Frank Barbaro and JACLYN Barbaro v Donna Maree Millington

[2007] ACTCA 1

FRANK BARBARO and JACLYN BARBARO v DONNA MAREE MILLINGTON
[2007] ACTCA 1 (2 February 2007)

EQUITY – declaration of debt pursuant to a deed – coercion or undue influence – knowledge or notice of circumstances rendering enforcement unconscionable

Bank of New South Wales v Rogers (1941) 65 CLR 42
Commercial Bank of Australia v Amadio (1983) 151 CLR 447
Garcia v National Australia Bank Ltd (1998) 194 CLR 395
Watt v State Bank of New South Wales [2003] ACTCA 7 (13 March 2003)
Yerkey v Jones (1939) 63 CLR 649

ON APPEAL FROM A SINGLE JUDGE OF THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY

No. ACTCA 35 - 2005
No. SC 219 of 2000

Judges:         Higgins CJ, Crispin P and Spender J
Court of Appeal of the Australian Capital Territory
Date:            2 February 2007

IN THE SUPREME COURT OF THE       )          No. ACTCA 35 - 2005
  )          No. SC 219 of 2000
AUSTRALIAN CAPITAL TERRITORY    )
  )

COURT OF APPEAL  )

ON APPEAL FROM A SINGLE JUDGE OF THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY

BETWEEN:FRANK BARBARO and JACLYN BARBARO

Appellants

AND:DONNA MAREE MILLINGTON

Respondent

ORDER

Judges:  Higgins CJ, Crispin P and Spender J
Date:  2 February 2007
Place:  Canberra

THE COURT ORDERS THAT:

1. The matter be remitted back to the Supreme Court for ancillary orders to be made to reflect these reasons.

1. The appeal be otherwise upheld with costs.

IN THE SUPREME COURT OF THE       )          No. ACTCA 35 - 2005
  )          No. SC 219 of 2000
AUSTRALIAN CAPITAL TERRITORY    )
  )

COURT OF APPEAL  )

ON APPEAL FROM A SINGLE JUDGE OF THE SUPREME COURT OF THE AUSTRALIAN CAPITAL TERRITORY

BETWEEN:FRANK BARBARO and JACLYN BARBARO

Appellants

AND:DONNA MAREE MILLINTON

Respondent

Judges:  Higgins CJ, Crispin P and Spender J
Date:  2 February 2007 
Place:  Canberra

REASONS FOR JUDGMENT

THE COURT:

1. This was an appeal against a decision of Justice Connolly handed down on 18 March 2004.

1. The plaintiffs (appellants), Mr and Mrs Barbaro, had sought declarations that the defendant (respondent) was indebted to them in the sum of $85,000 pursuant to a deed which purportedly charged in favour of the plaintiffs her interest in a residential property in the Australian Capital Territory.  The defendant seeks to avoid the apparent effect of the deed claiming that she was coerced into executing it.

1. The first named plaintiff, Mr Frank Barbaro, deposed that he had been acquainted with a person named Robert Buser over a period of some 20 years.  He first met the defendant in February 1999.  She was introduced to him as Mr Buser’s girlfriend.

1. There had been a number of business dealings between Mr Barbaro and Mr Buser relating to the latter’s used car business.

1. It did not appear to be contested that in March 1999, Mr Buser proposed that Mr Barbaro invest $60,000 in his business to enable it better and more profitably to trade.  He represented that “on a good month” the return to Mr Barbaro would be $15,000 and that the capital invested would be repayable, in part at least, on a month’s notice.  Mr Buser offered to secure the loan.

1. As it happened, on 3 March 1999, Mr and Mrs Barbaro had sold a property they jointly owned.  They received $130,941.88.  About 8 March 1999, Mr Barbaro agreed to advance this sum to Mr Buser.  The defendant was aware of this but, on his Honour’s factual findings, did nothing at that point at least to accept any responsibility for repayment or securing of the repayment of that sum.

1. Mr Buser’s business performance, it seems, did not match his stated expectations.  In each of April and May of 1999 only $4,000 was paid to the plaintiffs.  In June 1999 no payment was made.  In July 1999, Mr Barbaro attended the home of the defendant and Mr Buser, complaining of this.  He demanded the keys to their cars, apparently believing them to belong to Mr Buser’s business.  He took the cars but, discovering that one of the vehicles was registered to the defendant, returned that vehicle to her.

1. Mr Buser’s business did not, it seems, improve.

1. The defendant gave evidence, which his Honour accepted, that about this time Mr Buser appeared under increasing pressure.  He appeared to have been “bruised and battered” on a number of occasions up to March 2000 when he left Canberra.

1. The defendant assumed this to have been a result of dealings with Mr Barbaro but it is important to note that there was no evidence to support that assumption.

1. She conceded that she had never heard Mr Barbaro make any threat towards her or Mr Buser.

1. Mr Barbaro denied ever threatening Mr Buser or the defendant.  However, he did concede that there had been an extraordinary confrontation between himself and Mr Buser.

1. In about October 1999, Mr Buser had asked Mr Barbaro, who is an extraordinarily large man, to accompany him to the Cooma region to collect a debt said to have been owing to Mr Buser in respect of the sale of a vehicle.

1. They went to a remote location allegedly looking for the debtor.  As Mr Barbaro was opening a gate Mr Buser shot him twice in the back.  Mr Buser then, apparently, put the gun in his own mouth and threatened suicide.

1. Mr Barbaro talked Mr Buser out of this course and drove back to Canberra with him.  He conceded he “would have slapped him [Mr Buser] a few times”.  Mr Barbaro was unaware he had been hit by the bullets until he later “went to the pub”.  An X-ray report was, however, tendered showing the bullets lodged in his back.  If that seems surprising it may well be explained by Mr Barbaro’s enormous bulk.

1. The incident was not reported to police.  As the trial judge noted, however, Mr Barbaro when asked “whether he assaulted or threatened Mr Buser after the shooting” agreed saying, “I would have abused him, yes.”

1. Mr Barbaro deposed to further negotiations in December 1999 with Mr Buser.  He demanded of Mr Buser a transfer of the latter’s business as well as signing over “his houses” as security for repayment of the monies advanced.

1. Those negotiations culminated in January 2000 with the defendant and Mr Buser attending on Mr Buser’s solicitor where a “deed of indebtedness” was signed by them.  That is the deed now in issue.  It identified a balance of $85,000 as then being due and owing to Mr Barbaro.  The securities the deed offered to guarantee the repayment of the agreed debt included the residential property at Spence in the defendant’s name.

1. The circumstances in which the defendant signed the deed were said by her in her affidavit (par 9, AB 269) to be:

On Christmas eve 1999 I received a telephone call from Bob [Mr Buser] at my work in the morning.  He said that Frank Barbaro had given him half an hour to get me into Barbaro’s solicitors’ [sic] offices to sign over to him property owned by me.  I said that I was not signing anything and was too busy to leave work.  Bob nevertheless attended on my place of work a little later in the morning and was obviously distressed, and still insisting that I attend on Barbaro’s lawyers and sign some documents.  I asked Bob to wait outside and ring a solicitor for advice because I was not going to sign.  When my lunch break came I was rushed into Civic by Bob and was told on the way that Barbaro had made further threats to harm Bob, his nephew, his niece and his mother.  I was further told that he had said that I would be eating my food through a straw for the rest of my life if I did not sign the documents that day.  I kept saying I didnt want to sign anything, I was crying and extremely distressed.  I had no time to think or contact a solicitor myself.  On arrival at the offices of Vandenberg Reid I waited briefly in the reception area, was taken into an office and was shown a piece of paper that I did not read.  I was still crying and said to the solicitor that I did not want to sign the paper.  I said to Bob that if he made me sign he would never see me again.  I heard the solicitor say that as soon as the document was signed he was instructed to ring Mr Barbaro and let him know.  On hearing that name I grabbed a pen, signed the document, removed my engagement ring, threw it at Bob and left the office, still in tears.

1. That the deed was signed on 23 or 24 December 1999, though dated 4 January 2000 was confirmed by Mr Phillips, the solicitor who prepared it on Mr Barbaro’s instructions.  It is not clear why 4 January 2000 was inserted as the date of the deed but nothing turns on that.  The solicitor, had, properly, advised the defendant to obtain independent legal advice and as to the legal effect of it before signing it.  The defendant declined to get independent advice.  The solicitor did accurately and fully explain the nature and effect of the deed.  There is no suggestion that she did not understand it.

1. It was the defendant’s evidence that she declined to delay signing to get independent advice because she was in fear of what Mr Barbaro might do, either to herself or Mr Buser if she did not do so.

1. The defendant’s case was that the debt being that of Mr Buser, her signature on the deed was procured by coercion and that in equity, given that she was a volunteer, it should be set aside so far as she was concerned.

1. The learned trial judge, whilst accepting that her reason for signing the deed was fear of violence from Mr Barbaro, acknowledged, at [18] AB 18, that:

… It is not her case that there was any direct threat from Mr Barbaro, and I accept this. I accept that Mr Barbaro was truthful when he said in his evidence that he never threatened Ms Millington.

1. Mr Buser had, however, threatened Ms Millington by telling her, amongst other similar things, that if she did not sign -

… Mr Barbaro would assault her, and she would be eating through a straw for the rest of her life.

1. He also told her that he feared that Mr Barbaro would assault him if he did not sign.

1. There was no evidence nor any finding that Mr Barbaro made any of the threats attributed to him.

1. The question the trial judge posed for decision was not whether the plaintiffs had procured the defendant’s signature on the deed by threats or coercion but -   [21]

…The question is rather whether it would be unconscionable to allow them to take advantage of the deed in the circumstances where the defendant signed the deed because of what her then partner, Mr Buser, told her about threats of violence, both to him and to her, from Mr Barbaro.

1. His Honour concluded, undoubtedly correctly, that Mr Buser had exerted undue influence upon the defendant to procure her agreement to the deed in the sense in which that term was used in Bank of New South Wales v Rogers (1941) 65 CLR 42.

1. On that issue his Honour found a link with Mr Barbaro as follows:  [26]

It seems to me that in this case the plaintiffs, having instructed Mr Phillips to obtain the defendant’s signature to a deed of guarantee, in circumstances where Mr Barbaro had acknowledged a degree of violence towards Mr Buser and where he knew that Mr Buser was himself prone to violence, and knowing that the only link between the defendant and the debt was that the defendant was Mr Buser’s girlfriend, can be said to fall within this latter category where the undue influence of one party can vitiate a contract or deed between the person under the undue influence and a third party, and this is sufficient to set aside the deed.

1. His Honour was also of the view that the deed failed the unconscionability test.  First, his Honour concluded that the solicitor, Mr Phillips, had “very scanty knowledge” [28] about the origin of the debt being secured.  He was aware that the defendant was reluctant to agree to give assent to the deeds.  (see AB 22):

30However, it is his evidence, as well as hers, that she said she had no choice.  She asked what would happen if she took the deed away, and he told her that he would advise Mr Barbaro of this.  She then signed it.  It should have been apparent to Mr Phillips that she was not voluntarily entering into this arrangement, and in these circumstances the party obtaining the benefit of the guarantee of the debt cannot, merely by stating that the guarantor should obtain legal advice, avoid the consequences of the unconscionable deed.

31It seems to me that it would be unconscionable to permit the plaintiffs to hold the defendant to this deed.

1. As a consequence of those conclusions (or, indeed, either of them) his Honour set aside the deed so far as the defendant was concerned and entered judgment for the defendant with costs.

1. The claim, as originally formulated, alleged that the defendant had been indebted to the plaintiffs for the balance due of a loan of $130,941.88.

1. As the case unfolded it appeared that this sum was more appropriately characterised as an investment in Mr Buser’s business.  In any event, as the defendant had no interest in that business, even if a loan, it was not a loan to her.  Nor was she a party to the ‘investment’, though it does not appear that she objected to it.

1. There was an agreement in December 1999, evidenced by the deed, that Mr Buser would repay to the plaintiffs $85,000 in full accord and satisfaction of whatever claims they had against him arising out of those advances.

1. The first defendant demanded, as a condition of that agreement, that the $85,000 debt so created be secured.  Indeed, that had been part of the original proposal to advance monies to Mr Buser.

1. That was done in December 1999 by the deed, the subject of contention in these proceedings, dated 4 January 2000.

1. Inter alia, the deed charged the defendant’s real property with repayment of the sum of $85,000.

1. That obligation, being by deed, did not need to be supported by consideration.

1. The defence to the claim, therefore, could not rely merely on the lack of any prior obligation on the defendant to pay the settlement figure to the plaintiffs.

1. The “Points of Reply” filed by the defendant relied on coercion.  That coercion was alleged to have been constituted by –

… threats of physical violence which were made to her by or on behalf of the Plaintiffs and as a result of threats of, and the commission of, physical violence on Mr Buser by or on behalf of the Plaintiffs.

1. As the case was run it was the defendant’s case that the threats in question constituted coercion or undue influence so as to render it unconscionable that the deed should be enforced by the plaintiffs.

1. His Honour’s finding was embraced by the words used in [8] of his judgment:

It seems to me that there was ample evidence from Mr Barbaro to justify the defendant’s fear, even in circumstances where I am satisfied that Mr Barbaro did not directly threaten her with violence.  She was entitled to believe that he was a violent man, on the basis of her observations of violence that had occurred to Mr Buser.  She also knew of the shooting incident, and so would be entitled to have some fears about Mr Buser’s tendency to violence as well.

1. It was certainly open to his Honour to find that Mr Buser had told the defendant that he and she would be subjected to physical violence if they did not sign the deed.

1. However, there was no evidence that Mr Barbaro had uttered or conveyed any such threat.  The only evidence of violence referred to or put to Mr Barbaro was the incident in which he was, apparently without provocation, shot by Mr Buser.  He agreed he had physically retaliated but there is no evidence of him making any threats of violence to enforce the repayment of the monies advanced to Mr Buser.

1. Mr Barbaro gave evidence and was cross-examined.  The closest there was to any suggestion that he had threatened Mr Buser or, through him, the defendant, was the following which was put to him by counsel for the defendant [T 87]:

Ms Millington says that Bob Buser said to her – I’ll put this to you very neutrally, that Bob Buser said to her that you had said to him that if she didn’t sign these things she and the family would be eating through straws for the rest of their life.  You’ve read that somewhere? --- I’ve read that, yes.

Now she can’t say, and I don’t say, that you said those things? --- That’s right, and I can’t say that Bob said it to her neither because I wasn’t anywhere near it.

But I ask you did you say that to Bob Buser? --- No, I didn’t.  As I said I’ve got a wife and seven kids and ---

1. That response would not support any finding that Mr Barbaro uttered the threats Mr Buser conveyed to the defendant.

1. Indeed, it is clear that the defendant’s counsel sought no such finding.  In that context, his Honour’s statement that “I am satisfied that Mr Barbaro did not directly threaten her with violence” (at [8]), must be taken to have adopted the position taken by her counsel.

1. It is also clear that his Honour accepted that the defendant believed what Mr Buser told her and signed the deed out of fear of Mr Barbaro.  However, whilst she could not, in context, have been regarded as unreasonable to have so believed, it does not follow that Mr Barbaro had consciously caused such a belief or was aware that she entertained it when she came to sign the deed.

1. Nor was there anything she said to Mr Phillips, the plaintiff’s solicitor, or which was observed by him, to suggest she was signing the deed out of fear of Mr Barbaro.

1. There is no doubt that the defendant was, on his Honour’s findings, coerced by Mr Buser into signing the deed.  She was clearly unhappy about doing so.

1. The question is whether those circumstances suffice to render it inequitable for the plaintiffs to rely upon the deed.

1. It should be noted also that Connolly J accepted that Mr Phillips was an honest and accurate witness.  Mr Phillips gave evidence that he noticed nothing which might have indicated the defendant was acting because of coercion by Mr Buser.  It should also be noted that the house at Spence was originally to have been purchased in the joint names of Mr Buser and the defendant.  Mr Buser, the defendant conceded, had provided $25,000 towards the purchase from his business.  Further, it was suggested to Mr Barbaro by the defendant’s counsel that at least some of the monies the plaintiffs had advanced to be invested in Mr Buser’s business had in fact been put towards the purchase of the Spence property.

1. The equitable principles applicable are not in question.

1. In Bank of New South Wales v Rogers (supra), the plaintiff had been induced by her uncle, on whom she had habitually relied for business advice, to charge her property to support his overdraft with the bank.  The bank manager knew the security was at risk and that the plaintiff had no advice independently of her uncle.  The full import of the transaction was not explained to her nor apparently understood by her.  It was found that the plaintiff entered upon the transaction under the undue influence and fraud of her uncle.

1. That operated against any volunteer claiming under the uncle but only if the bank was aware of the special relationship of the plaintiff and her uncle which enabled the latter to exert undue influence over her.  Starke J at 55 said:

… then it was for the bank to establish that the security given to it by the respondent was free from any undue influence and was the voluntary and well-understood act of her mind.

1. McTiernan J agreed, stating, at 60:

… The relative situation between the bank and the respondent was, of course, not one from which equity would presume that it obtained the securities by undue influence or any form of imposition.

(61)… [to displace that position], It is necessary for her to prove that Gardiner [the uncle] procured the securities to be given to the bank by undue influence or other fraudulent means, and that the appellant through Sheridan, its manager, had notice either actual or constructive that the securities were obtained by such means.

Williams J also agreed.

1. In that case the bank had notice of the relationship between the uncle and the plaintiff which gave rise to a presumption that the plaintiff was subject to undue influence.  Hence, it was incumbent upon the bank to prove that she acted voluntarily and with due understanding.  The bank failed to discharge that onus.  It was necessary that she should have had independent advice before charging her property to support what the bank also had noticed was a financially hopeless cause.

1. To similar effect was Commercial Bank of Australia v Amadio (1983) 151 CLR 447. The mortgagors, elderly migrant parents of the principal debtor, were persuaded by their son to support his overdraft facility. They did not know, but the bank did, that the bank and the son’s company had been selectively dishonouring cheques to give a false impression of solvency. The bank was also aware that the extent of their potential liability had been misrepresented to them by their son.

1. Gibbs CJ decided in favour of the plaintiffs because the bank had failed to disclose relevant information of which it was aware and of which it was apparent they were not.

1. Mason, Wilson and Deane JJ referred to the special position of disability which the mortgagors had been under which rendered it unconscientious for the bank to rely upon the guarantee.

1. Mason J distinguished unconscientious conduct from undue influence at 461:

… Although unconscionable conduct in this narrow sense bears some resemblance to the doctrine of undue influence, there is a difference between the two. In the latter the will of the innocent party is not independent and voluntary because it is overborne.

1. The two considerations may, of course, be simultaneously present or overlap.

1. Deane J noted that, at 479:

… Mr. and Mrs. Amadio's disability and the inequality between themselves and the bank must be held to have been evident to the bank and, in the circumstances, it was prima facie unfair and "unconscientious" of the bank to proceed to procure their signature on the guarantee/mortgage.

1. The essential point was the knowledge of the bank of the special position of disadvantage of the debtor’s parents.

1. That point was reinforced by Garcia v National Australia Bank Ltd (1998) 194 CLR 395. It was, in the context of a wife guaranteeing loans made to her husband, held sufficient to prevent enforcement that the wife did not understand the nature, purport and effect of the transaction, that the transaction was voluntary, that the creditor understood that the husband was in a position of special influence over the wife and may not have explained the purport and effect of the transaction to her and that the creditor took no steps to explain the transaction, or to find out that it had been so explained, to her.

1. In the present case, even if the defendant had been placed in such a category of special disadvantage, the purport and effect of the transaction was clearly explained to her.  There is no doubt she fully appreciated the consequences to her of signing the deed.

1. A similar issue was addressed by this Court in Watt v State Bank of New South Wales [2003] ACTCA 7 (13 March 2003). In that case parents had guaranteed a financial obligation of their son and his partner who ran a business financed by the bank. The issue was whether the mother had been the victim of undue influence from the father in signing the relevant documents and whether the bank had breached any duty, such as was acknowledged in Garcia (supra), to either or both of them.

1. Higgins CJ and Crispin P, with whom Madgwick J agreed, held that no presumption of undue influence should be held to arise from the fact that a lender knows that a guarantor is married to or in a marriage-like relationship with a debtor or co-guarantor nor from a familial relationship such as parent and child.  Nor was there present the other aspect referred to in Yerkey v Jones (1939) 63 CLR 649 and which was present in Garcia (supra), namely, that the guarantor had no sufficient understanding of the transaction so as to give an informed consent to it.  A familial or marital relationship between debtor and guarantor(s) may enliven enquiry as to undue influence but, of itself, does not give rise to a presumption that it is present.

1. Neither of the plaintiffs, nor Mr Phillips representing them, had any notice of any ‘special disability’ suffered by the defendant.  Indeed, the only special vulnerability she had was the fact that Mr Buser had conveyed threats of physical violence, which he attributed to Mr Barbaro, if she did not sign.  Whilst her behaviour was consistent with having been so threatened, it did not convey that or any like information to Mr Phillips.  It was not such as to put him on notice that there might be some such influence being brought to bear upon her.

1. It follows that unless there was evidence to warrant a finding that the plaintiffs or either of them (or Mr Phillips as their agent) knew or ought to have known that the defendant was executing the deed under the undue influence or coercion of Mr Buser, then, although she may have found the threats believable and reasonably believed them, her belief that they had been made could only vitiate the transaction insofar as the plaintiffs (Mr Barbaro in particular) had made such a threat or was aware that Mr Buser would represent that it had been so made.

1. Thus, it seems to us that the plaintiffs must succeed on this appeal.  No equitable grounds have been shown to exist to render it unconscionable for them to enforce the security offered by the deed.

1. It may be added that the suggestion that Mr Buser provided part of the deposit and some unspecified part of the monies advanced by the plaintiffs for the purchase of the Spence property if it had been established would have warranted a conclusion that she has been relieved, by reason of the result in these proceedings, of any obligation to account to Mr Buser or, through him, to the plaintiffs for the value, if any, of Mr Buser’s equitable interest in the Spence property.  The matter has, however, proceeded both in this court and at first instance on the assumption that the defendant was a volunteer.

1. The matter should be remitted back to the Supreme Court for ancillary orders to be made to reflect these reasons.

1. The appeal is otherwise upheld with costs.

   I certify that the preceding seventy-four (74) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Court.

   Associate:

   Date:     2 February 2007

Counsel for the Appellant:  Mr D Hassall
Solicitor for the Appellant:  Mr Mamdouh Elmaraazey
Counsel for the Respondent:  Mr P A Fury
Solicitor for the Respondent:  Mr J Horniblow
Date of hearing:  3 May 2006
Date of judgment:  2 February 2007