its material features. There may be circumstances, probably rare, in which the principal should be taken as having intended to ratify and take the risk of the transaction, whatever the circumstances may have been: Suncorp Finance & Insurance Corp v Milano Assicurazioni SpA (supra) at 234. This is not one of those cases.

[23] I should also observe that ratification has objective as well as subjective features. It is not open to a principal who, by his conduct, appears to the outside world to have adopted a transaction, to be able to prove subjectively that he did not intend to approve it. A principal is not entitled to prove subjectively that he did not intend to adopt a transaction when he has done an unequivocal act to adopt it with full knowledge of its terms and features: Suncorp Finance & Insurance Corp v Milano Assicurazioni SpA (supra) at 235.

[24] On the other hand, the subjective knowledge and understanding of the principal is also relevant. It must be shown that the principal was aware of the material terms and features of the transaction which he is said to have adopted and ratified. Without such full knowledge, there will not be ratification according to law. I doubt very much whether a principal, who was aware of the material terms, could successfully contend that he lacked the relevant knowledge because of his own obtuseness, neglect or failure for some other reason to appreciate the significance of those terms. However I need not decide that question in this case.

1. In Leybourne, per Giles and Tobias JJA and Sackville AJA said:

[131] A principal can ratify the making of a contract entered into by a purported agent when the agent did not in truth have authority to make the contract on behalf of the principal. The ratification has retrospective effect, and the agent is treated as having had the requisite authority: Union Bank of Australia Ltd v McClintock (1922) 1 AC 240 at 248 ; [2006] NSWSC 1028 at [81]; Jones v Peters (1948) VLR 331 at 335.

[132] Whether the conduct of the principal amounts to ratification is a question of fact, but there should be "clear adoptive acts" (Eastern Construction Co Ltd v National Trust Co Ltd (1914) AC 197 at 213 per Lord Atkinson); the conduct must be unequivocal (for example, Petersen v Moloney (1951) 84 CLR 91 at 101). It is well expressed in Dal Pont, Law of Agency, 2nd ed at 5.28-

The positive acts of the alleged principal may, aside from any express words, constitute sufficient evidence of ratification. This may be so where the fair inference to be drawn from a person's conduct, on an objective basis, is that the person consents to a transaction to which he or she might properly have objected. Put another way, ratification 'is implied from or involved in acts when you cannot logically analyse the act without imputing such approval to the party whether his mind in fact approved or disapproved or wholly disregarded the question'. (citations omitted)

...

[134] There must be full knowledge of all the material circumstances in which the act was done, unless the principal intends to ratify and take the risk whatever the circumstances (for example, Bremner v Sinclair NSWCA, 3 November 1998 ; (2001) ANZ Conv R 29 at [32] per Campbell J. The extent of knowledge necessary depends on the particular facts. It should be enough knowledge to decide whether or not to adopt the unauthorised act (Bremner v Sinclair at [32]).

1. In Harrison & Crossfield, Rowlatt J at p 758 said:

Now, ratification does not rest upon estoppel. It need not be communicated to the party alleging it. Ratification is a unilateral act of the will, namely, the approval after the event of the assumption of an authority which did not exist at the time. It may be expressed in words or implied from or involved in acts. It is implied from or involved in acts when you cannot logically analyse the act without imputing such approval to the party, whether his mind in fact approved or disapproved or wholly disregarded the question.

1. In Leybourne the borrower denied that the loan documentation was binding on the basis that it had been signed by the lender's solicitors and not the lender. The court held that the solicitor had authority to sign but also that there had been ratification - the lender having lent the money, taken the mortgage from the lender, received the interest payments, corresponded about calling in the loan "and ultimately bringing proceedings to recover the money and possession of the property".

1. There were, in this case, two issues in respect of ratification thrown up for consideration by the competing submissions. The first was that Mr Coles, relying on what was said at [132] of Leybourne claimed that there were no "adoptive" acts by Mrs Taheri only silence or inaction. The second argument related to an issue of knowledge. There seemed to be no dispute that Mrs Taheri was, when informed that Mr Taheri had singed in her name, fully aware of the terms of the guarantee, what it was she was guaranteeing, the identity of her co-guarantor, the property being purchased and the terms of the contract of sale of which the guarantee formed part. It was said however that she did not know she could disavow the power of attorney.

1. In relation to the "adoptive acts" argument I think that there are a number of answers to it. When the contract, which has purportedly been entered into by a person, is a guarantee there is not much scope for "adoptive acts" - the guarantee may never be called on by the creditor. I do not think that the passage at [132] in Leybourne relied on by Mr Coles can be applied to the situation here and the Court itself notes that whether the conduct of the principal amounts to ratification is always a question of fact. I do not understand the Court in Leybourne to be considering the circumstances in which silence and failure to disavow a guarantee can amount to ratification. The passage from Dal Pont that the Court cites at [132] refers to "the fair inference" to be drawn from a person's conduct, on an "objective basis". Professor Dal Pont in Law of Agency at [5.31], [5.32] said:

[5.31] Proof of the requisite unequivocality is more difficult again where that alleged to constitute ratification is the principals' silence or inaction. Yet ratification of an agent's unauthorised act can be implied from silence or acquiescence of the principal, provided that the silence or acquiescence cannot be explained sensibly on grounds, other than an intention to adopt the agent's act ... Hence, where a putative principal knows that an agent has committed an unauthorised act on the principal's behalf, that persons who have dealt with the agent reasonably believe that they are dealing with the principal, and that in reliance thereon will or are likely to act in a manner which is detrimental to them unless their expectation is fulfilled, the principal may be obliged to actively disclaim the agent's unauthorised act or be held to have ratified it. In such circumstances, the longer the delay in disclaiming the act, the more likely it is that the principal will be held to have ratified it ...

[5.32] So the period of delay that will constitute evidence of ratification varies according to the facts of each case. The case law reveals that delays of months, and on occasions even days, can trigger ratification, although this is influenced by the circumstances surrounding each case, including the relative position and knowledge of the parties and the urgency involved in their dealings ...

and in his work Powers of Attorney at [5.51], Professor Dal Pont said:

...a principal's failure to disavow an attorney's excess of authority within a reasonable time of securing the requisite knowledge may constitute ratification ... What is a reasonable time depends on the circumstances, but in each case ties directly to the time after which the principal becomes vested, or should become vested, with full knowledge of the agent's unauthorised act.

1. There is ample authority for the proposition that silence can amount to ratification: see McLaughin v City Bank of Sydney (1912) 14 CLR 684 at 691-692, Klement v Pencoal Ltd [2000] QCA 152 at [4], [40] and Suncorp v Milano [1993] 2 Lloyd's Rep 225 at 241 per Waller J.

1. In the present type of case it might be said that the adoptive act is permitting the underlying guaranteed transaction, namely here the contract for purchase, to continue to the benefit of Estate Homes rather than bringing the absence of authority to the attention of the vendors. In McLaughlin the grantor failed for 4.5 years to tell the creditors who had been paid by his wife that his wife had no authority to do so.

1. There is another reason why ratification is established. As the Court of Appeal noted in Leybourne at [133]:

Suing on a transaction brought about by an agent acting beyond authority will also ordinarily mean ratification of the unauthorised transaction: the reason is obvious see Dal Point, op ct at 5.29 and cases cited.

and reference can also be made to Life Savers (Aust) Ltd v Frigmobile Pty Ltd [1983] 1 NSWLR 431 at 438D-F per Hutley JA with whom Glass and Mahoney JJA concurred.

1. In these proceedings Mrs Taheri sued the Viteks claiming that she had entered into a contract (see para 3 of the cross claim on p 466 Exhibit B2) and she also pleaded against Mr O'Donnell that he caused a copy of the counterpart of the contract for sale to be delivered to her (and Mr Taheri) for execution by Estate Homes as purchaser and Mr and Mrs Taheri as guarantors, and that the contract was "exchanged and entered on 15th September 2003": see Exhibit B2 p 476.

1. In my view those assertions contained in Mrs Taheri's defence and cross claim in proceedings commenced by the Viteks amount in and of themselves to ratification of the contract of guarantee, and at the time those pleadings were served are entirely inconsistent with the suggestion that Mrs Taheri was not a party to the contract of guarantee.

1. Mr Coles draws attention to the fact that Mrs Taheri learnt of the execution of the guarantee in her name shortly after September 15, and that Mr Taheri told her he had to do it because the vendors would not sell without it. He also draws attention to Mrs Taheri's evidence before Barrett J (also tendered by the plaintiffs) that she "accepted that she was bound as guarantor" because "I thought he had the power of attorney he could sign my name and he has done it" (see [20](9) above). That is linked to Mr Cole's contention that Mrs Taheri did not seek to set aside guarantees because she erroneously believed she could not do so.

1. There are two obstacles in the path of that argument. The first is that I do not accept that where the principal has knowledge of all the circumstances in which the act by the agent was done a principal's understanding as to whether he or she could disavow the transaction is a relevant fact or circumstance in determining whether there has been ratification. No authority was cited for the contention and it seems to introduce a requirement for which there is no obvious justification.

1. The second obstacle is that Mrs Taheri has given no evidence as to what she believed or thought except insofar as the plaintiff has tendered portions of her affidavits and evidence.

1. I do not accept that Mrs Taheri's statement that she accepted that she was bound because she thought Mr Taheri had the power of attorney "and he could sign my name and he had done it" indicates that Mrs Taheri in fact had any basis for challenging the use of the power of attorney. Her conclusion that she was bound is consistent with her being bound because she knew that the execution of the guarantees by Mr Taheri was necessary to advance the purchase of the property by Estate Homes and it was something she wanted to occur. No misconception or mistake of law has been established and therefore no reliance can be placed by Mrs Taheri on David Securities v Commonwealth Bank (1992) 175 CLR 353.

1. Were I in doubt about this conclusion, in the absence of evidence from Mrs Taheri I am an entitled to:

(1)   infer that the evidence which she could give would not assist her case;

(2)   draw with greater confidence any inference unfavourable to Mrs Taheri and

(3)   more readily draw any inference fairly available from the evidence called by the plaintiffs.

1. These propositions were said by Mr Pritchard to arise from the principles in Jones v Dunkel (1959) 101 CLR 298 as expounded in Adler v ASIC [2003] NSWCA 131, [649], Manly City Council v Byrne [2004] NSWCA 123 [51]-[54], Howell v Macquarie University [2008] NSWCA 26 and Ledir Enterprises Pty Ltd [2013] NSWSC 1332 and were not disputed by Mr Coles.

1. I am not prepared to make a finding that Mrs Taheri knew of facts that would permit her to move to set aside the guarantee or that knowing those facts she did not appreciate that she could set aside the judgement.

1. I conclude that Mrs Taheri if not otherwise bound, ratified the contract of guarantee in September 2003 by her silence and alternatively ratified the contract of guarantee when she filed her defence and cross claim in 2007.

Estoppel

1. The final alternative basis on which the plaintiff based their case is estoppel.

1. In relation to this aspect of the claim the plaintiffs outlined the following factors as required to establish estoppel:

(1)   a representation or contract amounting to a representation intended to induce a course of conduct on the part of the person to whom the representation is made.

(2)   an act or omission resulting from the representation by the person to whom the representation was made

(3)   detriment to that person as a consequence of the act or omission.

(see Greenwood v Martins Bank Ltd [1933] AC 51 at 57)

1. Reference was made to the analysis in Amaya v Everest Property Holdings Pty Ltd [2010] NSWCA 315, [146]-[160] per Young JA (with whom Beazley J and Campbell JJA agreed) and to Klement v Percoal [2000] QCA 152, [21] and Associated Midland Corporation v Sanderson Motors Pty Ltd [1983] 3 NSWLR 395, 412-413 per Clarke J (as his Honour was then). In Klement the Queensland Court of Appeal said:

[21] On learning of the forgery, the appellant became obliged to inform Pencoal, if the appellant wished subsequently to be allowed to rely himself on that circumstance. As put by Lord Reid for the Judicial Committee of the Privy Council in Fung Kai Sun v Chan Fui Hing [1951] AC 489, 503:

"In their Lordships' judgment it must be held that the respondents were not entitled to withhold from the appellant information that the appellant's mortgages were forgeries, and that when they chose to do so they took the risk that they would later be estopped from asserting that these deeds were forged if by reason of their keeping silent the appellant suffered detriment."

1. In view of the conclusions which I have reached on the power of attorney and on ratification I will express my views briefly on this point. On the assumption that Mrs Taheri did not intend Mr Taheri to execute the guarantee on her behalf and did not authorise the execution by virtue of the power of attorney or ratify it by her silence or by her pleadings and did not know it had been signed in her name until shortly after it had been sent to the Viteks, in my view on learning of the fact that her signature had been appended without her authority and without her approval she was under a duty to inform the plaintiffs of the fact that she had not, as the document purported to show, signed the guarantee and in the presence of a witness. Mrs Taheri did not inform the plaintiffs of the truth until she filed an amended defence in 2007 (see Exhibit B2, pp 706-708). The plaintiffs believed and were entitled to believe that Mrs Taheri had executed the guarantee and from the time that Mrs Taheri, on this scenario, learnt of the true facts Mrs Taheri became a party to the misrepresentation by her silence: see Klement and also Suncorp v Milano at 234-235 per Waller J and Greenwood v Martins Bank Ltd [1933] AC 51, 57-58.

1. The issues raised by Mr Coles in relation to estoppel were similar to those in respect of ratification save that he challenged the existence of any detriment.

1. Mr Vitek's evidence is that had he learnt shortly after the exchange of contracts that Mrs Taheri had not signed the contract he would have insisted that she did sign and that if she had refused to do so he would have not continued with the Estate Homes contract and would have resumed negotiations with the two other interested parties (see para 15 of Mr Vitek's affidavit). He also deposed to having incurred holding costs of $54K due to the delay in selling quite apart from the differential in price. Mrs Vitek says she would have been guided by Mr Vitek's views. Mr Vitek also says that he maintained the proceedings against Mrs Taheri after she had filed a defence in which she accepted that she was a guarantor. The former matters, at least, are evidence of detriment, as is the fact that Mrs Taheri, by not being forced to sign herself has been able to maintain the argument that she has maintained in these proceedings. Mr Coles asserted that there was no detriment because had Mrs Taheri told the plaintiffs that Mr Taheri had signed in her name without authority and had the plaintiffs rescinded they would have been left with no claim against Mrs Taheri as guarantor. That is true but the loss of the opportunity to force Mrs Taheri to sign the guarantee or alternatively the loss of opportunity to rescind and sell to someone else at the time when Mrs Taheri failed to inform them of the true facts and the delay and consequential holding costs amount to detriment.

1. Mr Coles also argued that Mrs Taheri was not under a duty to inform the plaintiffs that she has not signed it because she thought Mr Taheri could sign in her name exercising the power of attorney. I have already commented on the difficulty of determining what Mrs Taheri really thought in the absence of any evidence from her. In my view she was required to inform the plaintiffs as soon as she became aware that her signature had been applied to the guarantee without her authority save and unless she had decided that she would not dispute that she was bound, and thereby effectively ratified the contract by her silence.

Contracts Review Act

1. Mrs Taheri pleaded a defence based on the Contracts Review Act 1980 (NSW). In submissions Mr Coles limited the defence on this point to the plaintiff's claim that clause 51.4 and 51.6 of the guarantee clause requires Mrs Taheri to pay on an indemnity basis the cost of the plaintiff's pursuit of Mr Taheri. Mr Coles submits that should the plaintiff's construction of the clause be accepted Mrs Taheri's ought to be entitled to relief by virtue of unfairness of such a clause. The plaintiff's contend that clause 51 was not mentioned in the defence (see para 39(1)-(d)) and hence that this point is not open even if otherwise available, and further that as Mrs Taheri has given no evidence there can be no relief under the Contract Review Act. In view of the conclusion I have reached about the operation of clause 51 the question does not in any event arise.

1. Nothing was said in the defendant's written or oral submissions about the Fair Trading Act 1987 (NSW) or Yerkey v Jones (1939) 63 CLR 649 and I take these points to have been abandoned.

Is the guarantee clause effective

1. Mrs Taheri in her defence contended that the guarantee was ineffective because the contract is not enforceable as a deed and there was no consideration. The plaintiffs' closing written submissions (paras 44, 45 and 46) deal with these points. Nothing was said about them in any of the submissions on behalf of Mrs Taheri (see Defendant's Opening Submissions) or the oral submissions. I therefore do not propose to address them other then to say the consideration for the guarantee is expressed in the Contract for Sale to be the plaintiff's entry into the Contract for Sale with Estate Homes which in my view constitutes ample consideration.

For what is Mrs Taheri liable?

1. As I have noted Mrs Taheri accepted that if she is found to be liable under the guarantee she is required to pay the amount ordered by Barrett J with further interest to date. The plaintiffs claim interest at the contractual sale of 10%. In my view the applicable rate is the court rate accruing on the amount for which Estate Homes was held liable. That is the debt which Mrs Taheri (and Mr Taheri) guaranteed and which crystallised when judgment was entered against Estate Homes.

1. The remaining issues relate to claims for costs against Mrs Taheri. The following costs are sought on a contractual basis from Mrs Taheri:

(1)   The costs of claiming against Estate Homes and Mr Taheri in the proceedings before Barrett J.

(2)   The costs of pursuing Mr Taheri and Mr Taheri's trustee in bankruptcy in the Federal Magistrate's Court.

(3)   The costs of setting aside the consent judgment in the proceedings before Bergin CJ in Eq.

1. In relation to (2) I should note that Mrs Taheri actually obtained an order for costs against the Viteks.

1. The plaintiffs found their claims on the basis of clause 51.4 and 51.6 of the Special Conditions of the Contract of Sale (clause 51 being the guarantee clause). I set these clauses and clause 51.5 out:

51.4 The guarantor:

(a) indemnifies the Vendor against any claim, action, loss, damage, cost, liability, expense or payment incurred by the Vendor in connection with or arising from any breach of default by the Purchaser of its obligations under this Contract; and

(b) must pay on demand any money due to the Vendor under this indemnity.

51.5 The guarantor is jointly and separately liable with the Purchaser to the Vendor for:

(a) the performance by the Purchaser of its obligations under this Contract; and

(b) any damage incurred by the Vendor as a result of the Purchaser's failure to perform its obligations under this Contract or the termination of this Contract by the Vendor.

51.6 The guarantor must pay to the Vendor on written demand by the Vendor all expenses incurred by the Vendor in respect of the Vendor's exercise or attempted exercise of any right under this clause.

1. Counsel for Mrs Taheri in their submissions rely on the principles of construction reiterated in Andar Transport Pty Ltd v Brambles Ltd (2004) 217 CLR 424 at 437 [17] which require the words imposing liability on a surety to be construed strictly against the creditor: see also Ankar Pty Ltd v National Westminster Finance (Aust) Ltd (1987) 162 CLR 549 at 561, Chan v Cresdon Pty Ltd (1989) 168 CLR 242 at 256. They also submitted that any ambiguity in the clause should be construed against the plaintiffs as proffers of the guarantee clause, relying on Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500 at 510 and see Andar at 433-7 and Ankar at 561.

1. Mr Coles contends that the focus of clause 51.4 and 51.5 is Estate Homes' failure to perform its obligations under the Contract or following the termination of the Contract and that clause 51.6 is the mechanism by which demand is made for expenses incurred under clauses 51.4 and 51.5.

1. Mr Pritchard in his submissions accepts the principles to which I have referred in [70] above but relies on the wide ambit of words such as "arising out of", "in connection with" and "in relation of" (see New South Wales v Tempo Services Ltd [2004] NSWCA 4 at [8], Ffrench v Sestili; Sestili v Triton Underwriting Insurance Agency Pty Ltd (2007) 98 SASR 28, [85], Dickinson v The Motor Vehicle Insurance Trust (1987) 163 CLR 500 at 505, Technical Products Pty Ltd v State Government Insurance Office (1989) 167 CLR 45, 47 and State Government Insurance Office v Crittenden (1966) 117 CLR 412, 416). I accept that "arising out of" and "in connection with" and "in respect of" are words of wide import but in my view clauses 51.4 and 51.5 fairly read are dealing with breach of the purchasers' obligations and clause 51.6 does not expand the costs obligations to impose on one guarantor the costs of pursuing another guarantor. Clause 51.6 only permits expenses in the exercise of rights under "this clause" to be recovered from the guarantors and the only content of those rights is found in clauses 51.4 and 51.5. The claim that the plaintiffs can recover costs from Mrs Taheri, even though the Federal Magistrates Court has awarded her the costs against the plaintiffs, only serves to highlight the unreasonableness of the construction for which the plaintiffs contend. I accept Mr Coles' submissions that 51.6 is a machinery provision which specifies how demand is it to be made for the payment of the indemnity specified in clause 51.4 and liability imposed in clause 51.5. If I am wrong in that conclusion, then the words are ambiguous and should be constructed strictly and against the creditor.

1. It follows in my view that the plaintiffs cannot recover any costs against Mrs Taheri in respect of costs incurred in chasing Mr Taheri. The plaintiffs are entitled however by virtue of clause 51.4 to the costs of pursuing Estate Homes on a solicitor-client basis.

Conclusion

1. I conclude that Mrs Taheri is liable on the guarantee claim for :

(1) $881K as expanded by interest to date at the Court rate set out in the Uniform Civil Procedure Rules 2005 (NSW).

(2)   The costs of the proceedings brought against Estate Homes

but that she is not liable for the plaintiffs' costs of pursuing Mr Taheri. Nor is she liable, on the basis of contract, for the costs incurred in the proceedings before Bergin CJ in Eq or in these proceedings.

1. The parties should bring in short minutes to reflect these conclusions with interest calculated up to the date of judgment.

Costs

1. In relation to the costs order to be made in these proceedings I shall provide the parties with an opportunity to be heard on the appropriate costs order.

**********