Commonwealth Bank of Australia v Sarah Marie Holdings Pty Ltd

[2001] VSC 330

IN THE SUPREME COURT OF VICTORIA Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

No. 7636 of 1999

COMMONWEALTH BANK OF AUSTRALIA	Plaintiff
V
SARAH MARIE HOLDINGS PTY. LTD. AND ANOTHER	Defendant

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JUDGE:	HARPER, J.
WHERE HELD:	MELBOURNE
DATE OF HEARING:	3 SEPTEMBER 2001
DATE OF RULING:	3 SEPTEMBER 2001
CASE MAY BE CITED AS:	COMMONWEALTH BANK OF AUSTRALIA v. SARAH MARIE HOLDINGS PTY. LTD. & ANOR.
MEDIUM NEUTRAL CITATION:	[2001] VSC 330

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CATCHWORDS:      Ruling – Application by first defendant to call one of the plaintiff's bank officers as a witness – Whether anticipated evidence relevant to the issues raised on the pleadings – Alleged unconscionable conduct by the plaintiff – Application granted.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr. M. Sifris	G.S. Ray
For the First Defendant	Mrs. C. Kenny	Michael MacKinnon

HIS HONOUR: 

1. I have before me an application by Ms Kenny, counsel for the first defendant, to call as a witness - I gather immediately after the conclusion of the evidence of the present witness, Ms Tina Halaseh - an officer of the Bank, a Mr Ovens.  He, as I understand it, is attached to the Bank's Compliance and Monitoring Unit.

1. The evidence which it is expected he will, if called, give will go to the Bank's internal processes insofar as they are designed to protect the Bank against behaviour which might be properly categorised as unconscionable. 

1. In particular, as I understand it, he will be asked questions going to the procedures, if any, put in place by the Bank at the time of the execution of the impugned mortgage in this case; those procedures being designed to ensure that the Bank did not act in a way which would open the Bank to the possibility that a court might set the relevant transaction aside as being unconscionable and, therefore, one in respect of which equity would not allow the Bank to benefit.

1. This case is unusual in that here it is said that the Bank was required if its behaviour were to be in accordance with good conscience to ensure that a person who, by resolution, had been appointed - whether validly or otherwise - as sole director and secretary of a third party mortgagor, should be informed by the Bank of material facts such as the financial position of the borrower.

1. As a sole director and secretary Ms Tina Halaseh was in a position not altogether analogous with the position of the spouse in Garcia v. National Australia Bank, a case reported at (1998) 194 C.L.R. 395. It was there held, according to the headnote:

"(1)that in circumstances where there was no actual undue influence by a husband, it would nonetheless be unconscionable for a creditor to enforce the guarantee against a wife when, (a) the wife did not understand the purport and effect of the transaction; (b) the transaction was voluntary in the sense that the wife obtained no gain from the contract, the performance of which was guaranteed;  (c) the creditor is to be taken to have understood that the wife may repose trust and confidence in her husband in matters of business and therefore to have understood that the husband may not fully and accurately explain the purport and effect of the transaction to his wife and, (d) the creditor nonetheless did not take steps to explain the transaction to the wife or find out that a stranger had explained it to her."

1. Here there is evidence that the husband, Samuel Halaseh, acted for the third party mortgagor, Sarah Marie Holdings Pty Ltd, in a number of transactions.

1. The knowledge of the Bank about his so acting is as yet not entirely clear.  It is a matter which, no doubt, will be the subject of submissions or perhaps explored further in evidence.  That is one aspect of the significance of Mr Halaseh's participation in the transaction in question here.  Another aspect is his knowledge and the extent to which that knowledge was the knowledge of Sarah Marie Holdings.

1. It is alleged in the first defendant's further amended defence and counter-claim that the first defendant did not know of relevant facts, the knowledge of which if it had been held by the first defendant would have dictated a different course of action in relation to the then proposed mortgage than was in fact taken.  There will be, no doubt, much argument and perhaps further evidence about the question of Mr Halaseh's knowledge and its relationship to the knowledge of Sarah Marie Holdings Pty Ltd.

1. For my purposes at present the question is whether or not Mr Ovens can say anything which will assist me to determine the issue of the Bank's behaviour and its characterisation as being either conscionable or unconscionable.

1. It is, I think, difficult to see how the internal procedures of the Bank can determine this issue one way or the other.  It is not for an institution such as the Bank, by its internal procedures, to determine whether or not unconscientious behaviour has been entered into.

1. The Bank cannot, on the one hand, excuse itself from the consequences of certain behaviour, simply by saying that it accorded with its own internal procedures.  For obvious reasons a court would not be bound by those internal procedures to hold that behaviour in accordance with them, was necessarily conscientious.  Similarly, a court could not be bound to hold that behaviour was unconscientious simply because it did not accord with any institution's internal procedures.

1. For this reason I find it difficult to understand how Mr Ovens's evidence could assist.  On the other hand, this is an unusual case.  I know of no other where one of the determining points in the case will, or at least may, revolve around the position of the sole director and secretary of the third party mortgagor and her own particular knowledge of the circumstances in which the execution of documents took place as against the knowledge of her husband.  He on any view was an active participant in the affairs of the first defendant.  One issue is therefore how his knowledge affected the position of the first defendant as against that of the Bank.

1. Given that this is in this respect an unusual case it seems to me that I ought to err on the side of caution.  Accordingly, I should allow the application to call Mr Ovens as a witness.  The consequence may be to allow in evidence which is necessarily irrelevant.  That risk is worth taking if the alternative course would be to deny the first defendant the right to call evidence which might assist its case. 

1. I have grave doubts about the relevance of Mr Ovens' evidence for the reasons which I have endeavoured to outline.  I am not however so confident that his evidence will be of no assistance (and will therefore be irrelevant) as to make a ruling that the first defendant not be entitled to call him. 

1. I am concerned that if he is called before Mr Samuel Halaseh gives his evidence the evidence of the latter may be influenced by the evidence of the former. I will be astute to examine Mr Samuel Halaseh's evidence when he is called against the evidence of Mr Ovens and if I think that Mr Halaseh's evidence has been tailored so as to fit in with that of the Bank Officer I will take that into account in deciding issues of credibility and of fact generally.  That is a risk which if Mr Ovens is called before Mr Halaseh Mrs Kenny will have to take.

1. I will not however dictate the order in which witnesses are called.  That is not the function of a judge.  I know of no instance where a judge has required a party to call one witness ahead of another.  As I say, it necessarily will follow however that the evidence of the one will be scrutinised in the light of the evidence of the other.

1. I have considered whether I ought to warn Ms Kenny at this stage that if she does call Mr Ovens the costs of the exercise might be required to be paid by her client or even by those representing her if the evidence is found to be irrelevant. I think it would on balance be unfair to Ms Kenny to proceed on that basis.  That does not rule out the making of an order for costs that is tailored to meet the circumstance that Mr Ovens has been called, but for the present I think it would be unfair to take a position in relation to costs that might influence Ms Kenny's discretion in deciding whether or not to call the proposed witness.

1. Accordingly I do not propose to interfere in the decision whether or not to call Mr Ovens, still less the decision whether or not he should be called before or after Mr Samuel Halaseh. 

1. I hope that the parties are now sufficiently aware of the possible ramifications of the various decisions so as to be fully informed in deciding whether or not to act one way or the other.

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