Re: Maurice Christie and Swithina Claudia Ferdinando

[1993] FCA 261

EANKRDPTCY - debtors' petitions - property of bankrupts vested in Official Trustee - mortgage of real property taken many years earlier to secure personal loan - later guarantee given by bankrupts to secure business loan - mortgage catches guarantee so as to encumber mortgaged property with indebtedness of business

ESTOPPEL - estoppel by convention - estoppel in pais - assumptions made - reliance - detriment - non-disclosure - imprudence of mortgagee - unconscionability

Bankruutcv Act 1966 section 58(1)

Thomuson v Palmer [l9331 49 CLR 507
Grundt v Great Boulder Ptv Gold Mines Ltd [l9371 59 CLR 641
sommercial Bank of Australia Ltd v Amadio [l9831 151 CLR 447
Leaione v Hatelev [l9831 152 CLR 406
Con-Stan Industries of Australia Prourietarv Limited v Norwich
Winterthur Insurance (Australia) Limited [l9861 160 CLR 226
Waltons Stores (Interstate) Limited v Maher and Another 119881
164 CLR 387

Commonwealth of Australia v Verwaven [l9901 170 CLR 394

Huahes v Metro~olitan Railwav CO 118771 2 App Cas 439

Cheshire and Fifoot, Law of Contracts 6th Australian edition

30 April 1993

Einfeld J

Sydney 3 0 APR 1993

(heard in Helbourne)	AUSTRALIA PRINCITAI
AEGISTW

FEDE E) IN THE

N	-	G	)	No. VB 1929 of 1990
B?iNKRUP!l'CY DISTRICT OF	1	No. VB 2285 of 1991
VICTORIA	1

Re : MAURICE CHRISTIE

FERDINANM)

And:	SWITHINA	CLAUDIA
FERDINANDQ Bankrupts

EX parte:	AUSTRALIA AND NEW
ZEAWWD BAlJRING GROUP
LIWITED Applicant

And: THE OFFICIAL TRUSTEE IN E?4NKRmTCY I As Trustee o f the bankru~t estate of Maurice Christie Ferdinando

Respondent

pXINuTE OF ORDERS

1. Application dismissed.

2.    Applicant to pay respondent's costs.

Note :	Settlement and entry of orders are dealt with in accordance with Order 36 of the Federal Court Rules.
Einf	eld J

syaney

(heard in Helbourne)
30 April 1993

IN THE FEDERAL COURT OF AUSTRALIA )

GENERAL DIVISION	1	NO. VB 1929 of 1990
BANKRUPTCY DISTRICT OF	)	NO. VB 2285 of 1991
VICTORIA	I

Re : HAVRLCE CHRISTIE

FERDINANDO

And : SWITBINA CLAUDIA

Bankrupts

Ex Parte:	AUSTRALIA AND NEW ZEAWLND BANKING GROUP LIHITSD
Applicant

And:	THE OFFICIAL TRWSTEE
IN ~ U P T C Y (AS Trustee o f t h e banknwt estate of Haurice Christie Ferdinando
Respondent

ReASONS FOR JlmQ4BNT

EINPELD J SYDNEY 30 APRIL 1993

(heard in Melbourne)

Maurice Christie Ferdinando and Swithina Claudia Ferdinando

(the Ferdinandos) became bankrupts by debtors' petitions on 29

October 1990 and 7 August 1991 respectively, whereupon pursuant to section 58(1) of the Bankruptcy Act 1966, the property of each vested in the Official Trustee. The Australia and New Zealand Banking Group Ltd (ANZ) held a mortgage dated 31 July 1979 (the mortgage) over properties belonging to the Ferdinandos at Lots 19B and 19D Romeo Road,

Healesville (the property). The AN2 sold the property as

mortgagee in November 1991 and its solicitors hold the proceeds of sale at interest pending the outcome of these proceedings. It now seeks a declaration that the mortgage

also secures the liability of the Ferdinandos to the AN2 under

a guarantee dated 13 March 1986 (the guarantee) given in

relation to their obligations to the ANZ of their business,

the Insurance Centres Pty Ltd (the business), which held an

AN2 account separate to the Ferdinandos' personal account

after late 1978. The Official Trustee, who is the respondent to the application, says that by reason of the mortgage the

AN2 is a secured creditor in respect of what is owing on the

Ferdinandos' personal account with the AN2 and that the

proceeds of the sale of the property have vested in the Official Trustee pursuant to section 58(1) of the Bankruptcy Act 1966. The amount involved is $58,063.51.

By an amended notice of intention to oppose the application,

the Official Trustee says that: 

1.    the AN2 is estopped from making its claim because:

(a) relations between the AN2 and the Ferdinandos were

conducted on the assumption that the mortgage and guarantee were not connected, so that default under the mortgage would not activate the guarantee

(b) the AN2 induced that assumption

(c)	the AN2 failed to inform the Ferdinandos when they
signed the guarantee that there was a connection between the guarantee and the mortgage
(d)	this failure was an act of imprudence which was a
proximate cause of the Ferdinandos' assumption that there was no connection
(e)	the ANZ caused the Ferdinandos to act to their

detriment by signing the guarantee

2.    the AN2 ought not to be permitted to rely on the mortgage as security for the guarantee because of:

(a) its failure to disclose to the Ferdinandos that the

mortgage would become such security, thus misrepresenting the nature and degree of the Ferdinandos' liability as sureties

(b) its failure to explain to the Ferdinandos when the

guarantee was signed the connection between the mortgage and guarantee, thus taking unfair or unconscientious advantage of a special disability of the Ferdinandos.

Clause 1 of the mortgage states in part:

That the mortgagor will on demand in writing pay to the bank free from all deductions the amount or balance which shall for the time being be owing or unpaid by the mortgagor and/or the customer to the bank ... for in respect of ... any guarantee

undertaking or obligation which has been given . . .

or which may hereafter be given . . . by the mortgagor

and/or the customer to the bank ...

The Court is required to decide in this application whether the mortgage secures, or should be permitted to secure, the liability of the Ferdinandos to the ANZ under the guarantee. The AN2 submitted that on any construction the mortgage affords security to the AN2 for the Ferdinandos' liability under any guarantee they subsequently sign, not being limited in time. It also submitted that the guarantee clearly falls within the provisions of clause 1 of the mortgage.

The Official Trustee did not dispute the strict legal position but argued that the Ferdinandos assumed that there was no link between the guarantee and the mortgage and signed the guarantee not believing that the mortgage secured amounts owing to the ANZ in respect of the business. This security could only have come about through the guarantee. The Trustee

ANZ .	submitted that the Ferdinandos' assumptions were shared by the
As will be seen, before equity will intervene to find a relevant estoppel or other basis for not enforcing the literal effect of the parties' bargains, there are a number of elements that need to be established by evidence or available inference:

1.    &ssum~tions/aareement concernina the link

Although at this distance in time only faint recollections of the details are retained, there seems no dispute that when they signed the mortgage in 1979, the Ferdinandos knew what they were doing and what the effect of the mortgage was. Nor does it seem to be disputed that when they signed the guarantee, the mortgage was not specifically mentioned or occurred to them. Certainly a link between the two documents was not drawn to their attention and although there can be little doubt that they knew that the mortgage still existed, they did not think of or raise the possibility themselves.

Nor was the mortgage specifically made security for the guarantee. In fact at the time of the signing of the guarantee, the A N Z specifically sought security for it in the form of a second mortgage over the Ferdinandos' home which they refused to provide. The matter was not pressed further. At the other end of the spectrum, two months later, in May

personal loan of $25,000, the mortgage was specifically noted	1986, when the A N Z offered and the Ferdinandos accepted a
as security and further stamp duty was paid.
There was a volume of evidence, especially by way of the diary notes of Keith Sturgeon, the ANZ's relevant manager, to establish that the ANZ consistently treated the mortgage as security for the Ferdinandos' personal account and not for the business account. Moreover, other than the guarantee which
was taken more than seven years after the business account was
opened, the AN2 did not seem concerned to take security for
the business account, apparently, so the manager's diary notes of 6 April and 5 October 1987 intimate, because Mr Ferdinando was regarded as a substantial and reliable customer. It is also noteworthy in this connection that no security was taken to support the guarantee. When the second mortgage over the Ferdinandos' home was declined, nothing further was discussed.
Other bank documents support the separation of the mortgage and the guarantee. After the Ferdinandos defaulted under the mortgage, the letter of demand of 25 July 1990 made no mention of any liability that might arise under the guarantee. Likewise the letter of demand under the guarantee, of the same date, and a follow up letter of 2 August 1991 to the Trustee claimed the amount then owing on the personal account. If the parties' agreement had been that the mortgage secured moneys owing under the guarantee, the amount demanded should have been what was owing on both the personal and the business
accounts.
Furthermore, in its proof of debt of 11 February 1991 in the
business winding up, the AN2 referred to the guarantee but did
not disclose anything about the existence of the mortgage. If the guarantee was secured by the mortgage, the liquidator was entitled to be told that the AN2 had recourse to real property which might satisfy the business' indebtedness. As it was, the impression was given that the AN2 was seeking the whole amount of its debt in the winding up with no credit being given for whatever it could recover under its security. The first occasion, disclosed by the evidence, of an assertion by the ANZ that it could sell the property and use the proceeds to offset the indebtedness of the business was in a letter of 24 December 1991 from its solicitor to the Official Trustee. This was almost five months after the ANZ had told the Trustee what was owing under the guarantee was the overdraft on the personal account.
I have given careful attention to the evidence and
documentation on the relationship and exchanges between the ANZ and the Ferdinandos, and between the ANZ and the Official Trustee. It is my clear impression, and I therefore find, that the parties at no stage linked or agreed to link the mortgage to the guarantee and assumed that they were not linked.
2. Reliance
Ferdinando's evidence was that he did not think of the mortgage when he signed the guarantee. The ANZ argued that there could have been no reliance on the assumption of no link because the matter was never considered. The Trustee submitted that this is an exercise in semantics because "no consciousness" of a link means no link was conceived as possible and the guarantee was therefore signed in the belief that a link did not exist. I agree that this was in substance
Mr Ferdinandols evidence and I accept the evidence. As
discussed in more detail later, the principle of reliance in relation to this type of estoppel is not that of one party acting on any representation or conduct of the other party, but of one party acting on an assumption made as a result of a role played by the other party. In my view, the Ferdinandos signed the guarantee in what they believed was the comfortable knowledge that it was not secured by the mortgage.
3. Detriment
This aspect of estoppel raises a similar question. The Trustee argued that the signing of the guarantee, if linked to the mortgage, had the effect of applying the value of the property, now in the form of its proceeds of sale, to the business debts. If the literal words of the mortgage are enforced, all the money will go to the AN2 and none will be left for the Ferdinandos or their unsecured creditors. The ANZ submitted that the loss to the Ferdinandos should be disregarded and that the losses of the unsecured creditors are irrelevant to the detriment required for an estoppel. The
true consequence of estoppel here, the ANZ argued, would be the addition to the list of unsecured creditors of the ANZ to whom the Ferdinandos would still owe the moneys under the unsecured guarantee.
This argument is based upon a misconception of the detriment concerned in the principles of estoppel relevant here. The requirement is not that the Ferdinandos actually suffered detriment. It is that the Ferdinandos acted to their detriment on the basis of the assumption that they made.
In Grundt v Great Boulder Ptv Gold Mines Ltd [l9371 59 CLR 641 at 676, Dixon J spoke of a detrimental change of position. In beaione v Hateley 119831 152 CLR 406 Mason and Deane JJ characterised the detriment at 437:

... a person will not be estopped from departing

from an assumption or representation "unless, as a result of adopting it as the basis of action or inaction, the other party will have placed himself in a position of material disadvantage if departure from the assumption be permitted" (per Dixon J in

Thom~son v Palmer [l9331 49 CLR 507 at 547) . ..

Mason CJ and Wilson J in Waltons Stores (Interstate) Limited v Maher and Another [l9881 164 CLR 387 at 404 speak of acting to one's detriment (as opposed to suffering detriment) and, at 406, speak alternatively of changing one's position or suffering detriment.

The Ferdinandos changed their position to their detriment a8	soon as they signed the guarantee. The mortgage by clause 1
then became security for the guarantee with the result that the property became encumbered with the indebtedness of the business. Similarly the Ferdinandos' responsibility as sureties was manifestly affected by linking the guarantee to the mortgage because of this additional encumbrance of the property.
The Trustee said that there was a strong inference that the ANZ induced in the Ferdinandos an assumption that there was no link between the mortgage and the guarantee. The evidence relevant to this question is, as I see it, generally undisputed:
(a) The mortgage was taken as security for a personal loan.

There was only a limited explanation of its effect at the

time: " ... if you do not pay, you may lose your homew

(see affidavit and evidence of Reno Frigo).

(b) The guarantee was taken almost seven years later in the

context of the business. No mention was made of the mortgage (see affidavits and evidence of Messrs Sturgeon and Ferdinando and affidavit of Paul Murphy).

(c)	Both documents were complex and were the ANZ's documents.
The ANZ had a superior knowledge of their contents and implications. The Ferdinandos could not have discovered

the link without an explanation from the ANZ. If a link was intended, there was an intentional refraining from proffering an explanation.

(d) As shown by its own documentation referred to earlier,

the attitude and conduct of the AN2 were only consistent

with an absence of belief in a link and a dealing with

See also Justice Deane at 444. because of the complexity of and the

the Ferdinandos accordingly.

In my opinion the ANZ not only itself assumed and proceeded on the basis that the guarantee was not secured by the mortgage; its assumption and its silence, as well as its actions in

first seeking and then not pressing for security for the guarantee, as well as its other conduct, induced and encouraged the Ferdinandos to share the assumption.

5. The AM's imprudence

This concept is founded on the observations of Justice Gaudron in Waltons at 461-3. Her Honour stated the relevant test at 462:

Where imprudence i s "a proximate cause o f the other

par ty ' s adopt ing and a c t i n g upon the f a i t h of the

assumption" the j u s t i c e o f an es toppel i s made ou t :

Thom~son v Palmer [l9331 49 CLR 507 a s 547 ; G ~ n d t

v Great Boulder P t v Gold Mines Ltd [l9371 59 CLR 641

a t 676.

Her Honour concluded at 463:

That test r e q u i r e s no knowledge a s t o the other's

s t a t e o f mind. Nor does t h a t test require t h a t	imprudence should have caused the assumption t o be
made. I t i s s u f f i c i e n t t h a t imprudence i s "a
proximate cause" o f the assumption b e i n g adopted and acted upon.

time gap between the two documents. Without the ANZ's assistance, the Ferdinandos could not have discovered the connection. The lack of assistance was imprudent when care was required, and was a proximate cause of the Ferdinandosp assumption of a link.

Gibbs CJ enunciated a principle in Commercial Bank of Australia Ltd v Amadio [l9831 151 CLR 447 at 457 that a bank taking a guarantee has an

. . . o b l i g a t i o n [ . . . ] to r e v e a l a n y t h i n g i n the

t r a n s a c t i o n	between	the	banker	and	the	cus tomer
which	h a s	the	e f f ec t t h a t	the position	o f	the
cus tomer	i s d i f f e r e n t	from	t h a t	which	the	s u r e t y

would n a t u r a l l y e x p e c t , p a r t i c u l a r l y i f it a f f e c t s

the n a t u r e or degree o f the s u r e t y ' s responsibility.

Unconscionability

The other members of the Court in Amadio based their decision

upon

. . .	a n	u n d e r l y i n g	general	p r i n c i p l e	which	may	be
invoked	whenever	one	p a r t y	by	r e a s o n	of	some
c o n d i t i o n	or	c i r cums tance	i s	placed	a t	a	s p e c i a l

d i sadvan tage v i s - a - v i s a n o t h e r and u n f a i r or

unconsc i en t i ous advantage i s then t a k e n o f the

o p p o r t u n i t y thereby c r e a t e d [per Mason J at 4621

Justice Mason continued:

I q u a l i f y the word "disadvantage" by the a d j e c t i v e

" s p e c i a l " i n order t o disavow any suggest ion t h a t

the	p r i n c i p l e	a p p l i e s	whenever	there	i s	some
d i f f e r e n c e	i n the	bargaining	power	o f	the	p a r t i e s

and i n order t o emphasize t h a t the d i s a b l i n g

cond i t ion	or	circumstance	i s one	which	s e r i o u s l y
a f f e c t s the	a b i l i t y o f the	innocent	p a r t y	t o make	a

judgment a s t o his own best i n t e r e s t s , when t h e

other p a r t y knows or ought t o know of the existence
o f t h a t cond i t ion or circumstance and o f i t s e f fect

on the innocent par ty .

His Honour s ta t ed t h a t the essence o f the p o s i t i o n o f spec ia l

disadvantage i s one where the innocent party:

. . . i s unable t o make a worthwhile judgment	a s t o
what i s i n his best interests.

J u s t i c e Deane a t 474 expressed the pr inc ip le as fo l lows:

The j u r i s d i c t i o n i s l o n g e s tab l i shed a s ex tending

genera l l y t o circumstances which ( i ) a p a r t y t o a

t ransac t ion was under a spec ia l d i s a b i l i t y i n

dea l ing w i th the other p a r t y w i th the consequence t h a t there was an absence o f any reasonable degree o f e q u a l i t y between them and (ii) t h a t d i s a b i l i t y

was s u f f i c i e n t l y ev iden t t o the s t ronger p a r t y t o

make	i t prima	f a c i e	u n f a i r or	"unconsc ien t iousw t h a t
he procure,	or accept ,	the weaker par t y ' s	a s sen t t o

the impugned t ransac t ion i n the circumstances i n

which he procured or accepted i t .

Unconscionable dea l ing looks to t h e conduct o f the

s t ronger p a r t y i n a t tempt ing to en force , or r e t a i n

the benefit o f , a dea l ing w i t h a person under a

spec ia l d i s a b i l i t y i n circumstances where it i s not

c o n s i s t e n t w i th e q u i t y or good conscience t h a t he

should do so. The adverse circumstances which may

c o n s t i t u t e a spec ia l d i s a b i l i t y for the purposes o f

the	p r i n c i p l e s	r e l a t i n g	t o	relief	agains t
unconscionable	dea l ing may	t a k e	a	wide	v a r i e t y o f

forms and a r e n o t s u s c e p t i b l e t o b e i n g

comprehensively catalogues [ s i c ] . I n Blomlev v Rvan [l9561 99 CLR 362 Fullagar J l i s t e d some examples of

such	d i s a b i l i t y :
"poverty or need of any kind, sickness, age, sex, infirmity of body or mind, drunkenness, illiteracy or lack of education, lack of assistance or explanation where assistance or explanation is necessary".

The Trustee argued that Amadio disentitled the ANZ from relying on the connection it failed to disclose and enforcing the mortgage as it relates to the guarantee. The Trustee suggested the four elements referred to earlier as evidence of ANZ's inducement or encouragement of the assumption of no link made assistance or explanation to the Ferdinandos necessary when the guarantee was to be signed. The Trustee said that these factors pointed to the need for the ANZ to have explained the connection between the guarantee and the mortgage if it is to rely upon that connection. The unconscionability lies in seeking to rely upon the connection in the absence of such an explanation when all the circumstances called for one. In other words, the ANZ's

failure to provide an explanation took advantage of the

makes it unconscionable to allow the ANZ to rely upon the	Ferdinandos' special disadvantage. This, the Trustee said,
strict terms of the mortgage.
The AN2 sought to distinguish Amadio on a number of grounds of which it is only necessary to refer to two. First, it said that the customer here was the business not the Ferdinandos as sureties. Second, it said that the support of the guarantee by the mortgage would and did not affect the nature or degree of the Ferdinandos' responsibilities as sureties by allowing

the ANZ to rank ahead of the unsecured creditors in a liquidation. This argument presumably dismisses the fact that the link would encumber the property with the debts of the business.

There is no suggestion that the guarantee itself is an unconscionable bargain but that its link to the mortgage is. It is not the lapse of time between the two documents which introduces an element of unconscionability although it certainly heightened the need for an explanation. The claim for unconscionability is really dependant on the lack of this explanation. Nor is the apparent correlation of the mortgage to the personal loan and the guarantee to the business overdraft unconscionable. The Ferdinandos were already financially liable for the personal account and the guarantee made them personally liable for the business account. The guarantee added nothing more to their personal burden than they presumably intended by giving it. The question is whether the encumbering of the property with the liabilities

of the business put them at a special disadvantage vis a vis

the ANZ such as to require a revelation and explanation of the

nature of the obligations and consequences they were facing by
signing a linked guarantee.

It is on these bases then that the present availability and scope of estoppel must be examined. The starting point is Huahes v Metrooolitan Railwav CO [l8771 2 App Cas 439 at 448%

. .. i t i s the first p r i n c i p l e upon which a l l Courts

o f E q u i t y proceed, t h a t i f p a r t i e s who have en tered

in to	d e f i n i t e	and	d i s t i n c t	terms	i n v o l v i n g	c e r t a i n
l e g a l	r e s u l t s	-	c e r t a i n	p e n a l t i e s	o r	l e g a l

f o r f e i t u r e - af terwards by t h e i r own a c t or wi th

their own consent enter upon a course o f n e g o t i a t i o n

which has the e f fect o f l e a d i n g one o f the p a r t i e s

t o suppose t h a t the strict r i g h t s a r i s i n g under the

con t rac t w i l l not be enforced , or w i l l be k e p t i n suspense, or he ld i n abeyance, the person who o therwise might have enforced those r i g h t s w i l l be

n o t be allowed t o e n f o r c e them where it would be

i n e q u i t a b l e hav ing regard t o the dea l ings which have

t h u s taken place between the p a r t i e s .

Dixon J amplified these principles in Grundt at 676:

The j u s t i c e o f an es toppel i s n o t e s t a b l i s h e d by the

f a c t i n i t se l f t h a t a s t a t e o f a f f a i r s has been

a departure from t h e assumption would t u r n the	assumed a s the b a s i s o f a c t i o n or i n a c t i o n and t h a t
p o s i t i o n . I t depends a l s o on the manner i n which a c t i o n or i n a c t i o n i n t o a de tr imenta l change o f
the assumption has been occasioned or induced.
Before anyone can be estopped, he must have played such a par t i n the adoption o f the assumption t h a t i t would be u n f a i r or u n j u s t i f he were l e f t free t o
ignore it. But the law does not l e a v e such a
ques t ion o f f a i r n e s s o f j u s t i c e a t l a rge . I t
d e f i n e s w i th more or less completeness the k i n d s o f
p a r t i c i p a t i o n i n the making or acceptance o f the
assumption t h a t w i l l s u f f i c e t o preclude the p a r t y
i f the s a t i s f i e d . other requirements f o r an es toppel a r e

Before Waltons there were at least three distinct forms of estoppel with potential relevance to the facts of this case. Estoppel in pais operated to prevent departure from representations of existing fact relied on. Dixon J said in

Thom~son v Palmer 119331 49 CLR 507 at 547:

u n j u s t departure by one person from an assumption	The o b j e c t o f es toppel i n p a i s i s to prevent an
adopted by another a s the b a s i s o f some a c t or

omission which, un le s s the assumption be adhered t o ,

would operate t o t h a t other's de tr iment . Whether a departure by one p a r t y from the assumption could be considered u n j u s t and inadmiss ib le depends on the

part taken by him i n occasioning i t s adoption by the

o t h e r par ty . H e may be required t o abide by the

assumption because it formed the conventional b a s i s

upon which the p a r t i e s entered i n t o contractual or

o t h e r mutual r e l a t i o n s . . . or because he has

exerc i sed aga ins t the other p a r t y r i g h t s which would

because knowing the mis take the other laboured	exist o n l y i f the assumption were correct ...; or
under, he r e f r a i n e d from c o r r e c t i n g him when i t was his d u t y t o do so; or because his imprudence, where
care was required o f him, was a proximate cause o f the other par ty ' s adopt ing and a c t i n g upon the f a i t h
o f the assumption, or because he d i r e c t l y made
represen ta t ions upon which the other p a r t y founded
the assumption.
In Amadio a t 455-6,	Gibbs CJ sa id :

The nature o f an es toppel i n pa i s i s well

e s tab l i shed	i n th is	country .	A	p a r t y	who	induces
another	t o make	an	assumption	t h a t	a	s t a t e o f
a f f a i r s exists,	knowing	or	i n t e n d i n g	the	other	t o
a c t	on	t h a t	assumption,	i s estopped	from	a s s e r t i n g

the e x i s t e n c e o f a d i f f e r e n t s t a t e o f a f f a i r s a s the

foundation	o f	their	r e s p e c t i v e	r i g h t s	and
l i a b i l i t i e s i f the	other	has	acted	i n r e l i a n c e	on

the assumption and would s u f f e r detr iment i f the

assumption was not adhered t o .

J u s t i c e Brennan put t h i s brand o f es toppel i n these words i n

Waltons a t 413:

The na ture o f an es toppel i n pa i s i s w e l l

e s tab l i shed	i n this	country .	A	p a r t y	who	induces
another	t o make	an	assumption	t h a t	a	s t a t e o f

a f f a i r s exists, knowing or in t end ing the other t o

a c t on t h a t assumption, i s estopped from a s s e r t i n g

the e x i s t e n c e o f a d i f f e r e n t s t a t e o f a f f a i r s a s the

foundation	o f	t h e i r	r e s p e c t i v e	r i g h t s	and
l i a b i l i t i e s i f the	other	has	acted	i n r e l i a n c e	on

t h e assumption and would s u f f e r detr iment i f t h e

assumption was not adhered to.

Estoppel by convention prevents one party from departing from an assumption adopted by both parties on the conventional basis of their relationship if in the circumstances it would be unjust to do so. In Con-Stan Industries of Australia Pro~rietarv Limited v Norwich Winterthur insurance (Australia1

phited [l9861 160 CLR 226 at 244, the High Court (Gibbs CJ,
Mason, Wilson, Brennan, Dawson JJ) stated:

Estoppel by convention is a form of estoppel founded not on a representation of fact made by a representor and acted on by a representee to his detriment, but on the conduct of relations between the parties on the basis of an agreed or assumed state of facts, which both will be estopped from denying.

Promissory estoppel prevented departure from promissory

statements relied on: see generally Cheshire and Fifoot, & W

of Contracts 6th Australian edition at p. 154 where the

authors say:

All of these threads have a common theme: a person

assumption, representation, promise or assurance	will be prevented from departing from the
which he or she has encouraged or made if it would be unconscionable to do so in the circumstances. Broadly, these strands of estoppel can be woven together into a general doctrine of estoppel by conduct.

And at page 156:

. . . what should be stressed is that the underlying

principle is the combination of detrimental reliance - by the one party and unconscionable conduct by the other .

In heaione at 435, Mason and Deane JJ said:

... a number of rules which have been established as

applicable to estoppel in pais are also applicable to promissory estoppel . . . First, it has long been recognized that a representation must be clear.

At 437, as mentioned earlier, their Honours stated the second rule as requiring that:

... as a result of adopting [an assumption] as the

basis of action or inaction, the other party will have placed himself in a position of material disadvantage if departure from the assumption be permitted.

And at 438:

The requirement that a representation as to existing fact or future conduct must be clear if it is to found an estoppel in pais or a promissory estoppel does not mean that the representation must be express. Such a clear representation may properly be seen as implied by the words used or to be adduced from either failure to speak where there was

a duty to speak or from conduct.

Waltons sought to draw these strands together. At 404 Mason

CJ and Wilson J said:

One may therefore discern in the cases a common thread which links them together, namely, the principle that equity will come to the relief of a plaintiff who has acted to his detriment on the basis of a basic assumption in relation to which the other party has "played such a part in the adoption of the assumption that it would be unfair or unjust if he were left free to ignore it . . . Equity comes to the relief of such a plaintiff on the footing

t h a t it would be unconscionable conduct on the par t

o f the other p a r t y t o ignore the assumption.

At 406, their Honours s a i d :

The foregoing r e v i e w o f the d o c t r i n e o f promissory

es toppel i n d i c a t e s t h a t the d o c t r i n e ex t ends t o the

enforcement	of	v o l u n t a r y	promises	on	the	f o o t i n g
t h a t	a	departure	from	the	b a s i c	assumptions

under ly ing	t h e	t r a n s a c t i o n between	the	p a r t i e s	must
be	unconscionable.	As	f a i l u r e	t o f u l f i l	a promise

does n o t o f i t se l f amount t o unconscionable conduct,

mere r e l i a n c e on an execu tory promise t o do

something, r e s u l t i n g i n t h e promisee changing his

p o s i t i o n or s u f f e r i n g de tr iment , does n o t b r i n g

promissory es toppel i n t o p lay . Something more would

be required . H u m ~ h r e ~ ~ E s t a t e [l9871 1 AC 114

sugges t s t h a t th is may be found, i f a t a l l , i n the

c r e a t i o n or encouragement by the p a r t y estopped i n

the o t h e r p a r t y o f an assumption t o his de tr iment t o

the knowledge o f the first par ty .

J u s t i c e Brennan said a t 420:

In a l l cases where an equity created by an es toppel

i s r a i s e d , the p a r t y r a i s i n g the equity has acted or

abstained	from	a c t i n g	on	an	assumption	or
expec ta t ion	a s	t o	the	l e g a l	r e l a t i o n s h i p	between

h i m s e l f and the p a r t y who induced him t o adopt the

assumption or expec ta t ion .

And a t 423:

induced by the making o f a promise, the knowledge or

When the adoption o f an assumption or expec ta t ion i s

i n t e n t i o n t h a t the assumption or expec ta t ion w i l l be ac ted upon may be e a s i l y i n f e r r e d . But i f a p a r t y encourages another t o adhere t o an assumption or expec ta t ion a l r e a d y formed or acquiesces i n the

making o f an assumption or the entertainment o f an expec ta t ion when he ought t o o b j e c t t o the

assumption or expec ta t ion - s t e p s which a r e tantamount t o inducing the other t o adopt the assumption o r expec ta t ion - the i n f e r e n c e o f

knowledge or i n t e n t i o n t h a t the assumption or

expec ta t ion w i l l be acted on may be more d i f f i c u l t

t o draw.

e q u i t y t o prevent i s the f a i l u r e o f a par t y , who has	The unconscionable conduct which i t i s the o b j e c t o f
induced the adoption o f the assumption or	expec ta t ion and who knew or intended t h a t it would

be r e l i e d on, t o f u l f i l the assumption o r

expec ta t ion or o therwise t o avoid the detr iment

which t h a t f a i l u r e would occasion.

And a t 4 2 8 :

I n my opin ion , t o e s t a b l i s h an e q u i t a b l e e s toppe l ,

i t i s necessary for the p l a i n t i f f t o prove t h a t ( 1 )

the	p l a i n t i f f	assumed	t h a t	a	p a r t i c u l a r	l e g a l
r e l a t i o n s h i p	then	e x i s t e d	between	the	p l a i n t i f f	and

the defendant or expected t h a t a p a r t i c u l a r l e g a l

r e l a t i o n s h i p would exist between them and, i n t h e

l a t t e r case , t h a t t h e defendant would not be free t o

withdraw from the expected l e g a l r e l a t i o n s h i p ; ( 2 )

the defendant has induced the p l a i n t i f f t o adopt

t h a t assumption or expec ta t ion ; (3) the p l a i n t i f f

a c t s or abs ta ins from a c t i n g i n r e l i a n c e on t h e

assumption or expec ta t ion; ( 4 ) the defendant knew or

intended him t o do so; (5 ) the p l a i n t i f f ' s a c t i o n or

i n a c t i o n w i l l occasion detr iment i f t h e assumption

or expec ta t ion i s not f u l f i l l e d ; and ( 6 ) the

defendant has f a i l e d t o a c t t o avoid t h a t detr iment

whether by f u l f i l l i n g the assumption or expec ta t ion

or otherwise .

J u s t i c e Deane said a t 443:

Indeed,	these	f a c t s	c a l l	i n t o p l a y	the	operat ion o f
perhaps	the	c l e a r e s t	emanation	o f	es toppel	by

conduct, name1 y, the p r i n c i p l e which precludes departure from a represen ta t ion or an induced assumption (a " represen ta t ion ... by s i l e n c e " ) ...

o f e x i s t i n g f a c t i n circumstances where the p a r t y

estopped has knowingly and s i l e n t l y s tood by and

watched the other p a r t y a c t t o his detr iment .

J u s t i c e Gaudron said a t 458:

The object of an estoppel, whether a common law estoppel or an equitable estoppel, is as was explained by Dixon J in relation to estoppel in pais in Thom~son v Palmer to prevent an unjust departure by one person from an assumption adopted by another

as the basis of some act or omission which, unless

the assumption be adhered to, would operate to that

other's detriment.

See also fommonwealth of Australia v Venvaven [l9901 170 CLR

394.

In my opinion the ANZrs claim for declaratory relief is estopped or ought not to be granted. I have earlier said that the commercial relationship of the AN2 and the Ferdinandos was conducted on the basis that there was no link or connection between the mortgage and the guarantee and that the property did not secure the business and its debts. There is no doubt

in my mind that the AN2 itself held that belief and that it

played a major role in the acceptance or adoption of the belief by the Ferdinandos. This situation came about from a number of causes, the most proximate being the ANZ1s

disclosing the actuality or potentiality of a link between	imprudence and unconscionable failure of obligation in not
them. This took unfair advantage of the opportunity created by the Ferdinandos' special disadvantage of not being able to understand or appreciate the link themselves.
That the Ferdinandos relied upon this state of affairs in signing the guarantee can hardly be questioned. They expressly declined another real property mortgage as security for their guarantee fo the business overdraft. They would hardly have been prepared to encumber the Healesville property with this burden.
The detriment is also clear. Whereas they had maintained their personal account in sufficiently good order for many years as not to risk unduly the security under the mortgage, the addition of a business debt of some size might well put that security under strain, as actually occurred. By signing a guarantee which expressly linked the two, they not only encumbered the property with the business debts, they actually put themselves at risk of losing the property and becoming insolvent due to factors beyond their control such as a business downturn. This is what occurred. The detriment was proved by events.
Commercial Bill
The ANZ raised an alternative proposition that the balance of the Ferdinandos' personal account should be debited with the proceeds of a commercial bill of $55,000 wrongly debited to
the business account in or about July 1990. Although there is
an assertion that the payment was an error, no evidence was given of how or why it was an error, nor was any explanation given of how it came to occur. There was in fact evidence that it was not an error, including the fact that the letters of demand under the mortgage and guarantee did not mention it.

I am not satisfied that it was an error at all but if it was,

I can see no legal basis for any action of the Court to

correct it. In fact no such foundation has been argued.

The application will be dismissed with costs.

I certify that the. and the

precsdlng pages are a true copy f the

Reasons for Judgment hereln of h ~ s Honour l

i l

Dated. FI A P ~ ' I iqq3

I --

...> 2.4- , ,

;;@&(i!., ' l " . , , :

'Z,,: L; :. -L , , , :. 9

Counsel and solicitor	Mr S Garner
for the applicant	instructed by Blake Dawson Waldron
Counsel and solicitor for	MS H Symon
for the respondent	instructed by the Australian Government Solicitor
Date of Hearing	3 March 1993

Written Submissions completed	8 April 1993
Date of Judgment	30 April 1993