Cba v Thompson & Anor - [2005] SADC 156

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
CBA v THOMPSON & ANOR
Judgment of His Honour Judge Robertson
29 November 2005
GUARANTEE AND INDEMNITY - RIGHTS OF SURETY - AGAINST CREDITOR
Claim to recover money under Guarantee - guarantee by a wife for a debt of a Company controlled by her husband - guarantee also covered debts of other companies in a Group controlled by husband - claim by wife to set aside guarantee on ground of unconscionability - claim relying on principles laid down in Garcia v National Australia Bank Ltd - alternative claim to set aside guarantee relying on principles laid down in Commercial Bank of Australia v Amadio - held that guarantee be set aside.
Commercial Bank of Australia v Amadio (1982-1983) 151 CLR 447; Garcia v National Australia Bank Ltd (1998) 194 CLR 395; State Bank of New South Wales Ltd v Chia (2000) 50 NSWLR 587; Bylander International Consortium (Aust) Pty Ltd v Multilink Investments Pty Ltd (2001) NSWCA 53; Commonwealth Bank of Australia v Khouri (1998) VSC 128; Bridgewater v Leahy (1998) 194 CLR 457; Micarone & Ors v Perpetual Trustees Australia Limited & Ors (1999) 75 SASR, applied.

CBA v THOMPSON & ANOR
[2005] SADC 156
JUDGE ROBERTSON
CIVIL
Nature Of The Plaintiff’s Case

The Plaintiff seeks to recover from the Defendant, Karolina Thompson, the sum of $150,007.07 (“Debt”) pursuant to a Deed of Guarantee (“Guarantee”) executed by her. The money which the Plaintiff seeks to recover is part of moneys owing to the Plaintiff by Eden Valley Wines Pty Ltd (“Eden Valley Wines”). The Guarantee was executed by Mrs Thompson and Mr Thompson, her husband (“Mr Thompson”) on 20 September 2000. By its terms Mrs Thompson and Mr Thompson guaranteed that Eden Valley Wines would pay to the Plaintiff (inter alia) all money owing or payable to the Plaintiff. Proceedings were brought to recover the Debt against Mrs Thompson and Mr Thompson, but after they were commenced Mr Thompson became a bankrupt. As a result, the Plaintiff has only proceeded against Mrs Thompson. For ease of reference in these Reasons, I will refer to Mrs Thompson as “the Defendant”.
I mentioned a moment ago, that pursuant to the Guarantee the Defendant guaranteed to the Plaintiff all money owing or payable to the Plaintiff by Eden Valley Wines. The money owing or payable to the Plaintiff by Eden Valley Wines was far greater than the Debt the Plaintiff now seeks to recover from the Defendant. I will refer to that matter in further detail later. I mention it at the outset simply to identify that the Plaintiff’s claim is for only part of the money which it says is owed by Eden Valley Wines.
Nature Of The Defendant’s Defence And CounterClaim
The Defendant admits that she executed the Guarantee on 20 September 2000, in which she guaranteed to the Plaintiff all money owing or payable to the Plaintiff by Eden Valley Wines. The Defendant does not dispute that the $150,007.07 is part of the money owing by Eden Valley Wines to the Plaintiff. However, the Defendant claims that the enforcement of the provisions of the Guarantee by the Plaintiff is unconscionable and that the Guarantee should be set aside. The Defendant relies on the equitable principle that where a wife reposes trust and confidence in her husband in matters of business, it would be unconscionable for a creditor to enforce a guarantee against the wife where she is a volunteer and she did not understand the purport and effect of the transaction, and the creditor did not take steps to explain its purport and effect to her. The Defendant relies upon the principles outlined in the decision of the High Court in Garcia v National Australia Bank Ltd (1998) 194 CLR 395.
Alternatively, the Defendant claims that she was a person under a special disability at the time that she executed the Guarantee, and that such disability was sufficiently evident to the Plaintiff to make it unconscionable for it to be permitted to enforce the Guarantee. The Defendant relies upon the principles outlined in the High Court decision of Commercial Bank of Australia v Amadio (1982-1983) 151 CLR 447.
Finally, the Defendant claims that the demand made by the Plaintiff on Eden Valley Wines for the repayment of an overdraft of Eden Valley Wines was not validly made in accordance with the terms of the contract between the Plaintiff and Eden Valley Wines, and that, as a result, there has been no valid demand for the overdraft, being part of the Debt claimed by the Plaintiff from the Defendant.
History Of The Relationship Of The Defendant And Mr Thompson To The End Of 1999
Whilst these proceedings relate to a Guarantee executed on 20 September 2000 and securities executed on that date by a number of companies, including Eden Valley Wines, it is necessary to recount the history of the relationship of the Defendant and Mr Thompson, and the business dealings that occurred during the period of their marriage up to September 2000. Later in these Reasons I will evaluate the credit of the witnesses who gave evidence during the course of the Trial. However, for the purpose of recounting the relationship and the business dealings of the Defendant and Mr Thompson, I rely largely upon the evidence of Mr Thompson. I thought that he was an honest witness and had a good memory of events. His memory was far superior to that of the Defendant.
Before I proceed to deal with the relationship between the Defendant and Mr Thompson, I need to briefly mention the early history of the Defendant. I accept her evidence regarding this history. She was born in 1959, in Austria, and came to Australia when she was eleven months old. She attended Primary School and later attended at Nuriootpa High School. She left High School when she was fourteen, before she had completed Year 10. On leaving School she commenced working in a supermarket. The Defendant started nursing a short time later but ceased nursing after about seven or eight months, when she married Mr Thompson. They were married when the Defendant was sixteen years of age. Mr Thompson was twenty two years of age at the time. The Defendant had their first child when she was seventeen years of age.
Shortly after the Defendant and Mr Thompson were married they commenced to live at Monash in the Riverland. Mr Thompson was employed as the Manager of the Vindana Winery. He managed the Winery for about two years. In 1974, a vineyard with a house on it at Monash was purchased by Mr Thompson and the Defendant in their joint names. It was Mr Thompson’s decision to purchase the vineyard. He said that his wife accepted his decision. It was Mr Thompson’s evidence that whilst he was working at the Vindana Winery he and the Defendant were looking to buy a house, and it therefore seemed logical to buy a house with a vineyard so that grapes could be supplied to the Winery. At the time, his wife was looking after their son, Andrew, and working on the production line at Berri Fruit Juices.
The vineyard at Monash was sold in 1975 and a small vineyard was purchased at Light Pass in the Barossa Valley. Downey Mildew had wiped out the crop at Monash in 1974. The Defendant was also keen to return to the Barossa Valley where she had family. It was for these two reasons that the vineyard at Light Pass was acquired. Mr Thompson said that he solely transacted the sale of the Monash Vineyard and the acquisition of the Light Pass Vineyard. This latter vineyard was purchased in their joint names. Mr Thompson managed the vineyard business at Light Pass. He was also working as a Bottling Manager at the Kaiser Stuhl Winery. He said that, at some time, the Defendant also obtained a job on the bottling line at Kaiser Stuhl. Mr Thompson said that the Defendant would occasionally do some work pruning or tying of the vines, but the management and the running of the vineyard were entirely in his hands.
In 1980, a further vineyard was purchased at Vine Vale, near Tanunda. It was Mr Thompson’s decision to purchase that vineyard. This was a larger vineyard. It had seventy five acres of which half was under vine growth. The decision to purchase the vineyard was brought about because the return from the Light Pass Vineyard was too small to earn a living. Mr Thompson said that the purchase of the Tanunda Vineyard allowed him to terminate his employment at Kaiser Stuhl as it was of sufficient size for him to make a reasonable income. From that time, in 1980, he ran both vineyards. This vineyard was also purchased in the name of Mr Thompson and the Defendant jointly. As with the Light Pass Vineyard, the Defendant and Mr Thompson were required to borrow money to assist in the purchase of the vineyard and secured the loan by a Mortgage over the vineyard.
The Defendant and Mr Thompson’s second son, Nicholas, was born in 1981. Their daughter, Samantha, was born in 1983.
Mr Thompson continued to operate the two vineyards in the Barossa Valley. However, in about 1987 or 1988 he decided to purchase another vineyard near Springton, in the Adelaide Hills. That vineyard was in a poor state and it was necessary to build it up to a viable economic vineyard. Once again, the evidence of Mr Thompson is that the decision to acquire this vineyard was entirely his own. Mr Thompson said that as this vineyard came into production he decided to sell the other vineyards to concentrate on that vineyard. He said that he would have likely discussed with the Defendant the reasons for selling the Barossa Valley properties and acquiring the Springton Vineyard. However, the tenor of his evidence was that whilst he may have discussed the acquisition and sale of various properties with the Defendant, it was always his decision which led to the acquisition or sale of properties, and the Defendant simply agreed with the decision or decisions.
The vineyard at Springton had a small winery attached to it. Mr Thompson operated the winery. He established a small restaurant at the winery in 1989. The Defendant did cooking in the restaurant. The Springton property was about one hundred and ten acres, of which thirty to thirty five acres were under vine. As I said, the other two vineyards were held for some time whilst the vines on the Springton vineyard were developed. The other two vineyards were sold in 1990.
Mr Thompson said that about 1990 he was approached by Bank SA looking for new business in the area. The Bank approached Mr Thompson about moving the cellar door sales that he was operating at the Springton vineyard into the old Hamiltons Winery in the main street of Eden Valley. He agreed to do this and, with money provided by Bank SA, he established the Eden Valley winery in the main street of Eden Valley.
About that time, Mr Thompson established a company called Nacron Services Pty Ltd which acted as the Trustee of the Thompson Family Settlement, which was a discretionary trust. He was uncertain whether the Eden Valley winery was purchased in joint names or in the name of Nacron Services Pty Ltd. Mr Thompson undertook the establishment of Nacron Services Pty Ltd and the Trust. The Defendant was not involved.
There was a great deal of development work to be done as the winery was an empty shell with nothing but its walls standing. The winery was on about one hectare of land. The development of the winery was undertaken by Mr Thompson solely.
Eventually, a cellar door sales outlet was established at the Eden Valley winery. There was also a restaurant opened. The Defendant did cooking at the restaurant. Management of the winery and all of the decision making was undertaken by Mr Thompson. All of the business conducted with Bank SA was undertaken by Mr Thompson. The Defendant was not involved. Security was given to Bank SA for the substantial loans. Both Mr Thompson and the Defendant gave personal guarantees with respect to money loaned by Bank SA.
A short time after the Eden Valley winery was established, Bank SA suffered enormous financial problems. It called up the Eden Valley Wines’ overdraft of $100,000. As a result, the Eden Valley winery found itself in financial difficulties. The winery was sold. Bank SA petitioned for the bankruptcy of both Mr Thompson and the Defendant. Both became bankrupt.
The Defendant’s brother, Robert Oster, operated a Company called Villiers Pty Ltd. In 1993 or 1994, that Company took over the Eden Valley winery and began to operate it. In November 1993, Villiers Pty Ltd (“Villiers”) borrowed money on security of a Mortgage. Both Mr Thompson and the Defendant guaranteed the repayment of the money borrowed. This was shortly before the Defendant and Mr Thompson became bankrupt.
After Mr Thompson became bankrupt he worked for Villiers, part of whose business was contract vineyard work. He was involved in that side of the company’s business.
In 1997 or early 1998, Mr Oster decided that he did not wish to continue operating the winery and vineyard labour hire business conducted by Villiers. Mr Thompson decided to take it over. He and the Defendant were no longer bankrupt. Shares in Eden Valley Wines and Villiers were transferred to Mr Thompson and the Defendant. Each of them also became the Directors of the two Companies.
Mr Thompson said that although he had no memory, he would have expected that he discussed the taking over of the winery with the Defendant but, as with other business transactions, the Defendant would not have been involved in the decision. He said that the Defendant went along with any decision which he made. Mr Thompson said the Defendant agreed to be a Director and Shareholder at his request.
The Establishment Of A Vineyard At Eden Valley
In 1998, Mr Thompson established a number of other companies. In each case, he was the sole Director. He incorporated Villiers Vineyard Management Services Pty Ltd (“VVMS”), which took over the vineyard labour hire business which had previously been undertaken by Villiers. A company called May The Seventh Pty Ltd (“May The Seventh”) was also incorporated. That Company purchased three hundred and twenty acres of land at Eden Valley. The intention of Mr Thompson was to establish a vineyard on that land. For that purpose, he incorporated Agvin Vineyard Management Services Pty Ltd (“Agvin”) and it took a lease of the land from May The Seventh. It was Agvin which was to develop the land into a vineyard.
Mr Thompson said he made the decision to buy the land, which was grazing land at the time, and proceeded to develop the vineyard on the land. Through the Office Manager of VVMS, Peter Hughes, Mr Thompson arranged for the National Australia Bank (“NAB”) to lend to Agvin somewhere between $1,000,000 and $1,500,000. Finance to purchase the land had been arranged through private financiers. Agvin borrowed the money from the NAB for the purpose of developing land into a vineyard.
Mr Thompson stated his reason for deciding to buy the land and develop it into a vineyard. He said that the liquor licence for the winery of Eden Valley Wines obliged it to only sell wine made from grapes in the Eden Valley area. He said that there were not sufficient grapes in the Eden Valley area for the wine he intended to produce. His intention was to produce sufficient quantities of grapes for his needs. He said he set up the companies following advice from his Solicitors.
At this time, the winery at Eden Valley was being successfully operated by Eden Valley Wines. Initially, Mr Thompson, the Defendant and their children lived in the weighbridge room at the winery. Later, a more comfortable residence was established in the winery. The winery was buying grapes, producing wine and selling it. It had a cellar door sales section. The restaurant at the winery had resumed operation. The property on which the winery operated was unencumbered. However, as part of his plan for the development of the new vineyard, Mr Thompson needed this asset to assist in the financing of the vineyard venture.
Mr Thompson needed $240,000 as a deposit for the purchase of the land for the vineyard. To do this, he needed to borrow that amount. His intention was to lend it to May The Seventh, which was to be the purchaser of the vineyard land. He viewed the development of the vineyard land as a speculative venture, in the sense that it was a very large development for one person to undertake. He was mindful of previous experience with Bank SA. Mr Thompson and the Defendant had lost everything, and they had both become bankrupt. His evidence, which I accept, was that he was determined to keep the winery and Eden Valley Wines separate from the other businesses he operated, including the development of the vineyard. Mr Thompson said that he spoke to the Defendant about using the assets of Eden Valley Wines to borrow funds to assist in the purchase of the land for the vineyard. He said that she was reluctant to do so. The winery was also the home for the Defendant, Mr Thompson and their family. He said that he persuaded the Defendant to go along with his plan. In persuading her, he said that he guaranteed to the Defendant that she would not lose her home and the winery.
It was because Mr Thompson was determined that the winery would stand alone and not be involved in the vineyard venture, that he arranged for Eden Valley Wines to borrow $240,000 from the ANZ Bank (“ANZ”), and not the NAB. As part of that finance arrangement, the ANZ required Mr Thompson and the Defendant to execute a Guarantee to the ANZ for the loan made to Eden Valley Wines. The ANZ also required Villiers to provide a Guarantee. The Defendant signed that Guarantee as a witness to the affixing of the Common Seal. Both these Guarantees were dated 4 May 1998. After borrowing the $240,000 from the ANZ, Mr Thompson arranged for Eden Valley Wines to lend it to May The Seventh to assist in the purchase of the land for the vineyards. Mr Thompson said that the Defendant signed the Guarantee at his request. He explained that he and the Defendant had been married for many years and she would always agree with what he wanted to do.
With respect to the money borrowed from the NAB, securities were granted by those companies involved in the vineyard development business. Mr Thompson gave a personal guarantee in relation to the money borrowed from the NAB. The Defendant was not asked to give a Guarantee with respect to that finance.
The 1999 Borrowings From The Plaintiff
During 1999, it became apparent to Mr Thompson that further capital works would be required for the vineyard if it was to realise its full potential. The NAB was not interested in advancing anymore money for the venture. Mr Thompson, together with the assistance of Peter Hughes, approached a finance broker for the purpose of obtaining a financier who would lend money to pay out the NAB’s loan and to provide further funds for the development of the vineyard. The finance broker directed Mr Thompson to the Plaintiff.
The Plaintiff provided various financial facilities to Agvin, May The Seventh and VVMS. The total facilities limit was $2,983,340. Equitable Mortages and other securities were given by those companies to secure the financial facilities provided by the Plaintiff. In addition, Mr Thompson was required to execute a personal guarantee with respect to the financial facilities provided by the Plaintiff. In keeping with Mr Thompson’s policy of Eden Valley Wines remaining entirely separate from the vineyard development and other businesses operated by him, Eden Valley Wines was not included in the financial arrangements with the Plaintiff. Eden Valley Wines continued to maintain its loan with the ANZ and financed its repayment obligations through its own income. The finance obtained from the Plaintiff was used to discharge the loans owing to the NAB, and the balance was used by Agvin to continue the development of the vineyard. The financial arrangement also provided VVMS, which conducted the vineyard contract labour hire business, with an overdraft facility.

During the year 2000, Mr Thompson established some other businesses which were operated through various companies. Villiers Trellising and Fencing Pty Ltd commenced to operate a trellising and fencing business. He said that this arose during the course of the development of the vineyard. He decided to purchase a fencing company, with its machinery, in order that the vineyard could be developed and the company could also construct fencing and trellising on other vineyards. Mr Thompson was the sole Director of that Company. He established a Company called PTT Investments Pty Ltd. He established this after he was approached by the Naracoorte Council to help solve a problem of itinerant workers in the South-East. The company acquired a sixty-man accommodation camp which was set up in the South-East, to accommodate workers who were provided by the labour hire company. He was the sole Director of this company. He also established Villiers Labour Hire Pty Ltd, which provided clerical labour for hire. This business was in addition to the vineyard labour hire business operated by VVMS. Mr Thompson was also the sole Director of this company. It was Mr Thompson’s evidence, which I accept, that the Defendant was not involved with any of these companies. He made the decisions to establish the companies and operate the various businesses.
In the meantime, Eden Valley Wines continued to operate the winery. Mr Thompson said that the Defendant was not involved in the management of that business. He said that the winery was trading profitably. He said that the Defendant was cooking in the restaurant. Mr Thompson, and Mr Peter Hughes, had an office in the winery. It was part of Peter Hughes’ duties to look after the cellar door sales. On occasions, the Defendant would provide some assistance in that area. It was part of Mr Hughes’ duties to handle the office work on a daily basis as Mr Thompson spent most of his time out in the field.
The Defendant’s Evidence Up To The End Of 1999
The Defendant also gave evidence regarding the business events in the married life of Mr Thompson and herself. She had a poor memory. There were some matters she could recall, but not in any great detail. For the most part, the Defendant had very little or no memory at all. On many occasions her response was “I can’t remember”. I did not think she was being evasive in responding in such a manner. At one point, she became frustrated at her inability to recall. I thought that she tried to tell the truth, but her memory on many occasions failed her.
I felt her evidence showed she had no interest in the business activities of Mr Thompson. I gained the impression that she preferred the simple life, in which she focussed on the well-being of her husband and her children. I accept her evidence that she reposed great trust and confidence in her husband and his decisions. I will return to this matter again, later, in these Reasons. As I said, I felt she saw her role as a wife supporting her husband; a mother supporting and nurturing her children; caring for the household and leaving all other activities outside these spheres to Mr Thompson.
The Defendant gave evidence of the acquisition of the vineyard at Monash, the sale of that vineyard and the purchase of the vineyard near Angaston (Light Pass), and the other vineyard purchased near Tanunda. It was her evidence that all of the decisions relating to the purchase and sale of these vineyards were made by Mr Thompson and that she simply agreed with the decisions. I accept her evidence. This evidence accords with the evidence of Mr Thompson. The Defendant gave evidence of the purchase of the Springton Vineyard and later the purchase of the Eden Valley winery. Once again, she said she had no involvement in the decisions to acquire these properties. Her evidence is that she simply accepted the decisions of her husband with respect to these acquisitions. Again, I accept this evidence. She said that with respect to the restaurant at Springton and the Eden Valley winery she did some cooking.
It was the Defendant’s evidence that she was not involved in any of the financial arrangements made with respect to the acquisition of any of these properties, leaving all of those matters to Mr Thompson. During the course of the acquisition of these properties, Mr Thompson presented her with various documents to sign. She said that she signed the documents because they were presented to her by her husband, and she trusted him. Mr Thompson said that sometimes the Defendant asked him what was the document she was signing, and sometimes she did not. I accept both the Defendant and Mr Thompson were truthful in giving this evidence. Furthermore, it is consistent with the impression I gained about the Defendant that she did not see her role as being involved in the businesses of Mr Thompson. As I said, she saw her role solely as a homemaker.
In cross-examination, the Defendant was asked whether she recalled having any discussions with Mr Thompson regarding the acquisition of the various properties during the period before 1999. Generally, her response was that she could not recall. With respect to the Monash Vineyard, she said she could not remember whether Mr Thompson had talked to her about looking for a vineyard to buy or not, but said that she guessed that he must have done so. The Defendant said that Mr Thompson did talk to her about buying a vineyard at Angaston. Again, with respect to Tanunda, she guessed that Mr Thompson must have discussed the purchase of the Tanunda Vineyard with her, but she could not recall. With respect to the establishment of the vineyard at Springton, she said that she could not remember discussing the establishment of the restaurant, but he may have discussed it. I did not see any of these responses as attempts to be evasive. As I said, she had a poor memory.
Mr Thompson said that he would have discussed the matters of acquisition of properties with his wife. However, he had no specific memory of such discussions. It would be expected that there were discussions between Mr Thompson and the Defendant regarding the acquisition of these properties. This is the basis upon which Mr Thompson said “he would have” discussed these matters. I gained the impression that they were simply conversations in which Mr Thompson, from time to time, informed the Defendant of his activities. As I said, I accept the evidence of both of them that the Defendant was never involved in any decision-making process regarding the acquisition or sale of properties and the financing of properties or businesses. I find that the Defendant’s only role in these businesses was doing manual work in the field, on occasions by way of pruning, and also undertaking cooking and some cleaning in the restaurant.
With respect to the loan made by the ANZ to Eden Valley Wines in 1998, it was the evidence of the Defendant that she could not recall the loan being made. Indeed, she had no recollection of signing the guarantee which she gave for that loan, although she acknowledged that she signed the guarantee dated 4 May 1998. Her evidence was that she simply had no memory of any event associated with the loan by the ANZ. Indeed, she said that she could not recall that she was a Director of Eden Valley Wines or if she performed any duties as a Director of that company.
Mr Thompson gave evidence that he requested the Defendant to be a Director of Eden Valley Wines. He said, at that time, the Corporations laws required that there be two Directors of a company.
Once again, I did not think that the Defendant was being evasive in giving this evidence. I accept that she was being truthful when she said that she had no memory of the ANZ loan and her giving a Guarantee. The events took place a long time ago; in 1998. It was a transaction regarding the borrowing of funds. Her lack of memory, no doubt in part, reflects the fact that it was not a matter of importance to her as this was part of the business operated by Mr Thompson, and she accepted his decisions and complied with his requests.
Further Financing By The Plaintiff In 2000
In August 2000, Mr Thompson sought further funds from the Plaintiff for the purpose of continuing the development of the vineyard, and for other purposes. When 1999 financial facilities were provided by the Plaintiff, Mr Thompson dealt with a Mr Hicks, who was employed by the Plaintiff. On this occasion, he dealt with Mr Cushway, who had taken over the position previously held by Mr Hicks.
At the same time as the additional finances were being considered, Mr Thompson and Mr Cushway had discussions regarding the Plaintiff providing financial assistance to Eden Valley Wines. The loan of $240,000 made by the ANZ to Eden Valley Wines in 1998 was still on foot. It was Mr Thompson’s evidence that Eden Valley Wines was meeting its obligations pursuant to the loan agreement. He said that it was his intention to maintain the loan with the ANZ. However, Mr Thompson said that Mr Cushway suggested that it be brought across to the Plaintiff so that the Plaintiff had all of the financial business of the Group. Mr Thompson said that he was reluctant to do so at the time because he was happy with the situation as it then stood, but was finally persuaded by Mr Cushway to re-finance through the Plaintiff. Mr Cushway, in his evidence, denied that he had requested Mr Thompson to bring the Eden Valley Wines’ loan across to the Plaintiff. He said it was Mr Thompson who made the offer to bring the loan across at the time they were discussing the other increase in finances.
I prefer the evidence of Mr Thompson regarding this issue. As I said earlier, I felt that he had a reasonable recollection of events. There was no reason for him to change the arrangements with the ANZ. Having the two separate financial arrangements met his objective of ensuring that Eden Valley Wines’ finances and business stood apart from the other businesses and their financial arrangements. Mr Cushway accepted that it would be the Plaintiff’s preferred position if all of the financial arrangements of the Villliers Group were with the Plaintiff, but he said that on this occasion the suggestion came from Mr Thompson. As I said, I prefer the evidence of Mr Thompson and his recollection of what took place. Furthermore, in my view, the request by Mr Cushway would be consistent with somebody who had just taken over managing the financial arrangements the Plaintiff had with the Group to see the re-financing as an opportunity to have the Plaintiff obtain all of the business of Mr Thompson.
In any event, one thing is very clear arising from Mr Thompson’s decision to transfer Eden Valley Wines’ finances to the Plaintiff. Mr Thompson said he told Mr Cushway that in bringing Eden Valley Wines’ financial arrangements across to the Plaintiff it must be understood that the finances of the other companies and, in particular, the finances relating to the development of the vineyard and the finances of Eden Valley Wines were not to be tied together. He said he wanted the winery to stand alone, as it had been with the ANZ. Mr Cushway, in his evidence, said that at the time of the arrangement to bring Eden Valley Wines’ finances to the Plaintiff that Mr Thompson said that it was important to keep the winery liability separate from the vineyard liability. Mr Cushway said that, at the time, he understood that the winery business was an established business and that the vineyard development was a more risky business in that it was speculative in nature. He acknowledged that Mr Thompson had said at the time that he was happy to keep Eden Valley Wines’ business with the ANZ. Where Mr Thompson’s evidence differs from the evidence of Mr Cushway, I prefer the evidence of Mr Thompson.
The Eden Valley Wines’ finances was part of the overall financial arrangement providing additional finance to the other companies. Eden Valley Wines was provided with what was described as a “BetterBusiness loan” of $240,000. This amount was lent to enable Eden Valley Wines to repay the ANZ. An overdraft facility of $50,000 was also granted to Eden Valley Wines. In addition, a Business Card facility (credit card) was also provided, to a maximum of $4,500. The overdraft facility was furnished to enable Eden Valley Wines to pay grape growers who sold grapes to the winery. In previous years, Eden Valley Wines obtained loan funds from VVMS to enable it to meet grape purchases.
The other financial facilities given by the Plaintiff provided for an increase in the existing financial liabilities of $2,983,340 to $4,110,000. The increased financial facilities were granted to Agvin, May The Seventh and VVMS. Further, the equipment finance limit for the Villiers Group was also increased.
Mr Thompson said that it was his decision alone to seek further finance for the development of the vineyard and to bring the ANZ loan across to the Plaintiff. He said the Defendant was not involved at all. The Defendant said that she could not recall her husband talking to her about obtaining more money for the development of the vineyard about the middle of the year 2000. She said that her husband hardly ever discussed money matters with her, and if there was discussion it was likely to be centred around the needs of their children. Mr Thompson said that he probably told the Defendant that a further loan was being obtained from the Bank. He did not have an independent recollection of any discussion with the Defendant about this subject. It would not be expected he would have a recollection. Probably there was a brief reference during household discussion about obtaining further funds from the Bank, and I find that it extended no further than that. A brief reference, by way of providing information to the Defendant, is consistent with the view I have formed that the Defendant was not interested in or involved in any of the businesses conducted by Mr Thompson. Indeed, Mr Thompson would have been aware of the Defendant’s lack of interest, so the information provided would have been likely to have been very limited.
The Documents Signed On 20 September
The Guarantee, the subject of these proceedings, was executed on 20 September 2000 at the Eden Valley winery, along with numerous other documents. There is a conflict in the evidence between Mr Thompson and the Defendant on the one hand, and Mr Cushway and a Mr Buxton representing the Plaintiff, on the other hand. There is also conflicting evidence regarding whether letters addressed respectively to the Defendant and Mr Thompson from the Plaintiff, dated 8 September 2000, were received by the addressees. I will deal with these issues, and the conflict in the evidence, later. For the present, I will refer to the evidence regarding the documents signed on 20 September 2000, without dealing with any conversation that was held at the time of the execution of the documents. It is the evidence regarding these conversations where conflict has largely arisen.
I find that on 20 September Mr Cushway, who was a Relationship Executive employed by the Plaintiff, and Mr Buxton, who was Manager, Business and Risk Services with the Plaintiff, were present at the winery of Eden Valley Wines when both the Defendant and Mr Thompson executed various documents relevant to the increase in financial facilities and the re-financing of Eden Valley Wines. Neither the Defendant or Mr Thompson recalled Mr Buxton’s presence at the time of the signing of the documents. Both Mr Buxton and Mr Cushway gave evidence that they were both present. There is no reason to doubt their evidence.
Mr Cushway produced a bundle of documents which required signatures. Again there is conflict regarding whether the Defendant was present throughout for the execution of these documents by the Defendant and Mr Thompson. Among the documents that were produced for signature and required the signatures of both the Defendant and Mr Thompson were:
·a “Terms Schedule”, consisting of two pages, for the BetterBusiness loan which set out that Eden Valley Wines was borrowing $240,000 and detailing the terms of the Loan. That document also referred to the securities to be provided, and made reference to a Guarantee to be provided by the Defendant and Mr Thompson. It also indicated that the facility was granted on the “Bank’s Usual Terms and Conditions”;
·a “Terms Schedule”, consisting of two pages, for the overdraft of $50,000 provided to Eden Valley Wines. Again, this document set out the terms for the overdraft and identified the securities to be provided, including the Guarantee to be provided by Mr Thompson and the Defendant. It also indicated that the facility was granted on the “Bank’s Usual Terms and Conditions”.
I should mention that in each case the Borrower was referred to as Eden Valley Wines Pty Ltd as trustee for the Thompson Family Trust No 1 (“Trust”).
Both these documents were signed by the Defendant as “Company Secretary or other Director”. Mr Thompson signed as “Director”.
·a Deed, consisting of sixteen pages, described in these proceedings as an “Equitable Mortgage” in which Eden Valley Wines was named as “the Mortgagor” and also “the Debtor”. This document was signed by Mr Thompson as “Director”, and the Defendant signed as “Company Secretary”;
·a Deed, consisting of sixteen pages, described in these proceedings as a “Third Party Equitable Mortgage”, in which Eden Valley Wines was named as “the Mortgagor” and Agvin, May The Seventh and VVMS were named as “the Debtor”. This document was executed by Eden Valley Wines by Mr Thompson signing as “Director” and the Defendant signing as “Company Secretary”. With respect to Agvin, May the Seventh and VVMS, they executed the document by Mr Thompson signing as the “Sole Director and Sole Company Secretary”;
·a Deed of Guarantee, consisting of twelve pages, in which the Guarantors were named as Mr Thompson and the Defendant, and the “Debtor” named as Eden Valley Wines. The Defendant and Mr Thompson signed as Guarantors. Eden Valley Wines also executed the Guarantee, by Mr Thompson signing as “Director” and the Defendant as “Company Secretary”;
·a Business Card holder application, for the account held by Eden Valley Wines in the names of Mr Thompson, the Defendant and Mr Peter Hughes, in which Mr Thompson and the Defendant were required to sign individually and also on behalf of Eden Valley Wines;
·a Deed of Acknowledgement. This document is quite complex in its terms and was between Eden Valley Wines and Villiers on the one part, and the Plaintiff on the other. It involved the parties to the Deed covenanting that they would not enter into a Deed of Cross-Guarantee in connection with the Australian Securities and Investments Commission, without the consent of the Plaintiff. With respect to each company, Mr Thompson signed as “Director” and the Defendant as “Company Secretary”;
·statements of Solvency Declaration for Eden Valley Wines and Villiers. Both these documents were signed by Mr Thompson as “Director” and the Defendant as “Director”. The document stated that Mr Thompson and the Defendant believed each of the companies would be able to pay its debts as and when they fall due;
·a Declaration by a Proprietary Company concerning its status as an entity controlled by a Public Company. With respect to both this document and the document described immediately above, Mr Thompson signed as “Director” and the Defendant signed as “Director”. It was a declaration on behalf of Villiers that it was not controlled by a Public Company;
·an Authority to obtain Credit information – Privacy Act 1988. This was signed by Mr Thompson and the Defendant as “Guarantors”. Whilst this document was signed by both Mr Thompson and the Defendant, the document had not been completed as their names were not included on the face of the document;
·an Authority to Debit Account. This document was signed by Mr Thompson and the Defendant as “Customers”. It referred to Eden Valley Wines as trustee of the Trust. The document was incomplete as details of the Account were not specified.

In addition, there were a number of documents which Mr Thompson was required to sign alone, and those documents included:
·a “Terms Schedule” for a Variable Rate Bill Facility in which Agvin was identified as the borrower. The Bill Facility was for a total of $2,593,000;
·an Equitable Mortgage granted by Agvin;
·an Equitable Mortgage granted by May the Seventh;
·an Equitable Mortgage granted by Villiers Corporation Pty Ltd;
·a Deed of Guarantee by Mr Thompson.
The Deed, which has been described as an “Equitable Mortgage” in which Eden Valley Wines was named as “the Mortgagor” and as “the Debtor”, secured the undertaking and property of Eden Valley Wines, including its uncalled capital and all the assets both present and future held by Eden Valley Wines as Trustee of the Trust. Clause 6 of the Mortgage provided that the charge would operate as a fixed charge with respect to some assets, and a floating charge with respect to other assets.
By the Deed described in the proceedings as the “Third Party Equitable Mortgage”, in which Eden Valley Wines was named as “the Mortgagor” and Agvin, May The Seventh and VVMS were named as “the Debtor”, Eden Valley Wines secured its undertaking and property and its uncalled capital, as well as the assets both present and future held by Eden Valley Wines as trustee of the Trust. Money secured by the Third Party Equitable Mortgage and required to be paid by Eden Valley Wines included money which became owing or payable to the Plaintiff by any of the Debtors named, namely Agvin, May The Seventh and VVMS. That Mortgage also created a fixed charge with regard to some assets, and a floating charge with respect to other assets.
Both the Equitable Mortgage and the Third Party Equitable Mortgage were large in size and complex in their terms. It can be seen that by the Third Party Equitable Mortgage, Eden Valley Wines was liable for the debts of Agvin, May The Seventh and VVMS. The liabilities of those three companies for financial facilities provided by the Plaintiff amounted to about $4,000,000 in total.
The Deed of Guarantee executed by both the Defendant and Mr Thompson guaranteed to the Plaintiff the repayment of all money and other financial facilities payable by Eden Valley Wines. As I said, the Third Party Equitable Mortgage granted by Eden Valley Wines made it liable for the debts of Agvin, May The Seventh and VVMS. This was in addition to its liability to repay the $240,000 loan and the overdraft accommodation of $50,000 secured by the Equitable Mortgage it granted to the Plaintiff. As the Defendant and Mr Thompson were guaranteeing the liabilities of Eden Valley Wines under the Guarantee, then their liability extended not only to the direct liability of Eden Valley Wines under the Equitable Mortgage, but also to the liabilities picked up by Eden Valley Wines through the Third Party Equitable Mortgage.
I also mentioned earlier that the Terms Schedule for the BetterBusiness loan of Eden Valley Wines, and the Terms Schedule for the overdraft, provided that the respective facilities were granted on the “Bank’s Usual Terms and Conditions”. The “Bank’s Usual Terms and Conditions” was a forty-page document, and complex in its terms. The evidence does not disclose that this document was ever provided by the Plaintiff to Eden Valley Wines or the Defendant.
Letter To Defendant Dated 8 September 2000
Before turning to the events of 20 September relating to the signing of the documents, I need to deal with a letter of 8 September 2000, addressed to the Defendant from the Plaintiff (Exhibit D11). It was addressed to the Defendant at “PO Boc (sic) 51 Eden Valley”.
This letter was signed by the Manager of the Loans Processing Centre. The Loans Processing Centre was the department of the Plaintiff which prepared security documents and other documents relating to financial facilities granted by the Plaintiff to its customers. The letter to the Defendant enclosed a copy of the Guarantee to be given by the Defendant and Mr Thompson with respect to Eden Valley Wines. The letter also enclosed a Booklet entitled “What It Means To Be a Guarantor”. It also enclosed a sheet entitled “Instructions for Signing a Guarantee or Third Party Mortgage”. Furthermore, the letter stated that if the Defendant wished to seek legal advice, then she should obtain the original of the Guarantee and take it to her Solicitor. It also stated that the Defendant should satisfy herself that she understood the full nature and effect of her liabilities to the Plaintiff before signing the Guarantee. The letter indicated that the maximum liability of the Defendant under the Guarantee was $290,000, plus interest and other costs and expenses.
There was a similar letter dated 8 September 2000 addressed to Mr Thompson, together with similar enclosures, save that with respect to the Guarantee it was the original which was enclosed.
The Defendant said that she cannot recall receiving that letter. She said she saw the Booklet for the first time shortly prior to her giving evidence. The effect of the Defendant’s evidence is that she had never read the letter, or any of the enclosures, prior to signing the Guarantee on 20 September.
Mr Thompson said that he can recall receiving his letter, and the letter addressed to the Defendant, through the post. He said he had a post office box at the Eden Valley Post Office. He said it was his practice to open the mail addressed to himself or the Defendant. Mr Thompson said he did not give the letter to the Defendant because he had earlier mentioned to her that the ANZ loan was being transferred to the Plaintiff, and Eden Valley Wines was to receive a $50,000 overdraft. He said that he told her they were to provide a guarantee for the Eden Valley winery.
Mr Cushway said that, whilst he could not recall the letter and enclosures being produced at the meeting on 20 September, it was his practice to deliver such a letter at a meeting such as took place on that date. He said the reason he can say that is because all of the documents are prepared in “one hit” by the Loan Processing Centre, and they were normally kept together.
Mr Buxton said he had no memory of either letter of 8 September being produced at the meeting on 20 September. He said that documents relating to a loan all come together, including a letter of this nature. He said his practice was to produce a letter of the nature of the letter of 8 September at the time documents are signed.
As will be seen shortly when I deal with Mr Cushway’s evidence and that of Mr Buxton, they relied virtually entirely on their respective practices to enable them to give evidence of what they say took place on 20 September 2000. The evidence relating to the production of the letter of 8 September was but one part of that evidence.
A document entitled “The Code of Banking Practice – Third Party Mortgagors and Guarantors” was introduced into evidence (Exhibit D7). Mr Cushway said that this document was part of the “Managers’ Handbook” and acknowledged that procedures laid down in Exhibit D7 were required to be followed by employees of the Plaintiff.
Mr Cushway’s attention was drawn by Mr Burnett, Counsel for the Defendant, to a passage in the Procedure document which indicated that for a person in the position of the Defendant granting a guarantee, there was a requirement of the Plaintiff that “A booklet explaining the responsibility of being a guarantor will be sent out with the guarantee”. Mr Cushway accepted that he had not followed that practice by bringing the letter of 8 September 2000, (Exhibit D11), which included the booklet, to the meeting of 20 September 2000. However, it needs to be understood that the instruction in the Managers’ Handbook was referring to circumstances where the guarantee was being sent out to the customer for execution. The enclosure included instructions on the signing of a guarantee. That was not the case here. The documents were to be presented by Mr Cushway, for signature at the winery.
It will be seen later that I am not prepared to accept the evidence of practice given by Mr Cushway and Mr Buxton regarding the signing of the documents on 20 September 2000. My dissatisfaction with that evidence causes me to doubt the evidence of practice that letters of this nature were brought to meetings such as was held on 20 September 2000. Even though I have that doubt I am satisfied, on the balance of probabilities, that the letters were produced at the time of the signing of the documents on 20 September. I have reached that conclusion by an alternate route. In reaching that conclusion it follows that I have rejected the evidence of Mr Thompson. I will come to this shortly.
A letter of 1 September 2000 was addressed to the Villiers Group of Companies at Eden Valley for the attention of Mr Thompson, from Mr Cushway. It indicated approval of the increase in financial facilities to $1,126,660, which sum included the BetterBusiness loan of $240,000, the overdraft of $50,000 and the Business Card facility for $4,500. The letters stated that the increase in facilities was made on the terms and conditions in the Plaintiff’s document entitled “Usual Terms and Conditions”, and a Terms Schedule addressed to Agvin which was enclosed.
I am satisfied that the original letter sent to Mr Thompson enclosed a Terms Schedule which indicated that both Mr Thompson and the Defendant were required to guarantee the liabilities of Agvin (Exhibit D38).
There was also admitted into evidence a Diary Note dated 6 September 2000, prepared by Mr Cushway and signed by him and Mr Buxton. The Note stated that as a “fully interlocking position is not established” the Plaintiff has been requested to forego a guarantee from the Defendant with respect to Agvin and the other companies. The Note also indicated that the guarantee with respect to Eden Valley Wines was “still on offer”. It was Mr Cushway’s evidence that the request came from Mr Thompson. It is difficult to accept that he could actually recall the request. I think he gave this evidence by dint of reconstruction and not by memory re-call. In any event, I accept that the request must have come from Mr Thompson. It can be inferred that the request came from him after receiving the letter dated 1 September 2000. The request is consistent with Mr Thompson’s philosophy of keeping Eden Valley Wines isolated from the other companies.
The Diary Note of 6 September 2000 has the signature of Mr Mountford on it indicating the request was approved, and this endorsement is dated 18 September. Mr Mountford was the Superior of Mr Cushway and Mr Buxton. It is unlikely that the letter of 8 September would have been sent before the approval was given for the removal of the Defendant as a guarantor. In those circumstances, then the probabilities are that Mr Cushway would have brought the letters of 8 September addressed to the Defendant and Mr Thompson, respectively, to the meeting on 20 September.
Reaching this conclusion in this manner means that I do not accept the evidence of Mr Thompson that he received the letters through the post. I am of the view that this evidence is a reconstruction by Mr Thompson. I do not consider it was deliberate, in the sense that he intended to deceive me. It is difficult to accept that he can recall receiving the letters such a long time ago. The evidence I have outlined provided the most likely scenario that the letters were taken to the meeting on 20 September.
The Meeting Of 20 September
I now turn to consider the evidence of each person who was present at the Eden Valley winery on 20 September 2000 when the Guarantee and all of the other documents I have referred to were signed. Those present at the meeting were Guy Buxton and John Cushway, employees of the Plaintiff, and the Defendant and Mr Thompson. There is a conflict in the evidence regarding whether the Defendant was present throughout the meeting and whether Mr Thompson was present throughout the meeting. I will return to that matter later.
(i) The Defendant’s Evidence
The Defendant does not dispute that she signed the documents which I have referred to earlier, including the Guarantee. However, the manner in which she signed the documents and what was said to her by Mr Cushway at the time of the signing of the Guarantee, and the other documents, and immediately before she signed those documents, are in dispute.
The Defendant’s evidence was that she knew nothing about the financial transactions arranged by Mr Thompson with the Plaintiff prior to 20 September 2000. She said that whilst acknowledging that she signed the Guarantee and the other documents on 20 September, she had never seen any of those documents prior to 20 September. I accept this evidence. The Defendant has a very limited memory of what took place at the signing of the documents. She said that she can recall there were little flags on the documents indicating where she was to sign. She said that she signed the Guarantee, and the other documents, because Mr Thompson requested her to sign them. It was the Defendant’s evidence that she had no knowledge of the financial facilities being provided to Eden Valley Wines or, for that matter, to Agvin, May The Seventh and VVMS. The Defendant said she could not recall reading any of the documents she signed on that occasion. She said she did not remember anyone giving her any explanation regarding any of the documents that she signed. Indeed, she said that she thought that she was signing an application for a loan by Eden Valley Wines, although in giving this evidence she seemed to be confused. At one point in her evidence she said (T.183.3):
I just thought it was for a loan, I don’t know. I don’t know.
The Defendant said that she could not recall what Mr Cushway said during the course of the signing of the documents. She had no memory of Mr Buxton being present.
(ii) The Evidence Of Mr Thompson
Mr Thompson said that the documents were signed in the winery on 20 September 2000. He said that only Mr Cushway was present. He said he could not recall Mr Buxton being present at the time of the signing of the documents.
It was Mr Thompson’s evidence that Mr Cushway presented the documents for signing, and each document was flagged where he and the Defendant were to sign. Mr Thompson said that he signed the documents first. He said that the Defendant was not present when he signed the documents. He said that he called the Defendant in to sign the documents. He said that he left the Defendant with Mr Cushway, as he was called away at the time.
Mr Thompson said that when he was signing the documents, Mr Cushway would simply identify the particular document in a neutral manner. He gave examples. He said Mr Cushway referred to a document as a “Mortgage”, or a “Guarantee”, as he presented the particular document for signature. He said that there was no discussion about the terms or effect of the document. He denied that Mr Cushway gave a brief explanation of the effect of a particular document that was presented for signature. Furthermore, he denied that Mr Cushway ever offered to leave the documents so they could be taken away for the purpose of obtaining legal advice.
Mr Thompson said that at the time the documents were signed he did not understand that the transaction involved interlocking securities with Eden Valley Wines. He did not understand that Eden Valley Wines was providing a Third Party Equitable Mortgage in which it was accepting a liability for the debts of Agvin, May The Seventh and VVMS, and securing that liability with the assets of Eden Valley Wines. He said that such a security was against the agreement which he reached with Mr Cushway when the finances were brought from the ANZ, that Eden Valley Wines was to stand alone and not become involved in the financial facilities of the other companies and, in particular, the financial facilities relating to the development of the vineyard, which he said was speculative.
Mr Thompson said that he did not understand, on 20 September 2000, that the Guarantee which the Defendant and he executed provided that they were guaranteeing the financial facilities granted by the Plaintiff to Agvin, May The Seventh and VVMS. He said that if he knew that Eden Valley Wines was providing security, and incurring a liability for the debts of the other three companies, then he would not have asked the Defendant to execute the Guarantee.
(iii) The Evidence Of Mr Cushway
I mentioned earlier, that in September 2000 Mr Cushway was employed as a Relationships Executive with the Plaintiff. Part of his duties was to manage the financial relationship between the Plaintiff and Mr Thompson and the Villiers Group of companies. It was Mr Cushway who negotiated with Mr Thompson the increase in financial facilities in August 2000. As I also mentioned earlier, Mr Cushway acknowledged that in discussion with Mr Thompson concerning the bringing of the Eden Valley Wines’ financial facilities from the ANZ to the Plaintiff, Mr Thompson had conveyed that it was important to keep the winery liabilities separate from the vineyard liabilities. He said it was his understanding that Mr Thompson was the person who was exclusively operating and managing the companies in the Villiers Group. With respect to the companies other than Eden Valley Wines, Mr Cushway said that he understood that the Defendant was not involved in any of those businesses. He said that he assumed the Defendant had some involvement with Eden Valley Wines as she was a Director.
I have already found that both Mr Cushway and Mr Buxton attended at the winery on the occasion of the execution of all of the documents on 20 September 2000. Regarding the question of who was present at the time of the signing of the documents, he said that Mr Thompson was present at all times while the Defendant was signing the documents. He said that he could not recall if the Defendant was present when Mr Thompson signed those documents relating to Agvin, May The Seventh and VVMS.
Mr Cushway said that he could not recall what he said in relation to each of the documents which were signed, but he said that he had a practice which he adopted when having clients sign documents of the type which were required to be signed by the Defendant and Mr Thompson. He said normally he used “about” the same words on each occasion. He said that he would have adopted his normal practice on this occasion.
With respect to the Equitable Mortgage granted by Eden Valley Wines in which Eden Valley Wines was named as the Debtor, Mr Cushway said that he would have said, when having the document executed, that it mortgages the assets of the company in favour of the debts raised for Eden Valley Wines. He said that he was not sure whether his practice was to refer to the particular company by name or not. Mr Cushway said that with respect to the Third Party Equitable Mortgage granted by Eden Valley Wines, being the Mortgage in which the Debtors were named as Agvin, May the Seventh and VVMS, it would have been his practice to state that the company was providing security by way of charge over its assets with respect to the other companies in the Group. He said that he had a practice of sometimes referring to the companies named in the Mortgage, and sometimes just pointing to the names of the companies in the Mortgage. He said he did not know what practice he adopted on this occasion.
For the Guarantee, Mr Cushway said that it was his normal practice to tell the client that it is his/her personal guarantee for advances to the particular company, and that the guarantee document gave the Plaintiff security from the guarantor, in that if the company did not meet its obligations, then the Plaintiff would call on the guarantor. He said it was his normal practice to say that all the securities are called up together and it does not matter who pays as long as the Plaintiff’s debts are realised. He said that a further part of his practice, with respect to a guarantee, was that he would advise the guarantor that the document could be left with the guarantor in order to seek separate advice, or the guarantor could sign it immediately. Mr Cushway said that at some stage, with respect to the Guarantee, he would have asked the Defendant whether she wanted to obtain legal advice. He said that his practice with respect to leaving documents with a client only applied to a guarantee and not to any other documents.

Mr Cushway said that it was his practice, with the Terms Schedule for the BetterBusiness loan and the Terms Schedule for the overdraft, to go through the terms of the finance being made available, as set out in the documents. He said his practice was also to draw attention to the Securities listed in Item 13 of each of the documents.
Mr Cushway said that in relation to documents such as the Deed of Acknowledgement and the Statement of Solvency, being documents in Exhibit D18, it was his practice to provide a brief explanation of each document. Included in the documents in Exhibit D18 were Business Card Cardholder Applications for the Defendant, Mr Thompson and Mr Peter Hughes, the Office Manager. All of these Application forms required the signatures of the Applicant. Mr Cushway said he can remember Mr Hughes being present for part of the time during the signing of the documents on 20 September.
Mr Cushway said that it was his practice when he handed a letter to a client, similar to the letter of 8 September addressed to the Defendant, to draw the Booklet to the attention of the client, so he would have done that with the Defendant on that occasion. He further said that it would have been his practice to advise the Defendant that, as Eden Valley Wines was borrowing $290,000, that was the level of her guarantee.
I referred earlier to the admission into evidence of a document entitled “The Code of Banking Practice – Third Party Mortgagors and Guarantors” (Exhibit D7) (“Managers’ Handbook”). Further documents, one entitled “Other Lending” which had attachments to it (Exhibit D8), and another entitled “Guarantee and Third Party Mortgages” were also admitted into evidence (Exhibit D19). There was some concern regarding whether the latter document, (Exhibit D19), was on foot and operative on 20 September 2000. In the end, Mr Howard, Counsel for the Plaintiff, conceded that all three sets of documents, being instructions to employees of the Plaintiff dealing with Guarantees and Third Party Mortgages, were operative at September 2000.
I mentioned earlier, when dealing with the letters of 8 September 2000, that Mr Cushway agreed that he had not followed the practice laid down in the Managers’ Handbook (Exhibit D7). Mr Cushway also agreed that he had not followed the Plaintiff’s procedures laid down in Exhibit D7, in that he had not provided the Defendant or Mr Thompson with ample time to read the Booklet enclosed with the letter when he presented the letter and Booklet at the meeting.
Mr Burnett also drew Mr Cushway’s attention to the third document I have just referred to, which is described as “Guarantee and Third Party Mortgages”(Exhibit D19). Whilst Mr Burnett was drawing Mr Cushway’s attention to some of the provisions of Exhibit D19, Mr Cushway said that in his view the procedures that applied on 20 September 2000 were those contained in the document entitled The Managers’ Handbook (Exhibit D7), and the document entitled “Other Lending” (Exhibit D8). It was his evidence that these documents had superseded the procedures set out in Exhibit D19. Later in his evidence, Mr Cushway said that he was uncertain whether the procedures laid out in Exhibit D19 were applicable at September 2000. As I said, towards the end of the Trial, Mr Howard, Counsel for the Plaintiff, conceded that the procedures laid out in the three documents (D7, D8 and D19) were all operative at 20 September 2000.
Because Mr Cushway was uncertain whether the procedures laid out in the document “Guarantee and Third Party Mortgages” (Exhibit D19) were operative at 20 September 2000, he proceeded to answer questions on the assumption that they were operative. His attention was directed to a passage in Exhibit D19 (page 91) which stated:
Preferably, the guarantor/mortgagor should take the documents away to read and understand before signing.
His attention was also drawn to Attachment C in the Managers’ Handbook (Exhibit D7) where it stated:
Important: In all cases and no matter what the circumstances, the guarantor/third party mortgagor (in these instructions referred to as “(the guarantor”) must be given ample time to read the booklet “What it Means to be a Guarantor” before signing the security documents.
He agreed that he did not adopt this approach on 20 September. He said that the Defendant was not given the opportunity to read the Booklet “What it Means to be a Guarantor”. Mr Cushway said that he went to the winery to have the documents signed. He said that Mr Thompson and the Defendant were not insisting that the documents should be signed on that day.
His attention was also drawn to a sub-paragraph on page 92 of Exhibit D19 which provided:
Bank officers generally should not undertake any explanation of the obligations of the liabilities of guarantors or mortgages (sic) under the terms of the Bank’s security documents, but if any officer is asked any question by a guarantor/third party mortgagor in the course of arranging for execution of the documents he/she should be certain to answer the questions accurately, if necessary by referring a question to his/her supervisor, or to point of control.
Mr Cushway agreed that his usual practice of providing an explanation of the documents, in the manner that he had described in his evidence, did not accord with that instruction. Mr Cushway later said in his evidence that when the procedures laid down in Exhibit D19 were operating, then he believed that he would have complied with those procedures. He said, when those instructions were operating, his normal procedure was not to proffer any explanation of the obligations and liabilities of a guarantor.
(iv) The Evidence Of Mr Buxton
I now come to the evidence of Mr Buxton. Whilst Mr Cushway was the employee of the Plaintiff who played the major role when the financial facilities were provided by the Plaintiff, Mr Buxton had some involvement. He worked with Mr Cushway. Mr Buxton prepared a document entitled “Application Summary” dated 31 August 2000 with respect to the financial facilities to be provided by the Plaintiff (Exhibit D10). This document outlined the details of the financial transactions, including that of Eden Valley Wines. It was Mr Buxton’s evidence that he understood that Mr Thompson was the driving force behind all of the companies. He said that in early September 2000, he supported the recommendation by Mr Cushway that the Defendant only be required to give a guarantee with respect to Eden Valley Wines and not the other companies in the Villiers Group.
On 20 September 2000, Mr Buxton said that he accompanied Mr Cushway to the winery. He said that he understood that Mr Cushway was to attend the winery for the purpose of having all of the security documents and other documents signed, and he took the opportunity to travel with Mr Cushway to the winery so that they both could inspect the vineyard being developed by Agvin. He said that after being driven around the vineyard by Mr Thompson, they returned to the winery for the purpose of having the documents executed.
He said both Mr Thompson and the Defendant were present throughout the signing of all the documents. He said that Mr Cushway was the person in charge of arranging for the documents to be signed.
Mr Buxton said that he did not have an independent recollection of the document signing process which took place. He said he had a practice which he adopted when he would personally have clients sign documents similar to those documents which were signed on that day. He described the practice in the following terms (T506.1):
It was my practice to ensure that unless some key issues were outlined with every document, of whatever nature that those essential items were understood.
Mr Cushway did not explain what he meant by “key issues” or “essential items”. He did describe what he would say with respect to the Equitable Mortgage and Third Party Equitable Mortgage of Eden Valley Wines and the Guarantee. If he meant to convey that he would describe some of the terms of the particular security document or guarantee, then that would be contrary to procedure laid down in Exhibit 19 where officers were instructed not to undertake any explanation of the obligations and liabilities of guarantors or mortgagors.
He said he also had a practice of interjecting, where he was observing somebody else arranging for the signatures on documents, if the procedure adopted by that person was not to his satisfaction. He said that he could not recall whether he interjected on that day, or not, when Mr Cushway had Mr Thompson and the Defendant sign various documents.
At the time that Mr Buxton attended at the winery on 20 September, he said that he understood that the Plaintiff was only seeking a guarantee from the Defendant with regard to the financial liabilities of Eden Valley Wines, being the $240,000 BetterBusiness loan and the overdraft facility of $50,000.
With respect to whether Eden Valley Wines was also liable for the financial facilities granted to Agvin, May The Seventh and VVMS, his evidence was a little confusing. In the end, I think his position was that on 20 September 2000 he understood that Eden Valley Wines was putting forward security for its own debts and the debts of other companies in the Group.
Mr Buxton said it was his practice with a document of the nature of the Equitable Mortgage granted by Eden Valley Wines to explain that the Plaintiff had a right to take control of the assets and the right to ultimately sell the assets or dispose of those assets in order to return loan funds. He said there was a reference in that security to the Trust, so he would have made reference to the Trust. He did not explain in what way he would have referred to the Trust. He said that with respect to the Third Party Equitable Mortgage granted by Eden Valley Wines, his practice was to explain that the Plaintiff had a charge over the assets of Eden Valley Wines and had the right to use those assets to recover any money that was owing by the debtor companies named in the document. He said that his practice was to name the debtor companies named in the Third Party Equitable Mortgage.
With respect to the Guarantee, he said that it was his practice to advise a guarantor that the personal assets of the guarantor would ultimately be available for application to the debts of the company, in this case, Eden Valley Wines.
Mr Buxton said he can recall Mr Cushway offering an explanation of each document before it was signed by Mr Thompson and the Defendant, including the documents in Exhibit D18, such as the Deed of Acknowledgement. As I mentioned earlier, he said he could not recall the need to interject, but he may have interjected.
Mr Buxton said that it was his standard practice when documents were presented to them for execution to give the client an opportunity to take the documents away and read them and, if they found it necessary, to present them to a solicitor to be considered. He said that he did not agree that the Defendant and Mr Thompson were not given any opportunity to read the documents.
Evaluation Of The Evidence Of Mr Cushway
Mr Cushway relied upon what he said was his normal or usual practice to give evidence of what he said during the signing process on 20 September. I did not find this evidence convincing. I have earlier referred to his evidence of some of his practices which were at odds with the procedures laid down by the Plaintiff. In other words, his evidence was that some of his practices did not follow the Plaintiff’s procedures. No explanation was offered regarding the reason he did not comply with the Plaintiff’s procedures.
Mr Cushway’s evidence of his practice of explaining the documents is to be contrasted with his evidence regarding Exhibit 19 – “Guarantee and Third Party Mortgages”. A provision in that document instructed officers of the Plaintiff not to undertake any explanation of the obligations of liabilities of guarantors or mortgagors under the terms of the Plaintiff’s security documents. Mr Cushway said that if that provision was in operation in September 2000, then he would have followed it. It was in operation in September 2000. That being the case, then his practice in providing explanations of the Guarantee and security documents meant that he was not following the procedure then operating. I found this evidence confusing.
I have mentioned earlier that he accepted that he had not followed the Exhibit D19 instruction indicating the preferred procedure was to invite the “guarantor/mortgagor” to take the documents away to read and understand before signing.
I also mentioned that Mr Cushway said that he also had a practice of offering a brief explanation of what I will describe as the “supporting documents”, being the documents in Exhibit D18 such as the Solvency Declaration, and the Deed of Acknowledgement. His evidence regarding what he would have said in describing the Deed of Acknowledgement showed clearly that he did not understand the terms of the Deed of Acknowledgement. The content of what he would have said was completely wrong. His evidence regarding what he said about the supporting documents was unconvincing.
There was another matter which caused me concern. Mr Cushway said, in his evidence, that it was his practice to provide some explanation of all of the documents, which included the Terms Schedules. Indeed, in giving evidence regarding the Terms Schedule for Agvin, contained in Exhibit D18, he said that his practice was to explain a document of that nature in some detail. However, it is difficult to see how these documents would normally be present at the signing of security documents and guarantees.
It appears by reference to the letter of 1 September 2000 from the Plaintiff to the Villiers Group, being the letter approving of the new financial facilities, that the Terms Schedules would be signed and returned to the Plaintiff well before the signing of any Guarantee and securities. The letter indicated that the Plaintiff made the new facilities available on the terms and conditions in the “Usual Terms and Conditions” Booklet and the enclosed Terms Schedules. The letter enclosed each of the relevant Terms Schedules including those relevant to Eden Valley Wines and Agvin. The letter advises that to accept the offer, each of the Terms Schedules are to be signed and returned to the Plaintiff. The Terms Schedules and the Usual Terms and Conditions form the contract between the Plaintiff and its customer.
In the present case, the Terms Schedules were presented at the meeting of 20 September for signing as that had not been done before. It appears that the reason for this was the change made excluding the Defendant as a guarantor for all of the other companies except Eden Valley Wines. Because Mr Mountford had not approved of the change until 18 September 2000, it appears that the Terms Schedules had not been signed on or before 20 September. They were signed on 20 September 2000. However, as I said, it is difficult to see that Mr Cushway had a normal practice in explaining the Terms Schedules when, in the usual course, they would not be present at the time of signing guarantees and securities. By that time, the Terms Schedules would have been executed by the customer and returned to the Plaintiff.
There is a further factor which stands in the way of my accepting that Mr Cushway had a normal or usual practice of expression. He said that he had a practice with respect to Third Party Equitable Mortgages which would have led him to state, with respect to the Third Party Equitable Mortgage here, that Eden Valley Wines was providing security by a charge or mortgage over its assets for the other companies named in the Mortgage. He said his practice would be to state the names of the companies, in this case Agvin, May The Seventh and VVMS, or he would point to the names of the companies in the Mortgage.
As I indicated earlier, Mr Thompson said that when he agreed to bring Eden Valley Wines’ finance across to the Plaintiff from the ANZ, he told Mr Cushway that Eden Valley Wines and its business were to stand alone and apart from the vineyard development. I will not repeat the evidence, apart from stating that it was important to Mr Thompson that separation of Eden Valley Wines from the other companies be maintained.
Mr Thompson said he was not aware that Eden Valley Wines, through the Third Party Equitable Mortgage, was incurring a liability for the borrowings of Agvin, May The Seventh and VVMS, and that the assets of Eden Valley Wines were being used to secure the repayment of those borrowings. He said that if he had known this, he would not have proceeded. I accept this evidence.
If Mr Cushway had described the Third Party Equitable Mortgage in the manner he stated in his evidence, based upon what he said was his normal or usual practice, then Mr Thompson would have been alerted to the fact that Eden Valley Wines was accepting a liability for the other companies and using its assets to secure repayment of the other companies’ liabilities. I have no doubt that Mr Thompson would have objected. The entire arrangement would have fallen apart. In my opinion, Mr Cushway could not have described the Third Party Equitable Mortgage in the manner he outlined in his evidence. This conclusion seriously undermines Mr Cushway’s evidence of his normal or usual practice.
I found Mr Cushway’s evidence of his practice of what he said at the time of signing documents unconvincing. I would have expected that if he had a normal practice it would comply with the procedures laid down by the Plaintiff. I felt the evidence of his practice was a reconstruction on his part. I did not feel that it was a deliberate reconstruction. I did not feel he was trying to mislead me. I do not accept that he had a normal or usual practice of expression when having a party sign documents of the nature that were signed on 20 September.
I am prepared to accept that Mr Cushway had a practice of referring to a particular document when it was being signed by a customer. What I am not prepared to accept is that as a part of that practice he would make statements similar to what he stated in his evidence. I am willing to accept that he would describe the type of document about to be signed by name, for example a “guarantee” or, an “equitable mortgage”. Whether he would go further and state with regard to a guarantee, for example, “this is your guarantee relating to the debts of x”, I cannot say. It is something that on one view might be expected, but because I am not prepared to rely on his evidence of practice regarding the content of what he would say, I cannot go that far.
Evaluation Of The Evidence Of Mr Buxton
I had difficulty, at times, in determining whether Mr Buxton was giving evidence using memory re-call, or whether he was giving evidence relying on a practice, or making an assumption relying on a practice. At times, Mr Buxton had difficulty in making this distinction. An example of this was the letter of 8 December 2000 (Exhibit D11). At first he appeared to give evidence that he could recall it being produced by Mr Cushway at the meeting on 20 September, and then later he said he assumed it had been produced because he said it was his practice to produce it at the time when the documents were to be signed, because it was his practice to do so.
I thought Mr Buxton engaged in reconstruction in giving his evidence. An example of this was his evidence that he could recall Mr Cushway presenting each document for signature and “saying some words”. I simply do not accept that he has such a memory so long after the event. There were a very large number of documents to be executed. In my view, it would be impossible to have such a re-call. It is an assumption he has made. Whilst I thought he engaged in reconstruction, I did not think that it was a deliberate attempt to mislead me.
I thought his evidence of his practice of what he would say with respect to the Guarantee, the Equitable Mortgage and the Third Party Equitable Mortgage was unconvincing. In each case, when asked what was his practice, he commenced by stating that his practice was to ensure the document was explained. When pressed, he then proceeded to indicate what he would say as part of his practice. Although he was not directed to the Plaintiff’s instruction manuals, which I mentioned earlier, his evidence regarding explanations of documents stands in stark conflict with the instructions in the manuals.

For all the reasons I have expressed, the Defendant was, in substance, a volunteer.
(iii) Understanding The Surety Reposed Trust And Confidence In Her Husband
Is the Plaintiff to have been taken to have understood that the Defendant may have reposed trust and confidence in Mr Thompson in matters of business and, therefore, to have understood that Mr Thompson may not fully and accurately explain the purport and effect of the transaction to the Defendant?
As it is expressed in Garcia (at para 40), the only question of notice which arises is whether the Bank knew, at the time of the taking of the Guarantee, that the Defendant was married to Mr Thompson. This circumstance was explained in the Joint Judgment in Garcia in the following terms (at para 21):
So far as Yerkey v Jones proceeded on the basis of the earlier decision of Cussen J in Bank of Victoria Ltd v Mueller, it is based on trust and confidence, in the ordinary sense of those words, between marriage partners. The marriage relationship is such that one, often the woman, may well leave many, perhaps all, business judgments to the other spouse. In that kind of relationship, business decisions may be made with little consultation between the parties and with only the most abbreviated explanation of their purport or effect. Sometimes, with not the slightest hint of bad faith, the explanation of a particular transaction given by one to the other will be imperfect and incomplete, if not simply wrong. That that is so is not always attributable to intended deception, to any imbalance of power between the parties, or, even, the vulnerability of one to exploitation because of emotional involvement. It is, at its core, often a reflection of no more or less than the trust and confidence each has in the other.
Reference to footnote deleted.
(See also, Chia at para 169(3); Khouri at paras 66 and 67.)
It is not disputed by the Plaintiff that it knew that the Defendant and Mr Thompson were married. Mr Cushway knew that was the position. He also said that he was aware that Mr Thompson was exclusively operating and managing the companies in the Villiers Group, including Eden Valley Wines. All negotiations regarding finance were done with Mr Thompson alone. It was Mr Thompson to whom the Plaintiff alone dealt with regarding the application for finance and the approval of that finance. Mr Buxton, Mr Cushway’s immediate superior, said that it was his understanding that Mr Thompson was the driving force in the Group and the management was in the hands of Mr Thompson.
The evidence establishes that the third element in Garcia has been established, namely, that the Plaintiff knew that the Defendant was married to Mr Thompson and that she placed trust and confidence in Mr Thompson in matters of business.
(iv) Did The Bank Take Steps To Explain The Transaction?
The fourth circumstance which needs to be established is whether the Plaintiff took steps to explain the transaction to the Defendant or find out that a stranger had explained it to her. In Garcia, in the Joint Judgment, the relevance of this element was explained in the following terms (para 41):
As is apparent from what was said in Yerkey v Jones the creditor may readily avoid the possibility that the surety will later claim not to have understood the purport and effect of the transaction that is proposed. If the creditor itself explains the transaction sufficiently, or knows that the surety has received “competent, independent and disinterested” advice from a third party, it would not be unconscionable for the creditor to enforce it against the surety even though the surety is a volunteer and it later emerges that the surety claims to have been mistaken.
(Reference to footnote deleted.)
As I mentioned earlier in these Reasons, the entire finance transactions were complex. The extent of the Defendant’s liability under the Guarantee was complicated by the terms of the Third Party Equitable Mortgage granted by Eden Valley Wines. It made Eden Valley Wines responsible for the liabilities of the other borrowing companies in the Villiers Group. As a result of the terms of the Guarantee, the Defendant was not only guaranteeing the financial facility provided to Eden Valley Wines of $290,000, but also for the loans made to the other three companies. The liability under the Guarantee could arise as a result of default by any of the other borrowers in the Group. I also mentioned earlier, at the time of such default, Eden Valley Wines could be complying with the terms of its financial arrangements with the Plaintiff, but the Third Party default could lead to the calling in of all the financial facilities provided by the Plaintiff, including those of Eden Valley Wines. Indeed, that is what occurred. I spent some time identifying the factors relating to the association between Eden Valley Wines and the other companies, which needed to be understood when I was considering the first circumstances laid down in Garcia.
According to Mr Cushway and Mr Buxton, they both met the Defendant for the first time on 20 September 2000. They knew Mr Thompson was the driving force in the business of Eden Valley Wines and the business as of the other companies. They knew that all negotiations for the finance was done through Mr Thompson. They were both aware that through the Third Party Equitable Mortgage that Eden Valley Wines was responsible for the liabilities of Agvin, May The Seventh and VVMS. They knew that Eden Valley Wines was also bound by the provisions of the Plaintiff’s Usual Terms and Conditions. As I said earlier, Clause 10(1)(m) provided that as an event of default occurred, if the Plaintiff formed the opinion that a material adverse change had occurred in the financial position of the Borrower or any Security Provider, liability of Eden Valley Wines could arise, although it was complying with the terms of its financial facilities.
All of this was relevant to the Defendant as a guarantor. She needed to know what exposure she had under the Guarantee and how her liability could arise under the Guarantee.
The effect of the terms of the Third Party Equitable Mortgage, and how it effected her guarantee, was not explained to her. Indeed, it was not mentioned to Mr Thompson. Mr Cushway never explained why the Third Party Equitable Mortgage was required when he had earlier agreed with Mr Thompson that Eden Valley Wines was to remain isolated from the other companies in the Villiers Group. On my findings, the effect of the Third Party Equitable Mortgage was not explained to Mr Thompson. It was never going to be the case that Mr Cushway and Mr Buxton were going to explain the relationship of the Third Party Equitable Mortgage with liability under the Guarantee, as they were under the mistaken opinion that the Plaintiff’s liability under the Guarantee was confined to $290,000.
As I said, the Defendant needed to be told that Eden Valley Wines had been linked with Agvin, May The Seventh and VVMS, and that its liability could arise under the Third Party Equitable Mortgage or the Equitable Mortgage through events relevant to one of those companies and not Eden Valley Wines and that this would expose her to liability under the Guarantee.
As I mentioned earlier, the contract for the various financial facilities provided, including that of Eden Valley Wines, consisted of the Usual Terms and Conditions document and the relevant Terms Schedule. Liability to repay arose pursuant to the contract. Liability to repay also arose under the various securities. However, the Usual Terms and Conditions were not produced on 20 September. Indeed, I do not believe that the Usual Terms and Conditions document was ever produced.
Mr Cushway and Mr Buxton knew that the Defendant had not received an explanation of the transaction by another person, as the documents were first produced on that morning at the winery. They knew that she had not read any of the documents, including the Guarantee. They needed to explain to her the Guarantee transaction regarding the extent of her liability, and how that liability could arise. They did not do so satisfactorily.
Finally, I need to say that even if I had accepted the evidence by Mr Cushway regarding his practice of commenting on documents of the nature present here at the time of signing and, therefore, concluded he had made similar comments to the Defendant on 20 September 2000, those comments did not satisfactorily explain the Guarantee transaction regarding the extent of the Defendant’s liability and how that liability could arise.
I am satisfied that the fourth circumstance of Garcia has been established.
Was The Misunderstanding Material?
The Defendant has established the combination of circumstances which in the present case makes it “prima facie” unconscionable for the Plaintiff to seek to enforce the Guarantee. I say “prima facie” because it needs to be established that the misunderstanding by the Defendant was material. Einstein J in Chia explained the question of materiality in the following terms (604):
In the same way, in the equity as propounded in Garcia, the need for materiality provides that link between the misunderstanding of the wife and the unconscionability of the creditor’s attempt to enforce the guarantee. Without that link, any claimed equity founders.
The Defendant understood that she had given a guarantee for the repayment of the loan to discharge the ANZ debt and the overdraft of $50,000. Whilst her understanding of guarantees was rudimentary, it extended to knowing that if Eden Valley Wines defaulted, then she could be called upon as a guarantor if Eden Valley Wines did not repay the loan and the overdraft to the Plaintiff. What the Defendant did not understand were that events associated with Agvin, or May The Seventh or VVMS could be the initiating factor leading to the Plaintiff calling up the loan and the overdraft. I have referred to these earlier in these Reasons.
Mr Thompson had told the Defendant, at the time that Eden Valley Wines took out the $240,000 loan with the ANZ that Eden Valley Wines stood alone and was not involved in the financing of any other company he operated. Indeed, the other financing was through the NAB. At the time Mr Thompson brought the ANZ loan across to the Plaintiff and took out the overdraft, he told the Defendant that Eden Valley Wines was transferring the ANZ loan to the Plaintiff and taking out a $50,000 overdraft. He told the Plaintiff the position would not change. Eden Valley Wines would remain separate from the other companies. As a result, that would have been her understanding at the time she signed the Guarantee. Indeed, she would not have signed the Guarantee if Mr Thompson had been aware that Eden Valley Wines was also liable for the debts of Angvin, May The Seventh and VVMS. Mr Thompson would not have arranged for Eden Valley Wines to come across from the ANZ if he thought that Eden Valley Wines would lose its independence. Mr Thompson, on my findings, would not have agreed to involving Eden Valley Wines in the wider transaction with the other companies and, therefore, would never have needed to request the Plaintiff to sign the Guarantee.
The demands by the Plaintiff for Eden Valley Wines to repay the BetterBusiness loan and the overdraft came about because of the appointment of an Administrator by Agvin, followed by the assessment by the Plaintiff of the financial position of the entire Villiers Group. I have no doubt that if Eden Valley Wines stood alone, then the loan and overdraft would not have been called up. It was trading profitably and meeting its financial obligations to the Plaintiff.
Clearly, the Defendant’s misunderstanding of the guarantee transaction was material.
I should mention, as a final comment, that the fact that the Plaintiff has confined its claim under the Guarantee to liability arising from the BetterBusiness loan, and the overdraft of Eden Valley Wines, does not alter the fact that the misunderstanding of the Defendant was material.
Conclusion
The four circumstances outlined in Garcia have been established. The misunderstanding of the Defendant was material. Accordingly, it is unconscionable for the Plaintiff to enforce its claim under the Guarantee against the Defendant. The Defendant is to succeed on her Counterclaim. The Guarantee must be set aside. It follows that the Plaintiff’s claim must be dismissed.
Claim Under The Principles In Amadio
As I mentioned at the beginning of these Reasons, the Defendant’s alternate claim to have the Guarantee set aside is that at the time she executed the Guarantee she was a person under a special disability, and that disability was sufficiently evident to the Plaintiff to make it unfair or unconscious for it to be permitted to rely on the Guarantee. The Defendant relies on the principles laid down in Commercial Bank of Australia v Amadio (supra). The principle is a species of unconscionable conduct in which Courts of Equity will give relief.
In light of the conclusion I have reached, that it is unconscionable on the part of the Plaintiff to seek to enforce a Guarantee based upon the principles laid out in Garcia, it is unnecessary to consider whether the Defendant is entitled to succeed on the alternative claim. However, as this claim was fully argued I consider it is appropriate to deal briefly with it.
In Amadio, Deane J described this species of unconscionable conduct in the following terms (at 474-5):
The jurisdiction of courts of equity to relieve against unconscionable dealing developed from the jurisdiction which the Court of Chancery assumed, at a very early period, to set aside transactions in which expectant heirs had dealt with their expectations without being adequately protected against the pressure put upon them by their poverty. The jurisdiction is long established as extending generally to circumstances in which (i) a party to a transaction was under a special disability in dealing with the other party with the consequence that there was an absence of any reasonable degree of equality between them and (ii) that disability was sufficiently evident to the stronger party to make it prima facie unfair or “unconscientious” that he procure, or accept, the weaker party’s assent to the impugned transaction in the circumstances in which he procured or accepted it. Where such circumstances are shown to have existed, an onus is cast upon the stronger party to show that the transaction was fair, just and reasonable: “the burthen of shewing the fairness of the transaction is thrown on the person who seeks to obtain the benefit of the contract” (see per Lord Hatherley, O’Rorke v. Bolingbroke; Fry v. Lane; Blomley v. Ryan).
The equitable principles relating to relief against unconscionable dealing and the principles relating to undue influence are closely related. The two doctrines are, however, distinct. Undue influence, like common law duress, looks to the quality of the consent or assent of the weaker party. Unconscionable dealing looks to the conduct of the stronger party in attempting to enforce, or retain the benefit of, a dealing with a person under a special disability in circumstances where it is not consistent with equity or good conscience that he should do so. The adverse circumstances which may constitute a special disability for the purposes of the principles relating to relief against unconscionable dealing may take a wide variety of forms and are not susceptible to being comprehensively catalogues (sic). In Blomley v. Ryan, Fullagar J. listed some examples of such disability: “poverty or need of any kind, sickness, age, sex, infirmity of body or mind, drunkenness, illiteracy or lack of education, lack of assistance or explanation where assistance or explanation is necessary”. As Fullagar J. remarked, the common characteristic of such adverse circumstances “seems to be that they have the effect of placing one party at a serious disadvantage vis-à-vis the other.
Footnote references and some references to authorities have been deleted.
In Amadio, Mason J explained the term special disability or special disadvantage as follows (at 462):
It is made plain enough … that the situations mentioned (in Bromley v Ryan) are no more than particular exemplifications of an underlying general principle which may be invoked whenever one party by reason of some condition of circumstance is placed at a special disadvantage vis-à-vis another and unfair or unconscientious advantage is then taken of the opportunity thereby created. I qualify the word “disadvantage” by the adjective “special” in order to disavow any suggestion that the principle applies whenever there is some difference in the bargaining power of the parties and in order to emphasize that the disabling condition or circumstance is one which seriously affects the ability of the innocent party to make a judgment as to his own best interests, when the other party knows or ought to know of the existence of that condition or circumstance and of its effect on the innocent party.”
Emphasis added. (See also: Bridgewater v Leahy (1998) 194 CLR 457 at 470.)
It was submitted by Mr Burnett, Counsel for the Defendant, that the combination of a lack of education; no involvement in the affairs of Eden Valley Wines and the other companies in the Villiers Group; no knowledge of the complete transactions involving Eden Valley Wines with the Plaintiff; her subservience to Mr Thompson in financial and business matters and her lack of understanding of commercial documents, resulted in the Defendant being under a special disability in relation to the Plaintiff.
I agree with this submission. In my opinion, the combination of factors placed the Defendant under a special disability or special disadvantage vis-à-vis the Plaintiff.
I now turn to the next question, namely whether the Plaintiff had actual knowledge of the special disability or ought to have known. In Amadio Mason J expressed it in the following terms (at 467):
As we have seen, if A having actual knowledge that B occupies a situation of special disadvantage in relation to an intended transaction, so that B cannot make a judgment as to what is in his own interests, takes unfair advantage of his (A’s) superior bargaining power or position by entering into that transaction, his conduct in so doing is unconscionable. And if, instead of having actual knowledge of that situation, A is aware of the possibility that that situation may exist or is aware of facts that would raise that possibility in the mind of any reasonable person, the result will be the same.
With regard to the second limb, being that the stronger party “ought to have known”, the test is an objective one, namely, whether a reasonable person, with the known facts, would conclude that there is a possibility that the weaker party is at a special disability in relation to the stronger party and the stronger party is, therefore, bound to make enquiries.
This objective test was helpfully explained by Debelle and Wicks JJ in Micarone & Ors v Perpetual Trustees Australia Limited & Ors (1999) 75 SASR (at 114-115):
The effect of the test is that if facts are known to the stronger party which raise the possibility that the weaker party is at a special disability vis-à-vis the stronger party, the stronger party is bound to make enquiries. The test takes the facts as known to the stronger party and, by reference to those facts, imposes the objective test of whether a reasonable person’s perception of those facts would raise the possibility of the other party being in a position of special disability. If the stronger party fails to make enquiries, he may be deemed to know that the other party is in a position of special disability and will have the burden of proving the fairness of the transaction. The fact that the stronger party did not perceive the significance of a particular fact will not avail it.
…
As Professor Finn (as he then was) pointed out in “Equity and Contract” in Finn (ed), Essays on Contract at 104 and 141, if the law is to stigmatise one party’s conduct as unconscionable, it must make credible demands of that party. As he said, it cannot stray too far from actual knowledge before it leaves itself open to the criticism of pursuing a policy of protecting the mistaken or disadvantaged under the guise of proscribing what is essentially innocent behaviour.

In my view the Plaintiff, through Mr Cushway or Mr Buxton, did not have actual knowledge of the special disability. They did not know of the Defendant’s limited education; her non-involvement in the affairs of Eden Valley Wines; her total reliance throughout her marriage on Mr Thompson with respect to their business and financial affairs, or her lack of understanding of commercial documents. All of these factors are relevant to the conclusion that the Defendant was under a special disability or special disadvantage.
Mr Burnett outlined in his address a number of facts which he submitted were relevant in determining whether the Plaintiff had actual knowledge or should have raised the possibility of the Defendant being in a position of a special disability or special disadvantage. I do not propose to outline all of those facts. In my opinion, the lack of knowledge by Mr Cushway and Mr Buxton of those facts which I outlined a little earlier is also an important factor in determining whether there were sufficient facts known to Mr Cushway and Mr Buxton to raise the possibility of the Defendant being in a position of special disability or special disadvantage. Applying the objective test, in my opinion, the known facts would not raise the possibility that the Defendant was in a position of special disability or special disadvantage.
The result of reaching this conclusion is that the Defendant’s claim to have the Guarantee set aside under the Amadio principle of unconscionability fails.
Default On The Overdraft
The final submission made on behalf of the Defendant was that the Plaintiff had not validly called up the overdraft in May 2002. In other words, there had not been a valid demand issued by the Plaintiff for the money owing on the overdraft. Some considerable time was spent on this issue. However, in view of my decision that the Guarantee be set aside, it seems to be a pointless exercise to spend any further time in resolving it. Accordingly, I do not propose to do so.
Orders
I order that the Guarantee of 20 September 2000, executed by the Defendant, be set aside so far as it applies to the Defendant.
The Plaintiff’s claim against the Defendant for the sum of $150,007.07 is dismissed.
I will hear the parties on the question of costs.