State Bank of New South Wales Limited v Layoun

[2001] NSWSC 113

Reported Decision: (2001) NSW ConvR 55-984

New South Wales

Supreme Court

CITATION:

State Bank of New South Wales Limited v Layoun [2001] NSWSC 113 revised - 20/03/2001

CURRENT JURISDICTION:

Common Law

FILE NUMBER(S):

SC 12757 of 1994

HEARING DATE(S):

9 - 13 February 1998
20 August 1999

JUDGMENT DATE:

9 March 2001

PARTIES :

STATE BANK OF NEW SOUTH WALES LIMITED
(ACN 003 963 228)
(Plainiff)

v

ANTHONY LAYOUN
(First Defendant)

BADRA LAYOUN
(Second Defendant)

DANIEL LAYOUN
(Third Defendant)

LOUIS LAYOUN
(Fourth Defendant)

JUDGMENT OF:

Levine J

COUNSEL :	D J Russell (Plaintiff) R Sofroniou (Defendants)
SOLICITORS:	Parish Patience (Plaintiff) Jackson Smith (Defendants)
CATCHWORDS:	Mortgage - guarantee - claim for possession - unconscionability
LEGISLATION CITED:	Contracts Review Act 1980 (NSW)
CASES CITED:	Blomley v Ryan (1956) 99 CLR 362 Commercial Bank of Australia v Amadio (1982) 151 CLR 447 Garcia v National Australia Bank Limited (1998) 194 CLR 395
DECISION:	See paragraphs 76 & 77

[2001] NSWSC 113

THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISION

No. 12757 of 1994

JUSTICE DAVID LEVINE

FRIDAY 9 MARCH 2001

STATE BANK OF NEW SOUTH WALES LIMITED
(ACN 003 963 228)
(Plaintiff)

v

ANTHONY LAYOUN
(First Defendant)

BADRA LAYOUN
(Second Defendant)

DANIEL LAYOUN
(Third Defendant)
LOUIS LAYOUN
(Fourth Defendant)


JUDGMENT (Mortgage - guarantee - claim for possession - unconscionability)

1    The plaintiff bank seeks relief by its Statement of Claim founded upon a mortgage dated 24 June 1985 by which the defendants mortgaged a residential property at Merrylands to secure advances made by the bank to a commercial entity Castle Hill Ceramics Pty Limited (“Ceramics”).

2    The first and second defendants (the second defendant - Badra Layoun - having died since the hearing), are the parents of Joseph Layoun. At the time of the hearing they were 73 and 65 years old respectively. The third and fourth defendants, Daniel and Louis Layoun are brothers of Joseph Layoun who at all material times was the principal of Ceramics. As a result of default by Ceramics the plaintiff seeks possession of the security property and a money judgment against the mortgagors based upon the personal covenants in the mortgage.

3    The defendants place in issue the execution of the mortgage and assert that they are entitled to relief upon the basis that they did not execute the mortgage, or in the alternative, that the mortgage transaction is “unconscionable” and “unjust” as at the time it was entered into. Relief by way of cross-claim pursuant to the Contract Review Act (NSW) 1980 is sought.

4    The relevant mortgage is that dated 24 August 1985 in respect of the property at 3 Merrylands Road, Merrylands, registered on 17 October 1985 as dealing number V982071 (Exhibit E).

5    It generally can be said that the defendants’ affidavits make little sense without reference to the affidavits filed for the plaintiff in its case in reply being affidavits of Walter James Giles sworn 1 December 1995, 23 January 1996 and 25 July 1996; John Hubert Hutton sworn 19 December 1995 and 27 September 1996; Rodney Burgess Tuckwell sworn 21 November 1995 and 17 October 1996 and Peter Howe sworn 21 December 1995 and 19 September 1996. An affidavit as to handwriting was also filed by the plaintiff being that of Marta Elizabeth Voss sworn 27 January 1998. All gave oral evidence.

6    On 11 February 1998 an affidavit was prepared for the fourth defendant Louis Layoun which was not sworn but which became Exhibit 1; he also gave evidence.

7    At the end of the 5 day hearing and submissions orally and in writing (20 August 1999) it had become clear that essentially two issues arose for resolution.

8    First, whether or not the defendants executed the relevant documents: that is, whether or not they in fact “signed” those documents as alleged by the plaintiff bank. Secondly, whether, in whatever circumstances the documents came to be “executed”, the bank is precluded from enforcing the securities against the defendants by reason of unconscionability. A fundamental “structure” is that the recipient of the advanced funds pursuant to the various security documents was Ceramics the principal of which was Joseph Layoun, the eldest son of the first and second defendants, brother of the third and fourth defendants, but who was not a party to these proceedings.

9    In the end it was the plaintiff’s position that none of the defendants nor Joseph Layoun gave credible, reliable and honest testimony with respect to the execution of the various documents and thus, the assertion on the part of the defendants of matters that would give rise to the relief sought in the defence and cross-claim would inevitably be refused.

10    It was the position of the defendants/cross-claimants that even if the Court was persuaded on the balance of probabilities that the relevant documents were executed as contended for by the plaintiff, the circumstances of the execution of such documents were such that the relief sought would still be available.

11    To assist the resolution of these issues, counsel for the parties each was good enough to provide an analysis of the evidence by reference to its record in the transcript and of the several exhibits. The defendants/cross-claimants’ table of references is Appendix 1 hereto and that of the plaintiff, Appendix 2.

12    I am grateful to counsel for their work in this regard and have incorporated its product in these reasons as the most useful analysis in aid of the conclusions to which I have come.

13    I shall first deal with the issue as to the execution of the documents.

14    Joseph Layoun was called first by the defendants. He was the last to put on an affidavit for that side of the record and did so after the bulk of the evidence for the plaintiff had been filed. I shall return to Joseph Layoun.

15    Anthony Layoun, the first defendant, aged 73 at the time of giving his testimony, could not even remember swearing an affidavit. That was cleared up as best as possible through the interpreter. In the affidavit of 3 October 1995, the witness stated he had no recollection of signing documents to purchase the house or to arrange the mortgage. At best his evidence, even as exemplified in the parties’ respective tables, is confused and vague as to his execution particular of Exhibit E. Mr Anthony Layoun was at pains throughout the giving of his evidence, particularly in cross-examination, to state his position that he never knew what he was signing and no explanation was given to him even by Joseph.

16    When confronted with Exhibit E the witness said that the signature looked like his writing at one point in his cross-examination and at another denied signing it, suggesting that someone else did. The fourth defendant gave evidence that the signature looked like Anthony’s signature. Joseph gave evidence that he could have written the signature but was not sure. There was confusion in Mr Anthony Layoun’s evidence in relation to Exhibit A, an earlier CBC Mortgage and a denial in relation to Exhibits B and C - a Mortgage Debenture and another CBC Mortgage. Anthony Layoun denied signing any document before Mr Giles at the State Bank because, he said, he did not go to the bank.

17    I would characterise the evidence of Mr Anthony Layoun as being infected by the realisation of the forensic environment in which he found himself and the realisation then in his mind of the peril to his property.

18    Shortly stated, Mr Anthony Layoun’s quite apparent lack of candour with the Court in relation to his signature predisposed me to give little weight to anything he said on that subject. I formed a similar view in relation to the now deceased Mrs Badra Layoun, the second defendant. She was, of course ,confronted with a statement in her affidavit of 17 June 1996 in which she stated she “did not remember signing any of the documents” exhibited to the other affidavits including the mortgage annexed to the affidavit of Mr Giles sworn 1 December 1995. Her sworn defence in which she makes a clear allegation that she did not in fact sign the mortgage.

19    Her credibility, on this subject, certainly was not positively assisted by her evidence (see pages 107 and 108), as to how she signs her name; the defence bears “B Layoun;” the mortgage bears “B Layoun;” yet she said she never signed her name “B Layoun” but rather “Badra Layoun”. Indeed, she denied that the affidavit was signed by her. This was at one point in the cross-examination (T113) and at another she was prepared to concede one of the three signatures was hers (T115).

20    I bear in mind that Mrs Layoun is now deceased. I will simply remark that the quality of the testimony she gave before me was such that I could not comfortably come to the conclusion that more probability than not what she asserted as to when and how she signed her name was in fact the case.

21    The third defendant, Daniel Layoun, denied his signature appearing on various documents put to him. In relation to Exhibit E he denied that that bore his signature. Joseph said that it did. Further, by way of example, in relation to Exhibit T (Acknowledgment and Consent of Third Party/Guarantor/Covenantor), the third defendant denied that it was his signature, the evidence of Ms Voss, the handwriting expert, said that it was “distinctly possible” that it was his signature - a response which I am prepared to accept weighs in favour in the scales of probability, for the plaintiff.

22    Another example is in relation to Exhibit Y, a letter addressed to the bank plaintiff’s Manager. At T135 he agreed that his signature appeared on that document. Though later (see pages 137-138), his position became, to say the least, equivocal in that he gave the clear impression of denying that it was his signature.

23    Again in relation to this witness, and again, I stress, on the issue of “signatures” or “execution,” his evidence overall was so unsatisfactory as to preclude me from being satisfied on the probabilities that what he was asserting by himself, let alone in the bizarre conflict created by the other witness, was in fact the case.

24    The fourth defendant, Louis Layoun, denied on oath that his signature appeared on Exhibit E (this is, his affidavit verifying the defence and cross-claim, sworn 28 December 1994). Exhibit 1 is a documentary form of Louis Layoun’s evidence (it is an unsworn affidavit adopted by him: T144). It is silent as to his signature and when confronted (T150) with Exhibit E his first response as to his own signature was “I couldn’t tell you”. The witness thereafter embarked upon absolute equivocation and I reject his testimony of being of any weight on this issue.

25    It was submitted for the plaintiff that Joseph Layoun (not a party) in effect “provides the key to the puzzle” to the state of confusion arising from the evidence of his parents and brothers. It is suggested that he has a witness, the defendants’ would have the Court believe, on the issue of signature and execution. To a great extent this submission is founded upon the “timing” of the filing of Joseph’s affidavit.

26    On this issue Joseph neither provides the aid or clarification the plaintiff asserts his role to have been nor, on the totality of his testimony on this issue, can he be safely relied upon in support of the defendants’ position.

27    In his affidavit sworn 6 August 1996 (that is after the evidence of the plaintiff substantially had been filed), Joseph referred to the affidavit of Walter James Giles of 1 December 1995 and in particular Annexure D thereto (Exhibit E in the proceedings, the relevant mortgage of 24 June 1985). He stated at paragraphs 27, 28 and 29 the following:

“27. The signatures of A and B Layoun that appear on Annexure ‘D’ to that affidavit were signed by me. I am unsure as to who signed the signatures of D and L Layoun that appear on Annexure ‘D’ to that affidavit, but they were probably signed by me.
28. The signatures of A and B Layoun that appear on Annexure ‘E’ to that affidavit were signed by me. The signatures of D and L Layoun were not signed by me.
29. The signature of A Layoun that appears on Annexure ‘F’ was signed by me”.

28    Mr Giles in his affidavit of 1 December 1995 had sworn in paragraphs 14 and 15:

“14. On or about 25 March 1985 the defendants attended at the Bank’s Castle Hill branch to sign a mortgage and authority to fill in blanks in security documents. To the best of recollection all of the defendants attended the branch at the same time. I think this was the first time I met Anthony Layoun and Badra Layoun. I recall that Louis and Daniel Layoun were customers of the Bank, but this may have been the first time I met them. I do not recall the conversation that took place when I asked the Defendants to sign the mortgage and authority to fill in the blanks in security documents. Annexed and marked ‘D’ and ‘E’ respectively is a copy of the mortgage and authority to fill in blanks dated 25 March 1985.”
15. I have no independent recollection of witnessing the signature of the defendants on the mortgage on 25 March 1985”.

29    During the course of cross-examination the following evidence was given (T17-18):

“Q. I show you the original of the mortgage to the bank. Do you see half way down the first page there are four signatures on the right hand side of the page?
A. Yes.
Q. Who wrote the signature ‘A. Layoun’ there?
A. That looks like me.
Q. Are you in some doubt about that?
A. A one percent doubt but it looks more like me. The second one is definitely my writing.
Q. While we are still looking at ‘A Layoun’ do you think there is a chance your father might have signed that?
A. It looks more like my writing. If I had to make an oath I’d say it is my writing.
Q. Does it look something like his writing? The second signature appears to be ‘B Layoun’. You say you put that there, do you?
A. That’s right.
Q. Where were you when this document, when you wrote ‘B Layoun’ on this document?
A. Probably at the office.
Q. You say ‘probably’. You are not sure about it. Is that right?
A. No, I can’t be sure.
Q. So you have no memory of actually sitting down on a particular day and putting your mother’s signature on the document?
A. That’s right.
Q. The third signature appears to be ‘L Layoun’ doesn’t it?
A. That’s right.
Q. Who do you say put that there?
A. That looks like me brother’s.
Q. And the fourth one is ‘D Layoun’. Who do you say put that there?
A. Could have been my brother. I can’t really be sure.
Q. But you all signed at the same time, didn’t you?
A. Can’t recall.
Q. Was anyone else with you when you wrote two signatures on the document?
A. Can’t recall.
Q. Was there any discussion with your father before you wrote his signature on the document?
A. I don’t remember directly about this.
Q. Earlier in your evidence you did recall that there was one conversation with your father about signing his name on documents for the State Bank?
A. Possibly but not this one.
Q. When did that conversation with your father occur?
A. I can’t recall.
Q. Was it before or after this mortgage was signed?
A. Can’t recall.
Q. Before you signed your mother’s signature on this particular mortgage did you have any conversation with her about doing that?
A. No. Mum was never involved in it at all.
Q. Was Louis present when you signed either of those two signatures of your mother and father on the mortgage?
A. Don’t recall.
Q. Was Daniel?
A. I don’t remember.
Q. You see that to the left of the four signatures Mr Giles has written his name and put his signature. Was he then (sic) when you signed your mother’s and father’s names?
A. I don’t recall that.
Q. You see just above his signature these typed words appear, ‘Signed in my presence by the mortgagor who is personally known to me’. Do you see that typescript?
A. Yes.
Q. Was Mr Giles present when you put two of those signatures on the mortgage?
A. Well by the looks of it, if they were all signed at the bank Mum and Dad would have to go to the bank but they never went to the bank at all, but the signature for the bank must have been put on later.
Q. Was Mr Giles there when you put your mother’s and your father’s signatures on this mortgage?
A. The answer to that is I don’t recall.
Q. He might have been there, he might not?
A. I don’t recall”.

30    Mr Giles himself was called and I accept him as a witness of truth. I do so in circumstances, not uncommon in this kind of case, where bank officers are relying not upon independent recollection of particular events or instances of document signing, but rather “general practice” (his evidence as to practice as at T161-2: in chief). He, of course, rejected the suggestion that he “witnessed” the signatures “after” the execution (by whomsoever) of the mortgage. What particularly impressed me about Mr Giles’ evidence was his acknowledgment as to “usual practice” on the one hand but on the other, he did have a recollection (T162.10 at .57; T163.10) about the defendants’ actually coming in. When it was put to him that he could not remember what happened “after they walked in” (T164.7), Mr Giles was perfectly candid that he would have no particular memory of what happened thereafter. It was his recollection of the event of the defendants being there that impressed me.

31    When it was suggested to him that he in fact charged Joseph with the task of having the mortgage executed and knew that he subsequently signed as witness to those signatures, he responded, when asked to agree, “absolutely not” (T165-6). This evidence I accept.

32    Joseph Layoun in his affidavit at paragraph 31 swore on oath that a later manager of the branch, Mr Peter Howe and he had conversations when the witness Joseph was signing the signatures of his parents to the following effect:

Howe : “These need to be signed by your parents”
JL: “I will sign for them”.
Howe: “I don’t care … I just don’t want to know … I will turn around”.

33    No such extraordinary allegation was made in relation to Mr Giles. Whilst it is clear on the evidence that the customer/bank relationship was longer involving Mr Howe than anyone else, I accept the rejection by Mr Howe of the suggestion contained in paragraph 31 of Joseph’s affidavit (as sworn to by Mr Howe in his affidavit of 19 September 1996) and in the light of his rejection of such suggestions as made by Joseph in his (Mr Howe’s) evidence in cross-examination at T234.

34    Thus it is that I can with comfort come the conclusion that Joseph Layoun’s testimony in relation to Exhibit E in particular and generally in relation to the “signatures” is by no means persuasive. Weighed with that of his brothers and parents it brings it about that the scales clearly tip in favour of the plaintiff on this issue.

35    Insofar as the defence asserts that the defendants did not sign or execute the mortgage or were not party to the mortgage and otherwise raises issues in defeasance of that component of the plaintiff’s claim, the plaintiff must succeed on that issue.

36    As has been mentioned, expert handwriting evidence was given by Ms Marta Voss (T262 and following - Exhibits AD, AE, AF and AG). I do not propose to detail her testimony. She was cross-examined with impeccable efficiency but in the end, what she had to say was not determinative nor decisive. My findings on the "“signature issue” are founded upon the testimony of the witnesses to whom I have referred in particular. I will say no more than that the overall effect of Ms Voss’ evidence was supportive of the plaintiff’s case.

37    I now turn to the second component of the case namely whether the bank is precluded from enforcing the securities which I have found to have been executed by the defendants/cross-claimants.

38    It was submitted for the plaintiff bank that if, on the basis of credit, I found in its favour on the “execution” question it must inevitably follow that the bank must succeed in relation to the defence and cross-claim. For the defendants/cross-claimants it was submitted that even if I did reject those parties’ position on that issue it was still open to find on the evidence that they were entitled to the relief they seek, according to the evidence, and in the light of the principles in Commercial Bank of Australia v Amadio (1982) 151 CLR 447 and Garcia v National Australia Bank Limited (1998) 194 CLR 395.

39    With respect to the position of the defendants, I accept the evidence given by Joseph to the effect that as the first born son he enjoyed a special position of responsibility in a cultural context in his family. I accept that he was, in effect, in charge of family affairs and that the family relied upon him in respect of such affairs. His parents had difficulty with the English language and I am persuaded that the procuring of the signing of documents by them was indeed “easy” and a “formality” in the context of that family relationship.

40    I have no doubt at all that the parents would have been incapable even of reading any of the documents in question.

41    Furthermore in the context of this hearing I see no reason not to accept Mr Layoun senior’s evidence to the effect that he would not have “mortgaged his house to his son” (T91); and that he and his wife were concerned by reason of the size of their family not to be “thrown out into the street”. At the time of the entering into of the mortgage (Exhibit E) the youngest member of the family would have been eight years of age (T117).

42    I also accept the evidence given by Mr Layoun senior that he was ignorant of what his son was doing with the money. Certainly Mr Layoun senior knew that money was being borrowed from the Bank for Joseph’s business, but what precisely was being done with it was beyond his knowledge.

43    Certainly the property itself was not used as a residence by the defendants otherwise than for a period of a few years; it was indeed used by Joseph. I am not persuaded that this is a significant factor: the defendants were the registered proprietors on its acquisition. It was their property, their home and it is not speculation but rather an available and fair inference that it was perceived by them, especially the parents, as somewhere they could and in fact did live.

44    Any provision by Joseph of modest material needs to his parents does not remove them from the category of “volunteers” in the sense of them obtaining a benefit from Joseph’s transaction for his company; the same could be said of Louis in terms of his employment by or as a subcontractor to Ceramics. The facts of the matter are that the defendants were “volunteers” and that the beneficiary of the transactions was Joseph’s company and thus Joseph himself. Nothing flowed, on my understanding of the evidence, to the defendants by reason of the benefits received by Ceramics.

45    It is further to be observed that the defendants’ evidence leads to the conclusion that they were “mistaken” by reason of their “ignorance” of the nature and purport of the transactions to which they became parties. The clear inference to be drawn from the testimony of them all, but particularly that of the parents, is that knowledge would have precluded them from taking the steps that brought them to the Supreme Court.

46    It cannot however be found that Joseph in any way actively “mislead” the defendants. Enjoying his position of responsibility and having the trust of his parents and his brothers, I find that he did no more than inform them that their participation by the signing of documents was simply required to enable money to be lent to his business. Within that “cultural context” (or indeed outside of it) his conduct cannot be characterised as deceit or in any way a conscientious misleading of the defendants. Joseph did not “explain’ the transactions: that want of “explanation” is explicable in terms of the peculiar relationship he enjoyed with the defendants. I find it to be the case that Joseph did not misrepresent the true nature of the transaction to his parents or brothers.

47    In this context it was submitted for the plaintiff that the trust and confidence reposed by the mortgagors in Joseph was not that trust and confidence, for example, which Mrs Garcia in her case reposed upon her husband to explain fully and accurately the purport and effect of the transaction (to the wife). It was submitted, for the plaintiff, that this is a special kind of trust and confidence which is part of the Syrian culture - the eldest son in the family “looks after” everyone else and is treated like a second father. “Whatever he says goes”. That level of trust is so high that no-one thinks to ask for, or needs an explanation from him. The trust and confidence reposed in him is, if you like, “blind faith”. In those circumstances, it is to be questioned whether anyone would have been concerned to hear the bank’s explanation of the transaction, given that Joseph had requested the parties to give the security. So far as they were concerned, they needed to hear nothing more.

48    This submission for the plaintiff provoked, in my view, an understandable response in the submissions for the defendants: “To suggest that the trust and confidence reposed as part of Syrian culture (arguably rendering the ‘truster’ in as great a need of the equitable protection afforded by Garcia as any other party falling within its principles) is not subject to scrutiny and protection in equity because it is ‘special’ and ‘Syrian’ is an inappropriate and inexcusable exception to the equitable protection offered by the Courts of this country. To hold otherwise could render a creditor’s ability to rely upon a security partly dependent upon the nationality and culture of its customers. That is not the law; to the contrary, in this regard, justice is impartial and ‘culture-blind’”. (Written submissions for the defendants’ in Reply page 8 para 19.)

49    The point for the defendants is well made.

50    The matter however is not complete merely by reason of the finding that the defendants were “volunteers,” were mistaken by their ignorance and non-receipt of any explanation, the finding that the failure to explain by Joseph was itself explicable within terms of the “cultural” component (or leaving aside the “cultural” aspect), the mere nature of the family relationship. Attention must be now turned to the conduct of the creditor.

51    Mr Giles whom I took to be a witness giving honest and credible testimony was, I find, aware of the position of influence enjoyed by Joseph vis-a-vis his family. Indeed, he knew of that not only as a discrete fact but through “previous experience” (T181).

52    As I have said Mr Giles gave his evidence based on “usual practice” and had no particular recollection of the execution of the mortgage after the arrival of the family at the Bank. Clearly none was interviewed separately, no interpreter was provided, none had read in detail to him or to her the documents Exhibit D and E. Mr Giles, conceded (at T167) that he would have been unaware of any of the terms of any conversation that took place in his presence in Arabic between Joseph and the mortgagors in the light of any explanation he in fact gave to Joseph. Mr Giles assumed Joseph was at the branch at the time the mortgagor’s signed the documents. That was the best he could say according to his honestly stated recollection. In that context he did ask Joseph to explain, but he has no idea what explanation Joseph gave. The finding on the probabilities is that Mr Giles was ignorant of any explanation given, or whether any was given, by the creditor or the agent of the creditor, Joseph, to the third party mortgagors. No steps were taken at that stage by the plaintiff through Mr Giles to ensure that Joseph (for the creditor) had informed the mortgagors of the nature and purport of their obligations to the creditor.

53    Indeed, any advice to be given to or obtained by the mortgagor’s was, according to Mr Giles, “the responsibility of the borrower” (T168). He took no additional steps to ensure that the mortgagors knew and thus were informed and in that context knowingly and voluntarily undertook the obligations created by the instruments they executed.

54    Mr Hutton also agreed (T199) that he had no way of knowing whether the mortgagors understood what they were signing as far as he was concerned. He did not dispute language difficulties on the part of the parents.

55    Mr Tuckwell equally, in my view, was an honest witness, as were the others called for the plaintiff, simply took the view that the plaintiff had discharged its responsibilities in relation to subsequent consents and was unable to indicate how an explanation had been proffered by the plaintiff in the circumstances with which he was concerned (T210); he gave no full explanation of the contents or significance of the consent form, however (T211-214).

56    Mr Howe dealt only with Joseph and not directly with any of the other defendants. He was cognisant of Joseph’s special position of influence in his family and gave evidence that no separate explanation to Mr Anthony Layoun in respect of documents requiring his signature as a director of the borrowing company, Ceramics, was given. He could not recall Mr Layoun senior attending the bank. Indeed, he gave evidence that he could not say that he did ensure that he (Mr Anthony Layoun) understood (T219).

57    Mr Howe’s position, candidly exposed in his testimony, was that Mr Anthony Layoun did not indicate in any way that he did not understand and he agreed that he would not know how Mr Layoun would know how to indicate that he did not understand.

58    He agreed that it was inappropriate that the primary borrower’s principal be a witness to the third party’s consent form (T228).

59    An example of the evolved position of the plaintiff through its officer Mr Howe is in respect of Exhibit 2, a letter from the plaintiff to Ceramics dated 10 March 1988 (being Annexure F to Mr Howe’s affidavit of 21 December 1995), requiring the consent of the mortgagors to be endorsed on a copy of the letter which confirmed the approval to the plaintiff carrying the current account of the company at a maximum debt of $220,000. In respect to Mr Anthony Layoun (the father) Mr Howe was asked (T233) how he expected him to answer the terms of this written document. The response was:

“A. Well, I don’t know. I have never expected him to understand it, it just offered the loan and it was signed and returned. I just assumed that it would have been explained to him maybe by whoever.
Q. By Joseph probably?
A. It could have been Joe, if he didn’t understand it, but I don’t know that. As I said earlier, I don’t know that he didn’t understand because I wasn’t told that he didn’t understand”.

60    For the defendants/cross-claimants it was submitted that in the end the position had reached a point of stark exacerbation. By May 1989 the potential indebtedness of Ceramics to the plaintiff was $455,143 (see Mr Howe’s affidavit and Annexure K). As at 24 November the plaintiff valued the property at $280,000 (Exhibit 4); Mr Howe agreed that the property itself was not worth that sum as at May 1989 and that no explanation had been given to the defendants or any one of them of potential liability to the plaintiff for over $450,000 in the event of the company failing (T242).

61    The whole history of the transactions between the plaintiff, Ceramics and the defendants/cross-claimants, it was submitted, established clearly a factual situation for the application of principles in Amadio and particularly Garcia notwithstanding the difference in the factual bases in each of those cases that gave rise to what is said to be statements of principle here applicable.

62    For the plaintiff it was submitted that the facts preclude the operation of principles in Amadio and Garcia.

63    Reference was made to what Mason J said in Amadio at 461:

“Historically, courts have exercised jurisdiction to set aside contracts and other dealings on a variety of equitable grounds. They include fraud, misrepresentation, breach of fiduciary duty, undue influence and unconscionable conduct. In one sense they all constitute species of unconscionable conduct on the part of a party who stands to receive a benefit under a transaction which, in the eye of equity, cannot be enforced because to do so would be inconsistent with equity and good conscience. But relief on the ground of "unconscionable conduct" is usually taken to refer to the class of case in which a party makes unconscientious use of his superior position or bargaining power to the detriment of a party who suffers from some special disability or is placed in some special situation of disadvantage, e.g., a catching bargain with an expectant heir or an unfair contract made by taking advantage of a person who is seriously affected by intoxicating drink. Although unconscionable conduct in this narrow sense bears some resemblance to the doctrine of undue influence, there is a difference between the two. In the latter the will of the innocent party is not independent and voluntary because it is overborne. In the former the will of the innocent party, even if independent and voluntary, is the result of the disadvantageous position in which he is placed and of the other party unconscientiously taking advantage of that position.
There is no reason for thinking that the two remedies are mutually exclusive in the sense that only one of them is available in a particular situation to the exclusion of the other. Relief on the ground of unconscionable conduct will be granted when unconscientious advantage is taken of an innocent party whose will is overborne so that it is not independent and voluntary, just as it will be granted when such advantage is taken of an innocent party who, though not deprived of an independent and voluntary will, is unable to make a worthwhile judgment as to what is in his best interest”.

64    Having cited from the judgments of Fullagar J and Kitto J in Blomley v Ryan (1956) 99 CLR 362 at 405 his Honour went on to say (at 462):

“It is made plain enough, especially by Fullagar J., that the situations mentioned are no more than particular exemplifications of an underlying general principle which may be invoked whenever one party by reason of some condition of circumstance is placed at a special disadvantage vis-a-vis another and unfair or unconscientious advantage is then taken of the opportunity thereby created. I qualify the word "disadvantage" by the adjective "special" in order to disavow any suggestion that the principle applies whenever there is some difference in the bargaining power of the parties and in order to emphasize that the disabling condition or circumstance is one which seriously affects the ability of the innocent party to make a judgment as to his own best interests, when the other party knows or ought to know of the existence of that condition or circumstance and of its effect on the innocent party”.

65    It was argued for the plaintiff that factors which were established in Amadio have not be established in this litigation. Whilst Mr and Mrs Layoun are acknowledged to have had language difficulties, it is submitted, that they were not at a “special disadvantage” which seriously affected their ability to make a judgment as to their own best interests. I disagree. Insofar as that submission rests upon their having been given what is described as “a robust explanation of the mortgage document and the risk that their house could be sold if Joseph’s company did not pay its debts”. I have found that no such explanation had been given let alone anything that could be described as “robust”.

66    Further, it was argued that there is no evidence that the Bank knew or ought to have known of any special disadvantage on their part. It is clear to me on the evidence and I find it to be the case, that the Bank knew or ought to have known and that it was, to say the least, imprudent to work upon what is said to be the “presumption” that the sons were “somehow” making sure that their parents knew what they were doing. The evidence does not support that. The same considerations though to a lesser degree but sufficient, in my view, for the resolution of this case to apply to the brothers, Daniel and Louis.

67    As I have earlier said (despite what is implicit in the plaintiff’s submissions that it would constitute a paradox) my findings as to execution of the documents do not inevitably lead to findings in favour of the Bank or preclude findings in favour of the defendants on the second component.

68    In cases where there was no “undue influence” but a failure to explain adequately and accurately the surety transaction (scil. where the husband sought to have the wife enter for the immediate economic benefit not of the wife but of the husband): the second set of circumstances referred to by Dixon J in Yerkey v Jones, the High Court, in Garcia at 409 (para 31) identified four factors which made it unconscionable to enforce the security of the kind identified by Dixon J. Those factors were:

“(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”.

69    It was argued on behalf of the plaintiff that none of them is present. I have found that the sureties did not understand the purport and effect of the transaction. Whilst it might well be the case that Joseph did not “deceive” the mortgagors, neither he nor the plaintiff explained to them this essential matter. My finding that they executed the relevant documents does not derogate from this at all.

70    I have found that the transaction was voluntary. As to the nature of the “trust and confidence” reposed in the borrower by the sureties insofar as reference is made to the peculiar family or “cultural” considerations, I have mentioned above, I reject a submission that by reason of such factors there is no basis for even holding any understanding on the part of the sureties that they might not have received a full and accurate explanation from Joseph. Finally, of course, I have found that the creditor, the plaintiff, did not itself take steps to explain the transaction.

71    It was argued that in any event Garcia is inapplicable as a matter of law.

72    This submission is based upon what their Honours said in paragraph 22 at page 404 where they are clearly stressing that Garcia was concerned with its particular facts as between husband and wife.

73    It was argued that the law must “proceed on a case by case basis,” and that the decision of Garcia is presently confined to the relationship of husband and wife.

74    Counsel for the defendants relied upon what their Honours said in Garcia in paragraph 33 at page 409:

“It will be seen that the analysis of the second kind of case identified in Yerkey v Jones is not one which depends upon any presumption of undue influence by the husband over the wife. As we have said, undue influence is dealt with separately and differently. Nor does the analysis depend upon identifying the husband as acting as agent for the creditor in procuring the wife's agreement to the transaction. Rather, it depends upon the surety being a volunteer and mistaken about the purport and effect of the transaction, and the creditor being taken to have appreciated that because of the trust and confidence between surety and debtor the surety may well receive from the debtor no sufficient explanation of the transaction's purport and effect. To enforce the transaction against a mistaken volunteer when the creditor, the party that seeks to take the benefit of the transaction, has not itself explained the transaction, and does not know that a third party has done so, would be unconscionable ” ( emphasis added).

75    A factual departure from the circumstances attending Amadio or Garcia, it was submitted, does not render the principles enunciated, particularly in the passage cited above inapplicable to cognate factual circumstances as found though the relationship is different to that with which the High Court was concerned in either of the above cases. I agree. Those principles are applicable on a “case by case basis” and this case is one of them.

76    Accordingly, whilst I have found in favour of the plaintiff on the issue of execution of the relevant security documents which, absent the cross-claim, would lead to the making of orders as per paragraph 18(a) to (f) of the Statement of Claim, I am persuaded for the above reasons and in the light of my findings, that the defendants/cross-claimants are entitled to the kind of relief sought in paragraphs (a), (b), (c), (d) and (g) on page 11 of the Defence/Cross-Claim.

77    I direct the defendants to bring in Short Minutes of Orders to be made in accordance with these reasons.

Last Modified: 01/03/2002