Wenczel v Commonwealth Bank of Australia
[2006] VSC 324
•8 September 2006
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. 4497of 2003
| LYNDA WENCZEL | Plaintiff |
| v | |
| COMMONWEALTH BANK OF AUSTRALIA | First Defendant |
| And | |
| THE REGISTRAR OF TITLES | Second Defendant |
| (Original Proceeding) | |
| COMMONWEALTH BANK OF AUSTRALIA | Plaintiff by Counterclaim |
| V | |
| LYNDA WENCZEL | First Defendant by Counterclaim |
| And | |
| ANSEAR PTY LTD | Second Defendant by Counterclaim |
| And | |
| STEFAN WENCZEL | Third Defendant by Counterclaim |
| (Counterclaim) | |
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JUDGE: | HABERSBERGER J | |
WHERE HELD: | MELBOURNE | |
DATE OF HEARING: | 15-18; 21-24 FEBRUARY 2005; 15 APRIL 2005 | |
DATE OF JUDGMENT: | 8 SEPTEMBER 2006 | |
CASE MAY BE CITED AS: | WENCZEL v COMMONWEALTH BANK OF AUSTRALIA | |
MEDIUM NEUTRAL CITATION: | [2006] VSC 324 | |
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Equity – Unconscionable Conduct – "Married woman’s equity" – Undue influence – Duress – Third party mortgage by wife supporting loan to husband's company – Right to set aside – Wife a volunteer – Wife reposed trust and confidence in husband – Wife mistaken about purport and effect of transaction – Guarantor’s declaration signed at wife’s home and not in the presence of bank officer – No independent legal advice – Failure of creditor to explain transaction – Failure of creditor to comply with creditor’s code of practice – Wife’s will overborne by husband’s aggressive conduct – Illegitimate pressure on part of husband.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr D.A. Klempfner | Maurice Blackburn Cashman |
| For the First Defendant | Ms M.B. Loughnan | Alison Harewood Solicitor |
HIS HONOUR:
The plaintiff in this proceeding is Lynda Maree Wenczel, the registered proprietor of the land known as 14 Manlangi Court, Macedon, Victoria (the "Property"), being the land more particularly described in Certificate of Title Volume 9020 Folio 043 (the "Certificate of Title"), and which is the subject of a mortgage number X727489G (the "Mortgage") to the first defendant, the Commonwealth Bank of Australia ("the CBA"). The Mortgage is a second ranking mortgage after another mortgage over the Property granted by the plaintiff to the CBA.
The Mortgage was given as security for a Better Business Loan of $76,000 made by the CBA to Wenczel Consulting Services Pty Ltd ("WCS"), a company in which the plaintiff's husband, Stefan Wenczel, was the sole director and shareholder.
In her further amended Statement of Claim, the plaintiff sought a declaration that the Mortgage was liable to be set aside in equity on the basis that it was procured in circumstances amounting to unconscionable conduct, or alternatively undue influence, or further alternatively duress. The plaintiff also sought to rely on the equitable principle known as the "married woman's equity". In addition to a declaration, the plaintiff claimed relief in the form of an order that the CBA provide a discharge of mortgage and make the Certificate of Title available for registration of the discharge.
The second defendant was the Registrar of Titles and was joined by the plaintiff in order that, should the plaintiff succeed in its action against the CBA, the Registrar of Titles could be ordered to amend the Certificate of Title to expunge the entry of the Mortgage. In accordance with its standard practice the second defendant did not take any part in the proceeding.
In its defence the CBA pleaded that the Mortgage was validly procured. By its counterclaim the CBA sought recovery of the Property and payment by the plaintiff of WCS' debt of $78,106.80 as at 3 June 2002 together with interest thereon to the date of judgment. The CBA also sought payment of WCS' debt from WCS, which was then known as Ansear Pty Ltd, and from Mr Wenczel as a guarantor of that debt. WCS and Mr Wenczel were joined as the second and third defendants to the counterclaim respectively, but they took no part in the proceeding as judgment in default of appearance was entered against each of them. Subsequently, Mr Wenczel went bankrupt.
The Factual Background
The plaintiff and Stefan Wenczel were married on 18 October 1974. The Property which is the subject of the Mortgage was purchased as a vacant block by the plaintiff and her then fiancé under a terms contract in May 1974 for $12,000. The plaintiff was registered as the sole proprietor of the unencumbered Property on 8 March 1978, as, according to the plaintiff, the Property had been purchased solely with her personal savings and money she had been given by her mother. The family home was built by the labours of Mr and Mrs Wenczel alone over the ensuing two and a half years. The plaintiff clearly had a strong emotional attachment to the Property. She described it as her "dream home", having "spent nearly my whole adult life there, raised a family there and I couldn’t imagine being any where else."
On 27 October 1993 the plaintiff granted the CBA a first mortgage over the Property to secure the sum of $200,884.46 which she agreed to pay to the CBA. Mr Wenczel guaranteed his wife's indebtedness to the CBA. That indebtedness had arisen as a result of an unsuccessful business which Mr Wenczel and another gentleman, Frank Cusmano, had operated. Mr and Mrs Wenczel and Mr and Mrs Cusmano had entered into Terms of Settlement with the CBA on 27 October 1992. The plaintiff had been a director of the company in question, the Retail Resources Group Pty Ltd.
At most stages throughout the 26 years or so of their marriage, Mr Wenczel was the primary bread winner for the family. The plaintiff ceased full time employment a month before the couple's son, Luke, was born in 1982. Their daughter, Olivia, was born in 1985. In 1991 the plaintiff obtained a part time job as head waitress at the Macedon Hotel and stayed there until 5 February 2001. She also held other casual employment. Starting in 1998 she worked part time as a kitchen assistant at the Marist Brothers' Retreat Centre in Mount Macedon. Nevertheless, as the plaintiff predominantly performed home duties, her salary was only modest. For example, the plaintiff's gross income for the financial year ended 30 June 2000 from her work at the Marist Brothers' Retreat Centre was $4,869. For the same period, Mr Wenczel's gross salary received was $83,619, from which tax of $32,018.67 was deducted. Despite this, it appears that Mr Wenczel managed his financial and business affairs poorly. During their marriage, he was in and out of employment, business ventures and bankruptcy. It would seem that the plaintiff was quite the opposite – cautious and frugal, with a demonstrated ability to save gradually for significant purchases, such as for carpet for the upstairs floor of their house or for a holiday.
On 13 February 2001, Mr Wenczel left the family home, and went to live with his mother, telling his wife that he "needed some space to sort himself out." This separation was devastating for the plaintiff. As she said in her witness statement she still loved Mr Wenczel "very much". Until 30 October 2001, when her husband asked for a divorce, the plaintiff was hoping that he would return to his wife and children. In his witness statement, Luke Wenczel said that, a week or so after he left, his father told him that he was not coming back. Luke said that he did not tell his mother this.
In the period following the separation, Mr Wenczel, who had no savings to fall back on, found himself in increasing debt, adding two further lease agreements for luxury cars, a BMW and a Range Rover, to his pre-existing commitments on the home loan, an overdraft facility, credit card repayments and a Ford Explorer. By Mr Wenzel’s own calculations, these repayments totalled $6,700 a month. He was also repeatedly exceeding the $4,900 limit on his CBA Mastercard. Mr Wenczel’s financial position worsened on 24 May 2001 when, after only five months, his employment with a company known as Complete Print Solutions was terminated. This job had afforded him an annual salary of $170,000. Mr Wenczel was fortunately able to find alternative employment at a company called Principal Risk Solutions from 11 June 2001 but at the significantly reduced salary of $60,000.
During this period, Mr Wenczel approached the plaintiff numerous times to borrow money. When he was working for Complete Print Solutions Mr Wenczel's explanation usually was that he needed money for work expenses, such as airfares, accommodation and meals, pending the provision of a corporate credit card by his employer. Later he simply demanded money from the plaintiff without any explanation. The plaintiff generally gave him what he asked for. On 17 April 2001 she gave him her ATM card together with her PIN number and he withdrew approximately $1,900 more than he had requested. Despite this, the plaintiff again made her card available to Mr Wenczel on 8 May and 25 June for further withdrawals. The plaintiff’s evidence was that she was unaware of the shortfall between her husband’s new monthly salary and his total monthly loan repayments, and that, despite her repeated questions, her husband did not inform her of the full amount of his debts.
The plaintiff gave evidence that towards the end of June, her husband told her that he wanted to consolidate his debts by refinancing the home mortgage "because he couldn't keep going paying for everything." She said that she told him that she did not want the mortgage touched and that he threatened to sell the house if she did not agree. She suggested that Mr Wenczel should take out a personal loan. The plaintiff said that a few days later her husband told her that the bank had refused to give him a personal loan because he had no collateral. He said that he needed the house as security for the loan. The plaintiff said that she again refused to allow the house to be used as security. As far as she was concerned the debts were Stefan's and she wanted nothing to do with them.
On or about 19 June 2001 Mr Wenczel spoke to Ms Julie Hunter, a commercial lending specialist, at the CBA's Northern Ranges Small Business Centre in Melton. According to Ms Hunter, Mr Wenczel's plan was to sell the BMW and consolidate all of his debts into a single home loan facility of approximately $270,000, or $140,000 more than the existing debt, with his monthly payments reduced to approximately $2,440. Mr Wenczel advised Ms Hunter that the value of the Property was $500,000. He told her to ring his wife "Lyn at home" to arrange a time for the valuer to attend. A rate notice produced by Mr Wenczel showed the Property to be in the joint names of Mr and Mrs Wenczel.
On 26 June 2001 the Property was inspected by Mr David Cheal of Countrywide Valuers. The valuation had been requested by Ms Zuleyha Elibol, a commercial lending manager assisting Ms Hunter, by a printed instruction form dated 21 June 2001 but not faxed until the following day. In this form, the customer was said to be "Stefan John Wenczel", the contact was said to be "Stefan" and the contact number given was his mobile telephone number. Attached to the instruction form was a title search which showed that the sole registered proprietor of the property to be valued was "Lynda Wenczel".
Objection was taken to the admissibility of the evidence of Mr Cheal on the ground that it only went to an attack on the plaintiff’s credit and was not otherwise relevant. I heard the evidence subject to objection. In my opinion, Mr Cheal’s evidence was admissible because it went beyond an attack on the plaintiff’s credit and covered issues relevant to the plaintiff’s relationship with her husband and the CBA and her attitude towards the potential use of the home as security for a loan.
Both the plaintiff and her son Luke gave evidence that she was not at home when the valuer came on 26 June 2001 to value the Property. However, the plaintiff did not dispute that she knew about the valuation because she agreed in cross-examination that her son had mentioned it when she came home. The plaintiff was then asked what time she had come home and she answered that she would have to check her "roster for that day" to find out what time her shift finished. When asked whether she was sure she was working on that day, the plaintiff said she was sure because she was not at home. When pressed she agreed that she may have been doing something else on that day and said that she would have to check her pay slip to work out whether she was working. The plaintiff then disclosed that she had some weekly pay slips at home, other than the three that had been discovered.
On the following day of the hearing, the extra pay slips were produced and it was established that the plaintiff was not working on 26 June 2001. When it was put to her that it was therefore quite likely that she was at home all day on the day the valuer visited, the plaintiff said:
"It's not a case that I work and I stay at home. I could have been visiting my mother, I could have been shopping. I could have been doing one of many things, I don't know."
In his witness statement Mr Cheal said that he had "a general recollection" of visiting the Property. His notes indicated that he inspected the property with the "owner", although Mr Cheal agreed in cross-examination that this did not necessarily mean the registered proprietor. He may have assumed the person he met to be the owner. He said that he had "a vague recollection" that he met with a woman at the property who accompanied him during the inspection. Mr Cheal said that certain references in his notes indicated that "someone with intimate knowledge" of the Property was with him during his inspection. These references were to "Redgum – 5 coat seal", "Upper – masonite board (new carp. to be laid)", "4" conc. external wall 2" cavity 4" conc." and to that person's estimate of the size of the dwelling, verandah and garage.
Because she had helped build the house, the plaintiff knew this information as well as the intention to lay new carpet upstairs whereas her son Luke could not provide all of the answers during cross-examination. Mr Cheal said that he had no recollection of Luke being present during his inspection, although Luke gave evidence that he remembered the valuer commenting to him that this would have been "a nice place" in which to grow up. Mr Cheal's purported identification of the plaintiff as the person he met at the Property was considerably weakened by the circumstance that he was told it was Mrs Wenczel before he identified her outside Court.
Nevertheless, as I have said, even if she was not present the plaintiff was aware of the visit by the valuer. The plaintiff knew that Ms Hunter was dealing with her husband and that she had dealt with him previously. The plaintiff gave evidence that, as she wanted to speak to Ms Hunter to make sure that the home loan was not involved in her husband's dealings with the CBA, on 6 July 2001 she looked up the telephone book and rang the Northern Ranges office to find out Ms Hunter's number. She then immediately rang Ms Hunter who confirmed that the home loan was not involved in Stefan's loans. The plaintiff said that Ms Hunter told her that her husband was taking out a business loan and that the repayments could be claimed on his tax. These calls were confirmed by the plaintiff's telephone records, although perhaps surprisingly the call to Ms Hunter was recorded as having been only 65 seconds in duration. In cross-examination the plaintiff estimated that the call would have probably lasted for "two minutes or so."
Mr Cheal valued the Property at $320,000. His valuation, which was received by the CBA on 28 June 2001, meant that Mr Wenczel's original proposal could not proceed, as far as the CBA was concerned, because there was not enough security. Ms Hunter said that in early July 2001 she discussed with Mr Wenczel a more modest refinancing of debts. She calculated that only $76,000 could be lent. Mr Wenczel's credit risk rating and financial position were assessed by Ms Hunter.
An application for Business Credit form was completed by Ms Hunter on behalf of WCS. It was not signed by anyone on behalf of WCS which meant that no one had to sign the declaration that "the credit to be provided … by the Bank is to be applied wholly or predominantly for business or investment purposes, or for both purposes." The "Bank Use Only" part of the Application for Business Credit form was completed and approved by Ms Hunter on 10 July 2001. It was recognised in the form that the company's only income was through Mr Wenczel's employment rather than any business enterprise. Therefore, the sections of the form relating to the company's assets and liabilities and its profit and loss were crossed out. Instead, the personal income and expenditure of Mr and Mrs Wenczel was set out. Mr Wenczel's income was said to be $80,000, even though a letter dated 20 June 2001 from his current employer stating that his salary package was $60,000 per annum had been previously provided to the CBA by Mr Wenczel. There was a note suggesting that commissions could greatly increase Mr Wenczel's income, but it was said in the form that "servicing based on base wage." The plaintiff's income of $4,869 was also included. After subtracting the anticipated new loan and other financial commitments from the combined incomes, it was stated in the form that there was "$740 pw available to meet living expense." This no doubt influenced Ms Hunter's assessment that she considered servicing ability to be "sound". Of course, this calculation completely ignored the fact that tax of about $30,000 would have to be paid by Mr Wenczel. Rather surprisingly, Ms Hunter said that at that time servicing calculations were performed on gross income not after tax income. Another CBA employee, Ms Catherine Walters, who was a client manager with the Group Risk Management Credit Management Unit, gave evidence that it was the after tax income that should be looked at when considering serviceability.
Another surprising aspect of Ms Hunter's completion of the Application for Business Credit Form was that she stated that Mr Wenczel had a "sound personal balance sheet" and "good repayment history." I do not consider it necessary to set out the full history of Mr Wenczel's relationship with the CBA. It is sufficient to state that a glance at his financial statements shows that this conclusion was highly debatable given his constant overdrawing of his bank accounts and credit cards leading to frequent reversals of cheques and other payments. Further, a personal balance sheet of Mr and Mrs Wenczel as at 11 July 2001 purported to show total liabilities of $367,811 and total assets of $705,622, leaving a surplus of $337,811. However, this figure was only achieved because the value of the Property was stated to be $500,000, which had been Mr Wenczel's original estimate. That figure was used notwithstanding that Mr Cheal's valuation of $320,000 had since been provided to the CBA. In one part of the Application for Business Credit Form the value of the security offered was said to be $500,000 whereas in another part it was stated to be $320,000.
By a letter dated 11 July 2001 the CBA wrote to WCS advising that a "Better Business Loan" facility in the amount of $76,000 was approved subject to the signing of certain documentation. The advance of $76,000 was to be repaid by WCS over 20 years at $590 per month. The terms were accepted by Mr Wenczel signing the letter on behalf of WCS as its "Sole Director and Sole Company Secretary." His signature was purportedly witnessed by a Corey Norman Prendergast. Contrary to an express instruction on the letter the date of execution was left blank. Despite the title search of the Property, the required security was still said to be "Registered Second Mortgage by Stefan John Wenczel and Lynda Maree Wenczel" over the Property. A company search of WCS on 12 July 2001 confirmed for the CBA that Mr Wenczel was not only the sole director and secretary. He was also the sole shareholder in this $2 company.
The plaintiff gave evidence that on 12 July 2001 Ms Hunter rang to speak to Mr Wenczel, but he, of course, was not there. One or other of the children took the message. The plaintiff decided to ring Ms Hunter to tell her to try his mobile phone so she once again looked up the number of the Northern Ranges office and rang that number to find out Ms Hunter's number. This time the plaintiff wrote that number in the appropriate place in her telephone book. The plaintiff said that when she spoke to Ms Hunter she again clarified with her that the loan being taken out by her husband was not associated with the home mortgage because she did not want the mortgage increased. She said that there was no discussion about her giving a mortgage or guarantee to the CBA. The plaintiff's telephone records again confirmed the existence of these two calls in quick succession. The call to Ms Hunter was said to have lasted only 41 seconds.
On 11 July 2001 Ms Elibol sent a Documentation Request to the CBA's Loan Processing Centre ("LPC"). This form incorrectly stated that the required second mortgage was to be given by Mr and Mrs Wenczel. Ms Elibol recognised in the form that, as the plaintiff was neither an officer of the borrowing entity nor a party to the advance being secured, she was what was called by the CBA a "vulnerable guarantor." The Documentation Request was received by the LPC on 12 July 2001.
By an internal memorandum dated 19 July 2001 the LPC sent to the Northern Ranges office the prepared documentation, including Mortgage, Guarantee, standard form of letter to guarantor (S33 x 2), Solvency Statement, Authority to Complete and Pay, Periodical Payment/Direct Debit Authority and another form, S22H. According to a date stamp, the internal memorandum and enclosed documentation were received at the Northern Ranges branch on 20 July 2001. The internal memorandum was addressed to "Zuleyha".
The CBA policy setting out the correct procedure to be followed in these circumstances was contained in a document entitled "The Code of Banking Practice – Third Party Mortgagors and Guarantors" ("the Code"). The Code required a higher standard of caution be taken with respect to guarantors classified as "vulnerable". With respect to vulnerable guarantors, the Code contained the following passages:
"For vulnerable guarantors, the final page of the [What it Means to be a Guarantor] booklet is in the form of a declaration [the Guarantor’s Declaration] which must be signed by the guarantor in the presence of the credit officer. The signed declaration is to be removed, witnessed and sent back to the LPC/other documentation preparation point and held as a security document.
Where the security position for a loan contains a third party who has been identified as vulnerable, the debtor is to be asked to sign a 'Consent to Disclose Information to Third Party Mortgagor(s)/Guarantor(s)' form, S346.
…
If the debtor will not sign the consent, the Bank cannot accept the guarantee unless and until the guarantor agrees to proceed without the debtors consent. …
…
Your LPC/other documentation preparation point will then prepare, for sending to the guarantor:
· a guarantee/third party mortgage/other third party document (as the case requires);
· copies of the loan contract (eg S22) and approval letter, (provided the debtor has signed a 'Consent to Disclose Information to Third Party Mortgagor(s)/Guarantor(s)' form, S346; and
· booklet 'What it Means to be a Guarantor'.
…
… Instructions regarding the sign-up process are attached to this Supplement (see Attachment 'A' and 'B') and must be followed when documents are to be signed. Under no circumstances are the documents to be given or sent to the debtor for delivery to the guarantor.
…
Vulnerable Guarantors.
If you have asked for the documents to be sent to your business unit, you will need to arrange sign-up. Upon receipt, they should be posted to each guarantor to give them ample time to read each document and seek legal advice, if required. The covering Form S33 will ask the guarantor to telephone and make an appointment to call and sign. Follow procedures in Attachment 'A'.
Please remember:
·the guarantor must have time to read the documents and may take them away if legal advice is required;
·the debtor must not be present when the guarantor signs the documents; and
·the documents must not be sent or handed to the debtor for onforwarding to the guarantor.
Once the documents and declaration have been signed, a short diary note is to be made. The diary note should:
· confirm that the debtor was not present; and
· record the mortgagor’s answers to the following questions:
1. are you signing the guarantee of your own free will?
2. do you understand what giving a guarantee involves?
If the guarantor has not obtained independent legal advice, and appears confused about the transaction or appears not to understand what is involved, the interview is to be terminated and the guarantor advised to seek legal advice. Full details of sign-up procedure are contained in Attachment 'A'.
This is an important part of the process. For the Bank to gain maximum protection, a vulnerable guarantor must fully understand the consequences of giving the guarantee and must be allowed to sign documents freely, without duress from the debtor or lender.
Attach the diary note to the signed declaration."
Attachment 'A', among other things, required that if the guarantor had not seen a solicitor, the interviewing officer should inform the guarantor of the debtor’s deteriorating financial position and/or that the debtor's prospects were not good, if that was the reason why the CBA was taking the security. It was also stated that if the guarantor had not seen a solicitor the sign-up should ideally take place in the presence of two officers.
The CBA contended that by a letter dated 19 July 2001 it wrote to the plaintiff, explaining the nature and amount of the debt to be secured, and enclosing a copy of "the facility agreement" between the CBA and WCS, a booklet entitled "What it Means to be a Guarantor" ("the Guarantor's booklet") (which included a Guarantor’s Declaration), a document entitled "Instructions for signing a Guarantee or Third Party Mortgage", a separate full A4 page Guarantor's Declaration and the Mortgage. The letter instructed the plaintiff to read the enclosed documents carefully and to telephone "Zuleyha" at the CBA’s Northern Ranges Small Business Centre when she was ready to attend the bank and sign the documents.
Not surprisingly, none of the relevant witnesses called by the CBA from its Northern Ranges office could positively recall posting the letter to the plaintiff. There was no dispute that this could not have been done on 19 July 2001, as suggested by the date of the letter, because the documents had not been received at the Northern Ranges office from the LPC until 20 July 2001. It was possible, however, that the letter was posted on that day, which was a Friday, which meant that it should have been received by the plaintiff on the following Monday, 23 July 2001. Ms Elibol said in her witness statement that, although she did not believe that she arranged for the distribution of the security documentation once it was received from the LPC, if she had done it her "usual practice" would have been to post the required documents to the plaintiff in an envelope addressed to her. Significantly, however, Ms Elibol also said that:
"If a matter had been urgent, I may have delivered such a sealed envelope to a person on behalf of the guarantor or mortgagor for the purpose of delivering the sealed envelope to the guarantor or mortgagor."
In cross-examination Ms Elibol went further and appeared to agree that Mr Wenczel was on 23 July 2001 "given the guarantee documentation which he had to sign, as well as the mortgage documentation for delivery to his wife", even though she also said that she had "no recollection".
Although the documents had been sent to her by the LPC, Ms Elibol initially believed that the distribution had been done by Uta Hillinger, a commercial lending sales support assistant at the CBA's Northern Ranges office. This was because it was Ms Hillinger who had initialled the entry on the action sheet in relation to documents being sent to clients, including guarantors or third party mortgagors. Ms Hillinger had no actual recollection of distributing the documentation but she believed she had done so based on her initialling the relevant part of the action sheet. However, it is by no means clear that it was Ms Hillinger who distributed the documentation because she said that in the normal course if she had completed the entry "Documents sent to client" on the day she sent the documents out, she believed she would have entered the date rather than merely ticking the box, although she said that it was possible that she merely ticked the box on the date the documents were sent out by her. Alternatively, she said, it was possible that she ticked the box and put no date because at a later date she confirmed that the documents had been sent by reason of them having been returned to her office.
In her witness statement Ms Hillinger said that in accordance with her "usual practice" she would have posted the required documents to the plaintiff in an envelope addressed to her. Ms Hillinger further said that it had never been her "practice to give documentation meant for a third party's security provider to the borrower." This was contrary to her training that such documentation must be sent or delivered "directly to the guarantor or third party mortgagor."
The CBA also said that by a letter dated 19 July 2001 addressed to Mr Wenczel (at the 14 Manlangi Court address), it enclosed a guarantee of WCS's indebtedness for him to sign. Mr Wenczel signed the guarantee, which was dated 23 July 2001 in some other person's handwriting, and his signature was witnessed by Mr Prendergast. Mr Wenczel also signed a Statement of Solvency on behalf of WCS, which Ms Hillinger said she dated 23 July 2001.
In its initial defence the CBA pleaded that on 23 July 2001 the plaintiff attended at its Sunbury branch upon its commercial lending officer, Carol Taylor, whereupon it was recommended to the plaintiff that she obtain legal advice which she refused, that the plaintiff confirmed she had read the Guarantor's booklet and that she understood the general nature and effect of the Mortgage, and that the plaintiff told Ms Taylor she was signing the Mortgage and Guarantor’s Declaration of her own free will and without pressure from any other person. The CBA said that the plaintiff then signed and dated the Guarantor's Declaration, which was witnessed by Ms Taylor signing the document, and that the plaintiff then delivered the executed Mortgage to Ms Taylor. It was said by Ms Taylor that it was her "invariable practice", which she had "never deviated from", that when she was required to witness the signature of any customer, mortgagor or guarantor, she required the individual to write his or her signature on the document whilst she observed that person doing so.
The relevant part of the Guarantor's Declaration signed by the plaintiff read as follows:
" GUARANTOR'S DECLARATION
Name of Guarantor: Lynda Maree Wenczel
Address of Guarantor: 14 Manlangi Court, Macedon
Guaranteed contract: Better Business Loan Terms Schedule dated 11/7/01
Names of Debtor: Wenczel Consulting Services Pty Ltd ACN 077 559 356
Address of Debtor: 14 Manlangi Court, Macedon
___________________________________________________________________________
I, the above named guarantor/third party mortgagor, state that:
·I have read the Bank's book What it Means to be a Guarantor, and understand what it tells me.
·I now understand the general nature and effect of a guarantee and third party mortgage.
·I know that the Bank recommends that I get legal advice before signing the guarantee or third party mortgage.
In this knowledge, I declare that –
· I do not need or want legal advice.
..."
The CBA also relied on a Diary Memorandum signed by Ms Taylor. It read as follows:
"DIARY MEMORANDUM
Date: 23rd July 2001
Loan Name: Wenczel Consulting Services Pty Ltd
Loan Number: 384010128935
Guarantor/s: Lynda Maree Wenczel
Subject:Signing of Guarantee and Guarantor's Declaration Without Seeking Legal Advice
(Credit Officer Witnessing the Declaration)
The above loan Guarantor has chosen not to seek legal advice from a solicitor prior to executing documents.
―-The Guarantor read the booklet 'What it Means to be a Guarantor' and stated that she understood the obligations as a guarantor and the contents of the booklet.
― The Guarantor did not show any signs of a disability.
―The Guarantor confirmed that the documents were being signed of his/her own free will and without pressure from any third party and not in the presence of the debtor.
― The Debtor was not present during this questioning period.
…………………
Carol TaylorSunbury Branch."
Answers to the plaintiff's interrogatories were sworn by a Credit Manager of the CBA on 23 December 2003 purportedly "after having made all due and proper enquiries of its servants and agents." They contained sworn statements that the plaintiff had signed the Guarantor's Declaration in the presence of Ms Taylor at its Sunbury branch between the hours of 9.00 a.m. and 5.00 p.m. on 23 July 2001 and that it was "believed" that the plaintiff had attended upon Ms Taylor by prior appointment and that it was "believed" that the Mortgage had been delivered by the plaintiff to either Ms Taylor at its Sunbury branch or an officer of the CBA at its Northern Ranges Small Business Centre "at some time" in the period between 23 and 25 July 2001.
In 2001 Ms Taylor was on "relieving staff" for the Northern Ranges Small Business Centre. As a result of subsequently locating Ms Taylor's vehicle log book the CBA realised in September 2004 that Ms Taylor had in fact been relieving at the Gisborne branch on 23 July 2001 and not at the Sunbury branch. The mistake apparently resulted from the reference to the Sunbury branch in the Diary Memorandum. Further inquiries revealed that there were CBA internal documents which confirmed that Ms Taylor was at the Gisborne branch on 23 July 2001.
The reference to the Sunbury branch had come about as follows. Contrary to the CBA's written instructions, Ms Taylor had not made "a short diary note" about the sign-up process on the day it allegedly took place. It appears that probably on 24 July 2001 Ms Hillinger started to list all of the documents needed before the funding could be advanced. They were:
" 1 Solvency Stmt [Statement]
2 Guarantee
3 Mortgage x 2 Vol 9020 Fol 043
4 Guarantor's dec.
5 Diary memo.
6 W4 (verified)."
She then realised that although she had the signed Guarantor's Declaration there was no Diary Memorandum signed by Ms Taylor. Obligingly, Ms Hillinger prepared the Diary Memorandum, rather than Ms Taylor, in accordance with what Ms Hillinger understood had occurred. Presumably, because Ms Taylor was at the Sunbury branch on 24 July 2001, Ms Hillinger inserted the reference to the Sunbury branch into the Diary Memorandum. It was not clear whether Ms Hillinger did so simply to record that that was where she assumed Ms Taylor would be when she signed the Diary Memorandum or whether she did so because she assumed that was where Ms Taylor had been on 23 July 2001. As it turned out, the Diary Memorandum was not signed until 25 July 2001 when Ms Taylor was relieving at Watergardens branch. The Diary Memorandum prepared by Ms Hillinger was faxed by her from the CBA's Northern Ranges office to its Watergardens branch at 10.59 a.m. on 25 July 2001 and having been read and signed by Ms Taylor was faxed back by her to the Northern Ranges office at 12.50 p.m. on the same day. Ms Taylor later placed the original of the Diary Memorandum in the overnight bag for return to the Northern Ranges office but a date stamp showed that it was received in error at the CBA's Brimbank area office on 7 August 2001. Ms Taylor was unable to recall how the original Guarantor's Declaration was sent by her from the Gisborne branch to the Northern Ranges office. She agreed that if it had been sent in the internal mail it should have been given a date stamp when received at the Northern Ranges office.
The plaintiff’s case was very different. She gave evidence that she never received the letter of 19 July 2001 or the booklet entitled "What it Means to be a Guarantor". She also gave evidence that she never attended upon the Gisborne Branch of the CBA on 23 July 2001, nor met a woman named Carol Taylor, nor signed any documents in her presence.
The plaintiff gave evidence that on Monday, 23 July 2001, she arrived home from work at about 3.10 p.m. Luke was at home. Olivia did not come home from school until her regular arrival time of 4.10 p.m. Just before 4.00 p.m. Mr Wenczel came to the house demanding that she provide the Property as security for a new CBA loan. The plaintiff testified that she attempted to obtain from her husband the details of his indebtedness and the reasons for his needing her financial assistance, which she did not want to give, but that he became aggressive, shouting and swearing, banging his fists on the kitchen bench, and threatening to sell the Property if she did not sign the papers put before her. The plaintiff said that when she attempted to ascertain the nature of the debts she was being asked to guarantee, Mr Wenczel responded:
"I haven’t got time for all this shit, just sign the fucking papers."
Later, Mr Wenczel shouted at the plaintiff that if she did not sign the papers, that was okay "as it would be easy to fix the debts by selling the fucking house." She said that Mr Wenczel did not allow her to read and digest the documents and that in the end, intimidated and distraught, she unwillingly signed the documents in tears. She said that she signed because she feared her husband would repeat his past behaviour of smashing and throwing things when angry. The plaintiff stated in cross-examination that:
"With respect, it is not easy to forget a husband enforcing upon his wife to sign documents that she did not want to sign."
She said that she was "in reconciliation mode, hoping that he would come to his senses and return to his devoted wife and loving children" and that she did not cope well with confrontation. The plaintiff gave evidence that she did not recall whether the documents had come by mail and that she had brought them in when she checked the mail box on her return from work or whether Mr Wenczel brought all the documents with him. She said that she was the first and only person to sign any of the documents at the Property. Mr Prendergast was not present. Immediately she signed the documents, Mr Wenczel picked them up and left.
Luke and Olivia Wenczel gave evidence which supported the plaintiff’s account, in terms of their father’s aggression and language. Importantly, they also supported the plaintiff's evidence about times, her denial that Mr Prendergast was present at the time she signed documents and that the plaintiff did not rush to the bank after their father left. Luke also gave evidence that when his father arrived he had "a bundle of papers in his hand."
Despite the plaintiff’s evidence that she was not given time to read the documents she was being asked to sign, she stated that she later came to know that among the documents she signed were the Mortgage, the Guarantor’s Declaration and a document entitled "Acknowledgement and Consent Nomination to Receive Notices of Proof of Identity Details" ("the Acknowledgement"), which also authorised the obtaining of credit information. She said she knew this because she recognised her signature on these documents and did not sign any documents relating to the loan at any other stage.
The Mortgage which had been signed by the plaintiff, allegedly in the presence of Mr Prendergast, was later dated by the CBA on 28 August 2001 and it was registered on 7 September 2001. The plaintiff gave evidence that she had subsequently spoken to Mr Prendergast about his purported witnessing of her signature and that his response was guarded and evasive. The CBA tendered affidavits of attempted service of a subpoena on Mr Prendergast.
The original mortgage document had pencil marks and handwriting indicating where "Lynda" was to sign and initial as mortgagor, where "the Sole Director and Sole Company Secretary" was to sign on behalf of the borrower WCS and where an "independent" witness was to sign in respect of each signature. It appears that these pencil handwritten additions on this and the other documents were done at the LPC. The separate full A4 page Guarantor's Declaration which was signed and dated by the plaintiff on 23 July 2001 also bore pencil marks and handwriting indicating where "Lynda" was to sign as guarantor, and pencil marks where the bank officer witness should sign and where a deletion had to be made in the alternative wording of the declaration regarding the obtaining or otherwise of legal advice. The Acknowledgement was the third of the documents which the plaintiff said she had signed on 23 July 2001. This document was signed by Mr Wenczel both on behalf of WCS and in his personal capacity as guarantor. Again there was a pencil handwritten addition to indicate where "Stefan" and "Lynda" should sign. The plaintiff had also printed her address on the form. Someone, but not the plaintiff, had put the date "25/7/01" below each of the three signatures. The plaintiff specifically recalled the pencil annotations on these three documents from when she signed them in her kitchen on 23 July 2001. One wonders why, if the Guarantor’s Declaration was being signed in the presence of a Bank officer at a branch, there would be a need to indicate in pencil where Mrs Wenczel should sign and date the document as the Bank officer could have done this in person. Perhaps it is an indication that there was some lack of confidence in the capacity of the branch officers to understand what they required to do when witnessing the signing of a Guarantor’s Declaration.
There were other documents dated 25 July 2001. They were an Authority to Complete and Pay signed by Mr Wenczel on behalf of WCS and witnessed by Ms Julie Hunter, and a Consent to Disclose Information to Third Party Mortgagor/s/Guarantor/s signed by Mr Wenczel on behalf of WCS. The Consent to Disclose Information form also had the name "Stefan" in pencil handwriting to indicate that he should sign on behalf of WCS. The practice of the CBA was that this form had to be signed by the borrower before any information could be disclosed to a third party mortgagor or a guarantor. Thus, it had to be signed before the Mortgage and the Guarantor's Declaration were signed, as otherwise they would be signed without any information about the borrower's financial position being disclosed by the CBA to the proposed third party mortgagor or guarantor. The date, which was the only evidence about when it might have been signed, suggested that this occurred after the plaintiff had signed the Mortgage and Guarantor's Declaration.
The plaintiff said that she did go to the Gisborne branch on 24 July 2001 and produced a deposit receipt for $100 dated that day. She said that she did not raise with anyone at the branch on that day the events of the previous afternoon.
On 25 July 2001 the following funds totalling $76,000 were advanced:
― $22,032.40 to WCS's bank account;
― $ 6,053.23 to Mr Wenczel's Mastercard account;
―$ 5,291.98 to the Wenczel superannuation fund bank account to repay an overdrawn amount; and
―$42,622.39 to pay out the contract with CBFC, a subsidiary of the CBA, for the Ford Explorer.
Mr Wenczel was not called as a witness. However, a statement which he provided for his ex-wife was tendered in evidence after counsel for the CBA cross-examined on it. The statement was dated 27 October 2003 and read as follows:
"To Whom It May Concern:
To the best of my recollection, I hereby wish to confirm that on the 23rd July 2001, I visited 14 Manlangi Court Macedon with the express purpose of obtaining Lynda's signature on several mortgage documents, which included a Better Business Loan.
I would like to make it quite clear that Lynda and myself did not visit the Sunbury branch to meet with Bank Officer Carol Taylor for the signing of documents.
I am unable to recall exactly where or when Corey Prendergast signed the documents, however I do not believe he witnessed Lynda's signature personally.
Documents were hand delivered to the Melton branch a day or two after the 23rd July 2001 by myself. I can't remember exactly who took receipt of them."
On or about 30 October 2001 Mr Wenczel told the plaintiff that he wanted a divorce. On the next day she saw a solicitor Mr Michael Lefebvre of Tress Cocks Maddox. His notes of that meeting record that the Property was estimated to be worth $380,000 less a CBA mortgage of $137,000 and an interest free loan from the plaintiff's mother of $62,000. The notes also record that there was a "CBA personal loan (secured over home)" of $75,000 which "refinanced Explorer $45,000 Amex $10,000 MC [Mastercard] $5,000 refund super a/c $5,000 cash … $10,000." The plaintiff and Mr Lefebvre then discussed a property settlement offer made by Mr Wenczel. The plaintiff agreed that she had gained the information about the proceeds of the loan from what her husband told her on 23 July 2001. She maintained that she told Mr Lefebvre about the circumstances of the signing of the Mortgage, although there did not appear to be any reference to this in the solicitor’s notes.
According to a facsimile from Ms Elibol to Mr Lefebvre 23 November 2001, the plaintiff had advised the CBA that she and her husband were separating and had requested it to "forward details of Business Loan funding" to him. By this time WCS was behind in its monthly payments. In her witness statement Ms Elibol said that during this telephone conversation the plaintiff "enquired as to the status of the better business loan and I told her the account was in arrears by one payment." In cross-examination she agreed that she now had no recollection of having spoken to the plaintiff. It then transpired that the assertion was based on what had been stated by Ms Elibol in a subsequent document.
In an internal memorandum dated 12 April 2002 Ms Elibol reported to the CBA's Credit Management Unit that the loan to WCS was "a troublesome and impaired asset." Ms Elibol stated in that memorandum, in answer to a question as to whether "the client" had been "informed of the bank's concerns and given an opportunity to address these concerns":
"Yes, letters, phone conversations
Vulnerable guarantor advised of arrears."
However, despite an instruction to attach any diary notes there was no record of any such advice being given to the plaintiff. To that date, the only letters about the arrears had been sent to the secretary of WCS. Ms Elibol said that her statement about advising the vulnerable guarantor of arrears referred to her telephone conversation with the plaintiff in November 2001.
The plaintiff said that on 22 November 2001, according to her telephone records, she had telephoned Ms Hunter's direct number, which was now written in her telephone book, and had spoken to Ms Elibol. This was correct because Ms Elibol had replaced Ms Hunter, who was on long service leave. The plaintiff denied being told that the Better Business Loan was in arrears. Certainly, Ms Elibol's facsimile to Mr Lefebvre made no mention of arrears. One might have expected that this was the very thing that a bank officer would tell a solicitor acting for a client who has separated from her husband and who was a guarantor/third party mortgagor of the bank’s defaulting customer.
In a letter dated 25 November 2001 to her solicitor, the plaintiff stated:
"Michael, I appreciate that perhaps I have been a little foolish in loaning Stefan money, and going guarantor for the Better Business Loan, but when you live in hope of a reconcilliation [sic], one tends not to see things clearly and when someone has the ability to ride roughshod over you, giving in seems the best option at the time."
In another letter to Mr Lefebvre, dated 9 January 2002, the plaintiff wrote:
"On 19th December, 2001 Stefan visited here to discuss financial settlement details. Everything was quite amicable, as I have always wished it to be. I was most adamant that the Better Business Loan was not part of the Home Mortgage, simply security over it. Apart from the payout of Explorer vehicle (which I was prepared to sell prior to Stefan initiating the loan) all other debts were incurred by him.
…
I may have let my heart rule my head before, but now I need to think of the kids and not just myself."
Apart from the alleged communication in November 2001, it was not until 3 June 2002 that the CBA advised the plaintiff of the fact that the repayments were not being made. On that day it sent her a demand for payment of the sum of $78,106.80. On 5 June 2002 the plaintiff faxed the following to Ms Catherine Walters:
"As you can imagine, I was distressed to receive your letter dated 3rd June, 2002 re the above account.
You may or may not be aware that my husband and I separated in February, 2001 and the divorce will be final 9th June, 2002.
Judging from the nature of your letter, I assume that Stefan has defaulted on the loan – could you please advise me of these details. Since our separation I have been meeting the mortgage payments on the family home in which the two children and myself still reside.
I will be informing my solicitor and hope to be able to come up with a proposal."
The plaintiff’s immediate response to this CBA letter is in contrast to her suggested failure to follow up the alleged advice from Ms Elibol of November 2001 that the Better Business Loan was in arrears.
In a Call Report or file note dated 6 June 2002 Ms Walters recorded that she had spoken to the plaintiff. It was noted that Mrs Wenczel had said that she provided the security for the business loan but that she was in no way involved with the company. The Call Report continued:
"The company does not operate as a business but is effectively just a trust account. Mr Wenczel is earning an income and can afford to make the required loan repayments but has not done so since 27 December 2001. Mrs Wenczel is making the loan repayments on the home loan.
Mrs Wenczel explained that the purpose of the BBL was to repay a number of debts including his credit cards and a vehicle loan. However, some of the funds were not used for this purpose: $5,000 was paid into Mr Wenczel's superannuation fund, $22,000 was used for his personal expenses and entertainment (as explained by her husband's solicitor).
Mrs Wenczel will seek legal advise on her situation and get back to me to advise what action is to be taken. I explained that the demands expire 14 days from the date of issue, after which the Bank's legal department will commence action to recover the outstanding debt."
In an email to Mr Lefebvre on the same day the plaintiff stated:
"This is a very serious issue and I'm not sure how to tackle it. As you are aware, he took out the loan to consolidate his debts. He initially wanted to include the house mortgage as well, but I didn't agree to it and the bank didn't want to change the mortgage either. He has always referred to it as 'refinancing the home loan' – but it clearly isn't."
On 19 June 2002 the plaintiff emailed Ms Walters the following:
"A financial settlement proposal will be sent to my ex-husband's solicitor today – I will be making attempts to have superannuation monies released to offset the above debt.
The legal system never ceases to amaze me – Stefan takes out Better Business Loan and has access to funds; I guarantee loan because at the time, I was letting my heart rule my head; he defaults on loan and I end up wearing it. Morality and ethics don't come into it.
Please be assured that I will be doing everything in my power to avoid losing our home.
I trust that the bank will be understanding and grant me some extra time to sort this out."
On 12 August 2002 consent orders between Mr and Mrs Wenczel were made in the Federal Magistrates' Court of Australia. The minutes recorded, amongst other things, that Mrs Wenczel agreed that she would indemnify Mr Wenczel against "all payments and liability" pursuant to the two registered mortgages held by the CBA, and that Mr Wenczel would transfer to Mrs Wenczel "all his right, title and interest" in a Ford Explorer motor vehicle and a Statesman motor vehicle.
On the following day, the plaintiff emailed Ms Walters:
"Property Settlement Hearing was held yesterday and I hereby wish to advise the following:
I retain property at 14 Manlangi Court, Macedon and in doing so, take on the Better Business Loan debt.
Therefore, I will need to speak with either yourself or someone you nominate soon to discuss how I do this.
Michael Lefebvre will also be advising you formally of this information. Could you please advise me of what course of action can be taken, i.e. either extending existing home mortgage term to lessen monthly repayment and keep BBL loan repayment separate. Or alternatively, lump everything together into one manageable monthly repayment.
I await your advice."
The plaintiff was now in full time employment.
By a letter dated 16 August 2002 the plaintiff again wrote to the CBA seeking to refinance her home loan in conjunction with the Better Business Loan. The letter contained the following statement:
"Due to the outcome of a Property Settlement Hearing on 12th August, 2002, arising from Divorce proceedings which became official on 9th June, 2002, I have inherited a Better Business Loan (BBL) Debt from my ex-husband. He initiated the loan in August, 2001 to consolidate his debts and I foolishly signed papers securing the loan."
In further communication with officers of the CBA the plaintiff stated the following in an email dated 26 August 2002:
"Please understand that I signed as guarantor of the BBL under duress during our separation, and if I knew then what I know now, I certainly would not have signed."
Following the CBA's rejection of the plaintiff's application to refinance the home loan to include the Better Business Loan in one lower monthly payment, on the basis that the commitment level was too high, the plaintiff sought an urgent meeting with Ms Walters. Her Call Report noted that:
"Mrs Wenczel explained the background to her situation. She said that she signed the mortgage documents securing her ex-husband's debts under duress. She realises now that she should not have signed them."
A similar statement was made by the plaintiff in a letter to the Banking Ombudsman dated 26 October 2002:
"In February, 2001 after 26 years of marriage, my husband decided he 'needed some space to sort himself out'. In July 2001, he took out a Better Business Loan with the CBA (Account No.: 3840 1012 8935) for the sum of $75,000. The bank wanted some form of security over the loan. Under duress and in front of our two children (son 20 and daughter 17) he forced me to sign as guarantor, leaving the family home which is in my name, as security over his loan.
At the time, I was in reconciliation mode, hoping that he would come to his senses and return to his loving wife and devoted children, hence the fact that I, although unwillingly, put pen to paper.
He was to maintain the loan at $590.00 per month (which he said he could claim on tax).
On 3rd June, 2002 I received a 'letter of demand' for payment of monies re above loan, from the Group Risk Management Branch of the CBA. (Refer copy of letter attached). When I queried why I had received this letter, I was told the loan was in default and six (6) months in arrears.
I was informed by a bank employee that it is standard bank policy to inform guarantors of any loan default well prior to receiving a 'letter of demand for payment'; this did not happen in my case.
The upshot of this action brought about Property Settlement proceedings on 12th August, 2002. Ultimately, because I wanted to keep the family home (and maintain mortgage payments) I also ended up wearing the Better Business Loan debt."
By an email dated 31 October 2002 Ms Walters advised the plaintiff that the CBA's final decision was that it would not refinance the home loan and the Better Business Loan as it was not prepared to go outside its commercial guidelines and because the level of commitment required to service the loan was too high. This was despite an offer by the plaintiff's parents to reduce the total debt level by paying $20,000. The CBA did, however, agree to refund the penalty interest charged on the Better Business Loan because of the failure before 3 June 2002 to notify the plaintiff that the loan was in default. The plaintiff was advised to seek the full refinance of the outstanding debt through another financial institution.
The plaintiff did go down that track and obtained an offer to refinance from Aussie Home Loans. In the meantime, however, the plaintiff had consulted new solicitors. On 18 November 2002 she conferred with Lillian Cooney of Gill Kane & Brophy. Again, the plaintiff said that she mentioned the circumstances of the signing of the Mortgage. The following is an extract from Ms Cooney’s notes:
"Stefan brought guarantee to home. Children know I was forced to sign and didn’t want."
By a letter dated 25 November 2002, Gill Kane & Brophy wrote to the CBA seeking a discharge of the Mortgage. In their letter of demand the solicitors stated:
"We are instructed that the mortgage so registered was signed by our client under duress, without any direct contact from the Bank, or any independent advice, or any recommendation from the Bank that independent advice should be obtained by her. The whole of the loan monies was provided to Wenczel Consulting Services Pty Ltd and our client has at no time received any benefit therefrom.
When the borrower failed to make the payments required of it under the said loan, the Bank failed to advise our client of such default.
Our client had an existing mortgage with your Bank on the security of the said property. All payments required under this mortgage have always been paid by her without default, and there is currently no default in respect of this mortgage.
You are advised that any attempt by the Bank to recover monies from our client or to execute under the third party Guarantee mortgage will be strenuously resisted. It is our view that the Guarantee mortgage is not legally binding upon our client. Unless a discharge thereof is provided by the Bank within fourteen days of the date hereof, legal proceedings will be taken seeking an order for the Guarantee mortgage to be expunged from our client's title."
The CBA's solicitor responded by a letter dated 3 December 2002 which enclosed copies of the Guarantor's Declaration and the Diary Memorandum. It was suggested that Mrs Wenczel's allegations were "incorrect and made without regard to factual circumstances." The plaintiff's solicitor replied by a letter dated 11 December 2002:
"Thank you for your letter of 3rd December 2002 with enclosures. I have shown them to my client. She confirms that the mortgage documents were brought to her home by her husband (separated since 13th February 2001), and he asked her to sign them then and there in front of his children. She did so. There was no other witness.
To the best of her knowledge she does not know, and has never met, any person known as 'Carol Taylor'.
It would appear that the documents contained in your letter of 3rd December 2002 are fraudulent.
Our client was provided with no copies of the mortgage guarantee documents.
It seems to me that there is a great deal of sense in Mr Klempfner's submission that if the CBA truly wanted to ensure the integrity of the sign-up process, the sensible solution was to despatch the Guarantor’s booklet with details of the guaranteed loan to Mrs Wenczel under cover of a letter advising her that:
(a)she had been asked to guarantee the loan;
(b)as part of the guarantee the bank required a mortgage to be executed;
(c)she should carefully read the booklet and consider getting independent legal advice before entering into any such mortgage; and
(d)if she was still prepared to provide the guarantee, she should make an appointment to attend the bank where the mortgage would be provided to her for execution in the presence of a bank officer.
In this way, execution of the Mortgage would be kept separate from the "warning/notice" process necessary to protect both the CBA's position and the guarantor’s vulnerability. As Callinan J noted in Garcia[18]:
"I do not think that there is any injustice to a lender in requiring it to be diligent in the way in which Yerkey prescribes in the case of married women who enter into transactions advantageous to husbands or legal personalities controlled by them, but which are disadvantageous or potentially so to the wife."
[18](1998) 194 CLR 395 at [113]
Thus, subject to the further arguments by the CBA, including various equitable defences, which I am about to consider, I am of the opinion that the plaintiff has made out her claim based on the principle of the "married woman's equity".
The equitable defences relied on by the CBA were laches or delay, affirmation, acquiescence, ratification and estoppel. The CBA also submitted that, in accordance with such equitable maxims as "he who seeks equity must do equity" and "he who comes into equity must come with clean hands", if the plaintiff had any right to equitable relief she must first perform her own legal and equitable obligations arising out of the subject matter of the dispute. The CBA contended that its equitable defences were founded on the plaintiff's failure to take steps after becoming aware of the matters which were the basis of her alleged entitlement, and that she thereby knowingly permitted the CBA to act to its detriment by continuing to provide banking accommodation in reliance on the Mortgage.
However, it seems to me that, in whatever way the argument is put, the alleged factual bases for the CBA's defences are missing.
First, the CBA argued that the plaintiff withheld from it two pieces of vital information prior to the funding of the Better Business Loan. One was the fact that Mr and Mrs Wenczel had separated. The second was how the Mortgage had come to be signed by the plaintiff. It may be assumed that if the CBA had known of either of these matters, events would have taken a different course with the result that the Better Business Loan would not have proceeded. I also assume, without deciding, that Ms Loughnan was correct when she submitted that if that loan had not proceeded the CBA would have been in a better position than it now was.
Nevertheless, in my view, this argument turns matters on their head. The plaintiff was not relevantly the CBA's customer. She owed it no duty of disclosure. It was the CBA which had to be diligent to ensure that Mr Wenczel's wife fully understood the purport and effect of the transaction. If it had done this, both of the "pieces of vital information" would have come to light.
Further, I reject the suggestion that the plaintiff engaged in any "subterfuge" in her conversation with Ms Hunter on 12 July 2001. I accept the plaintiff's evidence that she did not know if the CBA was aware that she and her husband had separated but that she assumed that he would have told the CBA of their separation. When the plaintiff spoke to Ms Hunter on 6 and 12 July 2001 she was assured that the home loan would not be touched, so that there was no need for the plaintiff to engage in any "subterfuge" in respect of the status of her marriage.
With hindsight, it is very easy to say that the plaintiff could have avoided her problems if she had told the staff at the Gisborne branch on 24 July 2001 of her distressing experience on the previous afternoon. But this assumes that she understood that being pressured into signing the documents without a proper understanding of what she was doing, gave her some entitlement to have the signed documents set aside. Nothing could be clearer than that she did not understand her legal rights on that day and for months afterwards. There is no evidence, and I am not prepared to draw an inference, that Mr Lefebvre gave the plaintiff any such advice at the time of the property settlement. It seems clear to me that it was not until the plaintiff conferred with Ms Cooney in November 2002 that she received appropriate advice about her rights to obtain relief against the CBA's demand.[19] Shortly thereafter the letter of demand dated 25 November 2002 was sent. Prior to that time the plaintiff had been prepared to meet the Mortgage payments whilst at the same time complaining about having signed the documents under "duress".
[19]Coastal Estates Pty Ltd v Melevende [1965] VR 433 at 435-436 per Herring CJ; at 445 per Sholl J and at 450 per Adam J.
Therefore, I can see no basis on which the CBA could succeed in its defences of laches or estoppel. Once the plaintiff was properly apprised of her rights, she very quickly advised the CBA of her complaints about what had occurred and when it rejected them she issued this proceeding. Mr Peter Pouki, a manager in the CBA's Group Credit and Market Risk Credit Management Unit, gave formal evidence about the quantum of the CBA's counterclaim. In cross-examination, he conceded that whether the proceeding was issued in June 2002, when the CBA first notified the plaintiff of the default under the Better Business Loan, or February 2003 made no difference to the CBA's attitude to its defence of the plaintiff's claim. Thus, even if the plaintiff should have brought her complaints to the CBA's attention earlier (which I do not accept), there was no evidence to suggest that it suffered any further detriment once the loan had been made.
The next argument advanced on behalf of the CBA was, as I understood it, that the plaintiff was adequately compensated in her family law settlement and that, having agreed with her husband to be responsible for payment of the two mortgages over the Property in return for him giving up his rights in the Property, she should not now be entitled to seek to have the second Mortgage set aside. Alternatively, it was submitted that the plaintiff having accepted responsibility for the Better Business Loan in return for her husband giving up his claim to 40% of the equity in the Property and to ownership of the Ford Explorer, equity required that the plaintiff repay the debt under the Better Business Loan by having recourse to that 40% equity in the Property and the Ford Explorer. That is, that the plaintiff had affirmed or ratified or acquiesced in the validity of the Mortgage by entering into the family law settlement with Mr Wenczel.
In my opinion, it is clear that this submission cannot succeed. The family law settlement was between Mr and Mrs Wenczel. Neither the CBA nor WCS, the primary debtor, whose debt was guaranteed by both Mr and Mrs Wenczel, were parties to that settlement. It is just not relevant, in my opinion, to the plaintiff's claim against the CBA what property settlement she reached with her ex-husband. Obviously Mr Wenczel might have certain rights of indemnity against the plaintiff if her successful setting aside of the Mortgage resulted in the CBA looking to him for repayment. But that is as between Mr and Mrs Wenczel and is nothing to do with the CBA. In any event this will not happen in this case because Mr Wenczel went bankrupt.
Further, as Mr Klempfner pointed out, in Garcia itself Mrs Garcia's action to have her guarantees set aside was commenced after the Garcias were divorced and after an order had been made by the Family Court of Australia transferring to Mrs Garcia her former husband's interest in a property, subject to the all moneys mortgage to the National Australia Bank Ltd previously granted by them. The fact that property rights had been adjusted pursuant to the Family Law Act 1975 (Cth) prior to any claim for relief being instituted against the creditor caused no obstacle to the ultimate success of Mrs Garcia's claim to have the relevant guarantee set aside on the ground that enforcement of it would be unconscionable.
Emphasis was given by counsel for the CBA to the fact that, following the CBA's rejection of the plaintiff's application for refinancing of the two mortgages over the Property, the plaintiff applied for, and on or about 11 December 2002 obtained approval for, a refinancing loan from Aussie Home Loans. As I understood the argument, this conduct was said to constitute affirmation or ratification of the Mortgage. The offer of the refinancing loan by Aussie Home Loans was not taken up by the plaintiff because having been advised of her rights by Ms Cooney in November 2002 she decided to seek to set aside the Mortgage. I simply fail to see how these facts could constitute some equitable defence for the CBA.
Therefore, in my opinion, none of the CBA's equitable arguments succeed and the plaintiff is entitled to a declaration that the Mortgage be set aside. Although this is sufficient to dispose of the proceeding, in case my approach to the "married woman's equity" is later held to be wrong I propose to consider briefly appropriate aspects of the plaintiff's other causes of action.
Undue Influence
The main reason why it might have become essential to consider the plaintiff's cause of action based on undue influence was if my finding had been that the plaintiff did understand the purport and effect of the transaction. The primary question then becomes whether, notwithstanding that understanding, the plaintiff brought a free will to the execution of the security document. That is the essential difference between cases involving the "married woman's equity" and cases involving undue influence referred to in Yerkey v Jones and Garcia. It is also necessary for the plaintiff to prove that the CBA left it to Mr Wenczel to obtain the plaintiff's consent to become a third party mortgagor and that she did not receive any independent advice in respect of her entry into the transaction.
In my opinion, in the circumstances as I have found them, the CBA did leave it to Mr Wenczel to obtain the plaintiff's consent. The only relevant contact between the CBA and the plaintiff prior to 23 July 2001 were the plaintiff's two telephone calls to Ms Hunter on 6 and 12 July in which the plaintiff expressed her concern that the home loan might be involved in her husband's proposed consolidation of debts and she was assured that the home loan would not be touched. The CBA made no attempt to contact the plaintiff prior to preparation of the security documents to ascertain her willingness to provide the third party Mortgage. The documents were simply handed to Mr Wenczel to take to his wife.
Ms Loughnan submitted that giving a sealed envelope addressed to Mrs Wenczel to Mr Wenczel for delivery to her was not evidence of the CBA seeking the procuration of the execution of the Mortgage by Mr Wenczel and that the CBA was not responsible if Mr Wenczel chose to break the seal and tamper with the contents. I do not agree. Handing to Mr Wenczel the envelope addressed to Mrs Wenczel for delivery to her made him the CBA's agent, in my opinion. That action made it virtually inevitable that the husband and wife would be together when the documents were being considered. But it also gave Mr Wenczel the opportunity to deprive the plaintiff of critical information by removing most of the enclosures.
There is no dispute that the plaintiff did not receive any independent advice in respect of this transaction. For the reasons already given, the CBA cannot rely on the plaintiff's statement in the Guarantor’s Declaration that she did "not need or want legal advice." In any event, as Dixon J said in Yerkey v Jones[20]:
"The fact that the creditor, on the occasion, for example, of the actual execution of the instrument, deals directly with the wife and explains the effect of the document to her will not protect him. Nothing but independent advice or relief from the ascendancy of her husband over her judgment and will would suffice."
[20](1939) 63 CLR 649 at 684
I turn then to the question of whether the plaintiff brought a free will to the signing of the Mortgage. In Amadio[21], Mason J said that the test of undue influence was whether "the will of the innocent party is not independent and voluntary because it is overborne." Ms Loughnan submitted that the evidence of the plaintiff and her two children about the aggressive and threatening behaviour of Mr Wenczel was exaggerated and that in any event his conduct was not truly the reason why the plaintiff signed the documents. She submitted that the plaintiff did so for two reasons – to promote the chances of a reconciliation and to avoid her husband invoking his rights under the Family Law Act and selling the house. Ms Loughnan also referred to the phrase which the plaintiff used twice in correspondence to the effect that she had let her heart rule her head.
[21](1983) 115 CLR 447 at 461
In my opinion, this was a case of undue influence in that the plaintiff's will was overborne. I agree with Mr Klempfner's submission that the plaintiff only signed the documents as a result of a combination of threats, emotional manipulation and betrayal of her trust and confidence in her husband. Whatever the precise circumstances of the kitchen confrontation I find that Mr Wenczel bullied his wife into signing the Mortgage and forced her to change from a long standing position of not wanting to be involved with her husband's debts. I accept that she was reduced to signing the documents in tears. I also accept that Mr Wenczel manipulated his wife's emotions in persuading her to sign. As the plaintiff said:
"I never wanted to place the house at risk but when Stefan was threatening to force the sale of the house if I didn’t sign the mortgage I felt I had no choice. He had an uncanny ability to make me feel guilty by making me feel wrong that I was opposing him."
The plaintiff knew that at that time her wages were not sufficient to meet the monthly home loan payments and that she was reliant on her husband's continued support in that regard. Thus, the threat to sell the house was real. Finally, I have found that the plaintiff still had trust and confidence in her husband. His conduct in pressuring his wife into signing the Mortgage betrayed that trust.
Duress
Having decided that the plaintiff could also have succeeded in having the Mortgage set aside on the ground of undue influence, it is really unnecessary to consider the alternative claim of duress. With this cause of action the coercion or compulsion is more severe then the "undue" influence. The assent is procured by an illegitimate threat.
In my opinion, the physical actions alone of Mr Wenczel constituted duress. He swore at his wife, threatened to become physical towards her, banged his fists on the kitchen bench, raised his voice and became angry. As I have found he bullied his wife into signing the Mortgage. That is not a legitimate way in which to persuade a reluctant surety to agree to sign the Mortgage. I reject as simply unrealistic the submission by the CBA that the plaintiff was in a position to send her husband away from the home, but she chose not to do so. As Mr Klempfner so aptly put it, Mr Wenczel came to the Property on 23 July 2001 for one sole purpose – to obtain his wife's signature on the documents. He was determined to stay until he obtained her signature and he left as soon as it was obtained. The pressure he exerted was illegitimate in the sense in which that phrase was used by McHugh J in Crescendo Management Pty Ltd v Westpac Banking Corporation[22].
[22](1988) 19 NSWLR 40 at 45
Unconscionability
In the light of my findings in respect of the plaintiff's first three causes of action and the frank concessions in the final submissions made on behalf of the plaintiff that the claim is unconscionable conduct was "very much a back stop; certainly not abandoned but not pressed with the same vigour" and that its pleading "only partly mirrors the evidence adduced in this case", I consider that I need not trouble further with this particular claim.
Conclusion
For all of the above reasons I have concluded that there should be a declaration that the Mortgage should be set aside and that there be an order that the CBA provide a discharge of the Mortgage and make the Certificate of Title available for registration of the discharge. It follows that the CBA's counterclaim must fail. I will hear from the parties on the precise wording of the appropriate orders and on the question of costs.
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