Garcia v National Australia Bank Limited S132/1996 [1997] HCATrans 48 (13 February 1997)

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Sydney No S132 of 1996

B e t w e e n -

JEAN BALHARRY GARCIA

Applicant

and

NATIONAL AUSTRALIA BANK LIMITED

Respondent

Application for special leave to appeal

BRENNAN CJ

TOOHEY J

GUMMOW J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON THURSDAY, 13 FEBRUARY 1997, AT 11.22 AM

Copyright in the High Court of Australia

MR D.F. JACKSON, QC: If the Court pleases, I appear with my learned friend, MR L.J.W. AITKEN, for the applicant. (instructed by Minter Ellison)

MR B.C. OSLINGTON, QC: May it please the Court, I appear with my learned friend, MR D.L. WILLIAMS, for the respondent. (instructed by Dibbs Crowther & Osborne)

MR JACKSON: Your Honours, the essence of the decision of the Court of Appeal in this case was that the view which had been expressed by Justice Dixon in Yerky v Jones was no longer applicable because of the Court's decision in Commonwealth Bank of Australia v Amadio. May we say five things about it in support of the application. The first thing is, your Honours, that one does not find such a suggestion in Amadio itself. Three of the majority Justices in Amadio and one of the minority referred to the earlier decision of Justice Cussen in Victoria in Bank of Victoria Ltd v Mueller - I will give your Honours the reference in just a moment - which was to the same effect as, and earlier than that of Sir Owen Dixon, without any suggestion of disapproval, if I can put it that way.

Your Honours, the references in that regard are Amadio [1983] HCA 14; 151 CLR 447, and your Honours will see, if I could go to page 463, about point 2 on the page, Justice Mason:

That the principle might justify the setting aside of a guarantee is established by -

and he refers to Bank of Victoria v Mueller. Your Honours will see Justice Deane at page 475 saying, halfway down the page:

Such a guarantee is properly to be viewed in the terms enunciated by Cussen J. in Bank of Victoria Ltd v Mueller:

Your Honours will see the reference at the end of the quotation to the guarantee being treated as voidable as between the husband and wife and your Honours will see the next paragraph of Justice Deane's own reasons. His Honour's reasons were agreed in by Justice Wilson, who was the third Judge. That appears at page 468. He does not deal with the specific issue. At page 486 one of the minority, who was Justice Dawson, at the first new paragraph on the page said:

Special considerations apply in cases where a husband procures his wife to become surety for his debt and the cases dealing with these circumstances may be put to one side.

He refers to the Victorian case. If I could just indicate to your Honours - and I will do so very briefly - three relevant passages in Mr Justice Cussen's reasons for judgment in Bank of Victoria v Mueller [1925] VicLawRp 74; (1925) VLR 642, in particular, if I could commence at page 652. I should say there is a very lengthy discussion of the topic. May I simply seek to identify three parts that deal with it specifically. At page 652, about the fourth line on the page, his Honour says:

I incline to the opinion that Lord Lindley's statement in that case affords another glimpse of the proposition -

and your Honours will see his Honour going through the remainder of that sentence. Then halfway through the next paragraph, in discussing Bischoff's Trustee v Frank his Honour says, "But the learned Judge added" and I would refer your Honours to the whole of that sentence. It commences about two-thirds of the way down that page.

If I could move then to page 655 where, discussing Talbot v Von Boris, halfway down the page his Honour quotes from Justice Phillimore:

"The broad and sound principle to follow in a case where a wife becomes surety for her husband . . . is to make it necessary that the nature of the transaction and what she was doing should have been explained to her."

And finally, your Honours, a statement of principle by his Honour is on the next page at page 656, a little beyond halfway down the page in the passage commencing, "Altering to some extent the language of Lord Cranworth" and going through then to the end of the paragraph.

TOOHEY J: But the passage in Yerky v Jones that so much reliance is placed upon is more narrowly expressed than that, is it not?

MR JACKSON: It is expressed in a sense more narrowly in dealing with the, perhaps, particular facts in it but in our submission the broad principle is the one to which his Honour is referring in this case, Bank of Victoria v Mueller.

TOOHEY J: Except, Mr Jackson, that the passage from Sir Owen Dixon's judgment on which attention is focused in these cases almost reads like a sort of check list of matters that have to be satisfied before the principle applies. And could I just add - and it is one of the difficulties, I think, with special leave applications where Yerky v Jones and Amadio's Case are put forward - that they do tend in the end to turn on their facts.

MR JACKSON: They do, your Honour, but this case in one sense does present the issue very clearly because the primary judge found, although we would perhaps contend otherwise found, only on the basis of Yerky v Jones and found that Amadio would not be satisfied. The Court of Appeal was of a similar view in relation to the second of those things, but took the view that the Yerky v Jones principles had been subsumed by Commonwealth Bank of Australia Limited v Amadio. So that it is a case, so far as that aspect of the case is concerned, does turn on what is the true nature of Yerky v Jones.

But may I say, your Honour, that in addition to that - and this is really the second point to which I would wish to come - that although differently expressed, the decision of the House of Lords in Barclays Bank Plc v O'Brien (1994) 1 AC 181 really arrives at a position similar to that for which we would contend and similar to that, at least as referred to in Bank of Victoria v Mueller. In that regard, your Honours - and that is a matter which we would submit suggests the issue should be considered by this Court. May I take your Honours to the relevant passage in that case. Your Honours will see, page 195, the paragraph commencing just under letter E, the principal reasons - speech by Lord Browne-Wilkinson is:

In my judgment, if the doctrine of notice is properly applied, there is no need for the introduction of a special equity in these types of cases -

But then your Honours will see it goes through the remainder of the paragraph to a conclusion to which I will take your Honours on the next page. The conclusion is at page 196 in the paragraph commencing just after letter D where his Lordship says:

Therefore in my judgment a creditor is put on inquiry when a wife offers to stand surety for her husband's debts by the combination of two factors:

And your Honours will see the two factors set out there. If one reads the decision, there is nothing to suggest in it that there is involved anything other than a notion that the judgment creditor is on inquiry when those two things are satisfied, the second of those things being that the risk arises because of the nature of the relationship between husband and wife in cohabiting. If I could refer your Honours to the paragraph immediately preceding the paragraph to which I have just referred.

TOOHEY J: That in turn is expressed more widely than Sir Owen Dixon's remarks in Yerky v Jones so are we really talking about Yerky v Jones?

MR JACKSON: If I can put it this way, the case started, and necessarily because of the hierarchy of the courts, as one in which the basis upon which recovery was sought to be made - or relief was sought, I should say - was on the basis of Yerky v Jones.

GUMMOW J: In Barclays Bank at 190 there is reference to Yerky v Jones, is there not, letter G?

HIS HONOUR: Oh yes.

GUMMOW J: Then there is a reformulation at the bottom of 190 and the top of 191.

MR JACKSON: Your Honour, I do not suggest that all the reasoning in Barclays Bank v O'Brien should necessarily be followed and, indeed, some of it was the subject of adverse submissions, some of which seem to have been accepted by us in the Court of Appeal. What I am seeking to say, however, is this, that the issue which involves the question of the application of the observation of Sir Owen Dixon in Yerky v Jones is one to which - or the area, to put it shortly, raised by the present case is one which merits consideration by the Court in the light of - and this is the second point to which I referred - the view taken by the House of Lords in Barclays Bank v O'Brien which, your Honours, is something that, in our submission, would result in there being relief available to us in a case of this kind. The third thing we would seek to - - -

GUMMOW J: But it will be put against you that Yerky v Jones was out of date and so forth and so on, so that you will end up losing on that theory.

MR JACKSON: That is the third thing I was going to say, your Honours, that the view that the cases - Yerky v Jones and the notion in it is out of date is really something that does not find support in two relevantly recent decisions. One of them is, of course, the House of Lords itself in Barclays Bank. Your Honours will see that at page 196. It is the passage to which I referred a moment ago, your Honours, the first new paragraph on the page, and your Honours will see particularly in letter C:

in practice, many wives do repose in their husbands trust and confidence -

and so on. Also at page 198 where, under the heading "Other persons", commencing at letter C, there is an approach which would suggest an expansion of the doctrine in Barclays Bank to cases of cohabitation. That is what is said in England.

But may I give a contemporary Australian reference, and that is a decision of the New South Wales Court of Appeal of which your Honours will have a copy. Your Honours will have a loose copy because the photocopying in the bundle that your Honours have was not of the first order. I wanted to refer your Honours to Teachers Health Investments Pty Ltd v Wynne (1996) Consumer Sales and Credit Law Reporter at page 56,972. Justice Beazley, at page 56,982, said, halfway down the right column:

I agree with the underlying sentiment -

but then went on to say, in the second half of that paragraph that she did -

not accept that education and experience are necessarily an answer to a claim of unconscionability, particularly where a person is otherwise in an emotionally vulnerable state, as was the respondent.

We would submit that whilst no doubt there have been great advances and great changes, of course, in society, but the situation which remains is that people who live in circumstances where they are cohabiting with others are often in the position where they can be suborned, if I can use the expression globally, by those with whom they cohabit.

GUMMOW J: This decision in Teachers Health was given a week or so after the decision in the Court of Appeal in your case.

MR JACKSON: Yes. And, your Honour, that is the next thing I am about to say actually, that the view adopted by the Court of Appeal in this case was that the Amadio principle could not apply because the respondent's disability, however one chooses to describe it, was not sufficiently evidenced to the respondent. Your Honours will see that at pages 38 and 101.

But the Court of Appeal's later decision in Wynne to which I have just referred makes it apparent - or adopts the view - that the relevant knowledge could be gained from the nature of the transaction itself. That that is so, your Honours, appears at page 56, 985 of the case, commencing a third of the way down:

The next question and in this case, one of the two vital questions for determination, is whether the appellant should have known of the respondent's special disadvantage.

.....no previous relationship -

And then if your Honours go through to the end of the paragraph finishing halfway down page 56,986 the relevant notice is from the nature of the transaction itself. Now, your Honours, what we would seek to say is that observations of that kind would not be likely to be true, in varying degrees, of course, in really all guarantee cases.

TOOHEY J: What I am having difficulty with, Mr Jackson, is where Yerky v Jones fits in all of this. If you are saying to the Court Yerky v Jones governs this situation then, as I suggested to you earlier, that passage from the judgmennt of Sir Owen Dixon contains a number of elements, as it were, which have to be satisfied. Now, if those elements were clearly satisfied and nevertheless the claim was rejected, one can see how an argument for special leave might gain some strength. But unless that is apparent, what is the basis upon which this Court should embark in this case upon a reconsideration of - - -

MR JACKSON: In our submission, they are satisfied.

TOOHEY J: Are they? Are they satisfied in the element which the creditor accepts without dealing directly with her personally?

MR JACKSON: The only dealing with her directly was that she came and signed the documents there. The creditor did not have any discussion with her personally about the desirability of entering into the transaction. She just executed the documents. The judge made findings about that. She executed the documents at the Bank but the Bank did not discuss with her or deal with her in relation to the substance of the transaction.

TOOHEY J: Is it apparent that she did not understand the effect in essential respects of the documents which she executed?

MR JACKSON: In our submission, it is, your Honour. She was under the impression, as the finding was, that at all times she was safe because there would either be money or stock in effect to cover the situation.

Your Honours, the last thing I was going to say was this, that the view that Yerky v Jones should be followed until overruled by this Court has been applied in Victoria, although it is right to say before the decision in the present case. Your Honours will see in the bundle of documents an extract from a decision in Geelong Building Society v Thomas, a decision of Justice Hedigan. It would precede Bank of Victoria v Mueller in the group your Honours have. There is one page, the second page of it, your Honours, his Honour says, halfway down, that:

I share the views of Hansen, J.....that: "Until the High Court states otherwise....."

et cetera. Your Honours, those are our submissions.

BRENNAN CJ: Thank you, Mr Jackson. Yes, Mr Oslington.

MR OSLINGTON: Your Honour, in our submission, if Yerky v Jones were decided for the first time today and reasons were given for that decision consistent with the decision which was in fact given, it would be regarded as no more than an application of established equitable principles enunciated in decisions such as Amadio. The High Court in Yerky v Jones, in our submission, did not propound or establish any special rule that a person who becomes a guarantor who is female and is married and is guaranteeing an account with which her husband is associated is prima facie entitled to have the guarantee set aside unless the creditor proves that she understands what she is doing.

What has happened in previous first instance decisions is treat the judgment of Sir Owen Dixon as being a binding decision of this Court laying down that principle when, in our submission, firstly, Sir Owen Dixon's judgment does not lay down that principle, and that is quite plain when one has regard to what his Honour said at page 689 in the middle of the page. His Honour said:

But, if the general nature and effect of an instrument such as a mortgage executed by a married woman is understood -

and we emphasise -

or on reasonable grounds the creditor or other part or his agents believes it to have been understood, it is no ground for setting it aside that some of its details or its possible consequences or applications are not comprehended, notwithstanding that the husband is the person who has obtained her consent -

That leaves an issue of fact to be decided, namely whether the creditor on reasonable grounds believes the guarantee to have been understood. In the present case, the trial judge found that the creditor had reasonable grounds to believe the guarantee was understood.

What is said in that passage by Sir Owen Dixon is consistent with what was said by Lord Browne-Wilkinson in Barclays Bank at page 196, just below line D, where his Lordship says:

Therefore in my judgment a creditor is put on inquiry when a wife offers to stand surety for her husband's debts by the combination of two factors: (a) the transaction is on its face not to the financial advantage of the wife;

Again, in the present case, the trial judge found that on its face, so far as the Bank was concerned, the financial transaction was not to the financial disadvantage of the wife.

The decision of Mueller, which was referred to in Amadio, was a very different case to the present case and a very different case to Yerky v Jones. Mueller was a case, as was Barclays Bank v O'Brien, where the husband creditor had existing outstanding debts and his servicing of those debts had been unsatisfactory and the wife's guarantee was a guarantee to secure those existing - included a guarantee to secure those existing outstanding debts in an account which had been operated unsatisfactorily. Of course, that is one of the features commented upon in Amadio as being relevant to a consideration of whether a person suffering a disability or a relevant disability ought to be bound by his guarantee if he is unaware of that unusual feature, and the Bank being aware of the unusual feature, fails to bring that to the guarantor's attention. In fact, in Yerky v Jones - - -

GUMMOW J: The wife was ultimately unsuccessful in Yerky - - -

MR OSLINGTON: I was about to make that point - despite the fact it was found that her husband misled her.

GUMMOW J: Yes, but if leave were granted and you did not succeed in persuading the Court that Yerky v Jones is totally absorbed by Amadio, which I would find a difficult proposition, actually, if you did not succeed in that, what would you then say about Yerky v Jones? Would you say it should just be overthrown?

MR OSLINGTON: It depends on what one reads into Yerky v Jones establishing.

GUMMOW J: If one looks at what Lord Browne-Wilkinson said in O'Brien at page 190, starting at letter F, Yerky v Jones just did not come from nowhere, it came from a whole series of cases going back to the time of Lord Hardwicke, came out of the fact that in equity women had certain control over their property which they did not have at common law, but that one could not really say that there was a relationship of undue influence of husband over wife, therefore there was this intermediate ground.

MR OSLINGTON: If Yerky v Jones is interpreted as placing wives who become guarantors - - -

GUMMOW J: That may be all totally out of date, but would you be saying that, that is what I am trying - - -

MR OSLINGTON: Oh, we would be saying it is out of date and this Court simply would not countenance the continuation of such a principle, if such principle ever existed.

GUMMOW J: I think it existed.

BRENNAN CJ: What is the proposition in Yerky v Jones which you would seek to contest?

MR OSLINGTON: If Yerky v Jones is authority for the proposition that in the case of a wife who guarantees her husband's debts, a guarantor in that class without more is entitled to have the guarantee set aside unless the creditor proves the wife had a proper understanding of what she was doing. If that is the proposition established by Yerky v Jones, that is the proposition which we would contest.

TOOHEY J: But is it possible to distil a proposition as broad as that from Yerky v Jones?

MR OSLINGTON: We would submit not, but unless that proposition is distilled from Yerky v Jones, the present case was correctly decided, based upon the findings, particularly those findings which are set out on pages 1 and 2 of our summary of argument.

BRENNAN CJ: Now, in this particular case, Justice Sheller, speaking of Yerky v Jones and seeking to put it as he says "to adapt the language of Amadio" - this is at page 73, I think, said:

the creditor must assume that a wife is under a special disability in dealing with her husband and her husband's creditor.

Now, do you accept that proposition?

MR OSLINGTON: If that is intended to articulate a principle to be derived from Yerky v Jones we would dispute that Yerky v Jones does establish that but, on the other hand, it is an articulation conveying what I submitted a short time ago. The appellant in this case would need to show Yerky v Jones established before the appellant could succeed.

TOOHEY J: It is not entirely clear to me from that page, Mr Oslington, how much is Justice Sheller expressing his own view of the authority and how much it is a recapitulation of argument.

MR OSLINGTON: We read that as his Honour's understanding of the appellant's argument of what Yerky v Jones established and his Honour's reasoning goes on to demonstrate why such a proposition simply cannot stand. I was about to say earlier that the context in which some of their Honours in Amadio referred to Mueller's Case and Justice Mason's reference to Mueller was a reference to page 650, is really a context in which their Honours were considering unusual features of loans which ought to be brought to the attention of the guarantor. Indeed, Justice Cussen, at page 650 recognised, one third of the page down the page where he said:

Of course, the facts with relation to a wife's guarantee may vary infinitely, and in some cases I think a creditor would be under no duty to give any explanation.

And then his Honour gives some examples. His Honour Justice Cussen's discussion at 649 onwards was against the background of the question his Honour posed at the middle of page 648 where he said:

Where, to the knowledge of a creditor, a husband is pressed to find money, and is indebted to the creditor in a large amount, and is required to give security -

and so on. So the discussion in Cussen is against the background of an unusual feature about the loan being guaranteed. There was a similar unusual feature in Barclays Bank. There was no such unusual feature in Yerky v Jones and there was no such unusual feature in the present case.

GUMMOW J: Can I ask you this: would you be submitting that the primary judge got Yerky v Jones wrong on the facts? In other words, would you say, accepting Yerky v Jones, you still should have won at first instance?

MR OSLINGTON: If one accepts the very narrow interpretation of Yerky v Jones which I articulated earlier, the primary judge, I think we would have to concede, got it right. But only if you accept that narrow interpretation. But our primary submission is that Yerky v Jones was really an illustration of the application of equitable principles and it does not establish, as Justice Dixon's decision itself illustrates, that simply because a wife guarantees a husband's debts and does not fully understand what she is doing does not place an onus on the creditor to prove that she did understand. Because in Yerky v Jones itself it was found that the wife was misled by the husband as to the nature of the debt, but that was not apparent to the Bank or the lender and she was not relieved of her guaranteed obligation.

So it really boils down to the very narrow issue. Unless this Court regards it as sufficiently special to conduct a full hearing on the question of whether a wife who is a guarantor ought to be singled out as being under a prima facie incapacity simply because she is a wife and the guarantee is of her husband's debts, unless this Court regards that as sufficiently important to conduct a full hearing of, the case really fell for determination on its facts.

BRENNAN CJ: The question really is whether or not Yerky v Jones is today being understood as requiring a creditor to assume that the wife is under some special disability so far as the husband is concerned in the execution of guarantees of the husband's liability. Now, if that is what Yerky v Jones says, then perhaps it is necessary for this Court to take it on, is it not?

MR OSLINGTON: We would submit that Yerky v Jones does not decide that. No support for such a proposition is found in any judgment in Yerky v Jones other than perhaps in the judgment of Justice Dixon, but then when one has regard to the passage in Justice Dixon's judgment at the middle of page 689 which I read, it is clear that even his Honour does not go that far. If Sir Owen Dixon intended to lay down a principle that where a wife does not understand what she is doing and has been misled by her husband, and the creditor does not take steps to disabuse her, if that was the principle laid down by Sir Owen Dixon, he would have found for the wife. He did not. He found for the creditor.

BRENNAN CJ: I am looking at the judgment of Justice Beazley in the Teachers Health Case at page 56,981, that second column halfway down going on to the next page, seems to suggest that there may be some pretty wide interpretation given to Yerky v Jones.

MR OSLINGTON: Does your Honour intend "wide" in the sense of - - -

BRENNAN CJ: I mean that looking at the parts quoted from the judgment of Justice Dixon by her Honour at page 56,981 there seems to be some emphasis being placed on the fact that the situation of a wife is, on that account alone, one of disability which might saddle the creditor with, as it were, constructive notice of whatever might have happened between husband and wife. That would be wider than you would wish to put Yerky v Jones?

MR OSLINGTON: Yes, it would be, your Honour.

BRENNAN CJ: The concern is that if that is what Yerky v Jones is being taken to mean, should this Court take the case on board in order to say what Yerky v Jones does mean?

MR OSLINGTON: Not in this case, your Honour, because of the findings of fact. The only way, in our submission, the appellant can succeed in this case, in light of the findings of fact, is to say that Yerky v Jones stands for authority for the proposition that if it happens to be a wife who grantees her husband's debts and it is proved that she did not understand the nature of the transaction or in some way was pressured by her husband to go to the Bank to give the guarantee, the wife is relieved from her guaranteed obligations irrespective of whether the Bank knew of any facts which could suggest she had been pressured or did not understand her obligations.

TOOHEY J: It would be poor comfort, I imagine, to the applicant if there were a grant of special leave for the purposes of clarifying these matters, unless it was also apparent that there was some reasonable prospect of success.

MR OSLINGTON: Yes, your Honour. The wife knew what a guarantee was and she knew what an overdraft was and she knew she was guaranteeing an overdraft.

BRENNAN CJ: Yes, thank you, Mr Oslington. Mr Jackson.

MR JACKSON: Your Honours, may I just say two things: the first is in relation to what the findings were. Your Honours will see, in a passage which commences at page 26 and go on to 29, the judge discusses the evidence of how the applicant ended up going to the Bank and then signing the documents. He did not believe the evidence given on behalf of the Bank. I do not mean that in any bad sense, but he did not accept the evidence of Mrs Redman who was the relevant officer of the Bank. Your Honours will see in particular at page 27 line 24 she said:

the manager of Wahroonga phoned her three or four times -

Then the remainder of that page and through to line 46 on page 28 deals with the evidence given by Mrs Redman. That evidence was not accepted. That appears on the next page, in fact. I will come to that in a moment. But your Honour will see, starting on page 48 line 49, his Honour then sets out the plaintiff's evidence - or the applicant's evidence - and your Honours will see then, going down to line 29 on page 29 that her version was accepted. So, in effect, she went along at her husband's request, and followed by the Bank's request, and simply signed the documents without further explanation.

If I could go then to Yerky v Jones, the second point, and look to see what was decided in effect by the Court, although I do not suggest this is the absolute ratio of the decision. If your Honours go first of all to page 665 in 63 CLR in Justice Rich, which is a short judgment at the bottom of 665, your Honours will see that he said:

I do not wish to derogate in the least degree from the judgment of Cussen J. in the case of Bank of Victoria Ltd v Mueller.

Then Chief Justice Latham, at page 664, the bottom of that page, refers to Bank of Victoria and your Honours will see what his Honour said about it, the third last line on 664:

In that case his Honour found that the husband.....had misrepresented in a material respect -

et cetera. Your Honours will see the passage then goes through to page 665 about 10 lines down where he says, "In such a case". So if one looks to see what Chief Justice Latham said in relation to his understanding of Bank of Victoria v Mueller, it was a decision where there was, in effect, the misconduct between husband and wife and nothing more than that apart from signing the documents. The last judgment was that of Justice McTiernan and that is at page 690 where he said the facts did raise inequity.

The last thing I want to say about it is this, that if one goes to the two passages in Sir Owen Dixon's reasons, the way he expresses the principle at 683 in the middle paragraph speaks of there being quite narrow tests and then says if that happens she has a prima facie right to have it set aside. When one goes to the passage to which our learned friends referred at page 689, what is being spoken of there - that is the passage commencing, "But, if the general nature and effect" - is the situation as at the result of the case, at the end of all the evidence. Now, your Honours, the position at the end of the evidence in this case was in dealing with what was communicated by the Bank to the applicant, as is set out on the page to which I referred earlier, pages 28 and 29.

Your Honours, those are our submissions.

BRENNAN CJ: The Court will adjourn briefly in order to consider what course it should take.

AT 12.07 PM SHORT ADJOURNMENT

UPON RESUMING AT 12.17 PM:

BRENNAN CJ: There will be a grant of special leave in this case.

AT 12.18 PM THE MATTER WAS CONCLUDED