Radin v Commonwealth Bank of Australia - [1998] FCA 1361

FEDERAL COURT OF AUSTRALIA

CONTRACT – third party mortgages given over time to bank by former solicitor and his wife as security for loans to them in connection with progressive purchase of portfolio of real estate and for financial accommodation to him for his legal practice – funding by bank of advances by solicitor for his clients’ disbursements – also mortgage by solicitor and his mother over townhouse occupied by her and later by them, as security for loan by bank for its acquisition and for financial accommodation to him for his legal practice – wife and mother seeking setting aside of mortgages for breach of duty of disclosure and unconscionable dealing by bank and pursuant to Contracts Review Act 1980 (NSW) - wife also relying on Yerkey v Jones (1939) 63 CLR 649 as explained in Garcia v National Australia Bank Ltd (1998) 155 ALR 614– cross-claims by bank for possession of security properties and money judgments against solicitor, wife and mother – discussion and application of general principles.

Trade Practices Act 1974 (Cth) s 52
Fair Trading Act 1987 (NSW) s 42
Contracts Review Act 1980 (NSW) s 9

Commercial Bank of Australia v Amadio (1983) 151 CLR 447, applied
Yerkey v Jones (1939) 63 CLR 649, applied
Garcia v National Australia Bank Ltd (1998) 155 ALR 614, applied
Falinski v Commonwealth Bank of Australia (unreported, NSW CA, 6 February 1998), discussed

VLADIMIRKA RADIN v COMMONWEALTH BANK OF AUSTRALIA

NG 984 OF 1995

JUDITH RADIN v COMMONWEALTH BANK OF AUSTRALIA

NG 985 of 1995

MICHAEL RADIN v COMMONWEALTH BANK OF AUSTRALIA

NG 437 of 1996

LINDGREN J

SYDNEY
23 OCTOBER 1998

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

NG 984 of 1995

BETWEEN:

VLADIMIRKA RADIN
APPLICANT

AND:

COMMONWEALTH BANK OF AUSTRALIA (ACN 123 123 124)
RESPONDENT

NG 985 of 1995

BETWEEN:

JUDITH RADIN
APPLICANT

AND:

COMMONWEALTH BANK OF AUSTRALIA (ACN 123 123 124)
RESPONDENT

NG 437 of 1996

BETWEEN:

MICHAEL RADIN (also known as MILOSH RADIN)
APPLICANT

AND:

COMMONWEALTH BANK OF AUSTRALIA (ACN 123 123 124)
RESPONDENT

JUDGE:

LINDGREN J

DATE:

23 OCTOBER 1998

PLACE:

SYDNEY

IN EACH PROCEEDING, THE COURT ORDERS THAT:

The proceeding be stood over to 2 November 1998 at 9.30 am for the making of orders.

The respondent/cross claimant bring in short minutes of the orders then to be made in accordance with the Reasons for Judgment of Lindgren J published on 23 October 1998.

Note:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

GENERAL INTRODUCTION........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .... 1

INTRODUCTION TO FACTS........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .... 2

MICHAEL’S CLAIM........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .. 7

MICHAEL’S PLEADED CASE AGAINST THE BANK........ ........ ........ ........ ........ ........ ........ 7
MICHAEL’S SUBMISSIONS........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ 16
MICHAEL’S PRE-MAY 1991 CAUSES OF ACTION........ ........ ........ ........ ........ ........ ........ . 17

The suggested “duty … to inform”........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ... 17
Any duty to inform was superseded........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .. 20
Alleged breach of the duty to inform........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ . 23
The “instructions” from Zone to Branch........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ... 24
Was Michael aware of the matters of which he complains he was not informed?........ ........ ..... 29
Reliance........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .... 33
Loss and damage........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...... 35
Contributory negligence........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .... 36
TP Act........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....... 37
Time bar........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ... 37

MICHAEL’S POST-MAY 1991 CAUSES OF ACTION........ ........ ........ ........ ........ ........ ....... 38

Misrepresentation as to time constraints on refinancing generally........ ........ ........ ........ ........ ... 39
Elements of the fraudulent misrepresentation case........ ........ ........ ........ ........ ........ ........ ........ ... 40

That there was a representation of fact, however made........ ........ ........ ........ .... 41
That the Representation was false........ ........ ........ ........ ........ ........ ........ ........ ..... 41
That the maker of the Representation did not believe that it was true in the sense in which the maker intended it to be understood........ ........ ........ ........ ........ ........ ........ ........ ........ ...... 45
(a)        Who made the representation?........ ........ ........ ........ ........ ........ ........ ... 45
(b)        Did the maker of the Representation (Doyle) believe that it was true? 48
That the maker of the Representation intended a person or class of persons to act in reliance on it   48
That the person, or a person belonging to the class of persons, acted in reliance on the Representation             48
(a)        Did Parker give Judith the Advice?........ ........ ........ ........ ........ ........ .... 50
(b)        Did Judith rely on the Representation?........ ........ ........ ........ ........ ...... 51
(c)        Judith’s awareness of the letters of 29 and 30 July........ ........ ........ .... 55
(d)        Judith did not cease to cooperate with Michael in his attempt to refinance ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .....56
That loss or damage was suffered as a result of the reliance on the Representation   59
(a)Was there a possibility of a refinancing as at 1 October 1991 or 1 June 1992?     60
(b)Was there a possibility of a partial refinancing as at 1 October 1991 or 1 June 1992?........ ...     63
(c)Loss and damage generally........ ........ ........ ........ ........ ........ ........ ........ ........ .. 71

The Bank’s letter of Monday 29 July 1991 to McGuire........ ........ ........ ........ ........ ........ ........ .... 72
James’s alleged instructions to Doyle........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....... 74

CONCLUSION IN MICHAEL’S PROCEEDING........ ........ ........ ........ ........ ........ ........ ........ . 77

VLADIMIRKA’S CLAIM........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .. 78

VLADIMIRKA’S PLEADED CASE AGAINST THE BANK........ ........ ........ ........ ........ ....... 78
FACTUAL BACKGROUND RELEVANT TO VLADIMIRKA’S CASE........ ........ ........ ..... 84

Events prior to the Norman Street Mortgage dated 1 May 1984........ ........ ........ ........ ........ ....... 84
The Norman Street Mortgage........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ... 86
Did the Bank improve its security position while Vladimirka received no benefit from the Bank? 89
The acknowledgments........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...... 91
Refinancing........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...... 93
Vladimirka’s relationship with her son........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..... 93

FURTHER REASONING........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....... 94

Duty of disclosure........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..... 94
Was the Norman Street Mortgage “unjust” for the purposes of the CR Act?........ ........ ........ .... 99
Unconscionability........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .... 107
Time bar........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ . 110
Estoppel........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .. 110
No offer to do equity........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....... 111

CONCLUSION IN VLADIMIRKA’S PROCEEDING........ ........ ........ ........ ........ ........ ........ 112

JUDITH’S CLAIM........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ . 112

JUDITH’S PLEADED CASE AGAINST THE BANK........ ........ ........ ........ ........ ........ ........ 113

Breach of duty of disclosure........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ... 114
CR Act........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .... 118
Unconscionable conduct........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ . 119
Misleading or deceptive conduct........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..... 119
Fraud, negligence and misleading or deceptive conduct in relation to the Bank’s reply to Parker’s letter of 17 July 1991........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....... 120
Negligent Advice........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .... 120
Relief........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...... 121

GENERAL FINDINGS OF FACT........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ 121

Judith’s general understanding and ability to understand........ ........ ........ ........ ........ ........ ...... 121
The five mortgage transactions in respect of which Judith seeks relief........ ........ ........ ........ .. 125

Theresa Park........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ . 126
87 Foreshore Drive........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....... 130
William Street........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ 137
Appian Way........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .... 138
92 Foreshore Drive........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....... 143
Joint purchases of further properties in late 1988........ ........ ........ ........ ........ ........ ........ ....... 148

(a)Port Kembla........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .... 148
(b)Wanda Beach........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .. 148

Joint Cheque Account Number 147-056........ ........ ........ ........ ........ ........ ........ ........ ........ ........ . 149
Meeting at the Bank on 22 February 1991........ ........ ........ ........ ........ ........ ........ ........ ........ ..... 153
Settlement agreement between Michael and Judith in September 1991........ ........ ........ ........ .. 154
Letters of demand of 27 August 1992 and subsequent meetings with the Bank........ ........ ...... 155
Auction of Port Kembla on 12 December 1992........ ........ ........ ........ ........ ........ ........ ........ ....... 156
Appointment of receiver (Brown) by the Bank on 8 January 1993........ ........ ........ ........ ........ . 157
Meeting at the Bank on 22 January 1993........ ........ ........ ........ ........ ........ ........ ........ ........ ...... 158
Auction of Wanda Beach on 30 January 1993........ ........ ........ ........ ........ ........ ........ ........ ....... 158
Withdrawal of McGuire’s retainer on 3 February 1993........ ........ ........ ........ ........ ........ ........ . 159
Meeting at the Bank on 16 February 1993........ ........ ........ ........ ........ ........ ........ ........ ........ ..... 160
Judith’s facsimile to Brown in late February 1993........ ........ ........ ........ ........ ........ ........ ........ . 160
Letter from McGuire to Judith dated 2 March 1993........ ........ ........ ........ ........ ........ ........ ....... 160
The acknowledgments........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .... 160

First acknowledgment - 12 November 1984........ ........ ........ ........ ........ ........ ........ ........ ........ . 161
Second acknowledgment - 9 September 1985........ ........ ........ ........ ........ ........ ........ ........ ...... 162
Third acknowledgment - 14 October 1985........ ........ ........ ........ ........ ........ ........ ........ ........ ... 163
Fourth acknowledgment - 1 October 1986........ ........ ........ ........ ........ ........ ........ ........ ........ ... 164
Fifth and sixth acknowledgments - 8 December 1986........ ........ ........ ........ ........ ........ ........ .. 164
Seventh acknowledgment - 6 January 1988........ ........ ........ ........ ........ ........ ........ ........ ........ .. 165
Eighth acknowledgment - 6 November 1988........ ........ ........ ........ ........ ........ ........ ........ ........ 167
Ninth acknowledgment - 10 July 1989........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .. 168
Tenth acknowledgment - 8 February 1990........ ........ ........ ........ ........ ........ ........ ........ ........ ... 169
Eleventh acknowledgment - 22 August 1990........ ........ ........ ........ ........ ........ ........ ........ ....... 171
Conclusions relating to the acknowledgments........ ........ ........ ........ ........ ........ ........ ........ ..... 171

Allegations of threats and of violence........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..... 172
Michael and Judith as “business partners”........ ........ ........ ........ ........ ........ ........ ........ ........ .... 175

FURTHER REASONING........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..... 176

Credit........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...... 176

Inconsistency between present evidence and documents in Family Law proceeding........ . 177
Knowledge of a “home loan”........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ 177
Awareness of nature of an “overdraft”........ ........ ........ ........ ........ ........ ........ ........ ........ ........ . 178
Evidence as to impact of letter of 17 July 1991 from Bank to Parker........ ........ ........ ........ . 178
Occasions on which mortgages signed at the Bank........ ........ ........ ........ ........ ........ ........ ..... 179
Evidence as to independent advice........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....... 179
Judith’s “what if” evidence........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ... 180
Understanding of a mortgage........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ 180

(1) Purchase of a motor vehicle by means of a secured personal loan in February 1979...... 182
(2) Purchase and mortgage of Bullaburra........ ........ ........ ........ ........ ........ ........ ........ ........ ...... 183
(3) Purchase and execution of two mortgages of Myall Street........ ........ ........ ........ ........ ........ 188
(4) Purchase and grant of first mortgage of Theresa Park........ ........ ........ ........ ........ ........ ..... 190
(5) Other Bank loans........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...... 190
(i) Secured personal loan to assist Michael to purchase the practice from Menart 190
(ii) Personal loan to assist purchase of Renault motor car........ ........ ........ ...... 191
(iii) Overdraft on account number 147-056........ ........ ........ ........ ........ ........ .... 191

Breach of duty of disclosure........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ... 191

The duty of a creditor to an intending guarantor........ ........ ........ ........ ........ ........ ........ ........ .. 191
What did Judith know of the matters allegedly not disclosed?........ ........ ........ ........ ........ .... 194

(1) Returning of cheques........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ 195
(2) Exceeding of limits of accounts........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ . 195
(3) Increasing indebtedness........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .... 196
(4) Problems with cash flow of practice........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .. 196
(5)Correspondence received from the Bank........ ........ ........ ........ ........ ........ ........ ........ ........ . 196

Would Judith have acted differently if she had known of the matters particularised?........ 197

(1) Mortgage dated 27 July 1983 over Theresa Park........ ........ ........ ........ ........ ........ ........ ..... 199
(2) Two mortgages signed on 14 October 1985 over William Street and 87 Foreshore Drive. 199
(3) Mortgage dated 2 January 1988 over Appian Way........ ........ ........ ........ ........ ........ ........ ... 200
(4) Two mortgages signed on 7 July 1989 over 92 Foreshore Drive and Wanda Beach........ . 200

Discharge of the third party mortgages as a result of implementation of the litigation loan facility 202

Misleading or deceptive conduct........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..... 206
Michael as agent of the Bank........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ . 206
Undue influence or duress........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...... 208
Judith’s claim based on Yerkey v Jones (1939) 63 CLR 649 (“Yerkey”) and Garcia v National Australia Bank Ltd (1998) 155 ALR 614 (“Garcia”)........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..... 208

Unconscionable dealing........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .. 215
CR Act........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .... 220

The “business exception”........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..... 220
Application of the CR Act........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..... 221

Falinski........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .. 221
Breach of contract........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .. 223

FURTHER ISSUES........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....... 223

Time bar........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ . 224
Estoppel........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .. 224
Admission........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....... 225
No offer to do equity........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....... 225
Relief........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...... 225

CONCLUSION IN JUDITH’S PROCEEDING........ ........ ........ ........ ........ ........ ........ ........ ... 225

GENERAL CONCLUSION IN RELATION TO ALL THREE PROCEEDINGS........ ........ ... 226

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY

NG 984 of 1995

BETWEEN:

VLADIMIRKA RADIN
APPLICANT

AND:

COMMONWEALTH BANK OF AUSTRALIA (ACN 123 123 124)
RESPONDENT

NG 985 of 1995

BETWEEN:

JUDITH RADIN
APPLICANT

AND:

COMMONWEALTH BANK OF AUSTRALIA (ACN 123 123 124)
RESPONDENT

NG 437 of 1996

BETWEEN:

MICHAEL RADIN (also known as MILOSH RADIN)
APPLICANT

AND:

COMMONWEALTH BANK OF AUSTRALIA (ACN 123 123 124)
RESPONDENT

JUDGE:

LINDGREN J

DATE:

23 OCTOBER 1998

PLACE:

SYDNEY

REASONS FOR JUDGMENT

GENERAL INTRODUCTION

These three proceedings have been heard together, the evidence in each being evidence in the others. In proceeding NG 437 of 1996 (which commenced life in June 1993 as proceeding number 12233 of 1993 in the Common Law Division of the Supreme Court of New South Wales prior to its transfer to this Court), the applicant is Michael Radin, also known as Milosh Radin (“Michael” - for convenience, and without disrespect, I will refer to the Radins by their first names). In that proceeding, as in the others, the respondent is the Commonwealth Bank of Australia (“the Bank”) which is the successor in title to the Commonwealth Savings Bank of Australia (“CSB”) and the Commonwealth Trading Bank of Australia (“CTB”). In proceeding NG 984 of 1995, the applicant is Michael’s mother, Vladimirka Radin (“Vladimirka”). In proceeding NG 985 of 1995, the applicant is Judith Radin (“Judith”) who is Michael’s former wife.

In all three proceedings, the applicants seek to be relieved of mortgages which they gave to the Bank or its predecessor entities, as well as various forms of monetary compensation. By cross claims in the respective proceedings, the Bank seeks to enforce its securities.

INTRODUCTION TO FACTS

The saga which gives rise to the litigation is an unfortunate one. The purpose of the present section of these Reasons is to give an introduction to certain factual themes which emerge from the evidence.

Vladimirka was born on 6 June 1926. According to her evidence, her father was a very wealthy Yugoslav industrialist, with interests in mining, factories, farming, real estate and the hotel industry. He had a “Croatian property on the sea, a hotel and villa and too many house [sic]”. Following the Communist takeover and expropriation of private property, Vladimirka came to Australia in 1961 with her husband and with Michael who was seven years old. Michael was born on 13 January 1954.

Judith was born on 25 November 1955. Her father was an accountant. In 1973, Michael and Judith met. At that time Michael was working at the Rural Bank of New South Wales (“the Rural Bank”), Liverpool, as was Judith’s sister, Gail. Michael was studying for the Higher School Certificate (“HSC”) at evening college. Judith sat the HSC twice (in 1973 and 1974) and completed a Diploma of Teaching (Primary) in 1977. In the period 1978 to 1980, she taught full-time at St John’s Primary School, Campbelltown. During 1981 and 1982 she privately tutored students at home in English and Mathematics. She later attended the Australian Catholic University on a part-time basis and was awarded a Graduate Certificate TESOL (a qualification in teaching English as a second language) in 1992, and a Bachelor of Education degree in 1994.

In 1974, Michael became articled as a law clerk to the late Vladimir Menart (“Menart”), solicitor, of Fairfield.

In 1975, Vladimirka and her husband separated and were divorced. The husband returned to Yugoslavia. His half-interest in their home at 3 Amelia Crescent, Canley Heights (“Canley Heights”) was sold to Michael, who became a joint owner with his mother of the home.

In 1977, Judith married Bruce Avnell, but they separated after about two years and the marriage was dissolved in 1980. In the meanwhile, on 19 September 1979, Judith had moved into Canley Heights where she lived with Michael and his mother.

Not long afterwards, on or about 31 November 1979, Michael and Judith agreed to purchase what was to be the first of numerous properties bought by one or both of them. The property was vacant land. It was Lot 26, Theresa View Road, Theresa Park (“Theresa Park”). They still own this property which is one of several involved in the present proceedings. Less than a year later, on 1 August 1980, Judith contracted to purchase a house at 43 Bullaburra Road, Bullaburra (“Bullaburra”), in the Blue Mountains. Even at this early stage, Judith demonstrated a propensity to make diary notes relating to various tasks which she had to undertake in relation to property matters and otherwise. The notes were to be of some significance on the hearing.

The next property which Michael and Judith purchased was a house at 76 Myall Street, Concord West (“Myall Street”). The price was $78,000. For the purpose, they borrowed $30,000 from the CSB. The transfer and mortgage were dated 17 February 1981. A little over a month later, they borrowed from the CTB on the security of a second mortgage over the property.

Apparently, it was a few months later that Michael and Judith moved into Myall Street - their first home. They were married a little later, on 22 November 1981.

After completing the examinations set by the Solicitors’ Admission Board, Michael was admitted to practise as a solicitor of the Supreme Court of New South Wales in September 1982. He purchased Menart’s practice and practised as a sole practitioner under the name “Radin & Associates” as from 1 January 1983.

Important aspects of the present case have been the nature of Michael’s legal practice, the relationship between him and Judith, the building up of their real estate portfolio, and the connections between these three elements.

Throughout the 1980s, Michael developed a busy and expanding legal practice. Although he came to employ a sizeable staff, including solicitors, he always remained a sole practitioner. He opened branch offices in Wollongong, Port Kembla, Newcastle and the City, but the head office was always at Fairfield. The work of the practice was almost entirely personal injury litigation arising out of industrial and road accidents. Michael built up a large following in the Yugoslav community. He was fluent in the Yugoslav languages and had the support of Yugoslav community leaders.

An important feature of the practice was that Michael acted for people of modest means who found it difficult to fund the disbursements usually associated with litigation of the kind described, in particular, such expenses as court filing fees, expert witnesses’ fees, process servers’ fees and counsel’s fees. Although, according to his evidence, few cases were lost, he would be out of pocket for long periods until cases were settled or decided. The clients and the ethnic leaders who had introduced them, looked to Michael to see the cases through to the end, that is, to fund the litigation. No doubt, Michael derived satisfaction from the growth of his practice and the respect which he was accorded.

But there was a problem. Although Michael was the immediate source of funds for his clients, the ultimate source was the Bank. It was because of financial accommodation provided by the Bank to Michael that he was able to support his clients and to develop his practice. In connection with his practice, Michael had two accounts with the Bank: an “office” or “general” or “current” account, and a trust account. He had other non-practice accounts too, such as a joint cheque account with Judith. At first the accounts were maintained at the Ware and Spencer Streets, Fairfield branch, but in mid-1989 that branch was combined with the branch at The Crescent, Fairfield, after which the various accounts were maintained at the combined branch. I will use the word “Branch” to refer to the branch where Michael’s various accounts with the Bank were maintained at any time and from time to time. The Branch was in the Western Metropolitan “Division”, “Region” or “Zone” of the Bank. I may use all three of these words. Over the years, the Bank supported Michael. Eventually, however, and after tolerating many “excesses” on his accounts and extending him many indulgences, it declined to do so any longer.

Branch was more indulgent towards Michael than was Zone. A particular reason was that he brought business to the Bank - both to Branch and to other branches. Yet the extent of his indebtedness to the Bank and his continuing failure to adhere to constraints were causes of concern within the Bank over a long period. Zone applied pressure to Branch to dishonour cheques and to insist that Michael’s accounts be brought into order. However, Branch Senior Manager, Maxwell Flanders Williams (“Williams”), was reluctant to do so, perceiving it to be in Branch’s interest not to do anything which would cause Michael’s practice to collapse.

A further dimension to the events of the 1980s was the ever-increasing portfolio of real estate that Michael and Judith were building up. Many of the purchases were also funded by the Bank. Some of the properties are no longer held, but it is noteworthy that Michael seeks to restrain the Bank from exercising its rights as mortgagee under mortgages over more than eight properties, as well as to restrain it from exercising its rights under a “bill of sale and equitable mortgage” over his legal practice. Judith is the owner with Michael of five properties and Vladimirka is the owner with him of one of them. That one is a townhouse at 5/17-19 Norman Street, Concord (“Norman Street”) in which Vladimirka and Michael live. That is the only mortgage the subject of Vladimirka’s proceeding.

By the late 1980s, the marriage between Michael and Judith was in difficulty. They separated on 24 November 1988, and were divorced in 1989.The two children of the marriage remained with Judith. Judith makes serious allegations of violence against Michael. In particular, she alleges that she signed mortgages and other documents in favour of the Bank because of her fear of what Michael would do to her if she did not sign. While admitting some violence, Michael has, in substance, denied the allegations. In the Family Court of Australia, Judith previously sought a property settlement (the “Family Law proceeding”). In that connection she swore that she had contributed substantially to the building up of the portfolio of real estate, not so much financially but, for example, by negotiating purchases. Before me, however, her case is, in substance, that she did Michael’s bidding and had little or no understanding of commercial and legal matters. Similarly, and as noted below, there is a tension between, on the one hand, the position which Judith took in her property settlement negotiations with Michael as part of the Family Law proceeding, and, on the other hand, the attitude which she, Michael and Vladimirka ask me to accept that she took to a request by Michael that she cooperate with him in refinancing the indebtedness to the Bank.

Michael came under increasing pressure from the Bank to refinance. A time came when the Bank selectively dishonoured his cheques, paying only those which it thought were essential to allow his legal practice to survive.

Eventually, the Bank thought that it was paying too high a price for the Radin “connection”. By about January 1991, the Bank had determined to cease further “litigation lending” to Michael. It told him he must pay out the Bank and take his business elsewhere. Refinance proposals were discussed in 1991 and early 1992. A refinancing would necessitate the cooperation of Judith as co-owner of most of the properties mortgaged to the Bank. Michael sought her cooperation but it was not always given.

There has been an issue in the case as to the reason for Judith’s reluctance at times to cooperate with Michael. The Bank’s case is that she deliberately and advisedly withheld her consent at times as a means of extracting a more satisfactory settlement from Michael in the Family Law proceeding. Judith was legally represented in that proceeding by Adrienne McGuire (“McGuire”) of McGuire Rosso & Co. As well, an accountant, Jean Parker (“Parker”), provided certain advice to her. Both sought and were given information from the Bank as to the properties over which Judith had given mortgages and the amount which they secured. The case put by Michael, Judith and Vladimirka is that the Bank fraudulently (or, in the alternative, negligently or in a misleading and deceptive manner) misinformed Parker to the effect that there was no urgency from the Bank’s viewpoint for a refinancing, and that in reliance on that advice she (Judith) withheld her cooperation.

I will need to return to this issue in some detail in due course. It suffices to say at this stage that a refinancing did not occur. The Bank issued letters of demand in late August 1992. On the application of the Law Society of New South Wales, the Supreme Court of New South Wales appointed Jean Sayer as receiver to Michael’s practice on 11 September 1992. The Bank appointed Martin Russell Brown (“Brown”) of Coopers and Lybrand as receiver of Michael’s practice pursuant to the Bank’s registered bill of sale and equitable mortgage on 8 January 1993. Ultimately, as a result of a disciplinary proceeding, Michael’s name was removed from the roll of solicitors. Michael, Judith and Vladimirka say that if the Bank had conveyed to Parker the urgency of a refinancing, Judith would or might have cooperated, the Bank would or might have been paid out, and Michael’s practice would or might have survived, to the advantage of them all.

MICHAEL’S CLAIM

MICHAEL’S PLEADED CASE AGAINST THE BANK

Michael pleads his case against the Bank in a further amended statement of claim filed on 2 October 1997. The following is an account of that pleading and does not represent any finding of fact.

Michael practised between 1982 and 1989 at 22 Harris Street, Fairfield, and between 1989 and 7 September 1992 at that address and at 99 Elizabeth Street, Sydney, under the name “Radin & Associates”. The Bank lent money to Michael to enable him to pay, on account of his clients, court filing fees, medical and other expert witnesses’ expenses, service fees, barristers’ fees, court appearance fees for expert witnesses, and other expenses of litigation, as well as general living expenses. The Bank knew, as was the fact, that it was not uncommon for six years to pass between receipt of instructions and the settlement, hearing or other disposition of the litigation. Michael made the Bank aware, whenever he advanced money for his clients’ disbursements, by drawing cheques on his general account, depositing the amount in his trust account and paying the disbursements out of the trust account, that he was making such payments. The Bank knew that Michael’s indebtedness to it could not be reduced unless:

(a)he ceased practising law and found someone to take over his obligations to his clients; or
(b)he was given adequate notice by the Bank that he should cease taking instructions from clients who were unable to fund their own disbursements; or
(c)he found another financier willing to continue to finance him as the Bank had been doing; or
(d)he ceased taking instructions from clients who were unable to fund their own disbursements.

At all material times down to January 1991, Michael continued, to the Bank’s knowledge, to take instructions from clients who were unable to finance their own disbursements. Far from instructing him to cease doing so, the Bank represented to him that if he continued to do so it would support him so as to enable him to complete his clients’ cases. At various times down to 7 September 1992, Michael gave the following securities to the Bank:

“a.Mortgage Registered No V.449514 made between [Michael] and [Vladimirka] as Mortgagors and [the Bank] as Mortgagee (Security: [Norman Street] - Folio Identifier 5/8491).

b.Mortgage Registered No T.709151 made between [Michael] and [Judith] as Mortgagors and [the Bank] as Mortgagee (Security: [Theresa Park] - Folio Identifier 26/252899).

c.Mortgage Registered No W.254834 made between [Michael] and [Judith] as Mortgagors and [the Bank] as Mortgagee (Security: 87 Foreshore Drive, Salamander Bay - Folio Identifier 84/26610).
d.Mortgage Registered No W.254833 made between [Michael] and [Judith] as Mortgagors and [the Bank] as Mortgagee (Security: 5 William Street, Fairfield - Folio Identifier 4/3035).
e.Mortgage Registered No Y75562 made between [Michael] and [Judith] as Mortgagors and [the Bank] as Mortgagee (Security: 11 Appian Way, Burwood - Folio Identifier 1/304076).
f.Mortgage dated 19th February 1991 made between [Michael] as Mortgagor and [the Bank] as Mortgagee (Security: 24/4 Ithaca Road, Elizabeth Bay - Folio Identifier 26/SP13189).
g.Mortgage Registered No Y.907647 made between [Michael] and [Judith] as Mortgagors and [the Bank] as Mortgagee (Security: 92 Foreshore Drive, Salamander Bay - Folio Identifier 544/27353).
h.Mortgage Registered No Y.907647 made between [Michael] and [Judith] as Mortgagors and [the Bank] as Mortgagee (Security: 187 Soldiers Point Road, Salamander Bay - Folio Identifier 377/28192).
i.Between 1982 and 1993 [Michael] mortgaged other real estate in which [he] held an interest and the properties have since been sold and the mortgages discharged.
j.On 3rd November 1988 [Michael] executed a document entitled ‘Bill of Sale and Equitable Mortgage’ (hereinafter referred to as the ‘Bill of Sale’) made between [Michael] therein referred to as the mortgagor and the Debtor and [the Bank] therein referred to as the Bank.
PARTICULARS
A.The Bill of Sale was registered on 10th November 1988 No. 805629.
B.The Bill of Sale secures inter alia the sum of $851,972.75.”

The Bank owed Michael a duty of care to ensure that its lending policies did not damage him. In breach of that duty the Bank:

“negligently, carelessly and unskilfully managed and controlled the accounts and the lending of [the Bank] to [Michael] so that [Michael] suffered damage.”

The following “particulars of negligence” are given:

“a.Allowing [Michael] to substantially exceed overdraft limits previously set by [the Bank].
b.Failing to ensure that [Michael] was aware within a reasonable time that [the Bank] would not continue to support [him] by lending further funds to enable [him] to advance money to existing clients of [his] business to pay the disbursements.
c.Representing to [Michael] that if [he] gave to [the Bank] all of [his] assets as security for moneys borrowed that [the Bank] would continue to advance moneys to [Michael] to pay the disbursements so that litigation already commenced by [him] could be finalised.
d.Failed to advise [Michael] that [the Bank] intended to stop lending to [Michael] in such a way that [he] could not finance the continuing obligations of [his] business to support clients of [his] business to the finalisation of the personal injuries litigation.
e.Returning cheques ‘refer to drawer’ and ‘present again’ which had been drawn on [Michael’s] General Account and deposited in [his] Trust Account.
f.Withdrawing [Michael’s] lines of credit when [the Bank] well knew of the obligations of [Michael’s] business to clients of [Michael’s] business.
g.Withdrawing [Michael’s] lines of credit without sufficient notice.
h.Requiring [Michael] to reduce his loans to [the Bank] when [the Bank] well knew that it was impossible to do so unless [the Bank] allowed further loans to [Michael] to continue litigation already commenced.
i.Withdrawing litigation lending facilities when [the Bank] had already approved same to an amount of $ 1,200,000 and [Michael] and/or [Michael’s] business had only drawn $400,000.
j.Encouraging [Michael] to personally lend the disbursements to clients of [his] rather than using traditional litigation lending schemes.
k.Indicating by its conduct and orally that [the Bank] would continue to support [Michael’s] scheme of lending the disbursements to clients of [Michael’s] business.
l.In January 1991 withdrawing further credit.
m.In January 1993 appointing a receiver pursuant to the Bill of Sale.”

The following particulars of loss and damage are given:

“a.By reason of the withdrawal of credit from [Michael] and the withdrawal of the litigation lending limit previously approved by [the Bank] [Michael] used moneys that [he] should have used to pay income tax and group tax to lend to clients for the disbursements and penalties have been imposed on [him] and [he] is threatened with Bankruptcy proceedings.

b.By reason of the conduct referred to in paragraph 21(e) a receiver was appointed to [Michael’s] business by the Law Society of New South Wales and [Michael] has been prohibited from practising as a Solicitor and [he] is unable to continue to earn his livelihood as a Solicitor.
c.By reason of [Michael] being prohibited from practising as a Solicitor [his] reputation has been damaged.
d.By reason of [Michael] being prohibited from practising as a Solicitor the goodwill of [his] business has been damaged and the value of the business has become thereby reduced.
e.By reason of the matters referred to above and in particular paragraph 21(e) [Michael] is a party to disciplinary proceedings being conducted by the Law Society of New South Wales.
f.By reason of the appointment of a receiver pursuant to the Bill of Sale [Michael] has no funds to obtain legal representation to defend the said disciplinary proceedings.
g.[The Bank] has become liable to pay substantial expenses to the receivers appointed by the Law Society of New South Wales and the receiver appointed by [the Bank].”

In addition or in the alternative, the Bank engaged in misleading or deceptive conduct which caused Michael loss. At all material times up to about January 1991, the Bank represented to him by its conduct in the management and control of his accounts that if his business continued to expand, the Bank would continue to lend him sufficient funds to pay his clients’ disbursements, while knowing the matters touching his practice referred to earlier. The Bank’s “conduct” is pleaded as follows:

“a.[The Bank] at all material times between 1982 and 1991 allowed [Michael] to exceed overdraft limits previously set.

b.[The Bank] held regular reviews of [Michael’s] overdrafts and at all material times increased overdraft and loan limits at the request of [Michael] upon being provided by [him] particulars of moneys advanced to clients of [his] business.
c.[The Bank] discouraged [Michael] from borrowing on fixed term loans and
d.[The Bank] encouraged [Michael] to personally lend to his own clients rather than obtain litigation loans for his clients.
e.[The Bank] failed to ensure that [Michael] was aware within a reasonable time that [the Bank] would not continue to support [him] by lending further funds to enable [him] to advance money to existing clients of [his] business to pay the disbursements.
f.[The Bank] represented to [Michael] that if [Michael] gave to [the Bank] all of [Michael’s] assets as security for moneys borrowed that [the Bank] would continue to advance monies to [Michael] to pay the disbursements so that litigation already commenced by [Michael] could be finalised.
g.[The Bank] failed to advise [Michael] that [the Bank] intended to stop lending to [him] in such a way that [he] could not finance the continuing obligations of [his] business to support clients of [his] business to the finalisation of the personal injuries litigation.
h.[The Bank] approved a litigation lending facility to an amount of $1,200,000.00 and withdrew the approval when [Michael] had drawn down $400,000.
i.[The Bank] encouraged [Michael] to lend the disbursements to clients of [Michael’s] rather than using traditional litigation lending schemes.
j.[The Bank] represented by its conduct and orally that [it] would continue to support [Michael’s] scheme of lending the disbursements to clients of [his] business.
k.[The Bank] represented to [Michael] that it was agreeable to [Michael] exceeding overdraft limits previously set as that enabled [the Bank] to charge to [Michael] penalty rates of interest which was a financial benefit to [the Bank].”

The Bank affirmed its representations by continuing to support Michael’s business and his funding of his clients from 1982 to 1991, and by its silence prior to and after 3 November 1988, when Michael executed a bill of sale and equitable mortgage to the Bank over his practice. The Bank had no reasonable grounds for making the representations, its conduct was misleading and deceptive in contravention of s 52 of the Trade Practices Act 1974 (Cth) (“the TP Act”), and Michael was misled and continued to take new instructions from clients who were unable to pay their own disbursements.

In January 1991 and subsequently, the Bank failed to “honour” its representations, in that:

“a.[The Bank] failed to ensure that [Michael] was aware within a reasonable time that [the Bank] would not continue to support [Michael] by lending further funds to enable [him] to advance money to existing clients of [Michael’s] business to pay the disbursements.
b.[The Bank] failed to advise [Michael] that [the Bank] intended to stop lending to [Michael as the Bank] had done since 1982.
c.[The Bank] returned cheques ‘refer to drawer’ and ‘present again’ which had been drawn on [Michael’s] General Account and deposited in [his] Trust Account.
d.[The Bank] withdrew [Michael’s] lines of credit when [the Bank] well knew of the obligations of [Michael’s] business to clients of [Michael’s] business.
e.[The Bank] withdrew [Michael’s] lines of credit without sufficient notice.
f.[The Bank] required [Michael] to reduce his liabilities to [the Bank] when [the Bank] well knew that it was impossible to do so unless [the Bank] allowed further loans to [Michael] to continue litigation already commenced.
g.[The Bank] withdrew the litigation lending facility when [it] had already approved same to an amount of $1,200,000.00 and [Michael] had only drawn $400,000.
l.In January 1991 [the Bank] withdrew further credit.
m.In January 1993 [the Bank] appointed a receiver pursuant to the Bill of Sale.”

The particulars of loss and damage are, with necessary adjustments, those mentioned above.

An agreement was made in or about early 1984 between Michael and Williams, the then manager of Branch, that the Bank would make advances to Michael for the purpose of allowing him to pay expenses and outgoings of the clients for whom he was conducting litigation. It was a term that the Bank would not demand payment until completion of each piece of litigation. This was stated by Williams and it was implied from the Bank’s making the advances, knowing that Michael would not be able to pay until completion of the proceedings. The contract was “remade” each time the Bank paid cheques drawn by Michael on his general account payable to his trust account, the Bank being aware that the amounts were to be used for the purpose of advances to his clients out of his trust account. In breach of the contract, the Bank demanded payment from Michael prior to completion of his clients’ cases, as a result of which he suffered loss and damage.

In the alternative, in various conversations between 1984 and December 1989 Williams represented that Michael could continue to make advances in the manner in which advances had been made since 1983, knowing that they would be repaid only upon successful completion of proceedings. In reliance on the representations, Michael continued to make advances to or on account of his clients for the purpose of payment of expenses of litigation. The Bank’s representations were misleading and deceptive in contravention of s 52 of the TP Act, in that at all material times Williams knew that Region did not approve of the making of the advances to Michael and had directed Williams to cease to make them, yet Williams did not make Michael aware of this. Inconsistently with the representations, the Bank demanded repayment before completion of his clients’ cases, and, as a result, Michael suffered loss and damage.

Further or in the alternative, the representations were made by implication from the Bank’s conduct in continuing to make advances to Michael for the purpose only of ensuring that his practice did not collapse, as it would do if the Bank failed to meet his cheques drawn in favour of his trust account to fund his clients’ disbursements. The Bank continued to make the advances for the purpose of preserving its security over Michael’s practice pursuant to the bill of sale, yet without any intention of waiting until completion of litigation before demanding recovery and enforcing the bill of sale.

Williams’ representations from 1984 to December 1989 were made in breach of a duty of care owed by the Bank. Williams was negligent in continuing to represent to Michael that the cheques drawn on his current account in favour of the trust account would continue to be met by the Bank, when he knew that at any time it could stop them. Michael suffered loss and damage in that he continued to draw such cheques, whereas if he had been aware of Region’s attitude, he would have arranged alternative finance, and, as a result, a receiver would not have been appointed either at the instigation of the Law Society or by the Bank.

Further or in the alternative, in or about September 1988, the Bank, through Williams, represented to Michael that it would not demand repayment before a client’s litigation was completed. In reliance on that representation, Michael granted to the Bank the bill of sale and equitable mortgage over his practice. The Bank owed him a duty of care in making that representation, but in breach of it the Bank knew that Region wanted Williams to cease to make advances to Michael.

By May/June 1991 the Bank determined that it did not wish to retain Michael as a customer. In May 1991, it determined that unless Michael paid out his indebtedness by the end of June 1991, it would enforce its securities. As at May 1991, the Bank knew that Michael and Judith were divorced and that Judith had commenced a proceeding against Michael for a property settlement. The Bank also knew that Michael would be unable to obtain alternative finance to pay out the Bank without the consent of Judith, who was a co-owner with Michael of many of the mortgaged properties. During the period June 1991-March 1992, Judith enquired of the Bank as to any time limit the Bank had placed on Michael to pay it out. The Bank had a duty to take care in answering her enquiries, but in breach of that duty wrongly informed her accountant, Parker, by letter dated 17 July 1991, that there were no such time constraints on Michael. The representation was false, in that the Bank was requiring Michael to pay out his loans immediately, in default of which it intended to realise its securities. The Bank was negligent in responding to Judith in the way in which it did. As a result, Michael suffered loss, in that Judith was caused to conclude that a statement that Michael had made to her that the Bank required a refinancing to be completed urgently was only a ploy by him in connection with the property settlement in the Family Law proceeding. Accordingly, she refused to assist him to refinance . She would not have refused to cooperate if the Bank had informed her, as was the case, that the Bank had determined in May 1991 that unless Michael paid his debt by the end of June, it would enforce its securities. If Judith had cooperated with Michael, he could have paid out the Bank and avoided the appointment of receivers to his trust account and to his practice. The Bank’s reply to the inquiry on behalf of Judith was also misleading and deceptive conduct in contravention of s 52 of the TP Act. Michael’s loss was the appointments of the receivers and their sequelae. The Bank’s response to the inquiry was fraudulent.

Further, the Bank, through its Regional Manager, Geoffrey Ian James (“James”) instructed its Branch Loans Manager, Tony Doyle (“Doyle”), not to inform Judith or Vladimirka that the Bank required Michael to pay out his indebtedness, under penalty of a realisation by the Bank of its securities. From May 1991 to September 1992, the Bank deliberately withheld from Judith the information that the Bank was requiring Michael to discharge his debt, in default of which it would enforce its securities. The withholding of this information was fraudulent. The Bank’s motivation was to avoid the possibility that Judith might seek to set aside the Bank’s securities in so far as they related to properties co-owned by her with Michael.

Further, by an agreement made in late 1989 between Michael and Williams, the Bank agreed to make advances to clients of Michael’s for the purpose of enabling them to pay litigation expenses and outgoings. It was a term of the agreement that the Bank would not require payment until the clients’ cases were completed. In breach, the Bank demanded payment prematurely, as a result of which Michael suffered loss. The loss was that he continued to draw cheques on his current account, whereas, if he had been aware of Region’s attitude, he would have arranged alternative finance and this would have avoided the appointments of the receivers.

Finally, by reason of the Bank’s conduct referred to, the Bank deprived Michael of the opportunity to refinance.

Michael claims damages for negligence, an order that the amount of damages awarded to him be set off against moneys owing by him to the Bank, “damages for fraud including equitable compensation”, damages under s 82 of the TP Act for contravention of s 52 of that Act, and an injunction restraining the Bank from taking possession of land or taking any further action pursuant to the respective mortgages and the bill of sale.

MICHAEL’S SUBMISSIONS

Michael’s written submissions have substantially reduced the scope of the issues to be resolved. His case falls into two parts: the pre-May 1991 causes of action and the post-May 1991 causes of action.

MICHAEL’S PRE-MAY 1991 CAUSES OF ACTION

Michael’s pre-May 1991 causes of action are based upon an alleged duty of care on the part of the Bank to Michael to inform him of certain instructions given by Zone to Branch in relation to the conduct of his account. Michael submits:

“3.It was foreseeable to [the Bank] through [Williams] and indeed the management at Zone level that there was a foreseeable risk of economic loss to [Michael] if the directions of management at Zone were ignored and [Michael] allowed to continue to borrow funds as Zone might eventually enforce the instructions.
4.It is submitted that by refusing to carry out the management instruction from Zone level to dishonour cheques and bring the account out of excess and within limits, [the Bank] through [Williams] adopted and assumed responsibility for the way that [Michael] was allowed to operate outside of limits.
5.Such assumption or adoption of responsibility brought with it a duty of care on the part of [the Bank] to [Michael] to inform him of the instructions of Zone as to the conduct of the account and of the prospect of economic loss to [Michael] should the management at Zone level insist that its instructions be carried out as was known to [the Bank].” (emphasis supplied)

The Bank submits that this “duty of care … to inform” has not been pleaded. It is true that Michael’s further amended statement of claim does not clearly correspond to this duty. The pleaded duties of care “to ensure that the lending policies of [the Bank] did not cause damage to [Michael]” (par 20) and “not to cause [Michael] loss by making negligent representations” (par 52) are not pressed.

The suggested “duty … to inform”

I understand the submission to refer to a duty of care which could have been performed only by informing. It is convenient to refer to it elliptically as a “duty to inform”. The duty and breach alleged are in respect of a duty, and failure, to inform Michael of the instructions Zone was giving to Williams. Accordingly, the duty propounded is a duty of a bank to inform its customer of instructions from an upper to a lower level in a hierarchy within the Bank. The Bank submits that there is no such duty as a matter of law and that there are no special facts in this case which give rise to such a duty, for the following general reasons:

“(1)The duty asserted is inconsistent with the contractual nature of the banker/customer relationship. There cannot be a duty to inform a customer of matters which are inherently internal to the Bank. In this case it is asserted that the information not passed on were instructions from the Zone to the Branch.

(2)The rights of a customer and the Bank are determined by what passes between the customer and the bank officer with whom the customer deals. For example if the Zone advises the Branch to decline a request for funding but the Branch, nevertheless, sends an approval letter the Bank can be held to the approval letter. Here [Michael] sought various temporary excesses which were approved by the Branch.

(3)At no stage did the Bank seek to depart from any arrangement made between the Branch and Michael ...”

The Bank submits, and I accept, that the relationship between the Bank and its customer is essentially contractual; cf Weaver & Craigie, The Law Relating to Banker and Customer in Australia, 2nd ed, The Law Book Co Ltd, 1990, at 2511-3; and Foley v Hill (1848) 2 HLC 28; 9 ER 1002.It submits that there is Privy Council authority against the extension of a general law of duty of care to the banker-customer relationship, and refers to China and South Sea Bank Limited v Tan [1990] 1 AC 536 (PC), esp at 543H-544A and Tai Hing Cotton Mill Limited v Liu Chong Hing Bank Limited [1986] AC 80 (PC). In the latter case, Lord Scarman, delivering the judgment of their Lordships, said:

“Their Lordships do not believe that there is anything to the advantage of the law’s development in searching for a liability in tort where the parties are in a contractual relationship. This is particularly so in a commercial relationship. Though it is possible as a matter of legal semantics to conduct an analysis of the rights and duties inherent in some contractual relationships including that of banker and customer either as a matter of contract law when the question will be what, if any, terms are to be implied or as a matter of tort law when the task will be to identify a duty arising from the proximity and character of the relationship between the parties, their Lordships believe it to be correct in principle and necessary for the avoidance of confusion in the law to adhere to the contractual analysis: on principle because it is a relationship in which the parties have, subject to a few exceptions, the right to determine their obligations to each other, and for the avoidance of confusion because different consequences do follow according to whether liability arises from contract or tort, eg. in the limitation of action.” (at 107)

The Bank submits that Michael’s submissions do not advance a satisfactory basis for the suggested duty to inform. The Bank points out that once Branch permitted excesses, there could be no question of Zone’s enforcing an instruction not to do so. It suggests that the only situation in which a duty of the kind relied on might arise is between the time of the making of an agreement for a temporary excess and the actual allowing of it. In such a case, if Michael had committed himself to a particular course of action in reliance on the promise, the Bank might arguably not be free to withdraw. However, that is not this case. Michael initially put, but no longer presses, a case that the Bank gave insufficient notice before ceasing to advance funds. Further, if Williams should ignore Zone’s directions, what was foreseeable to him was a financial benefit, not a loss, to his customer. I accept the thrust of these submissions.

Paragraph 4 of Michael’s submissions (set out earlier) is also problematical. The Bank submits, and I accept, that it could only be said that “Williams adopted and assumed responsibility for the way that [Michael] was allowed to operate outside of limits” if there had been some communication to that effect from Williams to Michael. But none is referred to in Michael’s submissions. On the evidence, Williams simply never did adopt or assume that responsibility. The relationship between Michael and the Bank was never anything other than a commercial one in which Michael sought and accepted indulgences in the form of financial accommodation in excess of previously agreed limits. Williams’ conduct did not entitle Michael to understand that the Bank was assuming some responsibility in granting him the indulgences.

It is beside the point that Williams was, to some extent, motivated by his belief that Michael was a “valuable connection” for the Bank. One of the findings of fact specifically sought by Michael is that “Williams tolerated [Michael’s] excesses over limits because he considered [Michael] was good for the business of the [Bank]”. He submits that Williams ignored Zone’s instructions because “he considered [Michael] to be good for [the Bank’s] business and it was prestigious to have a local Solicitor of [Michael’s] standing as a customer at his branch”. It may be accepted that these considerations did affect Williams. But the indulging of Michael for the sake of what Williams considered to be in the Bank’s best interests is not to be equated with an assumption of responsibility to Michael. It is clear that Williams tried to keep Michael to his limits and communicated Zone’s attitude to him, as discussed below. That Michael continued to operate beyond limits notwithstanding, is a course of conduct for which he alone was responsible. The Bank granted him what he asked for and had no duty to save him from himself.

There is no substance in Michael’s submission that the Bank owed the suggested duty to inform. Michael knew that he would become indebted to the Bank for the amounts of the excesses and interest on those amounts; that the Bank was entitled to cease granting indulgences; and that if he did not pay the Bank, it would be entitled to exercise its rights as a creditor, and, in this case, a secured creditor, to recover the amount due. No scope remains for saying that Williams assumed responsibility for “the way that [Michael] was allowed to operate outside of limits.” It was not, and could not have been, suggested that Williams assumed responsibility to ensure that the uses to which Michael put the excesses did not cause him loss.

Any duty to inform was superseded

The Bank submits that any duty to inform was “superseded” by the arrangements and further loans negotiated by Michael with Branch after Williams left the Bank in mid-1989. The documents on which Michael relies to establish Zone’s instructions to Branch and Branch’s disobedience of them range from May 1984 to July 1987. But after that period, Michael restructured his facilities with the Bank on at least three occasions.

The first restructuring was approved by a letter from Williams dated 29 August 1988. It was headed “APPLICATION FOR INCREASED ACCOMMODATION.” It referred to a “Bills Endorsement Facility” of $210,000 as the only “existing facility”, and approved an increase in that facility to $300,000, as well as an overdraft of $150,000 and a fully drawn loan of $300,000 (the letter also notified approval of a “home improvement loan” of $100,000 to Michael and Judith to reimburse Michael’s office account in respect of “costs associated with the recent additions to [the] property at Burwood”). The letter noted that:

“[t]he original intention of the increased facilities was to place the existing debts to the Bank onto a formal reduction programme and for the overdraft to provide the firm with additional working capital. In the interim period however, since initially discussing this proposal, the debts have increased to the extent that the above arrangement will now simply formalise the current indebtedness to the Bank.” (emphasis supplied)

Accordingly, the new arrangement marked a new point of departure by conveying formal approval of the existing excesses.

The second restructuring was approved by a letter from the Bank dated 10 April 1989. The letter notified the Bank’s approval of the practice’s overdraft limit from $150,000 to $250,000. As well, on 2 May 1989, Branch wrote to Michael referring to recent discussions and confirming that a “fully drawn loan number 2” of $500,000 had been recently funded by deposit of that sum to Michael’s overdraft account 214-984. Williams retired by mid-1989 and John Lee Kilburn (“Kilburn”) succeeded him as Branch Senior Manager. Soon afterwards, in mid-1989, the two branches at Fairfield merged under Kilburn’s management. Accordingly, the second restructuring just described appears to have been approved a little before Williams was succeeded by Kilburn, which was itself a little before the merger.

Third, in November 1989 Michael approached Branch to approve a litigation loan facility and general rearrangement of his facilities. This was negotiated at Branch by Gino Joseph Coiera (“Coiera”). Although Coiera had been at the Ware and Spencer Streets branch prior to the merger, he had become involved with Michael’s accounts only after the merger, in late 1989. Application was made by Branch to Zone and was then considered further at a higher level. Ultimately, the Bank approved a rearrangement of Michael’s facilities and a new litigation loan facility by letter dated 15 January 1990. The approval was of a litigation loan facility of $1,300,000 to refinance Michael’s debts to the extent of $820,000 incurred in paying disbursements on behalf of existing clients and $480,000 to cover disbursements on behalf of “new litigants”; reduction of the formal limit on the overdraft account to $150,000 and funding of the current excess above this figure of $556,000, as to $290,000 by “Fully Drawn Loan No. 1” and as to $266,000 by “Fully Drawn Loan No. 2”; an increase in Fully Drawn Loan No. 1 by $290,000 to $570,000; and an increase in Fully Drawn Loan No. 2 by $266,000 to $820,000. The letter also stated various terms and conditions. In agreeing to this, Michael was agreeing to a comprehensive restructuring of his facilities with the Bank.

In my view, these various “renegotiations”, “rearrangements” and “approvals” demonstrate that any earlier assumption by Williams of responsibility for the manner in which Michael operated outside of limits and any resultant duty incumbent on the Bank, were rendered legally insignificant, because they negate reliance and break the chain of causation of loss.

Michael’s critical submissions in relation to reliance are:

“17.[Michael] should also be accepted when he says what he would have done had he been aware of the Zone’s instructions and its attitude towards him as set out in his affidavit of 26th March 1997 in paragraphs 7, 10, 13 and 16.
17A.[Michael] continued to lend to his client’s [sic] and incur increasing borrowings based on the continual support given to him by Williams.”

Michael’s submissions in relation to causation of loss, are:

“... the ultimate loss suffered by [Michael] was the loss of his practice which would not have been lost if the Zone’s instructions were followed”

and

“... an appropriate measure of damage contributed by [the Bank] is all of the interest and charges debited by [the Bank] to the account of [Michael] from January 1986 to the present time.”

In substance, the effect of Michael’s affidavit evidence is that if he had known of Zone’s instructions to Branch, he would have renegotiated a different limit with the Bank or refinanced elsewhere. But he did renegotiate his facilities (including the amounts of their limits) with the Bank, and he did refinance, not elsewhere admittedly, but by way of a restructuring of those facilities with the Bank itself. And he obtained the litigation loan facility, pursuant to the letter dated 15 January 1990, which stipulated “limit not to be exceeded”. Moreover, he did these things because he knew that Zone, if not Branch, was insisting that his accounts be brought into order and the excesses on them be eliminated.

If, contrary to my view expressed earlier, the Bank did owe Michael the duty to inform, that duty did not continue beyond the making of the new agreements between Michael and the Bank.

Alleged breach of the duty to inform

Michael’s submission on breach of the supposed duty to inform is as follows:

“13.The breach of the duty to inform [Michael] of the foreseeability of economic loss due to [Williams’] continuing refusal to carry out the instructions of Zone which might have been enforced at any time continued from 1984 to mid 1989.”

This paragraph is not a model of clarity. It asserts that breach continued throughout the period specified. But the breach alleged is a failure to inform Michael that it was foreseeable that Williams’ disobedience would cause Michael loss. Why Williams would have known this is a mystery. It seems from Michael’s later submission on contributory negligence that what he alleges to have been the Bank’s breach of duty is its “fail[ure] to inform him that Max Williams was refusing to carry out the instructions of the management at Zone level”. However, Michael’s submission on loss seems to contemplate a breach of duty consisting of a failure to implement Zone’s instructions by returning cheques:

“20.It is submitted that the ultimate loss suffered by [Michael] was the loss of his practice which would not have been lost if the Zone’s instructions were followed, but Williams assumed a responsibility to allow [Michael] to exceed limits and failed to carry out instructions which would have avoided [Michael] exceeding his bank limits.”

This is also perhaps reflected in the following finding of fact sought by Michael:

“7.Williams did not comply with directions from Zone, to dishonour [Michael’s] cheques and bring the account back within limits.”

The submissions reveal much confusion.

The Bank submits, rightly, that a failure to dishonour cheques (a bizarre complaint for a customer to make) cannot be a breach of a duty to inform, as a dishonouring of them would not have informed Michael that Williams had received or was implementing instructions from Zone. The Bank says that, in any event, Branch did dishonour Michael’s cheques on his practice account in, inter alia, March 1987. That was after the “instructing” of Branch by Zone and prior to Williams’ leaving the Bank in mid-1989 and also prior to Michael’s renegotiation with the Bank.

The “instructions” from Zone to Branch

The Bank submits that many of the alleged “instructions” from Zone to Branch identified in Michael’s submissions, were not “instructions” at all. The following documents on which Michael relies do not satisfy that description:

(1)Memorandum dated 27 August 1984 from Branch (Williams) to Zone (on which Williams was cross-examined) referring to continuing excesses on accounts notwithstanding Michael’s assurances, and to the fact that the excesses had been tolerated in view of the substantial credit funds in the trust account;
(2)Memorandum dated 28 August 1984 internal to Zone, not shown to have been passed on to Williams, recording comments by L B Hogan that:
“Manager was asked to apply firm control over accounts after he approved bridging [Fully Drawn Loan] 26/4/84”,

that the writer
‘Would inform Manager we do not wish to see Bank’s exposure increased beyond the current level and are now looking for a reduction programme to be implemented’, and that ‘Cheques may need to be returned to enforce the Bank’s attitude and to obtain a favourable response to reductions from debtors’”;

(3)Memorandum dated 15 October 1984 from Branch (Williams) to Zone (concerning which Williams gave evidence and on which he was not cross-examined), reporting that Michael had called at Branch in response to a request and had been told of Zone’s “concern at the weak security backstop position” and informed of the need to reduce his debt in the shortest term and that further cheques were not to issue unless authorised by Branch;
(4)Memorandum dated 18 April 1985 from Branch (McHugh, Acting Manager) to Zone (on which Williams was not cross examined) recording that financial statements promised by Michael had still not been received and that his accounts were out of order;
(5)Memorandum dated 8 July 1985 from Branch (Williams) to Zone (upon which Williams was not cross examined) reporting that Michael proposed to transfer funds from his trust account to his office account and was “close to achieving substantially improved liquidity”, and requesting Zone’s “indulgence for a further few weeks”;
(6)Memorandum dated 17 July 1985 from Branch (Williams) to Zone, seeking Zone’s direction as to whether fresh forms of third party consent were required in view of substantial increases in excesses;
(7)Memorandum dated 14 November 1986 wholly internal to Zone (on which Williams was not cross examined) beginning:
“This connection has been troublesome for some years with escalating debt structure principally through excesses. The branch has made all the right comments of concern and control but despite instructions to contain debt levels and return paper if necessary, Manager continues to ignore direction.” (emphasis supplied)

(The memorandum recorded a recommendation that Zone respond to Branch in strong terms. The result was a “firm” memo dated 24 November 1986 from Zone to Branch referred to below);
(8)Memorandum wholly internal to Zone dated 15 July 1987 (upon which Williams was not cross examined) referring to an increase in excesses on the overdraft of approximately $50,000 since 10 June 1987, and recommending that Branch be told that no further excesses were to be permitted.

An examination of the document referred to in (3) above establishes that Williams did communicate to Michael the position being taken by Zone. That memo, from Branch to Zone, reported:

“At our request Mr Radin interrupted his busy court schedule and called for a brief discussion.
[Region’s] concern at the weak security backstop position which is of course shared by us was discussed and special emphasis was directed to an overall reduction of indebtedness in the shortest term to the point where further cheques were not to issue unless authorised by us.
...
... It is felt that his reliance on the Bank must lessen from now on in and he is mindful of our past support and aware of our concern that the debts should not increase further.” (emphasis supplied)

Williams gave evidence in relation to that document (on which he was not cross examined). He states that he said to Michael on many occasions words to the following effect:

“Michael, head office is very worried about the level of your indebtedness. Because of this it’s putting considerable pressure on me. I want to support you but if my support is going to continue, you are going to have to bring your accounts into order and reduce your level of indebtedness.”

I accept this evidence.

In document (4), Branch refers to a letter from Branch (Williams) to Michael dated 30 April 1985, in which Williams communicated to Michael the attitudes and “instructions” from Zone:

“Our Administration recently called for a report on your accounts because of the considerable and consistent limit excesses and because financial statements to 30/6/84 have not been provided despite our frequent requests.
You will also recall that early this month we asked you to transfer any personal funds to reduce the overall indebtedness but this appears to have been overlooked.
...
The Bank has therefore now decided to take a firm line and we have been instructed to inform you that your accounts are to be brought into order within a week from the date of this letter. Failure to comply or to make any alternative arrangement acceptable to the Bank could result in your cheques being returned.” (emphasis supplied)

The remaining documents relied on by Michael are as follows:

(1)Memorandum from Zone to Branch dated 1 May 1984, which stated, in part, “[i]n view of the history of excesses on the overdraft accounts of the applicants [Michael and Judith] and business ... we wish to see firm control maintained over these accounts.” (emphasis supplied)
(2)Memorandum from Zone to Branch dated 12 October 1984, seen and initialled by Williams, which stated, in part, “[d]ebtors’ cash flow appears insufficient to meet commitments and the funds from sale of the Canley Heights property are urgently required to reduce outstanding debts”. It also states, relevantly,
“We again emphasise the need to reduce the current level of indebtedness to a more manageable level. In this regard a firm stand will need to be taken with cheques being returned to achieve a suitable result.
These accounts are to now come under State Manager’s [Zone] control.” (emphasis supplied)

(3)Memorandum from Zone to Branch dated 19 October 1984, seen and initialled by Williams, in which Zone states, in relation to the accounts:
“The continued acceleration of debts is unacceptable and the control measures indicated in our memorandum 12/10/84 are to proceed. [Michael’s] finances are out of control...” (emphasis supplied)

Following this, there was a significant debt reduction by Michael. The Bank asks me to infer that the thrust of this instruction was passed on to him. In cross examination, Williams said that he “probably did” tell Michael that Zone thought that his finances were “out of control”. I accept that Williams did communicate to Michael that the position was unacceptable to Zone, that Zone thought his finances were “out of control”, and that Zone was requiring Branch to take action to ensure that his accounts were brought into order.

Although the Bank’s submission has some attraction, I do not think the Bank is prejudiced by the late raising of the Yerkey claim and I will deal with it.

In her additional submissions, Judith relies on the following specific matters which she suggests are common to herself and Mrs Garcia:

“(a) the bank knew of the separation between the parties …;
(b)the proceedings were instituted against the bank not vice versa …;
(c)the business was in the ‘complete control’ of the husband …;
(d)the documents were signed at the request of the husband …;
(e)there was no explanation of the documents at the time of signing (this is particularly so of the posted acknowledgments in the instant case) …;
(f)the wife did not understand the effect of the documents (in the instant case this is particularly so of the complex and unusual litigation lending facility the bank finally approved) …;
(g)the bank had no actual notice of the quality of the relationship between the parties …;
(h)neither Mrs Garcia nor [Judith] adopted the sole role of passive housewife; and
(i)both Mrs Garcia and [Judith] took active steps to co-operate with their husbands in the belief that they were trying to save their marriages.”

The Bank takes issue with some of these matters.

I do not understand why Judith relies on (a), except, perhaps, to show that a separation does not necessarily defeat a Yerkey claimant. The following factual matters may be noted in relation to the separation of Michael and Judith on 24 November 1988. The Bank did not become aware of the separation until much later, possibly as late as October 1990, after the execution of all the mortgages and acknowledgments in issue. One of the five mortgages and two of the ten acknowledgments signed by Judith were executed after the separation. Judith was independently advised in relation to that mortgage, and she was advised by the Bank to obtain independent advice in relation to the last of the acknowledgments that she signed.

In relation to (b), the Bank filed its first cross claim in the Supreme Court of New South Wales in November 1993 joining Judith as second cross defendant. Judith did not commence her proceeding against the Bank until she filed her present application and statement of claim in NG 985 of 1995 in December 1995. Allegations of violence in that proceeding did not emerge until 1997.

In relation to (c), the Bank submits that there were two businesses, Michael’s legal practice and “the joint business of acquiring properties”, and that Michael was not in “complete control” of the latter. I agree. Judith’s role as an active self-serving “business partner” of Michael’s provides a sufficient basis on which to distinguish the Yerkey/Garcia line of authority, not only in relation to the borrowings in support of their real estate investments, but also in relation to his practice indebtedness because of the way in which the latter supported the former.

In relation to (d), it is not clear what documents are referred to. In any event, the Bank submits that Judith’s assertion is factually inaccurate in respect of both the mortgages and the acknowledgments, as Michael was not the agent of the Bank for the purpose of having Judith execute those documents. I agree, for reasons given earler.

In relation to (e) and (f), it is not clear what “documents” are referred to. No attempt has been made by Judith to support the submission by reference to the circumstances which attended particular mortgage transactions or acknowledgments. For example, the particulars do not reflect the circumstances in which the mortgages and acknowledgment dated 14 October 1985 were signed, when Boulous gave Judith the explanation of the documents which was set out earlier, and Judith admitted that she could have asked Boulous any questions. In relation to (f), Judith’s understanding of the security documents has been discussed earlier. The Bank has not sought to recover from Judith the amounts of the litigation loans to his clients guaranteed by Michael under the new litigation loan facility approved on 15 January 1990, and has stated that it will not do so.

In relation to (i), the evidence as a whole does not support the proposition. Judith cooperated with Michael, both after as well as before their separation, but her cooperation was not motivated by a desire to “save her marriage” (it was motivated by her financial self-interest). Even if it had been, I do not understand the fact’s relevance to any issue before me.

I proceed on the basis that Yerkey, as explained by the High Court in Garcia, establishes that it will be unconscionable for the Bank to enforce the mortgages against Judith if:

“(a)in fact the surety did not understand the purport and effect of the transaction;
(b)the transaction was voluntary (in the sense that the surety obtained no gain from the contract the performance of which was guaranteed);
(c)the lender is to be taken to have understood that, as a wife, the surety may repose trust and confidence in her husband in matters of business and therefore to have understood that the husband may not fully and accurately explain the purport and effect of the transaction to his wife; and yet
(d)the lender did not itself take steps to explain the transaction to the wife or find out that a stranger had explained it to her.” (at 623)

The Bank submits that Judith has failed to establish these elements. I will deal with them in turn.

(a) The present case is distinguishable from Garcia in relation to the issue of the wife’s understanding. In Garcia, the trial Judge found that Mrs Garcia understood that she was signing a guarantee, but that she thought it was a guarantee of limited overdraft accommodation and did not understand that it was secured by a mortgage over her home. In contrast, for the reasons given earlier, I do not accept Judith’s evidence as to her lack of understanding of the security documents she signed. It is also to be recalled that subsequent to her separation from Michael, Judith signed the mortgage of 7 July 1989 over 92 Foreshore Drive (and the mortgage of the same date over Wanda Beach) after receiving, but contrary to, independent legal advice from Miceli. Judith does not allege that she did not understand that mortgage when she signed it. Nor does she allege that Michael forced her to sign it. Judith also agreed later (at two meetings at the Bank on 22 February 1991 and 14 October 1992, the first of which was also attended by her solicitor) that she was bound by the mortgages, when she did understand their nature and effect. Her conduct in late 1992 and 1993, as it appears from correspondence with the Bank and its receiver Brown and from various Bank diary notes, particularly her conduct in attempting to refinance and in putting proposals to the Bank to sell various security properties to pay it out, further demonstrates that Judith considered herself to be bound by the mortgages even after having had the benefit of extensive legal advice.

The evidence also demonstrates: that Judith appreciated that the acknowledgments identified separately the debts of Michael and the joint debts; that she understood that the amount of the debts was increasing each time she signed an acknowledgment; and that she understood that the debts were secured by mortgages she had signed from time to time.

Judith’s submissions in relation to the application of the Yerkey/Garcia line of authority must fail for this reason.

(b) Judith was not a volunteer. The mortgages secured, not only financial accommodation provided to Michael to support his practice; they also supported the provision of such accommodation to Michael and Judith to support the building up of their real estate portfolio. In any event, Judith also obtained substantial benefits from the loans that were made to Michael in connection with his practice.

In sum, the following considerations show that benefits also flowed to Judith:

Judith was the joint owner with Michael of numerous properties which were purchased until the separation, and was a joint purchaser, after the separation, of Wanda Beach;
Judith contributed no equity towards the purchase of any of the properties:
the Bank either provided finance for their purchase directly, or did so indirectly by paying out earlier mortgages over them to financiers that had done so;
In particular, Bank loans were used to pay out first mortgages over Theresa Park, 87 Foreshore Drive, Appian Way and 92 Foreshore Drive;
Judith’s mortgages dated 14 October 1985 over William Street and 87 Foreshore Drive supported the loan for the purchase of William Street; William Street was bought substantially, if not totally, with finance from the Bank; even the deposit was paid from the Radin & Associates overdraft account, that is, out of a loan by the Bank to Michael; Judith contributed no funds towards the purchase; Michael and Judith were mortgagors and debtors; Judith derived a substantial benefit in that she became co-owner of William Street and the fact that the contract of loan was ultimately only with Michael does not detract from this; Judith also derived a further benefit in that she received rental from William Street for a time;
Judith benefited from the legal practice of Radin & Associates which was funded by the Bank on the security of the mortgages by receiving money generated by the practice; from 1982 Michael deposited funds from the practice into the couple’s joint cheque account; from about September 1985, he deposited $1,500 into the joint account weekly; from October 1986, the amount was increased to $2,500 per week; in early 1987, Michael began depositing $1,500 per week into a St George account in Judith’s name;
Judith also benefited from the legal practice in that it was the source of payments made off the mortgages;
The practice also provided Judith with some employment; in particular, she was engaged during the period 1982-1988 as a photographer, trading as “Kaleidoscope”, in relation to third party and worker’s compensation matters conducted by the practice.

I accept the Bank’s submissions that: during the period over which the properties were acquired, Michael’s and Judith’s money was derived from borrowings from the Bank and from Michael’s practice, and that the equity in all the properties in respect of the mortgages over which relief is sought by Judith can be traced to the Bank in one of three ways: there were loans from the Bank at the time of the purchase; there were loans from other financiers at the time of the purchase which were later refinanced by the Bank; and funds came from Michael’s practice, the sole or main financier of which was the Bank.

In my view, these facts distinguish Judith’s case from Mrs Garcia’s, where it was found only that “from time to time some benefit flowed to the family from the companies” (at 625-6). On this ground alone, Judith’s submissions in relation to the application of Yerkey and Garcia must also fail.

(c) It is not necessary for me to consider the third and fourth elements mentioned above, but I make the following brief observations on them. While the Bank is to be taken to have understood that Michael had greater legal knowledge than Judith, this alone does not suggest a reposing of trust and confidence in Michael in matters of business. No doubt the matter was not fully explored in evidence because a Yerkey claim was not pleaded, but there is some evidence worth noting. Judith impressed officers of the Bank. Zsilinsky described her impression of Judith as one of a “very intelligent, bright, classy woman”, and Coiera described her as professionally presented and knowledgeable. I do not think the Bank should be taken, on the evidence, to have understood that Judith reposed trust and confidence in Michael in relation to the building up of their portfolio of properties. Of course, even if she did so, the fact would be rendered inconsequential by my findings that she understood the effect of the mortgages and acknowledgments that she signed.

(d) The Bank did take steps directed to ensuring that the effect of the documents which Judith signed were explained to her. Those steps have been described in some detail earlier and fall into three classes: the explanations in fact given to Judith by Bank officers, the contents of the acknowledgments, and letters from the Bank suggesting that she obtain independent advice if she was at all uncertain as to her position.

Unconscionable dealing

I set out earlier, in the context of Vladimirka’s claim, the general law principles according to which the courts relieve against the result of unconscionable dealing as established by the High Court in Amadio.

Judith submits that she was in a position of special disability in relation to the Bank and that the Bank appreciated that this was the case. She gives as particulars those she gave in relation to her CR Act claim and some additional ones referred to in her submissions. These appear to be as follows:

(a)that Judith stood in the relationship of client and solicitor with Michael and the Bank should have ensured that she was independently advised (this was raised for the first time in Judith’s submissions in reply);
(b)that the Bank was actively concealing from Judith the fact that it was allowing the maintenance cheques to be met as part of its selective honouring of cheques in collusion with Michael; and
(c)that Judith was subject to the influence of Michael’s violence.

Particulars (i) to (iii) set out earlier in my account of Judith’s pleading do not advance Judith’s claim. Any mortgage to a lending institution by an individual could be challenged as unconscionable on the basis of the matters referred to in those particulars.

Particular (iv) is incorrect: Judith obtained independent advice, at least in relation to the mortgage over 92 Foreshore Drive of 7 July 1989, and possibly in relation to the letter of acknowledgment received by the Bank on 10 July 1989. She was advised by the Bank to seek independent advice in relation to several security documents as discussed earlier. Despite having independent legal advice available from December 1988, she did not avail herself of it in relation to subsequent acknowledgments. In my view, that was because she understood the basic nature of those documents.

Particular (v) is not substantiated by the evidence. Judith’s evidence as to her appreciation of the contents of the security documents and of the consequences of executing them is unreliable, as discussed earlier. I do not accept that she could have executed so many mortgages and acknowledgments in favour of other financial institutions as well as in favour of the Bank in the particular circumstances in which she did so, yet been ignorant of their basic nature and effect.

In relation to particular (vi), there has been no evidence or submission directed to a case that the security documents contained conditions and provisions which were not reasonably necessary for the protection of the legitimate interests of the Bank (except those submissions directed to the “all monies” clauses).

In relation to particulars (vii) and (ix), I refer to my earlier discussion of the benefit derived by Judith from the security documents.

In relation to particular (x), for the reasons given previously, I reject the assertion that Michael acted as the Bank’s agent for the purpose of obtaining Judith’s execution of the documents.

Particular (xi) is not true of all the security transactions. The number of the transactions in which Judith had been involved, the opportunities afforded her to ask questions and obtain independent advice, and her own state of knowledge of the nature and effect of the transactions, all militate against it.

In relation to particular (viii), the evidence does not establish that Judith was not reasonably able to protect her own interests, to the knowledge of the Bank.

The allegation that the Bank applied “unfair pressure or tactics” to obtain Judith’s signature to the security documents (particular (xii)), is not supported by the evidence. As mentioned previously, no claim of undue influence or duress was pleaded. To the extent that Judith gave evidence of violence and threats of violence by Michael relevant to her various signings, it is unreliable, and, in any event, there is no evidence that the Bank ever knew of, or had any reason to suspect, their existence. Judith’s submissions on Garcia expressly concede that the Bank had no actual notice of the quality of the relationship between her and Michael.

In relation to particular (xiii), the Bank had no duty to “warn [Judith] of the improvidence of providing all moneys guarantees in respect of [Michael’s] debts whenever incurred”. That Judith was providing security in the nature of “all monies” mortgages was clear at least from the face of the documents she signed. Moreover, it is not clear that at the times Judith signed the respective mortgages, they were improvident from her viewpoint.

Nor was the Bank bound to keep Judith informed in the manner asserted by particulars (xiv) and (xv). Its duty of disclosure has been discussed above.

In her submissions, Judith has referred to other matters (in particular, the matters referred to in pars (a)-(c) set out above) in support of her claim that the security transactions were unconscionable and should be set aside. Judith submits: (a) that the Bank knew, or ought to have known, that Michael was in the position of her solicitor and acted for them both on conveyances, and that this alone was sufficient to fix the Bank with notice of a special disability on her part. In my view, it is not. Moreover, even if it were, the evidence does not support a finding that the Bank took unconscientious advantage of the position.

Judith submits: (b) that the Bank’s honouring of the maintenance cheques was a deliberate ploy to prevent her from challenging the securities, as were an alleged decision by the Bank not to disclose to her the “true position” as it related to Michael and its decisions to rearrange Michael’s accounts. Judith submits that there was collusion between Michael and the Bank in relation to the selective dishonouring of cheques. In my opinion, the evidence does not support any of these allegations.

Judith submits: (c) that she was subject to the influence of Michael’s violence. I refer to my previous discussion of this allegation, of particular (xii) and of her Yerkey/Garcia claims.

Judith submits that she is in the same position of disability as Mr and Mrs Burke in Burke. In my opinion, Burke is distinguishable on the facts. That case involved a guarantee by Mr and Mrs Burke. The Bank’s customer and debtor was their son. In sum, the trial Judge found that:

the Bank relied on the son to arrange the execution of the documents and their explanation;
the Bank entrusted the explanation of the purpose of the documents and of any matter material to them as guarantors to their son, who had a keen interest in continuing the guarantee for his own benefit as the Bank must have realised (the material matters included the deteriorating financial position of the son);
the parents were ignorant of their son’s deteriorating financial position;
the parents were not given the opportunity to read the documents and had no contact with the Bank;
the only explanation they received was from their son who assured them, “It’s not a mortgage, it’s just a loan for two years”;
in order to induce his parents to sign, the son falsely told them he needed the loan to purchase the other half of a real estate business in which he was interested;
the parents were unaware that the purpose of the loan was to consolidate business debts; and
neither parent would have signed with knowledge of the true situation.

Judith’s position was far removed from that of Mr and Mrs Burke. I do not think it necessary to discuss all the distinctions. One feature of the present case not mentioned previously, however, is that Judith does not suggest, and there is no evidence, that Michael (or the Bank) misrepresented the nature or effect of the documents Judith was executing. For example, it is not alleged that it was represented to Judith that the mortgages were given for a limited period or subject to a fixed monetary ceiling or that she bore no personal liability under them.

Judith submits that Michael’s affairs at the Bank were in a “dreadful state” during the period the Bank sought acknowledgments. She submits that the inference is inescapable that the Bank was gaining an advantage at a time when it should have known that she was in a position of special disadvantage. Judith submits that the fact that the acknowledgments could not possibly be to her advantage, at least after separation, must have been obvious to the Bank. It is put for Judith that she had no opportunity to exercise informed consent until the time (August 1990) when she refused to sign any further acknowledgments. She submits that when advised independently of her husband not to sign, she did not do so, and that this shows that if given an opportunity to exercise a free and independent will earlier, she would have refused to sign, particularly if the state of affairs at the time had been properly explained to her.

I reject these various submissions for reasons previously given and by reference to the findings which I have previously made.

Judith also submits that there is no evidence that no explanation of the nature of a guarantee, or of the position of a guarantor, was ever given to her in circumstances where the Bank ought to have known (and, she submits, did actually know) that she was not obtaining independent advice. I have previously discussed the opportunities Judith had to ask questions and peruse documents, and her state of knowledge and understanding at the relevant times.

Judith agreed that when she attended the Bank on 14 October 1985 she could have asked Boulous any questions. As early as April 1982, Zsilinsky encouraged her to read and fully understand the loan documentation at the appointment for execution of the mortgage relating to the loan for the purchase by Michael of Menart’s legal practice. Judith received several letters from the Bank advising her to obtain legal advice in relation to various documents (for example, the Bank’s letters of 4 January 1988, 7 June 1989, and 30 January 1990). The submission that she was able to make an independent decision only in and after August 1990 does not reflect the evidence. On several occasions, Judith did not follow her solicitor’s advice. She acted against Miceli’s advice when she signed the mortgage in July 1989 over 92 Foreshore Drive. She ignored McGuire’s advice in relation to refinancing and settlement of her Family Law proceeding. She terminated McGuire’s retainer. I do not accept that Judith followed this course of conduct becaue her will was dominated by that of Michael. Contrary to her submission, in my view Judith was strong willed and was prepared to sign, and did sign, documents against legal advice, because of her own independent calculation of where her best interests lay.

Judith was and is an intelligent, educated and capable person. In my view, at all relevant times she had the capacity to understand, and did understand, the significant aspects and effect of the documents she executed in favour of the Bank. For reasons given earlier, her evidence to the contrary is unreliable and I do not accept it. In my opinion, she did not suffer from a “special disability”. The evidence does not support her claim that the Bank was on notice that she was at any time in such a position, or that it took any unconscientious advantage of her in the manner required by the principle on which a court of equity acts, as discussed in Amadio. The Bank was not aware of facts that would raise that possibility in the mind of any reasonable person in relation to the mortgages and acknowledgments challenged.

CR Act

The “business exception”

The Bank submits that a preliminary question arises under subs 6 (2) of the CR Act with respect to the two mortgages granted by Michael and Judith on 14 October 1985 in connection with their purchase of William Street. Sub-section 6 (2) provides:

“(2) A person may not be granted relief under this Act in relation to a contract so far as the contract was entered into in the course of or for the purpose of a trade, business or profession carried on by him or proposed to be carried on by him, other than a farming undertaking (including, but not limited to, an agricultural, pastoral, horticultural, orcharding or viticultural undertaking) carried on by him or proposed to be carried on by him wholly or principally in New South Wales.” (emphasis supplied)

The Bank submits that Judith and Michael were involved in a business of building up a real estate portfolio which began prior to their marriage, involved the purchase of Bullaburra and Theresa Park, and continued with, inter alia, the purchase of William Street, three properties at Salamander Bay and the property at Port Kembla.

Judith submits that as the Bank did not plead that she was in the “business” of giving guarantees, it must be taken to have acknowledged that the CR Act applied.

In view of the conclusion that I reach below that Judith’s contracts were not unjust in the circumstances relating to them at the times when they were respectively made, I do not find it necessary to decide the present interesting issue.

Application of the CR Act

The Act does not impose on a lending institution a duty to ensure that a decision to guarantee is a wise one, or that the borrower is able to repay: West at 629C, per McHugh JA. Nor does it impose a duty to provide a borrower or a guarantor with commercial advice, although if such advice is in fact proffered, the financier may come under a duty of care: Beneficial Finance Corp Ltd v Karavas (1991) 23 NSWLR 256 (CA) per Meagher JA at 276-7.

Judith made a general submission in reply that the registered memoranda are, in their terms and in the circumstances, unjust. But she had not raised this matter in her pleading. The Bank submits that it is inappropriate for such a case to be made in reply and that the Court should not entertain the submission at this late stage. I agree. In any event, the submission did not attack any particular provision in any registered memorandum.

In Bradbury v AGC Ltd (unreported, NSW CA, 1 July 1997), Meagher JA, with whom Beazley and Stein JJA agreed, said (at 5):

“Whilst there is jurisdiction under the Act to make orders in favour of a party merely upon proof of a relevant disability, irrespective of the knowledge of that disability on the part of the other contracting party, the circumstances must be extraordinary for that jurisdiction to be exercised: Beneficial Finance Corp v Karavas (1991) 23 NSWLR 256. In any event, his Honour found that no relevant disability existed; and even if it did there were no extraordinary circumstances which would justify any order against AGC.”

I find here no relevant disability or extraordinary circumstance which would justify the granting of relief against the Bank under the CR Act.

Otherwise, Judith’s claim under the CR Act fails for the general reasons set out earlier under the heading “Unconscionable dealing”.

Falinski

Detailed submissions have been made in relation to the decision of the New South Wales Court of Appeal in Falinski. That Court there dealt with a claim by Mrs Falinski against the Bank based upon the CR Act and the general law principles of unconscionable dealing, as well as with questions of estoppel.

The substance of Mrs Falinski’s claim of special disability were the following features: her financial position vis-a-vis the Bank’s; her need to maintain her relationship with and assist the debtor, her husband; her belief that his business was profitable; and her lack of knowledge of the financial circumstances of his business. Mrs Falinski also relied on the risk involved in guaranteeing the debt because her husband’s solvency was suspect. She also submitted that her execution of the guarantee was not to her advantage and that the Bank had constructive notice of the circumstances constituting her special disability. The Court accepted that the guarantee was, ex facie, improvident.

The Court of Appeal held that, despite all this, Mrs Falinski’s CR Act and unconscionable dealing claims failed on the following ground (at 29, per Sheller JA with whom Mason P and Cole JA agreed):

“Mrs Falinski’s claim is met by the findings, which, in my opinion, are beyond challenge, that she understood the document was a guarantee, that [the Bank] never telephoned her nor put any pressure on her to sign the document, that she full well understood the nature and effect of the guarantee and did not need any explanation as to its effect, that she did not suggest in her evidence that she was pressured by Mr Falinski to sign the document, that she understood the guarantee was for the indebtedness of Osborne, which then stood at $5 million, and that if she signed the guarantee, as she did, and returned it to [the Bank] the Belrose property would be put in jeopardy.”

In the present case, I have made findings which are in substance, and with necessary adjustments, the same. The Bank had sent Mrs Falinski a letter in identical terms to the letters dated 4 January 1988, 7 June 1989 and 30 January 1990 discussed above, which said:

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

Sheller JA said: “... in the circumstances of the case, [the Bank] was not in conscience required to do more”.

Their Honours also held that the consent gave rise to an estoppel which precluded Mrs Falinski from disputing her liability under the guarantee for the amount recorded in the consent. She was estopped from denying the relationship between herself and the Bank based upon the continuance of the guarantee, and could not deny her liability in accordance with its terms.

In addition to such acknowledgments in Judith’s case, there are the admissions she made at the meetings at the Bank on 22 February 1991 and 14 October 1992 and her subsequent conduct consistent with a belief that she was bound by the security documents she had executed.

Judith submits that her case is distinguishable from Falinski and that she is not estopped from denying the continuance of the guarantee. I do not agree.

Breach of contract

Judith’s further amended statement of claim adopts Michael’s pleading of breach of contract. However, Michael did not press this claim in submissions. Judith’s submission is misconceived. The agreement pleaded was one between Michael and Williams in late 1989. Williams retired from the Bank prior to the amalgamation of the Crescent Branch and Spencer Streets Branch in about mid-1989. Michael conceded in cross examination that the allegation in par 82 of his pleading, which Judith adopted, could not be correct if Williams left the Bank by July 1989. I agree.

FURTHER ISSUES

The Bank’s defence raises the following additional issues.

Time bar

The Bank submits that Judith’s claim for loss of opportunity, by virtue of the Bank’s misleading and deceptive conduct, is time-barred. Since her claim fails for the other reasons given, I need not deal with this defence.

Estoppel

The Bank pleads that Judith is estopped from denying that she is not liable to the Bank for the amounts recorded in the acknowledgments signed by her. Throughout the period in which the Bank granted further financial accommodation to Michael, it obtained acknowledgments signed by Judith. At no time during that period did Judith do anything to indicate to the Bank that she did not consider herself bound by the mortgages. In any event, no ground has been established for relieving her from the effect of them.

Her consent to the properties being security for the indebtedness of Michael (and of Michael and herself jointly) up to the amounts specified in the respective acknowledgments was a fact the Bank submits that it took into account at the time of making further advances. I find that it did so. In the case of the last one signed by Judith (8 February 1990), for example, it was only after the acknowledgment signed by Judith was received by the Bank that it implemented the approval which it had conveyed by its letter dated 15 January 1990. I infer that if Judith had, at any time, refused to sign an acknowledgment, as she ultimately did in August 1990, the Bank would have ceased making advances to Michael or otherwise indulging him.

In Falinski the Court of Appeal upheld the proposition argued by the Bank that a letter of acknowledgment gave rise to an estoppel precluding Mrs Falinski from disputing her liability for the amount recorded in it. In my opinion, Judith signed and returned the acknowledgments, understanding their basic nature and effect and intending that the Bank would deal with Michael in reliance on them, which I find it did. I uphold the estoppel defence.

Admission

The Bank pleads that at the meeting at the Bank on 14 October 1992, Judith admitted that she consented to the level of facilities provided to Michael, and that she had concluded that the opinions expressed by her solicitor to the effect that she could challenge her liability had no foundation. While I do not accept that this admission affords an independent defence, I accept it as evidence against Judith on the question of the extent of her understanding at the earlier times when she signed documents.

No offer to do equity

The Bank submits that at no time has Judith offered to do equity, which is a requirement for equitable relief of the type that she seeks. Judith seeks to have all of the mortgages set aside. Yet to her knowledge it was in consideration of them that the Bank advanced funds to enable her and Michael to acquire property and to discharge earlier mortgages given by them. I agree that Judith has not offered to do equity, but since I think, for the reasons given, that her claim fails in its entirety, I need say no more on this issue.

Relief

Judith submits that in the alternative to a setting aside of the mortgages, there should be a setting aside of her personal liability for the practice indebtedness. I do not agree. I think that Judith knew that she was secondarily liable for the indebtedness of Michael trading as “Radin & Associates” as well as for the joint borrowings more directly connected with the couple’s investment in real estate. However, as noted earlier, the Bank does not seek to recover from Judith the amount of the litigation loans guaranteed by Michael pursuant to the new litigation loan facility approved on 15 January 1990 or seek to enforce the mortgages in that respect. The orders to be made should reflect this exclusion in the money judgment which the Bank is to have against Judith.

CONCLUSION IN JUDITH’S PROCEEDING

Judith’s application is dismissed with costs. It was not submitted that if I should reach this conclusion the Bank is not entitled to relief on its cross claim. There will be a direction that the Bank bring in short minutes of the orders to be made in NG 985 of 1995.

GENERAL CONCLUSION IN RELATION TO ALL THREE PROCEEDINGS

All three applications are dismissed with costs. There will be a direction that the Bank bring in short minutes of orders consistent with the foregoing Reasons for Judgment, apt to dispose of all three proceedings.

I certify that this and the preceding two hundred and twenty five (225) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Lindgren

Associate:

Dated: 23 October 1998

Counsel for the Applicants in NG 984 of 1995 and NG 437 of 1996:
Mr G J McVay

Solicitor for the Applicant in NG 984 of 1995: Spencer Whitby & Co

Solicitor for the Applicant in NG 437 of 1996: Milicevic Solicitors

Counsel for the Applicant in NG 985 of 1995: Mr C J Leggatt and Mr D J Thorley (on the hearing of the evidence), Mr M B Duncan (on submissions).

Solicitor for the Applicant in NG 985 of 1995: Richard A Licardy & Co

Counsel for the Respondent: Mr J R Sackar QC with Mr J E Marshall and Mr R S Hollo

Solicitor for the Respondent: Abbott Tout

Dates of hearing: 17-21, 24-27 March; 2-4, 7-9, 14-18 April; 18-20, 22, 25-29 August; 1-5, 29, 30 September; 1,2 October 1997; 16-20 February; 1 April 1998.

Last written submission received: 28 August 1998

Date of Judgment: 23 October 1998

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NG 984 of 1995

BETWEEN:	VLADIMIRKA RADIN APPLICANT
AND:	COMMONWEALTH BANK OF AUSTRALIA (ACN 123 123 124) RESPONDENT

BETWEEN:	JUDITH RADIN APPLICANT
AND:	COMMONWEALTH BANK OF AUSTRALIA (ACN 123 123 124) RESPONDENT

BETWEEN:	MICHAEL RADIN (also known as MILOSH RADIN) APPLICANT
AND:	COMMONWEALTH BANK OF AUSTRALIA (ACN 123 123 124) RESPONDENT

JUDGE:	LINDGREN J
DATE:	23 OCTOBER 1998
PLACE:	SYDNEY

Counsel for the Applicants in NG 984 of 1995 and NG 437 of 1996:	Mr G J McVay
Solicitor for the Applicant in NG 984 of 1995:	Spencer Whitby & Co
Solicitor for the Applicant in NG 437 of 1996:	Milicevic Solicitors

Counsel for the Applicant in NG 985 of 1995:	Mr C J Leggatt and Mr D J Thorley (on the hearing of the evidence), Mr M B Duncan (on submissions).
Solicitor for the Applicant in NG 985 of 1995:	Richard A Licardy & Co
Counsel for the Respondent:	Mr J R Sackar QC with Mr J E Marshall and Mr R S Hollo
Solicitor for the Respondent:	Abbott Tout
Dates of hearing:	17-21, 24-27 March; 2-4, 7-9, 14-18 April; 18-20, 22, 25-29 August; 1-5, 29, 30 September; 1,2 October 1997; 16-20 February; 1 April 1998.
Last written submission received:	28 August 1998
Date of Judgment:	23 October 1998