Volkswagen Financial Services Australia Ltd v Lubinsky and Smith

[2008] NSWSC 846

CITATION:	Volkswagen Financial Services Australia Ltd v Lubinsky and Smith [2008] NSWSC 846
HEARING DATE(S):	15, 16, 17 and 22 April 2008
JUDGMENT DATE :	20 August 2008
JURISDICTION:	Equity
JUDGMENT OF:	Bryson AJ
DECISION:	1. Give judgment for the plaintiff against the second defendant for $6,279,818.91 with costs. 2. Dismiss the Cross-claim with costs.
CATCHWORDS:	GUARANTEE and INDEMNITY - defence based on claim that nature of documents was not explained and was misrepresented - defence not believed, judgment for plaintiff - decision on facts.
LEGISLATION CITED:	Australian Securities and Investments Commission Act 2001 (Commonwealth) Contracts Review Act 1980 (NSW) Trade Practices Act 1974 (Commonwealth)
CASES CITED:	L’Estrange v Graucob [1934] 2 KB 394 Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52, 219 CLR 165
PARTIES:	Volkswagen Financial Services Australia Limited - Plaintiff Alan Lubinsky - First Defendant James Thomas Smith - Second Defendant
FILE NUMBER(S):	SC 4353/2005
COUNSEL:	N J Kidd - Plaintiff M R Elliott - Second Defendant
SOLICITORS:	PricewaterhouseCoopers Legal - Plaintiff McCabe Terrill - Second Defendant

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

BRYSON AJ

20 August 2008

4353/2005 Volkswagen Financial Services Australia Ltd v Lubinsky and Smith

JUDGMENT

1 HIS HONOUR: The nature of the plaintiff's business is indicated by its name. VWFS sues two guarantors of Loan Agreements which it made in 2002. The first in time is a Loan Agreement in writing between VWFS and Verte Automotive Ltd which VWFS alleges was made on or about 29 April 2002, the date the document bears; it is disputed that the Loan Agreement and the related Guarantee and Indemnity which bears the same date, were actually executed at that time. Verte Automotive Ltd was a company formed in the United Kingdom and dissolved by the Registrar of Companies there on 2 September 2003. VWFS agreed to provide a facility of AUD$200,000 to Verte Automotive Ltd, and the Loan Agreement provided terms and conditions for further advances if VWFS should make them. According to the terms of the Guarantee and Indemnity the defendants Mr Lubinsky and Mr Smith guaranteed due and punctual payment of the guaranteed money, a defined term which includes all liabilities under the Loan Agreement.

2 VWFS claims $1,092,887.01 as the amount owing under the Guarantee and Indemnity. This amount is established by Exhibit A, a certificate dated 10 April 2008 by Ms Lisa Stacey, the Managing Director of VWFS. The standing of this certificate is established by cl 16.4 of the Guarantee and Indemnity. The certificate speaks as of 10 April 2008. Miss Stacey, who gave affidavit and oral evidence before me, produced a body of business records in support of the liability which VWFS contends was incurred by Verte Automotive Ltd and hence by the guarantors.

3 VWFS also makes claims under a later Loan Agreement and Guarantee and Indemnity, which bear date 31 July 2002. The Loan Agreement between VWFS and AC Car Group Pty Ltd related to a loan facility of AUD$3,400,000.00, with provision for further advances if VWFS should make further advances. The Guarantee and Indemnity according to its terms supports the obligations to VWFS of AC Car Group Pty Ltd, and liabilities of other companies whose names suggest connection with AC Car Group Pty Ltd; their names are AC Cars Ltd, AC Motor Holdings Ltd (for which addresses are given in Malta) AC Cars Manufacturing Ltd said to be “a company to be formed and registered in Malta”, AC Cars (UK) Ltd for which an address is given in the United Kingdom and AC Cars Pty Ltd for which an address is given in Sydney. The amount claimed under this Guarantee and Indemnity is AUD$5,186,931.90, the amount shown in Exhibit B a certificate by Ms Stacey dated 10 April 2008 given under cl 16.4 of that Guarantee and Indemnity.

4 The issues before me related to the claims against the second defendant Mr James Thomas Smith. Default judgment was given against the first defendant Mr Alan Lubinsky at an earlier stage.

5 In his Amended Defence paras 5 and 6 Mr Smith admits that VWFS entered into Loan Agreements with Verte, and admits that he signed a document corresponding with the Guarantee and Indemnity of Verte Automotive Ltd’s debts which VWFS alleges, but does not admit that this document was signed on or about 29 April 2002. In his Amended Defence para 2 Mr Smith admits that he signed a document corresponding with the AC Cars Guarantee and Indemnity but does not admit that the document was signed on or about 31 July 2002. In his Cross-claim he claims relief against the Guarantees and his liabilities apparently arising under them. Allegations in his Cross-claim show that it is Mr Smith's case that the execution of the documents relating to Verte did not take place about three months before the execution of the documents relating to AC Cars, which is what the dates on the documents appear to show, but that all documents were executed at meetings which took place late in July 2002 in Sydney on two consecutive days; some at a meeting at VWFS’ office in Botany and many others at a second meeting the following day at the W Hotel Woolloomooloo in a suite then occupied by Mr and Mrs Lubinsky. Mr Smith alleges events and circumstances which show that his execution of the documents was caused by misleading and deceptive conduct, and other conduct which he complains of, practised on him by Mr Boutin on behalf of VWFS. Mr Boutin was then VWFS’ General Manager.

6 In his Cross-claim Mr Smith alleges that he conducted negotiations on behalf of Verte with Mr Boutin on behalf of VWFS in about June 2002 for the provision of financial accommodation to Verte of an amount up to $200,000, that in the course of the negotiation Mr Boutin told him that it would be a term of the provision of accommodation of up to $200,000 to Verte that Mr Smith provide a guarantee up to that amount; that Mr Smith had no involvement in negotiations or discussions for finance or advances to AC Car Group Pty Ltd, which was a separate business pursued by Mr Lubinsky for his own benefit. At the completion of the negotiation Mr Boutin put before Mr Smith for signature a great number of documents, in circumstances where Mr Smith was called on to deal with them quickly, and the documents were opened up at the places where Mr Smith was being asked to sign, those places being indicated by Mr Boutin; that Mr Smith was not told documents he was asked to sign included the AC Loan Agreement and the AC guarantee, or that the potential liability relating to Verte was not limited to a maximum of $200,000. Mr Smith alleges a number of circumstances from which he claims that it should be concluded that he signed the documents as a result of misleading and deceptive conduct; these include the absence of explanations of the matters I have mentioned, the absence of reference by Mr Boutin to the existence or terms of the AC Cars guarantee or to there being no limitation to $200,000, the absence of negotiation about the terms of the guarantees, Mr Smith's not having obtained any legal or other advice about the terms of the documents and its not being suggested that he should obtain any.

7 A further and striking circumstance was given in evidence by Mr Smith to the effect that in the course of his hurried signing of many documents he noticed a reference to AC Cars in one of them and asked why the reference was there; he was then told by Mr Lubinsky, Mr Boutin being present, that it related to Mr Lubinsky’s giving Mr Smith a 3% shareholding interest in AC Cars, which Mr Lubinsky had earlier told Mr Smith he would give him (and Mr Smith had declined). Mr Smith’s evidence would show that he was given this explanation by Mr Lubinsky and that Mr Boutin who was present did not tell him anything further. Mr Smith's claim for relief is put upon a number of different bases; on misleading and deceptive conduct having regard to s 12GM of the Australian Securities and Investments Commission Act 2001 (Commonwealth) and or s 87 of the Trade Practices Act 1974 (Commonwealth), and on s 7 of the Contracts Review Act 1980 (NSW). There is an alternative claim for a declaration to the effect that VWFS is estopped from contending that Mr Smith executed the AC Cars guarantee and has unlimited liability under the Verte Guarantee.

8 On the face of the pleadings VWFS alleged and Mr Smith did not admit the date of execution of the Verte Loan Agreement and documents. The respective dates for which VWFS contends appear in the documents. As well as bearing the burden of proof of the allegations on which his cross-claim is based Mr Smith bears a forensic burden of establishing that the Verte documents were not executed on the dates they bear, but were executed in the course of the two events late in July of which his evidence speaks.

9 Whether or not the Verte documents were in truth executed in April 2002, or later, VWFS has the advantage of the ordinary approach taken by courts to the significance of signature of a contractual document, indicated by observations in the High Court in Toll (FGCT) Pty Ltd v. Alphapharm Pty Ltd [1004] HCA 52, 219 CLR 165 at [35] to [47]. I particularly have in view the High Court’s approval at [46] of the following passage in L’Estrange v Graucob [1934] 2 KB 394 at 403 (Scrutton LJ): “… When a document containing contractual terms is signed, then, in the absence of fraud, or, I will add, misrepresentation, the party signing it is bound, and it is wholly immaterial whether he has read the document or not.”

10 VWFS’ case suffers from some forensic disadvantages. Mr Boutin was not called as a witness nor did VWFS call the evidence of anyone who actually participated in events in and before April 2002 of negotiating with Mr Smith or preparing the Verte documents, nor any direct evidence of the event in which Mr Smith signed the Verte documents and Mr Boutin signed them on behalf of VWFS. It appears altogether likely that Mr Michel Boutin who at that time was VWFS' General Manager took the principal part in the dealings with Mr Smith and with Mr Lubinsky, whatever they were, which led to Mr Smith signing the documents, if they were signed at that time, or whenever they were signed; he certainly took a prominent part in the events in July 2002. Mr Boutin left VWFS’ employment about 14 October 2004 and later commenced proceedings against VWFS relating to his employment. Ms Stacey, who held several successively higher positions in the company's employment until she recently became Managing Director, had spoken to him since the commencement of the proceedings, but not about the proceedings themselves. Notwithstanding his having commenced proceedings against the company, no evidence tends to show that he is hostile towards VWFS in relation to the present controversy. In the circumstances I do not think that Mr Boutin is any longer "in the camp" of VWFS for drawing inferences referred to in Jones v Dunkell; but it is nonetheless the case that he is a person who would be expected to be called as a witness by VWFS when the time of signing the Verte documents is in issue. Mr Boutin is known to Mr Smith as a business friend and Mr Smith attended Mr Boutin's wedding. In the circumstances and in the absence of evidence of hostility I regard the absence of any evidence, even under compulsion, called from Mr Boutin on behalf of VWFS as a disadvantage for VWFS’s case. Mr Ranieri, who is also an employee of VWFS in 2002 and later left its employment, appears to have had some part and his signature appears as a witness or purported witness on significant documents. No evidence explains his absence and he is a witness whom VWFS would have called if his evidence supported VWFS' case. Ms Stacey was an officer of VWFS in 2002 with the significant position of National Sales Manager; later she became General Manager of Risk. She gave evidence of communications with Mr Smith about dealings between VWFS and Verte, but did not take part in any events in which Mr Smith executed documents in April 2002; nor as I understand the evidence was she present at any such event in July 2002.

11 There are many documents in evidence which appear to bear Mr Smith’s signature and dates and generally accord with VWFS' case, in that they seem to show that the documents relating to Verte were executed in April and documents relating to AC Cars were executed in July.

12 Document 4 of the documents exhibited to Ms Stacey’s affidavit of 4 September 2007 is a copy of a letter from VWFS to Mr Smith and Mr Lubinsky dated 25 April 2002 and signed by Mr Boutin. Exhibit F is the original of document 4. This letter was addressed in typewriting to Mr Smith and Mr Lubinsky as directors of Verte Automotive Ltd at an address in Weybridge, Surrey, altered in handwriting to an address in Frimley, Surrey. Mr Smith referred to the anomaly of the letter being directed to addresses in England, so as to suggest that it could not have received by him. It bears the signature purportedly of himself and also that of Mr Lubinsky, Mr Smith’s signature being dated 26 April 2002. The letter conveys approval in principle of a revolving line of credit for Verte Automotive Ltd of AUD$200,000; and encloses a list of five terms and conditions. The signatures of Mr Smith and of Mr Lubinsky purportedly express agreement to be bound by the terms of the letter.

13 Document 5 is a copy of a Loan Agreement bearing date 29 April 2002 between Verte Automotive Ltd and VWFS. Exhibit 3 is the original. Mr Smith's signature appears at page 34 where he executes as one of two directors of Verte Automotive Ltd, Mr Lubinsky being the other. His signature also appears on page 29, a director’s certificate supporting the effectiveness of the company's decision to borrow, at page 32, a signature as a director supporting an extract from board minutes, and at page 33, one of the specimen signatures of directors. None of the pages which bear Mr Smith's signature also shows the date of the document.

14 Document 6 is a copy of a Guarantee and Indemnity dated 29 April 2002. Exhibit G is the original. The signature of Mr Smith appears as a guarantor at page 12 against the printed words "signed by the guarantor(s)". According to its terms this document is a Guarantee and Indemnity given by Mr Smith to support debts of Verte Automotive Ltd to VWFS. No date appears on the page Mr Smith signed. Mr Boutin’s signature appears as a witness to Mr Smith's signature.

15 Document 8 is a message from Mr Boutin to a lawyer at PWC Legal bearing date 26 April 2002 enclosing "the required agreements" relating to Verte Automotive. It is not stated what the required agreements were but the message does say that VWFS had executed them all and asked for their return.

16 Accounting records of VWFS show that extension of credit to Verte Automotive began on 29 April 2002. Document 9 is an example.

17 Exhibit C is on its face the original of a Fixed And Floating Equitable Charge granted by Verte Automotive Ltd to VWFS on 29 April 2002. This document bears Mr Smith's signature at page 42 as one of two directors of Verte Automotive Ltd signing on behalf of the company. The date does not appear on the page which Mr Smith signed. This document bears the stamp of Companies House in the United Kingdom with the statement "Registered 8 May 2002." The stamp establishes with what I regard as objective certainty that the document existed and was available in the United Kingdom to be registered (as a fixed and floating charge must be if it is to be effective) on 8 May 2002.

18 It is Mr Smith's case that he signed documents relating to financing Verte Automotive Ltd in July; that was all he knew he signed, and the documents about AC Cars were put before him and signed by him without his adverting, without being told, and in one instance being misled as to the nature of the documents.

19 The registration of the Fixed And Floating Charge establishes conclusively that he must have signed that document before 8 May 2002. The fair certainty that that document was executed on or about 29 April 2002 supports a finding that the other documents relating to finance to Verte Automotive Ltd were also signed by Mr Smith about the date 29 April which they bear.

20 Documents produced by Miss Stacey further relate to a financing facility for AC Car Group companies under consideration in July 2002. Preliminary correspondence was not addressed to or written by Mr Smith, although at least one e-mail message was copied to him – document 30 - 17 July 2000. Exhibit J is on its face a Loan Agreement dated 31 July 2002 between AC Car Group Pty Ltd and VWFS: a copy is Miss Stacey's document 32 (incomplete as there is no date on page 1). This document bears Mr Smith's signature at two places. At page 34 he signed a specimen signature as a director. At page 35 he signed as one of two directors on behalf of AC Car Group Pty Ltd. Immediately above his signature appears, with the name in bold type "signed by AC Car Group Pty Ltd (ABN 28100673900) by two directors or director and secretary". Then Mr Smith’s signature appears as "signature of director"; so does Mr Lubinsky's.

21 Document 32 appears to be a copy of Exhibit J, but there are discrepancies. Exhibit J is stated 31 July 2002 on page 1; the date on page 1 of Document 32 is not completed. In Exhibit J the Director’s certificate in Schedule 3 is signed by Mr Lubinsky and bears date 31 July 2002; in Document 32 the Director’s certificate is signed by Mr Smith and bears date 31 July 2002. In Exhibit J attachment 1, Extract Of Resolutions of the Board of Directors there is a certificate at page 33 by Mr Lubinsky with the date 31 July 2002; in Document 32 the certificate is signed by Mr Smith with the date 31 July 2002. In Exhibit J at page 35, Mr Smith executed first and Mr Lubinsky second; in Document 32 Mr Lubinsky executed first and Mr Smith second. The copy suggests the existence of slightly discrepant duplicate originals. Although performance was less than superb, participation of Mr Smith is undoubted. Mr Smith must have signed two forms of this document.

22 I do not regarded it as reasonably possible that Mr Smith signed this document without adverting to the fact that he was executing it as an agreement and that he was doing so as a director of AC Car Group Pty Ltd. The statement to that effect is entirely distinct and very prominent, and was right before his eyes.

23 Exhibit H is a Guarantee and Indemnity bearing date 31 July 2002 and it is signed on page 12 by Mr Lubinsky and also by Mr Smith. The date 31 July 2002 appears twice on this page, impressed by a rubber stamp. Mr Smith's signature appears against the words "signed by the guarantor James Thomas Smith". I do not regarded it as reasonably possible that Mr Smith's signed this without adverting to the fact that he was signing a guarantee. There are discrepancies between Exhibit H Guarantee and Indemnity and Document 33, a copy; but discrepancies are minor.

24 Document 31 produced by Miss Stacey is a copy of a document headed in prominent letters "Statutory Declaration By Guarantor" and signed by Mr Smith. It states:

1. I am one of the Guarantors named in certain loan and security documents between AC CAR GROUP PTY LIMITED, AC CARS PTY LIMITED, AC CARS LIMITED, AC MOTOR HOLDINGS LIMITED, AC CARS (UK) LIMITED, AC CARS MANUFACTURING LIMITED and VOLKSWAGEN FINANCIAL SERVICES AUSTRALIA LIMITED (“the Lender”).

2. I have received independent legal advice regarding the loan and security documents referred to in paragraph 1.

3. After receiving that advice I have freely and voluntarily signed the following documents:
(a) Deed of Guarantee and Indemnity between ALAN DAVID LUBINSKY, JAMES THOMAS SMITH and VOLKSWAGEN FINANCIAL SERVICES AUSTRALIA LIMITED of the other par

(b) …………………………………………………………..

25 There are words of declaration and acknowledgement of penal consequences. Words of attestation were not completed in a proper way:

DECLARED at )
In )
the State of Victoria the )
day of 27/7 )

The document is witnessed or purportedly witnessed by Mr Ranieri.

26 As a statutory declaration the document seems very defective; I was not told any account of the facts in which such a document could have been signed in Victoria on 27 July or 31 July. It is not in my opinion reasonably possible that Mr Smith signed this without knowing the nature of the document. To a high degree of probability he must have had some idea of what it said.

27 It is a problem for Mr Smith's case, important for its acceptation by the court, that according to his case he was not involved in arrangements or in documents for financing Verte Automotive Ltd in April; he was involved in them in July, and then thought he was signing appropriate documents. I do not accept that this is correct; I regard it as objectively certain that he signed the Fixed and Floating Charge on or about 29 April, and it is extremely unlikely that he did not sign the related documents at the same time. It follows that when he embarked on signing documents in July he was engaged on other business than financing Verte Automotive Ltd, and must have known that he was.

28 In my finding Mr Smith was not given documents relating to financing AC Car Group mixed up with or associated with documents about financing Verte Automotive Ltd in a confusing way. He is a very experienced businessman with decades of experience at the top end of the motor trade, not a trade where vigilance is lacking, and the Loan Agreement and Guarantee and Indemnity relating to AC Car Group are documents the nature of which is altogether obvious to anyone who gives them a glance. Earlier in 2002 he signed similar documents relating to finance for a business he controlled without involvement of Mr Lubinksy. I do not regard it as realistically possible that Mr Boutin or anyone else would attempt to deceive him about the nature of documents he was signing by including them in a shuffle of other documents of kinds which he was prepared to sign. It is very unlikely that there was a shuffle of documents of different kinds relating to different pieces of business; and if there had been, it is not practically possible that anyone would be so stupid as to attempt to deceive Mr Smith in this way; nor is it possible that he would be deceived. His business experience equipped him, far better than the ordinary man on the street, to be aware of what he was doing and what documents he was signing. In the account he gives he noticed a reference to AC Car Group and was fobbed off by Mr Lubinsky, in Mr Boutin's presence and hearing, with an explanation which is no more than a shadow of an explanation and would be dispelled at once, for example, by looking at the front cover of Exhibit H the Guarantee and Indemnity; this is not worthy of belief and I do not believe it.

29 The basic proposition that Mr Smith had nothing at all to do with the business of AC Car Group which was the business of Mr Lubinsky only is in my finding incorrect. In my finding based on inference from what I regard as overwhelming probabilities, Mr Smith acted purportedly as a director of AC Car Group because he knew he was, and he signed the Guarantee and other finance documents for AC Car Group because in his understanding he had a real interest in that company’s business success. An explanation that the documents were to give Mr Smith a 3% shareholding could not have been regarded as satisfactory; even slight advertence to the documents Mr Smith actually signed would dispel that explanation.

30 The finance facility first under consideration for Verte Automotive Ltd was AUD$200,000. Early communications dealt only with that sum. Mr Boutin's initial submission to VWFS finance committee related only to AUD$200,000. The documents and in particular the Guarantee support whatever financing might later be agreed upon and advanced. The terms of the Guarantee extend beyond the original financing; and this would have been clear to anyone who adverted to their terms.

31 Mrs Smith accompanied Mr Smith on his journey from Melbourne to Sydney in July 2002. I am satisfied that there was no other occasion earlier or at any other time in 2002 when she accompanied Mr Smith to Sydney or on any other journey in the course of which he might have signed relevant documents. However she was in no position to know what were the terms of any of the documents put before him and signed by him.

32 There is nothing improbable about the account of the events in which Mr Boutin pointed out to Mr Smith the places where Mr Smith was asked to sign documents. This ordinary event would not convey to a person of ordinary vigilance, or of adult understanding at all, that the person had no further concern to identify what he was signing.

33 Mr Smith did not when giving evidence convey a favourable impression to me. The grounds of my lack of satisfaction were not any adverse aspect of his demeanour which I can identify, but the overall improbability of the burden of what he had to say, which could only be true if he were a far less experienced and aware adult than he manifestly is; plainly a man with a lifetime of business experience. That Mr Lubinsky, with Mr Boutin standing by complicit, pulled wool over Mr Smith’s eyes about what Mr Smith was signing is so unlikely as to be fantastic: that it worked on a man like Mr Smith is impossible. I found markedly unimpressive his recurring references to difficulties of memory, and his disavowals of communications, particularly of e-mail communications, which were directed to him. I have no difficulty in accepting that he is not adept at dealing with a computer and opening e-mails; but I do not find it possible to believe that as a man of business he does not have realistic arrangements under which he gets to know what is in e-mails directed to him.

34 I do not accept evidence of Mr Smith tending to minimise his participation in the affairs in Australia of the enterprises in which he and Mr Lubinsky were involved. He was a natural point of reference for any communications relating to the availability of cars, paying for them and obtaining finance for them, and it is probable that he knew far more about these subjects than he was prepared to acknowledge.

35 The overall theory of his case, as presented by counsel in final address was that the documents including the Verte Guarantee were backdated to April, although executed in July, and this was likely to have been done by Mr Boutin to cover the fact that he had not attended to execution of formal documents before making the funds available to Verte Automotive Ltd in April 2002. There are internal anomalies in references to dates on the documents which Mr Boutin put before the Credit Committee. I am unable to see how these anomalies should be resolved, but any light they throw on whether the Verte Automotive Ltd financing documents were in fact executed on or about 29 April 2002 is shadowed out by the reality of execution of the Fixed and Floating Charge. In my address to finding the facts, the contention that the documents which Mr Smith signed about financing Verte were signed in July and backdated is disposed of by the certain knowledge that the Fixed and Floating Charge was in the UK and was registered on 8 May 2002.

36 Also shadowed out are implications which it was contended should be drawn from letters and messages incidental to financing and draw-downs. They could not be regarded as conclusive against Mr Smith, but overall their importance is slight. Evidence of Miss Stacey, supported (although not strongly) by a note which she made on the file, shows that she had discussions with Mr Smith about the progress of availability of vehicles manufactured by Ford, payments for them and the progress of financing well beyond $200,000; I reject Mr Smith's evidence on these conversations.

37 On these findings I uphold the plaintiff's case of fact and reject Mr Smith's defence and cross-claim. I will give judgment for the plaintiff as claimed.

38 Orders:

1. Give judgment for the plaintiff against the second defendant for $6,279,818.91 with costs.

2. Dismiss the Cross-claim with costs.

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