Allied Mills v Sikali [2004] QDC 405

DISTRICT COURT OF QUEENSLAND CITATION: Allied Mills v Sikali [2004] QDC 405 PARTIES: ALLIED MILLS PTY LIMITED ACN 000 008 739 (Plaintiff) v HASSAN SIKALI (Defendant) FILE NO/S: 4432/03 DIVISION: District Court PROCEEDING: Trial ORIGINATING COURT: District Court at Brisbane DELIVERED ON: 12th October 2004 DELIVERED AT: Brisbane HEARING DATE: 4th and 5th October 2004 JUDGE: Forde DCJ ORDER: Orders 1. It is declared that the contract of guarantee is void and unenforceable. 2. The plaintiff’s claim is dismissed. 3. It is ordered that the plaintiff do pay the costs of and incidental to the action (including reserved costs if any) of the defendant Hassan Sikali to be assessed. CATCHWORDS: CONSTRUCTION OF CONTRACT - GUARANTEE – NON EST FACTUM – UNDUE INFLUENCE AND UNCONSCIONABLE CONDUCT – Trade Practices Act 1974 (CTH) ss 51AC, 52. – Contracts Review Act 1980 (NSW) ss 4, 6 & 9 – Jones v Dunkel – Construction of Contract - Where guarantee void if unjust Trade Practices Act 1974 (CTH). Contracts Review Act 1980 (NSW). Bank of Australia Ltd. v Amadio (1982-1983) 151 CLR 447. Burrawong Investments Pty Ltd v Lindsay and Anor. [2002] QSC 082. -- 1 of 22 -- 2 Challenge Bank Limited v. Pandya (1993) 60 SASR 330. Credit Lyonnais Bank Nederland NV v Burch [1997] 1 All ER 144. Graham v Lewis (1888) 22 QBD 1. Jones v Dunkel (1959) 101 CLR 298. Lisciandro v Official Trustee in Bankruptcy (1996) 139 ALR 689. Louth v Diprose [1992] 175 CLR 621. Micarone v Perpetual Trustees [1999] SASC 265. Nguyen v Taylor (1992) 27 NSWLR 48. Osborne v Drive Park [2004] SASC 261. Petelin v Cullen [1975] 132 CLR 355 West v AGC (Advances) Ltd and others (1986) 5 NSWLR 610. COUNSEL: Mr C Jennings for the Plaintiff Mr G Coveney for the Defendant SOLICITORS: MacGillivrays Solicitors Slattery Thompson Introduction [1] The defendant, Hassan Sikali, was born in Syria. He is thirty six years old. He came to Australia in 1993. He had some limited tuition in English whilst in Syria but has learnt to converse in English. He married his wife, Anna, in Syria. She was a permanent resident of Australia. After arriving in Australia the defendant worked in various jobs including running a fruit shop with his wife from 1996 to 2001. Due to a downturn in business, he sold the fruit shop. He took employment with the Chullora Lebanese Bakery (the “bakery”), Greenacre in New South Wales in May 2002. His duties were as a delivery driver then he worked in the bakery itself. He was paid about $360.00 per week once he was full time and sometimes received more if he worked overtime. -- 2 of 22 -- 3 [2] The proprietor of the bakery, Mr.Yehya Ladkani decided to vary his credit arrangements with the plaintiff, Allied Mills Pty Ltd (formerly known as Goodman Fielder Mills Limited). The plaintiff provided flour and meal to the bakery. An employee of the plaintiff, Gregory Robert Haddon, was responsible for finalising those arrangements. He was told by Mr. Ladkani that the defendant was to become a partner of Mr. Ladkani. That would require a new application for credit and a guarantee. Both Mr. Ladkani and the defendant signed that document (Exhibit 18). It was signed on 4 June 2002. The bakery ran into financial difficulties and accrued debts of $149,287.00 between 2 June 2003 and 13 August 2003. The defendant ceased employment with the bakery in August 2003. The plaintiff seeks that sum as against the defendant. Mr. Ladkani was made bankrupt by the plaintiff and has not received any monies from him or his bankrupt estate in relation to the debt. Issues in the case [3] The defendant relies on various defences including that the guarantee is void for uncertainty, non est factum, duress, unconscionable conduct by the plaintiff including ss. 51AC and 52 of the Trade Practices Act 1974 (CTH) and ss.7 and 9(2) of the Contracts Review Act 1980 (NSW). The latter provisions allow the court to refuse to enforce the guarantee or to declare the contract of guarantee void if the court finds it to be unjust in the circumstances. The latter Act “is revolutionary legislation whose evident purpose is to overcome the common law’s failure to provide a comprehensive doctrinal framework to deal with “unjust” contracts”.1 1 per McHugh JA in West v AGC (Advances) Ltd and others (1986) 5 NSWLR 610 at 621. -- 3 of 22 -- 4 Factual Background The defendant’s understanding of English [4] The defendant gave evidence in the case. He had a reasonable understanding of the spoken word. He did not understand certain words but when put in more simple terms, he was more than willing to answer questions. He was astute enough to recognise questions which touched upon the important issues in the case such as his ability to understand the written word. However, in this respect, I accept his evidence which was confirmed by his wife2, that he has a limited ability to comprehend the written word. He does not, for example, read the English newspapers. He was able to read his affidavit and also parts of exhibits. In relation to the latter he was not tested on his comprehension. [5] When the defendant and his wife had the fruit shop, she was responsible for the books of account and other administrative tasks and also assisted in the shop. The defendant lacks the ability to read and understand with confidence. [6] In this respect, he would be at some disadvantage reading legal documents. He relied on his wife to guide him in this respect including income tax returns and citizenship papers. The defendant’s relationship with his employer [7] The defendant had been out of work for some time during 2001-2002 when he was offered the position at the bakery. He obtained the position through a friend. He carried out the duties of a delivery driver in the first instance. The defendant was 2 (Transcript 53.15) -- 4 of 22 -- 5 paid in cash initially at the rate of $300.00 per week. After awhile, he was offered a position in the packaging area. He was in this position for a short time when he was asked to sign the guarantee. This all occurred within a month of his starting his employment. His wages increased to $360.00 per week. Given these facts, it is difficult to know why the defendant as an employee having just sold a business at a loss3, would become a co-guarantor with Mr. Ladkani. [8] There was an attempt by the plaintiff to establish that the defendant was more than just an employee. Consideration has been given to the following on this issue: a. The tax returns of the defendant and his wife for the year ended 30 June 2002: there is no indication of any change pointing to an interest in the bakery. b. The evidence of the defendant as to his terms of employment: The duties which he was performing and his lack of knowledge of the business do not support any involvement. He said he was unaware of any credit arrangements with the plaintiff. Mr. Haddon suggested that the defendant attempted to vary the period of credit from 30 to 60 days. There is no evidence to suggest that was because of his involvement in running the accounts of the bakery. It is equally consistent with Mr. Ladkani instructing him to make such an inquiry. The defendant denies such a request was made by him.4 c. Anna Sikali’s evidence that she was not involved in any way in the bakery5 and the bank statements from July 2000 to June 20036: it was made fairly 3 (transcript 23.20). 4 (transcript 48.40). 5 (transcript 51.50). 6 (Exhibit 8). -- 5 of 22 -- 6 clear by Anna Sikali that she was the person in the family who attended to the business side of things. If a document had to be signed, she would tell the defendant that he could sign it. d. The company search for Chullora Lebanese Bakery Pty Ltd shows that Bilal Elkurdi and Yehia Ladkani were directors from February 2001. The defendant’s name does not appear in the records. Mr. Haddon gave evidence that Mr. Ladkani told him that the defendant was to be a partner and subsequently told him he was a director. The evidence was admitted as original evidence only. Mr. Haddon stated that when the defendant was introduced to him as the “new partner” he seemed to acknowledge this. Mr. Haddon inferred that by his silence that the defendant accepted this new status. It assumes that he understood that it had some legal importance as distinct from being a “new employee”. The defendant cannot recall that conversation. I am not satisfied that the defendant understood what was said or that he acknowledged that he was a partner. [9] The plaintiff has failed to prove that the defendant was involved in the business other than as an employee. It may have suited Mr. Ladkani’s purposes to have the plaintiff believe that a new partner was joining the business with a view to re- negotiating the credit arrangements. It certainly would have suited his purposes to mislead the defendant as to the nature of the document that the defendant was signing. As an employee of one month’s standing, signing a guarantee would not have been a desirable option. -- 6 of 22 -- 7 The circumstances surrounding the signing of the credit application and the guarantee [10] In his evidence, Mr. Haddon outlined the circumstances under which the new credit arrangements were entered into with the bakery. His duties as the accounts manager included requesting payment of outstanding accounts and obtaining credit applications and guarantees when necessary. Usually his clients filled out their own credit applications but in the present case he assisted the parties. The previous credit application had been in the name of Mr. Ladkani and Mr. El-kurdi7. Under that arrangement, credit was given for thirty days. He was often told by Mr. Ladkani that cheques were post dated by a few days to ensure that there were adequate funds in the bakery’s account.8 [11] In March 2002, he was informed by Mr. Ladkani that a new partner was coming into the bakery and his role was to focus on the day to day management of the business. Mr. Haddon attended at the bakery in April or May to determine the balance owing at that time and then to have the new application for credit executed because of the new partner. He was introduced to the defendant by Mr. Ladkani as the “new partner”. Mr. Haddon stated that the defendant “acknowledged this introduction” and they shook hands. [12] On 4 June, Mr. Haddon once again attended at the bakery and spoke to the defendant and Mr. Ladkani. He says he was told that the defendant was a doctor before coming to Australia and the defendant said that “he could not work in Australia as a Doctor as his qualifications were ‘not strong enough’.” Mr. Haddon observed the defendant to be well dressed and that he “spoke English well”9. 7 (Exhibit 22 para.5). 8 (Ibid. para 7). 9 (Exhibit 22 para.10). -- 7 of 22 -- 8 [13] As he took both applicants through the form, Mr.Haddon asked questions and filled in the form. He asked the defendant for his driver’s licence. He was asked to cross out the reference to them being “partners” in the form and to tick “directors”. The document10 confirms this. The defendant drew his attention to the misspelling of his name. This too is confirmed by the document. When discussing page three, Mr. Haddon said that he described it as a personal guarantee. Both Mr. Ladkani and the defendant responded by nodding. There is no evidence that the defendant knew what a guarantee was. He gave evidence that he had never signed a guarantee previously. I cannot be satisfied that he realised at that stage what he was signing. In fact, it was not until later that he was told and comprehended.11 I accept that evidence. [14] The defendant stated that before he signed the document, Mr. Ladkani spoke to him in Arabic. This was confirmed by Mr. Haddon. The defendant stated that Mr. Ladkani told him that by signing the document he was able to accept delivery of flour. At that time he was working in the bakery as distinct from doing deliveries. In fact, the delivery dockets reveal that the defendant signed one12.Having considered the problems with Mr. Haddon’s evidence, the demeanour of the witnesses and the general consistency of the defendant’s evidence, I am satisfied that the defendant did not understand the nature of the guarantee he signed or the consequences for him. 10 (Exhibit 18). 11 (transcript 38.54). -- 8 of 22 -- 9 Problems with Mr. Haddon’s evidence [15] In cross examination, Mr. Haddon was reminded that statements in his first affidavit failed to mention matters touched upon in his second affidavit.13 a. The first occasion that Mr. Haddon was asked to recall the contents of paragraph 14 of his affidavit14 was after his first affidavit. Some two years elapsed between the signing of the guarantee and that recall. In paragraph 14 a statement was made that a cheque was dishonoured and he spoke to the defendant in person about payment. In his earlier affidavit he stated it was on the telephone15. It is alleged that the defendant then said that he would have to speak to his wife and that in future he should only deal with him. In the earlier affidavit there was no mention of Mrs. Sikali16. Mr. Haddon could have confused a statement by the defendant that he was to ring his wife on some other matter and the cheque issue. The evidence does not sit comfortably with that of Anna Sikali who impressed as an honest, forthright and clear thinking witness. The lack of consistency in the evidence of Mr. Haddon detracts from its reliability. b. In paragraph 10(l) of his affidavit, Mr. Haddon states that he told both Mr. Ladkani and the defendant that “…this was a personal guarantee for the business”. In evidence he stated17: “This is guaranteeing your business, you are backing the business”. 12 (Exhibit RJB to the affidavit of Mr. Burns being exhibit 1). 13 (Exhibit 22). 14 (Exhibit 22). 15 (transcript 79.25). 16 (transcript 79.36). 17 (transcript 69.55). -- 9 of 22 -- 10 The pleadings of the plaintiff in the Reply state (para.12(a)): (a) Admits that prior to the Defendant executing the Application for Credit and guarantee and indemnity, Haddon did not give the Defendant any advice as to the operation or legal effect of the guarantee and indemnity”. [16] The evidence of Mr. Haddon at trial does not sit comfortably with this pleading. It is another reason for not being satisfied as to the reliability of the evidence of Mr. Haddon. Failure by the defence to call Mr. Ladkani [17] It was submitted by the plaintiff’s counsel that the court should draw an adverse inference against the defendant as Mr. Ladkani had not been called and no explanation was given for his non-appearance. The plaintiff had sued Mr. Ladkani and had bankrupted him. It was unlikely the plaintiff submitted that he would have been helpful. Mr. Ladkani may have been able to give original evidence as to what he told the defendant as to the nature of the documents being signed. On the defence case he lied about the nature of the transaction. On the findings made, he lied about the nature of the arrangements concerning the defendant’s role in the bakery. It suited him to paint the defendant as a partner in so far as the plaintiff was concerned. [18] When one looks at the documentary evidence, there is nothing to support the statement that the defendant was a partner or director of the bakery business. In the circumstances of this case, I am not satisfied that Mr. Ladkani would be expected to be called by the defendant in light of the duplicity of Mr. Ladkani as to the role of the defendant in the bakery business. According to Mr.Haddon, initially Mr. Ladkani described the defendant as a partner and then as a director of the company. -- 10 of 22 -- 11 [19] Mr. Ladkani was not a friend of the defendant. The Defendant left the employ of the bakery in August 2003 just after the indebtedness was revealed and after he was told by Mr. Ladkani of the nature of the document signed being a guarantee and its consequences. This is not a clear case where the application of the Jones v Dunkel18 principle is called for. Legal Issues Guarantee void for uncertainty [20] The basis of this submission is that there was a failure by the plaintiff to insert the name of the bakery in the “Guarantee and Indemnity” section of Exhibit 18. The approach of the courts is to look at the document as a whole to discern the intention of the parties. A similar situation arose in Lisciandro v Official Trustee in Bankruptcy19. It was certainly the intention of the plaintiff and Mr. Ladkani that the bakery was to be “the customer”. The defendant had at least that understanding. It would be necessary in the construction of the document to read the name “Chullora Lebanese Bakery” in paragraph 1 of the “Guarantee and Indemnity” as the customer. If this were the only stumbling block for the plaintiff, I would adopt that approach. For example, if the defendant knew he was guaranteeing the debt, then the name of the debtor as the customer could be inferred by reading the document as a whole. In the present case, the defendant, I find, had no such understanding. It was not his intention to sign the document as a guarantor. [21] The defendant relied upon the decision of White J. in Osborne v Drive Park20. The guarantor contended that at the time that he completed and signed the Credit 18 (1959) 101 CLR 298 at 308, 312 and 320-1; Cross on Evidence Australian Edition para 1215. 19 (1996) 139 ALR 689 at 707. 20 [2004] SASC 261 -- 11 of 22 -- 12 Application, he had not been able to read the entire document because parts had been obscured by the facsimile machine. It was submitted that the identification of the customer was essential to the operation of the guarantee. At paragraph 17, the learned judge stated: “Courts will try to uphold bargains. Where it is clear that the parties intended to make a contract, courts will, if possible, give effect to that intention, even when difficulties of construction or difficulties because of incompleteness arise. York Air-conditioning and Refrigeration (A/Asia) Pty Ltd v. The Commonwealth (1949) 80 CLR 11 at 26 per Williams J; Upper Hunter County District Council v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429 at 437 per Barwick CJ.” [22] In the circumstances of that case, the court found that the absence of entries in the spaces for name and address of the company customer did not make the guarantee so incomplete as to be unenforceable. That finding was understandable in that case, as the findings of fact at first instance were that the guarantor was a person who was experienced in business dealings and that he understood the nature and effect of the guarantee at the time that he signed it. The contrary, I find, exists in the present case. [23] It cannot be said that the defendant intended that the name of the customer would appear in the section entitled “Guarantee and Indemnity” as he believed he was signing some other document. I find the contract of guarantee to be void for uncertainty. -- 12 of 22 -- 13 Non est factum [24] The principle to be applied when discussing this doctrine can be found in Petelin v Cullen21: “The class of persons who can avail themselves of the defence is limited. It is available to those who are unable to read owing to blindness or illiteracy and who must rely on others for advice as to what they are signing; it is also available to those who through no fault of their own are unable to have any understanding of the purport of a particular document. To make out the defence a defendant must show that he signed the document in the belief that it was radically different from what it was in fact and that, at least as against innocent persons, his failure to read and understand it was not due to carelessness on his part. Finally, it is accepted that there is a heavy onus on a defendant who seeks to establish the defence”. [25] In the present case, it has been established to the required standard by the defendant: A. He relied upon his wife to explain the meaning and effect of documents which he signed. He had limited comprehension of the written word. B. He relied upon what his employer told him concerning the document he signed viz. it allowed the defendant to sign for the delivery of flour. He has no reason to doubt that statement. It could not be said that the defendant was careless by relying on his employer’s statement. C. Any evidence by Mr. Haddon that he told the defendant about the nature of the document must be considered in light of the findings as to the unreliability of his evidence as discussed. 21 [1975] 132 CLR 355 at 359. -- 13 of 22 -- 14 D. The document was not left with the defendant to peruse. In fact, the evidence of Mr. Haddon was that the kept possession of it except when signed by the parties. The fact that the defendant did not ask questions as to its nature is explained away by the explanation offered by Mr. Ladkani as to its effect. It cannot be said that in the circumstances he was careless in signing the document without reading same. He had no reason to doubt the genuineness of his employer at that point. [26] Having regard to these matters, it is open to find that the defence of non est factum is established. Undue influence and unconscionable conduct [27] In the decision of Commercial Bank of Australia Ltd. v Amadio22 Mason J explained the difference between these doctrines as follows: “But relief on the ground of “unconscionable conduct’ is usually taken to refer to the class of case in which a party makes unconscientious use of his superior position or bargaining power to the detriment of a party who suffers from some special disability or is placed in some special situation of disadvantage, e.g. a catching bargain with an expectant heir or an unfair contract made by taking advantage of a person who is seriously affected by intoxicating drink. Although unconscionable conduct in this narrow sense bears some resembling to the doctrine of undue influence, there is a difference between the two. In the latter the will of the innocent party is not independent and voluntary because it is overborne. In the former the will of the innocent party, even if independent and voluntary, is the result of the disadvantageous position in which he is placed and of the other party unconscientiously taking advantage of that position.”23 22 (1982-1983) 151 CLR 447 at 461. -- 14 of 22 -- 15 [28] The undue influence case relies upon the principle that the creditor is in no better position when looking at the issue of consent than the person so entrusted such as Mr. Ladkani in the present case. The authority relied upon is Challenge Bank Limited v. Pandya24 which was followed by a later South Australian decision of Micarone v Perpetual Trustees25. The Federal Court of Australia discussed this principle in Lisciandro op.cit and did not follow the Challenge Bank case. I propose to do the same and adopt the reasoning of the Federal Court (pp.696-697). It is therefore unnecessary to deal further with this point except to say there is no evidence that the plaintiff asserted undue influence over the defendant before the latter signed the document26 or that the defendant was overborne by anything said or done by Mr. Haddon. Nor was the plaintiff aware of any undue influence by Mr. Ladkani as the employer. The facts of the present case can be contrasted to those in Credit Lyonnais Bank Nederland NV v Burch27 where the bank was aware of the relationship between employer and employee with its attendant risk of abuse. [29] For the purposes of discussing unconscionable conduct, it can be assumed that the defendant was at a special disadvantage and so in a disadvantageous position when it came to understanding documents. Mr. Haddon was of the view which was supported by the manner in which the defendant gave evidence that the defendant understood spoken English. He relied upon this fact to reason that therefore the defendant must have understood the document28. There is no evidence that the plaintiff through Mr. Haddon unconscientiously took advantage of the disadvantage 23 (see also Louth v Diprose [1992] 175 CLR 621 at 627; Burrawong Investments Pty Ltd v Lindsay and Anor. [2002] QSC 082 per Muir J. at p.14). 24 (1993) 60 SASR 330. 25 [1999] SASC 265. 26 (Exhibit 18). 27 [1997] 1 All ER 144. 28 (transcript 72.26). -- 15 of 22 -- 16 from which the defendant suffered. He was dealing with a person whom he believed was to be the new partner in the bakery. He was conversing with him as he did with other Lebanese clients or those who had a limited command of the English language. I am not satisfied that Mr. Haddon was aware of the possibility of the defendant suffering from a special disability which would have prevented him from understanding the nature of the guarantee. He mistakenly mistook the defendant’s failure to ask questions as amounting to an understanding. The plaintiff cannot be held responsible for the role played by Mr. Ladkani in the transaction. There was no duty on the plaintiff to make further inquiry29. Trade Practices Act ss.51AC and 52 [30] The defence conceded that the s.51AC point failed if the Amadio principle of unconscionable conduct did not apply. I have so found and so it unnecessary to deal further with this point. Similarly, s.52 requires a finding of agency on the part of Mr. Ladkani and no submissions were made on that point. The plaintiff cannot be held liable for any misleading or deceptive conduct by Mr. Ladkani when he informed the defendant that the document related to his being able to sign for goods when delivered. Mr. Haddon could not understand Arabic. Contracts Review Act 1980 [31] The relevant provisions of this Act are as follows: “Section 4 Definitions unjust includes unconscionable, harsh or oppressive, and injustice shall be construed in a corresponding manner. 6 Certain restrictions on grant of relief (1) The Crown, a public or local authority or a corporation may not be granted relief under this Act. 29 Lisciandro op.cit p.695.40-50. -- 16 of 22 -- 17 (2) A person may not be granted relief under this Act in relation to a contract so far as the contract was entered into in the course of or for the purpose of a trade, business or profession carried on by the person or proposed to be carried on by the person, other than a farming undertaking (including, but not limited to, an agricultural, pastoral, horticultural, orcharding or viticultural undertaking) carried on by the person or proposed to be carried on by the person wholly or principally in New South Wales. 9 Matters to be considered by Court (1) In determining whether a contract or a provision of a contract is unjust in the circumstances relating to the contract at the time it was made, the Court shall have regard to the public interest and to all the circumstances of the case, including such consequences or results as those arising in the event of: (a) compliance with any or all of the provisions of the contract, or (b) non-compliance with, or contravention of, any or all of the provisions of the contract. (2) Without in any way affecting the generality of subsection (1), the matters to which the Court shall have regard shall, to the extent that they are relevant to the circumstances, include the following: (a) Whether or not there was any material inequality in bargaining power between the parties to the contract, (b) Whether or not prior to or at the time the contract was made its provisions were the subject of negotiation, (c) Whether or not it was reasonably practicable for the party seeking relief under this Act to negotiate for the alteration of or to reject any of the provisions of the contract, (d) Whether or not any provisions of the contract impose conditions which are unreasonably difficult to comply with or not reasonably necessary for the protection of the legitimate interests of any party to the contract, (e) Whether or not: (i) any party to the contract (other than a corporation) was not reasonably able to protect his or her interests, or (ii) any person who represented any of the parties to the contract was not reasonably able to protect the interests of any party whom he or she represented, because of his or her age or the state of his or her physical or mental capacity, (f) the relative economic circumstances, educational background and literacy of: (i) the parties to the contract (other than a corporation), and (ii) any person who represented any of the parties to the contract, (g) where the contract is wholly or partly in writing, the physical form of the contract, and the intelligibility of the language in which it is expressed, (h) whether or not and when independent legal or other expert advice was obtained by the party seeking relief under this Act, (i) the extent (if any) to which the provisions of the contract and their legal and practical effect were accurately explained by any person to the party seeking relief under this Act, and whether or not that party understood the provisions and their effect, (j) whether any undue influence, unfair pressure or unfair tactics were exerted on or used against the party seeking relief under this Act: (i) by any other party to the contract, (ii) by any person acting or appearing or purporting to act for or on behalf of any other party to the contract, or -- 17 of 22 -- 18 (iii) by any person to the knowledge (at the time the contract was made) of any other party to the contract or of any person acting or appearing or purporting to act for or on behalf of any other party to the contract, (k) the conduct of the parties to the proceedings in relation to similar contracts or courses of dealing to which any of them has been a party, and (l) the commercial or other setting, purpose and effect of the contract.” [32] At the outset counsel for the plaintiff argued that the Act did not apply as the defendant entered into the guarantee for the purpose of a trade or business carried on by the defendant. That argument may have had some validity if there had been a finding that the defendant was a partner or director of the business. Many guarantees are entered into by persons who have no active role in running or carrying on a business. Parents often guarantee the businesses of their children. The fact that the defendant was an employee of the bakery business does not mean he is carrying on a trade or business as a baker: “In my opinion it imports that the person has control and direction with respect to the business, and also that it is a business carried on for some pecuniary gain.”30 [33] On the facts of the present case, the plaintiff has failed to prove that the defendant was carrying on the bakery as a trade or business. [34] In my view, the following facts are relevant to the factors set out in s 9(2) of the Act to which the court should have regard in determining whether the guarantee was unjust at the time that it was made. Consideration has been given to the position of both parties but the following facts are more pertinent to the defendant: (a) The plaintiff was a substantial company and the defendant was working for a small bakery. His employer asked him to sign a document. 30 Graham v Lewis (1888) 22 QBD 1 at 5 CA per Fry L.J.. -- 18 of 22 -- 19 (b) There was no evidence that the defendant requested a guarantee. There was no negotiation by the defendant with Mr. Haddon. The defendant asked no questions (c) The first that the defendant knew of the nature of the guarantee was when the indebtedness of the bakery was known to him in August 2003. (d) It could not be said that the plaintiff imposed conditions which were unreasonably difficult to comply with (e) The defendant was not able to protect his interests as he did not comprehend what it was he was signing. (f) The defendant had a limited education. He had been involved in signing mortgages previously but only after his wife explained their nature. His comprehension of the written word was limited. He had a reasonable grasp of spoken English but hesitated when certain words or phrases were used. (g) The defendant agreed that a guarantee is a difficult document to understand31. He had never signed a guarantee previously. (h) No independent legal or other expert advice was sought. He was not left with a copy to peruse before signing. (i) Putting the plaintiff’s case at its highest, Mr.Haddon told Mr. Ladkani and the defendant that they were signing a personal guarantee. I am not satisfied that the defendant understood the nature of a guarantee or its consequences when he signed the guarantee. (j) The defendant gave evidence that Mr. Ladkani told him that he was signing a document to allow the defendant to sign for deliveries. Mr. Haddon confirmed that they spoke at the relevant time. This in my view was an unfair tactic by the representative of a party to the contract. Mr. -- 19 of 22 -- 20 Haddon did not inquire as to what was stated before the defendant signed the guarantee. (k) not applicable (l) the plaintiff’s objective was to secure payment of goods delivered to the bakery owned by one of the co-guarantors. [35] It has been held that: “There is jurisdiction under the Act to make orders in favour of a party to a contract who proves that at the date of the contract he suffers from a relevant disability even though the other party to the contract is unaware of that disability, although in general it would be unsound to exercise the jurisdiction in those circumstances. That is a view which I expressed in Collier v Morlend Finance Corporation (Vic) Pty Ltd (1989) ASC 55-716 at 58,433, and I adhere to it. The reason for the view is that it is hardly just to deprive an innocent person of valuable property of which contractual rights are a species. Nevertheless, such a jurisdiction undoubtedly exists. In the present case, for example, it is made quite clear from s 9(2)(i) of the Act that relief may be granted if a finding is made that a party to a contract did not understand “the provisions and their effect” of a contract.”32 [36] In that case there was a finding at first instance that the mortgagor-guarantors would not have made their properties available if it had been explained to them that not only were their properties at risk if the advance was not paid but that there had been problems running the business and that expert management was required turn it around. In other words, they had not been told of a real prospect of the business failing and of a larger debt as a result. In the present case, the defendant was unaware that cheques were being post dated because of liquidity problems. It is recognized that is why guarantees often are given by directors. Mr. Ladkani finalised any outstanding debt prior to the new credit arrangements, but the defendant was not aware of the nature of the document being signed or the extent of his indebtedness in the event of failure of the business. In applying the Contracts 31 (transcript 42.28). 32 per Meagher JA with whom Samuels JA agreed in Beneficial Finance Corporation v Karavas (1991) 23 NSWLR 256 at 277. -- 20 of 22 -- 21 Review Act, regard has been had to the factors discussed above as relevant to s.9(2), the conduct of the plaintiff’s representative, Mr.Haddon and all of the circumstances of the case, including the public interest. The court is entitled to take into account all of the circumstances of the case, including the public interest. S.9(2) does not exhaustively indicate the criteria as to what can be taken into account.33 [37] The defendant in cross examination34 asked the question why he would sign a guarantee when the bakery was not his. He had just started work there. There was an attempt to try and trace the proceeds from the sale of his previous business. The sum of $50,000.00 was obtained. The money was used for various purposes including payment of debts, improvements on the house and related matters. It was never suggested to him that he used the monies to buy into the bakery. I have reached the conclusion that it would be unjust to enforce the guarantee against the defendant:s.7(1)(a) of the Act. The conclusion is reached having regard to the principles referred to in Beneficial Finance Corporation.35 The guarantee was necessary to protect the legitimate interests of the plaintiff. However, Mr. Haddon could have inquired whether the defendant understood what he was signing, particularly after the interchange with Mr. Ladkani. The public interest is sometimes best served if such inquiries are made. [38] In some ways, this case is unique when the various authorities which have been placed before me are examined. The fact that the defendant as an alleged guarantor was misled in the presence of the plaintiff’s representative by a co-guarantor is not unusual. However, it occurred in a language not understood by the representative. 33 West v AGC (Advances) Ltd.op.cit pp.626-629. 34 (transcript 39.35). 35 See also Nguyen v Taylor (1992) 27 NSWLR 48 at 69 referred to by Muir J. in Burrawong Investments Pty Ltd v Lindsay and Anor. op. cit p.26. -- 21 of 22 -- 22 It was a statement which completely misrepresented the nature of the document. As an employee, the defendant accepted the assurances of Mr. Ladkani who managed the bakery and was a director of the company which owned the bakery. Mr. Haddon made no inquiry as to what was said. Had he done so, perhaps the defendant may have revealed the true position. Ignorance on the part of the plaintiff is a consideration relevant to the exercise of the discretion under s.7 of the said Act. It does not however preclude the court from making an order. In my view this is one of those rare cases which warrants depriving an innocent party of the benefit of its contract.36 Orders 1. It is declared that the contract of guarantee is void and unenforceable. 2. The plaintiff’s claim is dismissed. 3. It is ordered that the plaintiff do pay the costs of and incidental to the action (including reserved costs if any) of the defendant Hassan Sikali to be assessed. 36 per Meagher AJ in Collier v Morlend Finance Corp. op.cit referred to by Fryberg J. in Hepburn v McLaughlins Nominee Mortgage Pty Ltd. BC9700797 Supreme Court of Queensland Court of Appeal No. 4239 of 1996 unreported judgment given 18 March 1997 p.17). -- 22 of 22 --