WK Marble & Granite Pty Ltd v JKE Holdings Pty Ltd [2013] NSWDC 308

District Court New South Wales

Medium Neutral Citation: WK Marble & Granite Pty Ltd v JKE Holdings Pty Ltd [2013] NSWDC 308 Hearing dates: 17 and 18 September 2013 Decision date: 20 September 2013 Jurisdiction: Civil Before: P Taylor SC DCJ Decision: (1) Judgment for the plaintiff against the second defendant for the sum of $646,345.59. (2) Dismiss the cross-claim. (3) Reserve the question of costs pending the receipt of any further submissions as directed on 18 September 2013. Catchwords: AGREEMENT - guarantee of debt by mother - non est factum - Contracts Review Act - independent legal advice - absence of unfair conduct Legislation Cited: Contracts Review Act 1980, s 7, s 9 Cases Cited: Petelin v Cullen (1975) 132 CLR 355 West v AGC (Advances) Ltd (1986) 5 NSWLR 610 Category: Principal judgment Parties: WK Marble & Granite Pty Limited (ACN 074 331 981) (plaintiff) JKE Holdings Pty Limited (ACN 099 561 387) (first defendant) Bahia Elia (second defendant) Joe Elia (third defendant) Karen Elia (fourth defendant) Representation: Mr C E Bannan (plaintiff) Mr M Auld (second defendant) Eakin McCaffery Cox Lawyers (plaintiff) JK Solicitors (second defendant) File Number(s): 2011/326421 Publication restriction: No

Judgment 1WK Marble and Granite Pty Ltd ("WK Marble") lent the sum of $590,374 to JKE Holdings Pty Ltd ("JKE") pursuant to a loan agreement. JKE was a company that owned a business conducted by Mr Joe Elia. His wife, Mrs Karen Elia, was the sole director and shareholder of JKE. Mr and Mrs Joe and Karen Elia agreed to guarantee and indemnify JKE in respect of its obligations under the loan. So also did Mrs Bahia Elia, Mr Joe Elia's mother. 2In addition to being guarantors under the loan agreement, Mr and Mrs Elia and Mrs Bahia Elia also agreed, pursuant to a deed of charge and a bill of sale, to guarantee and indemnify the plaintiff, WK Marble, in respect of any moneys due by Mrs Karen Elia. The loan obligations were not met, and WK Marble sued JKE, Mr Joe Elia, Mrs Karen Elia and Mrs Bahia Elia. 3Judgment has previously been entered against JKE and Mr Joe Elia and Mrs Karen Elia. The only remaining matters concern the claim against Mrs Bahia Elia, to whom I will hereafter refer to as Mrs Elia. 4Mrs Elia resists the claim on two bases, and it is agreed between the parties that these are the only issues in the proceedings. 5First, she relies on the doctrine of non est factum. 6Secondly, she seeks, under the Contracts Review Act 1980, to have the loan agreement and the deed of charge and bill of sale declared void. Or, alternatively, she asks the Court to refuse to enforce the obligations in those documents. 7Although there was some cross-examination, most of the factual matters were not in dispute. 8On 12 October 2010 Mr Joe Elia informed WK Marble's solicitor that his mother was, "quite happy to put her property as security for the said loan in lieu of [the factory]". The solicitor replied: "[O]ur client shall require security over [the factory] in addition to any security being provided over your mother's property, and your mother will need to be a signatory to any documentation, and therefore shall also need to provide a certificate of independent legal advice." 9This requirement for independent legal advice was reiterated by the solicitors for WK Marble, two days later, in the following terms: "It is imperative that certificates of independent legal advice be provided in relation to guarantees being provided by yourself, your wife and your mother." 10The account given by Mrs Elia of these events was as follows: "5. On around 27 October 2010 my son Joseph Elia (the third Defendant) came up to me and said to me: "'Mom I want to talk to you about something'. I said: 'What about'. He then said: 'I need your signature on a document, and you are coming with me to a solicitor to sign some papers you want that or not'. I then replied: 'No, I am not signing anything. All I have is the House and this is the house that we bought with your late father. I am not signing anything until I am alive I don't care after I go'. 6. The third Defendant was insisting and continued to say: 'You have no choice you are coming with me I don't care what you say or think, I don't want to force you but I will get you to come with me even if I have to carry you there myself"' He continued after a short pause by saying to me: 'Don't worry you are not signing the house to somebody you are just signing some documents'. I recall at that moment he raised his voice at me and clenched his fists, I knew then that I can not [sic] do anything but go even against my will. 7. I reluctantly attended the lawyer with the third Defendant. I felt very unwell because of the argument that I had with him and I forgot to take my medications that were prescribed to me at the time. As I was leaving the house on my way to the Lawyer, I felt very unwell and weak and felt as I had no control over my body or my actions. 8. I recall on the way to the Lawyer, on number of occasions I was thinking of just returning home and not going there at all. But I just feared that I might be physically forced by the Third Defendant. 9. On around the 27 October 2010 I only remember that I attended with the third Defendant the offices of the solicitor which I know is of Lebanese background. It [sic] seemed to me to be a nice person. I can not recall much of the conference that I had with him and I was just polite but did not understand much what he said to me. I thought that I have to be polite with him because he was nice with me. I must have nodded with my head from time to time or maybe just answered 'yes' to his questions but I did not understand what he was saying to me. ... 16. I reluctantly went to the meeting ... to attend the offices of my then solicitor George Khoury and CO Solicitors to sign documents that I never really understood clearly and the effects it could have on me even after they were read to me." 11Mrs Elia also deposed to not understanding English "very much", speaking "very little English", "still grieving the loss" of her husband, "still recovering from an extensive life threatening tumour operation on the brain" and "under heavy medications". 12Mrs Elia deposed to having been approached by her son, Mr Joe Elia, "on several occasions prior to the 20 October 2010 to sign some documents". 13It is not disputed that Mrs Elia had no interest in JKE and did not receive, at least directly, any of the proceeds of the loan. 14Of the loan amount, $150,000 was retained to pay for past debts owing by JKE to WK Marble. There was an amount of $10,353.50 for the costs of the loan and $430,20.50 was advanced to JKE. 15The solicitor that Mrs Elia visited in October 2010 was Mr George Khoury. Mr Khoury deposed in his affidavit to the following conversation: "After I was given a copy of the relevant documents, I had a conversation with Bahia Elia in which we said words to the following effect: Me: The solicitor acting for the borrower wants you to get independent legal advice on these two documents. Bahia: OK. Me: The first document is a deed of charge and bill of sale. It is a mortgage of property by Karen to WK Marble & Granite Pty Limited, and you and Joe will be the guarantors. A bill of sale means that there is stock which is being used as security. The documents list the obligations of the borrower, Karen, and it is like a bank loan - if she doesn't pay or can't afford to pay then you and Joe would have to cover the debts of Karen. Bahia: OK. Me: The other document is a loan document for a loan between WK Marble and JKE Holdings as the borrower, and you and Joe and Karen are the guarantors. The amount of the loan is $650,000. The clause provides that if the borrower cannot pay, WK Marble & Granite Pty Limited can demand that you Joe and Karen have to pay. If that happens you, Joe and Karen are liable for the whole balance owing. Bahia: OK. Me: Also in the loan document, there is an overriding clause that, as a guarantor, they can come and sue you and take your property, real and personal. The loan document also refers to a mortgage on your house although there is no mortgage here for you to sign. They can also put a caveat on your property. That means that it's a red light. You can't do anything with your property unless you deal with the person lodging the caveat. So you can lose everything if the loan is not paid. Do you understand all of that? Bahia: Yes, I do."