IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2013-404-1157 [2013] NZHC 1805

BETWEEN	BALLINDINE LIMITED Plaintiff

AND	ROGER HAMILTON GOWER Defendant

SEAN ROBERT JOYCE Third Party

Hearing:	1 July 2013

Appearances:	Mr A Sorrell and Ms A Borchardt for Plaintiff
Mr M Pascariu for Defendant

Judgment:	23 July 2013

JUDGMENT OF ASSOCIATE JUDGE J P DOOGUE

This judgment was delivered by me on
23.07.13 at 4 pm, pursuant to
Rule 11.5  of the High Court Rules. Registrar/Deputy Registrar
Date……………

BALLINDINE LIMITED v ROGER HAMILTON GOWER [2013] NZHC 1805 [23 July 2013]

Background

[1]       The plaintiff, Ballindine Limited, seeks summary judgment to compel the defendant,  Mr  Gower,  to  pay  AU$339,796.21  allegedly  owing  pursuant  to  a guarantee that he signed.  Ballindine also seeks payment of legal costs incurred in Australia and New Zealand, costs of this action, and interest.   Mr Gower opposes summary judgment as he argues the guarantee was executed whilst he was under undue influence and failure to make demand on him within a reasonable time means it is oppressive for Ballindine to enforce the guarantee.

[2]       The undisputed facts are that the defendant provided the guarantee on 23

August 2007 to secure a loan from the plaintiff to Munro Corporation Pty Limited (“Munro”) for AU$100,000.  The interest rate was 20% per annum and the default interest rate was 30% per annum.  The guarantee was signed by the defendant and co-guarantors, Mr Joyce and Mr Hirst.   The guarantors were jointly and severally liable.   Mr Joyce and Mr Hirst were the directors of Munro.   Mr Gower was a shareholder.   The loan agreement had been signed by Mr Hirst in Sydney which allegedly resulted in an urgent situation where Mr Gower signed the guarantee in his car on that same day.

[3]       On 23 May 2008, Munro defaulted on repayment of the loan agreement.  The balance of the loan and all interest became immediately due.  On 19 October 2009, Ballindine obtained a default judgment against Mr Hirst in Australia.   Mr  Hirst entered into a deed of arrangement with his creditors and Ballindine received AU$4,890.97 in repayment of all sums owing under the loan agreement.

[4]       On 12 August 2011, Mr Gower received a demand from Ballindine via email for the amount then owing, which had accrued compound interest.  On 31 August
2011,  demand  was  made  on  Mr  Gower  in  accordance  with  the  terms  of  the guarantee.   Mr Gower denied liability and applied for leave to issue a third party notice against Mr Joyce.  The application for leave is unopposed.

[5]       At the time when the guarantee was signed, Mr Joyce was a partner in Jones

Young Solicitors and had acted for Mr Gower as his solicitor in the past.  Mr Gower

submits that there were several facets to Mr Joyce’s involvement in the signing of the guarantee and the surrounding circumstances.   He alleges that Mr Joyce was acting as the solicitor for Ballindine, that he was Mr Gower’s solicitor, a director of Munro, an investor in Munro, and a co-guarantor.

[6]       It is common ground that Mr Joyce witnessed Mr Gower’s signature and had not explained the effect of the guarantee to Mr Gower or advised him to obtain independent legal advice.   Ballindine submits that Mr Joyce was not acting for Ballindine and does not know of Mr Joyce acting as solicitor for Mr Gower at the relevant time.

[7]       Mr  Gower  argues  that  he  has  two  defences  to  the  claim  for  summary judgment.  First, he claims that the guarantee is not enforceable as it was entered into under undue influence.   Secondly, he claims that it is oppressive for Ballindine to seek to enforce the guarantee due to delay, and that the solicitor-client costs sought are oppressive.

Summary judgment

[8]       Ballindine applies for summary judgment under r 12.2 High Court Rules:

12.2	Judgment when there is no defence or when no cause of  action can  succeed
(1)	The court may give judgment against a defendant if the plaintiff
satisfies the court that the defendant has no defence to [a cause of action in the statement of claim or to a particular part of any such
cause of action].
(2)	The court may give judgment against a plaintiff if the defendant satisfies the court that none of the causes of action in the plaintiff's
statement of claim can succeed.

[9]        The  principles  are  set  out  in  the  judgment  of  the  Court  of  Appeal  in

Krukziener v Hanover Finance Ltd:1

[26]      The principles are well settled. The question on a summary judgment application is whether the defendant has no defence to the claim; that is, that there is no real question to be tried: Pemberton v Chappell [1987] 1 NZLR
1; (1986) 1 PRNZ 183 (CA). The Court must be left without any real doubt or  uncertainty.  The  onus  is  on  the  plaintiff,  but  where  its  evidence  is
sufficient to show there is no defence, the defendant will have to respond if

1 Krukziener v Hanover Finance Ltd [2008] NZCA 187, [2010] NZAR 307.

the application is to be defeated: MacLean v Stewart (1997) 11 PRNZ 66 (CA). The Court will not normally resolve material conflicts of evidence or assess the credibility of deponents. But it need not accept uncritically evidence that is inherently lacking in credibility, as for example where the evidence is inconsistent with undisputed contemporary documents or other statements by the same deponent, or is inherently improbable:  Eng Mee Yong v Letchumanan [1980] AC 331; [1979] 3 WLR 373 (PC). In the end the Court’s assessment of the evidence is a matter of judgment. The Court may take a robust and realistic approach where the facts warrant it: Bilbie Dymock Corp Ltd v Patel (1987) 1 PRNZ 84 (CA)

[27]      Under r 141A the defendant need not file a statement of defence. The onus remains on the plaintiff, and summary judgment will be denied if on the hearing of the application it appears that there is an issue worthy of trial

Undue influence defence

[10]     The defence which Mr Gower puts forward does not arise from his direct dealings with the plaintiff.  It is not suggested, for example, that an employee of the plaintiff exercised undue influence upon him.   Rather, the route which his claim takes  is  less  direct.    He  says  that  Mr  Joyce  was  his  solicitor  in  regard  to  the transaction and that as such he brought undue influence to bear upon him.   Mr Gower argues that the rights that the plaintiff as the lender had against him were compromised by the exercise of undue influence on the part of Mr Joyce.  This is because Mr Joyce was also acting as agent for the plaintiff, so that such knowledge of any undue influence exerted by him on Mr Gower would be imputed to the plaintiff as  principal,  or Ballindine was  put  on  inquiry as  to  the risk  of undue influence and failed to insulate itself from the consequences of undue influence.

[11]     To have an arguable defence to Ballindine’s claim for summary judgment

due to undue influence, Mr Gower must establish that it is arguable:

(a)        that he was subject to undue influence; which involves:

(i)	a relationship of trust and confidence, whether presumed or proven; and

(ii)	a transaction calling for explanation.

(b)       that any due influence can be imputed to Ballindine by reason of Mr Joyce being its agent, or the circumstances of the undue influence were known to Ballindine such as to put it on inquiry of the risk of undue influence;

(c)       that Ballindine did not act to insulate itself from the consequences of that influence.

[12]     The approach to undue influence set out in Law of Contract in New Zealand2 has been accepted as an accurate statement of the law in New Zealand.3   This is that in certain special cases where there is a fiduciary relationship between parties, trust and confidence is irrebutably presumed.  However, there is no presumption that any
influence arising from that relationship was undue.  Law of Contract in New Zealand

sets out:

...

(ii)     presumed undue influence is ... the same as actual undue influence. The difference lies in how undue influence is proved. ... Sometimes undue influence is proved directly, by evidence of the actual exertion of wrongful influence. But sometimes a claimant proves circumstances which justify the drawing of an evidential inference that undue influence has occurred.

(iii)  An evidential presumption of undue influence arises where there is a relationship involving elements such as trust, confidence, reliance and dependency by one party towards the other, and the circumstances of the transaction are such as to call for an explanation. The relationship may be recognised by law, without proof of actual trust and confidence, or may simply be proved on the facts of the case. Factors which bear upon any need for an explanation include the size of the transaction and disadvantage to the weaker party. An element of disadvantage is relevant but is not a necessary
condition before a presumption can arise.

2 Burrows, Finn and Todd Law of Contract in New Zealand (4th ed, LexisNexis, Wellington, 2012) at
437.
3   L.E.A.D Training Trust Ltd v Evans HC Hamilton CIV-2010-419-832, 16 February 2011, Allan J

(iv)    In every case the question is whether undue influence has been established on the facts that have been proved. The legal burden of proof is on the plaintiff. An evidential presumption can assist in reaching the conclusion that  there  was  undue  influence  in  fact.  It  can  be  rebutted  by  evidence showing that the weaker party was free from any improper influence.

Is it arguable that Mr Gower was subject to undue influence?

[13]       Mr Gower asserts that he has a defence available to him under the doctrine of undue influence.  The argument is that a co-guarantor of the liability owing to the plaintiff was a person who was also his solicitor, Mr Joyce.   It is argued that Mr Joyce that as his solicitor, Mr Joyce misused the relationship of trust and confidence between them to have the plaintiff execute the guarantee.  From that starting point, it is asserted that the transaction between Mr Gower and the plaintiff moneylender is affected by the undue influence.

The liability of solicitors for undue influence

[14]     Before I consider the question of whether it is arguable that Mr Joyce is accountable for bringing undue influence to bear upon Mr Gower on the matter of the guarantee, brief reference will be made to the nature of the duty which solicitors, generally, are considered to be under when advising their clients.

[15]     In the case of a solicitor and client, the law takes as the starting point that where a disadvantageous transaction has occurred, such as the provision of a substantial gift by the client to the solicitor, it is presumed irrebuttably that the solicitor exercised undue influence over the client.  There does not have to be proof of actual reposing of trust and confidence in the other party.

[16]     The position is stated in the following terms in Halsbury:4

A different form of presumption, however, arises in the case of certain types of relationship in which one party acquires influence over another who is vulnerable and dependent and where, moreover, substantial gifts by the influenced or vulnerable person are not normally to be expected.  In these cases the law presumes, irrebuttably, that one party had influence over the other.    The  complainant  need  not  prove  he  actually  reposed  trust  and

4 Halsburys Laws of England (5th ed, 2008) vol 49 Financial Services and Institutions - Guarantee and
Indemnity at [1045]. And see footnote 11.

confidence in the other parties; it is sufficient for him to prove the existence of the type of relationship.

[17]     Significantly, the passage concludes with the words:

That relationship does not arise from the normal relationship of banker and customer ...

[18]     However an inference that undue influence has been exercised may arise from dealings between the parties who are in the relationship of banker and customer but where the nature of the transaction calls for an explanation in the light of the relationship  between  the  parties,  the  evidential  onus  shifts  to  the  defendant  to
demonstrate the absence of undue influence.5    In the case of banker and customer

where the presumption of undue influence has arisen an evidential onus falls on the other party to rebut the presumption.

[19]     Another important point is the necessity to give attention to what is alleged to have been the advantage obtained by the solicitor – to the “substantial gifts by the influenced or rebuttable person” which are not normally to be expected.  It will be obvious that the principle is engaged in cases such as where a solicitor draws up a will for a client in which the client leaves him a substantial legacy.

[20]     The next step is to consider the nature of the arrangements that actually existed in this case between Mr Gower and Mr Joyce.  The case for the defendant is that Mr Joyce was acting as his solicitor on the guarantee transaction and therefore trust and confidence is presumed.

Was there a relationship of trust and confidence between Mr Joyce and Mr Gower?

[21]     This issue involves consideration of whether Mr Joyce was acting as Mr Gower’s solicitor at the relevant time so that trust and confidence can be presumed. There is no doubt that Mr Joyce had acted as a solicitor for Mr Gower in the past. However, the fact that he co-operated with Mr Gower in the matter of the guarantee does not necessarily mean that Mr Joyce had resumed acting in his capacity as solicitor for Mr Gower.  Had there been no other explanation for why the two men
were interacting on this occasion, one inference that could explain the position is that

5 Royal Bank of Scotland v Etridge (No 2) [2002] 2 AC 773.

Mr Joyce had once again accepted an engagement to act as Mr Gower’s solicitor. But the possible source of a nexus between the two men was not limited to that of the professional solicitor-client relationship.  There was an additional link between them that they were both shareholders in the company which was the principal debtor.

[22]     Mr Gower does not depose that he had actually asked Mr Joyce to advise him on the guarantee transaction.  His position goes no further than inviting the Court to draw inferences from the inherent circumstances of the case and from the established fact that Mr Joyce had acted for him as a solicitor in the past.

[23]     Mr Gower is seeking to raise an affirmative defence.  There needs to be some evidence which is capable of belief showing that it is arguable that Mr Gower’s assertions about his relationship with Mr Joyce are correct.  There is no evidence of a retainer document being executed or any discussion or agreement about costs.  It is not suggested that in the period of months since the guarantee was given Mr Joyce or his firm have rendered an account to Mr Gower.   Furthermore, as already noted, there is an explanation available in the circumstances of the case as to why Mr Joyce came to deal with Mr Gower over the execution of the guarantee.

[24]     Mr Joyce and Mr Hirst were both directors of Munro.  The loan documents were apparently sent to the law firm in which Mr Joyce was a partner.  In fact, there is reason to suppose that the documents were actually prepared by Mr Joyce’s firm because of their format  and the appearance of the firm’s name on the contract documents.  It is arguable that the firm of which Mr Joyce was a partner acted for Ballandine.   It also is arguable that if they acted on preparing the documents they also acted upon execution of them.   I reach that conclusion notwithstanding the denial by the plaintiff that Mr Joyce had any role in the transaction or that he acted for the Company.

[25]     .It is necessary to examine the issue further in the light of the submission which  is  made  for  the  defendant  that  Mr  Joyce acted in  the  transaction  as  his solicitor.  That issue, and not whether Mr Joyce acted for the company, is the key matter that arises in connection with the summary judgment application.

[26]     Such evidence as there is suggests there were at least two capacities in which Mr Joyce dealt with Mr Gower over the guarantee.   The first was, as I have mentioned, that it is arguable that Mr Joyce’s involvement was as the solicitor acting for the company.  The second way in which it would appear that he was involved was as a signatory to the agreement, in the capacity of guarantor.  He also appears to have witnessed the signature of Mr Gower as guarantor.  These factors on their own do not tend to prove either way the proposition that Mr Joyce was acting as Mr Gower’s solicitor.  There is nothing to prevent one co-guarantor from witnessing the signature of another.  And simply because that guarantor happened to be a solicitor, no inference arises that he provided legal advice or services to his co-guarantor.  It is easy to explain Mr Joyce's involvement on the basis that this was the case of a shareholder in the company taking some minor steps in order to put into effect a loan agreement which the company wanted to give effect to.   The evidence does not establish anything more than the conclusions which I have just been discussing. They do not tend to prove that Mr Joyce undertook to act as Mr Gower’s solicitor.  If that proposition is to be raised even to an arguable level, further evidence would be required.

[27]     Mr Gower gives some evidence on the point.  He makes the assertion that it was his expectation that Joyce would be representing him as a solicitor, as he was a partner  at  Jones  Young  which  had  acted  for  Mr  Gower  in  the  past,  and  had introduced him to a QC when he required advice from one.  That is the extent of his evidence.  One would have expected that if Mr Gower is contending that Mr Joyce was his solicitor that there would be evidence of Mr Gower requesting Mr Joyce to act and Mr Joyce agreeing to do so.  There might have been evidence of Mr Joyce rendering an account to Mr Gower for the legal services so provided.  But there is no such evidence.  Evidence of Mr Gower’s expectation in the matter is neither here nor there.  What is important is what if anything was actually agreed and it is in relation to that subject that Mr Gower’s account of matters is silent.

[28]     Quite apart from the existence of a retainer as solicitor is the question of the ambit of any retainer.  That is to say, even if Mr Gower instructed Mr Joyce as his solicitor, it does not necessarily follow that the retainer was for the purpose of advising him on the commercial wisdom of the guarantee.  The Court has not been

told what the scope of the retainer was.   There is no obligation on the part of the solicitor who has been instructed by a person who is in command of his facilities and who seeks the assistance of the solicitor for the limited purpose of implementing a particular transaction, to advise on the wisdom of the transaction.6

[29]     The account that Mr Gower gives does not include a claim that he expressly asked Mr Joyce, or Mr Joyce in the circumstance must have understood, that Mr Gower was seeking advice on the merits of the transaction.  It is not suggested that Mr Joyce actually said anything about the commercial wisdom of the transaction. That leaves the odd situation where the client went to see the solicitor about a particular transaction without mentioning a word about his wanting advice on the desirability of proceeding and the solicitor remaining equally silent about that important topic.

[30]     In my view, a different but more likely explanation is apparent on the basis of the evidence which has been offered.  That is that Mr Gower, who is described in the uncontradicted evidence as being an experienced businessmen,7  did not think he needed advice on the wisdom of the guarantee, did not ask for it, and Mr Joyce did not appreciate the need for advice for the same reasons.

[31]     I do not consider that it is arguable that Mr Joyce acted as solicitor for Mr Gower and therefore trust and confidence is not presumed.   It is not realistic to suggest that if evidence were given at trial which broadly follows the pattern of that produced on a summary judgment basis, the Court might be persuaded that Mr Joyce accepted an engagement to advise Mr Gower on the merits of the guarantee transaction.  It would follow that if there was no primary liability on the part of Mr Joyce to advise Mr Gower on these matters there was no misuse of the position of influence which could be sheeted home to the plaintiff on the basis that it was liable for the actions of Mr Joyce as its agent or that it had knowledge of the acts or omissions on the part of Mr Joyce which amounted to a breach of the obligations he
owed to the defendant.

6 Clarke Boyce v Mouat [1993] 3 NZLR 641 (PC).
7   In his LinkedIn profile which was produced in evidence, Mr Gower is  described as a  “very experienced director and chairman-public and private companies, listed two companies on the NZX the NZ listed company market and reverse listed another on the NZX”.

[32]    That being the case, this was not a circumstance where an irrebuttable presumption of undue influence arises.   Therefore, the transaction between the plaintiff and Mr Gower is not one which arguably could be set aside by the court on the grounds of undue influence.

Oppression

[33]     Mr Gower seeks the re-opening of the credit contract under s 120(b) Credit Contracts and Consumer Finance Act 2003 (CCCFA) and alleges that Ballindine has exercised  its  power  to  demand  payment  in  an  oppressive  manner.    Mr  Gower submits that it is oppressive for Ballindine to enforce the guarantee and it is oppressive for Ballindine to recover compound interest accrued between May 2008 and August 2011 and enforcement costs of the claim against Mr Hirst.  Mr Gower argues that clause 11.1 of the guarantee impliedly required Ballindine to “ensure that notice of default to the guarantors was given within a reasonable time after Munro’s default.”  Section 125 CCCFA gives guarantors standing to apply for re-opening of
the contract, not the guarantee.8   It is Mr Gower’s contention that, in accordance with

reasonable standards of commercial practice, the plaintiff failed to make demand on the defendant until 31 August 2011.  There is no dispute that that date is correct.

[34]     Whether that date is of relevance to the enforceability of the loan and the prospects of Mr Gower obtaining an order for the reopening of the loan agreement is another question.   According to Mr Gower, he was never “formally advised as a guarantor” of “Munro’s default at the time”.  What is intended to be conveyed by the expression  about  “formal”  advice  is  not  clear.    Nor  is  Mr  Gower’s  deposition entirely forthcoming about when he did actually learn that Munro had defaulted. The latter date can be resolved by reason of contemporary email exchanges which show that, as early as 7 August 2009, Ballindine had communicated to Mr Gower
that  enforcement  action  on  the  loan  was  in  contemplation.9      Mr  Gower  made

mention of that when requesting an update from Mr Hirst about a project that Munro was involved in, in an email which he sent to Mr Hirst on the date mentioned.  On the  same  day  (and  perhaps  before  the  email  which  I  have  mentioned),  Munro
emailed both Messrs Gower and Joyce, essentially saying that all that could be

8Thomas Gault (ed) Gault on Commercial Law (online looseleaf ed, Brookers) at 4C.7.01
9 BD 151.

offered to Ballindine was to ask for additional time so Munro could complete some developments it was involved in.  Mr Hirst concluded by saying:

As there are no funds in Munro International, I assume Ballindine’s next
action will be against the three guarantors.

[35]     Therefore, even if it were correct that Mr Gower was entitled to refrain from making his own enquiries and to look to the plaintiff to keep him informed of its intentions,  by  August  2009  he  would  have  known  what  those  intentions  were. Mr Gower does not say what difference this would have made to the way that he dealt with matters.   But the fact was that by that date he knew (or could have discovered from reading the document that he signed) that he was liable for compound  interest  for  any deficiency.    He must  also  have  appreciated  that  the potential risks generated by the guarantee had materialised having regard to the default that had occurred in May 2008.   It seems certain that he learned, between August and November of 2009, that Mr Hirst was bankrupt.

[36]     Against this background, it must be doubted whether Mr Gower has any realistic claim for an order reopening the transaction due to oppressiveness on the part of Ballindine.  The Court is unlikely to exercise its jurisdiction under CCCFA unless the merits of the case favour the applicant.  Technical points are unlikely to be of great weight, particularly given the important principle that contracts are not
lightly to be set aside.10

[37]     In that regard, the following passage from the commentary in Gault11  is informative:

Arnold J held, at [51], that s 118 definition is “deliberately broad” and it is not appropriate  to  fasten  on  the  individual  words  and  give  them  their  meaning  in common law or equity: the remedy is “stand alone, generic and statutory” and so should not be given a “pinched or unduly restrictive meaning”. After considering how oppression, unconscionable and unreasonable standards of commercial practice have been interpreted as stand alone concepts, he said, at [56]:
“The three strands I have identified — abuse of power, unequal bargaining positions coupled with hard terms, and departure from standards acceptable
to the community — may well cover most of the cases which are likely to advance through our courts. But again it cannot be emphasised too strongly

10 Gault on Commercial Law, above n 17, at 4C.7.02(1).
11 At 4C.7.02.

that the s 118 definition is not a bounded one: in terms of formal logic, it is not an intrinsic definition. Oppression is defined as including oppression, which leaves the expression quite untrammelled. The term goes beyond the existing concepts in our jurisprudence. The legislation itself also makes it plain that all of the circumstances of the particular transaction are relevant: oppression is the trigger for curial investigation and, perhaps, intervention.”
This  view  is  inconsistent  with  the  primacy  given  to  reasonable  standards  of commercial practice in Greenbank and with the earlier emphasis given to each
individual word. In Bartle, Arnold J preferred to provide his own reasoning rather
than endorse this approach and essentially went along with what had been said in
Greenbank. The third member, William Young P, did not address the point.

[38]     In the subsequent judgment of GE Custodians v Bartle the Supreme Court approved the remarks which Arnold J made12 but added that the various words of the section  which  together  form  the  definition  of  the term  “oppressive”  all  contain different shades of meaning but they all contain the underlying idea that the transaction or some term of it is in contravention of reasonable standards of commercial practice.13

[39]     Mr Gower has not put before the Court any evidence about what reasonable standards of commerce required in the circumstances of this case.   There is no suggested abuse of power on the part of the lender.   The same is true of unequal bargaining power.   This is not the case of a borrower or guarantor who was financially in a distressed position being taken advantage of by the financier.  Indeed Mr Gower makes it clear in his evidence that he had the option of obtaining his share of the required funding from other resources instead of borrowing it.  Mr Gower’s counsel submitted:

“... he could have advanced his share of funding directly to Munro.  For his part, the Loan Agreement was not necessary,” and Mr Gower’s affidavit detailed “... at the time the Loan Agreement was executed I had the financial ability to advance my share of the funds borrowed from Ballindine.”

[40]     There is also the contra-indication which Arnold J referred to in his judgment of Bartle v GE Custodians,14  of the relevant circumstance that the loan was freely entered into by an experienced businessman who would have been able to obtain advice had he wished to.   He has expressly deposed that had he appreciated how
unattractive certain aspects of the Ballindine loan were, he would have been able to

12 GE Custodians v Bartle [2010] NZSC 146, [2011] 2 NZLR 31 at [46].
13 At [46].
14 Bartle v GE Custodians [2010] NZCA 174, [2010] 3 NZLR 601, at [56].

make other arrangements.  As mentioned above, Mr Gower deposed that at the time of signing the guarantee he was in the position to advance his share of the funds borrowed from Ballindine.

[41]     Further, there are difficulties in relying upon the substantive unfairness of the contract in circumstances where there is no real basis for impugning the process by which  the  contract  was  entered  into  (because  he  it  was  entered  into  by  an experienced businessman and was commercial in nature).  As Hammond J stated in Prudential Building and Investment Society of Canterbury v Hankins:15

Substantive unconscionability on the other hand, envisaged that the process was fair.   But, for whatever reason-it could be ignorance, bad luck, bad judgement-a  party may sign  a  contract  with  a term or  terms  which  are “shockers”.   It is in this area that the strongest opposition to an unconscionability doctrine is to be found: views that “our contract is a contract”; “you can't save fools from themselves”, and so on, are commonplace.    And, it is precisely in this area of substantive unconscionability that applicants face-in practice-the most difficult hurdles for relief.

[42]     I respectfully agree with those observations and consider that they are closely applicable to the circumstances of the present case.

[43]     In summary, there is almost entirely absent any factual basis for suggesting that there was an abuse by Ballindine of a creditor/debtor relationship in this case.

[44]     No attempt has been made to put forward evidence demonstrating that, not just in Mr Gower’s view, but in the eyes of suitably informed and experienced persons, the credit contract in this case fell below conventionally accepted standards of commercial morality.

[45]     There is no doubt that the contract  contained  default provisions that are rigorous in their effect.   However, it is unlikely that the Court will reopen the contract because Mr Gower failed to think through what the consequences of the inclusion in the agreement of a compound interest default clause might be in the event that Munro was unable to meet its obligations.  It is that which he complains about under paragraph 2(ii) of the Notice of Opposition.  Given that the proposed

application under the Act depends not upon the inclusion in the contract of the compound interest term but the way that the creditor allowed matters to run on, Mr Gower would face a real obstacle arising from the fact that it was always open to him to approach the creditor who he must have appreciated would at some stage pursue him for the amount owed under the contract.  If that point of view is correct, it is difficult to understand what substantive injustice was done to Mr Gower which would lend weight to the Court exercising its discretion to reopen the contract.

The costs of enforcing claim against Mr Hirst in Australia

[46]     On 19 October 2009, Ballindine obtained default judgment against Mr Hirst in Australia.   In the process, Ballindine incurred legal costs of AU$8,679.44.   Mr Hirst subsequently entered into a deed of arrangement with his creditors, including Ballindine, under the Bankruptcy Act 1966 (Australia) under which Ballindine received a total of AU$4,890.97 in repayment of all sums owing under the Loan Agreement.

[47]     The submission is made for the defendant that –

Further,  the  legal  costs  incurred  by  Ballindine  with  respect  to  the enforcement of its claim against Mr Hirst were arguably settled pursuant to the compromise entered by Mr Hirst with its creditors pursuant to Australian insolvency legislation.  It would therefore be unjust for Ballindine to recover these costs against Mr Gower.

[48]     It  is  not  submitted  for  the  defendant  that  the  lender  cannot  recover  the amounts which it expended in attempting to recover against Mr Hirst.   Such expenditure would seem to be covered by the guarantee.16

[49]     Notwithstanding the above, it is clear that the defendant does not challenge the validity of a guarantee containing provisions entitling the lender to recover from the guarantor the costs of enforcing a guarantee against another guarantor.  Certainly such a sum would seem to be an amount that the lender has incurred because the
borrower has failed to pay the amount secured by the guarantee, for example.17   That

is not to say that the fact that the respondent to an application to reopen a transaction

16 Clause 11.2(b) BD 50.
17 Clause 11.2.

can successfully defend on the ground alone that he/she is acting in conformity with a provision of the contract is enough:  Robinson v United Building Society.18

[50]      The necessity to proceed against other guarantors and the fact that such a course would result in cost being incurred are both directly foreseeable outcomes of the borrower not repaying the money owed.

[51]     There is nothing about the Australian enforcement costs that places these in a separate category of their own which should be subjected to an assessment of the oppressiveness particularly tailored to the category.   They are part of the contract concerning which I have already set out my views.   The additional factor of the recovery of the Australian enforcement costs, in other words, does not add anything additional to the discussion about oppressiveness which I have already summarised. Nor has any evidence been put forward to show that recovery of those costs, as a discrete element of the plaintiff’s claim, ought to be viewed as oppressive in the sense of being contrary to proper commercial practice.

Implied term in Guarantee

[52]     Mr Gower argues that the Guarantee contains an implied term which has been breached by Ballindine.   He argues clause 11.1 of the guarantee impliedly required Ballindine to “ensure that notice of default to the guarantors was given within a reasonable time after Munro’s default.”

[53]     It is alleged that compliance with the requirement of giving notice to the guarantor within reasonable time was a condition precedent to the plaintiff being able to enforce the guarantee against the defendant.   As Mr Sorrell noted, this particular ground of opposition was not pleaded in the original notice of opposition and an amendment would be required to enable the defendant to now raise the issue.

[54]     I have already dealt with the argument that delay until demand was made on the guarantor was oppressive, above.  I will now deal with the condition precedent argument.

[55]     Mr Pascariu submitted:

As a preliminary to contract construction in this matter it is necessary to examine the special principle, said to apply to a suretyship contract, that the surety is discharged from its obligations by the creditor’s breach of that contract,  so  long  as  the  breach  materially  prejudices  the  interest  of  the surety.

[56]     Clause 11.4 of the agreement contains a key clause in the guarantee.   It provides the guarantors will not be released if:

(c)	failure or delay: the lender or any other person does or does not do anything, delays in doing anything, or allows anything to happen

[57]     The plain meaning of that expression would extend to the making of demand under the guarantee requiring the guarantors to:

…  Immediately  pay  to  the  lender  any  secured  money  not  paid  by  the
borrower when due…

[58]     As a result, one of the problems that has to be surmounted when contending for an implied term is that it is inconsistent with an express term of the contract. Instead of making a demand at any time which the express terms of the contract provides for, the creditor would now be required to make that demand in a finite period.   There is a further problem with the suggested implied term in that it is uncertain as to the period within which any demand would have to be made.  In both of  these  respects  the  implied  term  is  inconsistent  with  the  requirements  of  BP
Refinery.19

[59]      As well, it is not obvious that against the commercial background against which the parties entered into this contract there should be a cut-off point of the kind suggested by Mr Pascariu.  The effect of such a provision would be, amongst other things, to require the creditor to make demand earlier rather than later.  This is quite the opposite to that contention frequently advanced by guarantors that the creditor ought to have pursued another party, usually the debtor, and exhausted its remedies against that party before turning their sights on the guarantor.

[60]     When the proposed obligation is viewed as one setting a standard that the creditor would need to meet in order to avoid claims that the way that the contract was enforced was oppressive, similar problems arise.  There is no evidence that the inclusion in the contract of the term which I have set out in paragraph [56] should be viewed as contravening acceptable commercial standards.

[61]     What happened in the circumstances of the present case illustrates why such

a cut off point would be undesirable.  The lenders may well take the view that one of the parties which they are able to pursue under the lending arrangements should be focused upon — perhaps because he/she represents the best possible prospect of a return on the money expended in enforcing the debt.  It may well be seen as
desirable to pursue one person rather than several.

The application to join Mr Joyce as a third party

[62]     Mr Gower sought an order from the Court adding Mr Joyce as a third party to the proceeding.   That application was not opposed by Mr Sorrell for the plaintiff. There will be an order accordingly.

[63]     Mr Sorrell made the concession that he did on the basis that the addition of Mr Joyce as a third party did not bring with it any concession that the possible rights which Mr Gower might have against Mr Joyce could constitute an arguable defence in which Mr Gower could use as a basis for defending the plaintiff’s application for summary judgment.

[64]     I agree with the position which is taken by the plaintiff.  The plaintiff is not responsible for any shortcomings in the advice which Mr Joyce gave or ought to have given to Mr Gower.

Summary

[65]     My conclusion is that, first; the particular transaction involving the financier and the clients in this case was not one which, because of its disadvantageousness from the point of view of the guarantors, called for an explanation.  That is to say, there are no circumstances which suggest that there has been an arguable abuse of a position  of  influence.    The  transaction  is  a  straightforward  commercial  lending

transaction   and   the   provision   of   guarantees   a   recognised   element   in   such transactions.   The defendant does not have an arguable defence arising out of this part of the case.

[66]     It is further concluded that in the circumstances of this case, such delays as have occurred in making demand did not amount to oppressive conduct.   The defendant knew that the loan was in default and he is to be taken to have known the terms of the contract included the provision requiring the payment of compound interest.  Nor does the fact that the plaintiff seeks to recover the costs of proceeding against Mr Hirst in Australia represent an oppressive aspect of the credit contract which would justify it being reopened.   In summary, there is no arguable defence based upon the oppressiveness points.

Conclusion

[67]     The plaintiff's application for summary judgment is granted.  The proceeding is to be listed for mention on 8 August 2013.  The parties should confer on the matter of  quantum.    If  they  are  not  able  to  agree  I  will  deal  with  that  matter  at  the conclusion of the summary judgment list.   They should similarly confer on the question of costs as between the plaintiff and the defendant which I shall deal with if required to on the same date.

[68]     It would be desirable if the third party could appear on 8 August so that arrangements can be made to progress the claim against him from this point.

J.P. Doogue
Associate Judge