Commonwealth Bank v Liptak & Anor No. Scgrg-96-856 Judgment No. S6632

[1998] SASC 6632

COMMONWEALTH BANK OF AUSTRALIA -v- LIPTAK & ANOR

The defendants in this action, George and Margaret Liptak, were, in 1991, husband and wife.  They were married on 5 January 1967.  They have four children.  In 1991, the children were aged 22, 21, 19 and 17.  At that time, they were all dependent, being students.

At that time, the family time was at Augusta Street, Glenelg.  The property, had been bought in 1980.

At the time of their marriage, Mr Liptak was Assistant Registrar at Adelaide University.  He was in charge of the Buildings Department at the University.  He had qualified with a Bachelor of Building, specialising in Quantity Surveying.

At the time of the marriage, Mrs Liptak was a School Teacher.  After having the children, she went back to teaching for a short time, but then for sometime was engaged in home duties.

In 1984, Mr Liptak left his position with the University.  Mrs Liptak gave evidence that her husband left the University because he had always wanted to work on his own and to make more money.  Mr Liptak suggested that he left the University because of the deteriorating marriage.  He did not, however, enlarge on that.  He set up his own business in Adelaide, dealing with quantity surveying, consultancy work and project management.  Eventually, the project management work took him interstate and, particularly, to Victoria.  Despite the deteriorating marital relationship, he continued to support the family and return to the family home at weekends.  The frequency of his weekend visits apparently varied from time to time, dependent on the availability of finance, at any particular time.  To the casual observer, the activities of the defendants were apparently those of a normal marital relationship, including a sexual relationship.

From 1984 onwards, Mr Liptak conducted all of his business from Victoria, and continued to support his family.  I was not told on what basis or to what extent he supported the family, but at all relevant times the children were students and not contributing to their own support.  Mrs Liptak also studied for a Graduate Diploma in Health Counselling in 1985.  It was not said, but the inference was that she was not earning income at that time.  The extent of the support given by Mr Liptak would, therefore, have been substantial.

In 1987, Mr Liptak went into business with a man named Brayden, who was an architect.  The business was that of project management and architecture.  In order to finance Mr Liptak’s interest in that business, a mortgage was taken out on the security of the Augusta Street residence.  Mr and Mrs Liptak were the mortgagors.  Mrs Liptak knew and understood her obligations in signing that mortgage.  Mrs Liptak indicated that between that time and 1990 “money was relatively OK.”  At that time, therefore, Mr Liptak was coming home more frequently and I took that to mean most weekends.

Sometime after 1987, in the course of their building project business, Mr Liptak and Brayden came in contact with a company, Keith Thomas and Associates, in relation to the provision of granite for a job which they were working on.  They apparently struck up a good relationship with Mr Thomas.  Ultimately, he was prepared to offer them the opportunity to become shareholders and directors of the company.  This situation had come about by 1990.  The business of Liptak and Brayden, as a result, changed direction, although both the bluestone business and the project management continued.

As part of the improving business, apparently Liptak and Brayden opened an office in Melbourne.  As Mrs Liptak said, “it was at the right end of Collins Street”.  Despite the fact that the Liptaks would have me believe that their marital relationship was deteriorating and was virtually non existent, Mrs Liptak went to the opening of the office.  She was unable to put a date to this specifically, but indicated that it must have been in the winter of 1990.  Mrs Liptak described this as “a pretty glamorous sort of do.” 

It is probably convenient at this stage that I should indicate my assessment of the witnesses in this matter, and my evaluation of their evidence.  Whilst not suggesting that they deliberately lied, or deliberately misrepresented matters, I am satisfied that Mr and Mrs Liptak endeavoured to give an account of the background circumstances of this matter, which suited their case.  In particular, I do not feel that I was told the whole truth about many matters.  When looked at against the overall background, the matters which were not said really give a feeling of dissatisfaction and uncertainty as to the reliability of what was said.  The manner in which Mr and Mrs Liptak gave their evidence was not convincing.  This was one of, if not the major, financial transaction in their married lives.  It is a matter upon which they have had the opportunity to reflect since proceedings were issued in this matter in 1996.  I would not expect the details to blur into the background of similar transactions, as might be the case with the bank officers.  I have no doubt that Mrs Liptak’s sister, Claire Delmercato, was present in Adelaide on the weekend when Mrs Liptak initially signed the mortgage.  It was not unusual for her to come to Adelaide, but she normally came during school holidays.  This was not a time of school holidays, and she was here only two nights.  This to me would indicate that this was, if not a special occasion, an unusual occasion and a reason to cause it to stick in the memories of Mr and Mrs Liptak.

Mrs Liptak’s inability to recall events and details of that weekend do not have a convincing ring about them. 

In an affidavit, filed in the action at an earlier stage, Mrs Liptak said that the only opportunity she had to discuss the signing of the documents in the course of the weekend was whilst walking on the beach with friends.  When giving her evidence before me, she was not sure that that, in fact, occurred at that weekend.  In fact, she went further to suggest that it probably did not occur at that weekend, because she would not have gone walking with friends on the beach whilst her sister was in Adelaide.  Again, this was not at all convincing evidence.

Mrs Liptak also gave evidence that Mr Liptak used his general medical condition as a means of exerting pressure on her.  When asked as to what was meant by this, Mrs Liptak suggested that her husband had had some form of heart fibrillation, which had required him to be hospitalised and that this was the condition to which he referred.  In fact, the hospitalisation did not occur until July of 1991.  This could not have, therefore, been correct.

In giving his evidence, Mr Liptak initially endeavoured to give the impression that he and his partner, Brayden, went into the Elizabeth Street branch of the Commonwealth Bank every week to collect wages for the business, and on many of these occasions talked with the then manager of that branch, Mr Allport.  Eventually, this evidence was watered down to possibly every three weeks or so.  In any event, I am not satisfied that the number of occasions when they actually went into Allport’s office and sat down and talked at the desk occurred with anything like that frequency.  This evidence is important, because it is on the basis of this that I am asked to infer that Allport would reasonably have known, or anticipated, the true marital relationship between Mr and Mrs Liptak.  Having done so, Allport should have anticipated the likelihood of Mr Liptak putting undue pressure on Mrs Liptak to execute the mortgage in favour of the Commonwealth Bank.  Nothing in the evidence caused me to consider that Allport should be imputed with such knowledge.  Again, there was an endeavour by Mr Liptak to persuade me that Allport had said words to the effect that Mr Liptak and Mr Brayden would have to get their wives to execute mortgages over their matrimonial homes and had said “if not the game’s up boys.”  I find that most unlikely or, more importantly, I do not find it more probable than not that such a conversation took place.

Generally, I am not prepared to accept Mr Liptak’s evidence, where it is not supported by the documentary evidence of the plaintiff.  At the same time, I also accept evidence called on behalf of the plaintiff that, if there had been any meetings with Mr Allport where significant matters were discussed or mentioned, I would expect a memorandum of some type to be on the file of the plaintiff. 

So far as the bank officers are concerned, I accept their evidence.  There was nothing about this transaction initially to distinguish it from hundreds of other similar transactions.  The bank records record all essential details.  The defendants sought to amend the pleadings during the course of the trial, in effect to impute to the bank the knowledge, actual or implied, of Mr Allport.  This was a significant variation from the defence pleaded originally.  Not unreasonably, the bank sought to have the matter adjourned so that they might contact Mr Allport and take his instructions in relation to these matters.  This was more difficult than usual, because Mr Allport was, at that time, on a holiday around Australia, and not generally able to be contacted.  The bank did, however, locate Mr Allport and he was called to give evidence.  In effect, the bank called all the evidence which it could have called.

On the other hand, the defendants did not call two witnesses, who they might reasonably have been expected to call if they were able to give supporting or corroborating evidence.  The witnesses were the sister of Mrs Liptak, Claire Delmercato, and Mr Liptak’s partner, Mr Brayden.  I will, however, deal with the effect of the failure to call these witnesses after indicating my findings as to the factual background to this matter.

In 1990, the businesses run by Liptak and Brayden were going well.  As I have indicated, they had an unusually favourable opportunity to acquire an interest in the bluestone business, Keith Thomas and Associates.  Indeed, in the course of that year, they were able to obtain control of that business.  Major projects became available involving the provision and installation of the bluestone material.  If they were able to obtain the contracts, they anticipated, however, that they would need some additional financial support, until the payments under the contracts became available to enable Liptak and Brayden to meet the initial expenses under the contracts.

In October 1990, therefore, Liptak and Brayden did speak with Allport at the Elizabeth Street branch of the bank.  I accept that the occasion on which they spoke with Mr Allport may well have been the same day that they called to collect their weekly wages.  I accept the evidence of Mr Allport that he, in all probability, took handwritten notes during the course of the interview and that he subsequently caused to be prepared the typewritten file memorandum which is Exhibit D22.

By November 1990, Liptak and Brayden had obtained the contract, in respect of the Diamaru Project, which involved an amount of approximately half a million dollars overall.  When he gave his evidence in chief, Mr Liptak did not admit that they had the contract, but rather wanted it to be inferred that the matters referred to in Exhibit D20 were part of the casual ongoing meetings.  From the contents of this Exhibit, it is obvious that Liptak and Brayden were made aware of what the bank’s requirements by way of security were likely to be.  There is nothing in the contents of this memorandum which would suggest that there was a need to record a caveat with regard to the obtaining of any security from Mrs Liptak or Mrs Brayden.

Apparently, the earlier part of the Diamaru Project ran overtime, and it was late, therefore, getting to the stage where the contract of Liptak and Brayden could begin.  Instead of starting in January, or February, of 1991 and having eight months to complete their contract, they were not able to start until March 1991 and had only five months to complete the contract.  The effect of this situation was to mean that, in order to complete their project, Liptak and Brayden had to put on additional workers and work more overtime.  The overtime, in particular, was a significant problem, because of actions by the unions, which required the overtime to be at triple rates.

Mr Allport went on leave in March 1991.  By reference to the bank records, Mr Allport was able to say that he was away from the bank from 21 March 1991 to 3 May, because of a combination of Easter, annual holidays and accumulated rostered days off.  During this absence, Mr Winchester, who was ordinarily the accountant at the branch, became the acting manager.

Mr Liptak asserted that, before Mr Allport went on leave, Liptak and Brayden made their official request for their finance to Allport.  He further asserted that Allport approved the loan and left it to Winchester to complete the documentation.

There is nothing on the bank file to indicate any such event, and Mr Allport had no recollection of it.  Allport indicated that, before going on leave, he was at considerable pains to appraise Mr Winchester of all current matters.  If there had been a discussion between Allport and Liptak and Brayden as suggested, Mr Allport felt it was likely there would be a memorandum to that effect on the file, although he could not say definitely that there would be such a memorandum.

Mr Winchester gave evidence that the application for finance was made to him, and that he completed the application which is Exhibit P2 and dated the 15th day of April 1991.  This is quite a different matter from merely completing documentation to witnessing a loan granted by Mr Allport.  In any event, the loan would have been outside the limit of Allport’s authority and would have required his superiors’ consideration.  I am satisfied that Mr Winchester received the actual request for the loan and processed the application.  The need for additional security was identified and discussed between Winchester and Liptak and Brayden.  It is not suggested in any way by Mr Liptak that he discussed his marital position, or the attitude of his wife, with Winchester.

Mr Winchester submitted the application to his superiors for consideration and approval.  Having obtained the approval, he then arranged for mortgage documents to be prepared.  They were sent to the Hutt Street branch of the bank to arrange execution by Mr and Mrs Liptak.  In so doing, the bank was not in any way relying on Mr Liptak “to procure the signature” of his wife.  It would seem that the documents were actually sent to Hutt Street on the 26th of April 1991.  It would also seem to be undisputed that, on Friday 10 May 1991, Mr Liptak and Claire Delmercato drove from Melbourne to Adelaide.  At that time, Mrs Liptak was working at Halifax Street, just around the corner from the Hutt Street branch.  Again, it would seem undisputed that, sometime within normal banking hours on that day, Mr Liptak attended at the Hutt Street branch of the bank and was given the mortgage documents.  It is less clear, however, whether Mrs Liptak attended at the bank at that time. 

The bank has a procedure for advising clients as to their rights and obligations in relation to documents, such as the mortgage, of providing them with a document known as an “S33”.  Where the security is to be signed by one or more borrowers, the bank has the policy of providing each borrower with an S33.  In this case, S33s were prepared by the witness, Ms O’Dea, and copies of those documents are Exhibit P1.  Ms O’Dea also gave evidence that such documents are handed individually to the persons to whom they are addressed, or else posted to them individually.  Ms O’Dea has no recollection of having handed the S33 to Mrs Liptak on 10 May 1991.  However, Mrs Liptak subsequently had to come into the bank to resign the mortgage.  When she did, Ms O’Dea attended to her initially and recognised her.  Ms O’Dea feels that this makes it likely that she had seen Mrs Liptak on 10 May and given an S33 to her.  Mrs Liptak, for her part, says that she does not have any recollection as to whether she did or did not go to the bank on 10 May 1991.

As I have indicated, Mr Liptak had travelled to Adelaide with Mrs Liptak’s sister.  One would assume, therefore, that Ms Delmercato would have been present with him, when he went to the bank.  If Mrs Liptak had met them there at that time, one would have thought that Mrs Liptak and Mrs Delmercato may have some recollection of that fact.  As I have indicated, however, Mrs Delmercato was not called to give evidence.  I have therefore not had the assistance of such  evidence.

I find that, on the balance of probabilities, Mrs Liptak did attend with her husband at the Hutt Street branch of the Commonwealth Bank on 10 May 1991.  On the same basis, I find that she was given the S33 addressed to her, a copy of which is Exhibit P1.  It reads:

“The document described below are provided herewith for your signature.

Your present maximum liability to the Bank under the document is $100,000 plus interest, costs, charges and expenses as provided in the document.

Prior to signing the document you should satisfy yourself that you understand the full nature and effect of your liabilities to the Bank and obtain appropriate advice, legal or otherwise, if you are at all uncertain of your position.

Your signature to the document should be witnessed by an adult person (specially qualified where so called for in the document) who is not the borrower/debtor or a co-guarantor/mortgagor (if any) under the document.

DOCUMENT

Mortgage by George Michael Liptak and Margaret Mary Liptak over property situated at 15 Augusta Street Glenelg 5045.”

The duplicate of the memorandum, by which the mortgage was sent to the Hutt Street branch, indicates that the Hutt Street branch advised the Elizabeth Street branch that the Liptaks had taken the mortgage in order to sign it in front of a legal practitioner, and that Mr Liptak would return the mortgage to the Elizabeth Street branch after the weekend.  I accept, therefore, that this was what was said to Ms O’Dea, when the Liptaks called at the Hutt Street branch on 10 May.  I expressly find that, in so doing, Mr Liptak was not agreeing “to procure the signature” of Mrs Liptak.

It follows, therefore, that I reject Mr Liptak’s evidence with regard to who attended at the Hutt Street branch on 10 May and Mrs Liptak’s evidence that she did not know of the mortgage until Saturday 11 May.  Indeed, so far as Mrs Liptak’s evidence is concerned about the first time she knew of the requirement to sign the mortgage being on the Saturday, I consider that, if that were so and if it was such a surprise to her, she would be able to definitely say that she had not been present at the Hutt Street branch of the bank on the Friday.

A further unsatisfactory part of the evidence of the defence, which touches on this subject, is a telephone call which Mr Liptak suggests Mr Allport made to Mrs Liptak.  The time of this alleged telephone call would be March 1991, following the meeting which I found did not take place between Liptak, Brayden and Allport.  Had such a meeting taken place and had such a telephone conversation taken place between Mr Allport and Mrs Liptak, then Mrs Liptak could not say that the first time she knew of the mortgage was on Saturday 11 May 1991.  I also consider that it would be likely that Mr Allport would have made a note on the bank file to that effect.  There is no such note.

I turn now to consider the events of 11 and 12 May 1991.  Mrs Liptak would have me believe that Mr Liptak exerted significant undue influence over her to persuade her to sign the mortgage over this period.  However, apart from generalities, she was not able to give any detail of these events and who might have been present.  As I have already indicated, her sister was in Adelaide and staying with them.  One would have thought that her sister would have been the obvious person with whom she might have discussed the matter.  Again, as I have indicated however, her sister was not called to give evidence.  As I have also previously indicated, in an affidavit filed earlier in this action, Mrs Liptak referred to having discussed the matter with people, whilst walking on the beach.  None of these people were called to give evidence.  Indeed, now Mrs Liptak says that she is not sure that this discussion took place on the beach on that weekend at all.  For the reasons which I have indicated earlier, I do not accept that on this weekend Mr Liptak used the cardiac fibrillation condition as a means of exerting pressure.  My reason for doing so being that the admission to hospital, because of this condition, did not happen until later in that same year.

So far as the executing of the mortgage by Mrs Liptak is concerned, her own evidence is that she has a recollection of it having occurred late morning, or early afternoon, on Sunday.  It took place on the kitchen table and at the time the sun was coming into the room.  Mr Liptak gave evidence that it was signed just before he left at 6 o’clock on the Sunday evening.  Mrs Liptak’s sister signed the longform proof as having witnessed Mrs Liptak signing the mortgage.  Presumably, therefore, she would have been able to give evidence as to when and in what circumstances Mrs Liptak signed the document.  As I have already indicated, Mrs Delmercato was not called to give evidence, and I therefore do not have her assistance in that regard.

I turn now to consider whether Mrs Liptak knew the nature and effect of the document which she signed.  Mrs Liptak acknowledged that, in 1987, a loan had been obtained on security of the Augusta Street property to finance Mr Liptak into his business with Brayden.  She acknowledged that she was aware that her interests in the Augusta Street property were affected by that loan, which was not for her specific benefit.  I am satisfied that she was aware that the current document was of a like nature.  Indeed, it seems to me that her reluctance to sign it was, in effect, confirmation of her understanding of the situation.  She would thereby be, potentially, further eroding her interest in the matrimonial home for the purpose of raising funds to run her husband’s business.  Hence, her reluctance to sign the document.  Despite the fact that she, on my finding, received the S33, she may not have realised that the document was to secure the whole of the debt outstanding to the bank from the company.  She may, in fact, have thought that it was limited to an amount of $50,000.  However, that is all that the bank is seeking to recover from her, in any event.  I am, therefore, satisfied that she knew the nature and effect of the document which she signed.

There is no direct evidence as to how the documents were returned to the bank, or by whom.  It is reasonable to infer, however, that they were handed over to someone at the Elizabeth Street branch by Mr Liptak sometime in the week commencing 13 May 1991.  The fact that the documents were handed over by Mr Liptak, of itself, would not be a cause to alert the bank to the possibility of the signature of Mrs Liptak being obtained improperly.  By that time, there was a need for the money on an urgent basis.  There had been some unexplained delay in the preparation and presentation of the mortgage documents.  Mrs Liptak had apparently signed the documents before an independent witness. 

On the consideration of the documents as returned to them, the bank was not satisfied with the execution of the document as conforming with the requirements of the law.  They sent the documents back to the Hutt Street branch with a request that Mrs Liptak be required to re-execute the document, before an approved bank manager.  The documents were returned to the Hutt Street branch.  Mrs Liptak did in fact return and re-sign the documents before an approved bank manager.  When so attending, she did not express any reluctance, nor indeed has it been suggested that she did.  She indicated, however, that she felt that she had to sign the documents and therefore did so.  She did not make any suggestion, however, that there was any coercion directly from any member of the bank’s staff.  It is also acknowledged by the members of the bank staff that no verbal explanation of the effect of the documentation was given to Mrs Liptak at that time.  This is merely an historical event.  It takes no part in my evaluation of the merits of the contentions of either party.

I also mention the following matters for the sake of completeness, and in no way is part of the process of evaluating the evidence of either party.  By a memorandum dated 19 July 1991, the extent of the liability under the mortgage was limited to $50,000.  In March or April 1993, whilst she was working with the Commonwealth Rehabilitation Service at Mt Gambier, Mrs Liptak received a telephone call from Mr Allport asking her to agree to extend the mortgage to cover further amounts.  She declined and the matter was taken no further.  I mention this telephone call, because Mr Liptak suggested in his evidence that, after the conversation with Mr Allport in March 1991, which I find did not take place in any event, Mr Allport advised him that Allport had telephoned Mrs Liptak.  Mr Liptak went on to say that Mr Allport had found this to be a very difficult telephone conversation.  Mrs Liptak made no complaint of any such telephone conversation.  Indeed, if this were the case, it would contradict her evidence that the first she knew of the mortgage was when it was presented to her on Saturday 11 May 1991.  Mr Allport said that he had only ever spoken to Mrs Liptak on one occasion, and that he could not recall the detail of when and where.  However, the telephone note, which is attached to Exhibit P1, relates to the telephone call which he recalls.  The call was made to Mount Gambier.  It must, therefore, have been in 1993.

I turn now to consider the matter of the defendants not having called the sister of Mrs Liptak, Mrs Delmercato, and Mr Liptak’s partner, Mr Brayden.  I accept that, shortly before the trial commenced before me, Mrs Delmercato had undergone as mastectomy and that shortly before the trial, she was undergoing chemotherapy.  I further accept that the combined effect of these matters would mean that it would place considerable hardship on Mrs Delmercato to have to come to Adelaide to give evidence.

I also accept, although there is no direct evidence before me, that at the time of the resumed hearing, Mrs Delmercato was undergoing further chemotherapy treatment.  It would have been possible for the defendants to make application for Mrs Delmercato’s evidence to be taken other than in person before me in Adelaide.  The significance of her evidence must have been obvious by the time of the adjournment of the initial hearing of the trial, if it had not been obvious before then.

I was given no explanation as to the reason for the failure to call Mr Brayden.  His involvement in these matters, on Mr Liptak’s evidence, was quite significant.  Although it would not relate to the circumstances in which the mortgage was executed by Mrs Liptak, Mr Brayden’s evidence would have been significant in relation to the alleged meeting with Allport in March 1991.  In particular, he could have given corroborative evidence of the alleged conversations.

In Jones v Dunkel 101CLR 298, the High Court considered the effect of the failure of a defendant to give evidence in a negligence action. At 312, Menzies J said:

“In my opinion a proper direction in the circumstances should have made three things clear:

(i)that the absence of the defendant Hegedus as a witness cannot be used to make up any deficiency of the evidence;

(ii)that the evidence which might have been contradicted by the defendant can be accepted that the more readily if the defendant fails to give evidence;

(iii)that where an inference is open from the facts proved by direct evidence and the question is whether it should be drawn, the circumstance that the defendant disputing it might have proved the contrary had he chosen to give evidence is properly to be taken into account as a circumstance in favour of drawing the inference.”

Applying this to the present case, I am the more confident in making the findings which I do with regard to there being no meeting between Allport, Liptak and Brayden in March 1991 when Allport approved the loan, and the other matters which I have indicated in the course of the judgment in which Mrs Delmercato might have been able to give assistance.

I turn therefore to consider the legal background against which these facts must be considered.

Mr Kourakis QC, for the defendants, submitted that Yerkey v Jones 63 CLR 649 is still good authority in South Australia. He relied on the headnote as providing reasonable summary of the judgment. It reads:

“The relation of husband and wife is not one of influence, and the fact that a wife confers a voluntary benefit upon her husband by a gift or by becoming surety or otherwise raises no presumption in equity against the transaction:  but, if a husband procures his wife to become security for his debt and it appears that circumstances existed which, if they alone had been the parties to the transaction, would make it liable to be set aside as against the husband, then the guarantee or security may be invalidated also against the creditor if he relied upon the husband to obtain it from his wife and had no independent ground for reasonably believing that she fully comprehended the transaction and freely entered into it.”

In particular, Mr Kourakis relied upon the judgment of Dixon J at 683 where, after having considered various authorities he said:

“That exposition, I think, shows that these cases are consistent with and recognise the proposition that, if a married woman’s consent to become a surety for her husband’s debt is procured by the husband and without understanding it’s effect in essential respects she executes an instrument of suretyship which the creditor accepts without dealing directly with her personally, she has a prima facie right to have it set aside.”

Further, at 684, he said:

“But it is clearly necessary to distinguish between, on the one hand, cases in which a wife, alive to the nature and effect of the obligation she is undertaking, is procured to become her husband’s surety by the exertion by him upon her of undue influence, affirmatively established, and on the other hand, cases where she does not understand the effect of the document or the nature of the transaction of suretyship.  In the former case, the fact that the creditor, on the occasion, for example, of the actual execution of the instrument, deals directly with the wife and explains the effect of the document to her will not protect him.  Nothing but independent advice or relief from the ascendancy of her husband over her judgment will suffice.”

At 685, he said further:

“Misrepresentation as well as undue influence is a means of abusing the confidence that may be expected to arise out of the relation.”

Finally, at 685, he said:

“If the creditor takes adequate steps to inform her and reasonably supposes she has an adequate comprehension of the obligations she is undertaking and an understanding of the effect of the transaction, the fact that she has failed to grasp some material part of the document, or, indeed the significance of what she is doing, cannot, I think, in itself give her an equity to set it aside, notwithstanding that at an earlier stage the creditor relied upon her husband to obtain her consent to enter into the obligation of surety.  The creditor may have done enough by superintending himself the execution of the document and by attempting to assure himself by means of questions or explanation that she knows to what she is committing herself.  The sufficiency of this must depend on circumstances.”

Mr Kourakis acknowledged that Yerkey v Jones had been criticised and not followed.  In particular, he referred to National Australia Bank v Garcia 39NSWLR 577. He argued, however, that the authority was still binding in South Australia.

Mr Kourakis also acknowledged that, in England, the approach in Yerkey v Jones had not been adopted and that a slightly different approach in theory had been taken.  He argued, however, that, in most cases, it will probably lead to the same practical result.  He considered the decision of Barclays Bank v O’Brien (1994) 180.  At 191, Lord Browne Wilkinson discussed the situation where the husband is, in effect, the agent of the bank in obtaining the wife’s signature.  Mr Kourakis, however, expressly indicated that his case was not put on the basis that Mr Liptak was the bank’s agent.  Lord Browne Wilkinson went on, however, to say:

“Apart from this, if the creditor bank has notice, actual or constructive, of the undue influence exercised by the husband (and consequentially of the wife’s equity to set aside the transaction) the creditor will take subject to that equity and the wife can set aside the transaction as against the creditor (albeit a purchaser for value) as well as against the husband.”

At 195, Lord Brown Wilkinson said:

“My starting point is to clarify the basis of the law.  Should wives (and perhaps others) be accorded special rights in relation to surety transactions by the recognition of a special equity applicable only to such persons engaged in such transactions?  Or should they enjoy only the same protection that they would enjoy in relation to their other dealings?  In my judgment, the special equity theory should be rejected.  First, I find no basis in principle in affording special protection to a limited class in relation to one type of transaction only.  Second, to require the creditor to prove knowledge and understanding by the wife in all cases is to reintroduce by the back door either a presumption of undue influence of class 2(A) (which has been decisively rejected) or the Romilly Heresy (which has long been treated as bad law).  Third, although Scott LJ found that there were two lines of cases, one of which supported the special equity theory, on analysis although many decisions are not inconsistent with that theory the only two cases which support it are Yerkey v Jones, 63 CLR 649 and the decision of the Court of Appeal in the present case. Finally, it is not necessary to have recourse to a special equity theory for the proper protection of the legitimate interests of wives as I will seek to show.”

At 198, Lord Browne Wilkinson said:

“I can therefore summarise my views as follows.  Where one co-habitee has entered into an obligation to stand as security for the debts of the other co-habitee and the creditor is aware that they are co-habitees:

(1)the surety obligation will be valid and enforceable by the creditor unless the suretyship is procured by the undue influence, misrepresentation or other legal wrong of the principal debtor;

(2)if there has been undue influence, misrepresentation or other legal wrong by the principal debtor, unless the creditor has taken reasonable steps to satisfy himself that the surety entered into the obligation freely and in knowledge of the true facts, the creditor will be unable to enforce the surety obligation because he will be fixed with the constructive notice of the surety’s right to set aside the transaction;

(3)unless there are special exceptional circumstances, a creditor will have taken such reasonable steps to avoid being fixed with constructive notice if the creditor warns the surety (at a meeting not attended by the principal debtor) of the amount of her potential liability and of the risks involved and advises the surety to take independent legal advice.

I should make it clear that in referring to the husband’s debts I include the debts of a company in which the husband (but not the wife) has a direct financial interest.”

Mr Kourakis also relied on Challenge Bank Limited v Pandya 60SASR 330 where, at 343, King CJ said:

“I would formulate the applicable rule in a form slightly different from the formulation of Neill LJ, as follows:  the Court will not enforce a guarantee at the suit of a creditor if it can be shown that the creditor entrusted the task of obtaining the alleged debtor’s signature to the relevant document to someone who, as the creditor knew or ought to have known, was in a position to influence the debtor or had a motive for or an interest in ensuring the execution of the document, and who procured the signature of the debtor by means of undue influence or by means of fraudulent misrepresentation.”

Mr McCarthy, for the plaintiff, acknowledged that the circumstances of the present case were very similar to those in Yerkey v Jones.  He drew attention, however, to the judgment of the majority given by Latham CJ.  At 662, he said

“But it is contended that in the case of a wife whose execution of a document has been procured by the influence of her husband the law is different.  In particular, the contention is that, where a husband procures his wife to become a surety for him, the creditor must show that the wife understood exactly what she was doing.  There must be some limit to the suggested principle.  The law of guarantee is particularly complex, and it is doubtful that any surety ever understands in its full significance the nature of the transaction into which he enters.  The general rule is that if an adult person of ordinary understanding executes a document he (or, in the modern law, she) is bound by it notwithstanding any misunderstanding by him (or by her) of its terms, unless that misunderstanding has been brought about by mutual mistake or by undue influence, fraud, or, in some cases, innocent misrepresentation or non disclosure of material facts.”

Mr McCarthy also went on to deal with National Australia Bank v Garcia and Barclays Bank v O’Brien and Challenge Bank v Pandya.

Applying the principles of Yerkey v Jones to the present case, however, there are some significant differences.  In the present case, in my view, the plaintiff did not use Mr Liptak “to procure his wife’s execution of the mortgage”. The bank prepared the mortgage and arranged for Mr and Mrs Liptak to attend at the Hutt Street branch to execute the mortgage.  When they did attend, they were each given the S33.  Mr and Mrs Liptak indicated that they wished to obtain legal advice and the bank therefore reasonably allowed them to take the document with them, on the understanding that it would be returned to the Elizabeth Street branch by Mr Liptak.

Mrs Liptak knew the nature of the documentation and what the effect of it would be.  In particular, the money being raised would enable the company operated by Mr Liptak to be more successful.  On the basis of his supporting of the family at that time, there would be a reasonable basis for Mrs Liptak to anticipate that there would be an increased benefit for her and her family. 

I accept that there may have been some reluctance on Mrs Liptak’s part to further encumber the home.  I further accept that Mr Liptak may have pleaded with her and appealed to her sympathy to execute the document.  I do not, however, consider that this anywhere near approaches undue influence and there is certainly no evidence of misrepresentation.

If I am wrong in finding that there was no exertion of undue influence by Mr Liptak, I do not consider that there is any notice, either express or to be inferred, that the plaintiff knew, or ought to have known, of this.  In this day and age, it is not unusual for people to commute interstate for the purpose of their business.  No doubt such circumstances throw a strain on a marriage, but it could not possibly be said to necessarily to give rise to an inference that the marriage is in jeopardy.  Again, even if I am wrong in relation to this, the mere fact that a marriage is in jeopardy would not, in my view, give rise to a necessary inference that undue influence would be applied.

It follows, therefore, that I consider that the mortgage is enforceable against Mrs Liptak.  A certificate of David Alan Miles, calculating the amount due and owing up to and including the 10 December 1997, was tendered by consent.  The amount of that calculation is $79,334.67.  There will accordingly be judgment for the plaintiff against the defendant, Margaret Mary Liptak, in the sum of $79,334.67, together with interest calculated in accordance with the mortgage to the date of judgment.  The defendant to pay the plaintiff’s costs to be agreed or taxed.  I certify fit for counsel.