AYOUB v BP AUSTRALIA LTD and ORS SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL GLEESON CJ, MAHONEY and CLARKE JJA 24 and 25 February 1994, 28 April 1994 [1994] NSWCA 12 BP Australia carries on the business of importing, refining and wholesaling petroleum products. From | July 1984, AJ Young Pty Ltd, the principal director of which was Mr Richard John Young, was BP's petroleum distributor in the Wollongong area. Young was responsible for paying BP for the petroleum products delivered to it and it in turn invoiced its own customers and was responsible for recovering the price of petroleum products sold by it to those customers. There was no contractual relationship between BP and Young's customers. George Ayoub ("Ayoub") carried on business at the relevant times as fuel wholesaler under the name of "Marina Petrol". His brother, Michael Ayoub (the appellant) conducted a number of retail petroleum outlets and was also the principal director of Redray Pty Ltd which operated a second hand car yard operation. Ayoub purchased petroleum products from Young and as at 21 June 1991, he owed Young about $6 million. Young in turn thus owed BP a similar amount of money. As a result of quite separate transactions the appellant owed Ayoub about $2.2 million. Ayoub, Young and the appellant entered into a Deed of Covenant and Guarantee. The appellant did not personally sign the Deed. His brother Ayoub signed it under a power of attorney. The Deed provided for the payment of Ayoub's debt to Young and for the giving of securities in respect of that debt. Ayoub entered into a Secret Agreement with Young on the same day. This document was executed before the Deed of Covenant. The effect of the Secret Agreement was to limit the securities available to Young, in the event of default by Ayoub, to only four of the securities appearing in the first schedule of the Deed of Covenant. ISSUE The trial judge found that BP was not made aware of the existence of the Secret Agreement before the institution of the proceeding and the only inference to be drawn "is that it was deliberately concealed from it". His Honour also concluded that it should be inferred that the Secret Agreement was entered into with the object of defrauding BP and consequently was not binding upon it. The appellant challenges these finding. HELD The trial judge was correct as there is no other explanation for the inconsistency in Ayoub's conduct. Gleeson CJ and Mahoney JA agreed. (per Clarke JA) The circumstances of the case may well have raised a good estoppel against Ayoub. The case was however argued by BP solely on the basis of fraud. (per Gleeson CJ) This case could have been treated as an example of estoppel by conduct. ISSUE Was a Deed of Confirmation executed by the appellant unjust under the Contracts Review Act? The Deed in question was dated 6 November 1991 but was signed by the appellant on 25 October 1991. HELD The appellant was however at all relevant times, advised by solicitors as to the nature of the transaction and the risks to which he was exposing himself and in the ultimate determined that, notwithstanding the risks, he would sign the Deed of Confirmation. In these circumstances and given the unchallenged finding that he had not suggested that he did not understand the advice he had been given, Clarke JA found that His Honour had not erred in his decision. Similarly, the fact that the Secret Agreement was not known to either 2 UNREPORTED JUDGMENTS of the parties to this appeal in October 1991 does not mean that the Confirmed Agreement was unfair. Gleeson CJ and Mahoney JA concurred. Gleeson CJ The first respondent, BP Australia Ltd (BP),following a hearing in the Commercial Division before Rolfe J, obtained judgment against George Ayoub in the amount of $5,164,258 plus interest. It also obtained judgment against the appellant, Michael Ayoub, in the amount of $2,200,000 plus interest. Michael Ayoub has appealed, but George Ayoub has not. The detailed facts are set out in the judgment of Clarke JA, which I have had the benefit of reading. For the purpose of expressing my views, it suffices to summarise the essential facts and the issues in the case as follows. In August 1991, BP carried on the business of a manufacturer and supplier of petroleum products. Michael Ayoub owned and operated a number of service stations. BP supplied petroleum products to a distributor, RJ Young Pty Ltd, which in turn supplied such products to George Ayoub, who was described in some of the documents before us as a "sub distributor". Presumably some of such products were supplied by George Ayoub to Michael Ayoub, but it is unclear exactly how Michael Ayoub came to owe George Ayoub the money to which reference will be made below. (Indeed, he disputed the debt, but that issue was resolved against him and there is no appeal on that point.) RJ Young Pty Ltd was indebted to BP in an amount in excess of $5,100,000 and George Ayoub was indebted to RJ Young Pty Ltd in a like amount. Michael Ayoub, in turn, was indebted to George Ayoub in the sum of $2,200,000. On 1 August 1991, Michael Ayoub was out of the country, and George Ayoub held his power of attorney. On that day, a number of deeds, prepared by the solicitor for BP, and approved by George Ayoub's solicitor, Mr Dyson, were executed. Insofar as Michael Ayoub was party, or a purported party, to those deeds, they were executed on his behalf by George Ayoub as his attorney. However, BP were aware that Michael Ayoub was out of the country and that George Ayoub was relying on a power of attorney, and it was stipulated, as a condition of the operation of the instruments that, within a specified time, Michael Ayoub was to execute a Deed of Confirmation and Ratification following independent legal advice. Michael Ayoub subsequently executed such a Deed of Confirmation and Ratification, and a certificate recording that he had been independently advised was presented to BP. That deed bears date 6 November 1991. Its title was "Deed of Confirmation, Ratification and Incoming Guarantee". Shortly stated, the substance of the instruments that were prepared by BP's solicitors and executed on 1 August 1991 was as follows. BP agreed to give RJ Young Pty Ltd further time to pay its debt to BP. George Ayoub and Michael Ayoub entered into an instrument with RJ Young Pty Ltd which was described as a Deed of Covenant and Guarantee. George Ayoub and Michael Ayoub acknowledged and confirmed that George Ayoub was indebted to RJ Young Pty Ltd in the amount of $5,164,258, and that George Ayoub was legally obliged to pay that amount to RJ Young Pty Ltd immediately (CL2.1 (a)). The deed made provision for payment of that debt to RJ Young Pty Ltd over a certain time. Michael Ayoub unconditionally guaranteed to R J Young Pty Ltd the due performance by George Ayoub of his obligations (CL8.1). Michael Ayoub's obligation in that regard was to constitute a principal, and not a secondary, obligation (CL8.3). However, Michael Ayoub's obligation was limited to the sum of $2,200,000 (CL8.17). By another deed executed on the same day, called a "Deed of Mortgage", RJ Young Pty Ltd assigned to BP various assets including the debt owed by George Ayoub and the benefit of Michael Ayoub's guarantee URJ AYOUB v BP AUSTRALIA LTD and ORS (Gleeson CJ) 3 (CL2.1 and the definition of "mortgaged property"). That was an absolute assignment subject to a proviso for redemption, and it was to secure the obligations of RJ Young Pty Ltd to BP. The instruments executed on 1 August also recorded that George Ayoub owned certain real estate, which was also charged to R J Young Pty Ltd by way of security for George Ayoub's debt, and the benefit of that security was assigned to BP. The parties to the Deed of Confirmation, Ratification and Incoming Guarantee, dated 6 November 1991, were George Ayoub, Michael Ayoub, a company associated with Michael Ayoub (Redray Pty Ltd), RJ Young Pty Ltd and BP. The deed recited that George Ayoub's debt to RJ Young Pty Ltd was immediately due and payable, that a further extension of time for payment had been granted, and that there had been an agreement to vary certain terms of the Deed of Covenant and Guarantee of 1 August 1991. Michael Ayoub unconditionally acknowledged and confirmed to RJ Young Pty Ltd that he was bound by the terms of the Deed of Covenant (as varied) and ratified his obligations thereunder (CL5). George Ayoub unconditionally confirmed and acknowledged to RJ Young Pty Ltd that he continued to be bound by the terms of the Deed of Covenant as varied (CL6). The deed also recited the Deed of Mortgage (by which RJ Young Pty Ltd had assigned George Ayoub's debt, and the benefit of Michael Ayoub's guarantee of the debt, to BP) and annexed a notice of assignment directed to Michael Ayoub. RJ Young Pty Ltd went into default in performance of its obligations to BP, and George Ayoub, in turn, went into default in performance of his obligations to RJ Young Pty Ltd. The judgment entered against George Ayoub, against which there is no appeal, was based on the debt owing by George Ayoub, which had been assigned by RJ Young Pty Ltd to BP. At the same time as BP sued George Ayoub, it also sued Michael Ayoub for the lesser amount of $2,200,000 plus interest. BP's action was commenced in the Commercial Division and, in the usual way, there was filed a summons which outlined the nature of BP's claim. The claim was expressed in simple terms. The matters referred to above were outlined. BP's claim against George Ayoub was as an assignee of his debt to R J Young Pty Ltd and its claim against Michael Ayoub was an assignee of the benefit of the guarantee. After the summons had been filed, and before defences were filed, there was a directions hearing. At that hearing the legal representatives of George Ayoub informed the Court, and BP, that George Ayoub intended to rely, by way of defence, upon another contractual instrument which had allegedly been entered into with RJ Young Pty Ltd on the morning of 1 August 1991, without the knowledge of BP, and before the execution of the other documents mentioned above. There are some curious aspects of the circumstances relating to the execution and subsequent production of that document. However, although only a copy of the document has been tendered, it was taken at face value for the purposes of the proceedings before Rolfe J, and it seems that we must do the same. The evidence before Rolfe J was that the document, which is a deed bearing date 1 August 1991, was prepared by Mr Dyson, the solicitor for George Ayoub, and Mr Dyson is shown as having witnessed the signature of the parties to the document. The parties to the deed were RJ Young Pty Ltd, Mr Young (the controller of the company), and George Ayoub. Although the evidence was that this deed was executed before the instruments that had been prepared by BP's solicitors, the language of the document shows that it was prepared in contemplation of the BP documents, and was originally intended to have been 4 UNREPORTED JUDGMENTS executed after them. The Deed of Covenant referred to in CL1 is one of the BP documents referred to above. The operative provisions of the deed were as follows: "1. Ayoub and Young acknowledge that they entered into the Deed of Covenant in consideration of the agreement between them which is herein expressed and in contemplation of the execution of this Deed. 2. Upon the debt becoming repayable on the Final Repayment date as defined in the Deed of Covenant then (a) If the interest of Ayoub in all the securities referred to in Items 1, 7, 9 and 10 of Ptl of the Schedule of Securities annexed to the Deed of Covenant shall have been sold Young shall furnish Ayoub with: (i) An acknowledgment that the debt and all other obligations as defined in the Deed of Covenant hereinbefore referred to have been paid in full whether or not the full amount of the debt shall in fact have been paid and notwithstanding any personal covenant by Ayoub to repay the debt contained in the Deed of Covenant or Securities executed pursuant to it and (ii) A Deed of Release from all actions, claims and demands whatsoever pursuant to the Deed of Covenant and any securities or other documents provided or entered into by Ayoub in accordance with or ancillary to it. (b) If the interest of Ayoub in any of the securities referred to in Items 1, 7, 9 and 10 referred to in Ptl of the Schedule of Securities shall not have been sold then Young shall provide to Ayoub the acknowledgment and release referred to in para2a(i) and para2a(ii) hereof and Ayoub shall if requested in writing so as to do by Young transfer to Young: (i) his interest in the property described in those securities which have not been sold and (ii) his interest right title and claim (if then any) to the property mentioned in Item 8 of Ptl of the Schedule of Securities. 3. Upon the happening of the events referred to in para2 hereof entitling Ayoub to. an acknowledgment and release as provided for in para2(a)1 and para2(a)(ii) Young does by this Deed acknowledge that whether or not a separate acknowledgment and Deed of Release are provided by Young as set out in para2 hereof Young by this deed does upon the happening of those events release Ayoub from all actions claims and demands whatsoever and from the covenants contained in and obligations of the Deed of Covenant and any securities or other documents provided or entered into by Ayoub in accordance with or ancillary to it and acknowledges that upon the happening of those events Young shall be deemed to have received payment in full of the debt. 4. To the extent of any inconsistency between this Deed and the Deed of Covenant the terms of this Deed shall prevail". It was common ground that the existence of that deed was never mentioned to BP, or BP's solicitor, by either George Ayoub or Mr Dyson. It seems that there were no solicitors independently representing Mr Young or RJ Young Pty Ltd, and there is no suggestion that Mr Young mentioned the deed to BP. Nor, it seems, was the existence of the deed disclosed to Michael Ayoub, or to the solicitor who was retained to give independent advice at the time he executed the Deed of Confirmation. Whether or not Michael Ayoub became aware of the deed (which was referred to by the trial judge as "the first deed") earlier than BP is not clear. What is clear, however, is that BP were not, at any material time, informed of an instrument which, on its face, purported to modify to a significant extent the obligations owed by George Ayoub to R J Young Pty Ltd. URJ AYOUB v BP AUSTRALIA LTD and ORS (Gleeson CJ) 5 The references in CL2 of the first deed to various properties are references to properties owned by George Ayoub, and the apparent purpose and effect of the instrument was to limit the rights of RJ Young Pty Ltd in relation to recovery of the debt owed by George Ayoub. In short, the arrangement recorded in the first deed is that RJ Young Pty Ltd would be restricted to looking to the properties mentioned in CL2 in seeking to enforce its rights against George Ayoub. Although the provisions of the deed are not expressed with complete clarity, and are somewhat elliptical, the tenor of the document is that George Ayoub was to be given time to realise certain assets. If he succeeded in realising them, the proceeds of the same would go to the benefit of RJ Young Pty Ltd, whilst, if he did not succeed in realising them, then he would transfer the properties of RJ Young Pty Ltd. In either event, he was then to be released by RJ Young Pty Ltd. How the existence of such an arrangement could be consistent with a guarantee by Michael Ayoub of George Ayoub's indebtedness is puzzling, but that is a problem that need not be explored. Plainly, the effect of the first deed is inconsistent with the BP documents that were signed later on 1 August and also with the Deed of Confirmation, Ratification and Incoming Guarantee. George Ayoub was cross examined about the fact that he did not disclose to BP the existence of the first deed. He said that he had forced Mr Young to sign the document, and that without it he would not have been willing to enter into the BP documents. At the time he was himself in dispute with BP over matters that were related to the state of affairs between BP and RJ Young Pty Ltd, and, in turn, that company and George Ayoub. He said, when asked by his counsel why he did not tell BP about the first deed: "The people try to put me out of business. Why should I tell them anything?" Mr Dyson was not called as a witness in the proceedings. We have no way of knowing what he has to say about the first deed, or why he did not disclose it to BP's solicitors. At first instance, both George Ayoub and Michael Ayoub relied upon the first deed as limiting George Ayoub's liability to RJ Young Pty Ltd in a manner that operated to defeat BP's present claim against both George Ayoub and Michael Ayoub. It was pleaded that the first deed, in the events that had occurred, operated to release George Ayoub's liability to RJ Young Pty Ltd and therefore, in turn, to discharge Michael Ayoub's liability under his guarantee. Rolfe J rejected that defence, and that gives rise to the first issue in this appeal. The other issue in the appeal concerns the Deed of Confirmation, Ratification and Incoming Guarantee earlier referred to. Michael Ayoub claims that it constituted an unjust contract under the Contracts Review Act 1980, or alternatively, was an unconscionable dealing against which equity would grant relief. In relation to the second issue, Rolfe J rejected the appellant's argument on factual grounds which are examined in the judgment of Clarke JA. Like Clarke JA, I consider that no successful challenge has been made to the learned trial judge's findings of fact in this regard, and that his reasons were affected by no error of law. I agree with what has been said by Mahoney JA and Clarke JA about this point. In relation to the first issue, I consider, for the following reasons, that the appellant's argument must fail. 6 UNREPORTED JUDGMENTS Michael Ayoub, although he may have become aware of it only after all the documents referred to above had been executed, seeks to take the benefit of the so called first deed which, he says, operated to limit George Ayoub's liability. It is the effectiveness of that deed as a limitation of George Ayoub's liability that is in issue. Rolfe J found that the first deed was, in the circumstances, a fraud upon BP and that it did not, therefore, operate to limit or qualify George Ayoub's liability. There has been no successful challenge to his Honour's findings of fact. The legal rubric under which his Honour dealt with the matter was illegality. The case could equally well have been treated as an example of estoppel by conduct. The BP documents of 1 August 1991, and the instrument of 6 November 1991, were entered into by BP on certain assumptions as to the liability of George Ayoub to RJ Young Pty Ltd reflected in the terms of those documents. Those assumptions were material to BP's decisions as to the course of action it would take (or refrain from taking). It would operate to BP's detriment if the assumptions be not adhered to for the purposes of this litigation, and departure from those assumptions would be unconscientious. (The Commonwealth v Verwayen (1990) 170 CLR 394 at 444.) Departure from the assumptions amounts, in the present case, to relying on the first deed to qualify George Ayoub's liability to RJ Young Pty Ltd. Such an estoppel would bind Michael Ayoub as well as George Ayoub. A person may be estopped by the conduct of another to whom he entrusts the task of looking after his property and interests (Moorgate Ltd u Twitchings [1976]1 QB 225 at 243 per Lord Denning MR). Moreover, the deed of 6 November 1991 was based on a representation made by Michael Ayoub directly to BP. In Thompson u Palmer (1933) 49 CLR 507 at 547 Dixon J said: "He may be required to abide by the assumption because it formed the conventional basis upon which the parties entered into contractual or other mutual relations, such as bailment; or because he has exercised against the other party rights which would exist only if the assumption were correct... or because knowing the mistake the other laboured under, he refrained from correcting him when it was his duty to do so; or because his imprudence, where care was required of him, was a proximate cause of the other party's adopting and acting upon the faith of the assumption, or because he directly made representations upon which the other party founded the assumption." The concluding words of that passage apply to the present case. Returning to the basis upon which Rolfe J decided the issue, his Honour held that the first deed, being entered into with the object of defrauding BP, was illegal at common law as being contrary to public policy. He cited the judgment of Mason J in North v Marra Developments Ltd (1981)148 CLR 42 at 60, where there was a reference to a claim for remuneration for fraudulent conduct being defeated on the ground of illegality. Michael Ayoub, of course, was not a party to the first deed, and knew nothing of it at any material time. However, he seeks now to rely on it to limit or qualify the liability of George Ayoub which he guaranteed. Where the object of a contract is the perpetration of a fraud the contract is illegal, and cannot be enforced or relied upon even by someone (such as an assignee) who was not a party to the fraud. (Chitty on Contracts, 23rd Ed, para814; Brown Jenkinson and Co Ltd v Percy Dalton (London) Ltd (1967) 2 QB URJ AYOUB v BP AUSTRALIA LTD and ORS (Clarke JA) 7 621.) In Mallalieu v Hodgson (1851) 16 QB 689 Erle J said of an agreement made between a debtor and a creditor, in fraud of other creditors, that it was "altogether void". The conclusion reached by Rolfe J was consistent with principle and should be upheld. Mahoney AP I agree with the judgment of Clarke JA. Mr Evatt, for Mr Michael Ayoub, the appellant, submitted that the documents executed on 1 August 1991 were not binding on Mr Michael Ayoub. The reasons he advanced for this were various. Some of them were, it has been submitted, not advanced at the trial or not advanced in the form they now take. I shall, for the purpose only of dealing with the appeal, assume that it was open to Mr Michael Ayoub to treat the documents as not binding on him or, alternatively, to avoid the effect of them. However, on 25 October 1991, he executed a confirmatory deed. If that deed be valid and binding on him, then BP Australia Ltd is entitled to the relief against him which it obtained from Rolfe J. In my opinion, the confirmatory deed is binding on him. He was, when the confirmatory deed was executed by him, fully advised as to his rights and the effect of that deed upon them. As Clarke JA has indicated, the reasons why Mr Michael Ayoub chose to enter into the confirmatory deed were not exhaustively investigated at the trial. Having regard to the background of the transactions between him and his brother Mr George Ayoub, it is possible to speculate as to the reasons why the confirmatory deed was executed. But, however that be, care was taken to ensure that, if executed, it would be binding on him. Mr Evatt has advanced reasons why, under the Contracts Review Act, he should be relieved against liability under the effects of the confirmatory deed. I agree with what has been said by Clarke JA in that regard. If that matter be dealt with simply upon the evidence as it is before the court I would not grant relief under the Act. I am appreciative of the generality of the criteria provided for the operation of the Act. I suspect that, had the legal effect of the words used been explained in detail to the legislature, they would not have adopted them: this, if it be so, is a matter which, I think, is relevant in determining the construction of the Act. But, however that be, I see nothing unjust or inequitable, within the legislation or otherwise, in the confirmatory deed being enforced according to its terms. In business transactions, parties often find themselves in positions in which their obligations are heavy or, sometimes, overbearing. But that does not make it unjust or inequitable that the other party have the benefit of what in this regard the law provides. If a party must choose between a rock and a hard place, he cannot, without more, avoid the consequences of the choice which he has made. The appeal should be dismissed with costs. Clarke JA BP Australia Ltd (the first respondent) carries on the business of importing, refining and wholesaling petroleum products. From | July 1984 AJ Young Pty Ltd the principal director of which was Mr Richard John Young (whom I shall collectively describe as "Young") was the first respondent's petroleum distributor in the Wollongong area. Young had a depot in the area from which it delivered petroleum in bulk to its customers. It was responsible to pay the first respondent for petroleum products delivered to it and in turn it invoiced its own customers and was responsible for recovering the price of petroleum products sold by it to those customers. In general there was no contractual relationship between the first respondent and Young's customers. 8 UNREPORTED JUDGMENTS George Ayoub, the second respondent (I shall describe him as "Ayoub") carried on business at the relevant times as a fuel wholesaler under the name of "Marina Petrol". His brother, Michael Ayoub (the appellant) conducted a number of retail petroleum outlets and was also the principal director of Redray Pty Ltd ("Redray") which operated a second hand car yard operation. Redray was a party to the original proceedings but the court has been informed that it is now in liquidation and it is not a party to the appeal. In the course of his business Ayoub purchased petroleum products from Young and as at 21 June 1991 he owed Young in excess of $6 million. That represented two months supply of petrol. Young, in turn, owed the first respondent the same, if not a greater, amount of money. As a result of quite separate transactions the appellant owed Ayoub about $2.2 million. This indebtedness arose as a consequence of loans or advances made by Ayoub to him. In either late 1990 or early 1991 Ayoub imported some petroleum products from Singapore for the purpose of re sale in the Wollongong area. According to him the first respondent took retaliatory action in the form of price cutting as a consequence of which Ayoub became financially embarrassed. On 21 June 1991 Ayoub advised Young that he would not be able to pay his account and he suggested that a meeting be arranged with the first respondent. Following this discussion a meeting took place at Young's depot at which Ayoub, Young and two representatives of the first respondent, Mr McMillan and Mr Conroy, were present. This meeting was the first of many discussions which culminated in the execution of a number of deeds on 1 August 1991. The first of these was entitled "A Deed of Covenant and Guarantee" ("the Deed of Covenant") which was between Ayoub, the appellant and Young. Although the appellant was a party to this Deed he did not personally sign it. At the time it was executed he was in Lebanon having been out of Australia for a number of months. It was signed on his behalf by his brother Ayoub under a power of attorney. This was not an unimportant fact which led to considerable discussion at the trial. In the Deed Ayoub is referred to as 'the debtor', the appellant as 'the guarantor', and Young as 'the beneficiary'. The recitals provided: "A. By reason of a trade relationship between the debtor and the beneficiary the debtor is currently indebted to the beneficiary for, and presently liable to the beneficiary, the amount of the debt, and the parties hereto wish to confirm that fact and to provide (at the request of the debtor and the guarantor (which request is confirmed by their execution of this Deed)) terms for the deferral of the debtor's immediate obligation to repay the debt, subject only to the satisfaction of certain conditions precedent. B. In consideration for the deferral of the debtor's immediate repayment obligation referred to in Recital A: (i) The guarantor has agreed to guarantee to the beneficiary all of the obligations and to indemnify the beneficiary against any loss arising therefrom upon the terms and conditions contained herein; and (ii) The parties hereto have agreed that the securities referred to in Pt! of the schedule should be given to the Beneficiary and that this Deed and the Securities shall be security to the Beneficiary for the due performance of the Obligations. In the operative part of the Deed the debt, which was defined as being $5,164,258.48, was acknowledged, provision was made for its payment by, at the latest, 21 June 1991 and securities were provided by both Ayoub and the appellant. Those securities were set out in a schedule Pt! of which listed ten securities, five of which were mortgages over service stations operated by the URJ AYOUB v BP AUSTRALIA LTD and ORS (Clarke JA) 9 appellant and three vacant lots behind one of his service stations, three were mortgages by Ayoub. In addition, there was a Traders Bill of Sale over business stock and business assets by Ayoub and a first mortgage over the appellant's $2.2 million indebtedness to Ayoub. In Pt2 there were charges over the appellant's interest in a company known as Heatrise Pty Ltd and the property and assets of Redray. Although the first respondent was not a party to this document its legal advisers clearly prepared it as one of the set which were executed on | August. Furthermore, it is clear that the first respondent knew that the appellant was out of the country and the Deed made specific reference to a Deed of Ratification. This appeared in para2.4 which, relevantly, was as follows: "CONDITIONS PRECEDENT TO THE EXTENSION OF THE TERM The right of the Debtor to obtain the extension of the Term beyond the Conditions Precedent Satisfaction Date by operation of this Deed is subject to the conditions precedent that: (a) Michael Hanna Ayoub shall before the Conditions Precedent Satisfaction Date have obtained legal and financial advice in respect of his entry into this Deed, each of the Securities in respect of which he is the mortgagor and the Deed of Ratification and Confirmation referred to in subCL(iv) of CL2.4(b); (b) The Beneficiary shall before the Conditions Precedent Satisfaction Date have first received all of the following in form and substance satisfactory to it and BP: (i)... (ii)... (iii) independent legal and financial advice certificates in relation to Michael Ayoub's entry into this Deed, each of the Securities in respect of which he is the mortgagor and the Deed of Ratification and Confirmation referred to in para(iv) below; and (iv) A Deed of Ratification and Confirmation between Michael Hanna Ayoub and the other parties hereto and Redray, executed personally by Michael Hanna Ayoub, pursuant to which Michael Hanna Ayoub ratifies and confirms for the benefit of the Beneficiary all his obligations and liabilities hereunder and under each of the Securities in respect of which he is the mortgagor and referred to in Ptl of the Schedule." Under the heading "Representations and Warranties" in para7 there was the following warranty: "Each group member represents and warrants that: (a)... (b)... (c)... (d) the execution, delivery and performance of this Deed and each security does not violate any existing law or regulation or any document or agreement to which a Group Member is a party or which is binding upon it or any of its assets;" "Group Members' were widely defined to include the parties to the Deed. In essence, therefore, the Deed of Covenant provided for the payment of Ayoub's debt to Young and for the giving of securities in respect of that debt. Another of the documents executed on that day was a Traders Bill of Sale given by Ayoub to Young to secure the repayment of the debt but it is unnecessary to refer to that. There was also a Deed of Mortgage between the same parties for the purpose of securing mortgages over certain assets including the right to the debt owing by the appellant to Ayoub. 10 UNREPORTED JUDGMENTS There was then a Deed of Mortgage between Young and the first respondent whereby Young assigned to the first respondent the whole of the 'mortgaged property'. This expression was defined to mean the present and future right title and interest of Young in each of the following: "(a) the Ayoub securities; (b) the Ayoub debt; (c) all Proceeds' (d) all Records; and (e) all rights remedies, claims actions and proceedings which the Mortgagor (Young) now or hereafter has at law or in equity against Ayoub, the Ayoub Guarantors or any other person in relation to the Ayoub Debt or Proceeds or under the Ayoub Securities." Each of the Ayoub securities and the Ayoub debt were defined but it is sufficient for present purposes to observe that, by this deed, Young assigned, inter alia, its interests in the securities set out in the schedules to the Deed of Covenant, including the mortgages granted by the appellant. The final two documents executed by the parties on that day were a Deed of Acknowledgment of Loan between the appellant and Ayoub which was executed by the latter under his Power of Attorney and a Deed of Release which, in effect, effected a moratorium of Ayoub's rights to bring proceedings against the first respondent including proceedings for breaches of the Trade Practices Act. There were two important covenants in the latta deed which read: "2. Ayoub and Young severally covenant with BP that to their respective knowledge and belief no right of set off, cross claim or other right whatsoever has arisen other than the rights disclosed as Prior Encumbrances in the annexed Schedule that could reduce or prejudicially affect the value of Young's rights and interests in the Securities and the property subject thereto and that they have no notice that the assignment of the Securities by Young to BP is disputed by any person or that there is any opposing or conflicting claim. 4. BP and Young severally covenant with Ayoub that subject to the prior satisfaction of all conditions precedent referred to in CL2.3 of the Deed of Covenant and Guarantee referred to in the annexed Schedule (being one of the Securities) neither BP nor Young will endeavour to enforce any judgment either one of them obtains against Ayoub by seeking a sequestration order against the estate of Ayoub. This clause shall be without prejudice to any other rights, powers, remedies or methods of enforcement of any judgment debt enjoyed by either or both of BP and Young against Ayoub including, without limiting the generality of the foregoing, lodging and pursuing any proof of debt in the estate of Ayoub in circumstances where Ayoub or any other person or company procures the appointment of a trustee in bankruptcy to the estate of Ayoub. " The schedule was in terms almost identical with Ptl of the schedule to the Deed of Covenant. On the same date Ayoub entered into a deed with Young. I will call this document 'the Secret Agreement'. According to the evidence it was signed between 10am and 12 noon on | August. That is, before the documents to which the first respondent was a party were signed. There was evidence that the document was signed in the office of Mr Dyson, the solicitor for Ayoub, and that the execution of the document was witnessed by Dyson. This evidence may, or may not, be true although there is no express evidence denying its accuracy. I would not, however, be prepared to make a finding that Mr Dyson did witness the document for two reasons. First, a finding that the document was witnessed by URJ AYOUB v BP AUSTRALIA LTD and ORS (Clarke JA) 11 Dyson would reflect adversely against him and as he was not a witness in the proceedings it would not be appropriate to make such a finding and, secondly, there are features of the signature of the witness which raise a question in my mind whether it genuinely was signed by him. There is, in addition, another extraordinary feature of this deed and that is that while it was executed prior to the execution of the other documents to which I have referred, and there is reason to believe that this occurred as a result of a deliberate decision, the recitals and operative portions of the document refer to the Deed of Covenant as having been already executed. The effect which Ayoub and Young intended this document to have was quite simple. It was to limit the securities available to Young in the event of default by Ayoub to only four of the securities appearing in the first schedule. The securities which it was thereby intended to take out of the reach of Young and the first respondent were those in respect of properties owned by the appellant as well as the first mortgage securing the appellant's borrowing from Ayoub. All the securities referred to in Pt2 of the Schedule, which related to the appellant and Redray, were also excluded. I said earlier that it would appear that this deed was executed earlier than the deeds which involved the first respondent as a result of a deliberate decision. This must, I think, be true for if it had been executed after the series of documents which involved the first respondent it would, arguably, have been too late to have any substantive effect for the reason that Young had assigned its interests in the securities to the first respondent. On the other hand if it had been executed before the other documents and was binding upon the first respondent it may well, as the appellant argued, have destroyed the first respondent's case against him and his company Redray. Not surprisingly the Secret Agreement was relied on both by Ayoub and the appellant as constituting defences to the claim brought by the first respondent. In his defence Ayoub asserted that the Secret Agreement had been executed prior to the execution of all the documents referred to in the summons and asserted that the deed effected a release to him. In addition, he stated that the Secret Agreement constituted a component in the contractual arrangements entered into with, inter alia, the first respondent. Ayoub also raised arguments of estoppel and unconscionability based upon the execution of the Secret Agreement but they had no substance and it is unnecessary to refer further to those. The appellant, who was not aware of the execution of the Secret Agreement prior to the institution of the proceedings, filed an amended defence in which he raised a number of points based upon his brother's execution of the various agreements on his behalf under power of attorney. It will be necessary to refer to the substance of these defences later in a consideration of the second major submission put on the appellant's behalf. The amended defence, however, also relied upon the Secret Agreement as releasing the appellant from any liability under the Deed of Covenant. In its reply the first respondent stated that the Secret Agreement was a fraud upon it and was therefore a nullity and not binding upon it. In dealing with the defences relying upon the Secret Agreement his Honour found that the first respondent was not made aware of the existence of the document before the institution of the proceedings and the only inference to be drawn "is that it was deliberately concealed from it". This finding was not challenged in the appeal. Indeed, in the light of the evidence concerning the Secret Agreement it was inevitable that such an inference would be drawn. His 12 UNREPORTED JUDGMENTS Honour also concluded that it should be inferred that the Secret Agreement was entered into with the object of defrauding the first respondent and consequently was not binding upon it. The appellant challenges these findings. In his written submissions counsel for the appellant argued that even if his Honour had been correct in concluding that the document was entered into with the object of defrauding the first respondent he was in error in concluding that the document was illegal as being contrary to public policy. Counsel submitted that no such principle existed and that the finding of fraud did not mean that the Secret Agreement did not provide a good defence to the first respondent's claim. In his oral argument counsel did not seek to support this submission. Rather, he submitted, that the essential point in the appeal was whether his Honour was correct in concluding that the Secret Agreement was a fraud upon the first respondent. I will return to deal with this submission, which occupied most of the Court's time, but before doing so I should indicate that I hold the view that counsel was correct in his decision not to press the contention which appeared in his written submissions. If the trial judge's factual conclusion is correct Ayoub and Young entered into the Secret Agreement in order substantially to reduce the rights granted to the first respondent in the series of documents being executed later that day and they were doing so in fraud of the first respondent. As a matter of principle it would seem to me to be clear that persons who enter into a transaction in fraud of a third party with the intention of defeating or reducing the rights of that third party should not be permitted to rely on the instrument to achieve their fraudulent purpose. If authority be needed to support this proposition which I consider self evident it is to be found in an old case concerning the giving of a guarantee. While the law of guarantee does attract special principles the one for which Pidcock v Bishop ((1825) 3 B and C 605) stands has, in my opinion, a more general application. There the debtor and creditor secretly entered into an agreement which was capable of prejudicing, and did prejudice, the guarantor. The court held the secret agreement was a fraud on the guarantor and rendered the contract of guarantee void. Bayley J, after referring to the principle whereby a secret agreement between a debtor and one of his creditors, who is a party to a composition deed, whereby the creditor is to receive a larger amount than the other creditors is void as a fraud on those other creditors, said "a contract which is a fraud upon a third person may, on that account, be void as between the parties to it." In Mackreth v Walmesley (1884) 51 LT 19, Kay J described the principle in Pidcock as follows as: "Tn order to enable a man to resist fulfilment of such an engagement as arises out of a contract like the present, a state of circumstances should be proved in which it would be fraudulent to insist upon the ordinary consequences of the contract." Upon the assumption I have made so it would be here and the contract, if the judge was correct in his factual conclusion, is void as against the first respondent. Returning to the factual issue it was at the heart of Mr Evatt's (counsel for the appellant) submission that prior to 1 August Ayoub had no contractual arrangement with BP. In those circumstances he argued that there was no obligation on Ayoub, or the appellant, to inform the first respondent of the execution of the Secret Agreement and that his failure to make full disclosure to URJ AYOUB v BP AUSTRALIA LTD and ORS (Clarke JA) 13 the first respondent of the execution of the document could not be regarded as fraudulent. The obligation to inform the first respondent lay solely on Young who did, of course, have a contractual relationship with the first respondent. A related argument, which was an incident of the overall submission, was to the effect that Ayoub received no, or little, benefit from the contractual arrangements entered into with the first respondent on 1 August. It must be observed that, even upon the assumption (which I would not make) that these contentions were correct, they relate only to two aspects of the circumstances and that the question with which his Honour, and this Court, is concerned was whether the first respondent had demonstrated to the requisite degree that the secret agreement was a fraud upon it. It is well established that courts do not make findings of fraud lightly and that there is a heavy onus which a party asserting fraud is required to discharge before it secures an affirmative finding. The principles are discussed in many cases and it is sufficient to refer only to Rejfek and Anor v McElroy and Anor (1964 and 1965) 112 CLR 517, at 521, in which the High Court referred to the fact that proof of fraud "should be clear and cogent such as to induce, on a balance of probabilities, an actual persuasion of the mind as to the existence of the fraud". The simple fact is that as at 1 August Ayoub was indebted to Young in an amount in excess of $5,000,000 and Young was indebted to the first respondent in an amount at least as high as the debt owed to him by Ayoub. On | August the series of deeds were entered into the over all effect of which was to grant security to the first respondent over the assets set out in the two schedules in return for the first respondent granting a number of indulgences to Ayoub. I appreciate the fact that prior to that date there had been no contractual relationship between Ayoub and the first respondent but the overall effect of transactions was to secure further time for Ayoub to meet his contractual obligations to Young and to ensure that a sequestration order would not be sought against him. In the latter respect it is relevant to refer to para4 of the Deed of Release executed on 1 August which was in the following terms: "BP and Young severally covenant with Ayoub that subject to the prior satisfaction of all conditions precedent referred to in CL2.3 of the Deed of Covenant and Guarantee referred to in the annexed Schedule (being one of the Securities) neither BP nor Young will endeavour to enforce any judgment either of them obtains against Ayoub by seeking a sequestration order against the estate of Ayoub...." There were, therefore, undoubted benefits to Ayoub in entering into the transactions with the first respondent and Young on | August. In the same document is recorded a covenant by Ayoub and Young as follows: "2. Ayoub and Young severally covenant with BP that to their respective knowledge and belief no right of set off, cross claim or other right whatsoever has arisen other than the rights disclosed as Prior Encumbrances in the annexed Schedule that could reduce or prejudicially affect the value of Young's rights and interests in the Securities and the property subject thereto and that they have no notice that the assignment of the Securities by Young to BP is disputed by any person or that there is any opposing or conflicting claim." In the light of the execution of the Secret Agreement on | August it is hard to envisage how it could be said that Ayoub and Young were acting honestly in giving a covenant when they each well knew that they had executed an 14 UNREPORTED JUDGMENTS agreement which, in essence, falsified their covenant. Furthermore, Mr Evatt's submission that the Secret Agreement was for the benefit of Young and not his client does not stand examination. In cross examination Ayoub was shown the Deed of Release (which contained covenants 2 and 4 to which I have just referred) and in a non responsive answer said: "Q. Keep your voice up. A. So to make it sure what I didn't agree to do with Mr Young I said to him, whatever paper they send for me I sign. I want that condition even if I am not coming to any arrangement, I want no bankruptcy for me. I don't want at any later stage to bankrupt me. I want it from you. After may take everything because what I did offer them that early stage, everything I own. They can take it but we call it quit so if I want to sue them later on I knew particular practices can sue them. I want to remind you that you said on 29 July we had a meeting and no paper was drawn negotiating about what we are going to do. On | August at 12 o'clock or early in the morning, 10 o'clock in the morning, does not get that deed, we sign it. We got it on 1 August and we sign it on the 1 August and Mr Dyson can verify that. I went to Mr Dyson's office and I said to him, 'Mr Young, did he sign the deed you had between me and him?' He said Yes and I said, 'Okay'. He actually advise me not to sign, I said okay. The deal was that is what I agree with Mr Young, that is what I shall do. Tell me not sign. He does not want me to sign and you can verify with Mr Dyson I had to sign. I didn't know anything that is inside the deed except for one thing, they cannot bankrupt me at any stage." He was then asked the following questions and gave the following answers in relation to the Secret Agreement: "Q. On 1 August you signed a deed with Mr Young and Mr Young's company? A. Yes. Q. That was the first document you signed on that day? A. That is exactly. Q. And that is a document that you didn't tell BP about? A. It is not my business. They didn't like, if they didn't like me why should I tell them anything? Q. And you didn't tell BP about that document? A. No I didn't. Q. That was a document drawn up by Mr Dyson? A. Exactly. Q. Thereafter a number of other documents were signed? A. Yes. Q. The ones being prepared by Clayton Utz? A. Yes. Q. It is the Clayton Utz documents that I am drawing your attention, that is Exhibit F in front of you. You say that you signed that document and my question to you is that you understood that document was part of the documentation which had been negotiated between your solicitor, Mr Dyson, acting for you and Messrs Clayton Utz acting for BP? A. Yes they did discuss, Mr Dyson with Clayton Utz. The solicitor discussed it. I don't know. That meeting, condition on the meeting, condition to Mr Dyson, I want Mr Young to sign the deed he draw up between me and him and I went into Clayton Utz for bankruptcy for me at any stage and if that is in the deed I am quite happy to sign and that is what took place on | August. URJ AYOUB v BP AUSTRALIA LTD and ORS (Clarke JA) 15 HIS HONOUR: Q. Is the long and the short of it, that subject to those two matters about which you have just told me, you were prepared to sign any documents that Mr Dyson had from Clayton Utz? A. Yes, exactly it. That is correct, In other words I lost faith - I couldn't come to the term with BP and I knew in the heart they are not going to look after me so I covered words, that is the case. Mr Young assured me that all the way it is not a case they want to make sure you are going to be successful an they look after you and between me and Mr Young and I never believe him because the people can back off on the deal we strike on 21 June, a few days' time, they didn't stick to it. They are not going to look after me. I lost faith in BP. Q. What effect did that have on your attitude towards signing the documents that Clayton Utz had sent to your solicitor? A. For me I didn't want to be the cause of Mr Young's bankruptcy or out of business. He want me to sign. I sign. I put my condition is me not to be bankrupted and him not to be able to - I didn't want to spend the rest of my life working to pay off BP. I have four kids to feed and that is the attitude I expressed to Mr Young. If not in terms to me not to be bankrupted and they will be sufficient to call the debts, that is fine. I sign anything they want on the blank they want."... "Q. Tell me, you have told his Honour that you did not tell BP about the deed you had made with Mr Young and his company and the one drawn up by Mr Dyson because you part it was no part of your responsibility to do so? A. I felt I am being forced to sign something I don't like to sign. I was not convinced with signing the deed with BP at all so from my point of view I did force - in other words, I suggest Dick Young forced me to sign the deed for 1 August. I forced him to sign that deed for me. Q. You and your solicitor had negotiated with BP and its solicitor the commercial resolution of a commercial problem, hadn't you? A. On 29 July you mean? Q. Yes, giving rise to the deeds on 1 August correct? A. Yes and we have not come to an agreement. Q. You came to an agreement embodied in the deed of 1 August? A. [had an agreement with Mr Young. I said to Mr Young, if you sign that deed for me BP won't bankrupt me. I will sign it blank for you. Q. You had taken, I suggest, a very keen interest in the terms on which BP was prepared to make an agreement with you, hadn't you? A. Plain question. Ask me plain question. Q. You had taken a keen interest in the terms BP was prepared to make an agreement with you, hadn't you? A. I tried, I try my best to come to an arrangement with BP, yes. I did try my best. Q. And whilst you were coming to an agreement with BP and signing the deeds on | August as prepared by Messrs Clayton Utz, you didn't think it necessary to reveal to anyone from BP the existence of the deed between you and Mr Young and his company drawn up by Mr Dyson? A. Sir, I come to an agreement with Mr Young. Mr Young showed me what he want me to sign the deed with BP so he can protect himself, is fine. I did sign but I didn't sign the deed on 1 August because I came to an arrangement with BP or to come to an arrangement with BP. Q. Did you regard your signing of the agreement drawn by Clayton Utz on I August without telling BP of the existence of the deed that you had executed earlier on the same day as drawn up by Mr Dyson to be honest business practice on your part? 16 UNREPORTED JUDGMENTS A. Yes, I swear to God from my point of view it was an honest deal. RE EXAMINATION GLENNON: Q. Why didn't you tell BP about the first deed: A. As I said, from my point of view the important part of 1 August is - I had nothing in common. The people try to put me out of business. Why should I tell them anything? From my point of view I honestly try to deal between me and Dick Young. Dick Young want me to sign the deed for BP so he can be safe. I did sign the deed for BP. That is why I sign the deed for BP. " What is readily apparent is that the reason given by Ayoub for entering into the Secret Agreement could hardly have been the only reason even if one accepts that it was an operative factor that influenced his mind. I say this because CL4 of the Deed of Release, which is set out above, gave him the protection from bankruptcy that he says he was seeking in requiring Young to enter into the Secret Agreement and it is unrealistic to think that he was unaware of this. The draft documents prepared by the first respondent's legal advisers had been with Ayoub's solicitor for some time and, given his sensitivity about bankruptcy, I find it impossible to accept the fact that his solicitor did not at least advise him of the existence of CL4. Indeed it is far more probable that this particular clause was introduced into the document at the suggestion of Dyson than by Clayton Utz. Furthermore, his evidence is inconsistent with paral0 of his affidavit of 26 August 1992 in which he said: "On 1 August 1991 I executed a deed with Dick Young as well as RJ Young P/L. Our intentions were made clear before the deed was signed, namely that my liability to Young before assigning or giving certain securities to Young, was to be limited to assigning those assets and no further notwithstanding that the disposal of the assets may lead to a shortfall on sale and/or valuation." Young (that is Mr Young) in his statement said that on | August 1991 he was told by Dyson that Ayoub wanted him to sign the Secret Agreement, the effect of which was "that after all George's assets listed as securities in the Deed of Covenant have been sold you can't pursue him for any more money. He does not have any more assets. It is a condition of his signing the Deed of Covenant and other documentation prepared by Clayton Utz" (my underlining). Young also said that he was told by Dyson that Ayoub would not sign the documents submitted by Clayton Utz unless he signed the first deed. Young said that later he had a conversation with Ayoub concerning the fairness of having him (Young) sign the document and said that Ayoub agreed that it was not fair on his part and added "Don't worry I will not use it". According to Young, Ayoub telephoned Dyson, told him that Young was with him and said "I have told them we will not use that deed to avoid paying the debt". There can be no doubt that Ayoub knew at the time he signed the Secret Agreement he would be called to sign a number of documents prepared by Clayton Utz later in the day including the Deed of Covenant in which he provided a number of securities to secure the repayment of his debt to Young, the release to which I have referred and the mortgage between Young and the first respondent in which Young assigned its interests in the Ayoub debt and the Ayoub securities (which included the securities set out in the Deed of Covenant) to the first respondent as security for the repayment by Young of its debt to the first respondent. In this respect it is clear that Ayoub's solicitor (Dyson) had had documents in a substantially similar form to those eventually executed for some time and that he had played an active part in the negotiation of the form of the documents. Ayoub also must have known, at the time he executed the Secret URJ AYOUB v BP AUSTRALIA LTD and ORS (Clarke JA) 17 Agreement, that the Deed of Release contained the covenant to which I have referred. He was asked a great many questions in cross examination as to his reason for entering into the Secret Agreement but in light of his earlier statement of that reason in his affidavit and the objective facts to which I have just referred I, like his Honour, am unable to accept his oral evidence that the reason for entering into the Secret Agreement was simply to protect him from bankruptcy. Obviously, its effect was, and must have been known to him to be, far greater than that insofar as it was clearly intended to remove a large number of the securities which would otherwise be available to the first respondent in the event of his default in repayment of his debt to Young. When, therefore, he executed the Secret Agreement knowing that later in the day he would be required to sign a number of other documents including a release with a covenant in which he promised that he had not taken steps such as he had in executing the Secret Agreement I am led inevitably to the conclusion that he was secretly and deliberately trying to defeat the operation of the agreements which he had negotiated with Young and the first respondent. In short he was deceiving the first respondent. His actions in entering into the Secret Agreement and later on the same day promising the first respondent that he had not done so, or done anything similar, are so strongly indicative of fraud on his part that in the absence of a persuasive alternative hypothesis a finding should be made against him. There is no alternative hypothesis. There is no explanation for the inconsistency in his conduct and I conclude that the trial judge was correct. I should not conclude my discussion of this aspect of the appeal without observing that it is difficult to understand why the first respondent relied solely on fraud in order to defeat Ayoub's reliance upon the Secret Agreement for, as at presently advised, it would seem to me that the circumstances of the case may well have raised a good estoppel against Ayoub. Once it is concluded that the trial judge was correct in his factual conclusion the fraudulent deed avails neither Ayoub nor the appellant. The other main issue in the appeal concerned a challenge to his Honour's rejection of an argument that a Deed of Confirmation executed by the appellant was unjust under the Contracts Review Act, 1980. The Deed in question was dated 6 November 1991 but was signed by the appellant on 25 October 1991 and a consideration of the argument requires further reference to the facts of the case. It will be recalled that on 1 August 1991 the appellant was not in Australia and the deeds which were executed by him were in fact executed by Ayoub as his Attorney. The fact that this would occur was obviously well known to the first respondent for some time prior to | August for in para2.4 of the Deed of Covenant and Guarantee (to which the appellant was a party) a number of conditions precedent to the continued extension of the terms for repayment of the debt by Ayoub were set out. The relevant conditions read: "2.4 CONDITIONS PRECEDENT TO THE EXTENSION OF THE TERM The right of the Debtor to obtain the extension of the Term beyond the Conditions Precedent Satisfaction Date by operation of this Deed is subject to the conditions precedent that: (a) Michael Hanna Ayoub shall before the Conditions Precedent Satisfaction Date have obtained legal and financial advice in respect of his entry into this Deed, each of the Securities in respect of which he is the mortgagor and the Deed of Ratification and Confirmation referred to in subCL(vi) of CL2.4(b); 18 UNREPORTED JUDGMENTS (b) The Beneficiary shall before the Conditions Precedent Satisfaction Date have first received all of the following in form and substance satisfactory to it and BP: (i)... (ii)... (iii) independent legal and financial advice certificates in relation to Michael Ayoub's entry into this Deed, each of the Securities in respect of which he is the mortgagor and the Deed of Ratification and Confirmation referred to in para(iv) below; (iv) a Deed of Ratification and Confirmation between Michael Hanna Ayoub and the other parties hereto and Redray, executed personally by Michael Hanna Ayoub..." There are a number of expressions in the passage I have set out, such as 'Conditions Precedent Satisfaction Date", which are defined in the Deed of Covenant, but for present purposes it is unnecessary to take time to refer to the various meanings. What is important is that the parties provided, in the documentation executed on 1 August, for the ratification and confirmation of the relevant transactions by the appellant after he had received appropriate financial and legal advice. The appellant returned from Lebanon on 21 August 1991 and by the end of that month he knew what had happened in his absence and that the first respondent wanted him to sign a document acknowledging the debt and ratifying what his brother had done in his absence. He was of opinion that he was not bound by his brother's execution of the documents on his behalf. However, on 12 September Clayton Utz and Co wrote to Mr Steven Fuller, the solicitor for the appellant, enclosing various documents, including the Deed of Confirmation "amended in accordance with our discussion", and copies of Notices of Assignment and Direction and Authority addressed to the appellant from Ayoub, Young and the first respondent. The letter noted that the original of each notice was forwarded to Ayoub at his home address. On 13 September 1991 Clayton Utz sent a facsimile transmission to Fuller confirming the deadline for satisfying the conditions precedent outlined in CL2.4 of the Deed of Covenant, and continuing: "We also note from your conversation of this morning that you are intending to discuss with your client's accountant his responsibilities in relation to the giving of the certificate of independent financial advice and the time frame in which this advice is envisaged to be given". On 16 September 1991 Fuller forwarded a facsimile to Clayton Utz advising that the accountant would not be in a position to sign the certificate of financial advice by 18 September 1991 and indicating that he would be in touch with them later. On 19 September the appellant had, however, had a change of heart and Fuller told Clayton Utz that the appellant wanted to enter into a new deal with the first respondent. On the same day Mr Hodge, a partner of Mr Fuller, wrote to Clayton Utz advising that the appellant did not consider himself bound by the documents executed by Ayoub under Power of Attorney, that the appellant was not prepared to guarantee the debts of his brother and that the accountant refused to provide a certificate of financial advice which would overcome the difficulties contained in Beneficial Finance Corporation v Karavas and Ors ([1990 and 1991] 23 NSWLR 256). The letter proceeded to put forward an alternative proposition. Clayton Utz responded to that transmission by facsimile on 24 September 1991 URJ AYOUB v BP AUSTRALIA LTD and ORS (Clarke JA) 19 but thereafter there appears to be a gap until 21 October when discussions resumed between the solicitors. These were followed by a letter of 22 October 1991 from the appellant's solicitors to Clayton Utz. There was then a meeting at the first respondent's premises which were attended by the appellant and Mr Young. During that meeting there were a number of proposals considered, and some argument, but his Honour made no findings as to precisely what occurred on that day. It is clear, however, that on the next day Clayton Utz wrote to Fuller sending an Amended Draft Deed of Confirmation and Ratification and Incoming Guarantee together with a draft side letter and short form Accountants Advice Certificate. On the next day Mr Fuller sent to Clayton Utz a number of duly executed documents including a Certificate of Independent Advice signed by Steven Fuller and a Deed of Confirmation, Ratification and Incoming Guarantee. The certificate to which reference was made was in the following terms: "I, STEVEN FULLER of 12 Ormonde Pde Hurstville certify as follows: 1. Iam a Partner with Owen Hodge and Son, Solicitors. 2. I have been instructed by Michael Hanna Ayoub (also known as Michael John Ayoub) to explain to him the content and effect of the guarantee and indemnity provided by him to RJY (and to be confirmed by him) relating to the obligations of George Ayoub (the 'Debtor') and the documentation in respect thereof, and which documentation includes the following: (a) Deed of Covenant and Guarantee dated 1 August 1991 between George Ayoub as debtor, Michael Hanna Ayoub as guarantor and RJY as beneficiary; (b) Real Property Act Mortgage dated I August 1991 between Michael Hanna Ayoub as mortgagor and RJY as mortgagee over the whole of the land described in Certificates of Title Volume 5704 Folio 23, Folio Identifier 3/519729 and Folio Identifiers 98, 99 and 100/223072; and (c) Real Property Act Mortgage dated 1 August 1991 between Michael Ayoub as mortgagor and RJY as mortgagee over the whole of the land described in Certificate of Title Folio Identifier 92/216204 and Folio Identifier 184/539628, and (d) Real Property Act Mortgage dated I August 1991 between Michael John Ayoub as mortgagor and RJY as mortgagee over the whole of the land described in Certificate of Title Folio Identifier 1/542483; (e) Deed of Acknowledgment of Loan dated 1 August 1991 between Michael Ayoub and George Ayoub; ("the Original Documents), and (i) Deed of Mortgage of Securities to be entered into between Michael Hanna Ayoub as mortgagor and RJY as mortgagee in respect of certain shares in Heatrise Pty Ltd; and (ii) Deed of Confirmation, Ratification and Incoming Guarantor between the parties to the Deed of Covenant and Guarantee and Redray Pty Ltd, ("the Additional Documents"). 3. Before the Additional Documents were executed by Michael Hanna Ayoub [and which execution I have witnessed], I: (a) read over and explained the Original Documents and the Additional documents to Michael Hanna Ayoub; and (b) questioned Michael Hanna Ayoub examining his knowledge of the Original Documents and the Additional Documents. 4. To the best of my knowledge and belief and in my opinion; 20 UNREPORTED JUDGMENTS (a) Michael Hanna Ayoub appeared to understand the true import and effect of the Original Documents and the Additional Documents (including RJY's rights on default) and the nature and extent of the legal liability and obligations which all such documents place upon him; and (b) Michael Hanna Ayoub has freely and voluntarily executed the Additional Documents. 5. I have been engaged by Michael Hanna Ayoub in advising him and have given this Certificate entirely independent of the Debtor and all other guarantors af any) DATED: 25 October 1991 (sgd) S Fuller STEVEN FULLER" It is necessary at this stage to refer to some findings made by his Honour. The first is that the appellant chose, quite deliberately and in the light of the legal advice he had received, to confirm the August agreements. His Honour thought he may have done that, in part, because he did not wish to disadvantage Ayoub or for other reasons connected with his relationship with Ayoub. Nonetheless his Honour did not believe those reasons were such as to characterise the Deed of Confirmation as unjust. His Honour also found that: "... between 4 September 1991 and 25 October 1991 Mr Fuller informed himself fully of the terms of the documentation; conferred with his partner, Mr Russell Hodge, and with Mr Michael Dyson (Ayoub's solicitor); reviewed the documentation; met on a number of occasions with the appellant and his accountant, including a meeting in Wollongong on 17 September 1991; conferred with the appellant on 25 September 1991 concerning the execution of the documents, which did not occur on that date; thereafter had discussions with a solicitor for the first respondent and the appellant and Mr Russell Hodge and, finally, conferred with the appellant on 25 October 1991 when the documents were executed." As his Honour pointed out Mr Fuller was not called to give evidence and no objection was taken to the tender of his Certificate of Independent Advice. It was clear, his Honour concluded, from a Memorandum of Fees, that his (Fuller's) discussions with the appellant proceeded over a quite lengthy period and finally his Honour observed that there had been no suggestion that Fuller had not given the appellant the advice to which he referred in the certificate or that the appellant did not understand it. These latter two findings were not challenged by counsel for the appellant. The appellant's submissions in relation to these findings were contained in further written submissions. They could be summarised as follows: (1) His Honour was too greatly influenced by the fact that the appellant had independent legal advice before entering into the Deed of Confirmation; (2) His Honour failed to pay sufficient weight to the limited nature of the Certificate of Financial Advice eventually provided (which said no more than that the accountant had discussed with the appellant the financial risks involved in providing a secured guarantee for Ayoub's debt; (3) His Honour insufficiently distinguished considerations relating to unconscionable conduct in law or in equity and the considerations relating to unjust contracts for his Honour had no sufficient regard to the appellant's limited grasp of English which represented a disability to which regard should have been paid. URJ AYOUB v BP AUSTRALIA LTD and ORS (Clarke JA) 21 (4) His Honour failed to place sufficient weight on the obvious breach by Ayoub of his fiduciary duties to his brother; and finally (5) His Honour failed to have regard to each of the criteria in s9 of the Contracts Review Act and this failure led to an erroneous judgment. In particular the lack of equality of bargaining power and the difficult position in which the appellant found himself when he returned from Lebanon after the documents had been executed would, if given sufficient consideration, have been, at least, highly persuasive factors leading to a conclusion that the contract was unfair. Although there was no reference to the secret agreement in the written submissions Mr Evatt in oral argument did contend that insofar as Ayoub did not know about that agreement at the time he executed the Deed of Confirmation the court should have found, for this reason alone, that the confirmed agreement was unfair. The relevant defence which was pleaded was that the contract was unfair under the Contracts Review Act. There was no pleading raising issues of unconscionability either at Common Law or in Equity and so far as I can ascertain from the appeal book this point was never raised. His Honour certainly did not deal with any defence of unconscionability and in the light of this circumstance it would seem to me correct to conclude that the issue was not litigated. Although the considerations which are relevant in determining whether a contract is unjust under the Contracts Review Act are similar, and in some cases may be identical, with those which arise in a case in which unconscionability is alleged I am unable to say that the first respondent may not have led additional evidence in answer to a case of that nature and I am of opinion that it would be wrong for this Court now to entertain argument upon it. There is, however, some substance in a number of the points put forward by Mr Evatt. In the first place there is an apparent and considerable unfairness in holding the appellant to a contract which was executed on his behalf by his brother under a Power of Attorney and without any specific instructions from the appellant. That unfairness is aggravated by the fact that the contracts which were signed by Ayoub were disadvantageous to the appellant and extended indulgences only to Ayoub and Young. Of course, any indulgence granted to Ayoub may well have been of advantage to the appellant insofar as his brother may have desisted from seeking to call on the $2.2 million loan which he had made to the appellant. Nonetheless the document signed on | August 1990 certainly disadvantaged the appellant insofar as his properties were provided for security for the debts of Young and Ayoub. It is also fair to say, in my opinion, that the appellant was, upon his return, in a disadvantaged situation. The security had been provided over his properties by his brother and he was in the difficult position of either having to confirm the transactions or move to set them aside. If he took the latter course or merely declined to execute the Deed of Confirmation he may have placed his brother in an impossible situation and that would, no doubt, have been of concern to him. Although it could be argued that his brother's conduct would have diminished that concern I do not think that that stands as a complete answer to his submission that he was considerably disadvantaged. That the appellant was reluctant to confirm the transactions is readily apparent from the events of September and there was some evidence to the effect that the first respondent placed pressure on the appellant by threatening to take every possible step to hold him to the bargain set out in the documents executed in August. His Honour made no finding on the contents of the discussion on 23 22 UNREPORTED JUDGMENTS October when this was said to have happened but in view of the letter which was sent by Clayton Utz on 24 October it is apparent that events occurred on the previous day which inclined the appellant towards signing the Deed of Confirmation. On the other hand, the appellant was, at all relevant times, advised by solicitors as to the nature of the transaction and the risks to which he was exposing himself and in the ultimate determined that, notwithstanding the risks, he would sign the Deed of Confirmation. In these circumstances and given the unchallenged finding that he had not suggested he didn't understand the advice he had been given I would not be disposed to conclude that his Honour erred in his decision. Nor do I think that the existence of the Secret Agreement which was not known to either of the parties to this appeal in October 1991 should lead to the conclusion that the Confirmed Agreement was unfair. That agreement would not, in the circumstances to which I have earlier referred, have bound either party. The appeal should be dismissed with costs. Appeal dismissed with costs. The appeal should be dismissed with costs. Counsel for the Appellant: C EVATT AND R PINCUS Instructed by: TEAKLE, ORMSBY AND ASSOCIATES Counsel for the Respondent: RM SMITH AND CM MOORE Instructed by: CLAYTON UTZ