Akins v National Australia Bank

[1995] HCATrans 125

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Sydney  No S131 of 1994

B e t w e e n -

CAROLINE LOUISE AKINS

Applicant

and

NATIONAL AUSTRALIA BANK

Respondent

Application for special leave to appeal

DEANE J
TOOHEY J
McHUGH J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 12 MAY 1995, AT 9.31 AM

Copyright in the High Court of Australia

MR J. BASTEN, QC:   I appear with MR M.E. BOYD for the applicant, if the Court pleases.  (instructed by Jeremy Stoljar, Consumer Credit Legal Centre (NSW) Inc)

MR F.M. DOUGLAS, QC:   May it please the Court, I appear with my learned friend, MR R.J. WEBER, for the respondent.   (instructed by Mallesons Stephen Jaques)

DEANE J:   Mr Basten?

MR BASTEN:   Thank you, your Honour.  Your Honours, this case involves important questions as to the circumstances in which a wife can set aside a surety given to a third party to secure debts of her husband or his companies.  In particular, it raises the status of the principles enunciated by Mr Justice Dixon in Yerkey v Jones.  The trial judge properly considered himself bound to apply the principles in Yerkey but held that the wife in this case was not within the principles because she was not a volunteer, a proposition with which, in our submission, we would disagree and which I will turn to.

The Court of Appeal took a bolder position, one it had eschewed as recently as 1989 in Warburton v Whiteley and it declined to follow Yerkey.  The change of heart appears to have been inspired by the decision of the House of Lords in Barclays Bank v O’Brien in 1993 but, in our respectful submission, the court failed to apply the principles in that case too.

DEANE J:   Mr Basten, is your problem not this:  assume for the moment that you be correct about Justice Dixon’s judgment in Yerkey v Jones, that both courts below have held that your client fails in any event.

MR BASTEN:   They do, your Honour, but on what we would say is a misapplication of Yerkey v Jones.  The principal basis upon which they held that was that we were not involved in a voluntary disposition and the basis for that was that there was an indirect benefit flowing to the wife from the fact that, within the relationship, she obtained a significant financial or material benefit as the spouse of the principal party.

DEANE J:   But there were other facts which they call in aid, including where the interests had ultimately come from.

MR BASTEN:   Yes, that is so.  That was another matter which, I think, was particularly relied upon by Justice Giles.  Well, may I deal with both those points, your Honour.  I will go straight to that point.  I think the first point is dealt with in the Court of Appeal in Justice Clarke’s judgment at page 92 at about line 10 in that paragraph.  It is dealt with by Mr Justice Giles -  I do not think I need to go to it at this moment - at pages 46 to 48.  With respect, we would say that, on its face, this is a startling approach because, ex hypothesi, in a close sexual and emotional relationship involving financial dependence, one would expect the benefit to flow at least indirectly from the husband’s business ventures.

Secondly, as a matter of authority, it appears to be inconsistent with the approach adopted by Justice Dixon in Yerkey in which very similar consequences could have flowed but his Honour dealt with it at page 676 in the second paragraph at about point 3 on the page in (1938-39) 63 CLR at page 649. At 676, his Honour says:

It will be seen that all three of these matters must have a special importance where the transaction in question is one of suretyship and the wife without any recompense, except the advantage of the husband, saddles herself or her separate property with a liability for his debt or debts.

So that that was a similar sort of case where the husband was involved in a poultry farming venture and the family assets came from that venture.  Secondly, with respect, it is inconsistent with the principles adopted in a line of authorities most recently dealt with by Justice McHugh on the Court of Appeal as his Honour then was, in Warburton v Whiteley and, in particular, in (1989) 5 BPR at page 11,634 ‑ the case starts at 11,628 ‑ where his Honour, in the middle of the case, was considering the interests of Mrs Warburton.  At about point 4:

It is true that Mrs Warburton failed to prove that she had no shareholding in the company.  However, the facts as established in the record show that Mrs Warburton guaranteed the debt of a company which was “the pup” of her husband ‑

and it turned on the balance of proof, but his Honour concludes:

Upon these facts Mrs Warburton had a prime facie right to have the guarantee declared invalid.....If the evidence had established that Mrs Warburton had a shareholding in the company sufficiently substantial to warrant a finding that she had a beneficial interest in the company’s debt, the prima facie application of the Yerkey principle would have been displaced.

That approach, with respect, is quite inconsistent with the proposition that one can simply look to see if the wife takes a benefit in terms of living expenses flowing from the income of the husband, which would normally be the case.  There is, in my submission, no authority which supports the proposition that one can simply look at the indirect material benefit obtained by the wife in order to take the matter outside the principles of Yerkey v Jones and if that is the point of distinction, then that itself, in my submission, would be a significant issue of principle.

The second matter your Honour the presiding Judge referred to was the question of the source of the property and I take it that your Honour is referring in particular to the fact that the Wisemans Ferry property was purchased in the first instance with a mortgage and with the proceeds of a sale of a Chatswood property which had been in the sole name of Mr Akins.  With respect, that possible distinction is one which ignores the basic principle of family law concerning the contribution to family assets.  It is a basis for suggesting, I suppose, that Mrs Akins, the applicant, has no beneficial interest in the property which is in her name.  That, with respect, would not be correct according to established principles of family law and her contribution, which is clear, as a homemaker and mother, would allow her to retain the beneficial interest in that property.             We would say that once she has that beneficial interest, then the question as to whether it is her separate property or not is answered in her favour. 

The third aspect of the source of the property is, as I apprehend, the other half of the Wisemans Ferry property which is ultimately given to her, at least in a legal sense, by her husband in 1988 so that she becomes the sole owner.  We would say two things about that:  firstly, if it is alleged that she is not the beneficial owner of that part of the property, that is a matter which could and should properly been pleaded by the Bank;  but, secondly, the circumstances in relation to that half share are not relevant to the question of principle which, even if it were limited to her previous, as it were, half share, would give rise to the present difficulties in the application of Yerkey and the other legal principles.

So, although I understand the point that your Honour makes against me on that, in my submission, it is not decisive of issues in this case and would not suggest that this is not an appropriate vehicle for dealing with the questions at law.

DEANE J:   I was not intending to confine you only to those aspects of the facts, Mr Basten.  I was referring to the facts and factual findings generally.

MR BASTEN:   Yes.  Well, perhaps, your Honour, if I could deal with the other questions which are addressed, perhaps most concisely by Justice Clarke at page 92.  The second point he makes in paragraph A on that page is that there was no allegation ‑ perhaps it is the first point ‑ of undue influence but that there was an allegation and a finding of a misrepresentation to her.  It is our submission that in a relation of inequality where confidence and trust is reposed with respect to financial affairs totally in the husband, firstly, that that within the Barclays Bank principle is sufficient to raise the presumption of undue influence, but secondly, the finding that the husband misrepresented his position as one of wealth and secure for life, is a misrepresentation which constitutes an abuse of process for the purposes of considering these principles.

Firstly, might I take your Honours to page 74 at line 10 where, in considering the facts and the submissions, Justice Clarke makes the point that the question of misrepresentation inducing her to sign the document was treated by the applicant as a litigant in person as a separate ground from undue influence.  Now, with respect, that should not be held against her if she has put it in the incorrect way.  But, it may be that it properly is considered a slightly separate ground but it is dealt with expressly by Justice Dixon in Yerkey v Jones at pages 684 to 685. At about point 7 on page 684, after considering the two cases which his Honour distinguished between what one might call undue influence and the lack of understanding of the documents, his Honour says, about ten lines up from the bottom:

It is not clear how far the same principle is to be applied to a case where the wife is induced to become surety by the husband making some fraudulent or even innocent misrepresentation of fact which, though material, does not go to the nature and effect of the instrument or transaction.

And I run through to the top of the next page where his Honour says:

the basal position.....is that in substance, if not technically, the wife is a volunteer conferring an important advantage upon her husband who in virtue of his position has an opportunity of abusing the confidence she may be expected to place in him and the creditor relies upon the person in that position to obtain her agreement to become his surety.  Misrepresentation as well as undue influence is a means of abusing the confidence that may be expected to arise out of the relation.

So, we would say, your Honours, that that is a matter of some importance in the factual circumstances of this case and does not take the case out of the principles.

TOOHEY J:   If, in the end, the argument is that the court has misapplied the principle to the facts, it does not become a very attractive case for a grant of special leave.  I appreciate you are putting it more widely than that but, in view of the various findings of fact, Mr Basten, particularly those on pages 92 and 93 in so far as Justice Clarke’s judgment reflects the findings of the trial judge:  there is a rejection of undue influence;  a rejection of any claim that she did not understand the nature of the transaction;  the finding that the mortgages and guarantees were for her benefit;  finding that she brought no assets to the relationship and in no sense was providing her own capital.  Now against that background, what is the principle that you suggest would entitle the applicant to judgment?

MR BASTEN:   Your Honour, perhaps I can take that in two stages.  In going to those factual findings, what I was seeking to establish was that they would not be an answer to the importance of the issues raised in this case because the issues would still arise.  The question on which this case turns is whether or not, although there was an explanation of the legal nature of the mortgage and the guarantee, that was sufficient in a case where a wife had established a relationship of trust and confidence and reliance on the husband to take her outside the relevant equitable principles, where there was no finding or suggestion that she had been advised to seek independent legal advice and where, we would say, in the circumstances of this case, that would, at the very minimum, have been a requirement which the Bank would have been required to meet in order to avoid the constructive notice with which it would otherwise be visited.

GUMMOW J:   The trouble with that, in a sense, Mr Basten, is that passage in Yerkey v Jones itself, the last paragraph on 685 which, in a way, is reflected in the judgment of the Court of Appeal, that is to say the bank, it was said, did take “adequate steps to inform her”, et cetera, et cetera.

MR BASTEN:   Your Honour, if that is right, then that is inconsistent with the approach adopted by the House of Lords in Barclays Bank which again the Court of Appeal appears to have accepted as a proper means of approaching this question and, with respect, in Barclays Bank, it is clear that Lord Browne-Wilkinson, in his speech, adopted quite a different approach in relation to the test to be applied.  The problem in this case ‑ the underlying factual problem, your Honours, which is, in a sense, in two parts, is firstly, that she was not advised to get independent advice and, secondly, that she was not advised in a situation where the independent advice, as your Honour Justice Deane noted in Amadio, would, at the very least, have required that she be asked to consider the status of the business accounts which were her husband’s and any unusual features attaching to them.

That was the area of her ignorance;  that was the area as to which she should have been advised to seek independent advice.  In answer to

your Honour Justice Gummow:  in Barclays Bank, (1994) 1 AC, at page 196G to H and at 197F, the decision is clear that the risks of standing surety and the need to take independent advice are the steps which the bank must take before it can be said to have taken the reasonable steps to avoid the constructive notice.  That approach was not adopted by the Court of Appeal in this case, with respect and although it purported to apply certain principles, it is clear from the way it approached the case that it did not.

In my respectful submission, the facts of the case do provide an appropriate vehicle because of that clear omission in what the Bank did.  That, at the end of the day, is why we say the applicant is entitled to judgment in her favour and it is on that point that the Court erred.  There is, we would respectfully submit, not only the issue of whether Yerkey v Jones applies but what it is that is the correct principle to be applied from Barclays Bank in this country and whether Amadio is properly applied in this case or at all to a relationship of confidence and it is a matter which has not been addressed by this Court. 

But, if the principles espoused by the Court of Appeal are to be applied, then we would respectfully suggest that the cases will become authority for quite different propositions, both from this Court’s decision in Yerkey and the House of Lord’s decision.  Those are my submission.

DEANE J:   Thank you, Mr Basten.  Yes, Mr Douglas?

MR DOUGLAS:   If it please, the Court, our submissions are very short.  We would say that the factual findings which have been made in this case, as summarised in the Court of Appeal in Mr Justice Clarke’s judgment, at pages 92 and 93, would indicate that this is not a suitable vehicle in which to determine the questions of law which are raise, or sought to be raised in the applicant’s notice of appeal.  The significant matters, as we see them, are the fact that it was found that there was an adequate explanation of the obligation to which the wife was entering into.  Secondly, the derivation of the property;  thirdly ‑ the other matters which are raised - there is no undue influence and the mortgages were for her benefit in a substantial sense.

Now, in the light of those factual findings, we cannot see how, in any way, the question does arise because, at the end of the day there is going to be no different result in this case.  So far as the question of principle is concerned, there is the judgment of the former Chief Justice in Yerkey v Jones.  We would say, if one looks at the judgment of Mr Justice Powell, one can see that he was not really postulating the special equity theory, or what Lord Browne-Wilkinson referred to as the Romilly heresy but that, rather, he was just expressing general equitable principles. 

If one looks at the judgments of the other judges in the case, one can see that, in any event, Yerkey v Jones is not authority for the principle which it is asserted to have.

We would say that the way in which the Court of Appeal has approached its task in looking at the matter broadly, consistently with general equitable principle, is appropriate in this day and age and that there would be no point in this Court granting special leave for this matter to be given a full hearing and that the application for special leave should be dismissed.

DEANE J:   Thank you, Mr Douglas.  Mr Basten?

MR BASTEN:   Just in relation to the facts, your Honour:  there are express findings that she was not told to get independent advice;  there is an express finding that she was not told and was not aware of the status of the accounts and there was an express finding in relation to the Bank officers that she was not advised to consider her own interests.  Those are the findings on which we rely.  There is no dispute as to those matters, if your Honours please.

DEANE J:   Thank you, Mr Basten. 

The Court considers that, regardless of the view taken about the present validity of the formulation of principle contained in the judgment of Justice Dixon in Yerkey v Jones (1939) 63 CLR 649, the particular circumstances of this case, as found and accepted in the courts below, are such that an appeal would enjoy no real prospect of ultimate success. Accordingly, the application for special leave to appeal is refused.

MR DOUGLAS:   Costs?

DEANE J:   You ask for costs, do you?

MR DOUGLAS:   I am instructed to ask for costs.

DEANE J:   Mr Basten?

MR BASTEN:   There is nothing I wish to say.

DEANE J:   The application is refused with costs.

AT 9.54 AM THE MATTER WAS CONCLUDED