Bendigo & Adelaide Bank Limited v Torbay Enterprises Pty Ltd
[2014] WASC 191
•28 MAY 2014
BENDIGO & ADELAIDE BANK LIMITED -v- TORBAY ENTERPRISES PTY LTD [2014] WASC 191
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2014] WASC 191 | |
| 28/05/2014 | |||
| Case No: | CIV:2355/2013 | 14 MAY 2014 | |
| Coram: | MASTER SANDERSON | 14/05/14 | |
| 7 | Judgment Part: | 1 of 1 | |
| Result: | Judgment entered against guarantors | ||
| B | |||
| PDF Version |
| Parties: | BENDIGO & ADELAIDE BANK LIMITED TORBAY ENTERPRISES PTY LTD in its own right and as trustee of the Towton Unit Trust TOWTON INVESTMENTS PTY LTD in its own right and as trustee of the Towton Unit Trust JACK HILTON TOWTON ROBYN WENDY COTTON DIAMOND SOLUTIONS PTY LTD |
Catchwords: | Mortgage action Claim by guarantor enforcement of guarantee would be unconscionable 'Garcia defence' Turns on own facts |
Legislation: | Nil |
Case References: | Garcia v the National Australia Bank Limited (1998) 194 CLR 395 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- Plaintiff
AND
TORBAY ENTERPRISES PTY LTD in its own right and as trustee of the Towton Unit Trust
First Defendant
TOWTON INVESTMENTS PTY LTD in its own right and as trustee of the Towton Unit Trust
Second Defendant
JACK HILTON TOWTON
Third Defendant
ROBYN WENDY COTTON
Fourth Defendant
DIAMOND SOLUTIONS PTY LTD
Fifth Defendant
Catchwords:
Mortgage action - Claim by guarantor enforcement of guarantee would be unconscionable - 'Garcia defence' - Turns on own facts
Legislation:
Nil
Result:
Judgment entered against guarantors
Category: B
Representation:
Counsel:
Plaintiff : Mr M Feutrill
First Defendant : No appearance
Second Defendant : No appearance
Third Defendant : No appearance
Fourth Defendant : Mr D R Chandler
Fifth Defendant : Mr D R Chandler
Solicitors:
Plaintiff : Norton Rose Fulbright Australia
First Defendant : No appearance
Second Defendant : No appearance
Third Defendant : No appearance
Fourth Defendant : Albany Legal Pty Ltd
Fifth Defendant : Albany Legal Pty Ltd
Case(s) referred to in judgment(s):
Garcia v the National Australia Bank Limited (1998) 194 CLR 395
1 MASTER SANDERSON: This was the plaintiff's application for summary judgment against all five defendants. Prior to the hearing of the application the solicitors for the first, second and third defendants indicated there would be no opposition to the application. The application was opposed by the fourth and fifth defendants. At the conclusion of the hearing I indicated I would enter judgment against all defendants. I said I would publish my reasons at a later date. These are those reasons.
2 The claim is a straightforward mortgagee action. The plaintiff says it lent money to the second defendant with a guarantee provided by the third defendant. There was a variation to the loan agreements which subsequently drew the first defendant in as a borrower and guarantor. The particular relevance to the contest between the parties is what is described as the 'second guarantee'. Paragraph 9 of the statement of claim puts the position this way:
On or about 22 September 2011 the fourth and fifth defendants entered into a deed titled 'Guarantee and Indemnity' dated 22 September 2011 (second guarantee) with the plaintiff in respect of the performance by the first and second defendants of their covenants and obligations under the Letter of Offer as varied.
3 The fourth and fifth defendants accept they entered into the guarantee. Further, they accept there was default under the loan agreement by the first and second defendants. Despite the sale of properties owned by the first three defendants, there remains a shortfall which has not been met. It is that shortfall which is the subject of the claim by the plaintiff against the fourth and fifth defendants.
4 The position taken by the fourth and fifth defendants was that judgment ought not to be entered under the principles of what is known as the 'Garcia defence'. That is to say, based upon the facts, it would be unconscionable for the plaintiff to enforce its security against the fourth and fifth defendants. To understand how that submission was developed it is necessary to consider the facts. What follows is partly taken from the affidavits filed in support of the application but is mainly based on the affidavit of the fourth defendant sworn 18 February 2014.
5 The fourth defendant was the de facto wife of the third defendant. They were together for approximately 19 years. The first and second defendants were property developers. They were run by the third defendant. The fourth defendant had no involvement in these businesses. Rather, the fourth defendant ran a business of her own. The third and fourth defendants kept their finances separate - each having their own bank account. The fourth defendant says and for the purposes of this application the plaintiff accepts she had no knowledge of the business affairs or financial position of the first and second defendants in particular, and the third defendant's finances in general.
6 In or about August 2011 the third defendant told the fourth defendant he was undertaking a restructuring of his financial affairs. As part of that restructure he asked the fourth defendant together with her company, the fifth defendant, to provide what he described as a 'limited guarantee'. The fourth defendant says the third defendant told her the guarantee would be limited to $550,000. The loan itself would be secured over a property which was valued at over $1 million. The fourth defendant therefore assumed, no matter what happened she would not have to make any payment pursuant to the guarantee. She was wrong.
7 What the fourth defendant did not know was that a debt owed by Blue Water Nominees Pty Ltd, a company associated with the third defendant, was guaranteed by the second and third defendants. The fourth defendant maintains, had she known about this additional debt, and the likelihood of the guarantee being called upon, she would not have entered into the guarantee. Insofar as it is relevant the plaintiff accepts for the purpose of this application that is the case.
8 Before it entered into the transaction which involved the guarantees from the fourth and fifth defendants, the plaintiff required the fifth defendant obtain independent legal advice. This she did. She consulted Mr Marcus Hodge from the firm of Haynes Robinson. This firm was suggested to the fourth defendant by an officer of the plaintiff. There is nothing sinister about that – counsel for the fourth and fifth defendants did not make any submission to the contrary. In her affidavit the fourth defendant is remarkably frank about the discussion she had with Mr Hodge. Mr Hodge pointed out the guarantees were for an unlimited amount and not limited in time. He advised the fourth defendant not to enter into the guarantees. But the fourth defendant was undeterred. She decided to sign the guarantee in her own right and on behalf of the fifth defendant. Prior to signing these guarantees Mr Hodge had the fourth defendant sign a document which is entitled 'Acknowledgement'. It appears as attachment RWC2 to her affidavit. Although it appears to be a standard form it sets out in seven paragraphs what advice had been given and how if the guarantees are called upon the fourth and fifth defendants will be affected. There is also a handwritten clause which is in the following terms:
That Haynes Robinson lawyers and Marcus Hodge recommend that you do not enter into the proposed transactions or give the guarantee requested.
9 Mr Hodge also completed what is described as a 'Bank guarantees independent legal advice questionnaire'. This document appears as attachment RWC3 to the fourth defendant's affidavit. It goes through a series of 23 questions and really records the advice given by the solicitor. For instance question 13 is in the following terms:
Do you realise that you may be liable for any other debts of the borrower to the lender up to the limit stated in the guarantee?
10 The answer to that question is a handwritten 'yes'. Although it is not entirely clear from the document, and it does not emerge from the fourth defendant's affidavit, it would appear what the document represents is a series of questions put to the fourth defendant by Mr Hodge and her response. The document is signed by Mr Hodge and is dated 15 September 2011.
11 There is one question which is worthy of particular note. Question 9 is as follows:
What is the approximate value of the security?
12 The response to that is a handwritten '1.2m'. Given that the fourth defendant says she thought the limit of her guarantee was $550,000 it is difficult to see where the answer comes from. As it turns out, it is very close to the total amount of the liability of the first and second defendants taking into account the Blue Water Nominees debt. The fourth defendant does not in her affidavit explain why the answer to question 9 appears as it does.
13 In the headnote to the report of Garcia v the National Australia Bank Limited (1998) 194 CLR 395, the effect of the decision of the majority is summarised in this way:
In circumstances where there was no actual undue influence by a husband, it would nonetheless be unconscionable for a creditor to enforce a guarantee against a wife when (a) the wife did not understand the purport and effect of the transaction; (b) the transaction was voluntary, in the sense that the wife obtained no gain from the contract the performance of which was guaranteed; (c) the creditor is to be taken to have understood that the wife 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 (d) the creditor nonetheless did not take steps to explain the transaction to the wife or find out that a stranger had explained it to her.
14 In Garcia the appellant was the lawful wife of the creditor whose debts she guaranteed. It would appear there is some doubt as to whether or not the principles in Garcia would apply where the two individuals concerned are in a de facto relationship but not actually married. In this day and age it is difficult to imagine the principles do not apply to de facto couples. In any event, for the purposes of this application, the plaintiff was prepared to concede the principles are applicable. The plaintiff was also prepared to concede two further points. First, the transaction was voluntary - and it clearly was. Second, the plaintiff accepted for the purposes of the summary judgment application it should be taken to have understood that the fourth defendant may repose trust and confidence in the third defendant in matters of business and it therefore understood the husband may not have fully and accurately explained the purport and effect of the transaction to the fourth defendant.
15 What the plaintiff did not accept was, first, the fourth defendant did not understand the purport and effect of the transaction and second, that the transaction had not been adequately explained to her by an independent party.
16 In my view there was no doubt the plaintiff's submissions on both these issues should be accepted. This case represents almost a text book example of what a lender in the position of the plaintiff has to do to ensure a wife providing a guarantee is fully informed as to her potential liability. The plaintiff recommended the fourth defendant see a reputable firm of solicitors and would not enter into a transaction until that was done. Mr Hodge explained the transaction, told the fourth defendant what her potential liability was and recommended she not sign the guarantees. It is difficult to imagine more disinterested independent and, as it turned out, correct advice. In no way, could it be said that the fourth defendant was not fully apprised of her obligations and potential liability.
17 Armed with the certain knowledge that the fourth defendant was aware of what might happen if she signed the guarantees, the plaintiff went ahead with the transaction. It was entitled to do so. It is difficult to know what more it could have done to satisfy itself the fourth defendant knew exactly what she was doing. In my view, there was no prospect the plaintiff's actions in seeking to enforce the guarantee could be seen as unconscionable.
18 For these reasons I was satisfied judgment should be entered for the plaintiff against the fourth and fifth defendants. The plaintiff is also entitled to judgment against the first, second and third defendants. It should have an order for its costs.
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