Trust Bank v Carroll
[1999] TASSC 97
•20 September 1999
[1999] TASSC 97
CITATION: Trust Bank v Carroll & Ors [1999] TASSC 97
PARTIES: TRUST BANK (ACN 052 531 567)
v
CARROLL, David John
CARROLL, Vicki Anne
CARROLL, Frances Mary
RECORDER OF TITLES
TITLE OF COURT: SUPREME COURT OF TASMANIA
JURISDICTION: ORIGINAL
FILE NO/S: 2059/1997
DELIVERED ON: 20 September 1999
DELIVERED AT: Burnie
HEARING DATES: 14 - 16 September 1999
JUDGMENT OF: Wright J
CATCHWORDS:
Equity - General principles - Other forms of equitable fraud - Unconscionable conduct - Special disability - Bank took registered guarantee mortgage and lien from elderly woman to secure debt of son - Whether given opportunity to seek legal advice - Whether mortgagor understood the import of the transaction.
Aust Dig Equity [53]
Trade and Commerce - Generally - Trade practices and related matters - Consumer protection - Particular classes of conduct - Concerning banks and financial institutions - Representations by Assistant Manager regarding third party security documentation - Purpose of security - Whether security would be enforced by bank - Whether representations induced execution of security documentation.
Fair Trading Act 1990 (Tas), ss14 and 15.
Trade Practices Act1974 (Cth), ss51AC and 52.
Commercial Bank of Australia v Amadio (1982 - 1983) 151 CLR 447; Bridgewater v Leahy (1998) 158 ALR 66, applied.
Aust Dig Trade and Commerce [91]
REPRESENTATION:
Counsel:
Plaintiff: D R Wallace
Defendants: M J Temple-smith
Solicitors:
Plaintiff: Wallace Wilkinson & Webster
Defendants: Temple-Smith Barclay
Judgment Number: [1999] TASSC 97
Number of Paragraphs: 24
Serial No 97/1999
File No 2059/1997
TRUST BANK (ACN 052 531 567) v DAVID JOHN CARROLL,
VICKI ANNE CARROLL, FRANCES MARY CARROLL,
RECORDER OF TITLES
REASONS FOR JUDGMENT WRIGHT J
(DELIVERED ORALLY) 20 September 1999
The plaintiff sues the third named defendant, Frances Mary Carroll, to recover monies allegedly due and owing by her, pursuant to the terms of a mortgage upon her home at Kelcey Tier Road, Spreyton. The plaintiff alleges that the mortgage was executed in its favour by the third named defendant by way of guarantee in respect of monies lent by the plaintiff to the third named defendant's son, David John Carroll and his wife, Vicki, the first and second named defendants.
David and Vicki Carroll borrowed $240,000 from the plaintiff to purchase a supermarket business at Spreyton in June 1993. The business did not prosper and David and Vicki Carroll became bankrupt. The plaintiff's action against the first and second named defendants did not proceed to trial and will be discontinued. Of the sum borrowed from the plaintiff, they still owe $70,951.68. The quantum of this indebtedness has been admitted by the third named defendant ("Mrs Carroll"). However, she disputes her liability to pay, claiming that she executed the mortgage of her property as the result of misrepresentation or misleading or deceptive conduct by an officer of the plaintiff and, further, that the plaintiff was, and is, guilty of unconscionable conduct, firstly in procuring her execution of the mortgage and, secondly, by attempting to enforce it. She claims that she was under a special disability at the time of her dealings with the plaintiff bank.
Mrs Carroll relies on the equitable doctrines expounded in Commercial Bank of Australia v Amadio (1982 - 1983) 151 CLR 447 and the statutory provisions of the Fair Trading Act 1990, ss14 and 15, and the Trade Practices Act 1974 (Cth), ss51AC and 52.
Mrs Carroll has also counterclaimed $21,512.29, being for restitution of monies which she had on a term deposit with the plaintiff bank and in respect of which she executed a lien in favour of the bank as additional security to facilitate her son and daughter-in-law's loan at the same time as she executed the mortgage of her home. She alleges that the proceeds of the term deposit were wrongfully seized by the plaintiff and applied in reduction of David and Vicki Carroll's indebtedness in November 1996. Alleging the same misconduct by the plaintiff as raised in her defence (misrepresentation and unconscionable conduct), she seeks the return of those funds and interest thereon since the date of their appropriation by the bank.
The plaintiff defends the counterclaim, saying that the term deposit monies were taken and applied as alleged with the full knowledge and consent of the third defendant. It is convenient to deal with the issues raised by the counterclaim first. Evidence was given by Mr Michael Barrett, one of two bank officers who attended David and Vicki Carroll's home on 1 November 1996 as follows:
"Can you go back and now tell us anything else you recall about that day at Kelcey Tiers at David Carroll's house? … When Scott Wheatley and myself arrived at the home we were met by David and Vicki, ah they gave us a tour of the home because we had previously been discussing the valuation and David was demonstrating to us why he was a little disappointed with the valuation pointing out features of the property, ah, after doing that he retired to the dining room we were all seated at the table both Mrs Carroll Senior, David and Vicki, Scott Wheately and myself. The discussion was then focused on the issue at hand and I explained to Mrs Carroll the position in respect to the likely sale or possible sale of her house, at that stage David's house had not sold, so we were unsure of what the final impact would be. I asked her to confirm, that she was happy to hand over the twenty one thousand dollar term deposit she'd pledged to the bank as part security for David's loans and she confirm [sic] that she was happy to do that. Um, I believe, I told her that she was free to seek any independent legal advice in respect to this, um and after she, ah, refused that offer we said we would like something in writing and I believe David offered Scott Wheatley the use of their computer to draft up a letter which Mrs Carroll subsequently signed. I believe I drafted the words out for Scott Wheatley to type up.
And did you have the number of the term deposit there in some fashion or did Mrs Carroll have it? … We, I believe I would have had some file notes which obviously had the term deposit number on it.
Now did Mrs Carroll, did anything alert you that she didn't understand what was happening or anything about her that ¾ anything, to that effect? … having not previously met Mrs Carroll before I was quite surprised she seemed to be a very alert and astute woman for her age, um and I believe in general discussion she told me how she enjoyed reading the paper everyday [sic], and generally appeared to be quite an alert and coherent person."
…
Now at any stage during your dealings with Mrs Carroll or David Carroll or Vicki Carroll was there any suggestion that Mr Bailey had made any representations to them that the bank wouldn't ever rely on the security which was taken being a mortgage or a lien? … Not on any occasion.
…No well, I am not interested in the social chit chat, I am merely now interested in let us call it the guts of the meeting, where you say you were discussing the financial situation. You don't have an independent recollection of what you said now, is that what you are saying? … I have a distinct recollection when I asked Mrs Carroll her view in regard to the term deposit she said that I think the term may have been 'well you may as well have it' because I believe I asked her after she agreed that the bank could have the term deposit, I said to her we would need to get something to confirm that she was releasing the term deposit voluntarily.
Can I just stop you there, you said, I am just trying to recall exactly what your words then were, but it was something to the effect, that we asked Mrs Carroll about the term deposit or? … I asked Mrs Carroll about the term deposit.
Right. What do you mean by that, did you sit down and say 'tell me about the term deposit Mrs Carroll?' What did you actually say?
witness: I told her that David had told me that she was happy to release the term deposit to the bank and asked her to confirm that that was her wish.
mr temple-smith: Do you have any independent recollection of saying that or are you just recreating it? … That particular part of the meeting was very clear in my mind.
…You don't have an independent recollection of advising her that [she] should or could get legal advice? … I do.
Why did you give her that advice? … It's standard. At that stage before we had Mrs Carroll sign the letter that we drafted up there, I felt that it would be prudent, sorry. I instructed her, or suggested to her she was free to seek independent legal advice, for the simple reason I felt that at a later date it might have been perceived that the bank was coercing her into handing over the term deposit.
You believed you had an entitlement to it, didn't you? … The bank had a charge over the term deposit which gave it a certain entitlement to it.
You could either serve her with a formal notice for it, or she could sign it voluntarily. But one way or the other you regarded you had an absolute legal right to it, didn't you? … I didn't believe the bank had an absolute legal right to it, which is why I suggested to her, she seek independent legal advice.
What did Mrs Carroll say to you. What during this conversation can you recall anything that she said to you? … I distinctly recall her saying that, 'you might as well take the term deposit.' And then when we offered her the opportunity to seek independent legal advice, she declined that offer, at which point we proceeded to draft up the letter which she signed."
Mr Barrett attended David and Vicki Carroll's home on the occasion in question with Mr Wheatley, another bank officer who also gave evidence and confirmed Mr Barrett's evidence in all essential details. Neither of them had had anything to do with the original negotiations leading up to the loan to David and Vicki Carroll in June 1993. I found their evidence completely convincing. It was substantially supported by diary notes and the other documentary material. By contrast, I found the evidence of the three defence witnesses to be completely unconvincing. I have no hesitation in accepting the evidence of Mr Barrett on all matters in respect of which his evidence conflicts with that of Mrs Frances Carroll, Mrs Vicki Carroll and Mr David Carroll. I am satisfied that at that meeting Mrs Frances Carroll tacitly acknowledged the validity and binding effect of the charge or lien which had been created over her term deposit in 1993 and that she voluntarily surrendered those funds to the bank. She was staunch and constant in her support for David and his foundering business venture, even at that time, and was prepared to maintain that support by relinquishing her savings to the bank. Her words and actions on 1 November 1996 appear to me to be consistent also with the bank's case as to her full awareness of the significance of the guarantees which she had provided 3½ years earlier.
Mr Temple-Smith, counsel for Mrs Frances Carroll, submitted that the evidence of Mr Bailey (which I will refer to in more detail hereafter) relating to the execution of the mortgage and lien over the term deposit by Mrs Frances Carroll on 4 June 1993, did not support a finding that she was urged to seek legal advice before executing the lien as Mr Bailey's diary note of 4 June 1993 referred only to the mortgage and made no mention of the lien. Whilst Mr Temple-Smith's submission is not without prima facie merit, I do not accept it. Mr Bailey was specifically questioned about this at 118 - 119 of the transcript and, regarding him as a careful and reliable witness, as I do, and considering the entire scenario depicted by his evidence as to the meeting at his office on 4 June 1993, I am satisfied that the explanations given and the cautions which he voiced as to the desirability of Mrs Carroll seeking legal advice would have been clearly understood by those present to apply to both the mortgage document and the lien. In my opinion, there is no basis for finding in the third defendant's favour on the counterclaim.
Mr Wallace pointed out in his closing address that even if the counterclaim were to succeed, the third named defendant would gain nothing if the plaintiff's claim, based upon the mortgage guarantee, were to be successful. As to this, I think he is correct, but I should make it clear that I find for the bank on the counterclaim on the basis of the issues raised in the pleadings.
Turning to the plaintiff's claim; the principle witness for the plaintiff was Darryl Martin Bailey, to whom I have already referred. He was the bank's assistant manager at the Devonport Branch in 1993. He had several dealings with David Carroll regarding the bank's willingness to finance the first and second defendants' purchase of the business and stock of the Spreyton Supermarket. There is no need to examine the details of these proposals. It was submitted by Mr Temple-Smith that the venture was of a manifestly risky character which, together with other factors attending the negotiations, created a special need for the bank to ensure that Mrs Carroll was independently advised before allowing her home and monies in the term deposit to be pledged as security for the business to be operated by her son and daughter-in-law. Mr Bailey was subjected to a searching, but fair, cross-examination as to all relevant issues and, in my opinion, convincingly refuted the defence suggestion. True, it is, that the business was to be conducted on leasehold premises and the landlord was intending to take a bill of sale over plant and equipment, but, in view of Mr and Mrs Carroll's proven track record as business managers, the very substantial security which the Carroll's intended to provide over their matrimonial home, and the sound financial history of the supermarket business in the hands of its previous owner, there was no basis for concluding that there was a substantial likelihood that the third party security to be provided by Mrs Frances Carroll to ensure that the bank's lending criteria were met, would be called upon in the future. I see no similarity between the circumstances here and the circumstances which moved the High Court to take the course which it did in Amadio's case.
I should also say that I found Mr Bailey to be a thoroughly credible witness. That he was uncertain of some matters and that he was, to a minor extent, argumentative with defence counsel, in no way diminishes my conclusion that he was a witness whose evidence, generally speaking, could be relied on. He was prepared to make concessions which were not necessarily in the bank's favour. He has not been employed by the bank for several years and there was no reason which I could see to doubt his honesty which I thought was manifested quite obviously on one occasion when, having been reminded about a discussion with Mr David Carroll regarding the TDA, he corrected an earlier part of his testimony.
David and Vicki Carroll were both completely unconvincing witnesses. I am satisfied that they were both deliberately untruthful as to the events surrounding the execution of the mortgage and lien over Mrs Frances Carroll's property and the visit to their home by Messrs Barrett and Wheatley on 1 November 1996.
Mrs Frances Carroll was agreed by all witnesses to have been an intelligent and alert lady in full possession of her intellectual faculties at all times relevant to the present proceedings in 1993 and 1996. She held a responsible position as theatre sister in Sydney during her youth. She still shows the characteristics of a quick mind, clarity of expression and forceful personality which are no doubt prerequisites for such an important role in a large hospital. Now she has become physically infirm and her memory has significant gaps. I have little doubt that she is showing genuine memory deficits which so often accompany old age. She is at present 82 years old. Notwithstanding these factors, I am also quite satisfied that she is capable of mendacity and on occasions during her evidence I think she evaded answering awkward questions by claiming more substantial flaws in her recollection than actually existed. I am also of opinion that she sought to mislead me as to the circumstances attending her execution of both security documents.
I am satisfied that the mortgage over Mrs Carroll's home was executed by her on 4 June 1993 at Mr Bailey's office. The diary note by Mr Bailey of that date strongly confirms his version of events. I am quite satisfied that the note is a genuine entry accurately recording that which it purports to record made by Mr Bailey very shortly after the events in question. I am satisfied that Mr Bailey compendiously, but adequately, advised Mrs Carroll of the nature of the obligation which she was undertaking and its essential ramifications. He may not have forecast in detail all future liabilities which could be incurred by David and Vicki Carroll which may then have been cast upon Mrs Carroll pursuant to the terms of the mortgage and lien, but he gave sufficient general detail for her to have a clear understanding that her house was at risk if the business venture should fail and it then became necessary for the bank to realise its security to cover its exposure.
In any event, it is plain enough from the evidence that Mrs Carroll knew, in all essential details, the obligation she was undertaking and was completely resolved before going to the bank on 4 June 1993 that she would make her property available as security for the proposed venture. I utterly reject the suggestion that she was assured that the documents presented to her for signature were just to keep Mr Bailey's superiors happy and were of no other significance. The words of Gleeson CJ and Callinan J in their joint judgment in Bridgewater v Leahy (1998) 158 ALR 66 at 73 - 74 are apposite here:
"39 The nature of the relevant disadvantage concerns the ability of the weaker, or victimised, party, to make an informed judgment as to his or her interests. This is made clear in Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447; 46 ALR 402. Mason J, after referring to Fullagar J in Blomley v Ryan (1983) 151 CLR 447 at 462; 46 ALR 402 at 413, said:
'It is made plain enough ... 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 or circumstance is placed at a special disadvantage vis-à-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 emphasise that the disabling condition or circumstance is one which seriously affects the ability of the innocent party to make a judgment as to his own best interests, when the other party knows or ought to know of the existence of that condition or circumstance and of its effect on the innocent party.'
40 In the same case Deane J, identifying the weakness which attracts the jurisdiction, referred to the statement of McTiernan J in Blomley v Ryan (1956) 99 CLR 362 at 392 that the 'essence of such weakness is that the party is unable to judge for himself'.
41 Absence of independent legal advice, like age, or infirmity, or some other condition or circumstance of the kind referred to may, in a given case, be of factual importance in determining whether special disability or weakness, of the relevant kind, exists, but it is important to bear in mind the essence of the supposed disability or weakness."
The observations of Deane J in Amadio (supra) at 480 - 481 are also of significance, having regard to the fact that the plaintiff has based its claim in these proceedings upon the default made by David and Vicki Carroll in repaying the initial loan of $240,000, rather than any subsequent accommodation provided to them by way of overdraft. Deane J said:
"Relief against unconscionable dealing is a purely equitable remedy. The concept underlying the jurisdiction to grant the relief is that equity intervenes to prevent the stronger party to an unconscionable dealing acting against equity and good conscience by attempting to enforce, or retain the benefit of, that dealing. Equity will not, however, "restrain a defendant from asserting a claim save to the extent that it would be unconscionable for him to do so. If this limitation on the power of equity results in giving to a plaintiff less than what on some general idea of fairness he might be considered entitled to, that cannot be helped" (per Lord Greene MR, Wrottesley and Evershed LJJ, In re Diplock (1948) 1 Ch 465, at p 532 ). Where appropriate, an order will be made which only partly nullifies a transaction liable to be set aside in equity pursuant to the principles of unconscionable dealing (see Bank of Victoria Ltd v Mueller (1925) VLR, at p 659 and the cases there cited). Where an order is made setting aside the whole of a transaction on the ground of unconscionable dealing, the order will, in an appropriate case, be made conditional upon the party obtaining relief doing equity."
Mr Bailey did not give Mrs Frances Carroll a copy of the mortgage to read but, as defence counsel frankly conceded, the mortgage is a lengthy and detailed document which one would not expect a lay person to understand without assistance. I doubt very much if any lawyer would have given such a document to a layman to read without interruption, rather than doing that which Mr Bailey did in the present case, viz, referring to and explaining the major obligations provided for in the document. I am satisfied that this is what he did. I am also satisfied that he strongly urged Mrs Carroll to consult a solicitor, but she abruptly and unequivocally rejected his suggestion. She manifested just such decisiveness on several occasions in the witness box. Defence counsel suggested to Mr Bailey that any mention of legal advice was unrealistic because of the shortness of time between his meeting with Mrs Carroll and the scheduled settlement date on the following Monday, but I do not accept this as a reason for doubting Mr Bailey's veracity. As his suggestion of legal advice was rejected out of hand, the fact that obtaining such advice within the time frame available may have been difficult, is of little materiality. In any event, it is not unknown for a solicitor to make time available to consult urgently with a client over a weekend, and, as Mr Bailey convincingly demonstrated, a delay in settlement would not have resulted in a significant financial impost upon David and Vicki Carroll, even if the penalty clause for late settlement in their contract with the vendor were to be invoked.
The facts in Amadio and Krambousanosv Jedda Investments (1996) 64 FCR 348 to which Mr Temple-Smith referred, do not bear any real comparison to the present case. In both those cases, the business guaranteed by the guarantor was in serious trouble at the time the guarantee was sought and obtained. In the present case, as I have already observed, there was no basis for regarding the business venture by David and Vicki Carroll as having greater than average risk. More importantly, however, there is no basis for finding that special risks claimed by defence counsel to exist at the time the mortgage was signed, were factors in the ultimate demise of the business. Mr Temple-Smith submits that this is an irrelevant consideration, but I cannot agree.
In any event, there was evidence from both Mrs Frances Carroll and her son that he discussed the nature of the business and "the figures" before the execution of the mortgage. Mrs Carroll claims to have no business experience and I have no reason to doubt her as to this, but she is plainly a highly intelligent woman. She and her son are obviously close. She makes no criticism of him and she stoutly defends him as a source of accurate and reliable information, even today. She regards him as an experienced and capable businessman. At no time did she claim that with the knowledge she has gained with the aid of hindsight she would have acted any differently. No evidence, expert or otherwise, has been called to show that she was duped, deluded or misinformed as to any material factor by her son or daughter-in-law.
It is interesting to observe that Mr Tremayne's letter of 24 December 1996 to the Trust Bank (98 of P1) appears to have come into existence only as a result of Mrs Carroll's approach to his firm with a view to selling her home, rather than as a consequence of any disquiet that she felt as to the mortgage or the lien over her term deposit which, it may be noted, she had surrendered to the bank, less than two months previously. It is also of interest to note that David Carroll categorically denied that either he or his mother had ever consulted Mr Tremayne on this matter. He maintained this even after reading the letter. Plainly he is quite wrong. The final sentence of the second paragraph of that letter is also at variance with his evidence as to what occurred when the mortgage was signed. He did not attempt to explain this, which, in view of his denial of meeting Mr Tremayne, is not surprising.
Whilst I would agree that many of the factors mentioned by Mr Temple-Smith in his address on Thursday morning last were capable of being elements which may suggest potential unconscionability in a transaction of this kind, and that, as mentioned in Krambousanos, a failure to establish misrepresentation does not preclude a successful claim in respect of unconscionability, I am quite unable to find there was unconscientious conduct by the bank which precludes it from success in this case. In deference to the views of Deane J in Amadio at 474 (which were also the subject of discussion with Mr Temple-Smith on Thursday), I must say I am affirmatively satisfied there was neither misrepresentation nor unconscientious conduct by the bank or its employees which caused Mrs Carroll to give either of the securities which are the subject matter of these proceedings and I am also satisfied that the transactions were "fair, just and reasonable".
Mr Temple-Smith referred to what was said by the majority of the High Court in Garcia v National Australia Bank (1998) 155 ALR 614 at 623, par31, but it must be remembered that the Court was there discussing Dixon J's categorisation of case types in Yerkey v Jones (1939) 63 CLR 649 at 684 - 685 and the comments in Garcia must accordingly be read secundum subjectam materiam. So read and understood, the High Court's discussion in Garcia does not provide the defence case with the support contended for by counsel.
I have considered each of the elements of alleged unconscionability referred to in par8 of the amended defence and, notwithstanding that some of the factual matters alleged are not in dispute, I have reached the conclusions which I have just expressed.
Mr Temple-Smith said all that could possibly have been said in support of his clients' case but, in the end, was let down by his witnesses and the weight and credibility of the evidence presented for the plaintiff. I am indebted to both counsel for their helpful and able arguments.
There will be judgment for the plaintiff for $70,951.68 on the claim against the third named defendant. There will also be judgment for the plaintiff on the counterclaim.
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