Zenith 500 Pty Ltd v Stavrakis and Alexopoulos
[2016] VCC 1146
•26 October 2016
| IN THE COUNTY COURT OF VICTORIA | Revised Not Restricted Suitable for publication |
AT MELBOURNE
COMMERCIAL DIVISION
GENERAL CASES LIST
Case No. CI-14-04649
| ZENITH 500 PTY LTD (as trustee for THE ADAMIDIS FAMILY TRUST) | Plaintiff |
| v. | |
| CONSTANTINE STAVRAKIS and HELEN ALEXOPOULOS | Defendants |
---
JUDGE: | His Honour Judge Anderson | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 2,3 and 22 August 2016 | |
DATE OF JUDGMENT: | 26 October 2016 | |
CASE MAY BE CITED AS: | Zenith 500 Pty Ltd v. Stavrakis and Alexopoulos | |
MEDIUM NEUTRAL CITATION: | [2016] VCC 1146 | |
REASONS FOR JUDGMENT
---
Catchwords: Guarantee – Contribution by co-guarantors – Whether guarantor can raise the enforceability of the guarantee to defeat the claim for contribution – Whether the principal creditor needs to be a party to the proceeding – Guarantee alleged to be unenforceable on the grounds of unconscionability, married woman’s equity or breach of the Code of Banking Practice.
---
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Ms N. Papaleo of Counsel | Maurice Blackburn |
| For the Defendants | Mr J. Tsalanidis and Mr M. Gurvich of Counsel | Katz Lawyers |
HIS HONOUR:
1In this proceeding, Zenith 500 Pty Ltd (“Zenith”) seeks contribution from co-guarantors in relation to payments it made to Westpac Banking Corporation (“Westpac”) for the indebtedness of Baron Developments Pty Ltd (“Baron”).
2Baron was used as the vehicle for a joint project by its directors, Mr Jack Adamidis and Mr Constantine Stavrakis. The project involved the redevelopment of the St George’s Theatre in Yarraville with 34 apartments and other facilities.
3The purchase of the Yarraville property in 2005, and the redevelopment works commencing in 2006, were funded by advances by Westpac to Baron. The loan facility of up to $11.9m was secured by a mortgage over the Yarraville property and personal guarantees by Mr Adamidis and Mr Stavrakis. The facility was to be repaid upon the expiry of the finance term. This was expressed to be “18 months from initial drawdown” which, it was accepted, meant the term would expire in late 2009.
4In late 2009, the redevelopment works were only 90% complete. Baron sought an extension of the date for repayment of the loan to Westpac. Westpac agreed to an extension to 31 March 2010 provided the following further security was provided:
a.an unlimited guarantee by Zenith, and mortgages in respect of properties at Parkville, Fitzroy and a part interest in a property at Geelong;
b.a personal guarantee by Mr Adamidis’s wife, Elizabeth Adamidis, limited to her interest in her home at Doncaster;
c.a personal guarantee by Mr Stavrakis’s wife, Helen Alexopoulos, limited to her interest in her home at South Melbourne.
5The further security was provided and the repayment date was extended. However, the project was not completed by the extended date of 31 March 2010. Baron defaulted in the repayment of the loan to Westpac.
6On 25 May 2010, Westpac appointed receivers and managers to Baron to complete the project and the sale of the apartments and other facilities. Westpac served demand notices on the guarantors, Zenith, Mrs Adamidis and Ms Alexopoulos.
7In July 2013, after the Parkville, Fitzroy and Geelong properties had been sold, Zenith and Mrs Adamidis entered into a Deed of Settlement with Westpac and agreed to pay $150,000 in full settlement of their liability for the balance of $184,672.36 that was then owing to Westpac.
8Zenith now seeks orders that Mr Stavrakis and Ms Alexopoulos, as two of the five guarantors, with Zenith and Mr and Mrs Adamidis, each contribute the sum of $342,715.59 as their shares of the total payment of $1,713,577.95 made by Zenith to Westpac to discharge the indebtedness of Baron to Westpac.
9On 27 June 2016, Mr Stavrakis and Mrs Alexopoulos filed an amended defence and counterclaim. Although all the issues in that pleading were opened by the defendants’ leading counsel Mr Tsalandis on the first day of the trial, the parties agreed before the second day that the issues to be determined would be limited to the following matters:
“1. Is the guarantee of Helen Alexopoulos dated 12 February 2010 (“Helen’s guarantee”) unenforceable on one or more of the following grounds:
(a) Unconscionability?
(b) Married woman’s equity?
(c) Breach of the Code of Banking Practice?
2.If Helen’s guarantee is unenforceable, can the plaintiff seek contribution from each of the defendants or only the first defendant of one fifth of the amount paid by the plaintiff to Westpac Banking Corporation in respect of the debt of Baron Developments Pty Ltd?”
10As a consequence, the parties also limited the oral evidence at the trial. The defendants assumed the carriage of the hearing and called Mr Stavrakis and Ms Alexopoulos. Ms Papaleo of counsel for Zenith called Mrs Adamidis. Zenith also relied upon an affidavit of a Westpac bank officer, Mr Greg McKillop, sworn 1 August 2016, although Mr McKillop did not give oral evidence.
11The issues requiring determination are:
a.whether Ms Alexopoulos can raise issues concerning the enforceability of the guarantee without Westpac being a party to the proceeding;
b.whether there was a basis upon which the Court should decide that the guarantee provided by Ms Alexopoulos was not enforceable;
c.should the defendants, as co-guarantors, contribute to the plaintiff and if so in what sum?
The guarantee and indemnity signed by Ms Alexopoulos
12On 12 February 2010, Ms Alexopoulos signed a guarantee and indemnity (“the guarantee”) in favour of Westpac in respect of the liability of Baron. The guarantee contained the following provisions:
a.the limit on the amount Ms Alexopoulos could be required to pay under the guarantee was $11.9m plus costs and expenses;
b.Westpac, in enforcing the guarantee, could only recover the proceeds of the realisation of the security, being the mortgage over the South Melbourne property.
13The guarantee was executed by Ms Alexopoulos as a deed. Her signature was witnessed by Mr George Spiliotis, a solicitor of Smith Street Collingwood. A “form of acknowledgement” containing a series of eight questions was completed. This was also signed by Ms Alexopoulos. A 19 page memorandum of common provisions general conditions booklet was attached to the guarantee.
Circumstances in which Ms Alexopoulos executed the guarantee
14In the defence filed on 2 June 2015, Ms Alexopoulos relied upon the circumstances in which she executed the guarantee to assert that the guarantee is “void, and unenforceable”. The pleading alleged that Ms Alexopoulos “did not receive any independent legal or financial advice with respect to” the guarantee, and “would not have signed the purported guarantee had she known and understood the purpose and effect of it”. Those matters are now contained in the amended defence and counterclaim filed on 27 June 2016. By the counterclaim, a declaration is sought that the guarantee is “void, alternatively, voidable and unenforceable and should be set aside”.
15Although Ms Alexopoulos was born in Australia in 1966, from about 1968 until 1988 she lived and was educated in Greece, in the later years as a nurse. From 1988 she has lived and worked in Australia, marrying Mr Stavrakis in 1991. The guarantee was the first she had entered into.
16The counterclaim asserts that “Westpac entrusted the procuring of [the] guarantee” to Baron and Mr Stavrakis. The pleading alleges that neither Mr Stavrakis nor Westpac (or its employees) “advised”, “explained to” or “made enquires of” Ms Alexopoulos’ in relation to various matters.
17These matters included:
a.the facilities Baron and its directors had with Westpac;
b.the financial position of Baron and the other guarantors;
c.the status of the Yarraville project;
d.the “contents, true nature and legal effect” of the guarantee;
e.Ms Alexopoulos’s understanding of these matters and whether she had obtained independent advice.
18As a result of these matters, Ms Alexopoulos says that:
a.“it was unfair, unjust and unconscionable of Westpac to procure or accept the purported guarantee” as,
i.she “was placed in a position of special disadvantage in relation to Westpac and as a result, there was an absence of any degree of equality between them”; and
ii.she “was at a special disadvantage and could not make a judgment or proper judgment as to what was in her best interests with respect to the purported guarantee”;
b.Alternatively, the counterclaim alleges that the guarantee is “void, alternatively voidable and unenforceable” in circumstances where Westpac “knew or ought to have known [the consequences which would follow] as a result of not dealing directly with [Ms Alexopoulos] and ensuring that she obtained legal and financial advice”.
19The likely consequences were alleged to be that Ms Alexopoulos:
a.“would and did repose trust and confidence in [her husband, Mr Stavrakis] regarding the conduct of their financial affairs”;
b.was likely to be emotionally dependent on Mr Stavrakis and “would have or was likely to have signed any document including the purported guarantee relying on an explanation given to her by” her husband;
c.“did not understand the contents, true nature and legal effect of the purported guarantee” because of her inexperience “in understanding legal documents and business transactions”.
20The original amended defence dated 2 June 2015 and the amended defence and counterclaim dated 27 June 2016 provide particulars of the factual basis for these allegations, as follows:
a.in early February 2010, Mr Stavrakis told Ms Alexpoulos that Westpac required a guarantee from her with respect to Westpac’s loan to Baron for the Yarraville project. He said that he did not know why Westpac needed the guarantee as he was not asking Westpac for any more money, just a bit more time;
b.Mr Stavrakis told his wife that the sales of the apartments in the Yarraville project already covered most of the Baron loan and that there were still a number of properties left to sell which would be sufficient to cover the loan amount and return a profit;
c.Mr Stavrakis said that a small extension was needed and that this would not be a problem because it would not take very long to finish the Yarraville project and Westpac would then be repaid its money;
d.Mr Stavrakis also told Ms Alexopoulos that if she did not sign a guarantee, Westpac would refuse to give a time extension to Baron for it to finish the Yarraville project;
e.prior to signing the guarantee, Ms Alexopoulos did not receive any independent legal or financial advice with respect to it;
f.on about 12 February 2010, Mr Stavrakis and Ms Alexopoulos attended the offices of George Spiliotis of GSM Lawyers in order for Ms Alexopoulos to sign the guarantee. She had met Mr Spiliotis once or twice through her husband and knew that he was helping Mr Stavrakis and Mr Adamidis in relation to the Yarraville project. Mr and Mrs Adamidis were also at Mr Spiliotis’s office;
g.at the meeting Mr Spiliotis asked Mr Stavrakis how many of the apartments had been sold. He replied that the loan was almost covered by the sales and there were still more apartments to be sold;
h.Mr Spiliotis then asked Mr Stavrakis and Mr Adamidis to leave the room. Ms Alexopoulos told Mr Spiliotis that she did not understand why the bank wanted a guarantee from her and if signing the guarantee would put her house at risk;
i.Mr Spiliotis told Ms Alexopoulos that she would not lose her house because there were already a lot of sales made which would pay out the loan. Mr Spiliotis also said that he could not see the bank coming after Ms Alexopoulos’s house but if something did go wrong, he could not represent Ms Alexopoulos or Mrs Adamidis because he already acted for Mr Stavrakis and Mr Adamidis;
j.Mr Spiliotis then read through the papers and asked Ms Alexopoulos questions and filled in some boxes. Ms Alexopoulos said to Ms Spiliotis that she really couldn’t say “no” anywhere. Ms Spiliotis said that if she did say “no”, the bank would not give Mr Stavrakis and Mr Adamidis the extension. Ms Alexopoulos then signed the guarantee.
21Ms Alexopoulos swore an affidavit in the proceeding on 22 February 2015 in opposition to a summary judgment application by Zenith. The passages in the affidavit were substantially the same as those in the amended defence dated 2 June 2015 and the amended defence and counterclaim dated 27 June 2016 to which I have referred. The summary judgment application was, on 31 March 2015, by consent, “dismissed without adjudication on the merits”.
22In her affidavit, Ms Alexopoulos included the following further details:
a.In relation to the initial conversation with her husband in early February 2010, Ms Alexopoulos said;
i.she “did not know the reason for the guarantee as I had nothing to do with the development”;
ii.Mr Stavrakis told her “that he was still confident that the development would be a success”, and that she “believed” what her husband told her;
iii.she “had never signed a guarantee before. I believe the guarantee had something to do with my house but I did not know exactly how and what a guarantee really meant”;
iv.she said to Mr Stavrakis “at the time that I did not want to sign any guarantee as the house was already mortgaged so there was no point anyway”;
v.Mr Stavrakis said that, “because there had already been so many apartments sold…the bank was going to be paid in full”;
vi.Mr Stavrakis said that if the bank refused to give an extension because I did not sign the guarantee, he and Mr Adamidis “would not be able to finish the development, even though they were very close to finishing it”;
vii.“the discussion about the guarantee all happened in a very short period of time – about a week”.
b.in relation to the discussions at Mr Spiliotos’s office on 12 February 2010, Ms Alexopoulos said in the affidavit, that:
i.at the office, she and Mr Stavrakis had “a bit of an argument” with Mr and Mrs Adamidis about the value of the apartment Mr Stavrakis and Ms Alexopoulos “were going to get at the development”. Mr and Mrs Adamidis wanted a valuation in order to split any difference. This became a sore point at the meeting and was “quite stressful”;
ii.when she asked “if signing the guarantee would put my home at risk [Mr Spiliotis] told me that I would not lose my house because there were already a lot of sales made which would pay a lot of the loan”;
iii.she signed the guarantee because she trusted Mr Stavrakis and Mr Spiliotos, and what they told her;
iv.“the whole process took no more than about 15 minutes”. Mr Spiliotis showed her where to sign;
v.at about the time she signed the guarantee, she was told “that the loan was for around $11,500,000”. She “believed that a lot of this would be paid back once the sales that had already been achieved has gone through [and] that there were still more sales to take place”;
vi.she had “no idea about the status of the loan or its terms, save that an extension was required. I had no details as to the development’s status other than what [Mr Stavrakis] told me and what I saw with my own eyes”;
vii.at no time did she “speak with anyone from Westpac about the loan to Baron or about the guarantee I signed. I cannot recall receiving any information from Westpac about it. I was not told by anyone to seek independent financial advice or independent legal advice about the Westpac loan to Baron or the guarantee”;
viii.“at no time did anyone explain the risks associated with the loan or the development or the issues that could impact upon the repayment of the loan. Nor did I understand that Westpac could take over the development and that if that happened,…the loan amount could increase significantly”.
23At the trial, evidence of these matters was given by Mr Stavrakis, Ms Alexopoulos and Mrs Adamidis. I consider that, on the basis of their evidence, it is likely that Mr Stavrakis and Mrs Adamidis had only a fairly general recollection of the meeting at Mr Spiliotos’s office and, in Mr Stavrakis’s case, also of his earlier discussion about the guarantee with his wife a week or so earlier.
24In my view, Ms Alexopoulos’s evidence was less than satisfactory. I consider that she tried to tailor her evidence to meet the case that was being put on her behalf, particularly as to what she understood during the discussion with her husband about the need for the guarantee, and later in Mr Spiliotis’s office. There were significant discrepancies between her oral evidence and the version of events contained in the pleadings and her affidavit sworn 22 February 2015. No adequate explanation was given for these discrepancies. In these circumstances, it is likely that the later evidence is less reliable than the earlier affidavit.
25At the trial, Mrs Alexopoulos gave evidence about a number of matters which supported the conclusion that at the time she executed the guarantee she had little understanding of what she was doing and simply signed the document at the insistence of her husband and on the advice of his solicitor.
26The critical parts of her evidence included:
a.her ability to “read and understand and write in the English language” was “not the best, but it’s okay”;
b.as to her knowledge of the Yarraville project, “I was not told a lot”. She was taken to the property a “couple of times” when her husband insisted. She knew money was borrowed from Westpac, but not the funding arrangements;
c.in late 2009, early 2010, Mr Stavrakis told her that “he had some problems with the development and he needed some extension from the bank” and the bank required “from me some papers to sign”;
d.she could not “understand why the bank wants me involved”. Her husband said he “couldn’t understand either”, but if she didn’t sign, the bank was “not going to let us finish the project”;
e.Mr Stavrakis offered to take her to see lawyers to have her questions answered;
f.at Mr Spiliotis’s office, Mr Stavrakis said, in response to a question from Mr Spiliotis that there was “no problem for them [the wives] to sign these papers” as “there is enough properties sold at the moment to cover the loan and more to be ready to be sold soon enough”;
g.when Ms Alexopoulos asked Mr Spiliotis whether, by signing the document, “we’re not putting ourselves in any risk [of] losing our house or [being] left with nothing”, Mr Spiliotis replied, “I can’t see anything going wrong. You’re quite safe”;
h.the questions in the “form of acknowledgment” section of the guarantee were completed by Mr Spiliotis asking both her and Mrs Adamidis in turn to answer each question “yes”;
i.Mr Spiliotis told Ms Alexopoulos that he was representing Mr Stavrakis and Mr Adamidis and if “something goes wrong with the project, he can’t represent me or” Mrs Adamidis;
j.Ms Alexopoulos did not obtain advice from her own lawyer;
k.Mr Spiliotis assumed that Mr Stavrakis had “probably explained” the document to her;
l.the meeting she and Mrs Adamidis had alone with Mr Spiliotis was “approximately 10 to 15 minutes at most”;
m.Ms Alexopoulos signed the document where Mr Spiliotis indicated she should;
n.Ms Alexopoulos had no contact with anyone from Westpac either before or after she signed the guarantee.
27It is appropriate to examine the whole of the evidence with care and to compare it with the early statements by Ms Alexopoulos in her affidavit sworn in February 2015, and with the evidence of other witnesses.
28Ms Alexopoulos’s understanding of English: In my view, Ms Alexopoulos demonstrated during her evidence that she had a reasonable command of the English language, as one would expect of someone who has lived and worked in Australia since 1988. Her spoken syntax was idiosyncratic. However, she did not from her answers to questions appear to lack understanding or have difficulty expressing what she wished to say, although at times her explanations were unconvincing.
29Ms Alexopoulos’s knowledge of the Yarraville project: Ms Alexopoulos admitted in cross-examination that she had at some stage worked part-time in her husband’s business, but this was limited to “getting the mail and doing the filing”. Mr Stavrakis said in his evidence that his wife had been to the Yarraville site “maybe three times” and that he “didn’t give Helen a lot of information” about the project.
30Discussion in late 2009, early 2010 between Ms Alexopoulos and her husband: Mr Stavrakis said in evidence that when he “walked in, she asked me what was wrong. I said to her, ‘The bank wants you to provide a guarantee’. She asked me, ‘Why? The house is already mortgaged. I said, ‘I don’t know why they want it. All I know is if we don’t give it and if Liz and Zenith don’t give it, we don’t get the extension. None of us do. We aren’t going to finish this project’”.
31In his evidence, Mr Stavrakis used the word “guarantee” to describe the document the bank required. He referred also to Mrs Adamidis (Liz) and Zenith also being required to provide “it”, which must also be a reference to the provision of a guarantee. Ms Alexopoulos’s reported response was to immediately link the “guarantee” requested to “the house” and the fact that it was “already mortgaged”. Ms Alexopolous knew that the house was mortgaged to Westpac.
32Ms Alexopoulos was asked in cross-examination about Mr Stavrakis using the word “guarantee”. She said, “No, he said, ‘The, bank asking me to ask you to sign some papers’. He didn’t say ‘guarantee’. He said, ‘asked me to sign some papers’”.
33When referred to her own use of the word “guarantee” in her February 2015 affidavit, Mrs Alexopoulos said her husband had referred to “the papers or documents you have to sign for the extension”. At that time, “it wasn’t clear what a guarantee is or what I know about that”. Later, particularly when she consulted solicitors, “everyone was talking about the guarantee” and although she “said ‘papers and documents’, but down here [on the affidavit] it’s been done, ‘Con asked me for the guarantee’”. Ms Alexopoulos repeated, “We never say the word ‘guarantee’ at home. I can’t remember that. It was always ‘papers or documents’”.
34Ms Alexopoulos agreed with counsel during cross-examination that she understood that, “when you have a mortgage, the bank has loaned you some money and if you don’t pay the money back, the bank could sell your house”.
35Ms Alexopoulos denied knowing that she was “offering up your house as security”. In response to the follow-up question, “You didn’t know that?” Mrs Alexopoulos replied, “My house, it was already mortgaged, very high mortgage”. Mrs Alexopoulos linked the “papers or documents”, she was being told the bank required, to the existing mortgage over the house. This was what Mr Stavrakis said his wife said when he told her the bank wanted her to provide a guarantee. He said her response was, “Why? The house is already mortgaged”.
36Ms Alexopoulos said that in the discussion with her husband, “The house, it was already high mortgage, so I was asking him again, ‘Can you please explain to me if this have to do something with the house? The house is fully mortgaged. Why they want me involved in your business? He kept saying, ‘I can’t understand. That’s why they’re asking me to ask you’”.
37The immediate linking by Ms Alexopoulos of the request to sign documents, to facilitate the extension of Baron’s loan, with the house and the existing mortgage to Westpac was never satisfactorily explained by Ms Alexopoulos. Each time she was asked about the matter, she denied that she understood that she was being asked to provide her house as security for her husband’s business’s loan.
38In re-examination, Mr Tsalandis referred Ms Alexopoulos to paragraph 17 of her February 2015 affidavit, where she said, “I remember saying to Con at the time that I did not want to sign any guarantee as the house was already mortgaged so there was no point anyway”. This led to the following exchange:
Counsel: “What does that mean?”
Witness: “The house, it was already high mortgage, so I was asking him again, ‘Can you please explain to me if this have to do something with the house? The house is fully mortgaged. Why they want me involved in your business?’ He keep saying, ‘I can’t understand. That’s why they’re asking me to ask you’”.
Counsel:“What do the words ‘there was no point anyway’ mean?”
Witness: “Because the house, it was fully mortgaged. What was the point asking me? That’s why I was thinking it had nothing probably to do with the house because the house, it was maximum mortgage. We just bought the house so the bank asking me to sign some papers. I couldn’t understand the point. What was the point to sign papers?”
39Similar considerations apply when the question Mrs Alexopoulos asked Mr Spiliotis, as to whether there was a risk of losing the house, is analysed.
40Ms Alexopoulos asked Mr Spiliotis whether there was a risk of “losing our house”: Ms Alexopoulos was asked in cross-examination about the conversations in Mr Spiliotis’s office about the “risk to your house”. Ms Alexopoulos gave as the context in which she raised this matter, that she was concerned that, “no-one can give me any explanation...why we have to sign the papers”.
41Ms Alexopoulos said that this was the question she asked her husband when he first told her at home that the bank wanted “papers or documents” from her. In her re-examination, Ms Alexopoulos said “That’s why I kept asking him the question. I said to him, ‘This has to do anything for us, my family, for the house? Are we – the house at risk?’ He keep saying, ‘I can’t see you losing the house or being a risk. Everything has been – so many properties sold, it covers the loan, there are more to be sold’. He didn’t – I don’t know, I was probably a bit wrong, but I trusted him when he were telling me”.
42Ms Alexopoulos had said in evidence that after the first conversation with her husband, she had refused to sign the papers. She said, “So I refuse and we had arguments upon arguments continuously in the house”. Mr Stavrakis eventually said to her, “You have to sign. If you don’t believe me…we’ll go to the lawyers and they will tell you or answer you some questions if you want to”.
43When Mr Stavrakis and Ms Alexopoulos attended at the offices of Mr Spiliotis, Ms Alexopoulos said that in the presence of her husband and Mr and Mrs Adamidis she asked Mr Spiliotis, “Why we have to sign the papers?” She said that Mr Spiliotis then “asked Con to tell him how safe they are and why they’re asking us to sign these papers”.
44When Mr Spiliotis talked to Ms Alexopoulos and Mrs Adamidis without their husbands, Ms Alexopoulos again asked Mr Spiliotis, “What this mean to us? Are we in any risk? Is our house any risk? What we doing here? And he told us, ‘He can’t see us being a risk, won’t have worry about your house’”.
45Ms Alexopoulos said that both her husband, in response to the questions from Mr Spiliotis, and Mr Spiliotis in response to her questions, “They assured me, both of them, it wasn’t a risk…That’s what they keep telling me. It’s enough money, it’s not a risk for you to sign”.
46Ms Alexopoulos said that the reason she “signed at the end the papers” was because she believed her husband and Mr Spiliotos, “and George [Spiliotos] telling me ‘No, your house is safe’”.
47Notwithstanding these answers, Ms Alexopoulos repeated that:
a.“It wasn’t clear to me what I was signing or what was the papers for”;
b.she agreed when it was put to her that, she “didn’t know whether the papers had anything to do with your house”;
c.she disagreed that she “knew that you were offering up your house as security”;
d.she said that, “Even after the solicitors…nothing was clear”.
48Answering the questions in the document: In cross-examination, Ms Alexopoulos was asked about her evidence that when Mr Spiliotis took her and Mrs Adamidis through the questions in the guarantee document that, “he was telling you that you needed to say yes”.
49Ms Alexopoulos said, “I asked George if we are allowed to say no. I remember that and he said, ‘Not really because if you say no then it’s not valid’…George was asking the question and he said, reading out the questions from the paper-booklet he was holding and he said, ‘Yes?’ ‘Yes, Liz?’ ‘Yes’. ‘Yes, Helen?’ ‘Yes’”.
50Whether Ms Alexopoulos was to obtain a benefit from the project: During cross-examination, Ms Alexopoulos was asked whether, “once the development was completed, you and Con were going to keep an apartment?” Ms Alexopoulos gave the following answers:
a.“Con mentioned it, when everything been paid and everything goes well, Con will get an apartment, Jack will get an apartment and I think there was an office as well”;
b.“It [the apartment] was going to Con. I said to him, ‘I will believe it when I see it’”;
c.“I don’t know that”, in response to a question, “’So your evidence is that it wasn’t going to you?’”
51Ms Alexopoulos was referred to her February 2015 affidavit. At paragraph 11 of the affidavit, Ms Alexopoulos said that her husband told her during the course of the project, “that once the development had been finished and all of the properties were sold and the bank had been paid out, we would get a share of the profit as well as the apartment and office”.
52Before being given the opportunity to read the paragraph of her affidavit, Ms Alexopoulos gave the following answers:
a.“Con said to me when the project will finish and everything goes well, everything got paid and everything, the hope was he will get an apartment, Jack will get an apartment and the office”;
b.asked, about “a share of the profit”, Ms Alexopoulos said, “If it was money I’m assuming they will share. Never been mentioned, any money…They mentioned the apartment and the office”.
53Ms Alexopoulos was taken to paragraph 10 of her affidavit where she said, “Con told me that he was going to keep one of the apartments and a home office for us”. The following exchange then took place:
Counsel: “Yes. You’ve just said that he was going to have it himself?”
Witness:“I just, what I meant to tell you, when Con said to us, ‘This is going to be for us’, I said to him, ‘I will see it. I believe what you say when I see it. At the moment we have nothing’. That was my answer to him”.
Counsel:“Yes, but he told you that he was going to keep it for you, the two of you?”
Witness:“That’s what he said. I said, ‘I will believe it when I see it. At the moment, we don’t have nothing’”.
54Counsel then raised with Ms Alexopoulos the statement in paragraph 11 of her affidavit that she and her husband “would get a share of the profit as well as the apartment and an office”. Ms Alexopoulos said, “I believe at some stage he may have mentioned that to me, but I tell you the truth, I can’t remember a hundred per cent”.
Should Ms Alexopoulos be permitted to put in issue the effectiveness of the guarantee in the absence of Westpac?
55Ms Papaleo submitted that the defences of Ms Alexopoulos based on unconscionable conduct, and similar matters, were not available to her as “unconscionable conduct renders a guarantee voidable, not void”. It is for a court to set aside a voidable transaction and such relief can only be granted in a proceeding in which Westpac is a party.
56The first proposition was uncontested, namely that the “equitable grounds” upon which a court may “set aside contracts and other dealings”, including “unconscionable conduct” require the intervention of the Court to set aside the transaction. It is clear, however, that “unconscionability” may also provide “the justification for not setting aside the transaction in its entirety or in doing so subject to conditions, so as to prevent one party obtaining an unwarranted benefit at the expense of the other” (see the statements of the High Court in Vadasz v. Pioneer Concrete SA Pty Ltd [1995] HCA 14 at paragraphs 21 and 28).
57The second proposition, that this could only be done if Westpac were a party to this proceeding, was disputed. The defendants contended that “the joinder of a creditor [Westpac] is not required in order to defend a claim for contribution”.
58Defendants’ counsel relied upon the following submissions:
a.O’Donovan and Phillips, Modern Contract of Guarantee (4th edition, 2004) at 12.1870 states that, “Presumably if one guarantor has been induced to enter the guarantee as a result of undue influence, duress, unconscionability, or some other vitiating factor, it is also a defence to an action for contribution”;
b.O’Donovan and Phillips at 12.1850 express the view, however, that “it is doubtful whether a surety can raise against another co-surety that the creditor obtained the guarantee by reason of unconscionable conduct without joining the creditor”;
c.the only authority cited for this proposition was the first instance decision of Rein J in Lavin v. Toppi [2013] NSWLR 1361 (“Lanvin”) at paragraph 28 where Rein J stated that, “There may be a question as to whether a surety can raise against another co-surety claims that the creditor obtained the guarantee by reason of unconscionable conduct without joining the creditor and also as to whether the judgment entered by consent in the Bank's case has any bearing on that question but, in my view, the guarantee's enforceability cannot be called into question without a positive case, supported by evidence being advanced byLavin”.
d.the statement by Rein J was obiter. Moreover, Rein J was primarily stating that, for a guarantor who challenges a guarantee to establish unconscionability which calls in question the guarantee, the guarantor must present “a positive case, supported by evidence”;
e.the High Court in Lavin v. Toppi (2015) 254 CLR 459 at page 471 stated that, “While the Bank’s covenant not to sue meant that the liability of the appellants was not enforceable by legal proceedings, it remained enforceable by other means such as reliance on rights of recoupment under other securities (if any) between the Bank and the appellants. Because the appellants were, and remained, liable under the guarantee, the appellants and respondents shared co-ordinate liabilities, which entitled the respondents to recover contribution…When a common liability is discharged by a surety, the discharge of the liability inevitably benefits a co-surety in that, without a right of contribution in the surety, the co-surety who pays less than his or her fair share is unjustly enriched”.
However, the High Court was not considering a case where there was a “vitiating” factor that rendered the guarantee unenforceable and extinguished the guarantor’s liability;
f.two factual matters were also relied upon:
i.Zenith had not advised Ms Alexopoulos at the time of its intention to settle Baron’s debt and to then seek contribution from Ms Alexopoulos;
ii.Westpac advised Ms Alexopoulos, by letter dated 3 October 2013, that “the bank is no longer seeking repayment from you and that it now considers the loan facilities finalised”;
g.Justice Gobbo in Cantred Pty Ltd v. Contingency Investment Pty Ltd [1991] VicSC 418, (unreported 26 August 1991) (“Cantred”) held that it was not necessary for a guarantor, seeking to resist a claim for contribution by a co-guarantor on the ground that there had been a variation of the relevant loan agreement which discharged the guarantor’s liability, to either join the creditor to the proceeding or to separately sue the creditor.
59Zenith submitted that if the Court, in the absence of Westpac as a party, were to make an order setting aside the guarantee, “two parties would suffer. Westpac would be prejudiced by a condemnation of its conduct without being afforded an opportunity to defend itself, and Zenith would be prejudiced because of allegations that could affect its interests in the absence of the party who could most adequately deal with them”.
60In my view, Ms Alexopoulos was not prevented from raising the issue of whether there is a sufficient basis to set aside the guarantee, and she was able to do that without joining Westpac, as the beneficiary of the guarantee, to the proceeding.
61The reasons for reaching this conclusion are as follows:
a.Cantred provides little support for Ms Alexopoulos’s submission. It is a fundamental defence for a guarantor, that a variation to the principal loan arrangements may effect a discharge of the guarantor’s obligations. There seems no reason why that defence might not be advanced against a claim by a co-guarantor, without joining the principal creditor;
b.it is suggested that equitable defences such as unconscionability should only be able to be advanced if the principal creditor has the opportunity as a party to the action, to support the efficacy of the transaction and that a declaration that a transaction is void should not be made in the absence from the litigation of the other party to the transaction;
c.there may be occasions, however, when the principal creditor is not available to be joined as a party, either effectively or at all. The presence or absence of that party in the litigation would not ordinarily be a matter of much significance;
d.if the principal creditor were not a party to the litigation, it is difficult to see how a declaration that a transaction is void might be binding upon it particularly, as in the present case, Westpac had notified Ms Alexopoulos in the letter dated 3 October 2013 that it regarded her as having been released from her guarantee;
e.not infrequently, a proceeding may impact on a non-party and findings may be made about the conduct of a non-party without the non-party having any opportunity, even as a witness, of putting its perspective on matters in issue to the Court;
f.the most important factor is, as Rein J said in Lanvin, that a party making an allegation that a transaction should not be effective against that party, has the responsibility of making out the claim by presenting “a positive case, supported by evidence”;
g.Zenith has been aware since the filing of the defence and counterclaim by Mr Stavrakis and Ms Alexopoulos on 2 June 2015 that Ms Alexopoulos was asserting that the guarantee she signed should be set aside, and not enforced against her;
h.Zenith had available to it the procedures of the Court to assist its preparation to meet this allegation. Zenith had obtained substantial cooperation from Westpac which enabled it to file and rely upon the affidavit of the bank officer, Mr McKillop, in helping to prove its own case.
Is the guarantee unenforceable against Ms Alexopoulos?
62Ms Alexopoulos relies upon unconscionability, married woman’s equity and breaches by Westpac of the Code of Banking Practice as reasons why the guarantee should be set aside and not enforced against her.
63Unconscionability: In Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 (“Amadio”), Deane J at page 474 said, “The jurisdiction is long established as extending generally to circumstances in which (i) a party to a transaction was under a special disability in dealing with the other party with the consequence that there was an absence of any reasonable degree of equality between them, and (ii) that disability was sufficiently evident to the stronger party to make it prima facie unfair or ‘unconscientious’ that he procure, or accept, the weaker party’s assent to the impugned transaction in the circumstances in which he procured or accepted it. Where such circumstances are shown to have existed, an onus is cast upon the stronger party to show that the transaction was fair, just and reasonable”.
64In deciding whether someone is at a “special” disadvantage, inequality of bargaining power does not alone suffice. A mere lack of “knowledge or expertise”, or the fact that no legal advice was provided or sought at the time of entering the transaction does not, of itself, make it unconscionable.
65Counsel for Ms Alexopoulos submitted that Ms Alexopoulos “was placed in a position of special disadvantage in relation to Westpac” due to a number of matters:
a.she had “limited understanding of business and financial matters”;
b.she has “never given a guarantee before”;
c.she agreed to sign the guarantee because of her “dependency upon her husband”;
d.she had limited “involvement and knowledge of Baron’s…financial position…with respect to the development”;
e.the guarantee and the extended facility to Baron were complex and involved a lot of money;
f.she lacked knowledge of “the purpose of the extended facility or the facts relevant to the risk of default”, including why her involvement was required and “how it could affect her house”;
g.she did not receive independent legal or financial advice;
h.no assistance or explanation was provided by Westpac of the extended facility and guarantee;
i.pressure was applied by her husband and Mr Spiliotis by telling her that if she did not provide the guarantee, Baron would be unable to complete the development;
j.she was told by her husband and Mr Spiliotis that “they couldn’t see any risk”;
k.Westpac failed to comply with the Code of Banking Practice. (For reasons I will discuss later, I do not consider that the alleged breaches significantly add to the specific matters alleged).
66Ms Alexopoulos’s counsel submitted that Westpac knew that Ms Alexopoulos was not a director or shareholder of Baron and was likely to have limited knowledge of its business affairs. Mr Stavrakis was entrusted with the guarantee documents to pass them on to his wife rather than Westpac meeting Ms Alexopoulos. Mr Stavrakis knew that the guarantee must be provided by his wife, if the development were to be completed. The only advice she received was from her husband’s lawyer.
67Zenith relied upon the statement by Mason J in Amadio at page 462 that an applicant for relief needed to show “special disadvantage”. This qualification was “to disavow any suggestion that the principle applies whenever there is some difference in the bargaining power of the parties and in order to emphasize that the disabling condition or circumstance is one which seriously affects the ability of the innocent party to make a judgment as to his own best interests, when the other party knows or ought to know of the existence of that condition or circumstance and of its effect on the innocent party”.
68Chief Justice Gleeson in ACCC v CG Berbatis Holdings Pty Ltd (2003) 214 CLR 51 at paragraph [14] said that, “Unconscientious exploitation of another’s inability, or diminished ability, to conserve his or her own interests is not to be confused with taking advantage of a superior bargaining position. There may be cases where both elements are involved, but, in such cases, it is the first, not the second, element that is of legal consequence”.
69Ms Papaleo submitted on behalf of Zenith that there was no evidence of “special disadvantage” or that Westpac had “unconscionably exploited that disadvantage” or had otherwise overborn Ms Alexopoulos’s will “such that she was unable to make worthwhile judgments as to what was in her best interests”.
70Ms Papaleo submitted that Ms Alexopoulos “understood what she was signing. She was not misled. She was not unable to protect her own interests. Rather, she made a deliberate choice to assist her husband to complete his commercial undertaking”.
71In my view, Ms Alexopoulos has not established that she was under a “special disability” or that Westpac acted unconscionably towards her. I am satisfied from the evidence that Ms Alexopoulos understood that:
a.she was being asked to guarantee Baron’s loan facility;
b.this was because the South Melbourne home was in her name;
c.the property would be security for her guarantee, and might be accessed by Westpac, if Baron defaulted;
d.without her guarantee, Baron’s facility would finish and the development would not be completed;
e.the development was substantially complete and a significant number of the units had been presold.
72Ms Alexopoulos’s evidence was generally unsatisfactory. Insofar as her oral evidence was inconsistent with her earlier affidavit, I am not satisfied that the oral evidence should be accepted. Ms Alexopoulos knew that the bank wanted a “guarantee” from her. She immediately understood that this involved her home being provided as security and that if Baron did not meet its obligations to Westpac, she would be called upon.
73Ms Alexopoulos was unhappy to be put in the position where her house was at risk. She understood that if she did not provide the guarantee, the loan facility would not be extended. According to her husband, this would mean the development would not be completed. According to him, there was little risk, because of the level of presales.
74Ms Alexopoulos stood to benefit personally from the development. She and Mr Stavrakis were to receive one of the units, an office and a share of the profits. Ms Alexopoulos had a number of days to consider her position and to pursue “arguments” with her husband. Before she agreed, she saw her husband’s and Baron’s lawyer, both in the company of her husband and Mr Adamidis and later alone with the solicitor and Mrs Adamidis.
75I am not satisfied that Mr Spiliotis told her that there was no risk to her property, but rather that, if the development were completed the pre-sales of units should provide sufficient funds to cover Baron’s indebtedness to Westpac, and that therefore the guarantee was unlikely to be called upon. Mr Spiliotis warned that, if something went wrong, he could not act for her (or Mrs Adamidis) because their husbands were his clients.
76“Married woman’s equity”: As a result of these findings, Ms Alexopoulos is also unable to succeed on the basis of the principles enunciated by the High Court in Yerkey v Jones (1939) 63 CLR 649 and reaffirmed in Garcia v National Australia Bank Ltd (1998) 194 CLR 395.
77The following matters must be established by Ms Alexopoulos if the Court is to set aside the transaction:
a.the “purport and effect” of the transaction was not understood by her;
b.she was a “volunteer”, in the sense that she was not to gain from the agreement she guaranteed;
c.Westpac must have understood that she would rely on her husband in matters of business and therefore should not have relied upon him to fully and accurately explain the purport and effect of the transaction;
d.no explanation was provided to her by Westpac or an independent third party sufficient for her to understand the “purport and effect of the transaction”;
(see Bank of Western Australia v Abdul [2012] VSC 222 per Croft J at [51]).
78For the reasons I have already expressed, I consider that Ms Alexopoulos understood the “purport and effect” of the transaction. She demanded explanations from her husband. I am not satisfied that he was unable to explain the effect of the guarantee to her or that she did not understand her position.
79Ms Alexopoulos knew that Baron had a substantial loan from the bank which was due to expire. Baron could only complete the development if Westpac agreed to extend this facility. It would only do this if further security were provided including the execution by her of a guarantee and a mortgage over her home.
80Ms Alexopoulos did not immediately agree. She argued for some days with her husband. She only signed the documents after the consultation with Mr Spiliotis. By that stage she was better informed, and certainly understood the risks she was accepting. She obviously believed, on the basis of what she was told by her husband during the preceding days and at the meeting with Mr Spiliotis that the risks were acceptable. This made it possible for her to make a reasoned decision as to whether to provide the guarantee and mortgage.
81Ms Alexopoulos prevaricated in her evidence about whether she was to personally benefit from the completion of the development, rather than receive “an incidental benefit which accrues generally to the family of which the wife is a member”. I consider Ms Alexopoulos has not established that she was a “volunteer” in the relevant sense.
82Breach of the Code of Banking Practice: Ms Alexopoulos’s counsel conceded that “the remedy for a breach of the Code is limited to a claim in damages or to a claim of set off”. A breach of the Code may, however, be “a circumstance that is relevant to unconscionability”. In this case, because of the general nature of the clauses of the Code relied upon, I do not consider that the breaches alleged advance the claim based on unconscionability any further than the specific matters relied upon.
83The guarantee entered into by Ms Alexopoulos provided that the Code of Banking Practice applied to the transaction. Accordingly, it was submitted on her behalf that warranties were provided to Ms Alexopoulos as follows:
“a.Westpac would promote better informed decisions about its banking services by providing effective disclosure of information (clause 2.1(b) of the Code);
b.Westpac would act fairly and reasonably towards Helen in a consistent and ethical manner (clause 2.2 of the Code);
c.Prior to offering the facility to Baron, Westpac would exercise the care and skill of a diligent and prudent banker in selecting and applying their credit assessment methods and in forming their opinion about Baron’s ability to repay the facility (clause 25.1 of the Code);
d.Before Westpac took the guarantee, it would give prominent notice to Helen that:
(i)she should seek independent legal and financial advice on the effect of the guarantee;
(ii) she could refuse to enter into the guarantee;
(iii) there were financial risks involved;
(iv)she had the right to limit her liability in accordance with the Code and as allowed by law; and
(v)she could request information about the transaction or facility to be guaranteed, (clause 28.4(a) of the Code);
e.Westpac would tell Helen if any existing facility it had given Baron would be cancelled, or if the facility would not be provided, if Helen did not provide her guarantee (clause 28.4(c) of the Code);
f.Westpac was required to provide Helen with:
(i)any related credit contract together with a list of any related security contracts;
(ii)the final letter of offer provided to Baron by Westpac together with details of any conditions in an earlier version of that letter of offer that were satisfied before the final letter of offer was issued;
(iii)any financial accounts or statement of financial position given to Westpac by Baron for the purpose of the facility within 2 years;
(iv)the latest statement of account relating to the facility; (clause 28.4(d) of the Code)
g.Westpac would not ask Helen to sign a guarantee, or accept it, unless Westpac has:
(i)provided Helen with the information set out in the preceding sub-paragraph; and
(ii)allowed Helen until the next day to consider that information (unless Helen had obtained independent legal advice after having received the information required by clause 28.4); (clause 28.5 of the Code)”.
84The principal matter relied upon by Ms Alexopoulos, which has not already been canvassed, was the assertion that, “Westpac ought to have realised that there was a real possibility that Baron would not have the ability to repay the extended facility by 31 March 2010”.
85Ms Alexopoulos’s counsel submitted that Westpac would have realised this if it had exercised “the care and skill of a diligent and prudent banker in selecting and applying their credit assessment methods and informing their opinion about Baron’s ability to repay the facility”. Westpac should then have passed the information on to Ms Alexopoulos before she entered into the guarantee.
86There is no evidence to substantiate these assertions. There was no evidence of the “credit assessment methods” applied by Westpac or what a “diligent and prudent banker” might have done differently.
87Accordingly, Ms Alexopoulos has not established any basis upon which the guarantee should be set aside. It is appropriate therefore that both she and Mr Stavrakis should make their appropriate contributions to the burden accepted by Zenith to discharge Baron’s indebtedness to Westpac.
What contributions should Mr Stavrakis and Ms Alexopoulos make?
88Zenith seeks a contribution by each of Mr Stavrakis and Ms Alexopoulos of $342,715.59. The calculation of this sum was set out in a schedule to the opening submissions of Zenith’s counsel and was derived from the material set out in the affidavit of Mr Greg McKillop. Counsel for Mr Stavrakis and Ms Alexopoulos did not challenge this amount.
Orders
89In the circumstances, I propose to order judgment for the plaintiff against the defendants, that each defendant pay to the plaintiff the sum of $342,715.59.
90I will hear the parties further on questions of interest and costs.
- - -
Certificate
I certify that these 24 pages are a true copy of the reasons for decision of His Honour Judge Anderson delivered on 26 October 2016.
Dated: 26 October 2016
Carla Cianfaglione
Associate to His Honour Judge Anderson
0
6
0