Allan James Watt and Fay Elizabeth Watt v State Bank of New South Wales Limited ACN 003 963 228 t/as State Bank of New South Wales

The appeal concerned Allan James Watt and Fay Elizabeth Watt (the appellants) who sought to set aside a mortgage and guarantee they provided to the State Bank of New South Wales Limited (the respondent). The dispute arose from the appellants' default under the mortgage, which secured a substantial debt of over $1.2 million. The appellants contended that their agreement to these transactions was induced by the respondent's unconscionable conduct. The matter was heard by the Court of Appeal of the Australian Capital Territory.

The central legal issues before the court were whether the principles established in *Yerkey v Jones* could be invoked by parents who had provided surety for loans to their daughter and son-in-law, and whether the appellants were volunteers who acted without understanding the effect of the transactions. The appellants sought to extend the equitable doctrine, which traditionally protected wives guaranteeing their husbands' debts, to their situation as parents guaranteeing their children's business debts.

The Court of Appeal dismissed the appeal, upholding the primary judge's decision. The court reasoned that the *Yerkey v Jones* principle, as clarified in *Garcia v National Australia Bank Ltd*, was predicated on the trust and confidence inherent in a marital or quasi-marital relationship, and was not applicable to the parent-child or parent-child-in-law relationship. The court found that while parents might act out of love for their children, this did not create the specific type of relationship that equity sought to protect under *Yerkey v Jones*. Furthermore, the court determined that the appellants were not volunteers, as they held shares in the company for which the loan was obtained and, in any event, benefited from the discharge of their existing liability to the Commonwealth Bank. The court also found that the appellants understood the general nature of the obligations they were undertaking, particularly Mrs Watt, given her prior employment and the couple's experience with mortgages, and that their subsequent actions in increasing their liability further supported this understanding. The court concluded that no fraud, undue influence, or other recognisable cause of action was established, and therefore, the appellants were liable for the debts they knowingly incurred.