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TIM WRIGHT[*]
There is little doubt that, when Dixon J enunciated in Yerkey v Jones a special wives’ equity, he did so in the hope that the equity would serve the best interests of married women in Australia.[1] His judgment was founded not on a belief that wives are less than equal or subservient to their husbands, but on a belief that the law of contracts should offer wives special protection so as to prevent ‘abuse of trust within the marriage relationship’.[2] Nonetheless, the wisdom of the decision in Yerkey, and its effect on the lives of Australian women, has been subject to considerable academic and judicial critique.[3]
In 1998, the special wives’ equity was re-examined by the High Court in the controversial case of Garcia v National Australia Bank Ltd.[4] The appellant was, as in Yerkey, a married woman acting as a surety for her husband’s borrowings, which meant that the High Court was not required to determine, in that particular case, whether the scope of the equity should extend beyond wives. However, the majority did make the following comment:
It may be that the principles applied in Yerkey v Jones will find application to relationships more common today than was the case in 1939 — to long-term and publicly declared relationships short of marriage between members of the same or opposite sex.[5]
Six years later, the High Court again declined the opportunity to invoke a broader and more principled special equity for sureties when it dismissed an application for special leave to appeal in the case of Kranz & Anor v National Australia Bank Ltd.[6] The Victorian Court of Appeal had concluded in that case that the Yerkey principle, in the light of the decision in Garcia, should extend to any ‘relationship of trust and confidence’ between the debtor and guarantor.[7] In Kranz, the relationship in question was that of two brothers-in-law. An additional requirement, not satisfied in Kranz, was that the creditor must have known of, or be reasonably expected to have known of, the existence of the relationship of trust and confidence.
The Queensland Court of Appeal addressed the same issue in Alirezai v Australia and New Zealand Banking Group Ltd,[8] a case involving a surety who was a friend of the debtor. According to the surety’s testimony, he had felt a moral obligation to assist the debtor.
The majority arrived at a conclusion similar to that drawn in Kranz.
In other Australian jurisdictions, courts of first instance have tended to apply the Yerkey principle haphazardly, suggesting that High Court clarification is needed to provide consistency and certainty in the law. This would benefit lenders and borrowers alike.
It is probable that our highest court, if required to consider the matter again, would adopt an approach similar to that established in Royal Bank of Scotland v Etridge (No. 2).[9] In that case, the House of Lords considered that restricting the principle to marriage relationships, or to all sexual relationships whether between members of the same or opposite sex, was an ‘arbitrary boundary’ to draw.[10] It concluded that a lender should be put on notice if ever he or she is aware that the relationship between debtor and guarantor is ‘non-commercial’.[11]
The Etridge approach, if adopted by the High Court of Australia, would render the special wives’ equity obsolete. The decisions in Garcia and the two appellate cases noted above suggest that it is already obsolescent.
This article restates and elaborates some of the arguments that have been presented in favour of reform to this area of contract law. In particular, it examines the effect that the Yerkey principle has had on the lives of Australian women, married as well as unmarried, since its establishment. It assesses whether the equity has assisted or inhibited women’s struggle for ‘equality’, and concludes that a broader and more principled test, to be applied uniformly throughout Australia, is needed.
Equality has been variously defined by legal scholars. Depending on the definition one applies to ‘equality’, the special wives’ equity has both assisted and inhibited women’s struggle to attain that ‘ideal’. On the one hand, it has prevented injustices being committed against many married women, including Mrs Jones. The Australian Law Reform Commission remarked, in 1994, that ‘[i]t is clearly an important remedy for married women’.[12] On the other hand, its general confinement to wives has resulted in women being undesirably stereotyped and having their diversity of experience ignored.
Notwithstanding, both formal and substantive equality demand the establishment of a more principled doctrine to deal with cases of third-party impropriety of the kind in Yerkey and Garcia. The House of Lords in Barclays Bank Plc v O’Brien, some four years before Garcia, sought to ‘restate the law in a form which is principled, reflects the current requirements of society and provides as much certainty as possible’.[13] The test adopted in that case was similar to the one propounded by Kirby J in Garcia.[14]
It is erroneous to assume ‘emotional dependence simply on the status of marriage’. To do so is to ignore ‘the broad features of social inequality … and … the diversity of the experiences of women in Australia’.[15] The equity should lead to a furtherance of substantive equality, not just for married women, but also for women in non-marriage relationships and others, men included, who are in positions of vulnerability due to emotional dependence.
Equity plays an important role in the law of contracts. It supplements the common or statutory law when it is inadequate in attaining justice and fairness. According to Dianne Otto, it has the potential ‘to transcend the confines of liberal legal notions of “equality” and … provide a means for challenging social inequalities in power that are attributed to gender’.[16] In cases of third-party impropriety, a special equity of some kind is needed. The difficulty lies with defining its limits. (The High Court in Garcia rightly rejected the argument that a special equity is redundant in the light of the decision in Commercial Bank of Australia Ltd v Amadio.)[17]
In a case such as Yerkey, equity attempts to produce an outcome in which due consideration has been given to the ‘inequality of bargaining power’ that exists between the parties. It moves beyond the notion of formal equality, which has tended to ‘confirm rather than contest the social construction of gendered inequalities’.[18] Its focus is instead on the achievement of substantive equality between the sexes.
The common law, in contrast, has focused overwhelmingly on attaining formal equality. This has involved the formulation of gender-neutral legal principles that treat women as if they were the same as men. Some feminist legal scholars have suggested that ‘gendered phenomena’, such as sexually transmitted debt (debt incurred by an intimate partner due to emotional dependence), require ‘gender-specific principles to ensure substantive equality’.[19] In other words, equality of a desirable kind will be achieved only if women are treated differently from men. Others have rejected this contention. For example, Patricia Easteal has commented, in respect of the Australian legal system:
I felt that as a female, I was placed in certain categories that contributed to and culminated in my being labelled ‘different’ and ‘less than equal’ in a world dominated by a masculine way of being and doing.[20]
I reject the idea that the Australian courts must choose between treating women the same as men and treating them differently from men. The courts should adopt neither approach. Instead, they should adapt and apply legal principles in a way that does not mask the gendered nature of particular phenomena, but at the same time recognises the complex nature of gender and our ability, indeed our tendency, to transcend its traditional boundaries. Whilst Kristie Dunn has written at length on the problem of falsely universalising the experience of women, she has made only fleeting references to ‘the location of an essential women’s experience’ and its problematic effect of rigidifying gender.[21] True equality, in respect of the law, is that which brings about ‘justice that is blind to differences that don’t matter but is appropriately adapted to those that do’.[22] The High Court should attempt to achieve this kind of equality when it next considers a case involving the special wives’ equity.
In assessing whether the Yerkey principle has furthered gender equality, it is prudent to examine the historical context within which the Yerkey decision was reached. In the late 19th century, equity’s doctrine of the separate estate had led to an enlargement in married women’s proprietary contractual capacity. In response to this extension of wives’ capacity and the harshness with which common law rules were applied to married women entering proprietary contracts, a number of equitable doctrines arose. The special wives’ equity is one such doctrine. It attempted to bring about justice and substantive equality for married women, who were disadvantaged for historical reasons.
Much has changed since 1939 in respect of society’s views towards the role of women and the significance, or insignificance, of marriage. Wives were, in the early 20th century, widely regarded as little more than child bearers and servants to their husbands. The unfortunate women who never married were subject to public ridicule. Many of the arguments that might have been raised in 1939 in support of a special wives’ equity would seem, to most, anachronistic today. The appropriateness of this equity to modern times has been brought squarely into question by the courts and academics alike.
Thus, although the special wives’ equity might or might not have benefited women’s struggle for substantive equality at the middle of the last century, it certainly does not do so today. This is, to a large extent, because of its failure to pay regard ‘to the advance in the status and education of women [and] the increasing role of women, including wives, in business and commercial affairs … today’.[23]
Some judges have rightly commented that, notwithstanding these changes, ‘there are still to be found women in the community who are overborne by their husbands’.[24] Nonetheless, most of the disparities, economic and otherwise, that once existed between wives and their husbands are today either less pronounced or nonexistent. If the Australian legal system did not have a special wives’ equity today, it would certainly not introduce one.[25] This is because of widespread popular and judicial support for a legal system in which ‘the same rules apply to everyone’, a system based on (formal) equality.[26]
One of the main criticisms of the special wives’ equity is that it has perpetuated undesirable stereotypes of women, and that such stereotypes have impeded women’s struggle for equality. Under the United Nations Convention on the Elimination of All Forms of Discrimination against Women, state parties agree to take all appropriate measures to modify ‘social and cultural patterns of conduct’ that are based on ‘stereotyped roles for men and women’.[27] It closely relates gender stereotyping to inequality between the sexes and the belief in the superiority of the male sex over the female sex. This section critically examines whether the Yerkey principle has indeed perpetuated undesirable stereotypes and, if so, what effect those stereotypes have had on women’s lives.
In many cases, the Yerkey principle has served to protect wives from being exploited and having their interests neglected. The degree of the exploitation and neglect varies from one case to another. For example, in Teachers Health Investments Pty Ltd v Wynne,[28]where the husband used the threat of divorce to persuade his wife to act as guarantor, the court held that the wife was highly vulnerable and her will had been overborne. This can be contrasted with Garcia, in which the degree of exploitation was arguably low.
Feminist legal theorists have long criticised courts for sanctioning transactions that involve exploitation and neglect of women, particularly in contracts relating to surrogacy, reproductive technology, cohabitation and separation.[29] Therefore, there is some legitimacy to the argument that women’s struggle for equality has benefited from the protections afforded to married women under Yerkey. Anthony Duggan, for instance, wrote:
the case for special protection rests not on the proposition that women are inherently less competent than men, but on the proposition that women are disadvantaged by the dynamics of the family relationship when it comes to the disposal of family assets.[30]
He then went on to argue that ‘[i]t is a hollow kind of liberalism that insists on formal equality between sexes when in fact differences between them are routinely observable in terms of endowments, opportunities, bargaining power and the like’.[31] Some have rejected this mode of thinking on the basis that an approach presuming a married woman to be needful of special protection ‘depends upon gender loyalty or sympathy rather than on principle’.[32] Kirby J in Garcia argued that the Yerkey principle, by singling out married women, ‘rests on a stereotype of wives to which … [the High] Court should give no endorsement’.[33]
The Australian community has long accepted, on the whole, the idea that women have an equal role to play in society. ‘Equal’ does not necessarily mean ‘same’. That is, women can be equal to men without imitating their behaviour and mode of thinking. On that basis, ‘there is no justification that for the purpose of surety law women should be given special protection’.[34] Although there is a need for some kind of special equity, it must not establish wives as the only category of people needful of protection.
Many judges have voiced fervent opposition to the ready assumption made by some legal counsel that wives exhibit especial vulnerability to influence. Rogers J in European Asian of Australia Ltd v Kurland asserted that this assumption placed married women ‘shoulder to shoulder with the sick, the ignorant and the impaired’.[35] Equitable doctrines such as the special wives’ equity, which are said to be necessary to assist the weak, are ‘subtly demeaned by the language of “exceptions”, as deviations from the normal rules of contract’.[36]
Gaudron, McHugh, Gummow and Hayne JJ in Garcia expressly noted that the Yerkey principle is not based on the special vulnerability of wives to exploitation owing to emotional involvement. Nonetheless, they commented that a ‘significant number’ of Australian women were in relationships ‘marked by disparities of economic and other power’.[37]The concept of power imbalance between parties is central to many commentaries on the Yerkey principle. The common law assumes ‘that parties to a contract are essentially equal, self-interested and acting out of free will’.[38] As such, it might be said that the Yerkey principle, rather than stereotyping married women as powerless, attempts to redress power imbalances.
The concept of the ‘ignorant’ and ‘subservient’ wife, on which the Yerkey decision was certainly based, is now very much ‘outmoded and offensive’. Australian society today embraces gender equality ‘and espouses the ideal of mutuality and balance between marriage partners’.[39] However, in spite of this modern-day perception of gender roles, a large number of wives in Australia, as elsewhere, remain subservient and economically inferior to their husbands. Lord Browne-Wilkinson, in O’Brien, noted that ‘[t]he number of recent cases in this field shows that in practice many wives are still subjected to, and yield to, undue influence by their husbands’.[40] In order to bring about any form of substantive equality, the ‘ideal’ of formal equality existing between spouses must be reconciled with this regrettable reality.
The majority in Garcia held that the special wives’ equity is not based on a belief in the subservience or the inferior economic position of women, but on an acknowledgment of the unfairness that can flow from relationships of trust and confidence.[41] However, a woman wishing to claim relief on the basis of the Yerkey principle must argue that she was, at the time she acted as surety for her husband’s borrowings, subservient to him and suffered from financial ineptitude. Consequently, the principle can in practice be demeaning of women.
Moreover, the special wives’ equity has in some instances dissuaded creditors from permitting wives to act as guarantors for fear that the law would allow them to escape their contractual obligations. This has adversely affected a wife’s ability to execute a guarantee and is inconsistent with the attempts of legislatures and the judiciary to further women’s equality by granting married women full contractual capacity and removing ‘unprincipled discriminatory categories’.[42]
Feminist scholars have remarked that the law, because it has been fashioned by men, is masculine in nature, exhibiting a preference for ‘rationality’ and ‘dissectiveness’ over ‘emotionality’ and ‘connectiveness’.[43] The masculinity exuded in all areas of the law has tended to disadvantage women litigants, defendants and witnesses. Equitable doctrines, which stray from the black letter of the law, are said to be feminine in nature, being based on compassion for the less fortunate and less privileged. Thus, it is arguable that the special wives’ equity has assisted in women’s struggle for equality by ‘demasculinising’ the law.
However, the view of women as emotional rather than rational is inconsistent with mainstream feminist thinking and might be adverse to mainstream feminist objectives. For example, the struggle in many parts of the world for women’s suffrage was grounded on the argument that women, like men, are capable of rational thought; it concentrated on debunking the view of women as merely emotional.
The Yerkey principle may have aided some women, but it certainly has not aided all, as it ‘unfairly discriminates against those who may be … needful of the protection of a “special equity” but who do not fit within the category of married women’.[44] To argue, without qualification, that the special wives’ equity has furthered women’s equality is, in a sense, to presume that all Australian women are either married or intending to marry. For instance, the equity has certainly not assisted women in non-marriage relationships (whether the partners are of the same or opposite sex). Instead, it has placed such women in a further marginalised position by establishing their relationships as ones that are less than equal to marriage, as well as denying them the protection of the equity. For example, in 2000, Bryson J of the New South Wales Supreme Court was unwilling to extend the equity to a woman in a de facto relationship.[45]
As noted above, the majority of the High Court in Garcia expressly left open the question of whether the special wives’ equity should extend beyond just wives.[46] A possible explanation for the limited application envisioned in Yerkey is the special position that the law has historically accorded to wives. The Chancery Courts in England showed a ‘special tenderness’ towards married women guarantors.[47] However, given changing attitudes in Australia towards marriage and gender, it is likely that the principle will soon be extended in all jurisdictions.
As Kirby J pointed out in Garcia, the Yerkey principle is too narrow, for it ignores areas of social inequality beyond the marriage relationship.[48] Gender is but one component of a woman’s identity. There is no logical explanation, only a historical one, for the courts to recognise sex and marital status as the only attributes relevant in granting equitable relief to a guarantor. Thus, the assistance, if any, that the special wives’ equity has brought to women’s struggle for equality has been limited by its application only to wives.
Women’s equality remains an elusive goal. The Yerkey principle has, depending on one’s interpretation of ‘equality’, both assisted and inhibited the struggle to achieve that goal. Some scholars have argued that the special wives’ equity, by acknowledging that women are different from men and may exhibit greater vulnerability to exploitation, has furthered women’s equality. Others have seen equality as being achieved only when women are treated the same as men: the differential treatment of wives leads not to equality but to the perpetuation of stereotypes that are demeaning of women.
However, while the equity might or might not have benefited the struggle of married women to enjoy ‘equality’, it has certainly been unfavourable to women in non-marriage relationships. In addition, as the role of women in society has changed, so too has the effect of the special wives’ equity on women’s struggle for equality. In 1939, it might have been helpful. Today, it seems far more a hindrance. The High Court should, at first opportunity, establish a more principled equitable doctrine that is appropriate to the 21st century.
[*] TIM WRIGHT is a student at the University of Melbourne and editor of Time for Change: Australia in the 21st Century (Hardie Grant Publishing, 2006; proceeds to Oxfam).
© 2006 Tim Wright
email: timwright85@yahoo.com.au
[1] Yerkey v Jones [1939] HCA 3; (1939) 63 CLR 649, 684–5 (‘Yerkey’).
[2] Elizabeth Stone, ‘Infants, Lunatics and Married Women: Equitable Protection; Garcia v National Australia Bank Ltd’ (1999) 62(4) Modern Law Review 604, 606.
[3] For judicial critique see European Asian of Australia Ltd v Kurland (1985) 8 NSWLR 192; Akins v National Australia Bank Ltd (1994) 34 NSWLR 155; Gregg v Tasmanian Trustees Ltd [1997] FCA 128; (1997) 143 ALR 328; Miles v Shell Company of Australia (1998) 156 ALR 133.
[4] [1998] HCA 48; (1998) 155 ALR 614 (‘Garcia’).
[5] Ibid 620.
[6] [2004] HCA Trans 211 (18 June 2004) (‘Kranz’).
[7] Ibid [15], [18], [31], [44].
[9] [2001] UKHL 44 (‘Etridge’).
[10] Ibid [86].
[11] Ibid [87]–[89].
[12] Australian Law Reform Commission (ALRC), Equality before the Law: Women’s Equality (Part II), Report No 69 (1994) [13.25].
[13] [1993] UKHL 6; [1994] 1 AC 180, 195 (‘O’Brien’).
[14] [1998] HCA 48; (1998) 155 ALR 614, 641.
[15] ALRC, above n 12.
[16] Dianne Otto, ‘A Barren Future? Equity’s Conscience and Women’s Inequality’ [1992] MelbULawRw 19; (1992) 18 Melbourne University Law Review 808, 808.
[17] [1983] HCA 14; (1983) 46 ALR 402.
[18] Otto, above n 16, 809.
[19] Kristie Dunn, ‘Yakking Giants: Equality Discourse in the High Court’ [2000] MelbULawRw 16; (2000) 24(2) Melbourne University Law Review 427, 430.
[20] Patricia Easteal. Less than Equal: Women and the Australian Legal System (2001) xi.
[21] Dunn, above n 19, 454–7.
[22] Mary Gaudron in Regina Graycar and Jenny Morgan, The Hidden Gender of Law (2nd ed, 2002) vii.
[23] Clement Shum, ‘Protection of Married Women as Guarantors’ (1996) 14 Australian Bar Review 229, 231.
[24] Warburton v Whiteley (1989) NSW Conv R 55, 293 (per Clarke JA).
[25] Michael Bryan, ‘Setting Aside Guarantees: Reviving an Old Equity’ (1999) Lloyd’s Maritime and Commercial Law Quarterly 327, 332.
[26] Belinda Fehlberg, ‘Australian Law and Surety Wives: Garcia v National Australia Bank Ltd’ (1999) 15 Banking and Finance Law Review 161, 170.
[27] Opened for signature 18 December 1979, 1249 UNTS 13 (entered into force 3 September 1981) art 5(a). See also art 10(c).
[29] Mary Joe Frug, ‘Re-reading Contracts: A Feminist Analysis of a Contracts Casebook’ (1985) 34 American University Law Review 1065, 1089–93.
[30] Anthony Duggan, ‘Till Debts Do Us Part: A Note on National Australia Bank Ltd v Garcia’ [1997] SydLawRw 12; (1997) 19 Sydney Law Review 220, 225.
[31] Ibid 225–6.
[32] Samantha Hepburn, ‘The Yerkey Principle and Relationships of Trust and Confidence: Garcia v National Australia Bank Ltd’ (1997) 4 Deakin Law Review 99, 110.
[33] Garcia [1998] HCA 48; (1998) 155 ALR 614, 635.
[34] Shum, above n 23.
[35] (1985) 8 NSWLR 192, 200.
[36] Lucinda Finley, ‘Breaking Women’s Silence in Law: The Dilemma of the Gendered Nature of Legal Reasoning’ (1989) 64 Notre Dame Law Review 886, 898.
[37] Garcia [1998] HCA 48; (1998) 155 ALR 614, 619.
[38] Dunn, above n 19, 430.
[39] Hepburn, above n 32, 101.
[40] [1993] UKHL 6; [1994] 1 AC 180, 185.
[41] Garcia [1998] HCA 48; (1998) 155 ALR 614, 619.
[42] Ibid 638 (per Kirby J).
[43] Graycar and Morgan, above n 22, 8–9.
[44] Garcia [1998] HCA 48; (1998) 155 ALR 614, 636.
[45] State Bank of New South Wales v Hibbert [2000] NSWSC 628 at [53]–[55].
[46] Garcia [1998] HCA 48; (1998) 155 ALR 614, 620.
[47] Yerkey [1939] HCA 3; (1939) 63 CLR 649, 663.
[48] [1998] HCA 48; (1998) 155 ALR 614, 634.
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