New South Wales Supreme Court CITATION : Chandran v Narayan [2006] NSWSC 104 HEARING DATE(S) : 20 and 21 February 2006 JURISDICTION : Equity Division JUDGMENT OF : Young CJ in Eq EX TEMPORE JUDGMENT DATE : 02/21/2006 DECISION : Application by wife to set aside deed dismissed; verdict for creditor against wife on deed. CATCHWORDS : EQUITY [48]- Deed executed by husband and wife- Deed providing security over joint property and making wife liable for husband's debt- Whether equity will set aside- Whether wife was a volunteer- Wife involved in husband's business- Husband and wife not legally represented by choice- Creditor's representative explaining transaction- Apparent understanding- Deed not set aside. Bester v Perpetual Trustee Co Ltd [1970] 3 NSWR 30 Garcia v National Australia Bank Ltd (1998) 194 CLR 395 CASES CITED : Henry v Armstrong (1881) 18 Ch D 668 State Bank of New South Wales Ltd v Chia (2000) 50 NSWLR 587 Yerkey v Jones (1939) 63 CLR 649 2890/05 Thirupathur Lakshmanan Chandran (P) Parvati Sunita Narayan (D) PARTIES : 2892/05 Thirupathur Lakshmanan Chandran (P) Sradha Nand Narayan (D1) Parvati Sunita Narayan (D2) FILE NUMBER(S) : SC 2890/05; 2892/05 2890/05 S Reuben (P) COUNSEL : B DeBuse (D) 2892/05 S Reuben (P) B DeBuse (D2) 2890/05 Denes Ebner (P) SOLICITORS : Watson & Watson (D) 2892/05 Denes Ebner (P) Watson & Watson (D2) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION YOUNG CJ in EQ Tuesday 21 February 2006 2890/05 - CHANDRAN v PARVATI SUNITA NARAYAN 2892/05 – CHANDRAN v SRADHA NAND NARAYAN JUDGMENT 1 HIS HONOUR: Because of events which have occurred since these proceedings were commenced, the issues for my determination have been reduced to two, namely: (1) is the plaintiff known as Chandran entitled to judgment against Mrs Sunita Narayan for $1,965,213.34 because of her liability on a deed made on 4 November 2004; (2) is Mrs Sunita Narayan entitled to relief against her liability under that deed either under general equity or under the Contracts Review Act? There are two sets of proceedings filed, but I need only consider the claim in 2890/05 which raises the first issue and the cross-claim in 2892/05 which raises the second issue. 2 The basal facts which are not in dispute are that Mr Narayan, who recently became a bankrupt, was indebted to the plaintiff in a large sum of money which he could not repay. The plaintiff sued Mr Narayan for over $2 million in the Common Law Division of this Court. On 30 September 2004 that action was settled on the basis that there would be a verdict for the plaintiff for $1,809,683.84. The terms of settlement required security and a payment of $300,000 by 2 November 2004. The common law proceedings were then stood over to 2 November 2004 and later to 16 November 2004. 3 It would seem that the money which Mr Narayan borrowed was partly used to buy a factory in which a company in the Esen Group carried on its business, and other parts of the borrowed funds were used to buy a Mercedes motor car and other objects of that nature. 4 The plaintiff lives in Singapore. Both the plaintiff and Mr and Mrs Narayan are of Indian culture, the Narayans having come from Fiji. 5 There is no doubt that Mr and Mrs Narayan called on the plaintiff at his home in Singapore on 23 October 2004. They asked for further time to pay the debt. They brought with them bank drafts totalling $300,000. This was made up of one bank draft for $200,000 and another for $100,000. Certainly Mr Narayan at least hoped to be able to convince the plaintiff that he should only take $200,000 rather than the $300,000 in the terms of settlement, but in this he was unsuccessful. The plaintiff said that that matter was non negotiable, the $300,000 was handed over, and that made negotiations as to time to pay a little more free and easy. 6 The parties essentially agreed that further time would be given to pay the amount of the debt, which was soon to be a judgment debt against Mr Narayan, provided security was given. The security was to be given over assets including real estate in New South Wales which was jointly owned by Mr and Mrs Narayan, and accordingly it was necessary that Mrs Narayan join in the documentation. The Narayans left Singapore knowing that there would be further documentation produced when they got back to Sydney and that about a million dollars worth of their joint property would have to be used to reduce the debt. 7 The plaintiff sent a fax or email, which is on page 43 and following of the tender bundle, saying to Mr and Mrs Narayan: "Thanks for coming to Singapore and taking effort to discuss to repay the loan. It is a big positive step that you understand what you did is a mistake and ready to accept it and recognise the real problem. You both say you are committed to pay us back the loan and interest in full and are seeking your family's support and with their understanding want to clear it one way or other all our Debts sooner than later." 8 There are then very detailed suggestions by the plaintiff as to how the loan could be liquidated, suggestions that the Narayans should liquidate all their three houses which would raise over a million dollars and paying instalments, and if that took place, then the loan could be reduced to a nil balance no later than November 2007. 9 The Narayans met the plaintiff at his Darling Harbour hotel on Monday 1 November 2004 and they went to a meeting at Level 44, MLC Centre, a conference room in a set of barristers' chambers. There were then present the plaintiff, Mr and Mrs Narayan, the plaintiff's solicitor Mrs Tay-Campbell and the plaintiff's counsel Mr J D Collins. 10 Mr Collins says, in summary, that he introduced the subject of the agreement between the parties in Singapore by which the Narayans were to get more time to pay if the plaintiff got security. I will not set out the whole conversation in paragraph 6 of Mr Collins' affidavit, but he says that he told the Narayans that the court would not wish to delay the matter indefinitely, so that the better way to proceed would be to enter into a deed of agreement by which the judgment is entered. The plaintiff then agreed not to execute the judgment provided both the Narayans provided appropriate security and also agreed to provide the plaintiff with certain particulars. 11 Mr Collins says that Mr Narayan said: "So how does that protect us?", to which Mr Collins replied: "Well, while Chandran" (that is the plaintiff) "will have a judgment against you, so long as you fulfil your side of the bargain; that is, provide the security, the required documents and make the monthly payments, Chandran will be stopped from executing his judgment. If he attempts to, and you have kept up your side, you will be able to produce a copy of the deed in defence of any recovery action." 12 Mr Narayan is said to have said: "Okay", and Mr Collins said that he would provide a draft deed so that the Narayans could have their solicitor look at it and "give you advice". The matter had been listed before Registrar Howe the next day, Tuesday 2 November 2004, but it was stood over to 16 November 2004. 13 Nothing that much turns on the 1 November meeting, but on Thursday 4 November 2004 there was a further meeting between the same people and at the same place. 14 Mr Collins and Mrs Tay-Campbell had prepared a draft deed and copies were distributed to those who were present. Now Mr Collins says that he asked Mr Narayan whether he wanted a solicitor involved and Mr Narayan answered quite definitely that he did not. Mr Collins then says he paraphrased the provisions of the draft deed and explained the concept of joint and several liability. Mr Narayan then said: "Okay", and the second defendant, Mrs Narayan, said: "Yes, I understand." Mr Collins then asked whether there was any error in the deed or whether any amendments were required, and Mr Narayan said that there needed to be some amendment of the descriptions, and Mrs Narayan said: "You have the values around the wrong way." There were amendments made to the draft. The amended draft was handed to the Narayans who appeared to read it. 15 Mr Collins then says that prior to executing the deed he again described each of the provisions to the parties and then said: "Now you are aware the matter was stood over until 16 November 2004, so there is plenty of time for you to have the deed reviewed by anyone you want. You don't have to sign it today and you have the right to obtain your own independent legal advice before you sign." 16 I should have said that at this stage Mr Collins had invited into the room his clerk, a Mrs Regina Vickery, who although she has been working as a barrister's clerk for some years still holds a practising certificate as a solicitor. 17 Mr Narayan said: "Yes, we understand." Mrs Vickery then said: "Are you both prepared to sign the deed now without obtaining your own independent advice?", to which Mr Narayan said: "Yes, we just want to finish the matter with Chandran. I want to sign it now", and Mrs Narayan said: "Yes." The parties then executed the deed, with Mrs Vickery witnessing each of their signatures. 18 Mrs Vickery swore an affidavit and was cross-examined, and her evidence was almost identical to that of Mr Collins. 19 Mrs Tay-Campbell also gave evidence by way of affidavit and was cross-examined. She says that Mr Collins said, addressing either Mr Narayan or Mr and Mrs Narayan: "Are you still instructing Marsdens as your solicitors?", and was told that they were not, and Mr Collins said: "Marsdens have contacted us and have asked for a copy of the deed for review. We need to be sure you understand it before you sign", to which Mr Narayan replied: "No, if I look at it and I'm happy with it, I don't need them." Mr Collins then explained the deed. Mrs Vickery joined the meeting. Mr Collins made further explanations, including the meaning of joint and several liability, and again suggested that the Narayans should have the opportunity of having their lawyers looking after the deed, which invitation was declined. Mrs Vickery also mentioned independent legal advice, but again this was declined, and then the deed was executed. 20 Both Mr and Mrs Narayan gave evidence. Mr Narayan said in paragraphs 10 to 12 of his affidavit: "At the meeting held on 4 November 2004 my recollection is that my wife did not take an active part in discussions. I said to my wife words to the effect 'You have to sign the deed.' I do not recall any explanation being given either to myself or to my wife as to what joint and several liability meant nor do I recall my wife being informed that she should obtain independent legal advice. Prior to 4 November 2004 I was never given a copy of the deed nor was my wife to take away with us to consider or obtain legal advice prior to its execution. I was conscious prior to the meetings on 1 November and 4 November 2004 that I had to get my wife to sign the documents requested by the plaintiff and his lawyers." 21 Mrs Narayan said that she did as her husband requested. In relation to attending the meetings, she did not know there was any alternative available and that as Mr Narayan's wife she was obliged to do as he said in regard to repaying the loan because of her dependence on him and because of her respect for her husband. She signed the documents but she did not understand their contents, and that had she been aware that there was a substantial risk that she would have to repay personally the amount from her own money, she never would have signed. She believed that the effect of the documents merely was that her husband was getting further time to pay. 22 She also swore another affidavit in which she repeated those matters and gave details as to her background, that she had attended school in Fiji to the equivalence of Year 12 in New South Wales, she had never been employed in Fiji, she came to Australia in 1988, worked as a kitchen hand and as a doctor's receptionist, and then had been a full time housewife, though she said she had assisted her husband in business with tasks such as despatching orders. 23 The deed provided that the plaintiff's debt was to be fully repaid by 2 November 2007 by instalments of $15,000 plus the proceeds of sale of the defendants' properties. The plaintiff was to be given security for his debt. 24 Recitals (E) to (I) provide as follows: "(E) On 2 November 2004 pursuant to the Terms of Settlement the matter was listed before the Court. At that time the matter was stood over until 16 November 2004 to finalise this Deed. (F) On 16 November 2004, and pursuant to the Terms of Settlement and this Deed, final judgment is to be entered in the Proceedings by consent, in favour of the Judgment Creditor for the amount of $1,810,881.45 plus an amount of $140,140.05 in interest with no order as to costs. (G) Pursuant to the provisions of this deed only, the Judgment Creditor agrees not execute judgment against the Judgment Debtor . (H) Pursuant to the provisions of this Deed both the Judgment Debtor and Sunita agree to be jointly and severally liable to the Judgment Debtor for the Judgment Debt . (I) Both the Judgment Debtor and Sunita agree, by the provisions of this Deed to provide security to the Judgment Creditor over the Judgment Debt as indicated herein." 25 Strangely enough, there is no clear promise in the operative part of the deed to pay the money as one would expect, but there is a set of clauses after the words: "Whereas the judgment debtor and Sunita covenant", and 4.1.8 says: "The Judgment Creditor is to be repaid all of the Outstanding Principal together with all accrued interest on or before 2 November 2007, unless that amount is paid to the Judgment Creditor at an earlier date." 26 The security is listed which includes assets which are in the name of both Mr and Mrs Narayan. It is a strange deed in that one does not get in the operative provision the material reflected in clauses such as (F) and (H) in the recitals (and of course (H) has been badly recorded in that one must read "judgment creditor and Sunita" as "judgment debtor and Sunita", otherwise it does not make sense), and recital (I) is not giving security over the judgment debt, but in respect of the judgment debt.) 27 Notwithstanding these imperfections, no argument was addressed to the effect that the deed did not operate so as to make both Mr and Mrs Narayan liable to the present plaintiff jointly and severally for the debt. 28 Accordingly, unless the matters alleged in the cross-claim can be availed of either in Equity or under the Contracts Review Act 1980, the plaintiff is entitled to succeed in his claim. 29 One approaches the cross-claim bearing in mind the words of Kay J in Henry v Armstrong (1881) 18 Ch D 668 at 669: "… any body of full age and sound mind who has executed a voluntary deed by which he has denuded himself of his own property, is bound by his own act, and if he himself comes to have the deed set aside...he must prove some substantial reason why the deed should be set aside." 30 Mr DeBuse, who appears for the cross-claimant, says that there are two substantial reasons why the deed should be set aside, and that is that it would be unconscionable to allow the plaintiff to have the benefit of this transaction in all the circumstances under general principles of equity, particularly those laid down by the High Court in Yerkey v Jones (1939) 63 CLR 649 and Garcia v National Australia Bank Limited (1998) 194 CLR 395, the second reason being because of the proper application of the provisions of the Contracts Review Act 1980. 31 Mr DeBuse says that here was a lady who was a member of a culture where profound respect for her husband is a keynote, who was doing what her husband wanted, to whom it was never explained that she had a real choice as to whether she would enter into a transaction at all, being voluntarily forced to pay her husband's debt of some $2 million when she got no advantage from the transaction whatsoever. 32 The plaintiff denies that there was any advantage taken of Mrs Narayan. He gave evidence that the families of the parties were all from India originally and the prevailing culture was that although the father was the head of the family, all parties at all times knew that no father could ever do anything without first accepting the counsel of his wife, so that when he originally sued Mr Narayan he was doing so more or less as the figurehead of the family and that he at all times considered that Mrs Narayan was responsible to him for repayment of the family debt. 33 I do not have to say whether I accept that or not, because if one analyses the transactions legally, one is more likely to get to a result that is good in Australian law. 34 Mrs Narayan, as I have said, filed an affidavit and she was strongly cross-examined by Mr Reuben, who appeared for the plaintiff. She presented basically as an intelligent lady who had a fair degree of knowledge, at least in 2004, of the affairs of the Esen group of companies and of her husband's circumstances. 35 The Esen Group seems to have consisted of at least five companies: Esen Holdings Pty Limited which owned the land and buildings, Esen Productions Pty Limited which manufactured furniture and Esen Sales Pty Limited which sold it. There was also a fourth and fifth company, Esen Commercial Limited and Esen Co Pty Limited, but these play no part in the present matter. 36 Mrs Narayan was the sole director and shareholder of Productions. This had come about when the Narayans bought out Mr Narayan's brother, who was formerly controlling that company. It seems on paper she was also the sole shareholder and director of Esen Co Pty Limited, but no one placed any significance on that. She was also involved in the day to day office work of Sales and she would negotiate some transactions in the administration of Sales and she was also involved with some of its bankers. 37 Mr DeBuse says that really all she was doing was working as a despatcher and a payroll clerk, but in my view, having listened to her evidence, her role was greater. Particularly, she was the sole director and shareholder of the company which was manufacturing the furniture, and the whole family depended on the income derived from the various Esen companies for its sustenance. 38 Mrs Narayan would have us believe that she was only present at the three meetings, the Singapore meeting and the two meetings in the MLC Centre, because her husband wanted her to be there, and because she was a joint owner of some of the real estate it was necessary that she sign documents. 39 I do not consider that this explains her presence at the Singapore meeting. There was no reason for her to go to the Singapore meeting unless, as Mr Chandran would have us believe, it was all a family matter and that she was involved as her husband was involved. She knew, however, at the Singapore meeting that she was to provide security over her properties for Mr Chandran, she knew that her husband wanted time to pay the debt, and indeed she herself asked for further time to pay the debt at the Singapore meeting. As she left Singapore she knew that her properties were going to be given as security. And she was also aware, by the communication that I have referred to that Mr Chandran sent immediately after the Singapore meeting, that she was to be intimately involved. 40 Now it does not come through loud and clear from those matters that she was to be also jointly and severally liable to Mr Chandran for the judgment debt with her husband, but certainly she was not merely a person who was standing by, ignorant of all the affairs of the business, who was convinced by her husband that she had to become more deeply involved. She at the very least accepted that it was necessary for the good of the family that she put her interest in the family properties on the line as security for the debts. 41 As I said, both Mr and Mrs Narayan gave evidence. Mr Narayan did not give his evidence confidently. There were too many occasions when he was in a position of having to say he could not remember. And indeed, when one analyses his affidavit, he never denies that the vital matters were put by Mr Collins or Mrs Vickery or Mrs Tay-Campbell; he merely says he cannot remember. 42 Mrs Narayan does go further and denies some matters, but I find it very difficult to accept her evidence as against the very cogent evidence given by Mr Collins, Mrs Vickery and Mrs Tay-Campbell. They gave their evidence clearly. They were not affected by cross-examination. Their evidence was quite credible and it is perfectly consistent with what careful lawyers would do in a situation where the other side's client coming to settle a case had deliberately kept their lawyers away. 43 I do not accept Mrs Narayan's assertion that the questions were directed to Alick Narayan alone. It may well be that some of them were primarily directed to him, and indeed Mrs Tay-Campbell's notes tend to use the pronoun "he" rather than "they", but Mrs Narayan was a lady who was educated to Year 12 standard, what was said by Mr Collins and Mrs Tay-Campbell was put in language that she should have been able to understand, and she did know that she was going to be involved in paying these debts at least from the selling up of family assets of which she was legally a part owner. 44 Accordingly, I would find as a fact that Mr Collins said to Mrs Narayan the words he said he put to her on 4 November and that it was put as clearly as it could be put that Mrs Narayan was to be jointly and severally liable. 45 But Mr DeBuse says that if you look properly at Yerkey v Jones and Garcia v National Australia Bank, what happened on 4 November was quite inadequate. He says there was an inadequate explanation. He says that Mr Collins and his offsiders, although they were not the lawyers for the Narayans nor independent lawyers, took on the role of independent advisers but then did not carry out that role properly. He makes three particular points. First, that what they did in informing Mrs Narayan was done in the presence of Alick, her husband, which must have inhibited questions by Mrs Narayan. Secondly, the whole tenor of the questions were directed to Mr Narayan and at the very most Mrs Narayan had an opportunity to comment. Thirdly, the deed was put together in indecent haste; there was no taking the deed away or examining it properly. 46 Dealing with these matters in reverse order, I do not accept proposition three because I accept that Mr Collins said there was no need for the deed to be signed, and other evidence suggests that there was no problem at all on Mr Chandran's side in having solicitors look at the deed and make proper comments about it, and we know that the mention in the Common Law Division had gone over to 16 November so that there was a little under a fortnight to consider it. 47 As to the proposition that the questions were addressed to Mr Narayan rather than Mrs Narayan, I do not fully accept that either, but even if they were, I do not accept that Mrs Narayan was of such a retiring nature nor that her respect for her husband would inhibit her from asking vital questions if she felt it necessary. 48 As to the first matter, it probably would have been better had the deed been explained apart from Mr Narayan, though that may have been difficult to arrange. However it does not seem to me that in the particular circumstances of this case any such failure by itself would be sufficient to set aside the deed. 49 Mr DeBuse truly says that an independent solicitor would have had the obligation not only of explaining what the deed meant, but also of pointing out that Mrs Narayan was not obliged to sign the deed at all and would have put the options in such a way that Mrs Narayan could have assessed them. She could have been told of the options in such a way that she could have worked out that her husband may well have been bankrupt in three months anyhow, so what was the sense of making herself personally liable for the whole debt merely to gain a slight advantage? 50 There is no doubt at all that that sort of advice would be the advice that needs to be given by an independent solicitor. As L W Street J pointed out in Bester v Perpetual Trustee Co Ltd [1970] 3 NSWR 30, the obligation of a solicitor is not fulfilled merely to explain the document unless he explains to a person giving away her property that she has no actual obligation to do so. 51 But that does not seem to me to be the whole story. In Garcia, at 408-9, four Justices of the High Court said in the case where there is no actual undue influence, but a debtor seeks to enforce against a woman a transaction which was negotiated through her husband, that it might be set aside as unconscionable: "if the lender took no steps itself to explain its purport and effect to her or did not reasonably believe that its purport and effect had been explained to her by a competent, independent and disinterested stranger. And what makes it unconscionable to enforce it … is the combination of circumstances that: (a) in fact the surety did not understand the purport and effect of the transaction; (b) the transaction was voluntary (in the sense that the surety obtained no gain from the contract the performance of which was guaranteed); (c) the lender is to be taken to have understood that, as a wife, the surety may repose trust and confidence in her husband in matters of business and therefore to have understood that the husband may not fully and accurately explain the purport and effect of the transaction to his wife; and yet (d) the lender did not itself take steps to explain the transaction to the wife or find out that a stranger had explained it to her." 52 That four-fold test is not satisfied by Mrs Narayan in the instant case. It was not a situation where the husband was left to explain the matter to the wife. The person in the place of the lender in the High Court's example actually by his barristers and solicitors did himself take steps to explain the transaction. There was no suggestion that they relied on the husband to explain it. Furthermore, it is difficult to see that the transaction was voluntary so far as the wife was concerned in the usual sense. 53 There are a number of cases where courts have considered what is a voluntary transaction for the purpose of this sort of rule, and the matter was examined in Garcia itself. It is now accepted that the mere fact that the wife may own shares in the company which is the vehicle for the husband's business does not disqualify her from being a volunteer. Nor does the fact that the business produces benefit which accrues generally to the family of which the wife is a member; see eg State Bank of New South Wales Ltd v Chia (2000) 50 NSWLR 587 at 601. 54 But whilst each case must be dealt with on its own facts, where the wife has a more active interest in the conduct and fortunes of the husband's business she is not considered to be a volunteer for the purpose of the rule. 55 In the instant case, although it is rather nebulous as to the exact involvement of Mrs Narayan in the business, it seems to me that the balance of probabilities favour that she was more than a mere despatcher of goods and payroll clerk, but not only was she the sole shareholder and director of the Productions company, she was also otherwise involved in the Sales company. 56 Mr Reuben urged me to look at Yerkey v Jones itself fairly closely; and indeed close scrutiny does repay one. The leading judgment is that of Sir Owen Dixon, and at page 685 his Honour said: "If the creditor takes adequate steps to inform her and reasonably supposes that she has an adequate comprehension of the obligations she is undertaking and an understanding of the effect of the transaction, the fact that she has failed to grasp some material part of the document, or, indeed, the significance of what she is doing, cannot, I think, in itself give her an equity to set it aside, notwithstanding that at an earlier stage the creditor relied upon her husband to obtain her consent to enter into the obligation of surety. The creditor may have done enough by superintending himself the execution of the document and by attempting to assure himself by means of questions or explanation that she knows to what she is committing herself. The sufficiency of this must depend on circumstances..." 57 That is not too far removed from the present case, where it was never suggested that Mr Collins, Mrs Vickery or Mrs Tay-Campbell were mistaken in their genuine belief that they had properly explained to Mrs Narayan what was entailed and that she appeared to understand it. 58 Accordingly, it seems to me that the cross-claim based on general equitable principles must fail. 59 When assessing the matter under the Contracts Review Act no technical matter of defence was put up. It was merely put to me by one side that when one looked at s 9(2) of the Act, the check list, one would find that the contract was unjust, but on the other side that one would not. 60 It seems to me that the same sort of analysis must be applied here as one applies under general equity and there is insufficient in the equality of bargaining power or what happened on 4 November or the earlier meetings to make an order under the Act adjusting the contract. 61 Accordingly, in my view the cross-claim fails. 62 Thus there should be judgment for the plaintiff on the claim in 2890/05 and I dismiss the cross-claim in 2892/05, and I will formally dismiss the claim in that case just to make sure that we can close the file. 63 The defendant in 2890/05 must pay the plaintiff's costs of both proceedings. 64 The exhibits should be retained for twenty-eight days. [Counsel addressed on costs] 65 HIS HONOUR: The defendant in 2890/05 must pay the plaintiff's cost of the suit and she must also pay the costs of the cross-claim in 2892/05; otherwise no order as to costs. ******************** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.