Garcia v National Austsralia Bank Limited
[1998] HCATrans 57
IN THE HIGH COURT OF AUSTRALIA
Office of the Registry
Sydney No S18 of 1997
B e t w e e n -
JEAN BALHARRY GARCIA
Appellant
and
NATIONAL AUSTRALIA BANK LIMITED
Respondent
GAUDRON J
McHUGH J
GUMMOW J
KIRBY J
HAYNE J
CALLINAN J
TRANSCRIPT OF PROCEEDINGS
AT CANBERRA ON WEDNESDAY, 4 MARCH 1998, AT 10.20 AM
Copyright in the High Court of Australia
MR D.F. JACKSON, QC: If the Court pleases, I appear with my learned friend, MR L.J.W. AITKEN, for the appellant. (instructed by Minter Ellison)
MR B.C. OSLINGTON, QC: May it please the Court, I appear with my learned friend, MR D.L. WILLIAMS, for the respondent. (instructed by Dibbs Crowther & Osborne)
MR D.M.J. BENNETT, QC: May it please the Court, I with my learned friend, MR J. STOLJAR, seek leave to appear as amicus curiae on behalf of the Consumer Credit Legal Centre (NSW) Incorporated. (instructed by J. Hutchinson, Principal Solicitor, Consumer Credit Legal Centre (NSW) Inc)
Your Honours, it would probably be convenient, subject to the Court’s view, for my application to be heard after my learned friend, Mr Jackson, has concluded his submissions because it may be unnecessary for me to pursue the application and, in a sense, it would be obviously relevant to the application whether or not he puts the matters which we would wish to put before the Court.
GAUDRON J: Thank you, Mr Bennett, yes.
MR BENNETT: If the Court pleases.
GAUDRON J: Thank you, Mr Jackson.
MR JACKSON: Your Honours, as is apparent from the written submissions, this is a case where the central issue is whether the Court’s decision, or perhaps as the Court of Appeal’s reasons would put it, Sir Owen Dixon’s decision, in Yerkey v Jones (1940) 63 CLR 649 is the law. Your Honours, may I indicate first the course which I propose to take subject to the Court, of course, in the appellant’s argument and it is as follows: to go first and briefly, of course, to the base facts; secondly, then to the question whether the present facts fall within Yerkey v Jones and, if so, why; thirdly, to the status of the principle in Yerkey v Jones, is it a decision only of Sir Owen Dixon or does it represent a decision of the Court; fourthly, to whether Yerkey v Jones has been overruled by or somehow subsumed in Commercial Bank v Amadio; fifthly, to the issue whether Yerkey v Jones should be overruled or extended or altered in some way; and, finally, in any event does the present case fall within some altered principle, if there is to be one.
Your Honours, may I turn immediately to the first of those matters, the base facts. May I take your Honours to paragraphs 1 to 9 of our written submissions where your Honours will see the underlying facts are there set out. Your Honours, there are some others, such as those in paragraph 19, to which I will come later in dealing with particular submissions, but may I mention now the most important of the basic facts. The appellant and her husband were married from 1970 to 1989. They had separated on 1 September 1988. He had been having an affair with another woman and left to live with her.
KIRBY J: What is the relevance of that?
MR JACKSON: It goes, in our submission, to one of the aspects of pressure. Your Honour will see it is the last subparagraph we referred to in paragraph 19, I think. What your Honours will see, if I could take your Honours to volume 2, at page 240 - - -
KIRBY J: I saw it written there in paragraph (g) but I wondered what on earth it had to do with the case. That is just an extraneous personal matter.
MR JACKSON: Your Honour, it may be a personal matter but it is one of the essential elements, in our submission, in discussing the situation as between the two parties to the marriage and the debtor and the surety because what she says is that she felt, under the need for the benefit of her children, to continue the marriage and to do things, in effect, that were ones with which her husband wanted her to do.
KIRBY J: Is it alleged that - was it proved that the so-called affair was going on at the time of the negotiations with the Bank?
MR JACKSON: Well, your Honour, what appears is that, so far as the evidence is concerned - and I will take your Honours to the two paragraphs in a moment - what appears is that the affair was one which had started years before. Immediately, when the marriage broke up, the husband went immediately, apparently, to take up with the lady again, and left home for that purpose. Then, your Honour, one sees also that, during the period between when the affair started - and it is not entirely clear whether it went on the whole time, it seems not to have - but the possibility was something weighing on her mind - the possibility of a marriage break up.
KIRBY J: But if every time a bank had to deal with people who were having personal relationship difficulties, it affected the validity of the transactions with the Bank, the financial situation would be in an even more parlous state.
MR JACKSON: Well your Honour, no, it does, in some circumstances. The whole notion of undue influence - for example, in Blomley v Ryan one sees references to there being no limit, really, on the circumstances that can give rise to circumstances which demonstrate undue influence and one of those, in our submission, would be the possibility that the potential movement of one of the parties to a marriage from the home would be a thing bringing pressure on the other. Maybe. Maybe it would not. Maybe it does not. But in many cases, it would. Your Honours, the two references I was going to give were page 242 in volume 2, paragraph 19 and, also, page 260 in the same volume, paragraphs 73 and 74.
KIRBY J: Is it alleged that the Bank knew of this affair?
MR JACKSON: No, your Honour, no. Your Honours, the mortgage referred to in the reasons for judgment is a mortgage of the property to which we have referred in paragraphs 2, 3 and 5 of our written submissions.
GAUDRON J: That is the matrimonial home, as it were?
MR JACKSON: Yes. At relevant times, the appellant’s husband was acting through his company, Citizens Gold Bullion Australia Pty Limited, as a trader in gold bullion, and your Honours, the guarantee which is in question is that which is referred to in paragraph 6(d) of our written submissions. I would refer also in that regard to paragraph 9.
KIRBY J: Could I understand whether or not I saw a reference in the facts to the fact that your client went to the Bank alone and dealt with the Bank alone. Was that true in respect of (d)?
MR JACKSON: Your Honour, it depends what one means by “dealing”. The finding - and I will take your Honours to it in just a moment - was that she had gone there to execute the documents, and though the documents were produced by an employee of the Bank, she was shown where to sign and she signed them. So that is the dealing. Your Honours, finally under this head as it were, the demand was made under that guarantee. That is referred to in paragraph 8 of our written submissions.
MR JACKSON: Could I come then, your Honours, to the second aspect, namely, did the case fall within Yerkey v Jones? May I say by way of introduction that in both courts below it was held that it did. Your Honours will see that in Mr Justice Young in volume 3 at page 542 about line 40 going through to page 549 line 42 and I will not take your Honours through the detail of the passage but he arrives at that conclusion in that passage and your Honours will see particularly at page 549 in the paragraph commencing about line 20, he concludes:
Accordingly in my view the plaintiff is entitled to relief setting the guarantees aside.
GUMMOW J: There was also some setting aside of the mortgage. I do not quite understand that relief. There was also some relief in respect of the mortgage, was there not?
MR JACKSON: Yes, your Honour. What his Honour said in relation to the ‑ ‑ ‑
GUMMOW J: I do not quite understand that. I can understand how one set aside the guarantee because there is nothing come back - it just sets it aside. Mortgage monies have been advanced. Was your client somehow absolved completely from her liability of the mortgage?
MR JACKSON: Yes, your Honour.
GAUDRON J: The mortgage - the sum originally secured by the mortgage had been paid out.
MR JACKSON: Yes.
GAUDRON J: And that the only monies then secured by the mortgage were those for which it was said she was liable under the guarantee.
MR JACKSON: Yes, your Honour, that is right. The order that his Honour made is at ‑ ‑ ‑
GUMMOW J: 232.
MR JACKSON: Or 558, your Honour, and he declares in paragraph 2 that there are no monies owing by her to the defendant under the mortgage.
GUMMOW J: And the monies that would have been owing would be limited to those picked up by the guarantee. Yes, thank you.
MR JACKSON: Your Honours, I was saying before that in both courts below it had been held that Yerkey v Jones, if applicable, as it were, would have applied. I have given your Honours the primary judge. In the Court of Appeal, Justice Sheller at page 612 line 28 in a passage that goes through to page 613 about line 6:
Could I go then to Yerkey v Jones 63 CLR 649 itself. The leading judgment is that of Sir Owen Dixon. His Honour’s reasons commence at page 666. Could I take your Honours to in effect the central parts of it which are at pages 683 to 686. The conclusion, if I can put it that way, can be seen on page 686 at about point 2 in the sentence commencing, “If undue influence in the full sense is not made out but the elements of pressure”, et cetera. In the passage to which I would take your Honours commencing at page 683, your Honours will see about halfway down the page his Honour refers to accepting the exposition by Justice Cussen in Howes v Bishop and Talbot v Von Boris.
The reference to Justice Cussen is a reference to Bank of Victoria Ltd v Mueller (1925) VLR 642. I will come to that case in a few moments. What your Honours will see is that his Honour says that:
That exposition, I think, shows that these cases are consistent with and recognize 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 its 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.
Could I just pause to say that I will be coming in a moment to deal with, as it were, the observation “without dealing directly with her personally”, because one of the arguments advanced by our learned friends is to say, because she went to the bank to sign the document, it is not a case where the creditor was not dealing directly with her personally. What we will be submitting is that, if one looks at the reference immediately following that to Mueller’s Case, it is obvious that what Sir Owen Dixon was talking about was not the place where something was signed but the communings, as it were, that led to the signature.
GUMMOW J: But the case was one of influence of the husband over the wife though, was it not?
MR JACKSON: Yes, your Honour.
GUMMOW J: And there was no debate as to the applicability of Bank of New South Wales v Rogers as indicating the principles by which the finance provider gets sufficiently entangled in that influence to render the finance provider, here the Bank, subject to the setting aside of the ‑ ‑ ‑
MR JACKSON: Not in this case, your Honour, no.
McHUGH J: But why is it not open to you in this case as a fall‑back position - Rogers would tend to suggest that in a situation like this the Bank is put on notice and obliged to make inquiries.
MR JACKSON: By using the ‑ ‑ ‑
McHUGH J: Simply by reason that there is some sort of special relations. Fairly obviously in Rogers it was what, an uncle and a niece. Here you are dealing with a husband and a wife.
MR JACKSON: Your Honour, I really have to put it this way in a sense because what has happened in the case has been, as I adverted to in relation to Justice Young’s approach, the case is one where it was held at first instance that the only basis was on the basis of Yerkey v Jones and there was nothing else which would enliven in the Bank any understanding that there might be some difficulty in relation to it.
McHUGH J: Was Rogers ever referred to at first instance?
MR JACKSON: I do not think so, your Honour.
GUMMOW J: And the husband was not a party, was he?
MR JACKSON: In these proceedings?
GUMMOW J: Yes.
MR JACKSON: No, your Honour.
GUMMOW J: But there were these findings against him, I suppose, is what it comes to.
MR JACKSON: Yes.
GUMMOW J: Did he give evidence?
MR JACKSON: No, your Honour. In relation to this passage, if one goes then to the next paragraph at page 683 what your Honours will see is that his Honour observes that the rules of equity relevantly have left the state of the law somewhat indefinite, if not uncertain, and then, your Honours, if one goes to the top of the next ‑ ‑ ‑
GUMMOW J: Just before we go on, Mr Jackson, one has to get this clear, I think. In the litigation so far, has the Bank’s position as you understand it been that they, as it were, are in no different position to the husband as regards the consequence of the influence?
MR JACKSON: Your Honour, I suppose, as I would understand the Bank’s position, it is this, that whatever may have been the position as between the husband and wife there was nothing in the dealings that either of them had with the Bank, to put it globally, that would give the Bank actual notice on the one hand or any form of constructive notice that there was as between husband and wife some circumstance which was some kind of improper dealing, to use it ‑ ‑ ‑
GUMMOW J: That is a different question, I suppose. The first question is: is there a case of undue influence of the husband over the wife or Yerkey v Jones undue influence over the husband and the wife and the Bank denies that? Is that its case?
MR JACKSON: No, I do not think so, your Honour, no.
GUMMOW J: Well, if that is not their case they are in Bank of New South Wales v Rogers territory.
MR JACKSON: Your Honour, could I just say in relation to that aspect the case has never been argued on that basis and I must say it has been argued purely on a Yerkey v Jones basis or some derivative of that.
McHUGH J: But arguably Yerkey v Jones is a very special application of Bank of New South Wales v Rogers even though Rogers is after it. Yerkey v Jones arguably crystallises the principle of Rogers’ Case by making it applicable prima facie in all cases of husband and wife relationships. In other circumstances where a bank takes a guarantee, it will be put on notice if there is some sort of a special relationship between the parties and, if it turns out that undue influence has been exercised on the guarantor, the bank loses its surety unless it can come within your other exception.
MR JACKSON: Your Honour, I would like to accept that proposition wholeheartedly. The difficulty in doing so, however, is that in Yerkey v Jones the view was taken that the husband and wife did not give rise to a relationship that automatically attracted the application of the principle and, your Honour, that can be seen, if one looks ‑ ‑ ‑
GAUDRON J: It is perhaps that that makes the case so hard to understand.
MR JACKSON: Your Honour, that may be. The case is, if I may say so with profound respect, somewhat worthy and one does have to endeavour to distil it a little, but I am endeavouring to do that, your Honour. To go back to what your Honour Justice McHugh was asking me, page 678 at the first new paragraph on the page it is said:
Although the relation of husband to wife is not one of influence, yet the opportunities it gives are such that -
et cetera and, your Honour, one sees also at the bottom of page 680 and the top of page 681.
KIRBY J: Is your hesitation to embrace the Rogers point that it might, if that point had been run, have raised different evidentiary questions?
MR JACKSON: It is possible, your Honour.
KIRBY J: Whereas the Yerkey v Jones point, good or bad, relies solely on the proof of the matrimonial relationship.
MR JACKSON: And the related matters, of course, that give rise to the issue, your Honour, yes. Your Honours, where I was going was at page 683 and I had taken your Honours through that and then I was at the top of page 684 and what was said in the third line on the page:
It is almost needless to say that the equitable grounds for setting aside a voluntary disposition, while well understood, recognize the indefinite variation of form which unconscientious conduct may assume.
Now, your Honours, if one goes perhaps about six lines into the next paragraph:
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.
Now, your Honours, I would invite your Honours to read the remainder of that page and to the end of the paragraph at the top of the next page and a particular matter to which we would draw attention is at the bottom of 684, top of 685:
On the other hand, the basal reason for binding the creditor with equities arising from the conduct of the husband is that in substance, if not technically, the wife is a volunteer conferring an important advantage upon her husband who in virtue of his position has an opportunity of abusing the confidence she may be expected to place in him and the creditor relies upon the person in that position to obtain her agreement to become his surety. Misrepresentation -
et cetera. Your Honours, if I could just pause to say, in those few words, as it were, in virtue of his position has an opportunity of abusing the confidence you may be expected to place in him, one sees put, in a very few words, a concept that is expressed rather more fully in the more modern writings on the topic, speaking, in effect, about the emotional and other relationships that exist between husband and wife. Your Honours, what we would seek to say about that - and I will come to this a little later - is that whilst Sir Owen Dixon was speaking quite some years ago now, what he said remains, in our submission, true.
Your Honours, the question of the amount of notice is then dealt with through page 685 and to the top of page - or information that should be given is dealt with at page 685 and the top of 686. Then one comes to a summation, on the sixth line of page 686, to which I adverted earlier:
If undue influence in the full sense is not made out but the elements of pressure, surprise, misrepresentation or some or one of them combine with or cause a misunderstanding or failure to understand the document or transaction, the final question must be -
and then your Honours will see the remainder of the paragraph.
Could I turn then, your Honours, to the elements in this case which attract the operation of the principle. Your Honours, the first thing is that the creditor took no steps to inform the appellant of the nature of the transaction into which he was entering. That that is so is to be seen from the finding of the primary judge in volume 3, at page 541, commencing at line 47, in a passage which goes through to page 542, about line 36.
GUMMOW J: Was there any evidence of any standard practice of the Bank and any standing instructions to branch offices dealing with this very frequent situation?
MR JACKSON: What there was, your Honour, was evidence - which his Honour largely did not accept - given in relation to the four guarantees that the various officers of the Bank themselves adopted a practice of speaking of giving some information, or a spiel of one kind, I think his Honour put it, to people who came in to sign guarantees. That is as far as it went, I think, your Honour.
GUMMOW J: But there was no evidence of any written directions from head office to deal with this current situation?
MR JACKSON: I think the answer is that there was not such evidence. I will check that.
So, that was the - well, your Honour, one is talking, of course, about a period 10 years ago and, in effect,.....earlier. But in any event, your Honours, the passage - - -
GUMMOW J: There was no procedures manual in evidence.
MR JACKSON: No. Your Honour will see - I will not take your Honour to the detail of it, but you will see, in relation to the earlier guarantees, that various officers of the Bank were called and they said they had a standard practice and - - -
GUMMOW J: Yes, all right.
MR JACKSON: Your Honour, the answer is as I said a moment ago. Your Honours, the passage to which I referred, at page 541 and 542, is a passage where the judge accepted the evidence of the appellant, which your Honours will see referred to at the bottom of page 541 and the top of page 542. So, your Honours, no steps were taken to inform the appellant of the transaction to which she was entering.
Your Honours, if I could take your Honours back to Yerkey v Jones 63 CLR for a moment, at page 685, about point 6 on the page, the degree of informing, as it were, is discussed in the paragraph commencing:
If the creditor takes adequate steps -
and that goes through to the top of the next page. Immediately after that, on page 686, if one goes to the passage where his Honour concludes:
If undue influence in the full sense is not made out -
et cetera, your Honours will see that he refers to elements which he describes as “pressure”, “misrepresentation” and:
failure to understand the document or transaction -
and refers to combinations of those. In our submission, each of those matters was made out in this case. Could I deal, first, with the question of pressure, and that is referred to in paragraph 19 of our written submissions. Your Honours, could I take your Honours, very briefly, to some of the matters that are there referred to? Your Honours will see - and if I could take your Honours to volume 2, first of all - - -
KIRBY J: None of these are matters which the Bank knew.
MR JACKSON: Indeed, your Honour. None of these matters. Volume 2 ‑ ‑ ‑
KIRBY J: As far as the Bank was concerned, it was dealing with a professional, intelligent woman, who was exercising her economic liberty.
MR JACKSON: Yes, your Honour. So far as the Bank was concerned, it was dealing with someone who was - your Honour, I should say that if one sees the intelligent, articulate lady referred to, that is how the appellant appeared to the judge in court. There was not evidence that when she was at the Bank she was manifesting particular intelligence or - - -
KIRBY J: It only took one minute, according to the judge’s summary of it.
MR JACKSON: Indeed, yes. “Sign here, sign here,” and she signed.
GAUDRON J: As far as the Bank was concerned, it was dealing with a lady in a marital relationship, entering into a transaction for which she obtained no obvious benefit.
MR JACKSON: Yes, your Honour.
GAUDRON J: That is another way of looking at it.
MR JACKSON: Yes, and your Honour that that is - your Honour if I could just say, dealing in a moment if I may with the effect of having some professional skill, fairly unrelated actually to anything to do with finance, being a physiotherapist, one might think, and also with the fact that one sees the expression “intelligent, articulate lady” used also in Commonwealth Bank v Peters, another case where the guarantee was set aside used by Mr Justice Cohen of the New South Wales Supreme Court in dealing with a case of that kind. It is hardly surprising, your Honour, that one does see that intelligent, articulate people feel the obligation, sometimes, to assist those to whom they are married to engage in transactions that may be thought to be for the benefit of that person.
KIRBY J: If you get inarticulate dependent people like the parents in, I think it was Karavas, or you get people with disadvantages, then it sparks an element of unconscientiousness that this case is not redolent with.
MR JACKSON: Well, your Honour, it sparks a particular position on the part of the creditor, of course. If the creditor notices, or if the circumstances are such that the creditor knows, or should know of these things, then under their Amadio doctrine the creditor is in that position. But the position as between husband and wife is one where a special situation has been held to exist and, in our submission, may be, it should be extended to other relationships, but there is no reason to chop it down.
I was going to take your Honours to volume 2, page 246. What your Honours will see is that this is one of the passages, in paragraph 35, in which the appellant deposed to the way in which her husband dealt with her in relation to financial matters. I will not read out what is set out, but your Honours will see what is set out there. One sees it, too, in paragraph 45 at the top of page 251. I think actually the paragraph numbering is missing, but it commences at the top of page 251, and then paragraph 56 at page 254, and commencing at page 255, paragraphs 59 through to 65.
KIRBY J: Are these at all to bear out the matters in paragraphs (a) to (g) of 19?
MR JACKSON: Paragraph (a), your Honour.
KIRBY J: I see, this is all (a).
MR JACKSON: The judge’s finding, accepting that evidence, your Honours will see referred to in paragraph 19(a) of volume 3 at pages 531 to 532. Your Honours will see from the judge’s findings at page 532 about line 19 through to line 46 on page 533 that she was simply presented with documents to sign in relation to various companies and as appears at page 536, line 39, through to about line 44, the judge said that he was not satisfied that the companies were anything more than the husband’s creation, he was in complete control of them. The books and records, as to who the beneficial owners were, are quite unreliable and her evidence that she was not directly involved is quite credible and he accepted it. The judge said at page 533, line 51, at the top of the ‑ ‑ ‑
KIRBY J: All of these matters in paragraphs (a) to (g), are they all the subject, in your submission, of findings that bear out the assertions in those paragraphs in your favour by Justice Young?
MR JACKSON: Yes. I should say, your Honour, the last two, (f) and (g), are ones which are not referred to specifically in the findings but they are not the subject, in our submission, on any challenge. So, your Honours, if one is looking to see was there pressure, in our submission, there was.
KIRBY J: It would be very embarrassing to a bank to have to ask a customers, “Does your partner have a volatile nature and is your partner involved in an affair?”.
MR JACKSON: It might be embarrassing to have to ask it but that would be to ask a question which, perhaps, was not the right question. The right question would be to endeavour to see whether the person who was entering into the transaction understood the nature of the transaction into which they were entering. Then, the situation which would arise would be to see whether the effect of any pressure, misrepresentation or other conduct of that kind had been allayed. Frequently, it may not have been. Sometimes it will be. That is recognised in what Sir Owen Dixon said in Yerkey v Jones. Your Honours, and I should say that the judge found that she had been pressured into executing the documents. You will see that in volume 3 at page 544 at about line 19. One of the factors, your Honours, was that she was trying to save the marriage.
Now, your Honours, could I come then to the question of another aspect referred to in the passage at page 686, that is, misrepresentation. The appellant was told that the money to be made available would only be used to buy gold. So that if the account was in overdraft there would be the asset instead. The money being used to buy the gold. If there was not the gold, there was the money. Your Honours will see that referred to - perhaps if I could give your Honours two references in the text of the evidence and two references in the findings. First of all in the text at page 250 in volume 2 in paragraph 41. The end of paragraph 41, he said:
You do not have to worry, the money is quite safe. Either the gold is there or the money is there. It is not a loan. It is just an overdraft that I use for a day or so and then it returns to zero until the next time I need it.
At page 255 in paragraph 59 ‑ ‑ ‑
KIRBY J: Is it suggested that if the Bank had said, “Are you very, very sure of this transaction?” that that would have made any difference to the wife’s having a misrepresentation from her husband? I mean, what in practice could a bank do in such a situation that would unravel this sort of information, that the misrepresentation was being given from the wife or partner in a way that was against her interest? What can a bank say except that you have got to be very careful about these things?
MR JACKSON: Well, your Honour, if the Bank had said that, it would then be a question whether she did understand the nature of the transaction she was entering into, both in relation to the guarantee and the fact that it was to be a guarantee secured by the mortgage of the house. Now, that is fundamentally the situation that would obtain and it is a question of whether the explanations would be sufficient to result in her having an awareness of that and so that the exercise of her will, as it were, was one that was, in effect, a free exercise of the will.
Now, your Honour, it may well be that in many cases one has a situation where it is unwise to have guarantees given by wives, but, your Honours, that has been the case for quite some time and inevitably, as not just the cases but also some of the articles recognise, the emotional relationship between the parties can be such that there is considerable pressure brought on the wife to give such a guarantee and that is something which the law has - if I can use the somewhat dated expression perhaps, the special tenderness that has been in the past for that situation.
KIRBY J: As Professor Cretney points out in his article, there are two things that have happened: one, wives have greater economic independence; and, two, lots of people do not have wives. They have other relationships and, therefore, the rule that is formulated as Yerkey v Jones is just not relevant to or too narrow for society today.
MR JACKSON: Your Honour, I will be coming to this in a moment, of course, but lots of people, of course, are married, very significant numbers and, indeed, whilst it may be that one needs to perhaps extend the protection, it does not follow that one should get rid of such protection as exists and, indeed, your Honours, what one sees in some of the journals to which I will come in a moment, that the notion that one should just produce a kind of Commercial Bank v Amadio equality is to give a formal equality but at the same time to perhaps not give a substantial equality because it takes away the position brought about by Yerkey v Jones and one which does recognise the true situation in a very large number of cases.
What is also put in relation to that is that the approach which would in effect put everyone in an Amadio situation is one which really is creditor driven, as it were. I do not mean that in any offensive way, but creditor driven in terms of it being one that gives undue preference to the position of the creditor and does not recognise sufficiently the particular position of a wife. In response to what your Honour put to me earlier, I was going to give your Honour a reference - and perhaps I can do so just a little later - to where the appellant said that if she had known what the true situation was, she would not have signed the documents. That in fact is page 251, paragraph 46. I was going to take your Honours in relation to this aspect ‑ ‑ ‑
GAUDRON J: It is just this next paragraph, paragraph 47. I just do not understand. Were there two different companies whose borrowings were guaranteed? Citizens Finance Corporation ‑ ‑ ‑
MR JACKSON: If I could just take your Honour to paragraph 6(b) of our written submissions, your Honour will see that the company with which - at various stages four guarantees were executed. Three were in respect of Citizens Gold, one in respect of Citizens Finance. The only guarantee with which the Court is concerned is the last one, the Citizens Gold. Paragraph 47 deals with the position of another company where she said she had no recollection that ‑ ‑ ‑
GAUDRON J: And that is not in issue in these proceedings?
MR JACKSON: No.
GUMMOW J: The only one is your paragraph 6(d), the last of them.
MR JACKSON: I am sorry, your Honour?
GUMMOW J: The only guarantee under challenge is your paragraph 6(d).
MR JACKSON: Yes, your Honour. I was going to refer also to the findings on this aspect. Your Honours will see them in volume 3 at page 540, about line 15 going through to line 22, and page 548, lines 25 to 41, then at lines 50 to 55 on the same page. Of course, your Honours, the money could be used for any purpose, not just the buying of gold. So, in our submission, there had been a misrepresentation as to the nature of the facility that was being entered into.
The third thing, referring again to what was said by Sir Owen Dixon, is failure to understand the documentation or transaction. In this regard the judge found first that the appellant was not made aware that the guarantee or liability under the guarantee was secured by the earlier mortgage on the house.
That appears from the passage which is in volume 3 at page 545 commencing about line 25 through to page 546 about line 40. The primary judge concludes by saying that ‑ ‑ ‑
GAUDRON J: Again, I take it that is because the mortgage was signed earlier for a different matter. Is that right?
MR JACKSON: Yes, your Honour. The mortgage was in existence from 1979. It was a mortgage, however, that was sufficiently wide to cover liabilities under guarantees and so on and one of the documents, your Honours, I think was a document that applied the mortgage to this guarantee in effect.
Could I just say in relation to the conclusion arrived at by the judge on page 546 about line 35 where he says:
the guarantee, if it is to stand at all, must stand on an unsecured basis.
That is, in our submission, with respect, a rather severe, if I could put it that way, approach because if the security was an essential element of the transaction as one might, in the ordinary course of events, expect it to be, failure to understand that it was being given would surely infect the whole transaction. Your Honours, in addition to the position concerning the mortgage, the misrepresentation did, of course, have its effect. Your Honours will see at page 549 in a passage from lines 19 through to 25 his Honour says she:
was informed by her husband that there would be no risk, she signed the guarantee on that basis -
and, in fact, of course there was a problem which came about. Your Honours, could I come then to the fact that the place of execution was at the premises of the Bank and your Honours will see that in paragraphs 10 and 11 of my learned friend’s submissions considerable reliance is placed upon the fact that the respondent dealt directly with the appellant in the sense that she executed the documents at the Bank.
Your Honours, that is an endeavour to fasten on to the observation made by Sir Owen Dixon in Yerkey v Jones 63 CLR at page 683. The passage at about point 6 on the page where his Honour says - it is a passage commencing:
if a married woman’s consent to become a surety -
et cetera and then goes on -
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.
His Honour, your Honours will see, uses the expression “without dealing directly with her personally” but the meaning of that expression is to be seen from the reference to Bank of Victoria v Mueller (1925) VLR at 648 which your Honours will see in note 6 immediately following and if one goes to that passage at page 648 - I will take your Honours to it in just a moment - it makes it apparent that the dealing that Sir Owen Dixon was contemplating was not simply the fact of meeting or the place of meeting but the content of the dealings that had taken place. That that is so, your Honours, appears from the second new paragraph on page 648 commencing, “On the authorities” - and your Honours, in particular, if one goes to about two‑thirds of the way through that paragraph your Honours will see the expression:
and it further appears that she had no independent advice, and that the creditor with whom she came into personal communication gave her no explanation, or only a partial explanation not covering the material matter in respect of which she was misled, and that there are no circumstances beyond such partial explanation.....and the mere signing of the document justifying the creditor -
et cetera.
So, your Honours, what is apparent from that passage, in our submission, is that it contemplates that there may be a meeting between the creditor and the proposed surety and the documents may indeed be executed in the premises of the creditor, but that is not what is contemplated by the term “dealing” in the passage that Sir Owen Dixon was referring to. Indeed, your Honours, it would seem odd if an equitable principle were to turn so much on a matter of form, namely, where the documents were executed. There are some cases, your Honours, where this issue has been raised and the submission has been dismissed rather quickly. Could I give your Honours the references to them. The first is a decision of Chief Justice King in South Australia in Challenge Bank Limited v Pandya, (1993) 60 SASR 330, and at the bottom of page 343, in the last four lines on that page, his Honour said:
The plaintiff, however, left it to the 12th defendant to arrange for the first defendant, his daughter, to attend at the bank to sign the document and the signature at the bank was a mere formality. The mere fact that the document was signed at the bank’s premises does not affect the application of the rule.
A similar view was taken by Justice Brownie in Peters v Commonwealth Bank of Australia (1992) ASC 56-135, and if I could take your Honours to page 57,364, your Honours will see in the right column, in the second new paragraph on the page:
For the reasons already stated, I think that the first of the presumptions of an invalidating tendency discussed by Dixon J has been established -
then, your Honours, through the remainder of that paragraph there is a reference to the nature of procurement, which really contemplates that one is looking at what actually resulted in the procurement as distinct from matters of form. His Honour is speaking in a context that can be seen at page 57,358, where it is apparent, in the passage commencing in the first new paragraph on that page through to the third paragraph in the right column, that what took place was the signature at the bank.
KIRBY J: That would normally be the fact, would it not, in modern banking practice?
MR JACKSON: Very frequently, your Honour.
KIRBY J: Possibly that people go to the bank to sign the documents, which are in a safe place there.
MR JACKSON: In fact, your Honour, the modern banking practice would probably be to require a guarantor, whether wife or not, to be independently advised by a solicitor not acting for any other party.
KIRBY J: That has been produced by Acts such as the Contracts Review Act, I think.
MR JACKSON: Your Honour, really - - -
KIRBY J: It did not follow Yerkey v Jones.
GUMMOW J: Yes, it was in various bank manuals of which I have direct knowledge.
MR JACKSON: I am sorry, your Honour?
GUMMOW J: That sort of requirement was in standard bank manuals for 40 years.
MR JACKSON: Yes. It is not just - it has been around for quite some time, not always observed, and particularly in the more enthusiastic financing days of a decade or so ago.
GUMMOW J: Or simply by careless people in branches.
KIRBY J: As in O’Brien.
MR JACKSON: Certainly since, in effect, (a) Amadio directed the bank’s attention back to things, secondly - - -
McHUGH J: Probably since Rogers, as long ago as Rogers, I suspect the banks, after that, started to require solicitors to give independent information.
MR JACKSON: Yes. But a further feature, of course, is that for a long time there were not too many guarantees that were called up or went bad. When the economy was going up, the issue arises - when it is going up, the issue arises less frequently and, in the 1980s, when the economy started to go down and guarantees started - - -
KIRBY J: There was a great rash of guarantee cases then.
MR JACKSON: Yes, and, your Honours, that is referred to in one of the articles to which I will come in a moment. Your Honours, could I just invite your Honours to note, also, that at page 57,358, your Honours will see that the plaintiff in that, in the first new paragraph on that page, presented as an articulate and, apparently, quite well-educated person, although without business experience and, apparently, having been quite ready to do whatever her husband asked by way of executing documents. At page 359, to which I have taken your Honours, the first paragraph dealing with what took place - perhaps one should change banks to obtain similar treatment.
Your Honours will also have seen Chief Justice King referred to an English case, Barclays Bank v Kennedy (1989) 1 FLR 356 and, at page 367, the last paragraph on the page, his Lordship referred to the fact that it had been:
argued that the fact that the wife came to the Bank to execute the charge distinguishes the present case from the cases to which I have just been referring -
so, he was unable to accept it -
in the light of the evidence, unchallenged, that her attendance at the Bank was ‘a formality’ (per the manager) and that there was no discussion -
et cetera.
Your Honours, could I come, then, to the next matter with which we seek to deal and that is, was Yerkey v Jones really a decision only of Sir Owen Dixon? Your Honours, four Justices sat. Justice Rich, at page 665, about point 9, said that he accepted fully what had been said by Justice Cussen in Bank of Victoria Ltd. v Mueller, and what your Honours will see, for example, in the paragraph commencing at the top of page 666, is that he discusses reasons why that principle did not apply in the particular case and your Honours will see, about two thirds of the way through that paragraph, he refers to a meeting which had taken place and he said he was:
unable to say that the steps taken to explain the documents were insufficient.
So, your Honours, that, for a start, is the difference between that case and this.
If one goes to Chief Justice Latham, your Honours will see that he does not dissent from the principles. That is at page 664, about point 9, where he refers to the Bank of Victoria and says:
where Cussen J. examines most elaborately the law with respect to this matter.
And that goes through to the end of that paragraph on page 665, and your Honours will note, about five lines from the bottom of that paragraph, he said:
In the present case no misrepresentation by any person is proved. The wife did in all material respects know the nature of her liability and the plaintiffs were quite entitled to suppose that she followed and understood the explanations which were given to her -
Your Honours, Justice McTiernan’s reasons, at page 690, can hardly be regarded as a dissent from what had gone before.
McHUGH J: Justice McTiernan gave the first judgment in Rogers’ Case. Sorry, no, Justice Starke, was, I believe - - -
GUMMOW J: But in Rogers, Justice McTiernan refers to Yerkey v Jones, with obvious approval, I think.
MR JACKSON: Your Honours, could I come then to the next issue, that is whether Commercial Bank v Amadio overruled or somehow subsumed Yerkey v Jones.
KIRBY J: Could I just clarify, is your submission therefore that the statement that has long been thought to be the principle derived from Yerkey v Jones in Justice Dixon’s judgment is a holding of the Court?
MR JACKSON: I am sorry, your Honour.
KIRBY J: Is it a holding of the Court? Are you submitting that what Justice Dixon says, contrary to Justice Sheller’s analysis, is in fact a principle of the decision in Yerkey v Jones?
MR JACKSON: Yes. What I am saying in relation to it, put a little more exactly perhaps, is to say that it is apparent that the members of the Court did not dissent from the exposition of the law that had been set out by Justice Cussen in Bank of Victoria v Mueller, and what Sir Owen Dixon was saying was not something which departed from that.
KIRBY J: And did Justice Cussen’s judgment have roots in 19th century English principles or expositions? I have not read Justice Cussen’s decision.
MR JACKSON: His Honour discusses the issue at considerable length, as it were. He treats the modern basis for it as being Turnbull & Co v Duval and the - - -
McHUGH J: Well, Sir Owen Dixon himself said in Yerkey that much of what followed from his judgment was simply an echo of what Justice Cussen had said in Mueller.
MR JACKSON: Yes. Your Honours, and Chaplin v Brammall, a decision of the Court of Appeal. Now, your Honours, the second of those cases, one can find echoes of the 19th century perhaps in those cases, and I have not gone into the detail of it because we have referred in paragraph 17 of our written submissions to the discussion where the history can be found conveniently, and there are two places. One is in Bank of Victoria itself. The other is in the reasons for judgment of Lord Justice Scott in the Court of Appeal in Barclays Bank v O’Brien.
GUMMOW J: It comes out of separate property of married women and the treatment of that property is something that could be done in equity but not otherwise. Equity was careful to protect married women’s separate interests.
MR JACKSON: Your Honour, that is what one sees stated in relation to it. Could I just say, however, that the Married Women’s Property Act had the effect of giving more property, or making property more disposable in the case of married women. It did not, in our submission, take away the reason why, indeed magnified the reason why, enlarged the reason why there needed to be special tenderness of equity in the case of those persons, and to treat the Married Women’s Property Act as having had the effect that not only should it liberalise the ability of married women to deal with their property, but also take away the protection given by equity, is to attribute to it, our submission, rather too much.
Your Honours, I was going to deal with the Commercial Bank v Amadio 151 CLR 447. If I could take your Honours to, in effect, two passages which seem to put shortly the principle to be derived from that case, one can see, first of all, in Justice Deane at page 474 about point 2 in the sixth line on the page, his Honour says:
The jurisdiction is long established as extending generally to circumstances in which -
He says there are two requirements:
(i) a party to a transaction was under a special disability in dealing with the other party with the consequence that there was an absence of any reasonable degree of equality between them and (ii) that disability was sufficiently evident to the stronger party to make it prima facie unfair or “unconscientious” that he procure, or accept, the weaker party’s assent.....in the circumstances where he procured or accepted it.
And, your Honours, it is put slightly differently, perhaps, by Justice Mason at page 462 where what his Honour says at about point 7 or 8 on the page is:
in order to emphasize that the disabling condition or circumstance is one which seriously affects the ability of the innocent party to make a judgment as to his own best interests, when the other party knows or ought to know of the existence of that condition or circumstance and of its effect on the innocent party.
Your Honours, the difference between the general principle in Amadio and the special position of wives in Yerkey v Jones really appears to concern the sufficiently evident or new and ought to have known aspect of the test that is referred to in the two passages to which I have referred.
Your Honour, there is no hint whatsoever in Amadio that Yerkey v Jones was being dealt with in any way adverse to its continued operation. If I could say, first of all, that Justice Dawson, who dissented, of course, obviously did not think it was being dealt with. That that is so appears from page 486 in the first paragraph of the main text where he says:
Special considerations apply in cases where a husband procures his wife to become surety for his debt and the cases dealing with these circumstances may be put to one side. See Bank of Victoria Ltd v Mueller; Yerkey v Jones.
Then, your Honours, Justices Mason and Deane refer to the Bank of Victoria on three occasions for various purposes without any suggestion of disagreement with the underlying principle. You will see those references at page 463 about point 4 where Justice Mason says:
That the principle might justify the setting aside of a guarantee is established by decisions such as Owen and Gutch v Homan and Bank of Victoria Ltd v Mueller.
Now, your Honours, I do not suggest that his Honour is doing more then than to say that the conduct of the appropriate kind can justify setting aside the species of instrument being a guarantee. At page 475 what your Honours will see about halfway down the page, again, in Justice Deane there is a reference to a guarantee and his Honour then speaks after the quotation. He says the:
above analysis was made in the context of a guarantee procured by a husband from his wife in favour of the husband’s bank. There is, however, no basis in principle or in policy for confining the process of reasoning therein contained to cases of the relief of female spouses.
Your Honours, at page 481 about point 2 his Honour refers to the Bank of Victoria in relation to the types of relief that might be granted.
KIRBY J: I notice in the argument that Dr Pannam referred to Rogers but there does not seem in the recorded argument to have been reference to Yerkey v Jones.
MR JACKSON: No. It is referred to, your Honour, but nothing more. Your Honours, could I just say that Bank of Victoria v Mueller was referred to by this Court in Vadasz 184 CLR 102, but it is in relation to the question of relief as distinct from anything else. It does not affect the present case, I should say. Your Honours, in those circumstances, if one looks at what took place in Amadio, there is nothing in the case, in our submission, to suggest that Amadio should be treated as overruling Yerkey v Jones or as in some way saying Yerkey v Jones is to be sucked up into the principle that is elaborated or stated in that case.
GUMMOW J: There is nothing new in Amadio’s Case as far as I have ever understood. It is just a case of an unconscientious dealing. It reminded a lot of people of something they needed to be reminded of and it distinguishes undue influence.
MR JACKSON: And, your Honour, what one sees also in it is that there is picked up the passage from Blomley v Ryan in which there is reference to the wide variety of considerations there can be, including, for example, sex is one of them that is named, and ‑ ‑ ‑
GUMMOW J: As well as drink.
MR JACKSON: That still exists, I think, your Honour, but what it does is really to pick up the situation that applied - I am sorry, to endeavour to restate the proposition applying it to new circumstances perhaps and there is nothing in the case, we would submit, to say that it is doing other than stating or restating the generally apposite tests, but Yerkey v Jones contains a special rule for wives.
KIRBY J: Of course, it is not unusual in the development of principle, whether in equity or common law, for instances to be the mileposts on the way to a higher plane and one possible view may be that Yerkey v Jones and other cases are instances on the way to the articulation of the higher principle in Amadio.
MR JACKSON: Your Honour, if one were to assume that Yerkey v Jones is one of the peaks, as it were, which might lead to there being a road, there is nothing to suggest that the bulldozer was being applied to it in Amadio to flatten it down to the same level as the more general cases.
KIRBY J: But the nature of cases is they present up the facts of the particular instance and the Court articulates, or tries to articulate, a principle. Then in another case where it is seen that other facts enliven a more general concept, the Court tries to express a more general concept. I think one generally does better to try to find the concept rather than the instance.
MR JACKSON: Well, of course, your Honour.
KIRBY J: But that does not necessarily mean that marital relationships or close personal relationships are not instances that enliven the concept.
MR JACKSON: Quite, your Honour. What we would seek to say is that if one looked at the decisions of this Court after Amadio had been decided, one would have seen that the decision in Yerkey v Jones was not one that was expressed to have been affected by the decision in Amadio. It would be unusual, with respect, for a decision of the Court to be overruled or treated as no longer applicable without it being mentioned, and so the situation which obtained is that you then have Amadio stating a generally apposite test and Yerkey v Jones containing a special rule in the case of one relationship, that is, husband and wife.
KIRBY J: Certainly that was the conclusion I think that Justice McHugh and I took in the Court of Appeal, that Amadio did not obliterate Yerkey v Jones.
MR JACKSON: Indeed, your Honour. Could I come then to the next question: should Yerkey v Jones now be retired or made redundant, whatever the right expression might be? Our submission is that modern conditions have not made the approach in that case obsolete or one deserving any alteration. Could I preface what I am about to say by saying that it is true of course that the principle in Yerkey v Jones is expressed in terms such that it is concerned only with the position of the wife in the relationship of husband and wife. It follows of course that as so expressed it does not confer a similar right on, for example, an unmarried woman, a divorcee, a widow, albeit one living in a long‑term stable relationship of cohabitation with another person, male or female, nor does it ‑ ‑ ‑
KIRBY J: Why do you only mention woman? I mean, there are some dependent males.
MR JACKSON: That is what I was about to say, your Honour; that is the second thing I was about to say, with respect. It does not confer a similar right on a male, whatever relationship the male might be living in. It is circumstances of that kind that have provoked observations such as those of Mr Justice Rogers in European Asian of Australia Limited v Kurland (1985) 8 NSWLR 192 at page 200. Your Honours will see in the passage commencing at page 200B his Honour said:
In more recent times, it has been acknowledged that the concept appealed to, in relation to a married woman, is at best a survivor from the days when a married woman was almost incapable in law. I feel compelled to say that in the year 1985 -
13 years ago, of course -
it seems anachronistic to be told -
and your Honours will see the passage there set out.
GUMMOW J: Well, a couple of days sitting in the Family Court might give one a different view, I suspect.
MR JACKSON: Your Honour, what I was going to say was what his Honour says is attractively put of course, but it has produced disagreement from, for example, women writers, even those who espouse strongly what might be described as the feminist cause.
KIRBY J: I do not read that his Honour is saying that it is anachronistic - I may be wrong here - to have regard to the fact that some women in personal relationships, marriage, are in a disadvantageous position but that the principle is too narrow. Is that how you read what his Honour said, that it is focusing on a factor such as marriage which is too narrow a relationship and then only for women, which is too narrow a class?
MR JACKSON: Well, your Honour, I am not certain that is what his Honour is saying. That is a submission we may be making in a moment, as an alternative effect, but what his Honour seems to be - we would have thought his Honour was saying that to be a female and a wife, if that was a sufficient qualification to enrol in the class of persons suffering a special disadvantage, and he seems to be picking up if one looks at the preceding paragraph, what is said in Amadio, that what his Honour seems to be saying is that wives should be in the position of everybody else, in effect, as dealt with in Amadio.
GAUDRON J: Do you say his Honour correctly appreciates the rationale of Yerkey v Jones?
MR JACKSON: “Correctly appreciates”, I am sorry, your Honour?
GAUDRON J: The rationale of the principle in Yerkey v Jones.
MR JACKSON: Your Honour, in our submission, no, because what is underlying Yerkey v Jones, in our submission, is not just selection of a particular class of person, if I can put it that way, because of the fact that they are married and women, but to recognise that that fact itself carries with it, and brings with it, in most cases, very many cases, an emotional relationship which makes it more likely that the person will do something, adversely to their own interests, because of that emotional relationship.
KIRBY J: But then the emotional relationship is the factor, not the marriage. The marriage is a companion, in some cases, but it is the emotional dependence of love or affection.
MR JACKSON: Your Honour, I am not suggesting that the principle should not be enlarged. What I am suggesting is that Yerkey v Jones should not go.
KIRBY J: Well, it goes if it is limited to wives and in a married relationship, because that is too narrow.
MR JACKSON: Your Honour, could I just say that it may be that your Honour is right in saying that but the way that it goes, if it is to go, should not be that it is just treated as being Amadio, because the reasons lying behind it may apply equally to other relationships but it does not mean that they should not be treated in the same way as Yerkey v Jones.
KIRBY J: It may be a play on words but it is just unthinkable to me that the principle could survive as one confined to women in a married relationship. That is just too narrow. It was, perhaps, apt in Yerkey v Jones time. It is just not apt today, as a principle.
MR JACKSON: Your Honour, may I say in relation to that, that we are, of course, interested in maintaining a situation where the appellant is a person who is released from liability under the guarantee. Now, as things stand ‑ ‑ ‑
GUMMOW J: Well, is not there another factor in this, that Yerkey v Jones is also all about the law of suretyship and guarantees where there is no consideration?
MR JACKSON: Yes, your Honour. Your Honour, that is an aspect of it. I am not entirely certain where one would go from that in relation to what was being put to me by Justice ‑ ‑ ‑
GUMMOW J: Well, there is a general tenderness towards sureties.
GAUDRON J: Or volunteers, perhaps, as well.
GUMMOW J: Yes.
MR JACKSON: Well, your Honour, that is so ‑ ‑ ‑
GAUDRON J: This is not just an identification of one particular issue which should alert the recipient of the guarantee, as it were, of the need for independent - or of the need to ensure understanding of the document or the transaction, one of many which can be identified.
MR JACKSON: If I could just go back one stage. Your Honour, if one starts, for example, with Amadio, where the persons who were to be the sureties were persons who were the parents of, in effect, the borrower’s company. The principle that emerges from that is one that is capable, no doubt, if one just looks at it, of application to, very wide, to all classes of surety. If one were to say that there is some additional feature that treats not the general principle, as it were, of Amadio as applicable, but a special one such as Yerkey v Jones as applicable, then one has to, no doubt, identify some discrimen that is to be the test.
Your Honours, what was done in Yerkey v Jones was to say, in effect, the guarantee, not for the benefit of the person giving it, and the relationship of husband and wife exists, that is a relationship which is capable of giving rise to imposition, in effect. No doubt, in order to extend a concept of that kind beyond, for example, the husband/wife relationship, one has to identify something. Perhaps it is the fact of cohabitation, as we suggest in our submissions. Your Honours, unless one were to say Amadio itself should be changed as a general proposition, then it would be difficult to say, with respect, that the fact that it is suretyship which , of course was Amadio, is sufficient to produce the reversal, in effect, of the onus. Your Honour, I do not know that I can take it beyond that, but that is all I would seek to say.
Your Honours, I had taken your Honours to what was said by Justice Rogers in European Asian of Australia v Kurland. Some observations to a rather similar effect can be seen by your Honour, Justice Kirby, in Warburton v Whiteley (1988) 5 BPR 97388, and the particular page is 11,629. Your Honours will see, in the last paragraph on that page, your Honour refers to, “The advance in the status and education of women”, and so on. Your Honours, that goes through - - -
GUMMOW J: The trouble is that a lot of the women that Sir Owen Dixon was talking about in the eighteenth century were extremely advanced persons; they were rich aristocrats.
MR JACKSON: Indeed, your Honour, indeed.
GUMMOW J: Of higher status and extreme education. They had the benefit of the doctrine.
KIRBY J: The principle was stated in that generality to apply to all women, and they certainly did not have those advantages.
MR JACKSON: And, your Honour, the position today - - -
GUMMOW J: They never got near the courts.
McHUGH J: I mean, it is sometimes forgotten that until comparatively recently, it can be probably accurately said that the history of the common law is like English history; it is the story of about 600 or 700 families. They were the principal litigants: merchants, landowners; it is only in recent times, or comparatively recent times, the courts have been opened up to all classes of society. Much of this doctrine, particularly about property, is really about the very wealthy classes.
MR JACKSON: Yes. Your Honour, what one sees, of course, today - and, your Honours, if one were, for example, to drive to here from central Sydney or central Melbourne, one would pass through a number of suburban areas where you would find different approaches being taken in different ethnic groups, and also cases where some women were more or less more liberated than others, some less liberated, some living in circumstances where they were very much under the thumb, as it were, though themselves very educated in relation to their husbands. What I am seeking to say about that - - -
KIRBY J: But this Court has to state a principle that applies to women in generality. It cannot just state a principle for the women who happen, at a certain time in their lives, to be of the money class and property class.
MR JACKSON: No, your Honour, and nor does the principle in Yerkey v Jones and we are not suggesting that there should be a principle limited to any particular class or group of people. What was suggested, your Honours, is that the principle, so far as it applies to married women, should continue to be applied. Perhaps it should go further but we do not necessarily need to go as far as that.
I was referring your Honours to the passage at the bottom of page 11,629 and the passage goes through, I think, to page 11,630 to about three lines from the bottom of the page. Your Honours will also see similar views expressed by Justice Mahoney in this case in volume 3 at pages 575 to 577. But, your Honours, there are other views, of course, and they may be seen in the ‑ ‑ ‑
GAUDRON J: The facts do indicate, do they not, that these cases not infrequently do involve educated women, educated and articulate women as they are described.
MR JACKSON: Indeed, yes. Your Honour, if I can use a word, a word that was thought to be becoming somewhat dated and apparently is coming back into use, it is often educated, articulate women who are the object of cads and those who have some money. Your Honours, I am coming back to that in a moment.
GAUDRON J: Naturally.
KIRBY J: I must not allow that. That sounds a rather sexist statement, some articulate and educated men are the objects of cads, or whatever is the version. I just think this is - it makes me feel uncomfortable that we are slipping into stereotypes.
McHUGH J: I was going to say it is just a slight paraphrase of what Lord Browne Wilkinson said in O’Brien’s case. It is the sexual and emotional ties between people in a relationship which provides a ready weapon for undue influence.
MR JACKSON: Yes, your Honour.
McHUGH J: Perhaps the real question is whether the Court should formulate a rule developing the law from Yerkey and O’Brien that a creditor is put on notice that the giving of a surety may be the subject of undue influence when the creditor knows or ought to know that there is some emotional relationship between the parties. Perhaps it needs some further extension.
MR JACKSON: Yes, well, your Honour, that is what I think we have more or less put but not on the same terms in paragraph 25 of our submissions.
KIRBY J: You fixed on cohabitation. You can have parents in relationships to children who have moved out; there is no cohabitation but there is the relationship which is a very close personal relationship.
MR JACKSON: Quite, your Honour, but as between parent and child there may be another question of an overlay of relationship of influence at least in some circumstances but, your Honour, if one is endeavouring to establish a principle building on Yerkey v Jones, Yerkey v Jones really does involve perhaps the assumption that you have husband and wife, perhaps not necessarily living together, but a relationship that in speaking in those days, in effec,t conferred cohabitation or a right to cohabitation.
In the ordinary course of events where people are not married then most often the emotional relationship that would be closest to that would be one which was evidenced by cohabitation, not necessarily, of course, but most often that would be the case.
KIRBY J: I was thinking of Karavas where there was a tremendous dependence of the Greek parents in relation to their son and it may be that it is not the living together but as Justice McHugh was saying some sexual or emotional tie that creates it. Of course, from the point of view of a bank the easy way to establish that is cohabitation.
MR JACKSON: Yes, your Honour.
MR JACKSON: Yes. Your Honour, of course, the wider the principle goes, the less there is of Amadio, in effect, in relation to sureties, of course. But accepting that, your Honour, it is a question of where one would stop. Cohabitation evidencing the emotional relationship is obviously an important starting point, at least. It may be that, beyond that, one would have to define it more specifically.
CALLINAN J: Why would not the fact that the guarantor is a volunteer be a first warning signal?
McHUGH J: Yes, exactly.
MR JACKSON: Your Honour, there is no doubt that is the first warning signal. It depends a little, your Honour, on what one means by “a volunteer” because - - -
CALLINAN J: A person unlikely to gain any financial benefit out of the transaction.
MR JACKSON: Yes. Your Honour, we have sought to put it in our submissions in paragraph 25(a) as being that the transaction was not one to the apparent advantage of the party conferring the advantage. Now, it may be that, in some circumstances, one would see where the guarantee was being given in connection with - as part of transactions in which that person was obviously involved.
KIRBY J: There could be difficulties in the facts of this case, given that your client was a director of the company and was living with the husband and was, in that sense, dependent upon his finances, or took advantage of his financial position.
MR JACKSON: Well, was known to be a director, your Honour, and was known to be a director and was known to be living with him. That is as far as it went. But, your Honour, that is really all that there was. I am not certain if your Honour was putting something to me arising from that.
KIRBY J: Well, if one is talking of volunteers, if the test is one of volunteer with no commercial advantage, in the facts of this case, on the face of things, your client would have apparent commercial advantage. She is a director of the company, and she lives with the household of the person who is the principal of the company, and stands to benefit from the transactions. Looked at from outside, a bank is entitled to say, well, such a person gains a benefit and is not strictly a volunteer in the sense that if a neighbour, or somebody else signed the guarantee - - -
MR JACKSON: Your Honour, the first of those things - being a director - might do so. The second, the relationship of cohabitation, would work the other way, because it would be the thing that would send out the warning sign.
GUMMOW J: Well, there was some practical advice, was there not, offered by the House of Lords in O’Brien as to - - -
MR JACKSON: Indeed, your Honour, yes. Your Honour, what I was going to say was that what we would submit is that both the cases and the discussion of the topic indicate that there is a continuing need for some such principle, as in Yerkey v Jones. Your Honour, could I just observe in passing that while some women may have become better educated, so, too, have their husbands. One sees, in the present case, that here the appellant had a Diploma in Physiotherapy, but her husband had an MBA from Harvard. Your Honours will see that discussed by the primary judge at volume 3, at page 535, line 20, going through to line 32 and, in financial things, one would have thought the contest was a bit unequal.
Your Honours, I have said there are dicta to be seen in the cases supporting the contention there is a need for some such rule as Yerkey v Jones. Could I take your Honours to Barclays Bank v O’Brien (1993) QB 109, at page 139, in the Court of Appeal where, commencing just above letter B, the question is posed:
Ought the law to treat married women who provide security.....in an analogous position, as requiring special protection?
And then, after the citations, just above letter C:
It is arguable that married women no longer need the protection afforded to them by cases like these. Many women, it is true, do not. But the tendency in households for business decisions to be left to the husband and for the wife, whether or not she is a joint owner of the matrimonial home and whether or not she has a separate job, to have the main domestic responsibilities still persists.
And then there is a reference to the fact that:
the degree of emancipation of women is uneven.
Your Honours, I will not read it out, but going through to towards the end of the paragraph:
that justification is still present.
Similar observations can be seen in the House of Lords in Barclays Bank v O’Brien (1994) 1 AC 180, at page 188, the paragraph commencing between D and E - and your Honours will see what Lord Justice Scott had said was adopted:
although the concept of the ignorant wife leaving all financial decision to the husband is outmoded, the practice does not yet coincide with the ideal.
And your Honours will see the remainder of that paragraph.
GUMMOW J: I am not sure what Lord Browne-Wilkinson’s speech means in terms of practicalities about notice. The position of the financier seems to turn on notice, does it not?
MR JACKSON: Yes, your Honour. Your Honour, as we have submitted, it is really a little difficult in the end in the case of wives to see that the position in Barclays Bank v O’Brien differs much from Yerkey v Jones. It seems, particularly, your Honours, when one sees the passage at page 196 the paragraph commencing between D and E.
GUMMOW J: Yes.
MR JACKSON: Your Honour, if one isolates that paragraph for a moment, it really seems to say that a creditor is:
on inquiry when a wife offers to stand surety for her husband’s debts -
and:
the transaction is on its face not to the financial advantage of the wife;
that would usually be the case and then the second thing is there is the assumed substantial risk to which his Lordship there refers. Now, your Honours, that may go further than Yerkey actually.
GAUDRON J: Well, how is the Bank to know that there is a substantial risk whereas Yerkey may tend to suggest that ought to be assumed?
MR JACKSON: Well, your Honour, that, in our submission, is really what Lord Browne‑Wilkinson is saying, that it is assumed. The passage, a little bit dealt with respect, but what his Lordship seems to be saying is:
Therefore in my judgment a creditor is put on inquiry.....by the combination of two factors -
the second one being that, as a matter of assumption:
there is a substantial risk in transactions of that kind -
and so on. So that what his Lordship seems to be saying is that in the case of the wife’s surety prima facie it will be set aside unless reasonable steps have been demonstrated. Your Honour, that is putting it slightly badly, but it is in that passage between D and F on page 196. I was going to take your Honours to a couple of other references in his Lordship’s reasons which deal with the need for some such principle continuing. What your Honours will see is on page 190 between D and E he says:
in those cases which still occur where the wife relies in all financial matters on her husband and simply does what he suggests, a presumption of undue influence within Class 2(B) can be established -
and then, your Honours, importantly, the last two lines on the page his Lordship says:
Second, the sexual and emotional ties between parties provide a ready weapon for undue influence: a wife’s true wishes can easily be overborne because of her fear of destroying or damaging the wider relationship between her and her husband if she opposes his wishes.
That is a concept, your Honours ‑ ‑ ‑
KIRBY J: I am sorry, what page was that?
MR JACKSON: That is the bottom of page 190, top of page 191.
KIRBY J: That seems to reflect something Justice McHugh said earlier.
MR JACKSON: Yes, indeed, your Honour, and, indeed, your Honours, the reference to those ties and the “fear of destroying or damaging the wider relationship” is one which recurs, in our submission, in some of the articles to which I will take your Honours very briefly in a moment.
GAUDRON J: It is not such much undue influence that is the question in Yerkey v Jones, however, or I would have thought in the rationale that underlies Yerkey v Jones as perhaps two things: one, the possibility of incomplete disclosure; and, two, not incapacity so much as the reluctance to press or even to inquire as to matters which might bring about the complete disclosure and it seems a different concept is being dealt with in Yerkey v Jones from undue influence.
MR JACKSON: Yes. His Lordship is perhaps using “undue influence” in a popular rather than a legal sense because ‑ ‑ ‑
GUMMOW J: Yes. He does not seem to be distinguishing unconscientious dealings as a distinct species.
MR JACKSON: No. That is what I was about to say, your Honour, as Yerkey v Jones does.
GUMMOW J: Yes.
MR JACKSON: But if I could just go back to what your Honour Justice Gaudron put to me a moment ago. The question of full disclosure is obviously a relevant matter but also, of course, there is the question of the slanted nature of disclosure or the fact that the disclosure is being given by a person who wants the transaction to ‑ ‑ ‑
GAUDRON J: Less than frank disclosure.
MR JACKSON: Well, less than independent, your Honour.
GAUDRON J: Yes.
MR JACKSON: I am sorry, less than independent on the part of that person, but your Honour has probably put it more accurately in saying “less than frank” because if there were full disclosure by the Bank they would not be independent but it might be frank.
KIRBY J: Is that what marriage has come to in this day and age, that from being a relationship of complete trust and devotion, it has become a suspect relationship?
MR JACKSON: Well, your Honour, your Honour says is that what it has come to. It has really been, in a sense, that way for a long time. I do not mean that in any adversely critical way, but the notion that there can be overbearing, failure to be full disclosure or the people sign guarantees in circumstances that they might not sign them if they are completely free people, is one that has been around for a very long time and Turnbull v Duval is an instance of that.
HAYNE J: And the feature which his Lordship points to at page 196D, the very informality of the communications between husband and wife may itself be the reason for the insufficiency of the information.
MR JACKSON: Yes, your Honour. That was the other reference I was going to give your Honours actually, 196B to D. Your Honours will see his Lordship there says:
even today, many wives repose confidence and trust in their husbands in relation to their financial affairs.
He speaks then of the tender treatment and invalidating tendency. Your Honours, could I say that the ‑ ‑ ‑
GUMMOW J: Just before you do that, the doctrine of notice is somehow brought in at page 195G. What he is really talking about, it seems to me, is priorities.
MR JACKSON: Yes, your Honour, that is right.
GUMMOW J: What are the priorities in dealings with property? That is not this sort of situation.
MR JACKSON: Your Honour, his Lordship seems to be arguing by way of analogy, as it were.
GUMMOW J: That would have to be so.
MR JACKSON: Your Honours, what I was going to say was that one can see some observations that are rather similar to those of the general type to which I have been referring in Justice Clarke’s reasons for judgment in Warburton v Whiteley (1989) 5 BPR 11,644, about point 6. I will not take your Honours to the passage. Could I say then that the academic discussions on the issue reflect, in our submission, a rather similar notion. A research paper was published by the Adelaide Law Review as research paper 6, the title being “Feminist Perspectives on the Law of Insolvency” by Dodds. Your Honours should have a reference to it there. It contains a number of chapters dealing with various issues but I wanted to take your Honours to some references, first of all to page 9 in Chapter 1. Chapter 1 was dealing with gender issues in insolvency law.
In the paragraph commencing about point 6 on the page, there is a reference to the enactment of the Married Women’s Property Act and there being married prior to that suffering “asymmetrical gender based legal disabilities”. If one goes from there to page 12 under the heading “The Problem of Equal Legal Capacity and Social Inequality; is Separate Treatment Justified?”, what your Honours will see is a passage commencing in the last paragraph on page 12 and which goes through the whole of page 13. May I indicate a number of aspects of it to your Honours where what is said first is:
Another option is to preserve women’s equal legal capacity and status, but to offer protection through flexible legislative provisions, legislation and judicial doctrines, predicated on a recognition of their likely social vulnerability.
Then at about line 6 on page 13:
Certain courts have already developed some limited measures, or have resurrected older equitable doctrines developed to protect married women at a time when legal capacity was restricted and subordination was much more universal. Other courts, in contrast, have apparently take a policy decision to prefer creditors as a group to women as a group.
I would invite your Honours to read the whole of that passage. It deals with, amongst other things, the matter to which I referred earlier, the fact that a recognised phenomenon of the late eighties was the emergence of sexually transmitted debt as a serious social problem. Your Honours will see what is set out there.
Now, your Honours, in relation to sureties at page 16, what your Honours will see about lines 5 or 6 on the page is:
That vulnerable person may on occasion be male; however, in the present social context, in the vast majority of cases, the principal controlling and dominant debtor is a male, and the passive, excluded, secondary debtor or surety, whose property and position is at risk, is a woman in a close personal relationship with the male debtor.
And, your Honours, if one goes to Chapter 4, which commences at ‑ ‑ ‑
KIRBY J: If you were formulating a principle you certainly would not formulate it in a gender specific basis because facts, circumstances, will present from the same sort of dependency in a different gender situation.
MR JACKSON: Well, your Honour, if one were starting from scratch, as it were, what your Honour says may well be right. But, the question is whether an existing principle, as it were, should be set aside, then, in our submission, it may be, in the present circumstances, that it is appropriate to extend the principle, there is no particular reason why it should be set aside.
KIRBY J: I thought we were into the realm of your sixth point or fifth point, that you were arguing for a wider concept, a wider ‑ ‑ ‑
MR JACKSON: No, I am sorry. I have not quite reached that ‑ ‑ ‑
KIRBY J: You just want to hang on to Yerkey v Jones?
MR JACKSON: Well, that will do for the moment, your Honour, yes.
KIRBY J: As far as I am concerned, at the moment, it seems completely unconceptual and not connected with our society today; or with dependants, which is the problem, not gender.
MR JACKSON: Your Honour, the issue with which I am seeking to deal is to say that the reasons underlying, there being a rule such as that in Yerkey v Jones, have not gone away and that there is still a need for that rule. Now, no doubt, it may operate, in some cases, where it was not needed but one has to have a rule and the particular - if one has to have a rule, the point I am seeking to make is that the preferences which I am giving and about to give your Honours, demonstrate that that rule should continue to exist for the same reasons it originally came in. Can I take your Honours to chapter ‑ ‑ ‑
GAUDRON J: The reasons it came in though do not seem to have been based on dependants, because that is covered by undue influence, I think, and they do not seem to have been - there seems to be an entirely different concept at work in Yerkey v Jones.
MR JACKSON: The concept, your Honours, is, perhaps, put in a very short way by Sir Own Dixon, the passage to which I referred a moment ago, where he speaks of the opportunity, in effect, as between husband and wife arising from the relationship. That is put more fully, perhaps, more frankly, in our submission, to the same effect, today, where one recognises that there are particular emotional ties that derive from the relationship of husband and wife.
KIRBY J: But are more confined to the relationship of husband and wife. This is why, in fashioning a principle, which is expressed in terms of husband and wife, you exclude the vast number of young people today who do not get married.
MR JACKSON: Your Honour, I was about to come to that and to say ‑ ‑ ‑
KIRBY J: You seem to be lingering back lovingly in the old doctrine, which is adopted and written for the 1930s or 1900s. I am not saying the concept is not applicable. The concept may well support your client’s position. I am saying that to linger with the expression of the concept in terms of the 1930s, as far as I am concerned, is not conceptual.
MR JACKSON: I appreciate your Honour’s position, but what we are seeking to do is perhaps two things. The first is to say this principle is sufficient to, in effect, get us home and your Honour would appreciate that is a topic in which we have a mild interest. In relation to that, what we seek to say is the court below said “Out goes Yerkey v Jones”. We are saying the basis upon which the court did that was wrong. Now, we would also seek to say if Yerkey v Jones or the notions that are reflected by the course adopted in Yerkey v Jones should apply to other relationships, so be it, and we endeavour to put that as really our next stage. But what I am seeking to say at the moment is the Court of Appeal was wrong in taking the view that the circumstances that led to Yerkey v Jones have gone. That is the point I am at. The next stage is the one to which your Honour is referring.
Your Honours, the reference I was going to give was in Chapter 4, a chapter which deals with the position of women guarantors. But could I take your Honours to page 77, at the bottom of the page where the author expresses her view and says:
The Yerkey v Jones doctrine does not impose an unacceptable burden on creditors, and its immediate abolition would seem premature.
She refers, in effect, to Amadio’s Case and says:
However, gender is unlikely to be recognised as a special disadvantage per se. Further, the requirement that a creditor have at least constructive notice of the special disadvantage limits the application of the doctrine.
So she expresses her view on that issue supporting, one would think, the retention of that doctrine.
Could I refer your Honours also to the evaluation that one sees in an article in the Modern Law Review by Fehlberg entitled “The Husband, The Bank, the Wife and Her Signature” (1996) 59 MLR 675. Your Honours will see in the synopsis of the article on page 675 about half way down the main text, she says:
The central theme is that post-O’Brien, the courts continue to approach security transactions from the perspective of creditors -
which she elaborates upon. If I could take your Honours to the next page, about point 3 on the page, she says:
In particular, surety wives are typically not involved in negotiations surrounding security transactions, lack a sense of choice in emotional or economic terms about participating in the transaction, and have a tendency to act out of motivations which prioritise preservation of their family relationship above any expectation of direct financial benefit to themselves from providing security.
I should perhaps mention that if your Honours look at note 3 on page 675, she had conducted interviews with a number of sureties in relation to the article.
KIRBY J: I am sorry to go back, but the item you have handed up from the Adelaide Law Review does not seem to have an author’s name or a coversheet. There is a coversheet at the back.
MR JACKSON: I have lost her first name but it is Julie Dodds-Streeton. The article is published as Dodds, now a Victorian barrister.
KIRBY J: What year is the article?
MR JACKSON: 1994, your Honour.
KIRBY J: Thank you.
MR JACKSON: Your Honours, I was going to take your Honours then to page 679, about halfway down the page, where what is said is:
Empirical research underlines the reality that surety wives will not always be able to recount overt pressure or deception, often acting in response to debtor conduct or a desire to help, which would not amount to a ‘legal wrong.’
That is a reference to what was said by Lord Browne-Wilkinson in Barclays Bank v O’Brien.
The pressure often lies in having to live with the consequences of refusing to co-operate with a husband’s request: -
following that, your Honours, which I will not read out, your Honours will see a quotation from one of the persons to whom she spoke. At page 693, your Honours, under the heading “Conclusions”, in the first line under that heading:
Qualitative empirical evidence has been drawn on to support the argument that the legal requirements imposed on creditors and their post-O’Brien application reflect a predominantly creditor’s eye-view of a complex legal and social issue.
Your Honours, a few further lines down:
In particular, greater judicial recognition is required of the particular relationship pressures facing surety wives, the implications of their lack of involvement in the business, the often unsatisfactory meetings between sureties and their advisers, and the limited nature of the ‘benefit’ (if any) enjoyed by surety wives as a result of signing.
And that goes on through that paragraph. Finally, your Honours, on the next page, page 694, about halfway down the page, there is a reference to:
provide security out of emotional commitment to and economic dependence on their debtor husbands.
HAYNE J: If that thesis is accepted for the purposes of argument, how does requiring the surety to obtain independent advice deal with those emotional and similar pressures and ties?
MR JACKSON: Your Honour, it is no doubt an endeavour to arrive at what must inevitably be, to some degree, a compromise between a number of different interests, a number of different notions and priorities. What I mean by that is that if one went to the extreme the result probably would be that there would be no guarantees given by wives, at least in circumstances - perhaps no guarantees given in circumstances where a matrimonial home might be affected by a number of different possibilities. That is one extreme. That is no doubt an undesirable result socially, because it means that, to use Lord Browne-Wilkinson’s expression, I think, “the wealth, such as it be in the family home, cannot be utilised for what may be useful purposes.”
On the other hand, one does have to recognise that there is the possibility of there being some dependence or relationship which may not be entirely excluded by the giving of advice or independent advice. On the other hand, your Honour, if one does have a situation where what can be said is that, at the end of the day, the person who entered into the transaction entered into it of their own free will, free will being - entered into it voluntarily, perhaps I should say, that - - -
HAYNE J: But the thesis of Dr Fehlberg is that the emotional ties are so strong as often to deny the freedom of the surety wife.
MR JACKSON: Yes, your Honour. The point I am seeking to make about it is that if one were to adopt, though, the view that the surety will be bound if the surety enters into it in something that is, as far as one can tell, apparently voluntary that, in most cases, is the point at which there is, on the one hand, a recognition of the possibility of there being some abiding influence from the matrimonial relationship but a practical way of resolving, ultimately, how one determines what the result should be.
GAUDRON J: Advice might also result in some attempt at negotiating so that, for example, it is not an all moneys guarantee.
MR JACKSON: Indeed, your Honour.
GAUDRON J: It may have some practical - - -
MR JACKSON: Not all moneys limited to a particular amount and matters of that kind. Your Honour, that is - - -
KIRBY J: I am not saying these are not very relevant considerations and I notice that the House of Lords dealt with the policy questions frankly but Professor Crotney in his article puts the other side of the case, the desirability of maintaining the economic freedom of people and the fact that the principle may lead to large amounts of litigation seeking to undo transactions that people have entered into, the time that that takes up and the freezing of the capital of families because of the inhibitions that the law puts on people’s transactions which they exercise their economic freedom to engage in.
MR JACKSON: Your Honour, if one were to say what really has changed in that regard since Yerkey v Jones, the answer would be not much because that really always has been the situation and one sees perhaps Yerkey v Jones being a case coming at the end of the Great Depression. One sees in the article to which I referred a moment ago that these kinds of cases arose more in the 1980s, as no doubt this case reflects it. Your Honour, there really are not to be found terribly many cases in this area. It is not an issue that is frequently before the courts. No doubt there have been more cases in recent years but it is not an issue.
KIRBY J: It is not my experience, Mr Jackson. In the Court of Appeal I sat in, very large numbers mostly under the Contracts Review Act.
MR JACKSON: Quite, your Honour.
KIRBY J: Lots of cases come up for review of guarantee obligations by people in close relationships.
MR JACKSON: Yes, well your Honour, what that perhaps indicates is that at times the legislature has thought it appropriate to enter into the field and, in some respects, where one has an issue on which there are divided views and ones where one has the members of a legislature coming from constituencies which cover the whole area of the polity, it is in some respects better to leave the law where it is, as it were, than for the court to be engaged in endeavouring to set a standard different from the one that currently exists.
KIRBY J: You could not get up on the Contracts Review Act.
MR JACKSON: No, your Honour.
KIRBY J: And, if you leave the law as it is, if, on one view, Yerkey v Jones has been subsumed in Amadio, then that does not help you.
MR JACKSON: Well, I was treating the law as being Yerkey v Jones, your Honour.
GUMMOW J: But you would get up - if the chronology was right, which it is not, because this is 1986 - you could get up under the section 51AA of the Trade Practices Act now, probably, as unconscientious conduct on the part of the Bank, as understood at general law.
MR JACKSON: Yes.
GUMMOW J: Then you would have all those remedies under that Act. You could rewrite the guarantee to strike out the all moneys clause or whatever.
MR JACKSON: Yes. That was the issue that was never - - -
GUMMOW J: Well, it could not, because 51AA is later.
McHUGH J: What about the Fair Trading Act of New South Wales? Was it in force at that time, or the relevant time?
MR JACKSON: Your Honour, I think the answer is no.
McHUGH J: Because it contains the same provisions.
MR JACKSON: No, I appreciate that, your Honour. I think the answer is no. I would really have to check the - I do not think it is referred to anywhere in the - nor the Trade Practices Act provision, of course.
GUMMOW J: I do not think the Fair Trading Acts have a “unconscionable conduct” section like 51AA. I may be wrong about that.
McHUGH J: I thought they did, but I may be wrong.
MR JACKSON: Your Honour, I do not recall. They seem to vary a little from - - -
HAYNE J: Might I just come back a moment to this thesis of Dr Fehlberg? If the problem is one of informing the surety, then the advice given to her is of one kind; if the problem is one of empowering the surety, the advice is very different. The advice is not, “Here is the transaction you are about to make,” the advice is, “Here is the transaction you are about to make, but you should go on and you should try to make a different transaction.”
MR JACKSON: I appreciate the point your Honour is putting. It, perhaps, in that case, should come from a different person, as well, or a potentially different person, because the first advice is one that no doubt could be given by someone on behalf of the creditor, in a sense.
HAYNE J: Yes.
MR JACKSON: The second advice is one would be unlikely to be given by someone on behalf of the creditor, but the point I was seeking to make, your Honours, is because there was neither of those things in the present case one does not really need to go beyond the first for our purposes. Of course, the Court may seek to take it further, but I appreciate the point your Honour is putting to me.
HAYNE J: Yes.
MR JACKSON: Your Honours, what I was going to say was that one sees also a support for retention of Yerkey v Jones in an article by Mr Duggan in Till Debt Us Do Part (1997) 19 Sydney Law Review 220 and at the bottom of page 225 under the heading “Comment, Yerkey v Jones and equality of the sexes”, your Honours, his Honour refers to three New South Wales Court of Appeal cases and then says halfway through the paragraph:
As mentioned above, the case for special protection rests not on the proposition that women are inherently less competent than men, but on the proposition that women are disadvantaged by the dynamics of the family relationship when it comes to the disposal of family assets. It is a hollow kind of liberalism that insists on formal equality between the sexes when in fact differences between them are routinely observable in terms of endowments, opportunities, bargaining power and the like. Dixon J’s judgment may or may not have been technically correct -
he is referring there to the criticism made in Barclays Bank -
but as a matter of policy it comes pretty close to the mark. Dixon J’s judgment focuses exclusively on the position of married women, without taking account of analogous intra‑familial relationships. In this respect, it may be anachronistic, but not otherwise.
Now, your Honours, one also sees at page 229 about halfway down the page he summarises his conclusion and your Honours will see conclusion (a).
KIRBY J: But as the respondent points out, that then leaves completely unprotected by this principle the women who are in a relationship of affection or dependence or pressure but not on a relationship of husband and wife. This Court could not formulate such a principle in 1998.
MR JACKSON: Well, your Honour, perhaps if one looks - what is in relation to paragraph (b) of his second recommendation, “The same case can be made”, et cetera. Your Honour, it does not really seem to be correct to say that what he is seeking to do is to define the situation to cover the field. What he is doing, is saying, “Do not get rid of Yerkey v Jones. There is a case for maintaining it”.
Your Honours, the next reference I was going to give your Honours was one to the Law Reform Commission Report on “Sexually transmitted debt”, which is Report No 69, 1994. Could I take your Honours, and I do so very briefly, to - it is under the general heading, “Equality Before the Law: Women’s Equality”. Your Honours, paragraph 13.2:
Community consultations revealed it is a widespread problem.
Then if I could pass over, your Honours, to paragraphs 13.8 through to 13.11, pages 242 and following, your Honours will see, particularly in 13.9, observations to the effect that the quality of the consent varies. Then at the top, 13.10, again references to “emotional ties” and “emotional and physical pressure”, and 13.11:
case law suggests that women rather than men are at risk of injustice from sexually transmitted debt.
Then if I could pass over, your Honours, to paragraph 13.29, it said:
The principle of Yerkey v Jones is narrow and outmoded but nonetheless it is an important remedy for married women.
KIRBY J: I am sorry, what paragraph is this?
MR JACKSON: It is 13.29, your Honour. It is on page 250. It said:
If.....Yerkey v Jones is no longer available -
in effect -
Women are required instead to rely on the doctrines of unconscionable conduct and undue influence which.....do not easily or adequately recognise the experiences and position of women in Australia.
KIRBY J: Did they recommend any legislative action?
MR JACKSON: They found it difficult to do so, your Honour. Various recommendations were made about particular matters. You will see, for example, page 256 recommendation 13.3 about the Banking Ombudsman should be given various powers.
HAYNE J: And at page 258.
MR JACKSON: Yes.
HAYNE J: There is a further recommendation about receipt of not only legal advice but financial advice.
MR JACKSON: Yes, your Honour, that is recommendation 13.4.
KIRBY J: The principles there are not stated in a gender specific way. Of course, the suggestion that independent financial and legal advice be given to every spouse or partner that came along to a bank adds a very real factor to the cost of financial transactions in this country. You have got to weigh these things up.
MR JACKSON: Well perhaps not really. I mean, it mostly happens now.
KIRBY J: Of course it does if you have got to go out and get an independent lawyer or an independent financial adviser to give you advice. That is not going to be done for nothing.
MR JACKSON: No, your Honour, but on the other hand ‑ ‑ ‑
KIRBY J: And it inhibits a person’s economic freedom in the name of a paternalistic policy.
MR JACKSON: Your Honour, if one is looking at it from some kind of cost benefit analysis in that way, if that is what takes place, then that has a cost no doubt. Equally the cost that it removes is the cost of the litigation that might otherwise have occurred so that, your Honour, it is whether the money is up front or the money is later in that regard. As a practical matter it would be much harder if there has been independent advice given at an early point to set aside the transaction later and one would expect lawyers to be saying to people it is ridiculous.
GAUDRON J: Well, the question is, it might be somebody other that lawyers that should be giving the advice.
MR JACKSON: Your Honour, I am not - I am speaking of both, your Honour, financial and legal advice, yes.
KIRBY J: The Law Reform Commission contemplated both; you have got to get a lawyer and, then, you have got to go down the street and get the financial adviser. Just imagine the factor that that adds to the cost of the provision of finance in Australia. I am not saying that it may not be appropriate in some cases but, as a general principle, it seems very large.
MR JACKSON: Your Honour, probably in the ordinary course of events you would be speaking about something of $100 to $200. I am speaking about the transaction in which a husband and wife had been involved, for example. But, your Honour, what we would seek to say is that you spend - the money you spend now is money saved later - that’s the aspect of it, your Honour.
Your Honours, if I could go, very briefly, to the other references I wanted to give? If I could refer your Honours to an article, again by Dr Fehlberg, in 15 Company and Securities Law Journal, 347. The article is Woman in “Family” Companies. It is a 1997 article, and there are two passages to which I wanted to refer your Honours. One is at page 355. One sees, at the bottom of the page, the last paragraph on the page, after a discussion, in effect, of this case in the Court of Appeal, there is a reference to:
clear illustration of the judicial tendency to bring the position of surety wives into line with that of other third party security providers. Pulling against this sentiment is the realisation of some judges that still in many families, women defer to the authority of their male partner when it comes to business decisions.
Your Honours will see the reasons for that set out in the last four lines on that page and over to the top of the next page and, your Honours, perhaps not surprisingly, that is to much the same effect as in the earlier article to which I referred. Could I go, also, your Honours, to page 364, and I wanted to refer your Honours particularly to the first new paragraph in the right column.
Your Honours, could I move from that to an article entitled “Sexually Transmitted Debt” (1994) Australian Feminist Law Journal 93, by Ms Howell. I want to refer your Honours particularly to two passages. The first is at the top of page 95 under the heading “The Social Context”, and this is a passage part of which we have quoted in our written submissions. The involvement of the first paragraph on the page - your Honours, I shall not read it out, but we would refer your Honours to what is in particularly the third line and following. Also at page 107, which is the third‑last page, the second paragraph on the page going through for about the first 10 or 12 lines of that.
Finally, your Honours, in relation to these articles, could I give your Honours a reference to an article by Stephen Smith in (1994) 47 Current Legal Problems at 35, where if your Honours see the paragraph commencing halfway down the page, he is referring to what was said by Lord Justice Scott about there still being a need for a rule in relation to wives. He goes on to discuss the need and concludes, at the bottom of that page, by saying:
Generalisations are unavoidable -
because one has to look to identifiable classes -
the question before Lord Justice Scott was not whether all wives needed to be informed but whether, in relative terms, enough wives were in this position to justify imposing a duty on creditors to advise them. It seems incontrovertible that, even in this day and age, more wives than husbands would benefit from such a duty. But is the difference large enough? That is the difficult question on which reasonable people may differ.
But the point to which we would make particular reference is the fact that he refers to the need, as a practical matter, to have identifiable classes of people and it is a question of whether there are enough people to justify the change.
Your Honours, could I say that running through those observations is the view that there is a continuing need for a special protection for wives. Your Honours, I expect to be about another 20 to 25 minutes.
KIRBY J: Miss Howell expresses it in terms of women on men rather than wives on husbands. She says the basic problem is that until now women have been regarded economically as mere appendages of their men and forced to accept full responsibility from a personal relationship’s sexually transmitted debts.
MR JACKSON: Your Honour, what one sees, of course, is that one recognises that there are many relationships entered into today which are not those of husband and wife. They become so in many cases, but there are many relationships, but the particular observation that he was making in the passage to which I just referred was whether there still existed a sufficient justification for retaining the rule in relation to wives.
GAUDRON J: Mr Jackson, we will sit on until 1 o’clock.
MR JACKSON: Thank you, your Honour. Your Honours, what I was going to say then was that running through the observations in the passages to which I have referred is the view that there is, in our submission, a continuing need for some special protection for wives and your Honours will see that particular emphasis has been placed on a great variety of social backgrounds that exist and the financially subservient role which so many wives, despite formal equality, actually play and your Honours will see two of those passages that particular emphasis was placed or also placed on the emotional ties which exist in marriage, sometimes increased by the presence of children.
Your Honours, we submit that that is not really very different from what was contemplated by Sir Owen Dixon in the passage in Yerkey v Jones at page 685 when he said that the husband has “an important advantage” and:
in virtue of his position has an opportunity of abusing the confidence she may be expected to place in him -
that is 685, about point 2.
Now, your Honours, could I just say one other thing. There does remain the fact of marriage and it is still, in the relevant statutes and using the words of Lord Penzance in Hyde v Hyde, a voluntary union and that means, of course, in practical terms, a commitment to each of the persons involved and the recognition that there is a mutual emotional commitment of a serious kind can be seen by two things. One is the fact that people who have lived together, sometimes for years, then, in effect, take the step of getting married and one also sees that same sex couples often go through a ceremony akin to marriage and, your Honours, the notion that is involved is that the marriage actually means something.
Could I deal also your Honours with a subset in effect of it, and that is that the proposition that because the appellant appeared in court as an “intelligent, articulate lady” she should somehow be regarded as less entitled to rely on the doctrine. Your Honours, could I say two things; one specific, one more general. The observation by Justice Young in that regard appears twice in his reasons, the first is at page 535, line 15 where he says that:
Mrs Garcia presented herself as a capable and presentable professional.
He is obviously there speaking about the way she appeared in court. The second is at page 551 at about line 9 where he said:
what in fact occurred was that an intelligent articulate lady with a professional position called at the Bank, appeared to be voluntarily signing a guarantee -
and so on. Your Honours, in that later reference, we would submit his Honour is really expressing a view of what might have happened from his impressions as distinct from recounting evidence from anyone of how she appeared to the Bank.
Could I turn then to the more general question, more general aspect. At page 535 of volume 3, commencing at about line 20, his Honour said that:
Despite women’s liberation, there are still in the community a large number of women who, especially when their husband is a Master of Business Administration from Harvard and their talents lie in another field, still do trust their husbands to carry out the business from which the family will receive benefit in the way in which the husband thinks best. Furthermore they will act as directors and sign pieces of paper on request.
Our submission is that what his Honour is saying there reflects the situation that applies in many cases, and your Honours, one sees this reflected in two other references that I will give the Court. The first is in the observations of Justice Beazley in the Court of Appeal in New South Wales in Teachers Health Investments Pty Ltd v Wynne (1996) Australian Contract Reports, case number 90-071, and at page 90,484 in the right column about halfway down the page, his Honour says:
For my part, I do not accept that education and experience are necessarily an answer to a claim of unconscionability, particularly where a person is otherwise in an emotionally vulnerable state, as was the respondent.
And then a few pages over on 90,487, your Honours will see at the bottom of the left column, there is a reference:
to the difficult marital relationship between the respondent and the principal debtor.
Then, in the right column, under the quotation:
As the learned trial judge recognised, and as the appellant acknowledged, there was, in the circumstances, a clear equity as between the respondent and the principal debtor. The wife was not only in a highly vulnerable state, her will had in fact been overborne. Education or experience may not be sufficient to overcome such vulnerability, and, in this case, it clearly was not.
Your Honours, one sees, too, in a report of a forum that was conducted in Victoria in relation to sexually transmitted debt, the heading “Summary of Proceedings, Woman and Credit”, in 1992, at page 9, in a summary under the general heading at page 7, “What is sexually transmitted debt?”. Your Honours will see, on page 9, a “Case study of the finance industry’s double speak” as it is put, but your Honours will see, particularly, the paragraph commencing two paragraphs down from that heading, going to the bottom of the page. Your Honours, leaving aside the advocacy partly involved in the article and that part of the summary, what one does see is another example of someone - indeed, legally qualified - who enters into a transaction of this kind.
GUMMOW J: Has the finance industry held any of these gatherings, where they put their complaints about that - - -?
MR JACKSON: Well, your Honour, they do seem to - yes, they - - -
McHUGH J: That is the very forum the Australian Bankers’ Association perspective has put.
MR JACKSON: Page 15, your Honour, yes. That is what I was going to say.
GUMMOW J: Not in a very detailed fashion.
MR JACKSON: No, your Honour.
GUMMOW J: There it is.
MR JACKSON: It is put there and I will not discuss it - so, your Honours, in our submission, ‑ ‑ ‑
KIRBY J: Could I just ask before you wrap it up, did you look at the Canadian position or the New Zealand position for where they stand in relation to, say, the House of Lords’ approach?
MR JACKSON: Yes, your Honour. Can I give your Honour the answer to that together with the reference immediately after lunch?
KIRBY J: Thank you.
McHUGH J: There is a New Zealand Court of Appeal decision which takes a fairly tough line.
GUMMOW J: Yes.
MR JACKSON: I am sorry, your Honour.
McHUGH J: There is a New Zealand Court of Appeal decision which takes quite a tough line. It reversed the trial judge. I cannot remember the name of it.
MR JACKSON: In Canada, Yerkey v Jones seems to have been followed. Your Honours, could we just say that the issue, no doubt, is one that is not entirely straightforward, the question whether Yerkey v Jones should be overruled. There is no doubt in some sense a natural enough preference for formal equality reflected in the Commercial Bank v Amadio approach but, your Honours, that has its downside, we would submit, in the sense that many people who currently have need such advantage as may be given by the Yerkey v Jones principle would lose the advantage of that.
We would also submit, in reality in relation to the position of wives, how much change has there been. There has been an improvement in the relative position of a percentage of the population but, your Honours, we would submit, the percentage cannot be demonstrated in any very quantitative fashion and there is nothing, broadly speaking, to suggest that it is a particularly large percentage.
What we would submit is something I submitted earlier, namely, that the parliaments, with members from all types and mixes of constituencies, may well be better places to effect change and to decide on the type and extent of change, if that is to occur in terms of overruling Yerkey v Jones.
McHUGH J: Could I take you to paragraph 20 of your submission? You say:
The principle in Yerkey v Jones can be variously expressed but a convenient mode -
et cetera, et cetera, but is that really an accurate description of the principle? I may have misunderstood it. I thought Yerkey v Jones said two things. It said, first, where you have a surety given voluntarily and there is undue influence, that is really the end of the matter because the wife has an equity against the bank and, presumably, the transaction is set aside unless it is shown that it was not unconscionable for the Bank to take account of it.
The second step is where there is not undue influence in a real sense, but a failure to inform, or even negligent information given. In that context, a lot depends upon the extent to which the creditor placed reliance on the husband to inform the wife about the nature of the transaction. Now, am I wrong in thinking that is the nature of Yerkey v Jones? Because it does not accord with the way you have it there.
MR JACKSON: Well, your Honour, first of all, the undue influence aspect, I do not think we had intended to put something different. It may be, perhaps, we should have a comma or something after the words “undue influence”. I am not certain that that was - - -
McHUGH J: But if it was obtained by undue influence, then it would be set aside unless the Bank could show it was not unconscionable of it to enforce the guarantee nevertheless. That would be the ordinary rule.
MR JACKSON: Yes, your Honour. Your Honour, the case deals with two aspects; one is undue influence, which - - -
McHUGH J: But Sir Owen Dixon, in Yerkey, seemed to take the view that misrepresentation of a position, itself, was the equivalent of undue influence, because it was an abuse of the relationship.
MR JACKSON: Well, except, your Honour, that he seemed to be distinguishing between undue influence in, in effect, the strict sense, and then saying that the nature of the relationship was - and if it was undue influence, then what your Honour has said follows from that. So, that is, in effect, case one. If one looks then at the other - - -
McHUGH J: If I can just stop you there? In this particular case, the trial judge seemed to take the view that the case came within Sir Owen Dixon’s first category because there was a misrepresentation. Not that there was undue influence, but there was a misrepresentation; that there was no risk.
MR JACKSON: Well, it went beyond that a bit, your Honour, because he found she entered into it as a result of pressure and the expression “pressure” is to be found in - let us take your Honour to Yerkey v Jones, the passage at page 686 commencing in the sixth line on the page. There is a sentencing commencing:
If undue influence in the full sense is not made out but the elements of pressure, surprise, misrepresentation or some or one of them combine with or cause a misunderstanding -
and what the judge seems to have found here is pressure and that finding is at page 544, line 19. He seems to have found also misrepresentation and then, your Honours, there was a failure to understand the full nature of the document or transaction because she did not understand that giving the mortgage was part of the transaction - it was a secured transaction - on the one hand, and then she did not understand that it was to cover more than the gold or the money, in effect, to put it shortly.
McHUGH J: I thought there was a passage somewhere in his Honour’s judgment where he said that there had been a misrepresentation when the Bank had failed to prove that it was not unconscionable for it to enforce the ‑ ‑ ‑
GUMMOW J: At 685, the paragraph beginning “In the second case”:
her failure to do so may be the result of the husband’s actually misleading her - - -
MR JACKSON: And then it goes on, your Honour, to the - - -
GUMMOW J:
But, where the substantial or only ground for impeaching the instrument is misunderstanding - - -
MR JACKSON: I think that the passage your Honour Justice McHugh is looking for is at page 549, 30 to 35 perhaps.
GAUDRON J: Page 549?
MR JACKSON: 549, lines 30 to 35. That is the reference to “unconscionable”, I think.
McHUGH J: Yes, that is the passage, yes, where his Honour says:
Accordingly we have here a situation where Mrs Garcia was informed.....that there would be no risk, she signed the guarantee..... The Bank seeks to enforce the guarantee.....and the onus is on it because of the special tenderness.....to show that the transaction was not unconscionable. In my view it has failed to satisfy me - - -
Now, is that the basis on which you decided he applied Yerkey v Jones?
MR JACKSON: It is not the only basis, your Honour, because you see that he discusses Yerkey v Jones from page 542, about line 40, where he has got the number (3). That is a reference back to page 531, where he lists a number of questions which he asks himself and question 3, at about line 17 on page 531, is:
What facts can be found, if any, that point to it being unconscionable for the defendant to enforce the guarantees?
That takes one then to page 542. When one gets to page 542, you will see, in the discussion that goes on then to page 549, at page 544, line 19, the reference to “pressure”:
the husband pressured the wife to sign the document.
And so on.
McHUGH J: Yes, I know, but that does not mean that she signed it because of pressure.
MR JACKSON: The next sentence, with respect, your Honour:
She appeared to have done so, because her husband -
et cetera. Then, in the same discussion, page 546, lines 30 to 36, the lot secured by the mortgage. Page 548, through the page, really, but towards the bottom of the page particularly, her evidence was that, while she knew it was a guarantee, she thought it was risk-proof, because either the money was there or the gold. So, your Honour, it is all those features and that is in that section.
GAUDRON J: Perhaps if we could adjourn at this point until 2.15, Mr Jackson.
AT 1.05 PM LUNCHEON ADJOURNMENT
UPON RESUMING AT 2.17PM:
GAUDRON J: Yes, thank you, Mr Jackson.
MR JACKSON: Thank you. We have given your Honours’ tipstaves handwritten, for the moment, notes concerning the position in Canada and New Zealand. Could I substitute something a bit better looking for those in due course, a typewritten version of them.
GAUDRON J: Yes, thank you.
MR JACKSON: Might I also say in relation to the New Zealand position, which is the one in the smaller handwriting, if I can put it that way, there should be a further reference added after the ASB Bank Limited v Harlick and that is at page 659 point 30 to point 35. Your Honours, may I move from that then to the last - - -
KIRBY J: Can I just say whilst you are mentioning New Zealand, you said earlier that in respect of same sex relationships, people seek marriage and go through ceremonies, but the fact of the matter is they cannot have marriage, and in New Zealand recently in Quilter v The Attorney-General it was held they cannot. So that if marriage is the criterion, it simply cannot be achieved and it would seem an odd thing in this day and age where the House of Lords has accepted the importance of applying the principle more generally, that we should link it into marriage as such. I mean if it is good enough for the English to take this radical step, the House of Lords, surely we do not hang behind in 1930, 1940.
MR JACKSON: Your Honour, in the taking of that step in the United Kingdom one has to bear in mind that it was not entirely the great leap forward because what one sees is that within the extension of the principle special consideration, in fact, is given to the position of wives. Part of the principle as stated in Barclays Bank v O’Brien is that there is particular reference made to the position of wives and they are in, broadly speaking, a better position than the position of other persons who may be affected it, but perhaps I should put it slightly differently. They are in an established position. It may be that other relationships are equated to it but wives are dealt with separately. Your Honour, I do not know that I can advance it beyond that but that is the ‑ ‑ ‑
KIRBY J: I think the problem lies behind the formalities of a marriage. I mean, the problem arises from something which exists in other relationships and in de facto relationships which are so common amongst young people today that it is really rather old‑fashioned and perhaps discriminatory of us to continue a principle which related to marriage as such. However, I have had my say on the matter but I did not want the point to pass.
MR JACKSON: Your Honour, I do not know that I can advance what I have said already.
KIRBY J: Not necessarily against your client.
MR JACKSON: No, no.
KIRBY J: Your client may get into the wider principle.
MR JACKSON: Quite, your Honour. Now, your Honours, the point I was going to go to next and that is what is set out in our paragraphs 22 and following of our written submissions and what we would submit is that if the Court is of the view that Yerkey v Jones does not represent the law then a principle similar to that in Barclays Bank v O’Brien should be applied and then as we seek to say in paragraph 23 the position concerning wives is that which is set out in Barclays Bank v O’Brien (1994) 1 AC 99 at page 196D to E, the passage to which I took your Honours earlier and that is the passage between D and E where Lord Browne-Wilkinson said that:
a creditor is put on inquiry when -
and your Honours will see the two propositions there set out.
Now, your Honour, this is a case where, we would submit, that pausing at that point in relation to it, as we say in paragraph 24, those requirements were satisfied. There were no steps taken by the respondent to ensure that it did not have constructive notice of the appellant’s rights. If one goes to the actual decision in that case, page 199B to F, it really sounds very much like this case under the heading “The decision of this case”:
to the knowledge of the bank Mr and Mrs O’Brien were man and wife. The bank took a surety obligation from Mrs O’Brien, secured on the matrimonial home, to secure the debts of a company in which Mr O’Brien was interested but in which Mrs O’Brien had no direct pecuniary interest.
And your Honours will recall the judge’s findings in this case in relation to the position of the companies, the ownership of shares was not at all clear. We have set out the references, your Honours, in relation to that in paragraph 19.
KIRBY J: You withdrew one factual assertion and that related to the position as a director; is that correct?
MR JACKSON: Yes, your Honour. If your Honour looks at paragraph 26 of our submissions, halfway through it says the evidence, however, did not establish that the respondent believed that the appellant was - if your Honour cuts out the words “director and”.
GAUDRON J: In both places, both sentences?
MR JACKSON: Yes, your Honour. Your Honours, returning to page 199 of Barclays Bank v O’Brien:
The bank should therefore have been put on inquiry as to the circumstances in which Mrs O’Brien had agreed to stand as surety for the debt of her husband.
And then your Honours will see what goes on from there to the remainder of his Lordship’s reasons and the case, in our submission, was not relevantly dissimilar from the present.
Your Honours, as I have submitted earlier, it is very difficult to see, we would submit with respect, that Barclays Bank, in reality, does much more than extend the range of relationships to which a principle akin to that in Yerkey v Jones would apply and, your Honours, it is, perhaps, difficult to identify precisely what the criterion should be, and we sought to do so in paragraph 25 of our submissions. Your Honours, perhaps if one could alter subparagraph (b) of that by saying something to the effect that there was a relationship known, or which ought to have been known, to the creditor of - instead of cohabitation - emotional dependence between the debtor and the person conferring the advantage. Your Honours, subject to that, we do not wish to add to our written submissions. I refer your Honours to paragraph 26 as well, but those are the submissions which we seek to make.
GAUDRON J: Yes, thank you, Mr Jackson. Do you make your application now?
MR BENNETT: I make my application, your Honour, yes.
GAUDRON J: Is it opposed, Mr Oslington?
MR OSLINGTON: We regard it as a matter for the Court, if your Honour pleases. We do not oppose it.
GAUDRON J: Yes, thank you. Yes, Mr Bennett, we will hear your application. This is your application?
MR BENNETT: Yes. Your Honour wishes to hear my application first?
GAUDRON J: Yes.
MR BENNETT: Yes. Your Honour, what we wish to say, very simply, is this: there were three possible approaches the Court can take: there is to apply Yerkey v Jones, as my learned friend, Mr Jackson, asks for; there is to regard it has subsumed or overruled, as my learned friend, Mr Oslington, asks for; and there is to regard it as applicable, but extended to other classes, which his what we would wish to contend for.
GAUDRON J: But so did Mr Jackson, did he not?
MR BENNETT: Well, your Honour, in our respectful submission, he did not. On a number of occasions, he appeared to resist what Justice Kirby was putting to him about other groups. Most of the attack on Yerkey v Jones has been on the basis that it is discriminatory and anachronistic and so on because it deals only with wives. We would wish to address the Court very briefly - and I would take less than five minutes - on why the Court should take the Barclays Bank approach and affirm Yerkey v Jones with the extensions in that case, and we have - - -
McHUGH J: But why should we give you leave? You will want to put a view in favour of the organisation which you represent. The Credit Providers Association is not here. They would probably want to put the opposite view. Why should you be given leave to put submissions to the Court?
MR BENNETT: Because, your Honour, the Credit Providers Association would put identical submissions to my learned friend Mr Oslington.
McHUGH J: Well, they or may not. You are not putting identical submissions to Mr Jackson, you say. If you were, you would be out of Court. There would be no reason for ‑ ‑ ‑
MR BENNETT: Of course.
McHUGH J: So you want to put something different.
MR BENNETT: We want to put something different from Mr Jackson, your Honour. We want to put that it would be inappropriate to affirm Yerkey v Jones in its present form but that it would be appropriate to develop it in the way developed in Barclays. That is a third position for which neither party contends. Mr Jackson in his submissions put that as a very secondary matter. In his oral submissions he largely eschewed it, no doubt for reasons concerned with the facts of this case.
McHUGH J: Yes, but we are deciding a case between parties. Now, people may not like to hear it but our essential function is to decide cases between parties. We are not here to reform the law generally. If that notion is about, which it seems to be, it ought to be dispelled. As an incident in deciding cases we may have to develop the law, but our primary function is to decide cases between parties.
MR BENNETT: Yes, your Honour. We would submit we are squarely within the principle of cases like Levy where there is a point of view not being put to the Court in a case involving important questions which affect the law of the country in a general way.
HAYNE J: A point of view relevant to the determination of the case before the Court or a point of view relevant to kinds of case raised by facts and circumstances not before the Court, Mr Bennett?
MR BENNETT: It is relevant to the way this case is determined because in determining it the Court has to choose between, saying Yerkey v Jones is not good law, saying Yerkey v Jones is good law, or saying Yerkey v Jones is good law but does not apply only to wives. Faced with those three choices, two of them represented by the parties, in my submission, it is desirable and, within the principles laid down in cases such as Levy, that a third party wishing to put that point of view should be able to do so, as amicus rather than as intervener because it is the assisting of the Court rather than putting forward an actual interest.
McHUGH J: When you talk about the principles being laid down in cases like Levy, you have expression of the Chief Justice and an expression of Justice Kirby, I think. It is not the decision of the Court.
MR BENNETT: No, I do not suggest it is, your Honour.
KIRBY J: Between the two of them there is a fair spectrum of difference.
MR BENNETT: Yes, there are. On the way it is put, either by the Chief Justice or by Justice Kirby, we would submit it is apposite to this type of case. Your Honour, as I have said, from the point of view of convenience the submissions would be very short indeed, otherwise one has the problem one occasionally gets in this Court, where one has a very important principle of law coming to the Court, in a case that may not be the best test case for it from the point of view of those who generally might, as far as the principle is being argued for. That, in a sense, may be the problem in this case. Leave having been granted, we submit it is appropriate, the parties putting forward two of the three positions, that the Court should hear the third.
McHUGH J: It seems to me that the present procedure when parties like yourself come along is the worst of all worlds, either interveners or amici should be put out of court altogether, or we ought to allow anybody to make submissions generally or, otherwise, we have to set up some sort of procedure by which we give notice to anybody who wants to come and put an opposite view to you. But you are here to put a view in favour of consumers. Unless Mr Oslington does it - and he may not want to do it - we do not hear this general view of those who would oppose your view. You are here, in effect, wanting us to develop the law, not for this particular case, you want to go beyond what Mr Jackson says.
MR BENNETT: No, your Honour, but for what I have to say, one view that might be taken is that Yerkey v Jones should not be followed because it is sexist and anachronistic.
We want to put to the Court that there is another way of dealing with it. It is probably a very rare case indeed where there is really a third position in a problem which comes before the Court, of the starkness of the type that presents itself in this case.
McHUGH J: I am not sure about that. You only have to read some of the judgments in this Court and you would find that there were four or five solutions to make to the problems that come before the Court.
MR BENNETT: Yes, your Honour, but this is a particularly important legal issue and we would submit that where that point of view is not otherwise represented, leave should be given. As I said, I will be less time putting the submissions than I have been arguing my ability to intervene. It is a matter for your Honours.
GAUDRON J: Yes, leave is granted, Mr Bennett.
MR BENNETT: If the Court pleases.
GAUDRON J: On the understanding that it is five minutes, though.
MR BENNETT: It will be, your Honour, it will be. Your Honours can illuminate the lights if I - - -
HAYNE J: We do not have them turned out.
MR BENNETT: Your Honours, the first point - - -
McHUGH J: I have not read your submissions at all. I deliberately refrained from reading your submissions, so bear that in mind.
MR BENNETT: Yes. I will not repeat them, your Honour, I will - - -
McHUGH J: No, no, but do not act on the basis that I have read your submissions.
MR BENNETT: No, I will not.
KIRBY J: Will that take you a little more time to make sure his Honour understands what you are saying?
McHUGH J: That might take a very long time.
MR BENNETT: I would merely invite your Honours to read them after I have finished. I have only three points to make. The first is this, that when your Honour Justice Kirby put to my learned friend that it was unthinkable that this Court could affirm the principle in its present form, we would respectfully submit that that must be so. First of all, most of the criticism of Yerkey v Jones has been on that basis; not all of it - and that is my second point - but most of it. Secondly - indeed, even the respondent’s submissions use adjectives to describe Yerkey v Jones which are appropriate to the sexism which, through modern eyes, it appears to manifest.
KIRBY J: Can I ask you to pause. Mr Jackson has shifted me a little. If you look at the literature that he put before us, it does seem, as a practical matter - if we are talking about practicalities - that so-called spousal - or what is the word, security, wives?
MR BENNETT: “Sexually transmitted debt”, I think, was the - - -
KIRBY J: No, no, no, I do not use that. It upsets Justice McHugh too much. The notion of a wife - - -
GAUDRON J: Spouse surety.
KIRBY J: Spousal surety, that is the practical dimension.
MR BENNETT: There is no doubt of that, your Honour, although that may not be true in 50 years time, for which time this Court will be speaking, and it is becoming less true as each year advances; it was no doubt far truer in the 1930s. More importantly, there is a practical problem the other way, because if the Court says there is one rule for a female - for a wife who is a guarantor, and another rule for a husband or unmarried partner or simply the person cohabiting with the debtor, then the bank has a problem, the financial institution has a problem, because it cannot, in its internal practices, have a distinction between the way it reacts where there is a male guarantor or a husband guarantor and the way it reacts where there is a wife. It would contravene the Sex Discrimination Act, because under section 5 of the Sex Discrimination Act it may not treat a person of a particular gender more differently from the person of the other gender - - -
GUMMOW J: Is this the federal legislation?
MR BENNETT: Yes, your Honour. Under section 6, it cannot treat a person who has a particular marital status different from someone who does not.
KIRBY J: Does that apply by the Act to banking transactions?
MR BENNETT: It applies to all, to everything, your Honour. I have the sections here. I can hand them to your Honours. I do not want to spend a lot of time on it but I have nine copies of the two sections. All we point out is that if a rule such a Yerkey v Jones is laid down in that form, it creates difficulties for a financial institution which has to apply an across the board policy to the way it deals with it. That is the first matter I wanted to address.
The second matter I wanted to address concerns the nature of the general rule and the rule in Yerkey v Jones. The point we make there is a very short one. One starts with a principle that a transaction could, if it were merely a transaction between the two cohabiting parties, be set aside, whether for misrepresentation, for undue influence, for unconscionability or some other equitable basis, need not be taken any further at this stage. Yerkey v Jones, in a sense, applies to all of them. One then says, as the second leg, whether the third party is affected by that depends upon notice. Now, obviously, situations are infinitely various. One may have noticed all sorts of things which are relevant to the misrepresentation, the undue influence, the unconscionability or anything else.
GUMMOW J: Now, for this motion of notice, that is not in Yerkey v Jones, is it?
MR BENNETT: It is implicit, your Honour.
GUMMOW J: Well, the notice is the notice of the existence of the relationship.
MR BENNETT: I am sorry, that is what I am building up to, your Honour. I am sorry, I was just coming to that.
GUMMOW J: That is the launch pad.
MR BENNETT: That is the launch pad.
GUMMOW J: That does not seem to be the sort of notice that Lord Browne-Wilkinson is talking about, though.
MR BENNETT: We submit it is, your Honour, and I will take your Honour to that, but may I just say this. The problem then becomes this. In practice, in a very large number of cases, all one has notice of is that there is a relationship of cohabitation, and we put it generally as cohabitation as being the appropriate test. I have referred you in the submissions to one party being the dominant financial partner, but we do not press it on that basis. We put it rather on the basis of simply cohabitation between the debtor and the intending guarantor.
Now, what we say is in many cases as a result a trial judge is going to have to say, “This financial institution had notice only of the facts of cohabitation and knew it was a marriage and knew it was a defacto relationship.” It knew that the two people were living together in cohabitation. It knows no more. Can we have, can we allow a situation in which one judge says, “Well, I think that is notice of the risk of undue influence” and another judge says, “I do not think that is notice of the risk of undue influence”? In the one sense they are both deciding facts. They are both saying, “Is the notice the Bank had in this case notice of a propensity for undue influence or a propensity for misrepresentation or anything else?” But because of the frequency with which that situation occurs, that question has crossed that narrow line from a question of fact to a question of legal generality and we submit for that reason ‑ ‑ ‑
McHUGH J: What do you mean by “a question of legal generality”?
MR BENNETT: A question of law ultimately, and we submit that the way to deal with that is the way that it has been dealt with in Yerkey v Jones and dealt with by Lord Browne‑Wilkinson, which is to say that is sufficient notice unless one establishes other matters showing that one has attempted to ‑ ‑ ‑
GUMMOW J: Now, who bears the onus on that second stage?
MR BENNETT: The Bank, your Honour, and that is the proposition for which we contend. It is simply a means of solving the problem of what the trial judge does when all that is before the trial judge is there has been conduct which in equity would enable it to be set aside between the cohabiting parties and all the lender knows is that there is cohabitation between principal debtor and guarantor.
McHUGH J: But that is dealing with the second leg, is it not, of Yerkey v Jones? This issue comes in the second aspect, the agency aspect. The first aspect of Yerkey v Jones and the first category seems to be straight undue influence to which there is assimilated misrepresentation which is also regarded as a breach of confidence and it is not a question of notice after that. If that is the case, the Bank then has to prove that the transaction was - sorry, the creditor has to prove that to enforce the surity is not unconscionable. It is the second aspect of it that you are dealing with with notice.
MR BENNETT: But, your Honour, that, we would submit, is simply putting it a different way round.
McHUGH J: I am not sure about that.
MR BENNETT: At the end of the day the issue is: is the Bank affected by the conduct of the principal debtor when the notice it has is not of the specific conduct but of nothing more than the fact of cohabitation. That is the ultimate issue and it is that issue which we submit should be answered in the affirmative.
KIRBY J: You mentioned cohabitation, but I repeat my disquiet about that as a criterion because it is not the source of the problem of power or information.
MR BENNETT: The problem there, your Honour, is this. Obviously if one can demonstrate knowledge of a particular relationship, a relationship in loco parentis, for example, or a relationship of individual dominance of one person over another, obviously one does not need these general principles. The issue which arises in the present case is whether one gets there in what one might call the normal situation, which is the situation where all the creditor knows is that the parties are cohabiting parties, that they are - one can use various phrases - life partners, that they are ‑ ‑ ‑
McHUGH J: But what do you mean by “cohabit”? Do you mean they live in the same structure, be it house or unit?
MR BENNETT: They live together as a unit of two people. I mean, there are various sociological definitions one can encompass which would not bring in the two university students who choose to flat together but do not have any relationship beyond that and would cover a homosexual relationship, would cover a relationship between people who are of the opposite sex who are not married. The word “cohabitation” ‑ ‑ ‑
McHUGH J: Supposing a bank knows that there are two men or two women living together and that is what they know about it. Does that throw up this presumption?
MR BENNETT: Yes, your Honour. It might not if it also knew that, although they were living at the same address, they were simply sharing accommodation without any particular relationship. The phrase “cohabitation” is an English phrase which no longer has its literal meaning.
McHUGH J: What about the fairly common situation with young people of two women and a male or two males and a woman all sharing, sometimes a relationship between two of them and other times not?
MR BENNETT: It would not cover that, your Honour. It might cover the relationship between the two where there was, but it would not cover the relationship between those ‑ ‑ ‑
KIRBY J: Is not the problem with your theory that the bank is set upon a course of investigating the personal and sexual relationships of people, which would be thoroughly undesirable?
MR BENNETT: No, your Honour, it does not need to investigate it. It only needs to investigate it if it knows the first step, if it knows this person is my lover, this person is my partner, this person is my de facto, this person is my husband or my wife.
McHUGH J: Why should it depend on cohabitation because they might be living apart?
MR BENNETT: If they were there would probably be less need for the rule. Your Honour, because it is a simple test - all one is doing is saying, “As a general rule does knowledge of a particular fact or should knowledge of a particular fact be regarded as placing one on notice?” That is the question we are asking. We are not asking the scope of an equity. We are not developing an equity and saying what should its scope be. The various equities involved are all defined elsewhere.
McHUGH J: The difficulty, Mr Bennett, is it is not living together as such that creates the problem. It is the vulnerability of the parties in relationships, the sexual and emotional ties.
KIRBY J: That is why Mr Jackson ultimately amended his paragraph 25 to read “know or ought to know of an emotional dependence”.
MR BENNETT: Yes, and that is why, your Honour, I particularly defined the word “cohabitation” as not having its original Latin meaning, if one likes, but as meaning living together in a sexual or quasi‑sexual relationship.
GUMMOW J: What about two siblings?
MR BENNETT: No, your Honour, it would not apply there.
GUMMOW J: Well, there might be two spinsters who are sharing the house ‑ ‑ ‑
MR BENNETT: Your Honour, there might be emotional ‑ ‑ ‑
GUMMOW J: ‑ ‑ ‑ that once the parents died and left them, they are pooling their resources.
MR BENNETT: Your Honour, the fact that there may be other situations ‑ ‑ ‑
GUMMOW J: They may be extremely dependent on one another.
MR BENNETT: The fact that it is difficult to draw a line and the fact that there may be other situations where it does or does not apply is not really relevant to this issue. This issue is a very short one. The issue is if the creditor knows of cohabitation and knows of nothing else which is the normal situation, is that sufficient to place the creditor on notice of a potentiality for the sort of problems that my learned friend, Mr Jackson, has been talking about.
McHUGH J: As I pointed out in Commonwealth Aviation v Amann a whole tendency of the modern law is to do away with presumptions and to make findings of fact dependent upon all the circumstances of the case.
MR BENNETT: If one does that, your Honour, one is going to have one judge saying, “In my opinion, knowledge of cohabitation does put this bank on notice”, another judge saying, “In my opinion, it does not” when there is no difference in the facts so far as the knowledge of the bank is concerned. There may of course be differences between the relationships and that is the danger. That is why one needs a rule because as all these articles tell us the situation is a daily one in the courts and the problem is what you do when that is all the creditor knows.
HAYNE J: And it might also suggest the danger of propounding a general rule without the factual substratum that throws up the problem, Mr Bennett.
MR BENNETT: One has a factual substratum in this case, I suppose.
HAYNE J: Exactly. Wife and husband, not beyond.
MR BENNETT: Yes, but, your Honour, that involves the difficulty - all the other difficulties of Yerkey v Jones and the Sex Discrimination Act and modern approaches to these things.
May I just do two things before I sit down in relation to supporting this proposition, because I am conscious that I have gone longer than I indicated I would, and that is to refer, first, to one passage in the article your Honours were taken to by Duggan, “Till Debt Us Do Part.” It is the paragraph immediately after one read by learned friend, Mr Jackson. It is on page 226 of volume 19 of the Sydney Law Review, and I will not take your Honours right through the paragraph, but I just remind your Honours of the last two sentences of that paragraph, where the author says:
The trouble is that the decision -
that is Wynne’s Case -
assumes the fact situation to have been an isolated one. If the court had recognised its recurrent nature, it would hardly have rejected the case for a special rule.
That really is the way we put it. And there are passages in Barclays which support that. May I just show your Honours two passages? The first is at page 195G of the report, which is (1994) 1 AC, Lord Browne‑Wilkinson says:
The key to the problem is to identify the circumstances in which the creditor will be taken to have had notice of the wife’s equity -
and that we respectfully agree with, or respectfully put to the Court and, on the next page, after the passage my learned friend, Mr Jackson, read between C and D about the informality of dealings and the substantial risk and the reasons for the tenderness his Lordship says:
Therefore in my judgment a creditor is put on inquiry when a wife offers to stand surety for her husband’s debts by the combination of two factors: (a) the transaction is on its face not to the financial advantage of the wife; and (b) there is a substantial risk in transactions of that kind that, in procuring the wife to act as surety, the husband as committed a legal or equitable wrong that -
enables her to set it aside. And two pages later, he extends that to other relationships, and that is on page 198, between C and E, where he - - -
GUMMOW J: Now, there is a corollary to what Justice McHugh is putting to you? One of the tendencies of the modern law has been to get away from constructive notice. It has been said, for 100 years, to be not an attractive doctrine that comes out of old style conveyancing. Here we are, it is a world away from old system conveyancing.
MR BENNETT: Your Honour, constructive notice generally is irrebuttable. This is a situation of when one presumes, from a certain fact, that there is notice, which presumption is rebuttable. Obviously, in any individual case - - -
GUMMOW J: Well, it is a species of implied notice, I suppose, really.
MR BENNETT: I mean, I suppose in a particular case a bank might say, “Well, yes, but we also knew that the guarantor had a Harvard Business School degree and was concerned with dealings with this branch of the bank frequently, and had great business acumen, and did not appear to be under the influence of the other party.” If those matters were shown, it might rebut it. So, it is not a matter of constructive notice as much as a presumption which says if you know fact X and no more, that is enough to put you on notice and you have certain duties.
GUMMOW J: That is implied notice. That is the doctrine of implied notice, is it not?
MR BENNETT: It is much closer to that, yes, but it is rebuttable.
GUMMOW J: But even so.
MR BENNETT: Otherwise, your Honour, one is left with the problem of, what does the trial judge do when faced with a recurrent fact situation which comes before many judges many times a year, and is the trial judge to say, “Well, I have to form my own view on whether I think, knowing that cohabitation exists, is enough to put someone on notice or not.” That, we
submit, puts trial judges in an impossible position and creates uncertainty in the law. Those are my submissions if the Court pleases.
GAUDRON J: Yes, thank you, Mr Bennett. Thank you, Mr Oslington.
MR OSLINGTON: Your Honours, the appellant’s case essentially is that there was some equity in her favour as between herself and her husband and that when she gave the guarantee to the Bank, the Bank was fixed with notice of that equity so as to make it unconscionable for the Bank to take advantage of the bargain, in the absence of satisfying the Court that it, the Bank, fully explained the transaction to the wife. Analysed in that way, in our submission, the principles in Amadio, which do no more than restate equitable principles which have been in existence for a long time, apply, namely, that the person in the position of a bank will not be fixed with an equity of that kind unless that person has notice, as explained in Amadio, of the existence of that equity.
McHUGH J: It is a very strange doctrine, though, is it not, all told, because, in theory, her equity is that she has an equity against her husband, but she may have conferred some benefit on him but that is not what binds her in any way. It is because she has entered into a transaction with the Bank that binds her. So, she has got no binding ‑ if the Bank would waive her obligation, she has no obligation to the husband. Yet, the theory seems to be that it is the equity arising from her husband’s conduct towards her that binds the Bank.
MR OSLINGTON: That is how the authorities seem to analyse it, your Honour.
McHUGH J: I know.
MR OSLINGTON: But what the appellant does in this case so far as notice is concerned is to rely upon the decision in Yerkey v Jones as authority for the proposition that knowledge on the part of the bank that she was the wife of the person who controlled the company whose debts was guaranteed is sufficient to make it unconscionable for the bank to enforce the guarantee unless the bank can satisfy the court that it fully explained the guarantee to her. Now, in our submission, properly analysed Yerkey v Jones is no more than an example of an instance of what was regarded in 1930 as sufficient in a factual sense to sound sufficient warning bells to give sufficient notice to the bank.
Yerkey v Jones itself, of course, is a case which - or Justice Dixon’s judgment is really founded upon a line of authority going back 200 years and for the reasons we have explained in our written submissions, although it might have been appropriate to conclude as a matter of fact in 1930 and years earlier that knowledge of the marital relationship was sufficient to sound the warning bells so as to affix the bank with knowledge of the equity, that is clearly not the case today.
McHUGH J: But why should we not boldly disregard the fiction that there is an equity that the wife has against a husband which takes priority over the bank’s legal interests because of its notice and look at the realities of the situation? The reality is that in certain cases it is unconscionable for the bank to enforce a security which it knows is being given voluntarily and according to existing doctrine, I suppose, just simply in circumstances that does make it unconscionable for the bank to enforce its rights, but it is really the voluntary nature of the grant of the security in favour of the bank which makes it unconscionable for the bank to be enforcing it.
GAUDRON J: Or perhaps it is that plus the fact that if it were an arm’s‑length stranger the bank could assume that that person would have been independently advised, but cannot assume that in the case of the person in the relationship.
MR OSLINGTON: In accordance with the decision in Amadio, one first has to find what Justice Mason described as a special disadvantage, and that special disadvantage, it seems, can arise through some - I will use the neutral term ‑ misconduct by the principal debtor to the guarantor. The special disadvantage may arise simply through the intelligence, health or something of that kind.
McHUGH J: Yes, but doctrines in equity cannot harden into fixed categories; their great strength has always been their flexibility. I know we cannot treat this doctrine of unconscionable conduct as an open charter for judges to do what they think is just, there has to be some rules regulating it, but I am not sure that we should be looking for a special disadvantage or a special disabilities in every particular case.
MR OSLINGTON: They are probably only labels applied to a set of circumstances which, if it is found the creditor had knowledge of, would cause an equity court to conclude that it would be unconscionable for the creditor to take advantage of his bargain in the knowledge of those set of circumstances, whether they be described as a special disadvantage or special disability.
McHUGH J: The only reason I raise these matters is that perhaps we should be concentrating on the Bank’s conduct rather than looking at - of course, you cannot leave aside the sureties, but the focus really should be on what the Bank’s position; what it knew, what it ought to have known, what the circumstances were.
MR OSLINGTON: We respectfully agree with that, your Honour, because it is only if it is found the Bank acted unconscionably that the Bank is deprived of the benefit of its bargain. In the present case, it is said that because there was some pressure applied to Mrs Garcia and because she was told there was no risk, each of that done by the husband, of which the Bank had no knowledge, the fact that the Bank knew that she was married to Mr Garcia should have, to use Justice Callinan’s terms, “sounded sufficient warning bells” to treat the Bank as having notice of those circumstances for the purpose of the application of the principles in Amadio.
GUMMOW J: Now, your complaint really, as I understand it, is that Amadio is all about specific instances of disability spelt out of a particular complex of facts in which the Bank gets embroiled. Your complaint about Yerkey v Jones is that it does not do that. It simply takes this starting point, namely husband and wife, and then it is over to the Bank and it is their problem.
MR OSLINGTON: Justice Merkel put the position very well in Gregg v Tasmanian Trustees 143 ALR 328. We have cited a passage from their Honours’ judgment on another point. Her Honour, in that case, declined to - - -
HAYNE J: I am sure his Honour would prefer to be known as his Honour.
MR OSLINGTON: His Honour, I am sorry. I respectfully apologise to his Honour. His Honour, having rejected the so-called principle in Yerkey said at page 349, at the top of the page:
For the reasons I have set out it follows that relationships involving emotional dependence or influence, whether between wife/husband, parent/child or unmarried partners of either sex, might fall within a category of special disadvantage that attracts protection under the Amadio principles.
GUMMOW J: Well, I do not think that is an accurate statement of what Amadio said. Amadio is not a category case.
MR OSLINGTON: I am sorry.
GUMMOW J: Amadio is not a category case. It is not about categories. It is about individual situations out of which you might spell particular characteristics.
MR OSLINGTON: His Honour goes on to say:
Whether there is such a relationship which places one of the parties to it in a position of special vulnerability in relation to the transaction in question, will depend on the facts and circumstances of the particular case rather than on any general assumptions based on the category of relationship relied upon.
We respectfully adopt that as a correct statement of principle. This present case, in our respectful submission, should be decided on its facts not through the development of some general principles such as that propounded by either Mr Bennett or by Mr Jackson.
KIRBY J: But you have to have a principle. You have to have a principle of law to apply.
MR OSLINGTON: Yes. The principle is to examine the facts in this case - - -
KIRBY J: According to what criteria? You do not just fuss around amongst the facts, you have to have a theory of the law that you are applying to the facts.
MR OSLINGTON: If you look at the facts of this case, then determine what knowledge the Bank had, or should have had of those circumstances which the appellant says were disadvantageous to her, and then decide whether the Bank had, or should have had, knowledge of those circumstances and if it did have knowledge of those circumstances, whether it would be unconscionable for the Bank to take advantage of the bargain. That is really what Amadio says should be done in each case. The passages we would refer your Honours to in Amadio are first, Justice Mason at page ‑ ‑ ‑
KIRBY J: The disadvantage of this from a practical point of view is that if you have a presumption based on marriage or if you have one based on cohabitation, it is a much easier, cleaner and quicker thing for a bank being advised by its lawyers or for litigants being advised by their solicitors and it saves litigation, whereas if you are going to go in every case into all the facts, then that really is a formula for indecision and uncertainty.
MR OSLINGTON: Your Honour, a relationship of cohabitation or marriage or some other emotional relationship known to the bank may be factor relevant to take into account in deciding whether further inquiries ought to have been made or whether further care should have been taken. Mueller’s Case, for instance, which is the decision relied upon so much by Justice Dixon, was a case in which Mrs Mueller gave a guarantee for her husband’s debts and she was married. But Mueller’s Case had the additional circumstance. Mr Mueller was heavily indebted to his bank, the bank was pressing him for payment and bouncing his cheques.
Barclays Bank v O’Brien had an additional feature similar to that, and in that sense it certainly is not on all fours with the present case. The Teachers’ Federation Case in which Justice Beazley gave her judgment was a case in which her Honour, or the judge at first instance, found that the will of the wife had been overborne but, furthermore, it should have been apparent to the creditor based upon the financial information lodged in support of the loan that the husband simply could not support the debt. So all of those cases which have been discussed before your Honours today in which guarantees have been set aside are all cases in which there is a very important additional feature which the Bank or the creditor knew of in addition to the simple fact of marriage.
HAYNE J: That fact being in each case the fact that the suretyship sought and obtained was necessary to support the existing or future debt.
MR OSLINGTON: Yes.
HAYNE J: What is different with this case? The Bank at the outset of the relationship, in order to make the facility available, says, “We will do so on these and no other terms”, one of which is suretyship.
MR OSLINGTON: But in two of the cases the bank required the guarantee to secure existing debts in circumstances in which it was bouncing cheques and in the Teachers’ Federation Case the bank knew or should have known, based upon the financial information given in support of the loan, that the loan simply could not be serviced by the entity which was borrowing the money.
Now, in the present case there is no suggestion at all that the company’s account had been out of order in any way at all before the guarantee was given nor that the Bank was requiring the guarantee to cover existing indebtedness. The guarantee was being given for a future debt which would only be incurred once the guarantee was given. His Honour found as a fact that the purpose for which the loan was sought was risk free and remained that way for well over 12 months.
I suppose like any loan, if it is used for a purpose other than it was made, there will be a risk, but there is no suggestion in his Honour’s judgment or in the evidence that the husband when initially borrowing the money and using it intended to use it for a purpose other than what his Honour described as a risk‑free purpose.
HAYNE J: If that be so, why then were the security documents all moneys securities? True it is they are common form.
MR OSLINGTON: No, the all moneys security was in the mortgage which had been given back in the 1970s. The guarantee itself was limited in amount to the particular overdraft being granted.
KIRBY J: The point that is made by Professor Duggan in the article that was handed up seems to be that if we go to the principle in Amadio as a general principle, then that will, in effect, put the protection of people in dependent relationships, particularly women, backwards because of the fact, he explains at the bottom of 228, that Amadio is for the protection of - “is about victimisation”, as he puts it, “in the typical spousal guarantee case it is artificial to say that” a financier has victimised their customer and having regard to the material that Mr Jackson has put before the Court I would feel very anxious about, as it were, adopting a principle which would be a retreat from the protection of people in vulnerable situations. It would be a pity to throw Yerkey v Jones out with the bath water.
MR OSLINGTON: Your Honour, it may be that if one of the circumstances known to the bank is marital relationship, cohabitation, emotional dependence, that may require the bank to be a little more astute than otherwise in looking at what the underlying loan is to be used for.
In this case, if the Bank had looked at what the underlying lane was to be used for, the Bank probably knew that it was being used for this risk‑free enterprise. The company had traded in that way in the past, wanting an overdraft to increase its trading and, in fact, continued to trade in that risk-free way for well over 12 months after the loan was made. The principle in Yerkey v Jones is not necessary to give spouses relief. I mean, that is illustrated in Wynne v Teachers Health Investments. Mrs Wynne originally got relief under Yerkey v Jones from the judge at first instance. On appeal, the New South Wales Court of Appeal declined to follow Yerkey v Jones but, nevertheless, granted relief on the Amadio principles. The knowledge the creditor there had was knowledge that the marital relationship plus the accounts which it had in support of the borrowing which, on analysis, demonstrated an inability to service the borrowings.
In O’Brien’s case, it would not have been necessary to have resort to Yerkey v Jones to achieve the result which was achieved in that case. Because that was a case, which not only involved knowledge on the part of the bank of the marital relationship, but also knowledge of account limits being constantly exceeded and cheques being bounced. The guarantee was to secure that additional indebtedness.
KIRBY J: Are you arguing for Amadio? That is the principle you say the Court should adopt.
MR OSLINGTON: Yes, your Honour.
KIRBY J: You say Yerkey was an instance. It has been subsumed in the broader principle of Amadio?
MR OSLINGTON: Either that, or it was simply a case decided on its facts and those facts might have been correct in 1930 so as to amount to sufficient notice ‑ ‑ ‑
KIRBY J: But what you say to Professor Duggan’s criticism of that strategy when he says that Amadio is about victimisation, whereas, normally, the financier will have no knowledge, no actual knowledge of the disadvantage of the dependant person: spouse, parent, and so on?
MR OSLINGTON: We would prefer to adopt the term “unconscionability”, your Honour, which is the equitable term used on the basis for relief granted in equity in circumstances like this. In our submission, the equitable principle does not entitle someone like the appellant to relief unless a court can conclude that it would be unconscionable for the bank to enforce the guarantee. In the circumstances of Amadio, the facts of that case, it was unconscionable because the bank was found to know of what was described in that case as the special disability and the bank did not take steps to make sure the guarantor properly understood what he or she was doing.
McHUGH J: Let me put this to you. Supposing one took the view that Yerkey was not overruled by Amadio, but that Yerkey does give women greater protection as a class than they have under the Amadio principles, and that the social material indicates that many women falling within the Yerkey principles are in need of that protection, why should the Court not continue that protection, no matter what criticism may be made of the rule on grounds that it is anachronistic, or its sexist, or whatever else?
MR OSLINGTON: First, we would rely upon what we said in our written submissions, which I will not repeat. Second, we would respectfully submit that if Yerkey v Jones is interpreted in that way, it is a radical departure of what is, and what has generally been regarded as, the proper basis for granting relief against unconscionable conduct. It would mean that people would be entitled to be relieved from their bargains despite - - -
GUMMOW J: There is no particular bargain. It is voluntary.
MR OSLINGTON: I am sorry, your Honour?
GUMMOW J: A contract of surety - there is no consideration - not bargaining for anything, that is the whole problem. She gets nothing, just a lot of trouble.
MR OSLINGTON: Well, the consideration might not pass directly to her, but she is making an implied request to grant a loan to another. To that extent, there is consideration. But people would be entitled to be relieved from their obligations despite any actual finding of unconscionable conduct on the part of the person who held the guarantee.
McHUGH J: Well, that is so, except to this extent; that lying at the back of the finding is, in effect, a finding of undue influence, or misrepresentation - I am talking about category one in Yerkey - and the Bank has taken, for its benefit, a voluntary obligation incurred by the surety. What is inequitable about - - -
MR OSLINGTON: So far as a voluntary obligation is concerned, the facts in this case suggest it is not entirely voluntary. She was a director with a company whose debts were being guaranteed and there is an article by, I think it is Professor Cretney (1992) 109 LQR 534 called “The Little Woman and the Big Bad Bank”. At page 537 the author, to some extent, puts the case for the bank. In the first full paragraph on the page:
Indeed, it might plausibly be argued that the modern partnership notion of marriage, and the legal structure which surrounds that institution, makes it less (rather than more) appropriate to give special protection in circumstances in which funds are raised by charging what is in effect the partnership property: as Mrs. Aboody put it “If he tells me to sign it, is for the good of the business and indirectly for the good of me.” If a marriage comes to an end ‑ whether by death or divorce ‑ the partners will take their fair share of the accumulated profits.
So analysed in that way, and particularly with the added ingredient in this case that Mrs Garcia was a director of the company whose debts were being guaranteed ‑ ‑ ‑
KIRBY J: Can I just pause to say that Professor Cretney is talking in the realm of theory. Of course, often the male has actual control of the funds and it is often very difficult for the female to get the funds out. I know, in theory, it will ultimately be worked out but the reality may often be different.
MR OSLINGTON: What he says about the Family Law Court has a lot of substance and if the funds are in a company and one of the spouses is a director. His Honour did not make a finding one way or another whether she was a shareholder. There were Corporate Affairs records in evidence signed by her disclosing that she certainly had a substantial shareholding in the company so she has rights as a shareholder, she has rights as a director and, if they do get divorced, she has rights in the Family Court.
So, in our respectful submission, to categorise someone in that position simply as a volunteer on the basis that they will not decide or may not decide directly how the money is spent is not really entirely appropriate and, so far as the Bank is concerned, she was a director and could well have had ‑ ‑ ‑
GAUDRON J: A shareholder, I think, is it not?
MR OSLINGTON: The evidence disclosed she was a shareholder but his Honour did not find, one way or another, whether the Bank believed she was a shareholder.
GAUDRON J: But what about director; was there evidence that she was a director?
MR OSLINGTON: Yes, yes, and his Honour found the Bank knew that she was a director.
GAUDRON J: With signing rights on the account in question? Did she operate the account? Was there evidence about that?
MR OSLINGTON: Yes, she did, in fact, your Honour. There is evidence that after her husband left her she - - -
GAUDRON J: I think the critical time is at the time of signing the guarantee.
MR OSLINGTON: I do not think there is evidence either way about that, your Honour. I was merely putting those submissions in response to the suggestion she was simply a volunteer. Maybe in one sense she was a volunteer, but so far as the Bank knew the Bank was entitled, if it had thought about it, to think she was probably going to derive some benefit out of the borrowings, for the reasons explained in the article I just cited from and because she was a director.
In Amadio Justice Mason said, at page 462, about halfway down the page:
I qualify the word “disadvantage” by the adjective “special” in order to disavow any suggestion that the principle applies whenever there is some difference in the bargaining power of the parties and in order to emphasise that the disabling condition or circumstance is one which seriously affects the ability of the innocent party to make a judgment as to his own best interests, when the other party knows or ought to know of the existence of that condition or circumstance and of its effect on the innocent party.
In other words, what his Honour is saying makes it unconscionable if the other parties knows or ought to know of the existence of that condition or circumstance and of its effect on the innocent party.
KIRBY J: Just stopping there, if a bank asks no question it will not know. The question would be whether the obligation “ought to know” would be enough to protect people in dependent relationships. At the moment with a wife, if Yerkey v Jones rules, it is very straightforward and shifts the position from the point of view of proof. I am just a little anxious that the result of this appeal may be that it significantly disadvantages a group of people who the material suggests need protection of the law, and have it at the moment.
MR OSLINGTON: There is one thing about requiring the Bank to make sure someone has a full explanation, another thing to suggest that the Bank ought to make a series of inquiries of the guarantor - - -
KIRBY J: But in the real world, would not the advent of the Trade Practices Act, the Contracts Review Act and the other statutory laws have really changed very significantly in the last 20 years the practice of banks in getting information and making sure people know they have a right to and ought perhaps to be separately advised?
MR OSLINGTON: Yes, but one would not seriously expect a bank to be required to ask a guarantor about the state of their marriage or whether the husband is bullying them and whether the husband has a mistress, and matters such as that.
GAUDRON J: Maybe that is why Yerkey v Jones stands in a separate position.
GUMMOW J: I do not think the people who decided Yerkey v Jones were unastute or inexperienced to the world either.
MR OSLINGTON: If Yerkey v Jones decides what it is said to decide, it might have been appropriate in the 1930s, but we still submit it is not appropriate now and one must look at the circumstances of each individual case and, if there is knowledge of a marital relationship, that may cause you to look more closely at the other features of the borrowings. In Teachers’ Federation it was found that, if the lending institution there had looked more closely at the financial information, it should have realised that there was potential of a disadvantage and it was denied the benefit of its guarantee because it had not explained it to the creditor.
But in the present case, in our respectful submission, there is no more than that. To simply say that knowledge of marriage or of cohabitation in circumstances in which a person is giving a guarantee in itself should raise a presumption and a presumption consistent with the guarantor not being able to properly look after himself or herself or protect himself or herself, in our submission, is highly artificial. The authorities to which this Court has been referred in which guarantors have been granted relief are the best evidence, the best examples, of whether in fact spouses giving guarantees would be disadvantaged by the abolition of Yerkey v Jones. The articles from which passages have been cited assert that spouses will be disadvantaged if Yerkey v Jones goes. They do not contain any empirical analysis or evidence that that is the case. The recent decision in New South Wales in which a wife was granted relief under Yerkey v Jones and then the Court of Appeal said Yerkey v Jones could not apply received relief under the Amadio principles.
KIRBY J: That is Wynne.
MR OSLINGTON: Mrs Mueller would have received relief under those principles and in Barclays Bank the wife would have received relief under those principles. In none of those cases would it have been necessary to revert to the so‑called Yerkey v Jones rule.
KIRBY J: Is the position now that in England, and in New Zealand, and under Amadio, if you take that view, this country, a broader principle has applied. We were told that in Canada they may still be applying a Yerkey v Jones‑type approach.
MR OSLINGTON: I have not had the opportunity of looking at the New Zealand cases or the Canadian cases which my learned friend handed up just after lunch, your Honour. One would also need to look fairly closely at those cases because in Barclays v O’Brien, as I have already submitted, one did not need to revert to a Yerkey v Jones‑type rule.
McHUGH J: I know one did not need to in that particular case, but there may be many cases in which you do and I was suggesting to you earlier that rather than Amadio expanding the field, it narrows it, if your view is right, because Yerkey v Jones goes beyond Amadio.
MR OSLINGTON: Yerkey v Jones essentially says that a creditor has notice of unconscionable conduct sufficient to deprive him of the guarantee simply by having notice of the marital relationship unless the creditor can establish it explained the guarantee to the wife.
McHUGH J: Yes, but that is because, technically, the Bank or the creditor may have given consideration but, in substance, if a creditor is the recipient of a voluntary gift given by the surety, he gets nothing from the creditor and if a creditor is prepared to accept such a surety, then why should it not take the risk? Why should the risk not be on it if it does not make any inquiries? We know from experience that the voluntary gift has arisen from a relationship which often gives rise to undue influence, or misrepresentation.
HAYNE J: May we need to distinguish between the problems of whether the surety has entered the transaction freely, that is free from the emotional tie which is mentioned in the articles, distinguish that problem from whether the surety has entered the transaction knowing, accurately, all of the consequences of the transaction? Yerkey v Jones, when it speaks of the Bank or the financier explaining the transaction, is tending to look at the latter rather than at the former, is it not?
MR OSLINGTON: Yes. Could I respond to Justice McHugh, with respect. The reason why this Court should not adopt the view suggested by your Honour is that, although legislation and contracts may deal with risk allocation, the principles of equity, in the circumstances of a case such as this, focus on unconscionable conduct, and equity does not grant relief unless it finds it would be unconscionable for a person to take advantage of their bargain.
McHUGH J: Look, if we had to start from the very beginning, if we were back in the 1930s, at least speaking for myself, I do not think Yerkey v Jones would have got off the ground if I had been sitting on the Court and I am not sure that I would have been formulating any such proposition, but it is there and it has stood now on one view for 60 years and it does protect a vulnerable group. Why should we cut back that protection? If the Bank wants to take the risk, well, that is their business.
MR OSLINGTON: Because it goes outside what equity traditionally does.
GUMMOW J: I am not sure about that.
McHUGH J: And it has stood for 60 years.
MR OSLINGTON: It has been criticised for many years.
McHUGH J: Well, I know it has.
MR OSLINGTON: A number of appellate courts and single judges in the States have declined to follow it.
GUMMOW J: When did this attitude commence actually?
MR OSLINGTON: When did?
GUMMOW J: In the State courts. When did they take it upon themselves not to follow Yerkey v Jones? When did that start?
MR OSLINGTON: The New South Wales Court of Appeal did so in this case, of course, and in Akins and ‑ ‑ ‑
KIRBY J: I think in this case at least the court distinguished it.
CALLINAN J: Justice Sheller distinguished it and said it was misconceived.
MR OSLINGTON: Well, distinguished, but we put a fairly substantial submission in our written submissions why Yerkey v Jones does not provide binding authority for the principle for which the appellant contends in this case.
GUMMOW J: Until about 10 years ago it was regarded as absolutely set in stone and when Sir Anthony Mason lectured a number of the people in this Court in equity that is how it was taught and that is how the profession understood it. Something happened in the 1980s. I do not know what it is, but it has led to this attitude in the lower courts which I just find incomprehensible.
MR OSLINGTON: Well, perhaps what happened in the 1980s was Amadio, your Honour.
GUMMOW J: Well, these cases start to be tried in the commercial division. That may have something to do with it. We saw one of the judgments this morning.
MR OSLINGTON: But having a set compartmentalised rule that is capable in its application of producing a fiction, namely, unconscionable conduct occurring when there is none, in our submission, is not ‑ ‑ ‑
GAUDRON J: I am not too sure about that. I mean, if you start with the assumption that there is in fact something in this relationship, just make that assumption that there is something in the relationship, whether or not it is identified with any precision, and the Bank does not itself take steps to ensure that the surety understands not simply the nature of the transaction, but the operation, the possible operation of the transaction, and leaves it to the husband, we will say, or the other partner to do it, why does one not say for all practical purposes the husband partner is the ostensible agent of the Bank and the Bank is bound by whatever he or she did? Now, that is quite within orthodox equitable principle and it would make it unconscionable, it would be unconscionable for the Bank to ‑ ‑ ‑
MR OSLINGTON: Your Honour, I think, is perhaps advocating what was described as the “agency principle” in Barclay Bank.
GAUDRON J: I am not too sure that it is not somewhere behind this, if you have regard to the observation in Yerkey v Jones, that the Bank should make the matter clear, or that it is for the Bank to explain. If the test were that he or she knew, that might be a different thing. But I am not too sure why it is not something like agency.
MR OSLINGTON: Again, it might depend upon the facts of each individual case, your Honour. One can take a situation where the debtor is overdrawn at the bank and the bank is threatening to foreclose unless either part of the money is paid back, or unless he finds some security, and, indeed, as some of the reported cases disclose, the bank has even suggested that the husband go and get his wife to come along and give a guarantee for a past indebtedness which the bank is under‑secured for and, in those circumstances, if the husband goes along and gets the wife in - - -
GAUDRON J: But here you are, without any - well, let us make an assumption for the moment, which would not be greatly at odds with the ordinary run of the case, that the surety is going to have no control over the way the moneys advanced are dispersed or used. Why is that not another matter that brings in unconscionability?
MR OSLINGTON: The mere fact that the guarantor is going to have no say in how the money is dispersed is not unconscionable, in our respectful submission.
GAUDRON J: I am not too sure about that. For example, in this case it was thought, or apparently it was thought, that it was going to be expended in a particular way in which it was, in fact, expended for some time. Then things changed. Well, that possibility was always there. If that is known to the bank, it may well be unconscionable on very ordinary concepts, to take a guarantee knowing that it was a fluctuating, non‑fixed liability, for example, which can accrue due in any number of situations over which the surety has no control.
MR OSLINGTON: We would respectfully submit - and, obviously enough, although the categories of unconscionable conduct are not closed - there is no authority which suggests that circumstance amounts to unconscionable conduct. The world of commerce, I think, is - - -
GAUDRON J: Without explaining that that is precisely what might - without making it clear to the person concerned that that is what might happen.
MR OSLINGTON: It depends on what one means by “without making it clear”. Now, Mrs Garcia came down to the Bank, and it is true, his Honour did not accept the Bank officer’s evidence that she gave her standard spiel to Mrs Garcia. He did not find she was lying but did not accept it and Mrs Garcia was at the Bank only a short period of time. But, it was Mrs Garcia’s option whether or not she read the document she was signing. There is evidence about this. She said she was not hurried, she was not rushed and it was a matter of choice on her part not to read the documents. I suppose it will be the case in almost every guarantee that it will be the principal debtor who will ask the person to become a guarantor. But, in a marital relationship, as I have already submitted, it can not be categorised purely as a voluntary act in the sense that the guarantor gets no benefit out of guaranteeing the debt.
So, for those reasons, in our respectful submission, to develop a new principle which, in effect, says that if a creditor has failed to explain the terms of the guarantee or the risk attaching to the guarantee to the guarantor, if the Court says that amounts to unconscionable conduct, thereby entitling a guarantor to resist enforcement of the guarantee, that would develop, in our respectful submission, a completely new principle, a principle under which the commerce has not operated.
GAUDRON J: In circumstances where there is a relationship where there is a situation of mutual trust, in the ordinary course of events, it is assumed that there will be a situation of mutual trust.
MR OSLINGTON: Amadio and other cases suggest that if there has been some - I will try to use a neutral term - misconduct by one spouse to another which led to the signing of the guarantee, it is noticed that misconduct which makes it unconscionable to enforce the guarantee unless the creditor has fully explained what the guarantor is getting into.
There is no principle and no authority, so far as I am aware, which says a simple failure to explain the terms of the guarantee to the guarantor in itself justifies relief. Even Yerkey does not say that. Yerkey seems to proceed on the basis that there must be some underlying conduct by the husband towards the wife before the wife is entitled to invoke the principle, misconduct, more than simply a failure to explain the guarantee.
GUMMOW J: That brings us back to Justice Hayne’s question. What is your response to that?
HAYNE J: I was going to wait, as counsel was.
MR OSLINGTON: Might I consult with my junior, if your Honour - - -
GUMMOW J: Namely, Yerkey v Jones does not seem to turn on what you have said at all. Yerkey v Jones requires explanation. It does not require emancipation from influence; it requires explanation of the transaction, not only satisfaction that that has produced an emancipation from any influence.
MR OSLINGTON: But it only requires explanation in circumstances - - -
GUMMOW J: I ask, why is that a particularly onerous requirement?
MR OSLINGTON: But it only requires explanation in circumstances in which there has been some pressure, misrepresentation or something of that kind applied to the wife.
GUMMOW J: No. If it is not explained, “And that is the fact”, then there are consequences, but what triggers it off is the appreciation of the nature of the relationship. If the facts lying being it have a particular character and the Bank has not chosen to act pre-emptively by explanation, then the Bank is in trouble; but the Bank does not have to pry into the relationship, as Justice Gaudron was explaining to you, and for good reason. That is why it was formulated that way.
MR OSLINGTON: Justice Dixon says, at page 686, “If undue influence in the full sense” - - -
GUMMOW J: I realise that. If you would just look at the last step.
MR OSLINGTON: Read the - - -?
GUMMOW J: The last step; it sets out a number of steps on page 686.
MR OSLINGTON: Yes. The steps are sequential, your Honour:
If undue influence in the full sense is not made out - - -
GUMMOW J: They are sequential in their presentation but not in their significance.
MR OSLINGTON: Yes:
but the elements of pressure, surprise, misrepresentation or some or one of them combine with or cause a misunderstanding or failure to understand the document or transaction.
In other words, there first has to be undue influence, surprise or something of that kind to cause the guarantor or the wife to misunderstand.
GAUDRON J: That simply predicates what is necessary before a person will obtain relief in a court. That is to say, one does not obtain relief simply because the document was not explained. One obtains relief because it is unconscionable to enforce it in circumstances where it was not explained and there was some other factor operating at the time.
MR OSLINGTON: Such as a misrepresentation.
GAUDRON J: It simply means in accordance with ordinary bank practice a bank that does not explain takes the risk. There may be some factor there, a factor which is inherent in the nature of the relationship.
MR OSLINGTON: But Yerkey v Jone,s taken at its highest, in our submission, does require some misrepresentation or something of that kind by the husband to the wife to cause her misunderstanding and equitable ‑ the principles, in our respectful submission, only entitle relief if the bank has knowledge of that which is said to have caused the misunderstanding of the document.
GUMMOW J: That would make it no different from the cases that Justice Mason referred to in Amadio at 464, namely undue influence on the part of the husband with notice on the part of the bank. That is not what Yerkey v Jones is all about.
MR OSLINGTON: In our respectful submission, his Honour in that passage of the judgment was giving examples of when notice has been found to be sufficient without a close analysis of Yerkey v Jones in examining or necessarily commenting on the applicability.
GUMMOW J: He was saying something about this South Australian pleading which did not distinguish very well but which had to be taken on the basis that it was not a case of undue influence by the son on the parents with notice to the bank. It was a case of the bank itself behaving directly unconscientiously towards the guarantors and that is what you say should apply in place of Yerkey, is it not?
MR OSLINGTON: One has to ask the question, was it unconscionable for the Bank in the circumstances to take the guarantee without positively satisfying itself that the person giving the guarantee fully understood in this case what she was doing.
HAYNE J: In circumstances where, in fact, she did not.
MR OSLINGTON: In circumstances where, in fact, she did not and in circumstances in which the ground for relief relied upon by her was some conduct towards her by her husband of which the Bank had no notice. The question really is, “Is it unconscionable for the Bank to take advantage of the guarantee in those circumstances?” In other words, does the fact of marriage in itself ‑ ‑ ‑
GAUDRON J: No, does the fact of a failure to understand, not the nature of the transaction but the way in which the transaction could operate in a situation in which the Bank did not itself explain it, bring about those consequences, not the fact of marriage. The fact of marriage is simply the trigger, as it were, for saying, I would have thought, that the Bank should explain.
MR OSLINGTON: Your Honour, with respect, if the principle was expressed that widely, it would be the sort of principle which logically could apply to any transaction entered into with a bank.
GAUDRON J: By a volunteer.
MR OSLINGTON: It also depends upon how one defines a volunteer but, if one defines a volunteer as a spouse guaranteeing the debts of the other spouse and if one ignores the potential benefits which could arise out of that and the potential benefit to the spouse who is guaranteeing the debt, in that sense a volunteer, in our respectful submission, it would be novel to say that a failure by the Bank to give an explanation in those circumstances makes it unconscionable for the Bank to take advantage of such a guarantee. Indeed, it would be, in our respectful submission, a radical step and could affect a very large number of existing guarantees. It has never been suggested broadly, so far as all guarantors are concerned, if they are volunteers in the sense described by your Honour, that those guarantees would be unenforceable unless the Bank proves a full explanation was given of the guarantee and the effect of them.
HAYNE J: Could I suggest the question might be put this way. Is it unconscionable to enforce a voluntary transaction against one who did not understand it where the party seeking to take its benefit did not explain it?
MR OSLINGTON: One would need to also inquire whether there was any reasonable basis for the person taking the guarantee to believe the person giving the guarantee did not understand it.
GAUDRON J: That is where Yerkey v Jones comes in. That is what it says.
MR OSLINGTON: That is where the requirement for notice, in accordance with Amadio, comes in, and Yerkey v Jones creates a fiction and says if the guarantor happens to be married to the principal debtor, then we treat the creditor as having sufficient notice.
GUMMOW J: No, it does not create fiction at all. Maybe it does not get relief unless they make out all these things.
MR OSLINGTON: But all the plaintiff has to prove, so far as notice is concerned, is the fact of marriage.
GUMMOW J: The Bank gets out of it quite easily, in a sense, because the Bank simply explains the transaction and makes sure they understand it. The Bank does not have to satisfy itself that there has been any emancipation from the influence. The Bank does not really have to do a lot of the writings, that we were taken to before lunch, say should be done. It does not have to go that far.
MR OSLINGTON: I understood Justice Gaudron to suggest a little earlier that perhaps the Bank should do more than simply explain the effect of the guarantee, but also explain the underlying risks.
GAUDRON J: Or explain the operation, not simply the nature of it, for example, that if it be the case, it is whatever moneys are advanced, and it is an unlimited advance, and whoever signs the account can draw the money out for his or her own purposes, and we will not be checking to see that it is being used, being applied in the proper way.
GUMMOW J: It would not be the Bank’s task to get into the terms of the relationship between Mr and Mrs Garcia, whether they were not talking at breakfast and so on and so forth.
MR OSLINGTON: Is your Honour suggesting that that principle ought to apply to all guarantees?
GAUDRON J: What I am suggesting is a rationale for Yerkey v Jones, namely, that it is unconscionable for a bank to take the benefit of a guarantee which was not fully understood by the surety, which the Bank did not explain to the surety and which was given in the context of a relationship which permitted or raised the risk of less than complete disclosure or awareness of the full extent to which the transaction may be put into effect.
MR OSLINGTON: The Court, in our respectful submission, in order to decide that as a principle would need to decide that ‑ ‑ ‑
GAUDRON J: I am really looking for the rationale for Yerkey v Jones and it does not seem to me that you explain it away by saying it just creates a fiction. If you think there is another rationale, you should put it.
MR OSLINGTON: I am seeking to rationalise Yerkey v Jones as being a case really about the notice which a creditor is required to have in order to make it unconscionable for the creditor to take advantage of the guarantee and we still submit that Yerkey v Jones appears to decide that regardless of whether the bank has any notice of misconduct by the husband to the wife, the bank is nevertheless treated as having that notice if it simply knows of the fact of marriage.
GAUDRON J: But it seems to assume that notice is the sole criterion of unconscientious behaviour, notice of misconduct.
MR OSLINGTON: Notice of the conduct which is unconscionable, yes, it is. In our submission, that is an essential criterion. It is made quite clear in Amadio that notice is an essential criteria before equity will grant relief.
GUMMOW J: It was not notice in Amadio. Because of the sort of the case and the way it was framed, it was a catch and bargain case. It was a direct exertion by the bank upon the victim, as Justice Kirby said. It was victimisation conduct. That is the sort case Amadio is. It is not a case of undue influence with notice. It is a case of actual exertions on the part of the bank to bring about this result.
MR OSLINGTON: But in circumstances where the other party knows or ought to know of the existence of the conditions and its effect on the innocent party. That is what Justice Mason said at page 462. Could I perhaps respond to your question, Justice Gaudron, with reference to Yerkey v Jones and what Justice Dixon said at the foot of page 680, starting from the last two lines:
In the present case the burden of proof is more important. In my opinion the burden of proving that a wife fully understood a guarantee given by her for her husband’s debt is not placed upon the creditor by the mere fact that her consent to give the guarantee or become surety was secured by her husband.
So his Honour obviously has in mind the additional factors of misrepresentation, surprise, et cetera.
KIRBY J: Looking at the broad question here, if you assume that a choice for the Court is to hold to Yerkey v Jones on the basis that it stood for all these years, it does a useful social job and if there is to be a change in this, it is something which law reform bodies should look at and they are doing it, and therefore we should leave it to them, including to fix up Yerkey v Jones, that is point one. Point two is to go to Amadio and say, “Well, the Court worked to a higher principle and Amadio looks at all the facts and that is the sensible way, and looks to notice and that is how it should be”. Point three would be to adopt Yerkey v Jones, but to adapt the principle to a broader framework, not marriage, but relationship and a relationship in terms, as Mr Jackson ultimately amended it to, emotional dependence. Now, what is so wrong with the third possibility? In other words, merely modernising Yerkey v Jones, but leaving a more general reform of this area of the law to the legislature.
MR OSLINGTON: First, in our submission, that would come close to attempting to compartmentalise some general principle of law in a manner which would be very difficult to define the class of persons who are entitled to, just to describe it, the new Yerkey v Jones principle.
KIRBY J: Would it, or would the Bank merely have a form, “Are you in a relationship?”, “Do you have some association, do you live with the principle and, if so, have you had any independent advice, legal or financial?”. It is not such a big deal. I would be surprised if most banks do not do something like that.
MR OSLINGTON: But that will not necessarily expose an emotional relationship and that would also expose emotional relationships existing between people who do not cohabit.
CALLINAN J: It might also infringe some privacy legislation, might it not?
MR OSLINGTON: Yes, that is a possibility. It may in itself be discriminatory. Whereas, if Amadio is simply applied to the facts of each particular case which Justice Merkel said ought to happen, each particular case can get its own individual attention. There are enough statements in the authorities suggesting that marriage, cohabitation, emotional relationships between people are obviously relevant factors to take into account in deciding whether or not the bank has the requisite notice.
KIRBY J: Well, it may be that that is the correct approach, and I think it is the approach that I suggested in that case in the Butterworth Law Reports. But I am just worried about what Professor Duggan says in his article, and any help you can give me on that - as a matter of practicality, one would not want to set back the position of vulnerable women or vulnerable people.
MR OSLINGTON: At the moment, we have pointed to the range of cases which have been before your Honours, cases in which the result in favour of the wife would have been and has been the same regardless of a Yerkey v Jones principle. We would seek to dissuade this Court from formulating some wider principle than Yerkey v Jones and attempting to formulate a principle applying to a class of people which would be very difficult to define for two reasons - at least two policy reasons. First, introducing a much wider principle could have an effect on a range of existing guarantees which were given and taken in circumstances in which such a new, wider principle was not contemplated, but a decision of this Court will probably have retrospective effect and affect those guarantees.
Second: the legislature in recent years has been far more active than in the past in formulating legislation to protect people including debtors and guarantors in the Contracts Review Act and the like. If the legislature considers it appropriate that there ought to be some special rule applying to a limited class of guarantors, it is open to the legislature to introduce that rule by legislation and also introduce it in such a way as it does not affect the guarantees already given.
So, in our respectful submission, the result in the present case ought to be to overrule Yerkey v Jones, if this Court finds contrary to our submissions. It is a principle which has been binding on courts in the past, and regardless whether Yerkey v Jones is overruled, in our submission, the appeal ought to be dismissed. If I can just briefly - - -
KIRBY J: Can I ask, do you formally seek the leave of the Court or do you formally seek to have Yerkey v Jones overruled, if it is the law, if Yerkey v Jones is held to be still the statement of the law and that Justice Dixon’s statement is the Court’s statement and that Justice Sheller got that aspect of it wrong? Do you make an application in respect of Yerkey v Jones?
MR OSLINGTON: Yes, we do, your Honour, we ask that it be overruled. On the facts of this particular case, your Honour, there was no finding that Mrs Garcia’s will was overborne.
McHUGH J: What is the significance of that, Mr Oslington?
MR OSLINGTON: Most of the authorities, your Honour, in which wives and others in this situation have been granted relief, the cases in which there has been a specific finding that the will of the guarantor was overborne by the principal debtor. That was the finding made by Justice Hunter, who sat in the first instance in the Teachers’ Federation Case.
CALLINAN J: Mr Oslington, is that right? I am looking at page 544, about line 17.
MR OSLINGTON: The Teachers’ Federation Case, your Honour?
CALLINAN J: Volume 3, page 544, about line 17:
In the case, the husband pressured the wife to sign the document. She appeared to have done so because her husband consistently pointed out what a fool she was -
and so on. Is that not a finding that she was overborne?
MR OSLINGTON: No, it is not when your Honour looks at subsequent findings, the finding that he, in fact, was being nice to her at the time she went to the Bank. What happened, this pressure did apply. She did not go to the Bank and she got a couple of calls from the Bank manager saying the guarantee was available at the Wahroonga branch, where she banked and worked, available for her to sign and they would have to send it back to head office if she did not come in and then she went in on a day on which his Honour found he had, in fact, been being nice to her and also his Honour expressly found that there was no evidence that if the plaintiff did not sign the documents the consequences to her would be dire.
CALLINAN J: Just on the question of whether she was overborne or not, is not that an express finding to that effect at page 544? The husband pressured the wife to sign the document and that she did so as a result of the pressure which his Honour then describes as the assertion to her that she was a fool in commercial matters and so on.
MR OSLINGTON: If his Honour considered that her will was overborne, one would have expected his Honour to have no difficulty in concluding that the husband’s conduct towards her was unconscionable.
CALLINAN J: Mr Oslington, it seemed to me that, and you correct me if I am wrong, that there is a finding at page 544 of pressure which I have just read to you and then at 549 about the beginning of line 20 of misrepresentation and in Yerkey Sir Owen Dixon speaks of either pressure, misrepresentation or other improper conduct, one or a combination of those, as being sufficient in the case of a married woman to give rise to the occasion for the lender to demonstrate that it would not be inequitable to hold the guarantor wife to the transaction. It seemed to me that the two critical findings were made and that they were precisely within the principles stated by Sir Owen Dixon.
MR OSLINGTON: One needs to put each of those findings in context. At page 547, at line 47, his Honour recounts that she went on an overseas trip and when she got home her husband:
became much nicer to her and she signed the documents at the time he was being nice.
CALLINAN J: He might have been being deviously nice.
MR OSLINGTON: His Honour does not make that finding. So far as the risk is concerned, his Honour found that, in fact, it was risk free. He finds that at the top of page 549, and remained that way up until 1989. At page 551, at about line 50, his Honour found that:
In the instant case there was a guarantee which in ordinary circumstances was fairly safe for the reasons which Mr Garcia gave.
And then when one looks at his Honour’s decision on the Amadio point, which commences at page 549, his Honour said, at line 46, that he had - two tests needed to be satisfied:
was the conduct of the plaintiff’s husband unconscionable; and (2) if the answer to (1) is yes, did the Bank know.
And then at page 550 his Honour said:
In this case, even assuming that the plaintiff can satisfy the first limb for the reasons I have set out ‑
In other words, his Honour was not prepared to make a finding of unconscionable conduct and left that open and dealt with the Amadio point simply on the question of notice. So there is no finding by his Honour that the husband engaged in unconscionable conduct, and that is one of the reasons which prompted me to put the submission that those findings which his Honour did make about pressure and risk, bearing in mind his Honour expressly found that there was no evidence that if she:
did not sign the documents, the consequences to her would be dire ‑
and he made that finding at 547, line 42, that there was not a finding that her will was overborne.
CALLINAN J: But how do you reconcile those matters with what his Honour said at page 549 line 25:
The Bank seeks to enforce the guarantee in the problem circumstances and the onus is on it.....to show that the transaction was not unconscionable. In my view it has failed to satisfy me on that score.
MR OSLINGTON: Because his Honour there was addressing the Yerkey v Jones principle which appears in accordance with that principle to permit something less than Amadio‑type unconscionability to be the foundation for the sort of misconduct on the part of the husband which will entitle a wife to have a guarantee set aside unless the bank explains it to her.
CALLINAN J: But do you accept that if Yerkey is the law, those findings fall precisely within the principle stated by Sir Owen Dixon in relation to pressure, misrepresentation and the onus that then lies upon the lender?
MR OSLINGTON: Except when one compares the facts in Yerkey v Jones with the facts in the present case. Mr Jones wanted to buy a three or four acre property and raise chooks and his wife, Mrs Jones, was unenthusiastic about that and had reservations about his ability to successfully raise chooks; nevertheless, she agreed to go along with it and she was also told by her husband that, you know, he could make a go of it and essentially there was no risk, so she went along with it and became a guarantor and the poultry farm failed and ‑ ‑ ‑
KIRBY J: But in the Court of Appeal, to follow Justice Callinan’s question, did you accept that if Yerkey v Jones were applicable, then you lost?
MR OSLINGTON: No, we did not, your Honour.
KIRBY J: I see. You sought to say even if it were applicable you would not?
MR OSLINGTON: Yes.
KIRBY J: What would happen, assuming the principle were extrapolated to the wider principle that Mr Jackson finally argued for, what would happen to the sorting out of whether of the facts of this case fell within that principle? Would you accept that, having regard to the findings of Yerkey v Jones, that that particular case would fall within the wider principle as expressed or would you insist that the matter go back for reconsideration?
MR OSLINGTON: We would contend it would not fall in the wider principle, your Honour, because we would contend Mrs Garcia was not a volunteer - is not a volunteer, in the full sense. She was a director of the company whose debts were being guaranteed. Secondly, we would submit that the - - -
KIRBY J: I do not think the formulation of it referred to “volunteer,” it was that there is a relationship known, or ought to be known, to the creditor of emotional dependence. Well, now, the marriage is, as it were, a specific class, but the principle is wider. But one would have thought the marriage would fall within the wider principle. There would be no real point in sending the matter back for a retrial.
MR OSLINGTON: But then, in our respectful submission, one would not apply the wider principle if the Court was satisfied that the wife was interested in the debt being guaranteed and, obviously, a director of a company which was borrowing the money, and able to borrow the money because of the guarantee, the director is, therefore, interested in that debt, and that is the circumstance in the present case.
McHUGH J: You keep talking about the wider principle but, correct me if I am wrong, but I understand Yerkey to stand for two quite independent principles.
MR OSLINGTON: I was seeking to respond to Justice Kirby’s wider principle at that stage.
KIRBY J: I think, in fairness, Mr Oslington, I described the paragraph 25(b), as amended, as the wider principle.
GAUDRON J: Well, now, perhaps while you are distracted, could I ask how much longer your submissions would be? Am I correct in assuming you are coming towards the end of them?
MR OSLINGTON: I am coming towards an end now, your Honour.
GAUDRON J: Yes. We will sit on, Mr Oslington. Yes, we will continue.
MR OSLINGTON: Your Honour, I was addressing the facts in this case, and I was seeking not to go over those facts which are set out in our written submissions which describe - - -
McHUGH J: I know, but could I get clearly from you what is your understanding as to the trial judge’s finding in this particular case? Did he put the case in the first category in Yerkey, or the second category? Now, Sir Owen Dixon - the key to his judgment seems, to me, to be at 684. He starts at 684 and he, at about point 3 on the page, says:
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 -
that is the first case -
and on the other hand, cases where she does not understand the effect of the document or the nature of the transaction of suretyship.
Then he says the former case:
Nothing but independent advice -
will suffice, is one of the categories. As I analyse his judgment, he deals with that first category of cases from those words in the former case, right down to the end of the first paragraph on 685. Then he turns to a second case where the wife agrees to become surety but does not understand the nature or effect of the transaction, and he then goes on to say that in that situation:
the reliance placed by the creditor upon the husband.....of great importance.
and, obviously, that must be so. Then he says:
If the creditor takes adequate steps to inform her -
et cetera, et cetera, then that might be sufficient. It will depend upon the ramifications and complexities of the transaction. Then he says, just after the reference to Justice Cussen:
If undue influence in the full sense is not made out -
and that is very ambiguous, but I suspect it is not a reference back to the first category, it is talking about undue influence in a proper sense, his Honour goes on to say -
but the elements of pressure, surprise -
et cetera -
cause a misunderstanding.....the final question must be whether the grounds upon which the creditor believed that the document was fairly obtained and executed -
was such as to make it:
inequitable to fix the creditor with the consequences of the husband’s improper or unfair dealing with his wife.
Now, do you agree that his Honour is dealing with two cases, and they both come under the label at 684, the very last line in the first paragraph, “unconscientious conduct”?
So he regards that he is dealing with two classes of case, one with undue influence affirmatively established in a case where she does know the nature and contents of the obligation, and a second case where she just merely does not understand it.
MR OSLINGTON: Yes, and we understand his Honour dealt with the matter on the basis of what your Honour has described as the second case, namely, the case described on page 686.
McHUGH J: I am not sure his Honour dealt with them on either basis. That is one of the problems they have with his Honour’s judgment. The passage at 544 to which Justice Callinan refers, may mean that his Honour found it was a category one case. That is, that it was undue influence affirmatively established in the sense that pressure was put on her.
MR OSLINGTON: We would submit that the facts found by his Honour, properly analysed about pressure and risk, having regard to the whole of his judgment, would not amount to a case of undue influence affirmatively established. In fact, if his Honour had found undue influence affirmatively established when his Honour came to consider the Amadio point, his Honour would not have hesitated, in our submission, to make a finding of unconscionable conduct on the part of the husband against the wife.
McHUGH J: I think that must be right.
MR OSLINGTON: But his Honour expressly declined from doing that.
McHUGH J: I know.
MR OSLINGTON: So it is the second category of case, in our submission, upon which his Honour’s decision was based.
So, your Honour, so far as the facts of this case are concerned, I have taken your Honours to the evidence of the extent to which there was pressure, misrepresentation and the circumstances in which she signed the guarantee. Our written submissions set out her presentation at the Bank. His Honour clearly found as a fact that she presented as an articulate, intelligent lady, a professional lady, and as a director of the company, which takes her out of the class of volunteers. So, in our submission, whether Yerkey v Jones is good law or not, Mrs Garcia falls out of the relevant class.
McHUGH J: It depends, because in 685 his Honour recognised that the wife was not a volunteer in the technical sense but, in substance, she was. I think I may have gone too far in Warburton where I said, if she had an interest in the company, that was sufficient to take her outside the operation
of the rule. It may be one has to really look at it as a matter of substance and the fact that she has got some indirect interest in it or she is a shareholder may not, in substance, take her outside the category of volunteers.
MR OSLINGTON: I am using her directorship and her obvious potential advantage in the household, also on the issue of notice, whether a court of equity should find, against that background knowledge by the Bank, that the Bank had notice of the unconscionable conduct, so I use it in the two ways. We say that if Mrs Garcia does fall within Yerkey v Jones, Yerkey v Jones is wrongly decided and should not be followed, and when one comes to look at Amadio, Mrs Garcia is plainly outside Amadio principles. Those are our submissions, if your Honours please.
GAUDRON J: Thank you, Mr Oslington.
MR JACKSON: Your Honours, may I just say something first in response, as it were, to my learned friend, Mr Bennett. We do of course put the Barclays Bank situation as an alternative.
Could I move on then to the Sex Discrimination Act point which was raised by our learned friend and it is this. Your Honours were taken, I think, to section 6 of the Sex Discrimination Act which deals with discrimination on the ground of marital status or related characteristics, but your Honours will see that section 6(3) says that:
This section has effect subject to sections 7B and 7D.
I wonder if I could give your Honours copies of those provisions. Your Honours will see that section 7B(1) says that:
A person does not discriminate against another person by imposing, or proposing to impose, a condition, requirement or practice.....if the condition, requirement or practice is reasonable in the circumstances.
Matters to be taken into account then are referred to in 7B(2). Then in section 7D(1) your Honours will see that:
A person may take special measures for the purpose of achieving substantive equality between.....
(b) people of different marital status -
If the true position be, as some of the articles to which we have referred suggest, that whilst formal equality may not result in substantive equality, then section 7D(1) would be apposite.
KIRBY J: What would happen if the Court were of the view that the proper principle was the revised principle that you expressed in paragraph 25? What is the consequence in terms of the orders that would have to follow?
MR JACKSON: In terms of, I am sorry?
KIRBY J: Paragraph 25, Yerkey v Jones lives but it is re‑expressed in a broader principle.
MR JACKSON: Your Honour, it would simply be something that, in our submission, the steps that had to be taken or were required to be taken by financiers were ones that would, in our submission, be within either 7B ‑ ‑ ‑
KIRBY J: I was thinking of the consequences for this case, given that no one up till now has applied a broader principle.
MR JACKSON: Your Honour, if it were the case then, in our submission, the result would be exactly the same.
KIRBY J: Can we, as it were, say that the narrower principle is subsumed in the broader principle, that in this particular case the married relationship would be subsumed within the relationship of dependence?
MR JACKSON: Your Honour, the evidence would clearly establish that and, your Honours, might I also say just in passing in response to the other matter my learned friend raised, there is no need, of course, for this matter to go back. I think in something your Honour Justice Kirby put to my learned friend the proposition - it was inherent in that that the case might have to go back to the Court of Appeal. Your Honours, what happened in the Court of Appeal was that the contention that the case did not fall within the Yerkey v Jones principle was one that was rejected by that court, assuming Yerkey v Jones was applicable, and all that one has is, of course, the notice of contention in relation to that that one sees in volume 3 at page 624 where it is contended the decision of the Court of Appeal should be affirmed but on different grounds and what is said is that “the Appellant did not bring herself within the principle” because of the matters there referred to. So, your Honours, it is not a case that in any respect needs to go back to the Court of Appeal.
Your Honours, could I say also, a reference was made by your Honour Justice Callinan to the privacy legislation and, of course, that legislation contains a number of provisions allowing there to be consent to be given to obtaining information of various kinds and very frequently, in relation to borrowings from institutions, one sees the various documents that contain the consents to be executed by the parties and persons involved.
My learned friend’s argument suggested that earlier cases should be in some way distinguished factually because the accounts were out of order and so on but, your Honours, that basis does not seem to find any support in the statement of the principles themselves. It was said also that there was some benefit to be obtained ultimately from joint assets either on death or divorce but, your Honours, the circumstances in which the issue arises is such that the joint assets are likely to have gone in order to satisfy the obligation, for example, the company that is the principal debtor is likely to be a body where all the assets which have gone into liquidation, that is when the issue arises.
So far as the position of the appellant being a shareholder of some significance in the company, your Honours will recall the passages that we have cited in paragraphs 19(c) and 19(d) of our written submissions which indicate that the primary judge was not prepared to make any finding about our interest in the company and, in particular - your Honours and I will not take your Honours back to the passages now, but he said that the companies were the husband’s creation. He was in complete control of them and the exact beneficial holding in them had become quite obscure.
KIRBY J: Where is that passage?
MR JACKSON I am sorry. I think that passage is at page 536 lines 40 to 52 and the obscure - is being incomplete - I am sorry, your Honours, the exact beneficial - the holding becoming quite obscure is - I will give your Honour the reference to that in just a moment. But, your Honours, could I just move on to say then that our learned friend’s submissions also said that there were no empirical studies to support the propositions in the various articles that we had referred to. The two articles by Dr Fehlberg, to which I referred, do refer, your Honours, to there having been some empirical studies. Now, no doubt, twenty thousand women, wives have not been spoken to, but your Honours will see the numbers referred to there.
GUMMOW J: That reference you are looking for Mr Jackson is 534 line 55.
MR JACKSON: Thank you, your Honour, I am sorry.
GUMMOW J: Going over to 535, quite obscure.
MR JACKSON: Yes, your Honour, at the bottom of page 534 and where he refers also to the uncontradicted evidence that Mr Garcia would forge her signature from time to time on company documents.
Your Honours, in relation to what actually took place at the Bank, there are specific findings, of course. Your Honours will see those at pages 541-2 and 545, about line 24, where the judge specifically says that he had:
not accepted the Bank’s evidence as to explaining the transaction to Mrs Garcia.
Your Honours, there are two further things. The first concerns what was said by your Honour Justice McHugh to my learned friend about the arrangement, as it were, of Sir Owen Dixon’s reasons in Yerkey v Jones. Perhaps, there would seem, your Honour, to be three sections in the part to which your Honour was referring. At page 684, starting at the same place as your Honour did, that is about point 3 or 4 on the page:
But it is clearly necessary to distinguish between, on the one hand -
That passage seems to go down to about 10 lines from the bottom of that page where ‑ ‑ ‑
McHUGH J: Yes, it is about the - you are right, there is this third category which he leaves up in the air about a fraudulent misrepresentation which does not go to the root of the transaction.
MR JACKSON: Yes, your Honour. Could I just say in relation to that. The passage at the top of page 685 is one which seems to be, perhaps, of more general application where ‑ ‑ ‑
McHUGH J: I did not read it that way. I thought it was really rather directed to that last, that new category that you have just added really, because he talks about misrepresentation which ‑ but anyway - - -
MR JACKSON: Yes, your Honour. What I was going to say was this, that that passage starts about 10 lines from the bottom of 684 where he says “It is not clear how far” et cetera, the last two lines on 684 seem to deal with a more general proposition. When one comes to about seven lines down 685, his Honour then seems to add on that:
Misrepresentation as well as undue influence is a means of abusing the confidence that may be expected to arise out of the -
decision. Now, his Honour does not seem to be saying “misrepresentation” and “undue influence” are the same, or have the same effect.
GUMMOW J: No, but misrepresentation is what he is talking about six lines from the bottom of 684.
MR JACKSON: Indeed, your Honour. I appreciate that. It seems to be a misrepresentation not going to the nature and effect of the instrument or transaction itself. No doubt, there could be collateral misrepresentations as to the need, for example, for entering into something which would be very - not an infrequent thing. But where one seems to see misrepresentation pop up again, as it were, is then at page 686 in the passage to which your Honours have been referred on a number of occasions. He does seem to put it in the second category, and the present case has been treated as being one in the broadly second category rather than the first.
Your Honours, the other and last thing to which I wish to give a reference was that the decision of the Court of Appeal in the United Kingdom in Barclays Bank v Bolter (1998) 1 WLR 1. The case arose on a pleading point deriving from the Barclays Bank v O’Brien, and the question was whether it was necessary for a wife plaintiff to plead, as part of the statement of claim, the absence of constructive notice, I think, in the particular case, on the part of the bank. It was held that she did not and that her pleading, which your Honours will see set out page 6, relevantly, was sufficient and that the Bank bore the burden of pleading and proving that it did not have actual or constructive notice of the relevant misrepresentation that occurred in that case.
KIRBY J: Mr Jackson, there is just one little matter. I think you heard me mention it earlier. In Professor Duggan’s article he is critical of the Amadio point as an appropriate way to deal with the problems that you have been outlining before the Court. Now, I am afraid I do not quite understand his criticism there. If there is anything you can either say or put in the note that you have been given leave to put before the Court, it would be helpful to me because I do not quite - he talks of victimisation and says that Amadio really will not work to effect the sort of protection that Yerkey v Jones was designed to give and gave to the class that it protected.
MR JACKSON: Your Honour, that is because I think of the observation he makes at the bottom of 228, but, your Honour, perhaps ‑ ‑ ‑
KIRBY J: Yes, at the bottom of 228 where he talks of:
The Amadio doctrine (unconscientious dealing) is about victimisation but in the typical spousal guarantee case -
the lender “will usually have no knowledge” of the spouse’s disadvantage. Now, I do not quite understand how that - I understand, of course, the bank will not normally know, but why is that when Amadio says you look at the entirety of the facts? Why is one not looking at the particular relationship between the parties?
MR JACKSON: Because, your Honour, what he is directing particular attention to, we would suspect, if I may put it that way, is the requirement in Amadio of notice - perhaps actual or constructive notice or sufficiently evident, to use Justice Deane’s expression, or knew or ought to have known, to use Justice Mason’s expression. That is the point.
McHUGH J: The big difference is Amadio requires actual knowledge with a slight gloss on it whereas Yerkey is a case of imputed knowledge, if you like.
MR JACKSON: Yes, your Honour. The gloss is put in different ways including wilful blindness, a form of wilful blindness in Justice Deane’s reasons. Your Honour, those are our submissions.
GAUDRON J: Yes, thank you, Mr Jackson. The Court will consider its decision in this matter and adjourn until 10.15 am tomorrow.
MR OSLINGTON: Might I just raise one thing. I am sorry, I neglected to raise this. If your Honours allow the appeal the position is that the certificate of title is still in the husband’s name and there is an order in the Family Law Court ordering a transfer of the title to Mrs Garcia. The mortgage is still in existence. We would simply ask that either the matter be sent back for the appropriate relief or that the mortgage not be set aside in whole because the mortgage would still be valid against the husband. The mortgage was jointly given by the husband and wife. I just want to avoid the consequence of the whole mortgage being set ‑ ‑ ‑
GAUDRON J: You are saying that the order made by Mr Justice Young was incorrect?
MR OSLINGTON: Yes, we raised this matter in the Court of Appeal too.
GAUDRON J: Is that conceded, Mr Jackson?
MR JACKSON: Your Honour, I would really have to check that matter. I do not actually recall it. We would be perfectly happy for our learned friends and ourselves to put to the Court proposed orders in the event that either side was successful.
GAUDRON J: Very well. Could you do that within seven days? We will adjourn now, thank you.
AT 4.48 PM THE MATTER WAS ADJOURNED
Key Legal Topics
Areas of Law
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Commercial Law
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Contract Law
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Negligence & Tort
Legal Concepts
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Breach
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Duty of Care
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Negligence
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Reliance
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Remedies