Commonwealth Bank of Australia v Horkings
[2000] VSCA 244
•22 December 2000
SUPREME COURT OF VICTORIA
COURT OF APPEAL
No. 5509 of 1991
No. 6111 of 1992
| COMMONWEALTH BANK OF AUSTRALIA |
| Appellant |
| v. |
| NADIA HORKINGS |
| Respondent |
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JUDGES: | WINNEKE, P., PHILLIPS and BUCHANAN, JJ.A. | |
WHERE HELD: | MELBOURNE | |
DATES OF HEARING: | 11, 12 and 13 September 2000 | |
DATE OF JUDGMENT: | 22 December 2000 | |
MEDIUM NEUTRAL CITATION: | [2000] VSCA 244 | |
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Mortgages – All moneys clause – Later loans not intended to be secured by mortgage – Unconscionable conduct.
Garcia v. National Australia Bank (1998) 194 C.L.R. 395, applied.
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| APPEARANCES: | Counsel | Solicitors |
| For the Appellant | Mr. A.G. Uren, Q.C. and Mr. J.D. Wilson | Herbert Geer & Rundle |
For the Respondent | Mr. M.K. Moshinsky | Frenkel Partners |
WINNEKE, P.:
In 1987 Hassan Khouri and Nadia Khouri, who were the initial respondents to this appeal, were husband and wife. They had 4 children, all of whom between 1987 and 1992 were young and primarily cared for by Mrs. Khouri. Indeed the youngest was born in March 1990. During those years, Mr. Khouri, who had previously been employed by the Tramways Board, pursued ambitions to develop private business interests. He was assisted towards the achievement of those ambitions by State Bank Victoria (“SBV”) and, after that Bank’s acquisition by the Commonwealth Bank in early 1990, by the Commonwealth Bank (hereinafter called “the Bank”, “the bank” or “the CBA”). By 1990, the marriage of the Khouris had fallen upon barren ground. They separated and were divorced in 1992. Mrs. Khouri remained in the matrimonial home with the children. Part of the relief sought by the CBA in the proceedings, from which this appeal emanates, is possession of that home. Mrs. Khouri has, since her divorce in 1992, remarried and is now Mrs. Nadia Horkings. At the outset of the appeal, leave was granted to amend the title of the proceedings to substitute the name “Nadia Horkings” for the name “Nadia Khouri”. At trial, she alone contested the proceedings brought by the CBA. Mr. Khouri neither appeared on those proceedings, nor contested them. Although the CBA initially appealed against some of the findings and limited orders which the trial judge had made in respect of Mr. Khouri, it no longer pursues its appeal against him; we were told he is now bankrupt. Accordingly, his former wife remains as the sole respondent to the appeal. I will hereafter refer to her as “the respondent”, and to her former husband as “Mr. Khouri”.
On 14 December 1987 Mr. Khouri and the respondent executed a contract for the purchase of the land and house known as 14 Convery Close, Gladstone Park. These were the premises which became their matrimonial home and I will refer to them as such. The land was described in Certificate of Title V.9015 F.107. To assist in the purchase, Mr. Khouri and the respondent applied to SBV for a housing loan of $99,000 and, to secure the advance, gave to the SBV a first mortgage over the matrimonial home (the “first mortgage”). The first mortgage was an “all moneys mortgage”, the purport of which was to render the interests of the respondent and Mr. Khouri in the matrimonial home security not only for repayment of the $99,000, but for advances thereafter made by SBV to Mr. Khouri and the respondent. The respondent gave evidence at the trial that she did not know what an “all moneys mortgage” was, nor did any officer of the SBV explain to her its purport or impact. His Honour accepted this evidence.
On 7 June 1988 Mr. Khouri and the respondent, upon the sale of their previous home in Coburg, applied the sum of $40,000 in reduction of the sum borrowed for the purchase of their matrimonial home; and on 30 June 1989 repaid the remainder of that loan to SBV. They did not, however, seek a discharge of the first mortgage. It remained on foot. The trial judge accepted the respondent’s evidence that she believed that the first mortgage secured only the loan of $99,000 and that, when it was repaid, the mortgage would be discharged. His Honour found that, in the absence of explanation, she had no reason to believe that it could be relied upon to secure her husband’s future business borrowings.
Towards the end of 1988, Mr. Khouri ceased his employment with the Tramways Board and thereafter sought to pursue his private business interests. In the course of doing so, the CBA alleged that – in conjunction with the respondent – he had sought and obtained, in four separate transactions, three advances from the SBV and one from the CBA.
At the trial, those transactions were described as follows:
(a) The “M.I.A.S. loan”
The evidence was that, towards the end of 1988 or early 1989, Mr. Khouri established a business known as “Metropolitan Interpreting and Advisory Service” (MIAS). Although the business was established as a partnership between Mr. Khouri and the respondent, the learned judge accepted the respondent’s evidence that she had little to do with the business, her involvement being limited to secretarial and receptionist duties for about one month. His Honour further found that she and her husband saw little of each other after March 1989 and that her knowledge of his business dealings was limited. He said:“I find, further, that she was never a participant in any decisions involving those dealings (or, at the very least, none which are presently relevant) and any benefits which she obtained from them were entirely at his discretion.”
The MIAS loan comprised an advance “on overdraft for working capital” of $10,000 on 29 September 1988. On its face the advance was expressed to be to “Mr. and Mrs. Khouri, trading as MIAS”. The application for the loan (Ex.T) purported to be signed by Mr. Khouri and the respondent, as did the “business account authority” (Ex.U) and the “Offer to Take Up Financial Accommodation” (Ex.V). Each of these documents bore the date “29 September 1988”. The loan application (Ex.T) and the “Offer to Take Up Financial Accommodation” (Ex.V) each noted on its face that the loan was “unsecured”. The respondent gave evidence, which his Honour accepted, that she did not sign any of the documents evidencing this loan. He also found that, in any event, neither the bank nor the borrower intended the loan to be secured by the first mortgage, as the CBA was asserting in the proceedings.
In concluding that the documents referred to in the preceding paragraph, as well as other documents to which I shall refer, had not been signed by the respondent, his Honour relied not only upon the evidence of the respondent (whom he described as a “generally credible witness”) but also upon his own comparison of signatures and the fact that the CBA called none of the officers of the SBV who, at least on the face of the respective documents, were said to have verified the respondent’s execution of them.
Following the transaction described as the MIAS loan, there were two further transactions in May and September 1989 which, although not directly connected to the claims of the CBA in the proceedings, lent support – as the judge found – to the general claim of the respondent that her name was being used without her knowledge by Mr. Khouri to support applications for advances from SBV. On 17 May 1989, it was said that a property had been purchased for Mr. Khouri’s parents at 15 Sheldon Court, Gladstone Park for $120,000 upon mortgage security alleged to be given by Mr. Khouri and the respondent. The respondent denied that she had signed either the mortgage or the transfer; and said that she believed that she was not in Australia upon the date when the documents were signed. These documents were exhibits 29 and 30 produced at trial. Furthermore, there was evidence given at the trial that, in September 1989, Mr. Khouri had requested from SBV an increase in the MIAS overdraft from $10,000 to $40,000. The respondent gave evidence that she knew nothing about the application and was not a signatory to it.
(b) The “Home loan” of $100,000
The CBA asserted, at trial, that on 2 June 1989 Mr. Khouri and the respondent had made an application to SBV for a loan of $100,000 to be used, as to $50,000 for the purchase of an unidentified property in Gladstone Park, and as to the remaining $50,000, for the “purchase of 50% of Atlantic Quest [trading as] Vinicol Liquor Distributors”. The loan application form (Ex.X) stated that security for the loan was to be the first mortgage over the matrimonial home. The respondent denied – and the Judge accepted her denial – that she had signed the application (Ex.X); or the “Declaration as to Occupancy and Entitlement” dated 2 June 1989 (Ex.Y) or a letter of offer in respect of this loan dated 23 May 1989 (Ex.Z). She denied ever receiving a loan of $100,000.
His Honour found that, in 1989, Mr. Khouri had become involved in a liquor distribution outlet in Brunswick called “Vinicol Liquor Distributors”. The “Vinicol Unit Trust” had been established in July 1988 and Atlantic Quest Pty. Ltd. was the trustee. Mr. Khouri was a director of Atlantic Quest between 25 May 1989 and 20 October 1992. The respondent was neither an office bearer of the company, nor did she have any interest in its business pursuits save for assisting the wife of a Mr. Schmidt for a month inputting stock data into a computer system. Mr. Schmidt was, at the relevant time, the Manager of the Coburg Branch of the SBV, which was the branch of the bank providing these loans. The evidence was that Schmidt had an undisclosed interest in the business of Vinicol (held for him by Mr. Khouri), visited its premises and made management decisions with respect to it. In the course of presenting its case, the CBA did not call Mr. or Mrs. Schmidt, nor did it produce any of the underlying bank documentation in support of its claim that the respondent was a party to this transaction. Rather, it sought to rely upon a “statement of account” (Ex.3) of the current indebtedness of the respondent and Mr. Khouri to the bank. Exhibits X, Y and Z were produced by the respondent to support her denial that she had signed any relevant documents and in proof of her case that she was not a party to the loan.
The evidence did not disclose with any clarity, as his Honour found, who was the beneficiary of the so-called “home loan” evidenced by the documents of 2 June 1989. Mr. Khouri and the respondent maintained a joint account at the Coburg branch of SBV (No. 145-2164-0684). Statements produced for that account (Ex.R) disclose no deposit corresponding to the amount of the “home loan” on or after 2 June 1989. However, there was a deposit into an account maintained by Atlantic Quest at the same branch of SBV (No.145-2200-4628) for a “term advance” of $100,000 on 5 June 1989. In the light of this evidence, his Honour found that:
“[I]n these circumstances, … the ‘home loan’ proceeds were not paid directly to either of [Mr. Khouri or the respondent] and were not paid, directly or indirectly, to [the respondent]. Moreover, the [CBA] has failed to satisfy me … that [the respondent] was a party to this transaction. I find that [she] did not sign any of the documents relied upon by the Bank in this part of its case. Indeed, in my opinion [counsel’s] submissions about the true nature of the ‘home loan’ are substantiated by the evidence.”
These latter observations were a reference to the contention made by counsel for the respondent that the “home loan” transaction was a “sham”. His Honour paraphrased counsel’s submission as follows:
“It has been put by [counsel] that Mr. Schmidt and Mr. Khouri participated in a fraud, ostensibly arranging that loan to the defendants as borrowers when in fact the money was advanced to Atlantic Quest Pty. Ltd., a company in which he, Mr. Schmidt, had an undeclared interest.”
(c) “The Atlantic Quest Loan”
On 6 September 1989, Mr. Khouri and a Mr. Mottese applied to SBV, on behalf of Atlantic Quest for a loan of $100,000 for “working capital” and for a “term advance” in the sum of $150,000 (Ex.FF). The “specific terms and conditions” annexed to the Bank’s letter of offer noted that the security given for the loans was a debenture charge over the assets of Atlantic Quest and guarantees to be given by Mr. Khouri and Mr. Mottese. On 9 August 1989, Mr. Khouri signed a guarantee to SBV in the presence of one Anthony Cole, guaranteeing the obligations of Atlantic Quest for an unlimited amount (Ex.16). Item 5 of the schedule to the guarantee reads:
“(where appropriate) Particulars of mortgage or charge by Guarantor to the Bank.”
That item was not completed by the guarantors. However, on 7 September 1989 (that is, the day after the application for the “Atlantic Quest loan”), SBV took a fixed and floating charge over the property and assets of Atlantic Quest (Ex.15). That charge was executed by Mr. Khouri and Mr. Mottese.
His Honour found that the respondent was not involved in any way in this transaction. Indeed, as he noted, the CBA did not allege any involvement on her part. By an internal memorandum, dated 17 July 1990 (Ex.DD), the Bank listed, as its security for the Atlantic Quest loan, the mortgage debenture of 7 September 1989 and the personal guarantees given by Mr. Khouri and Mr. Mottese. It was not suggested that the first mortgage over the matrimonial home formed any part of the security for the Atlantic Quest loan. Furthermore, on 21 July 1992 Mr. Michael Smale, the Regional Branches Officer of the CBA, swore an affidavit to the effect that the CBA was not seeking to recover any part of the outstanding Atlantic Quest loan under the first mortgage security.
On the basis of the facts which he found, and the statements made by the Bank’s officers, the learned judge concluded that the Atlantic Quest loan was not and was not intended to be secured by the first mortgage over the matrimonial home; nor was Mr. Khouri’s liability under the personal guarantee..
By October 1989, according to the Bank, Mr. Khouri and the respondent were indebted to it pursuant to the various loans in the sum of over $270,000. In November 1989, the SBV addressed a number of demands to them at “14 Conwey Close”. Thereafter, it appears that a number of discussions were held between Mr. Khouri and Bank officials. On 25 May 1990, the SBV again sent letters of demand to Mr. Khouri and the respondent, again misdescribing their address. These demands sought arrears under the MIAS loan (over $30,000) and the “home loan” (over $102,000). On 7 June 1990, the matter was referred to the Bank’s recovery section.
(d) The “MBG Loan”
In the meantime, on 29 May 1990, the CBA – which by then had “taken over” the business of SBV – had agreed to advance to Metropolitan Business Group Pty. Ltd. (a company which had been incorporated to take over the business of MIAS) a loan of $10,000 together with a personal loan of a further $10,000 to Mr. Khouri and the respondent. Mr. John Cantrill, the manager of the Pascoe Vale South branch of the CBA, prepared the documents. The documents prepared by Cantrill were “an application for accommodation” (Ex.B), a “second mortgage” over the matrimonial home (Ex.9), a mortgage over the property at Sheldon Court (Ex.10), a guarantee (Ex.11), and a “S.33 acknowledgement” for each of Mr. Kouri and the respondent (Exs.A and E). Apart from the mortgage over Sheldon Court, all of these documents were in hand-writing because, as Mr. Cantrill explained, there was “only one typist at the branch”.
The evidence of Mr. Cantrill was that, in the afternoon of 28 May 1990, Mr. Khouri attended the Bank’s premises in Pascoe Vale and signed the documents. The evidence also was that the respondent did not and could not accompany him because one of her children was sick. Because Mr. Cantrill was due to go on leave on 29 May 1990, he asked Mr. Khouri to make arrangements for him to attend on Mrs. Khouri on the evening of 28 May. He said he took the documents to the house that evening and was shown into the dining room where he laid out each document on the table. He then asked the respondent to come in from the kitchen and sign the documents. Cantrill gave evidence that he “would have explained” the significance and effect of the documents to the respondent and “believed that he would have mentioned” the significance of the second mortgage. He agreed that the respondent asked no questions before signing the documents. The respondent’s evidence was that no explanation was given to her about the documents or their effect and that she was embarrassed to ask pointed questions in front of her husband who, at that stage, was threatening to leave her. She said that she was simply asked to sign documents which, far from being explained, were stated to be “standard procedure” and that she was told that her husband “will explain them to you”. She also said that she believed that the documents were supporting a $10,000 overdraft to enable the business to pay tax liabilities and that she had no idea that she was signing a second mortgage over her home.
His Honour accepted the respondent’s evidence. The time spent in the house by Cantrill was brief; Cantrill agreed that there was no way the respondent could have obtained independent advice, even though he believed he had brought that possibility to her attention.
His Honour’s Conclusions
During the course of the proceedings before the trial judge, the CBA contended that Mr. Khouri and the respondent were jointly and severally indebted to it, pursuant to the four loan agreements referred to, in a sum totalling nearly $700,000. It was further contended that such indebtedness was secured, in part, by the first mortgage granted to SBV in respect of the “MIAS loan”, the “home loan” and the “Atlantic Quest loan” and by the guarantee and second mortgage to the CBA in respect of the “MBG loan”. The claims of the CBA were made in two separate proceedings, namely Action 5509 of 1991 and Action 6111 of 1992. The former proceedings alleged indebtedness by Mr. Khouri and the respondent to SBV pursuant to the MIAS loan, the “home loan” and the “Atlantic Quest loan” and claimed possession of the matrimonial home pursuant to the “all moneys clause” in the first mortgage. The latter proceedings alleged indebtedness of Mr. Khouri and the respondent to the CBA pursuant to the “MBG loan” and, inter alia, sought possession of the matrimonial home under the second mortgage and personal guarantees. By order of the Master made on 28 November 1996, the two claims were ordered to be heard together and that is how the proceedings were conducted at trial.
Although the CBA sought to establish the liability of the respondent for the amounts claimed by producing Exhibit 3; that is the certificate of “the statement of account of the Mortgagor with the Bank” (purporting to rely upon clause 7 of the Memorandum of Common Provisions), his Honour found that, because the certificate was (by that clause) no more than prima facie evidence, the Bank could not rely upon such certificate to prove its case that the respondent was liable to the Bank under the loans, if the evidence independent of that certificate demonstrated that she was not a party to one or more of them, or that the loans were not secured by the mortgage. Thus, for example, his Honour concluded that the CBA could not rely upon the certificate to prove – as the CBA sought to do – that the respondent owed $344,267 under the “Atlantic Quest” loan when there was no allegation in the Statement of Claim that she had any involvement in such transaction.
His Honour further concluded that the respondent was not liable to the SBV pursuant to the “all moneys clause” in the first mortgage in respect of unpaid amounts under the “MIAS loan”, the “home loan” or the “Atlantic Quest loan”. Because, as he had found, she had neither authorized nor consented to them, the advances made to only one of two named mortgagors could not, upon the proper construction of the “all moneys clause”, bind the interest of the respondent in the matrimonial home. It was his Honour’s view that the words of clause 1(1)(a) of the common provisions, describing “moneys hereby secured”, required that future advances had to be made compositely to the persons described in the mortgage as “mortgagor” (namely Mr. and Mrs. Khouri) and that, if the advance was made to one only of those persons without the knowledge or consent of the other, the Bank was precluded from asserting that the advance was secured by the interest of the unsuspecting and non-consenting mortgagor.
Additionally, his Honour concluded that the CBA could not enforce against the respondent the security which it claimed under the second mortgage and guarantee which it had taken in respect of the “MBG loan”. In the circumstances, as he found them to be, his Honour concluded that the CBA would be “obtaining an unconscientious advantage” over the respondent if it were permitted to enforce that security. He found, in respect of this transaction, that the principles explained by the High Court in Yerkey v. Jones (1939) 63 C.L.R. 649 and Garcia v. National Australia Bank (1998) 194 C.L.R. 395 were applicable. Although counsel for the CBA had contended that no allegation had been made by the respondent of “unconscientious dealing” by the Bank, his Honour was quite satisfied that the respondent had raised such claims, in her pleadings, in respect of the circumstances in which the second mortgage and the guarantee to enforce the MBG loan had been procured. His Honour found that the respondent was not aware, on the evening of 28 May 1990, that she was signing a guarantee or a second mortgage in support of it; and that she believed only that she was signing documents in support of a $10,000 overdraft. His Honour also accepted the respondent’s evidence that the bank, through Cantrill, did not explain the purport or effect of the documents to the respondent, nor did it seek to protect her interests in any way notwithstanding that Cantrill knew that the marriage relationship existed and that Mr. Khouri had not informed the respondent of what the transaction was about. His Honour said:
“In my opinion the procedure adopted by Mr. Cantrill in presenting the documents to [the respondent] left much to be desired; it demonstrated a faith in a standardized approach that cannot be justified when the Bank is dealing with a customer with limited experience in business.”
Although it was contended by the CBA that the respondent had an interest in the fortunes of MBG, his Honour found that, to all intents and purposes, she was a “volunteer” to the transaction in the sense that, although she was a nominal officer holder in the business, she had no involvement in it and that any benefits which came to her as a consequence of its pursuit, came entirely at the discretion of Mr. Khouri.
His Honour, accordingly, concluded that the CBA should not be entitled to enforce the MBG guarantee, or the second mortgage, against the respondent. Indeed his Honour appeared to be of the view that the application of equitable principles should have prevented the CBA from enforcing the other three transactions as well. He said that, although the transaction which had initially been supported by the first mortgage (namely the loan of $99,000 to buy the matrimonial home) was one to which, clearly, the respondent was not a volunteer, the position had changed as Mr. Khouri had himself negotiated the subsequent transactions and the Bank had done nothing to advise or explain the transactions, or their consequences, to the respondent. In the long run, however, his Honour felt himself precluded from applying the equitable principles of “unconscientious behaviour” to the circumstances of the “MIAS loan”, the “home loan” and the “Atlantic Quest loan” because no allegation to that effect had been made by the respondent on the pleadings, and no argument addressed in respect of those transactions, based on such principles. Thus, his Honour said:
“The issue having been neither pleaded, nor made the subject of submissions, it would be inappropriate for me to come to any concluded view about this aspect …”. (in respect of the advances made by the SBV).
His Honour, nevertheless, took the view that the CBA claims against the respondent in respect of the “MIAS loan”, the “home loan” and the “Atlantic Quest loan” must fail on the facts as he had found them to be. The Bank, he said, had not established that the respondent was a party to the MIAS loan, nor did the parties to it intend that its repayment should be secured by the first mortgage. Furthermore, he found, as I have previously noted, that – as a matter of construction of the Memorandum of Common Provisions – the advances did not fall within the meaning of “moneys hereby secured”. Likewise his Honour found that the CBA must fail against the respondent in respect of the “home loan” to which the respondent was not a party, nor intended to have any benefit in, because the transaction was a “fraud upon her”. Similarly, in respect of the “Atlantic Quest loan”, his Honour concluded that the CBA must fail against the respondent – firstly because she had no involvement in it; nor did the parties to it ever intend that the first mortgage over the matrimonial home should be security for either the loan or the guarantee given by Mr. Khouri.
His Honour then turned to the Bank’s claim against Mr. Khouri. It became necessary for him to do so for the purposes of determining the respondent’s liability to the bank pursuant to the “all moneys clause” in the first mortgage; for it was in reliance upon that clause that the bank contended that, if Mr. Khouri was liable to it, then the security given to the bank by both the respondent and Mr. Khouri over the matrimonial home could be enforced by the bank even against the respondent.
As against Mr. Khouri, the CBA claimed judgment for the full amount said to be owing under the MIAS loan, the home loan, the Atlantic Quest loan and the MBG loan. In doing so it relied upon the evidence of its credit manager, Mr. Doherty, who produced the so-called “statement of account” (Ex.3) purporting to set out the debt owed to the Bank under the four loans. This evidence was said to demonstrate Mr. Khouri’s indebtedness to the bank; namely $79,170 in respect of the MIAS loan, $235,980 in respect of the home loan, $344,267 in respect of the Atlantic Quest loan and $32,874 in respect of the MBG loan. It was the bank’s claim that this indebtedness was secured, as to the first three loans, by the first mortgage given by Mr. Khouri and the respondent to the SBV over the matrimonial home; and as to the MBG loan by the second mortgage and personal guarantees given by them to the CBA over that same property.
In respect of the claims against Mr. Khouri, his Honour made the following findings:
(a)Mr. Khouri was liable to the bank for the $79,170 owing under the MIAS loan, but that the liability was not secured by the first mortgage. The liability was not so secured because the parties to that loan had not intended that the MIAS loan be so secured.
(b)There was no or no sufficient evidence that Mr. Khouri was a borrower of the “home loan”. As previously stated, this loan was found by his Honour to have been paid to Atlantic Quest and, so his Honour concluded, there was no evidence upon which he was prepared to act, that it was paid at the request or direction of Mr. Khouri. In his Honour’s view such evidence could not be found in the copy document (Ex.X), produced by the respondent. His Honour was not prepared to find upon the evidence given in respect of this transaction that Mr. Khouri had signed the form of application for the “home loan”. His Honour concluded that the Bank had failed to make “the necessary connection” between Mr. Khouri and the accommodation made by the SBV to Atlantic Quest to prove that Mr. Khouri was a party to this loan.
(c)His Honour was satisfied that, in respect of the “Atlantic Quest” loan, Mr. Khouri had given his personal guarantee to the SBV (Ex.16) and that the Bank was entitled to judgment against him for the $344,267 which was owing under that loan. However, his Honour found that the parties to that loan had not intended that it be secured by the first mortgage.
(d)His Honour concluded that, on the evidence given by Mr. Cantrill, Mr. Khouri was liable to the Bank for the $32,874 owing under the MBG loan. He also found that this debt was secured, by virtue of the second mortgage in favour of the CBA, by Mr. Khouri’s interest in the matrimonial home.
In accordance with his findings, his Honour, on 4 November 1998, gave judgment, in proceeding 5509 of 1991, in favour of the bank against Mr. Khouri in the sum of $423,437 (being the amount owing under the MIAS loan and the Atlantic Quest loan). However, in that proceeding (that is, the claim in respect of the MIAS loan, the home loan and the Atlantic Quest loan), his Honour dismissed the Bank’s claim for possession of the matrimonial home. His Honour also gave judgment for the respondent, upon her counterclaim, by declaring that she had paid to the bank the total of principal and interest owing under the first mortgage and by directing that the bank deliver forthwith to her a discharge of that mortgage in registrable form. In respect of proceeding 6111 of 1992, the learned judge gave judgment in favour of the bank against Mr. Khouri for $32,874 (the amount owing under the MBG loan) and declared that the bank might exercise such rights as it may have as mortgagee over Mr. Khouri’s interest in the matrimonial home but to such extent only as may be necessary to recover the said sum of $32,874, together with the bank’s costs of the proceedings against Mr. Khouri and any interest to which it may be entitled, but no more. In accordance with the findings which the judge had made in favour of the respondent, he gave judgment for her against the bank in both proceedings with costs. On 5 March 1999, this Court stayed, until the hearing and determination of the appeal, his Honour’s order, made upon the counterclaim in proceeding 5509 of 1991, that the CBA deliver to the respondent a discharge of the first mortgage in registrable form.
Appeal
As I have previously noted, the CBA initially appealed against his Honour’s judgment and orders made in each proceeding and against the findings made in respect of the respondent and Mr. Khouri. However, as I have also noted, the CBA filed amended Notices of Appeal on 29 March 1999 in which it gave notice that it intended to appeal against only part of the orders and judgment given by the judge in each proceeding and stated that:
“The part of the orders and judgment appealed against are all of those orders except those in which judgment was given for the appellant against Hassan James Khouri, the first defendant at trial.”
It was in accordance with these amendments that counsel for the CBA informed this Court, at the outset of the appeal, that the bank was no longer pursuing its appeal against Mr. Khouri and that, accordingly, he was no longer named as a respondent to the appeal.
Not surprisingly, counsel for the respondent had taken the view, in his written outline of submissions, that grounds 7, 8 and 9 of the grounds of amended appeal in proceeding 5509 of 1991, which challenged findings which his Honour had made against Mr. Khouri, would no longer be pursued. Those grounds alleged that:
“7.The learned trial judge ought to have found that the evidence given by the appellant was sufficient, by applying Division 3A of the Evidence Act 1958, to prove that [Mr. Khouri] was liable to the appellant as a borrower of the moneys advanced for the MIAS loan and the home loan.
8.The learned … judge erred in holding that, at [81] of [his reasons] it was not necessarily enough for the appellant to establish that, in the books of account of the appellant, [Mr. Khouri] was shown as indebted to it in relation to the Atlantic Quest transaction and that the terms of the first mortgage were broad enough to catch that liability.
9.The learned judge erred in holding that the indebtedness of [Mr. Khouri] in respect of the MIAS loan and the Atlantic Quest loan were not secured by the first mortgage, on the basis set out in [82] and [85] of [his reasons] … .”
I do not stay to consider the intelligibility of these grounds or the manner of their drafting. It would appear that ground 7 is contending that his Honour should have found that Mr. Khouri was liable to the bank as a borrower of the MIAS loan and the “home loan”. As I have already noted, his Honour did find that Mr. Khouri was liable to the bank for the moneys owing under the MIAS loan, and ordered accordingly. However, his Honour found that Mr. Khouri was not indebted to the bank for the moneys outstanding under the “home loan” and his orders also reflect that finding. Counsel for the appellant bank submitted to this Court that, insofar as ground 7 invites the Court to make a finding in respect of the “home loan” contrary to that of the judge, we should be prepared to do so as a sub silentio step along the way, so to speak, to determining the derivative liability of the respondent pursuant to the “all moneys clause” of the first mortgage. Counsel for the respondent submitted that such a course was not permissible and that we should not entertain ground 7, insofar as it sought to challenge his Honour’s findings in favour of Mr. Khouri in respect of the “home loan”. The Court determined that it would permit counsel for the appellant to develop his argument in respect of ground 7, but would defer its decision about the appellant’s entitlement to rely upon this ground until giving its reasons.
For my own part, and having listened to argument from appellant’s counsel under ground 7, I do not think it is now open to the appellant to argue, in the context of the appeal as it is currently framed, that the judge was in error in finding that Mr. Khouri was not liable to the bank as a borrower of the monies advanced under the “home loan”. Such an argument is, in its essence, asking the Court to go behind his Honour’s unchallenged finding and order in favour of Mr. Khouri so that we might make an order in favour of the bank of liability in the respondent based upon a conclusion which is contrary to the unchallenged finding which his Honour has made. Quite apart from the denial of justice which would accrue to Mr. Khouri in doing so, it seems to me that the Court is being asked to engage in a process which, if successful, would have the result of this Court making orders which are inconsistent with the unchallenged judgment and orders made by the trial judge. Indeed by ground 11 of the appeal in proceeding 5509 of 1991, the appellant expressly asks this Court to find, inter alia, that the trial judge should have held that Mr. Khouri was liable to the bank in the sum of $659,418 being the whole of the monies owing under each of the “home loan”, the MIAS loan and Atlantic Quest loan; and asks this Court to set aside the orders of the trial judge and, in lieu thereof, to order that there be judgment against Mr. Khouri for the said sum.
Although grounds 8 and 9 of the amended Notice of Appeal are directed towards his Honour’s findings in respect of Mr. Khouri, they do not, in my view, share the same vice as ground 7. This is because they are directed towards findings made in respect of the MIAS loan and the Atlantic Quest loan as to which his Honour had held that Mr. Khouri was indebted to the bank. These grounds, in essence, allege that his Honour was in error in not finding that the respondent’s interest in the matrimonial home secured Mr. Khouri’s liability under these loans.
Much of the appellant’s argument on this appeal was directed towards his Honour’s construction of clause 1 of the Memorandum of Common Provisions attached to the first mortgage (the “all moneys clause”). However, it is desirable to postpone consideration of this argument because it will not avail the appellant unless it can successfully challenge certain findings of fact made by the judge in respect of the loans under consideration.
The “MIAS loan” and the “Atlantic Quest loan”
The judge found that the respondent was not a party to either of these loans and that, accordingly, she could only be liable to the bank for any debt owed to the bank in respect of them by Mr. Khouri as a consequence of the “all moneys clause” in the first mortgage. His Honour concluded that there was no such liability under that clause because there was no intention by the parties to those loans to secure them by the first mortgage.
The appellant does not contest the judge’s finding that the respondent was not a party to the Atlantic Quest loan. Indeed it concedes that she had no involvement in it. However, pursuant to ground 4 of the Notice of Appeal in proceeding 5509 of 1991, it challenges the trial judge’s finding that the respondent was not a party to the MIAS loan by submitting that he should have found that, because the respondent and Mr. Khouri were partners in the MIAS business, the loan was arranged by Mr. Khouri as the respondent’s agent pursuant to s.9 of the Partnership Act 1958. This was not an issue raised at the trial and, in my view, counsel for the respondent was correct in submitting that it is not a matter which can be properly raised in the appeal because, if it had been taken at the trial, the evidence may well have been different in the sense that the respondent may have been able to lead evidence to establish the exception referred to in s.9 of the Act[1]. In any event, as I see it, the ground of appeal is misconceived because the claim of the appellant at trial was that the loan was applied for by both Mr. Khouri and the respondent signing for themselves, and was not an application by one of them on behalf of the partnership. The finding by the trial judge that the signature of the respondent was forged by someone else was not challenged and, thus, it follows that the application was not what it purported to be.
[1]cf. Suttor v. Gundowda Pty. Ltd. (1950) 81 C.L.R. 418 at 438; Coulton v. Holcombe (1986) 162 C.L.R. 1 at 7-8.
In any event, it would be necessary for the appellant to successfully challenge the judge’s finding that the parties to the “MIAS loan” and the “Atlantic Quest loan” did not intend those loans to be secured by the first mortgage before it could impute liability to the respondent under “the all moneys clause” of the first mortgage. Notwithstanding that the appellant, in support of grounds 1, 2 and 9 of the appeal in proceeding 5509 of 1991, has challenged that finding there was, in my view, ample evidence upon which his Honour was entitled to make it. In respect of the “MIAS loan”, the application form (Ex.T) stipulated that it was “unsecured”. The specific terms and conditions of the loan (Ex.V) stated that there was “no security required”. An internal bank memorandum dated 17 July 1990 (Ex.EE) described the facility as “unsecured”. The “MIAS loan” was a $10,000 loan for “overdraft accommodation” to the business. If it was intended to be specifically secured by the first mortgage then it would have been, as his Honour found, so stipulated as it had been in other transactions such as the “home loan”. On this appeal, counsel for the appellant contended that the evidence, to which I have referred, was insufficient to entitle his Honour to draw the inference that the loan was not intended by the parties to be secured by the existing first mortgage, and that the only proper inference was that the words “no security required” meant “no further security required”. In the absence of evidence from Mr. Schmidt, the Coburg branch manager of the SBV who approved the loan, his Honour was perfectly correct to decide this factual issue as he did[2]. In that event, counsel for the bank conceded that the “MIAS loan” would not be secured by the first mortgage over the matrimonial home.
[2]cf. Jones v. Dunkel (1959) 101 C.L.R. 298.
In respect of the “Atlantic Quest loan”, the evidence was even stronger, if it could be so, that the parties to that transaction did not intend it to be secured by the first mortgage. His Honour’s finding that it was not so supported was well open to him on that evidence. It was not contended by the bank at trial that the respondent was a party to this loan or was in any way involved in it. Although, on this appeal, the bank was contending that his Honour was wrong in finding that the respondent’s interest in the matrimonial home did not, through the “all moneys clause”, secure Mr. Khouri’s indebtedness for this loan, that does not appear to have been the approach which the bank took at trial. At the outset of the trial proceedings, counsel for the bank informed the judge (TX.11):
“As your Honour will have observed, Atlantic Quest is not a party to this proceeding, so the bank pursues Mr. Khouri in respect of amounts outstanding under the Atlantic Quest loan, but not [the respondent].”
Yet, by grounds 1, 2, 3 and 11 of the grounds of appeal in proceeding 5509 of 1991, the appellant now contends that his Honour was in error in concluding that the respondent was not liable to the bank in respect of Mr. Khouri’s indebtedness for this loan pursuant to the “all moneys clause” in the first mortgage. However, in my view, his Honour’s finding was clearly supported by the evidence. The underlying documentation in respect of this loan (Ex.FF) specifically stated that the security taken for it by the bank was a “Debenture Charge over the assets and undertakings” of Atlantic Quest and personal guarantees given by Mr. Khouri and Guiseppe Mattese. This document indicated that the guarantees were unsupported by security. This was confirmed by two internal memoranda written by the acting credit manager of the bank (Mr. Johnson) in July 1990 (Ex.DD and Ex.EE), in which it was stated that the personal guarantee given by Mr. Khouri (Ex.16) was unsupported by any security. Furthermore, there was before the Court an affidavit (Ex.GG) by the Brunswick Region Branch officer of the Bank (Mr. Michael Smale) in which he deposed (inter alia):
“Although moneys were advanced by the Bank to Atlantic Quest Pty. Ltd., the Bank is not seeking to recover those moneys under its mortgage in these proceedings as they were unsecured.”
It was upon this material that his Honour relied in reaching his conclusion that the parties to the Atlantic Quest loan did not intend the first mortgage to secure either the advance or Mr. Khouri’s personal guarantee of it. Indeed, in the course of this appeal, counsel for the appellant conceded that, because, at trial, the Khouri guarantee had been tendered only against Mr. Khouri and not the respondent, the bank was not able to rely upon it as proof of the respondent’s indebtedness to the bank in respect of the Atlantic Quest loan. Proof depended solely upon exhibit 3 which his Honour found to be inadequate proof for the purpose.
For the reasons given in the preceding paragraph, there is no basis for disturbing his Honour’s finding that the first mortgage did not, and was not intended to, secure any indebtedness which arose in Mr. Khouri to the bank in respect of the Atlantic Quest loan. In the event that the Court came to this conclusion, counsel for the bank again conceded that it could not successfully contend that any indebtedness of Mr. Khouri to the bank in respect of this loan was secured by the first mortgage.
The “Home loan”
I have already expressed my opinion in [30] and [31] that, in the absence of any challenge by the appellant to the orders which his Honour made in favour or against Mr. Khouri, and the findings upon which they were based, it is not now open to it to contend a derivative liability in the respondent predicated upon a liability in Mr. Khouri for amounts owing under the “home loan” which his Honour did not find. In the event that these views are in error, it is desirable that I deal with the arguments put to this Court by the parties in respect of this transaction and the way in which his Honour had dealt with the transaction in his findings.
In respect of the “home loan” his Honour made certain findings which are not in issue on this appeal:
(a)that the respondent was not a party to this transaction;
(b)that the signature, purporting to be that of the respondent on the application form, was not her signature;
(c)that the signature on the document entitled “Declaration as to Occupancy and Entitlement” to the matrimonial home (Ex.Y) purporting to be that of the respondent, was not her signature;
(d)that despite the fact that the application was, in form, an application by Mr. Khouri and the respondent for an advance to them of $100,000 for the purpose of applying $50,000 towards the purchase of an undisclosed property in Gladstone Park and, as to the remainder, for the purpose of purchasing a 50% interest in Atlantic Quest Pty. Ltd., the advance was not in fact made to Mr. and Mrs. Khouri at all, but was applied as a term advance to Atlantic Quest;
(e)that, contrary to the bank’s notification addressed to Mr. Khouri and the respondent on 6 June 1989 (Ex.AA) that the loan had been advanced to them, the proceeds were not in fact paid to them but to Atlantic Quest.
Upon the whole of the evidence before him about this transaction, his Honour formed the view that counsel for the respondent had substantiated his submission that the truth about the so-called “home loan” was that it was a fraud participated in by the bank manager Schmidt and Mr. Khouri by “ostensibly arranging that loan to [Mr. Khouri and the respondent] as borrowers when, in fact, the money was advanced to Atlantic Quest Pty. Ltd., a company in which he (Schmidt) had an undeclared interest”.
There was much evidence before his Honour upon which he was able to come to this conclusion. The loan was, in fact, made otherwise than in accordance with the bank’s documentation. Mr. Schmidt purported to verify what is now accepted to be the forged signature of the respondent on Exhibit “Y”. There was uncontradicted evidence before his Honour that Schmidt was involved in the liquor distribution business conducted by Atlantic Quest; that he used to give cheques to Mr. Khouri to pay instalments under the “home loan”; and that he had asked Khouri to hold the shares in Atlantic Quest on his (Schmidt’s) behalf. There was evidence from the respondent that Schmidt and Mr. Khouri had a “business deal” in which the latter was being paid for introducing customers to the bank.
His Honour, however, did not need to elaborate upon the fraud which he accepted had been practised upon the respondent because he found, upon the evidence, that he could not be satisfied that the bank had made “the connection between Mr. Khouri and the financial accommodation which … was made available by the Bank to Atlantic Quest following the Bank’s entry into the transaction known as the ‘home loan’.” It was for this reason that his Honour was not satisfied that the bank had established its case that Mr. Khouri was indebted to it for moneys owing under that loan.
By ground 5 of its Notice of Appeal the CBA contends that the judge “erred in finding that the transaction described as the ‘home loan’ was a fraud participated in by [Mr.] Khouri and the manager of the appellant in ostensibly arranging a loan to the respondent when in fact the moneys were advanced to Atlantic Quest, a company in which the manager had an undeclared interest”.
This finding, however, was inconsequential in the sense that it was not the reason why the judge found that the bank had failed to satisfy him that Mr. Khouri was indebted to it under the “home loan”. That lack of satisfaction was the result of the whole of the evidence which “failed to make the connection between Mr. Khouri and the financial accommodation which … was made available by the Bank to Atlantic Quest”. Accordingly, his Honour was not prepared to find that Mr. Khouri was a “borrower” of the monies advanced. On this appeal, the appellant challenged this on the basis that his Honour should have been satisfied that Mr. Khouri was a borrower because the underlying copy documents produced at the trial by the respondent were “books of account” within the meaning of ss. 58A, 58B and 58E of the Evidence Act 1958. It was submitted that his Honour was obliged to treat the copy documents produced by the respondent and marked as exhibits X, Y and Z as copy entries in a book of account of the bank and, thus, as prima facie evidence of the matters recorded in them. One of those “matters”, so it was submitted, was that Mr. Khouri was an applicant for the monies advanced under the “home loan” from which it should have been inferred that either he was a borrower of the monies advanced or a person who had requested or authorized the advance to Atlantic Quest[3]. However, even if these documents were admissible pursuant to the provisions of Division 3A of the Evidence Act, they were no more than prima facie evidence of the matters contained in them, which gave them only a provisional evidential quality which was capable of being displaced by other evidence before his Honour. That other evidence clearly demonstrated to his Honour’s satisfaction that this transaction in fact proceeded in a manner which was inconsistent with the transaction disclosed in the documents. In the absence of evidence from Mr. Schmidt and Mr. Khouri, his Honour was, in my view, entitled to conclude – as he did – that the bank had failed to make the relevant “connection between Mr. Khouri and the financial accommodation” advanced which, as he found, was provided to Atlantic Quest for a purpose and in a manner quite different from those disclosed in the documents underlying the “home loan”. In essence, this was a finding that the bank had not established that the “home loan” was an advance which was made either to Mr. Khouri or at his request. In the light of the evidence that Mr. Khouri’s interest in Atlantic Quest was being held for the benefit of Mr. Schmidt, this finding was not surprising.
[3]R. v. Smart [1983] V.R. 265 at 291-3.
It was the respondent who, by her Notice of Contention filed in this appeal, contended that – in any event – the appellant should not be entitled “to enforce the first mortgage” in respect of the “home loan” against her interests in circumstances where the bank was, in effect, relying upon the fraud of its own officer to do so. In particular, counsel relied upon the fact that Mr. Schmidt had acknowledged the “application for accommodation” (Ex. “X”) as a loan which he had “approved and checked” and had also witnessed the document entitled “Declaration as to occupancy and entitlement” (Ex. “Y”) – a document purporting to have been made by Mr. Khouri and the respondent in which they had declared that they were the occupants of the matrimonial home and that no other person had any rights or entitlement in respect of it. This document, which his Honour found to contain the forged signature of the respondent was witnessed by Mr. Schmidt as having been declared “before him”. This finding has not been challenged by the bank on this appeal. Rather, it is submitted by the bank that the fraud of Mr. Schmidt was as much a fraud on the bank as it was upon the respondent, and that therefore the bank should not be precluded from enforcing its rights against the interest of the respondent in the matrimonial home pursuant to the “all moneys clause” in the first mortgage.
Even if I were to have concluded that his Honour was wrong in finding that the “home loan” was not advanced “to or at the request” of Mr. Khouri, I would not be prepared to conclude that, in the circumstances which I have described, the Bank is entitled to enforce its security against the respondent. Such a conclusion would entail a finding that the bank is able to rely upon its own manager’s fraud in enforcing its security against an innocent mortgagor, a conclusion which, in my view, is untenable. Upon his Honour’s findings, it is clear that Mr. Schmidt must have known that the respondent had no interest in Atlantic Quest and that the “home loan” was something other than it purported to be. It was in his interests that the proceeds of the loan be paid to Atlantic Quest; and clearly not in hers. It is not to the point that the Bank, as an entity, might also have been the victim of its own manager’s fraud. It was, on the facts found, affected itself by its manager’s fraud and it would be unconscionable for it to rely upon that fraud to enforce its security against the interests of the “innocent” mortgagee[4].
[4]cf. Australian Guarantee Corporation v. De Jager [1984] V.R. 483 at 496-7; Flourentzou v. Commonwealth Bank of Australia (1997) NSW Conv.R. 56,423 per McClelland C.J. in Eq.
For the foregoing reasons, the CBA has failed to make out any of its grounds of appeal against his Honour’s judgment and orders made in proceedings 5509 of 1991; that is those grounds relating to the “MIAS loan”, the “home loan” and the “Atlantic Quest” loan.
The MBG Loan
As previously noted, his Honour found that the CBA was not entitled to enforce against the respondent’s interest in the matrimonial home the securities which it had taken from her in respect of the MBG loan by applying the principles explained in Garcia’s case (supra). The Bank, on this appeal, has challenged those findings on two bases only:
(a)No case had been pleaded by the respondent that it would be unconscionable for the Bank to rely on the respondent’s guarantee of the MBG loan “on the basis of the elements found necessary in Garcia’s case”.
(b)that, in any event, his Honour should not have found that such elements had been made out; in particular that there was no basis upon which it was open to his Honour to find that the respondent was a “volunteer” in respect of that loan.
In my opinion neither of these grounds has been established. They arise out of the circumstances in which, on 28 May 1990, the CBA took from the respondent (and Mr. Khouri) a second mortgage over the matrimonial home and a personal guarantee to secure the MBG loan. These were the documents specifically relied upon by the Bank in proceedings 6111 of 1992, to which the respondent had made a specific defence. When, in November 1996, the Master had ordered that these proceedings be heard at the same time as proceedings 5590 of 1991, he gave leave to the bank to amend its claim in the former proceedings. Despite that order, the bank amended its pleadings in proceedings 5590 of 1991, and incorporated in those proceedings the claim which had previously been made in proceedings 6111 of 1992. This led to a duplication of the claim in respect of the MBG loan and led to the result that the respondent’s pleadings in respect of that loan were to be found in two proceedings. The procedure adopted by the bank in this regard attracted some criticism by the trial judge in his reasons. However, the defence which the respondent made to the claims in respect of the MBG loan remained consistent. In its essence, that defence was that in the circumstances in which the bank’s manager (Mr. Cantrill) had obtained the signature of the respondent to the security documents, it would be “unconscionable” to permit the bank to enforce those securities against the respondent’s interest in the matrimonial home.
At the time when the evidence was given before his Honour, the decision of the High Court in Garcia v. National Australia Bank[5] had not been published. The issue as to the enforceability of the security documents given in respect of the MBG loan was fought on the basis that the bank (through Cantrill) had engaged in unconscionable conduct in coming to the matrimonial home late one afternoon when the respondent was at home minding a sick young child; in presenting the documents to her, without explanation, for her signature at a time when Cantrill, for his own purposes, wished them to be signed in a hurry; in presenting to her a “S.33 form” advising her to get independent advice which could not have been achieved consistently with Cantrill’s purpose; in telling her that her husband would explain the effect of the documents to her; and in inferring that the documents which she was signing were in respect of overdraft accommodation. Counsel for the respondent had specifically noted that the “status” of the principle in Yerkey v. Jones (supra) was “the subject of a reserved judgment in the High Court”.
[5](1998) 194 C.L.R. 395.
Whilst the matter was reserved for judgment before his Honour, the High Court published its reasons for judgment in the case of Garcia (supra). Counsel for the parties were invited to provide such further submissions to him which they desired to make in respect of the issues in the light of that judgment. Counsel for the bank and counsel for the respondent accepted that invitation and placed written submissions before his Honour. Counsel for the bank did not suggest that he was embarrassed in making such submissions upon the evidence which was before his Honour; nor did he suggest that the pleadings were not sufficiently explicit to enable his Honour to consider the issue of “unconscionability” in the light of the High Court judgment in Garcia. Nor did counsel suggest that he would want to call further evidence in respect of the matters which were the subject of the further written submissions made on behalf of the respondent. Indeed, counsel for the bank was clearly content to debate the question whether the principles explained in Garcia were applicable upon the evidence which was before the Court. He submitted:
“[the respondent] puts her case on the basis that Garcia applies only to the mortgage and guarantee signed on 28 May 1990. The Bank is content to so limit the debate. [The respondent] relies on the second limb of Garcia and not the first (i.e. actual undue influence). The bank agrees.”
Counsel then went on to submit that, on the evidence, the respondent could not demonstrate that she had brought her case within the “four criteria of Garcia …” He contended that the evidence demonstrated:
(a)that the respondent in fact understood the purport and effect of the transaction;
(b)that the transaction was not voluntary;
(c)that the bank could not be taken to understand that the respondent reposed trust and confidence in Mr. Khouri in matters of business; and
(d)that the bank did take steps to explain the transaction to Mrs. Horkings.
Having regard to the position taken by the bank before the trial judge, it is not now open to it, in my view, to contend that it had not been put on notice of the issue of unconscionability or that the respondent was not entitled to rely upon the principles enunciated in Garcia (supra). It is true, as his Honour noted, that counsel for the bank had – in earlier oral submissions – complained that the “issue of unconscionability had not been pleaded”. But, as the judge amply demonstrated, the issue had been pleaded by the respondent and was to be found in her defences pleaded in both the 1991 and 1992 proceedings, a step rendered necessary by the bank’s failure to amend its pleadings in accordance with the Master’s orders. His Honour accordingly found that the bank was on notice of the issue. That finding has not been disputed by the bank on this appeal. Rather the matter has been put on a narrower basis. It was contended by counsel for the bank that the case made on behalf of the respondent at trial was a case put on the basis of Commercial Bank of Australia v. Amadio[6]; but no case was put on the basis of the principles enunciated in Garcia’s case. Accordingly, it was argued that the bank had been deprived of the opportunity of properly contesting the relevant issues; particularly that touching and concerning whether the respondent was, relevantly, a “volunteer” to the transactions. However, for the reasons already stated, that contention is without foundation. Not only are the principles upon which the cases of Amadio and Garcia were decided particular applications of the same accepted equitable doctrine of which the bank had been put on notice, but the bank – as I have previously noted – was content to argue, upon the evidence before the court, that the respondent had not brought herself within the Garcia principles. The evidence given by the respondent about the transactions of 28 May 1990 was wide-ranging and she was extensively cross-examined by counsel for the bank about her knowledge of those transactions, her relationship with her husband, and her association with MBG. It was upon this evidence that trial counsel for the bank was able to and did make full submissions to the judge in support of his contention that the respondent “cannot demonstrate that she brings her case within the four criteria of Garcia”.
[6](1983) 151 C.L.R. 447.
It was next argued on behalf of the bank that his Honour was in error in concluding that the respondent was a “volunteer” to MBG transactions. It is, perhaps, interesting to note that – in advancing this contention – counsel for the bank, in their written outline of submissions, were content to rely upon the written submissions which had been made by the bank’s trial counsel – all of which were founded upon the evidence before the Judge. It was submitted to this Court, as it had been to his Honour, that the evidence did not disclose that the respondent was a “volunteer”, in the relevant sense, to the MBG advance because she had been a partner in the business of MIAS, was a director and shareholder of MBG and that it was the obvious inference that the income of the business was applied to the benefit of the family of which she was a member.
His Honour found that the respondent did not understand the purport and effect of the MBG loan; did not know that she was signing a guarantee or a second mortgage in support of it; and believed that the documents related to a personal overdraft for $10,000. His Honour also found that the bank, through Mr. Cantrill, gave no explanation to the respondent of the purport or effect of the documents which it asked her to sign, nor did he insist on her obtaining independent advice. She certainly had no idea, as his Honour found, that the documents exposed her interest in the matrimonial home as security for the loan. More particularly his Honour found that the respondent was, relevantly, a “volunteer” to the transaction because, although she was a director of the company, it was a business run by and under the control of her husband and in which she took no active interest. She was, as his Honour said, “pre-occupied with raising her three children” and that “any benefit [she] gained from MBG came to [her] not as of right, but as the result of discretion by Mr. Khouri”. Each of these findings was open to his Honour on the evidence. I agree with the submission made by counsel for the respondent that his Honour was entitled to find, and was correct in finding that, in relation to the MBG transaction, the respondent was a volunteer and that the facts, as his Honour found them to be, were – to all intents and purposes – indistinguishable from the facts found in Garcia’s case.
It follows that I reject the limited grounds of appeal which the bank argued in respect of the MBG loan. In that event, it was not in dispute that his Honour was entitled to make the orders which he did in proceeding 6111 of 1992.
It follows from what I have previously said that I am not persuaded that, on the facts found by his Honour, any error has been demonstrated in his reasoning process or in his conclusions that, in respect of each of the loans in contention before
him, either they were not secured by the relevant mortgage, or the bank was not entitled to enforce such security as it had under the first and second mortgages against the respondent’s interest in the matrimonial home. It is, therefore, unnecessary for me to determine the other issue debated in this appeal; namely whether, on the proper construction of the term “Money Hereby Secured” in clause 1 of the Memorandum of Common Provisions to the first mortgage, future advances made to or at the direction of one of the mortgagors, without the knowledge or consent of the other, are secured by the interest in the mortgaged property of the unknowing and non-consenting mortgagor.
For the reasons given, the appeal by the CBA should, in my opinion, be dismissed.
PHILLIPS, J.A.:
I agree in the judgment of the President.
BUCHANAN, J.A.:
I agree that the appeal should be dismissed for the reasons stated by the President.
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