Vision Telecommunications Pty Ltd v Australia and New Zealand Banking Group Ltd

[1999] WASC 33

VISION TELECOMMUNICATIONS PTY LTD & ORS -v- AUSTRALIA & NEW ZEALAND BANKING GROUP LTD [1999] WASC 33

Jurisdiction:	SUPREME COURT OF WESTERN AUSTRALIA	Citation No:	[1999] WASC 33
Case No:	CIV:2041/1998	Heard:	17 MAY 1999
Coram:	MASTER BREDMEYER	Delivered:	21/05/99
No of pages:	7	Judgment Part:	1 of 1
Result:	Part of defence to counterclaim struck out Leave granted to replead
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Parties:	VISION TELECOMMUNICATIONS PTY LTD (ACN 079 498 561) ALEXANDER SEBREGTS ELIZABETH SEBREGTS AUSTRALIA & NEW ZEALAND BANKING GROUP LTD (ACN 005 357 522)
Catchwords:	Pleading of unconscionable conduct in accordance with Garcia v National Australia Bank (1998) 72 ALJR 1243
Legislation:	Nil
Case References:	Garcia v National Australia Bank (1998) 72 ALJR 1243 Yerkey v Jones (1939) 63 CLR 649 Beneficial Finance Corporation Ltd v Karavas (1991) NSWLR 256 Bridgewater v Leahy (1988) 158 ALR 66 Citibank Savings Ltd v Nicholson & Ors (1998) ANZ ConvR 589 Commercial Bank of Australia v Amadio (1983) 151 CLR 447 Esanda Finance Corporation Ltd v Tong & Others (1997) 41 NSWLR 482 Gallie v Lee [1969] 1 All ER 1062 Goodwin v National Bank of Australasia Ltd (1968) 117 CLR 173 Heald v O'Connor [1971] 1 WLR 497 Jowitt v Callaghan (1938) 38 SR (NSW) 512 Seaton v Heath [1899] 1 QB 782 Shotter v Westpac Banking Corporation [1988] 2 NZLR 316 Sinclair v James [1894] 3 Ch 554

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA CITATION : VISION TELECOMMUNICATIONS PTY LTD & ANOR -v- AUSTRALIA & NEW ZEALAND BANKING GROUP LTD [1999] WASC 33 CORAM : MASTER BREDMEYER HEARD : 17 MAY 1999 DELIVERED : 21 MAY 1999 FILE NO/S : CIV 2041 of 1998 BETWEEN : VISION TELECOMMUNICATIONS PTY LTD (ACN 079 498 561)

First Plaintiff

ALEXANDER SEBREGTS
ELIZABETH SEBREGTS
Second Plaintiffs

AND

AUSTRALIA & NEW ZEALAND BANKING GROUP LTD (ACN 005 357 522)
Defendant

Catchwords:

Pleading of unconscionable conduct in accordance with Garcia v National Australia Bank(1998) 72 ALJR 1243

Legislation:

Nil

(Page 2)

Result:

Part of defence to counterclaim struck out
Leave granted to replead

Representation:

Counsel:

First Plaintiff : Mr D A Lenhoff
Second Plaintiffs : Mr D A Lenhoff
Defendant : Ms C M Crabb

Solicitors:

First Plaintiff : Friedman Lurie Singh
Second Plaintiffs : Friedman Lurie Singh
Defendant : Freehill Hollingdale & Page

Case(s) referred to in judgment(s):
Garcia v National Australia Bank (1998) 72 ALJR 1243
Yerkey v Jones (1939) 63 CLR 649


Case(s) also cited:
Beneficial Finance Corporation Ltd v Karavas (1991) NSWLR 256
Bridgewater v Leahy (1988) 158 ALR 66
Citibank Savings Ltd v Nicholson & Ors (1998) ANZ ConvR 589
Commercial Bank of Australia v Amadio (1983) 151 CLR 447
Esanda Finance Corporation Ltd v Tong & Others (1997) 41 NSWLR 482
Gallie v Lee [1969] 1 All ER 1062
Goodwin v National Bank of Australasia Ltd (1968) 117 CLR 173
Heald v O'Connor [1971] 1 WLR 497
Jowitt v Callaghan (1938) 38 SR (NSW) 512
Seaton v Heath [1899] 1 QB 782
Shotter v Westpac Banking Corporation [1988] 2 NZLR 316
Sinclair v James [1894] 3 Ch 554

(Page 3)

1 MASTER BREDMEYER: This is an application by the plaintiff for leave to amend a pleading in terms of a Minute of Proposed Amended Reply, Defence to Counterclaim and a Set-off of 18 March 1999 (the "Minute"). Leave to amend should be refused if the pleading is in a form which ought to be struck out for not disclosing an arguable cause of action or defence, or for otherwise breaching the pleading rules.

2 This is a bank mortgage case but instead of having been commenced by the bank as plaintiff, it has been commenced by the first plaintiff, which is the principal debtor, and the second plaintiffs who are two of six sureties.

3 The statement of claim pleads that the first plaintiff was given a loan of $110,000 in October 1997 and the second plaintiffs gave a guarantee to secure that loan. It pleads that on or about 6 March 1998, when only $88,455.91 had been drawn on the loan, the bank refused to permit any further draw-downs without there being any default on the part of the borrower and plaintiff seeks damages and exemplary damages for breach of contract and misleading and deceptive conduct. There is a second, minor, claim in the statement of claim which I need not describe here. The amended defence and counterclaim pleads that the loan was for $129,000 and not $110,000. It states that an event of default occurred in March 1998 which justified the bank in refusing to allow further draw-downs on the loan, viz that certain adverse material changes in the business of the first plaintiff had occurred at that time. The bank in its counterclaim sues for $96,193.16 owing under the mortgage and guarantees.

4 The plaintiff in the Minute seeks to amend that pleading by the addition of a plea of unconscionable conduct found in a new par 18A. The pleader has there tried to plead a defence as given by the High Court in Garcia v National Australia Bank(1998) 72 ALJR 1243.

5 I consider that this plea would be better in the statement of claim but is not totally wrong in the reply and defence to counterclaim so I do not propose to strike it out for that reason.

6 Paragraph 18A.2.1 pleads that the defendant had a duty to disclose to the second plaintiffs that the guarantee they were asked to sign was (1) in unlimited form and (2) that they would be signing it as principal debtors. It is said that that duty arose by operation of law and by reason of the fact that, to the knowledge of the bank, the second plaintiffs were husband and wife and also that the second named second plaintiff (ie the wife) was a

(Page 4)

volunteer in that she was not directly involved in the management of the first plaintiff and she was not well versed in legal and business matters.

7 Garcia (supra) followed the views of the High Court, especially Dixon J, in Yerkey v Jones (1939) 63 CLR 649. It is not necessary to turn to that case directly because the key passages in it are quoted in Garcia . Dixon J in Yerkey v Jones in a passage quoted in Garcia at [23] said that there were two kinds of circumstances: the first in which there is actual undue influence by a husband over a wife, and the second, where there is no undue influence, but there is a failure to explain adequately and accurately the surety transaction which the husband seeks to have the wife enter for the immediate economic benefit not of the wife but of the husband, or a failure to explain adequately the circumstances in which her liability may arise. Garcia concerned the second of these two factual circumstances. The pleader in the case before me also says that it comes within the second category.

8 I quote from Garcia at [31] and [32] where the majority Judges are referring to Yerkey v Jones:

"… It holds further, in the second kind of case, that to enforce it against her if it later emerges that she did not understand the purport and effect of the transaction of suretyship would be unconscionable (even though she is a willing party to it) if the lender took no steps itself to explain its purport and effect to her or did not reasonably believe that its purport and effect has been explained to her by a competent, independent and disinterested stranger. And what makes it unconscionable to enforce it in the second kind of case is the combination of circumstances that:

(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

(Page 5)

(d) the lender did not itself take steps to explain the transaction to the wife or find out that a strange had explained it to her.

To hold, as Yerkey v Jones did, that in those circumstances the enforcement of the guarantee would be unconscionable represents no departure from accepted principle. Rather, it 'conforms to the fundamental principle according to which equity acts, namely that a party having a legal right shall not be permitted to exercise it in such a way that the exercise amounts to unconscionable conduct'."

9 In order to conform to the principles set out in Garcia (supra) and, assuming as I do for the purposes of this exercise that the pleader has instructions on these points, the pleader needs to plead along these lines:

(1) The second plaintiffs did not understand that the guarantee was for the principal sum of $129,000;

(2) They thought that the guarantee was limited to $110,000 only.

(3) The second plaintiffs did not know that they were signing the guarantee as principal debtors.

(4) They thought they were signing the guarantee as guarantors for the performance of the obligations of the first plaintiff.

(5) They did not know that by signing they would each be liable for the full extent of the guarantee.

(6) Because there were six guarantors they thought that they would each be liable for one sixth of the debt.

(7) The second named second plaintiff, although a director of and shareholder in the first plaintiff, was not directly involved in the management of the first plaintiff and was not well versed in legal and business matters.

(8) The defendant knew that the second named second plaintiffs were husband and wife.

(Page 6)

(9) Before the signing of the guarantees the defendant's representatives Justin Capolicchio and John Sharp did not:

(a) explain the effect of the guarantee to them, in particular in relation to the matters mentioned in (1), (3) and (5) above;

(b) did not give the second plaintiffs an opportunity to read the guarantee prior to signing; and

(c) did not give the second plaintiffs the opportunity to obtain independent legal advice on the document in order to enable them to make an informed decision on the document.

10 The defendant argued that point (1) above is not arguable because in this case the bank's claim is for less than $110,000. In other words whether the second plaintiffs thought the guarantee was for $110,000 or $129,000 is immaterial to this case because the bank's claim is for less than $110,000. If that was the only plank to the plaintiff's claim for unconscionable conduct I would agree with that submission and strike out the plea but I am not willing to do that when, as here, it is one of several planks which may lead to a discretionary, equitable remedy for the plaintiffs. Also, if unconscionable conduct is proved it is very much up to the discretion of the trial Judge whether the guarantee would be avoided totally, or read down to $110,000, or possibly to one-sixth of $110,000 for each second plaintiff.

11 Paragraph 18A.4 pleads as follows:

"Some months subsequent to the signature by them of the documentation, the second plaintiffs discovered that amongst the documentation signed by them was a guarantee and indemnity in unlimited form and that they had signed the guarantee and indemnity as principal debtors."

12 I do not consider this pleads material facts. The relevant material facts are that when the second plaintiffs signed the guarantee, they did not realise that it was for $129,000, that they thereby became liable as principal debtors, and that they were each liable to the full extent of the guarantee. The fact that it was some months later that they discovered that the guarantee document was in the form in which it is, is merely evidence of those material facts. It should be deleted from the pleading.
(Page 7)

13 Paragraphs 18A.5 and 18A.6 plead as follows:

"18A.5 The second plaintiffs did not intend to and would not have signed the guarantee and indemnity had they known or been made aware of its unlimited nature or that they were incurring the liability of principal debtors.

18A.6 In the premises it would be unconscionable for the defendant to enforce the guarantee against the second plaintiffs."

I consider those pleas are in order.

14 I should add that par 18A.1, which is simply introductory, is also in order. So in summary I propose to strike out par 18A.2, par 18A.3 and par 18A.4 and give the plaintiffs leave to replead in accordance with these reasons.

15 I will hear the parties on whether that should result in a fresh Minute or not and on the question of costs.