Gattellaro & Anor v Westpac Banking Corp S77/2003 [2003] HCATrans 790 (19 June 2003)

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Sydney No S77 of 2003

B e t w e e n -

YOLANDA GATTELLARO

First Appellant

ROCCO GATTELLARO

Second Appellant

and

WESTPAC BANKING CORPORATION

Respondent

GLEESON CJ

McHUGH J

KIRBY J

HAYNE J

HEYDON J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON THURSDAY, 19 JUNE 2003, AT 10.04 AM

Copyright in the High Court of Australia

MR G.J. McVAY: May it please the Court, I appear with my learned friend, MR D.M. LOEWENSTEIN, for the appellants. (instructed by Spencer Whitby and Co)

MR J.C. SHEAHAN, SC: May it please the Court, I appear with my learned friend, MS K.A. REES, for the respondent. (instructed by Henry Davis York)

GLEESON CJ: Mr McVay and Mr Sheahan, I think the parties have been notified that I have for many years held shares in the respondent Bank. I understand the parties have no objection to me sitting in the matter.

MR McVAY: Not from the appellants, your Honour.

MR SHEAHAN: That is so, your Honour.

KIRBY J: Mr Mcvay and Mr Sheahan, I have banked with the Bank of New South Wales and Westpac Banking Corporation since 1967 and the Bank has the first mortgage on my home in Rose Bay in Sydney, but I do not feel embarrassed to sit in the matter. Unless you have anything to say about it, I will sit.

MR McVAY: Nothing to say, your Honour.

MR SHEAHAN: Nor I.

HEYDON J: I can do better than that. I both own shares and bank with Westpac.

GLEESON CJ: Yes, Mr McVay.

MR McVAY: Your Honours, before moving to the actual appeal papers, there is a notice of motion which was filed on 12 May 2003 which is before your Honours. It is a notice of motion to amend the notice of appeal. I do not apprehend there is any objection to it; they were typographical errors.

GLEESON CJ: Is that right, Mr Sheahan?

MR SHEAHAN: That is so, your Honour.

GLEESON CJ: Yes, you have that leave.

MR McVAY: Thank you. We will undertake to file the amended notice of appeal in the Registry unless your Honours want them before you.

GLEESON CJ: There is also a notice of motion to seek to amend the notice of contention.

MR SHEAHAN: Indeed there is, your Honours, and I would seek - - -

GLEESON CJ: What is your attitude to that, Mr McVay?

MR McVAY: It is opposed, your Honour.

GLEESON CJ: Is it convenient for us just to hear arguments from both sides and to deal with that in due course?

MR SHEAHAN: I believe so.

GLEESON CJ: Yes, Mr McVay.

MR McVAY: Do I understand your Honour to want to hear argument on the notice of contention and application to amend the notice of contention first?

GLEESON CJ: No, whatever order is convenient to you, Mr McVay.

MR McVAY: Your Honours have the appellant's written submissions and I take those, your Honours, as being read. There have been some developments.

GLEESON CJ: As they say sometimes in the Magistrates courts, Mr McVay, he read them and appeared to understand them.

MR McVAY: Of course, I did not propose to ignore them.

KIRBY J: I understood them all except for a reference to a popular magazine.

MR McVAY: Your Honours have my friend's respondent's submissions. In paragraph 1 of those submissions, the respondent now accepts that the doctrine of judicial notice did not permit the majority of the Court of Appeal to find that the respondent, in 1985, used a standard form of guarantee.

GLEESON CJ: How did that matter come up in the case, Mr McVay, that question of judicial notice? Was it argued between the parties?

MR McVAY: No, it was not. It was a bolt out of the blue on the part of the majority.

KIRBY J: But the primary judge drew an inference, did he not.

MR McVAY: He did.

KIRBY J: So, are we talking about the difference between drawing an inference from evidence that was established in the case and, as it is said, from your failure to give contradictory evidence or to ask questions concerning the point and judicial notice, is that the area of controversy?

MR McVAY: No, it is not, your Honour. As of last Friday the amended notice of contention raised for the first time the issue that your Honour just raised, that is did the appellants have an onus to ask questions of various witnesses and bring forward various issues that would obviate the need for judicial notice. Now, up until today, your Honours, that has not been an issue between the parties. Perhaps I should start on that because it is pretty well vital to the outcome of the appeal. Your Honours, the trial judge found that notwithstanding the respondent could not produce a form of guarantee, he held notwithstanding that Mr Gattellaro had signed a guarantee.

KIRBY J: There was some minute, was there not, where he gave a support for them?

MR McVAY: I should take you quickly to a couple of - there are two diary entries upon which the trial judge drew the inference that there had been a guarantee. Your Honours will find those at appeal book 3 pages 652 - I am sorry, I misled your Honours - appeal book 1 page 280. I have done it again, I am sorry, your Honours. It is appeal book 2.

GLEESON CJ: Just give us a moment, Mr McVay. That is not very easy to read.

KIRBY J: What page is it? I did not - - -

MR McVAY: I beg your pardon. Page 280 is the first reference.

GLEESON CJ: That is at line O.

MR McVAY: About line E, your Honour. This is an internal bank memo and up the very top your Honours will see the words "Falgat Constructions Pty Ltd".

GLEESON CJ: Yes.

MR McVAY: That was the appellants' company.

GLEESON CJ: But the statement of fact appears on line O, does it not?

KIRBY J: Also at E, "G'Tee Supported".

MR McVAY: That is right.

GLEESON CJ: But the fact is, on O:

Mr Gattellaro has signed D & I Guarantee to support Company advances.

MR McVAY: Yes. But Justice Kirby is right when he directs our attention to line E. Opposite the words "Falgat Constructions" "Secy$120 G'Tee Supported".

GLEESON CJ: Now, that, presumably, is secondary evidence of the guarantee?

MR McVAY: Yes, but, as your Honour can see, that is limited to $120,000. If your Honours go over to page - - -

KIRBY J: Let me get it clear in my mind. Is it for the original arrangement with the bank or the second arrangement when it was refinanced?

MR McVAY: The original arrangement. The second arrangement did not come until June of 1986.

KIRBY J: What date is this?

GLEESON CJ: 27 November 1985.

KIRBY J: 1985, is it not?

MR McVAY: Yes.

KIRBY J: 27 November 1985?

MR McVAY: Yes.

KIRBY J: That original financing was back in 1977, or something to that effect?

MR McVAY: 1977, yes.

KIRBY J: Why would they have a minute of November 1985 concerning arrangements that had been made eight years earlier?

MR McVAY: The 1977 arrangement was a mortgage whereby the individuals, Mr and Mrs Gattellaro, mortgaged their home to support advances made to themselves personally. However, they traded through a company, Falgat Constructions, and the Bank advanced moneys to Falgat Constructions, and the Bank was keen to be secured for moneys advanced to Falgat Constructions.

To do that, it took a guarantee or it tried to take a guarantee from Mr and Mrs Gattellaro. The 1977 mortgage contained one of those "all moneys" clauses which says that it secures all moneys advanced to the debtors or for which the debtors, the Gattellaros, might become liable to the Bank. The Gattellaros became liable to the Bank by virtue of this guarantee in 1985 which found its way through to the property, the house property, by virtue of the 1977 mortgage.

GLEESON CJ: But this document is evidence of the fact that by 27 November 1985, Mr Gattellaro had signed a guarantee to support advances to the company, apparently, to an extent of $120,000. Is that what it shows?

MR McVAY: No, I do not think it does, your Honour. Prior to this memo of November 1985 - probably right, to the extent of - you are quite right, your Honour. Coming down to line O, "Mr Gattellaro has signed D & I". Now, that is unlimited, debt and interest it means, so it is not limited to $120,000 but it is an unlimited guarantee.

GLEESON CJ: How do we know that?

MR McVAY: That was accepted by the trial judge and we do not cavil with it.

GLEESON CJ: So somebody gave evidence interpreting this document?

MR McVAY: Yes. Now, the position changed from what you see at page 280.

KIRBY J: Did the Bank explain why they could not turn up the original documents? They just said it had been lost or it could not be found?

MR McVAY: They did not even say that, your Honour. They gave no explanation whatsoever.

KIRBY J: And his Honour, the trial judge, said that one would infer that banks do not normally lose security documents.

MR McVAY: That is right, especially as it could not be turned up six months later when a second transaction went through. His Honour said all those things. Commonsense tells us that banks do not lose security documents, but notwithstanding that he held that - - -

HAYNE J: Do not tell me that, Mr McVay.

MR McVAY: The position changed from what your Honours see on 280 to what your Honours will find on 282. It is a little hard to read but at about line C, again opposite the heading "Falgat Constructions" at the top of the page the words appear:

Secy D+I G'tee

(supp)

So, we went from on page 280 - - -

KIRBY J: And "(supp)" means support, does it?

MR McVAY: Support, yes.

KIRBY J: Not supplement?

MR McVAY: Supported, I think. The evidence was supported.

KIRBY J: I see.

GLEESON CJ: So somebody, once again, was permitted to give evidence interpreting this document?

MR McVAY: Yes. No, actually, I think it was the person who wrote it, the Bank manager at the time.

GLEESON CJ: I do not ask you to take us to it but what is the page of the transcript in which we will find the evidence interpreting those two documents?

MR McVAY: Could I ask my junior to look for that?

GLEESON CJ: Yes, certainly. Tell us when it is convenient.

MR McVAY: Thank you. Your Honours can see that from those two entries, and they were the two entries from which the trial judge inferred that security had gone from $120,000 on page 280 to an unlimited guarantee on page 282, that coupled with the note at line O:

Mr Gattellaro has signed . . . Mrs Gattellaro is to sign this week.

Now, because the Bank could not produce the guarantee the argument was - - -

HAYNE J: Could not or simply did not?

MR McVAY: Did not.

HAYNE J: We do not know whether they could or could not.

MR McVAY: No, we do not. No explanation, your Honour, was given. I am not challenging today that inference? I did in the Court of Appeal but was unsuccessful.

KIRBY J: What inference; that they could not?

MR McVAY: That they could not, that the trial judge should not have drawn an inference that a guarantee was signed by Mr Gattellaro based on those two entries I just took your Honours to.

KIRBY J: You asserted that in the Court of Appeal. The judge did not accept that argument. He accepted an inference, did he, that Mrs Gattellaro had, in fact, executed a guarantee?

MR McVAY: Mr Gattellaro had, your Honour.

KIRBY J: Mr Gattellaro had, and did he infer that Mrs Gattellaro did a week later?

MR McVAY: No, he found that Mrs Gattellaro did not.

KIRBY J: I see.

HAYNE J: Now, it is important to understand the limits of that inference, is it not?

MR McVAY: It is.

HAYNE J: It is an inference that an instrument called a guarantee was executed. Is it an inference that says anything about the terms of that guarantee?

MR McVAY: No, we come to that later and that is the core of this appeal.

GLEESON CJ: Is that affected by the evidence interpreting these two documents?

MR McVAY: No, no.

HEYDON J: That evidence is on page 141 of volume 1.

MR McVAY: I am grateful to your Honour. From there - - -

GLEESON CJ: Could I interrupt you to ask this question? The relevance of this inference, whatever its exact limits, as I understand it, was to your assertion that the 1986 arrangements were unfair, if I can use that broad expression, because they increased the obligations to the Bank of your clients without proper explanation?

MR McVAY: Yes, and the Bank said even if you did not have a proper explanation, you were always liable for the increased amount because back in 1977 you signed a mortgage which had an "all moneys" clause in it. In November 1985 Mr Gattellaro signed a guarantee. The promise of Mr Gattellaro under the guarantee was secured by the 1977 mortgage - and I will take you to all that shortly - and because Mrs Gattellaro gave a personal covenant in the 1977 mortgage to pay whatever was secured by the mortgage, the husband's guarantee was therefore secured by Mrs Gattellaro's half of the house.

GLEESON CJ: So, relevantly, there was no increase in the liabilities or obligations of your clients.

MR McVAY: That was the Bank's argument.

GLEESON CJ: That is what all this was relevant to.

MR McVAY: That was all this was relevant to. As your Honour said, we said unfair because a huge increase in the amount secured on the family home. The Bank said "No, it has always been secured since 1985 when this guarantee was signed". Now, because the Bank did not produce the guarantee, the issue came up as to what it contained, what were the terms of it.

KIRBY J: Now, can I just ask you to pause there? In human affairs, mistakes happen, banks should not lose security documents, but sometimes they do. How, in your submission, in a trial, would in fairness the Bank be able to establish the content of that document? Could they establish it by secondary evidence? Could they call a witness who said, "Well, our practice at that time was so-and-so at that particular branch. We had these forms and that was - - -

MR McVAY: The manager of the particular branch was called, not asked the question. One would have - - -

KIRBY J: Would that line of questioning have been admissible, a practice line?

MR McVAY: I would submit so, your Honour. If there was a dispute as to what form of guarantee a branch of a bank used at a particular time, I would submit that the manager could have been called to say "Yes, in the stationery cupboard we had a pile of guarantee forms. They were the only guarantee forms, and whenever a guarantee was called for, for a third party guarantee, this was the one we used."

HAYNE J: The critical step in that evidence would be the evidence that there was but one form of guarantee.

MR McVAY: Exactly. He would say perhaps, "We threw all the other ones out prior to this one and this is the only one we had on the shelves".

KIRBY J: No, but I think his Honour's point is - and I think you make this in your written submissions - that there could be a variety of guarantee forms.

MR McVAY: Of course.

KIRBY J: In some the husband and wife, some for small businesses, some for large corporations, some with variations, some with things in, things out, added clauses, a whole variety of possibilities and in the absence of the document itself or acceptable evidence that indicated what would have been the practice in the particular case, you say it cannot be left to inference and cannot by concession be left to judicial notice?

MR McVAY: Yes, precisely, and adding to that all those things that Justice Priestley said in dissent as to why he would not accept that judicial notice could be taken of that. But I have set those out in my submissions as to all the reasons why and I will come to those in due course when I take you to the form.

Your Honours, even though Mr Gattellaro was found to have signed the guarantee and Mrs Gattellaro, his Honour said, did not accept that she had or there was not enough evidence to say that she had. My friend says that on the pleadings and the way the case was conducted all the Bank had to do was show that Mr Gattellaro signed the guarantee and because of the matters of pleading Mrs Gattellaro accepted that she would be liable on the 1977 mortgage, even if she had not signed.

The position of the parties until the last week has been - and I can demonstrate this and I will - that the Bank always accepted that the position at law was that if one joint guarantor signed a guarantee form which was expressed to be with others and unless that guarantor who signed the guarantee form agreed, he was not bound if the others did not sign. That was always the position common between the parties until this week. To demonstrate that, your Honours, I have given to the Court Crier a transcript of the proceedings before Justices Gummow and Callinan in the special leave application. I do not think you have it.

GLEESON CJ: Yes, we have that.

MR McVAY: Thank you. If your Honours go to page 18 of 19, at about point 7 on the page Justice Callinan said:

"Binding on each signatory", and that is your common law point. You say that there is a principle that says if one signatory to the guarantee does not sign it, then that invalidates it so far as the person who has signed it is concerned. Is that the point?

MR McVAY: I have authority for that . . .

CALLINAN J: Is that the point?

MR McVAY: That is the point, yes.

HAYNE J: I think this is at page 24 of the Court's transcript, not the AustLII version.

MR McVAY: I am sorry, yes.

HAYNE J: It is line 1016.

MR McVAY: I beg your pardon, your Honours. Do your Honours have that?

HAYNE J: Yes.

MR McVAY: At the bottom of the page Mr Stevenson said - Mr Stevenson was then appearing for the respondent:

Well, it is common ground that the general principle, absent a clause like clause 20, is that if a guarantee is drawn up for two guarantors, and only one signs, then one is not bound, because the only promise he made was to join with the other to guarantee, and if the other does not join, then he is not bound.

So it was common ground until last week. I am not being critical of my friend because he is new in the case, but up until at least the special leave application, that was the common ground. The importance of that is this, that Justice Hulme, the trial judge, and the majority in the Court of Appeal, because of judicial notice found that the guarantee that Mr Gattellaro signed must have contained a clause 20. That clause 20 your Honours will find at volume - - -

HEYDON J: Volume 2, page 401.

MR McVAY: Volume 2, page 398, yes. The relevant clause 20 is at page 401, about lines U and V.

So because of the doctrine of judicial notice, the majority found that this document I have just taken you to, which is signed in June 1986, was in similar form to the one that the Bank did not produce but was found to have been signed by Mr Gattellaro in November 1985 and that it contained clause 20. That, of course, overcomes the common law rule that if a guarantee is made out in the names of more than one guarantor and one does not sign then the one who does sign is released.

So that is how this torturous path came to lead to Mr and Mrs Gattellaro being appellants here. They submit to your Honours that the Court of Appeal by majority could not find, by using judicial notice, that the Bank had only one standard form, and that it was the form of June 1986 that is before you, and that it was the same form that Mr Gattellaro signed seven months earlier.

HAYNE J: And you say there is no evidence, whether from the Bank or otherwise, that directly touched that subject of whether there was but a single form of guarantee.

MR McVAY: None whatsoever, your Honour.

KIRBY J: Was judicial notice argued before the Court of Appeal or did the Bank before the Court of Appeal seek to sustain the case on an alternative footing, namely inference and, if not inference, judicial notice or not?

MR McVAY: No. I think that the Bank, even before the Court of Appeal, did not even try maintain the judicial notice point. I will take you to the notice of contention just to make sure that is right, and the notice of contention your Honours will find in the Court of Appeal is at volume 3 page 623.

KIRBY J: Page 623 of the written submissions?

HEYDON J: Page 621.

MR McVAY: Your Honour is quite right.

KIRBY J: Well, it says that his Honour should have held this but it does not - - -

MR McVAY: Yes, it does not set the ground.

KIRBY J: - - -express a foundation.

MR McVAY: However, your Honours, the notice of contention unamended that was filed in this Court originally, which your Honours will find at volume 3 page 664, paragraph 1, the respondent was already beginning to abandon judicial notice:

1. The Court of Appeal should have decided the issue of the form of the guarantee executed by the second appellant in November 1985 without regard to any fact judicially noticed.

Then it goes on to say that they would have reached the same conclusion by the process of inference, and that will be a live issue before your Honours today as to whether the process of legal drawing of a inference would have allowed the Court of Appeal to get there, instead of judicial notice.

HEYDON J: Is your short position on paragraphs 2 and 3 simply this, that if this process of inference had been in play at the trial, it would have been very easy for someone to have asked Mr Power what "T8" meant and whether there was a "T9" or a "T7" and so on and what "1/10/84" meant.

MR McVAY: Exactly.

HEYDON J: And do you say neither Mr Power in-chief nor Mr Power in cross-examination said anything about those things?

MR McVAY: Not a word.

KIRBY J: Well, then the question becomes whether you ought to have asked questions about this, as I understand it.

MR McVAY: Yes.

KIRBY J: Browne v Dunn is trotted out and some suggestion is made that you should have given evidence or asked questions about it.

MR McVAY: The first issue in respect of - - -

KIRBY J: Because you are defending the claim and you are defending it on the basis of the Contracts Review Act and you bear the onus of establishing the defence on the Contracts Review Act.

MR McVAY: Yes.

KIRBY J: The question therefore is, does it arise at an earlier stage in establishing the claim, or does it arise on the defence that you bear the onus of establishing - - -

MR McVAY: I submit the onus lies on the respondent to say that if it had an earlier guarantee which was supported by the even earlier mortgage, then it was the onus on the respondent to prove what was in that guarantee. I say that for these reasons, your Honour. Before the proposed amendment in this Court today the issue of the onus that your Honour Justice Kirby just said to me was never an issue in any court.

GLEESON CJ: Did the finding of fact against you or the inference against you go beyond what appears on page 657 in paragraph 34, in the first two sentences?

MR McVAY: No, except to the extent that the clause 20 - no, that is not quite right. At the bottom of that page, 657, about line 30 - this is where the judicial notice point came in - the only inference that was drawn against us in relation to whether a guarantee was signed was at line 10, but about line 30, his Honour went on to say:

It was submitted that the guarantee given by Mr Gattellaro might not have become operative in the absence of signature by Mrs Gattellaro - - -

GLEESON CJ: Right. Now, who bore the onus on that question?

MR McVAY: As a matter of law, I bore the onus, but it was common ground. As I took you to the transcript of the special leave application, it was common ground that if both did not sign then Mr Gattellaro was not liable. That was the common ground part of it, and I can take you to - and I will - the way the trial was conducted, that it was put to Mrs Gattellaro three or four times that she in fact signed the guarantee. The findings by his Honour as to what the guarantee contained, by taking judicial notice, was as a result of the 1977 mortgage and the 1986 guarantee being put in evidence.

GLEESON CJ: But it really did come down to an onus question because there was an incompleteness in the evidence.

MR McVAY: There was.

GLEESON CJ: Onus of proof becomes important when the evidence is not complete. So there was no problem about reaching a conclusion that Mr Gattellaro had signed a guarantee, but the argument that was in play between the parties was whether or not his guarantee might have been ineffective because it might have contained a clause that said it would not be effective or would be effective, one way or the other. Let me put that more neutrally. The argument descended to the question as to the efficacy of the guarantee that he signed, having regard to the possibility that it might or might not have contained a provision covering the significance of the fact that Mrs Gattellaro did not sign it.

MR McVAY: Yes. Now, the reason why the onus was on the - - -

HAYNE J: Can we go back a stage prior to that. The relevant pleadings at page 22, that is the Bank's pleading against you?

MR McVAY: Yes.

HAYNE J: Paragraph 10 is obviously amended at some point - it perhaps does not matter when - but it is 10(c) that is the relevant plea, is it not?

MR McVAY: That is right.

HAYNE J: The Bank's plea is that by a guarantee made in a date, there was a guarantee, say there that:

The Bank is not able to produce . . . Its existence is to be inferred -

A way of understanding the significance of whether Mrs Gattellaro had signed the document is that it may affect whether Mr Gattellaro ever guaranteed the Bank, or whether he simply signed a form preparatory to the giving of the guarantee being intended by both and there was evidence from the diary note tendered by the Bank that it was intended that there would be two parties to the guarantee.

MR McVAY: Yes.

HAYNE J: Now, in those circumstances, who bears the onus of demonstrating that the guarantee was effectively given?

MR McVAY: First of all, your Honour, that amendment was made - I was in the case at first instance. My memory is it was made about a week prior, less than a week prior to the hearing. There was no reply put on but the conduct of the case was on the basis that the Bank had to prove that both Mr and Mrs Gattellaro signed. The cross-examination of Mrs Gattellaro went to the issue that "You did sign that guarantee" because it was common ground between the parties, as I have taken you to in the special leave application, that unless the Bank could prove that both signed the common law position was that Mr Gattellaro was not liable.

KIRBY J: That is supported by authority, is it?

MR McVAY: Yes.

KIRBY J: Why is there not an individual and separate obligation? Why is the common law to that effect, especially in the law of guarantees which is pretty draconian, or is it because the law of guarantees is draconian?

MR McVAY: Yes. It seems to be that if it appears from the guarantee document that it was to be a joint guarantee and if only one of the joint guarantor signs, unless that one who signs agrees that he is to be bound, notwithstanding the other did not, he is not liable.

KIRBY J: You say in your written submissions that that is supported by authority.

MR McVAY: Yes it is.

KIRBY J: Is the authority cited in the written submissions?

MR McVAY: It is. It is the authority of Marston. But, as you saw, Mr Stevenson accepted that as being common ground.

KIRBY J: Right.

McHUGH J: I am not sure that is fair to Mr Stevenson, is it? What he accepts is that there is a general principle to that effect, that if a guarantee has gone up for two guarantors and one only signs then one is not bound. That is Cornbrook stuff. That principle is as old - has been acted on ever since I can remember.

MR McVAY: Yes.

McHUGH J: He was not saying anything more than that is a general proposition. The question is, what happened in this particular case?

MR McVAY: He was saying a little bit more than that, your Honour, because - I note your Honours apparently do have the application book, the special leave application book. I do not.

GLEESON CJ: No, I do not. What we routinely get is the transcript of the special leave application.

MR McVAY: I see.

McHUGH J: This is our own transcript.

MR McVAY: In opposition to the grant of special leave the respondent said even if judicial notice should not have been taken there is no utility in granting special leave because Mr Gattellaro signed the guarantee and because of that Mrs Gattellaro was liable.

GLEESON CJ: Liable on the mortgage?

MR McVAY: Yes, under the mortgage. Quite right. This is answering Justice McHugh's point, Mr Stevenson did not press that non-utility point at the special leave hearing. He did not press it because he recognised - and that is where that quote came from - that there was utility because if this judicial notice finding is overturned then Mr Gattellaro is not bound, and the judicial notice point being at clause 20 was in the mortgage, then Mr Gattellaro was not bound by the guarantee.

McHUGH J: But that is not what he said at all, is it? I mean, Mr Stevenson said, Mr Gattellaro makes no application, as I understand it, except to support Mrs Gattellaro's submission.

MR McVAY: No, that all changed, your Honour. That all changed during the course of the hearing.

McHUGH J: It changed because in two pages this Court started to talk about granting leave and then Mr Stevenson was asked about a general principle. I do not think Mr Stevenson gave anything away.

MR McVAY: With respect, what he said there at the bottom of the page that I took you to, coupled with his stance that he withdrew the non-utility point, was understood, generally, on that day, that Mr Gattellaro had every utility in being a party to the special leave application and having the matter go back to the Court of Appeal for determining his defence and his wife's defence under the Contracts Review Act.

GLEESON CJ: This is not important, I think, to your argument, but Justice Priestley, who dissented, would have upheld Mrs Gattellaro's appeal but he would not have upheld Mr Gattellaro's appeal. Is that right?

MR McVAY: Under the Contracts Review Act, yes.

GLEESON CJ: So Justice Priestley found in favour of Mrs Gattellaro and against Mr Gattellaro?

MR McVAY: Yes. The majority did not make any decision whatsoever because they came to their view on the judicial notice point, so they did not have to go to the Contracts Review Act point.

KIRBY J: So Justice Priestley did not seem to be so impressed with Marston; is that the position?

MR McVAY: He did not even discuss it, with respect, your Honour.

McHUGH J: Probably because it was never an issue in the case.

GLEESON CJ: On page 650 Justice Priestley says what his conclusion is and, as I understand him, what he says is, "I would allow Mrs Gattellaro's appeal. By implication I would dismiss Mr Gattellaro's appeal, but it is not necessary for me to formulate the precise orders because I'm in a minority".

MR McVAY: Yes.

McHUGH J: As late as the near conclusion of the argument, Justice Gummow asked:

If we granted leave to the first applicant, in terms of the constitution of the appeal, does that mean Mr Gattellaro would be joined as a submitting respondent, I suppose?

MR STEVENSON: I am not quite sure . . .

GUMMOW J: Yes. He could not be in as an appellant.

MR STEVENSON: No, he cannot.

Then you got up a little later and you said that he was an appellant in the case.

KIRBY J: And so he is before us.

MR McVAY: Yes.

McHUGH J: It was at that stage that Justice Callinan said:

You say that there is a principle that says if one signatory to the guarantee does not sign it, then that invalidates it so far as the person . . . Is that the point?

Then Mr Stevenson made the point about the common ground. I do not think he was making any concessions about how the case was conducted.

GLEESON CJ: Was that point in play in the Court of Appeal?

MR McVAY: No, and not before his trial judge.

GLEESON CJ: So this is a new point that you are raising?

MR McVAY: It was never an active point before the trial judge or the Court of Appeal because the way the trial was conducted was that the Bank undertook, if you like, to prove that Mrs Gattellaro signed. It was never an issue that if only one signed the other was still liable under the mortgage.

KIRBY J: We will have to hear what Mr Sheahan says about this, but what do you say is - because of the common ground in the Court of Appeal, Justice Priestley was right in accepting the fundamental of your argument but he tripped when it came to translating it with the premise about Marston into the orders which followed from accepting that fundamental argument and therefore, that what his Honour should have said was that he proposed that the appeal of both appellants be upheld and that he simply made a mistake and he did not in fact formulate his final orders.

MR McVAY: I think that is fair to say, your Honour. The Court of Appeal would not needed to have drawn judicial notice if there was an onus question on me. They could have simply said, "The Gattellaros bore the onus. They didn't discharge it; they lose".

GLEESON CJ: That is what your opponent wants leave to argue here.

MR McVAY: He wants leave to argue it here. What I am submitting to your Honours is that it is too late. The trial judge, the Court of Appeal, the special leave application all went without raising a word as to where the onus lies.

McHUGH J: Yes, but it may be that everything went before you raised the point that you now rely on. You never seemed to have raised at any stage a proposition that if Mrs Gattellaro got out of it, the male appellant got out of it. No doubt it was for that reason that Justice Priestley simply decided the case in favour of the wife and not the husband.

MR McVAY: No, your Honour, with respect. If your Honours go to volume 3 page 657 at line 30, Justice Giles faithfully records the submission that was made:

It was submitted that the guarantee given by Mr Gattellaro might not have become operative in the absence of signature by Mrs Gattellaro -

It was put fairly and squarely.

McHUGH J: What does that mean "might not have"? If it was a proposition that you were putting, you would expect to submit that the guarantee did not become operative.

MR McVAY: Your Honour, I do not remember exactly what I said. He clearly recorded the submission of what Mr Brereton said at that stage. He clearly recorded the proposition - the submission. That is when he went on to hold about the judicial notice point. So that clearly makes it, with respect to Justice McHugh, clear that this is not the first time that this point was raised.

HAYNE J: But you said it was not in play at trial?

MR McVAY: No, it was not in play at the trial because the way the trial was conducted was that the Bank conducted itself by seeking to prove that both Mr and Mrs Gattellaro did sign the guarantee. I will take you to the cross-examination of - - -

HAYNE J: Just before you do that. Is it essential to your argument in this Court that you make good or rely upon the proposition about two guarantors?

MR McVAY: No, not entirely, because of the way that the case proceeded. Even if the onus was on the Gattellaros, my primary submission to your Honour is that because it was never raised as an issue, trial judge or Court of Appeal, it is too late now to raise it. Westpac is bound by the conduct of its case and even if it is a good point, even if it is, it is too late now because it is too controversial to raise now. If it was raised before the trial judge, there could have been - as Justice Kirby put to me, the case would have been conducted entirely differently. I would have cross-examined the Bank's witnesses about what did "1/10/1984" mean and what did "T8" mean, but because the issue was not there it would have been folly of me to blunder into that sort of cross-examination when there was no guarantee form put in evidence.

GLEESON CJ: I am not sure that this case is going to end up showing the adversarial system in its best possible light.

MR McVAY: Yes, that is probably right, your Honour.

HAYNE J: I beg to differ.

GLEESON CJ: But we seem to have reduced the issues to a point of pleading.

MR McVAY: And conduct of the hearing.

GLEESON CJ: Yes.

MR McVAY: That is more important than the pleading, I would submit with respect, your Honour.

McHUGH J: In the Court of Appeal - I have looked through your submissions in the Court of Appeal, written submissions - there is not a single submission about this point on which now so much emphasis is put on, that if Mrs Gattellaro is out so is Mr Gattellaro out - not a line.

MR McVAY: I concede that, and there is also nothing in the respondent's submissions about the onus.

McHUGH J: No.

MR McVAY: But it was clearly raised, as is recorded by his Honour.

McHUGH J: I could just imagine Mr Brereton - I can hear him saying it, "Well, your Honour, it might've been". That was it.

MR McVAY: It was a bit more than that, your Honour. I might have been on my feet at that stage. Mr Brereton ducked it over to me for quite a while because he was in four courts at the same time.

KIRBY J: I presume that the written submissions - - -

HEYDON J: On page 619, Mr McVay, paragraph 65, is that a written submission consistent with your present contention?

MR McVAY: At line?

HEYDON J: Just to get the whole context, lines 28 to 37.

McHUGH J: That is the submission. There is no positive submission, it is just a throwaway line.

MR McVAY: Well, with respect, it is contained in submissions, your Honour.

KIRBY J: You say that is the answer to the point Justice McHugh has been raising?

MR McVAY: Yes, and in addition to the specific submission that Justice Giles recorded. He was obviously impressed enough with the submission to be able to record it.

GLEESON CJ: Just a minute, look at page 619, line 30. What is raised in the submission is the possibility that if the male appellant signed a form of guarantee:

it contained a clause that it would not be effective unless all parties named in the guarantee signed.

MR McVAY: Yes.

GLEESON CJ: So the submission raises in support of your male client a speculative possibility about what was written in the form of the guarantee.

MR McVAY: But we go on to say this is the prima facie legal position. But that is no more than just commenting upon what the common law is.

KIRBY J: There is no reference there to Marston?

MR McVAY: No, there is not, no.

GLEESON CJ: That is the explanation of the use of "might" in Justice Giles' judgment, is it not? The reason Justice Giles on page 657 at line 35 said:

It was submitted that the guarantee . . . might not have become operative -

is because of the language of the second sentence of paragraph 65 on page 619.

MR McVAY: That could be right, your Honour, but the reference to the prima facie legal position makes it clear that we were saying that the prima facie legal position is that unless there is a clause 20 in the guarantee, then he is not bound. His Honour saw fit to deal with it at page 657 so he considered it to be a reasonable submission, a relevant submission. But the problem was never taken up - I should take your Honours to the conduct of the trial and the way that Mrs Gattellaro was cross-examined to show that it was at all times contentious that she sign the guarantee, not as the respondent would have you accept that it was not in contention.

If your Honours go to volume 1 page 127 - can I just say this before I do, your Honours? What has just transpired in the last few minutes demonstrates, if I may say, why it is important that if this was an issue from the Bank, it should have been raised much, much earlier because it is nearly four years since this case and, even though I was in it, I cannot remember everything that happened. But if this issue was as to onus and how the trial was raised before the trial judge or the Court of Appeal, it would have been much easier to deal with, much easier, because memories would have been fresh.

KIRBY J: Yes, but do you have a problem on this footing, that the Bank did not produce the form? A question then arose before Justice Hulme not of judicial notice, but of inference. The drawing of inferences is something judges do all the time. Your client got in the witness box and denied that she had signed the form. The judge found that she was generally honest but he, nonetheless, was willing to infer that there was an obligation assumed by her that bound her to the guarantee - husband. Now, in the face of her denial, is that not a conclusion that the judge drew with advantages that he enjoyed that you cannot remember, that we can never have experienced?

MR McVAY: Yes.

KIRBY J: Now is that against you?

MR McVAY: I do not think so, your Honour, because the way that Mrs Gattellaro was found to be liable was not as a result of any lies that she told or anything that she signed, but it was by reason of the finding that her husband had signed something.

GLEESON CJ: Her liability came from the mortgage that she signed in 1977.

MR McVAY: Precisely.

GLEESON CJ: Not from the guarantee that she did not sign in 1985.

MR McVAY: Exactly.

GLEESON CJ: But the basis on which the trial judge found against both your clients was that he found as a fact that Mr Gattellaro had signed a guarantee and we are now dealing with the possibility and considering who carried the onus of proof in relation to it, that the document that he signed was ineffective to bind him to anything as a guarantor by reason of its non-signature by Mrs Gattellaro. That is what it all comes down to.

MR McVAY: It does.

GLEESON CJ: And it all comes down to a question of onus, does it not? I am not saying you are wrong about the question of onus, but that is what it comes down to.

MR McVAY: Yes, it comes down to that and the corollary of that is this, that his Honour found that Mr and Mrs Gattellaro's house was security under the 1977 mortgage because he took judicial notice that what Mr Gattellaro did sign did contain a clause 20.

GLEESON CJ: You are talking about Justice Giles.

MR McVAY: Yes, Justice Giles and Justice Hulme.

HAYNE J: But it is necessary to go back one step prior to the rule which is engaged where there are two guarantors and that rule, I think so far as relevant, would be the rule that a clause in the guarantee providing that the liability shall be joint and several, invariably carries with it the implication that the guarantee is not binding unless all those named execute it.

MR McVAY: Yes.

HAYNE J: That is a quotation from Phillips and O'Donovan in "Modern Contract of Guarantee", 2^nd Edition, page 82, referring, amongst others, to Marston v Charles Griffith (1985) 3 NSWLR 294 at 300 to 301, but a great stream of English authority that preceded it.

MR McVAY: That is right. I undertook to take your Honours to the way the trial was conducted and to indicate to your Honours that the Bank always attempted to show that Mr and Mrs Gattellaro were both liable because they both signed the guarantee.

GLEESON CJ: Maybe I can just interrupt you. Is it disputed that the Bank, at trial, endeavoured to persuade Justice Hulme that Mrs Gattellaro had signed the guarantee?

MR SHEAHAN: That is not in contest, your Honour, that particular point.

GLEESON CJ: All right, thank you, that is all I wanted. We know that the Bank, at trial tried, unsuccessfully, to persuade Justice Hulme that Mrs Gattellaro had signed a guarantee.

MR McVAY: Yes, which leads to the inevitable conclusion, your Honour, that there was not a joinder of issue, as my friend now submits, only on the point as to whether Mr Gattellaro signed a guarantee because he says now that the onus was on the Gattellaros to say that Mr Gattellaro never became bound because it was his intention that he would not become bound if his wife did not sign. That is what your Honour Justice Gleeson said to me a little bit earlier, that the Bank says the onus is on the Gattellaros to show that Mr Gattellaro only signed on the basis that he would only be liable if his wife also signed.

I put the submissions that that was the common law position and that in the absence of a clause 20 in any mortgage Mr Gattellaro was not bound and, if he was not bound, then the 1977 mortgage did not operate and Mr Gattellaro had no liability. Unfortunately, your Honours, the transcript did not transcribe either counsel's opening before the trial judge.

McHUGH J: It might have been more important to do the final addresses.

GLEESON CJ: It does, in one respect, you know - I had a look at that. Have a look at what Mr Stevenson said on page 23, line 16 of the appeal book:

the plaintiff's case would be largely documentary - - -

MR McVAY: Yes, but, of course, it was not. It contained days and days of cross-examination of the appellants.

GLEESON CJ: We have all had cases that we hoped would largely be documentary, Mr McVay.

MR McVAY: Yes, your Honour. Your Honours, I would submit that - I have already made my submission - the debate we have had today is four years too late and that if the debate had been raised properly when it should have been, then it could have been dealt with by the trial judge and an intermediate court of appeal when everybody knew what was going on.

KIRBY J: What is the consequence of that proposition, that the notice of contention should not be amended?

MR McVAY: Yes. I rely on - - -

KIRBY J: If the notice of contention is not amended, there still remain matters which the respondent wishes to argue, so we still have to resolve those.

MR McVAY: Of course, that is the inference point. The respondent says even if the onus is not as Westpac say it is, the trial judge and the Court of Appeal could still have reached the same conclusion by employing the process of inference rather than judicial notice.

KIRBY J: And your answer to that is, you cannot draw an inference because there could be 100 guarantee forms and who is to know?

MR McVAY: Exactly.

KIRBY J: And there is no evidence of practice, no evidence of the forms, no evidence that could have filled the gaps and the onus was on the plaintiff in the proceedings, namely, the Bank, and they were in the best position to bring that evidence?

MR McVAY: Exactly, the only position.

KIRBY J: They are big boys and if they do not prove these cases, that is too bad?

MR McVAY: That is right. A fair trial means that they have to prove it.

KIRBY J: I do not know that the talk of "fair trial" and "judicial activism" advances the case very much, at least in my mind.

MR McVAY: Yes, I am sure that would be right, your Honour.

KIRBY J: Fairness of trial is fairness also to the Bank.

MR McVAY: Of course, but as your Honour said, they are big boys - - -

KIRBY J: Inference is a common thing and human failings occur in every branch of activity, from the government to the banks and judiciary and everything, so - - -

McHUGH J: All judges are judicial activists, anyway. How did the common law get to its present state from the 12^th century? Only by judges developing the law.

KIRBY J: We will not go there.

MR McVAY: No.

McHUGH J: It was not frozen in the 12^th century.

MR McVAY: My law is not good enough to debate that with your Honour.

KIRBY J: Not today, anyway.

MR McVAY: No. I should take your Honours, though, on this question of inference - I should follow perhaps Mr Sheahan or respond to Mr Sheahan when he seeks to make good on his notice of contention that the inference was available, and I should perhaps follow him on that, being his notice of contention.

HAYNE J: Do you accept the statement of law of Justice Powell in Marston v Charles Griffith (1985) 3 NSWLR 294, particularly at 300?

MR McVAY: Yes.

HAYNE J: Before you unequivocally accept that, let me show you the knife in the napkin, though, that his Honour states the law as being that a party who has signed a guarantee in which it is intended that there should be other parties has a defence if the other has not signed it. Do you accept that is an accurate statement of the law?

MR McVAY: No. I thought he said he is not bound.

HAYNE J: No:

affords the intending surety who executed the guarantee a defence at law to an action on the guarantee.

I am referring to page 300G.

KIRBY J: It seems a narrower principle than the principle that Justice Hayne read earlier from the text.

HAYNE J: It would be consistent, I would have thought, with ordinary common law practice. The plaintiff produces the instrument, says, "There, that's your instrument. You signed it." It would then be a matter for the defendant, would it not, to allege in answer an excuse being the excuse, "Well, others were intended to sign it. They did not."?

MR McVAY: With respect, your Honour, I am looking at the report of Justice Powell in the case, and your Honours have it. If I can take your Honours to page 300E where his Honour said:

With respect, it seems to me that a consideration of the authorities leads one to the following conclusions:

1. if it is a term, whether express or implied, of the arrangements pursuant to which a parol contract of guarantee is executed, that there will be another co-surety or other co-sureties, or that the principal debt, or the guarantee, will be secured in an identified way, then, unless the intended surety who has executed the guarantee consents to the other co-surety or co-sureties not thereafter executing the guarantee . . . then the intended surety never becomes liable under the guarantee despite his execution of it - - -

HAYNE J: It was the next words I read you.

MR McVAY: Yes, your Honour, I can see that. But what his Honour was finding that he never becomes liable on it, and that was clearly put.

McHUGH J: But you never become liable if you are forced to sign a contract under duress, but the defendant must plead the duress. Duress is an offence at law.

MR McVAY: I accept that, your Honour.

McHUGH J: And similarly, in a situation like this, you have to plead the defence that the male guarantor was not liable because a guarantee was to be taken from his wife and was not signed by her and therefore he was discharged from his obligation.

MR McVAY: If that was all it was, your Honour, I would accept that. But what I am putting to your Honour is that that was not the way the trial was conducted, and I will take your Honours to the - - -

McHUGH J: I understand. That is a different point.

MR McVAY: Even the submissions before the trial judge did not say that. If that was the respondent's point, Mr Stevenson would have said it loudly and clearly in his submissions before Justice Hulme and the Court of Appeal. He did not say a word.

GLEESON CJ: Now, am I right in thinking that nobody mentioned Marston before Justice Hulme?

MR McVAY: That is right, because the approach was that the respondent set out to prove that both signed.

HEYDON J: But clause 20 was something that loomed in Mr Justice Hulme's mind. Why would it have done so if Marston was not thought to be something to be borne in mind? At page 592 he speaks of "Clause 20 of the Bank's standard form of guarantee". That is an irrelevant inquiry unless Mr Justice Powell's reasoning is thought to be a problem.

MR McVAY: Precisely. That would be an entirely unneeded judicial finding.

HEYDON J: Therefore presumably, someone said something about Mr Justice Powell's principle.

MR McVAY: But because it has been so long ago and because it was never raised before, I cannot honestly say to your Honour that it was. But precisely, your Honour, had it occurred to me as well, that would have been absolutely no need for that reference to clause 20 if that point had not been in some way agitated.

McHUGH J: Well, your written submissions are in the appeal book.

MR McVAY: Yes.

McHUGH J: They do not mention Marston, do they?

MR McVAY: They do not, no.

GLEESON CJ: It is possible that Justice Hulme referred to clause 20 because he actually was reading the Bank's standard form of guarantee. He would have had it in his hand at the time he was writing his judgment and he presumably read it.

MR McVAY: Neither counsel referred to it. It is almost unsatisfactory. It comes down, your Honours - what I said earlier was that if this point was a genuine point, it would have been raised earlier.

McHUGH J: It simply shows the prudence of Justice McClelland's insistence when he was an equity judge of always insisting that parties amended their pleadings to reflect every new point or point that was being raised in the case.

KIRBY J: You have to balance that against the efficiency of proceedings generally where these issues do not normally bedevil the case four years later and in the High Court of Australia. It is all a matter of playing up advantages and disadvantages. Many cases get by without too much formality nowadays.

MR McVAY: That is right, your Honour.

GLEESON CJ: But what has happened in this case is that there is a crack in the evidence and the question is who fell through it.

MR McVAY: Yes.

KIRBY J: Have you said everything you wanted to say in your desperate endeavour not to fall through, subject to your reply?

MR McVAY: Subject to my reply, your Honour. I had just better check the submission.

HEYDON J: I thought you were going to take us to some evidence of Mrs Gattellaro apropos the way the trial was being conducted.

MR McVAY: Yes, being cross-examined. Thank you, your Honour. If your Honours would be kind enough to go to volume 1 page 127 line 55 and over the page.

HEYDON J: I think we work off the left-hand side, so it is line 45.

MR McVAY: Line 45, yes, of course. Do your Honours see the references on 127 and the top of 128? Again, on page 129 at line 25, and page 131 at lines 35 to 40. Counsel then for Westpac made three or four clear attempts to obtain a concession from Mrs Gattellaro that she in fact signed the guarantee. Your Honours, before I sit down I should also take your Honours to - - -

KIRBY J: On the question of credibility, did his Honour say anything more than you have summarised in your written submissions, that he accepted Mrs Gattellaro as generally honest, or words to that effect? What was his Honour's reaction to that evidence?

HEYDON J: He found at page 592 that he would not be prepared to find that she signed the guarantee.

MR McVAY: Yes, but he had something else to say about her general credibility, your Honour, not quite as flattering as that. If your Honours go to volume 3 page 578, line 30. This is the trial judge:

So far as appearance in the witness box is concerned, Mrs Gattellaro also seemed honest. However her answers were to the effect that there was a great deal - and I think too much to be believable - she did not know or recall.

That was another finding as to her credit, but generally honest. So, he accepted her that she did not sign the guarantee.

Your Honours, just going back perhaps to the Coulton v Holcombe point, in New South Wales the Court of Appeal has said that the appellate court has to find it expedient and in the interests of justice to allow a respondent to raise a point for the first time on appeal. If I could take your Honours to that case. It is Multicon Engineering Pty Ltd v Federal Airports (1997) 47 NSWLR 631 at 645 to 646.

KIRBY J: Why do you go to this authority when there is authority in this Court about what is to be done in Coulton v Holcombe and many other cases?

MR McVAY: It is just that it seemed to me, your Honour, that this case just went a little bit further than those other cases and it has been followed in the Federal Court as well. It will only be brief, your Honour.

KIRBY J: Is the bottom line that if it is a pure matter of law the appellate court can deal with it? If it does or could have raised matters of evidence and fact, then it will be unfair procedurally to allow the matter to be raised for the first time on appeal.

MR McVAY: Or if there is controversy. What has transpired here this morning, your Honour, must indicate that they are raising the point for the first time. It is controversial because of the way that one party says the case was run and the other party was not and how the transcript and the submissions clearly show that there is controversy.

KIRBY J: I am sorry I interrupted your citation of this decision. Which was the page you wanted to bring us to?

MR McVAY: I think, having heard your Honour, I do not need to take you any further to it.

McHUGH J: It is an important case because what it holds is even when a question of law is raised it does not necessarily mean that you are entitled to raise it on appeal because the interests of justice may be against it.

MR McVAY: Precisely, that is right.

McHUGH J: The classic illustration of that is when it requires you to order a new trial. It may be a pure point of law but nevertheless - - -

MR McVAY: Yes. But, in this case - I mention the lapse of memories of people over many years, but also, the issue being raised for the first time means that if it is successful the hearing before the trial judge would have been conducted on a different way, as would the Court of Appeal, as would the special leave application. That all has significant costs for ordinary homeowners, as opposed to an institution like Westpac who can be assumed, or presumed, to be able to look after its own affairs as it goes along in litigation. I accept gratefully what Justice McHugh said and that is why I put it on the list of authorities because, even if it is a question that would ordinarily be heard on appeal, there are other grounds to be taken into account. That was followed in the Full Federal Court in the other case that I have there but it does not take anything further.

Your Honours, subject to my replying to Mr Sheahan in relation to whether or not there is an inference available to be drawn rather than judicial notice, they are the appellants' submissions.

GLEESON CJ: Thank you, Mr McVay.

KIRBY J: Could I just ask what orders you are asking this Court to make?

MR McVAY: Yes, your Honour. We ask the Court to allow the appeal, to remit the matter to the Court of Appeal because the majority did not, having regard to their finding about judicial notice in the clause 20, determine the Contracts Review Act defences. The Court of Appeal simply said, "We'll take judicial notice that there was a clause 20 in the mortgage, therefore, Mr Gattellaro is bound. He is not released because Mrs Gattellaro did not sign. Because Mr Gattellaro was bound Mr Gattellaro, by reason of her personal covenant in the 1977 mortgage has promised to pay all amounts secured by that mortgage". One of those amounts secured by the mortgage was Mr Gattellaro's obligation under the guarantee. I do not know how I got on to that, what question your Honour asked me.

KIRBY J: I asked for the orders that you were seeking, because ordinarily what one would do would be to make the orders of the dissenting judge, but we cannot really do that in this case because Justice Priestley did not formulate it, and in any case you say he slipped. Therefore, you say the matter in the Court of Appeal having turned on the judicial notice point and that having now by concession miscarried, it should go back for the disposition of the matter by the Court of Appeal absent that point, when all of these issues could be argued. But we now must hear Mr Sheahan who will try to say, no, you can sustain it on a different basis.

MR McVAY: That is right.

GLEESON CJ: Yes, Mr Sheahan.

MR SHEAHAN: Your Honours, the respondent seeks to uphold the judgment of the Court of Appeal on two grounds, one of which was not raised before the Court of Appeal and one of which was. The ground that was not raised before the Court of Appeal is that sought to be raised by the new paragraph 4 of the amended notice of contention. It is that, if I can call it this, the Marston point was neither pleaded nor proved by the appellants in the trial before his Honour Justice Hulme. Admittedly, that point could have been raised by way of notice of contention in the Court of Appeal and it was not. But it has not been suggested that there is any prejudice to the appellants flying from the failure of the respondent to raise the point at that stage.

KIRBY J: Mr McVay says he does not remember.

MR SHEAHAN: But I think Mr McVay when he says that is talking about the four years that has elapsed since the trial, rather than the period that has elapsed since the debate before the Court of Appeal.

KIRBY J: Yes, but we have to consider what follows from allowing the point and that does take us back to what happened at the trial, does it not?

MR SHEAHAN: It does indeed, but in terms of prejudice, one is concerned with what has happened since the time, what has been lost, what disadvantage has been suffered since the time when the point should properly have been raised. It should properly have been raised before the Court of Appeal. It is not suggested that any prejudice was suffered since then. Now, it was not, in our submission, common ground at the trial that the Bank bore any onus in relation to those matters.

HAYNE J: What do you mean by "these matters", Mr Sheahan?

MR SHEAHAN: By "these matters", what we mean, your Honour, is whether the failure of Mrs Gattellaro to guarantee the obligations of Falgat Constructions in favour of the Bank would provide a defence or excuse for Mr Gattellaro in respect of his liability to the Bank under the guarantee that he did sign.

Might I commence, your Honours, perhaps a little bit out of order by making a confession and that is that paragraph 12 of our written submissions we think, perhaps, oversimplifies a little the principles of law that might be brought to bear in a situation where this type of question arises. There are, we think, four or perhaps five distinct juristic grounds for finding that a guarantor is released or discharged by virtue of the failure of another guarantor to become liable.

HAYNE J: There is a logically anterior point, is there not, namely that raised on any view by your pleading and upon which you bore the onus, namely, that Mr Gattellaro had given a guarantee of the relevant indebtedness.

MR SHEAHAN: The way we would put it, your Honour, is that that is not a logically anterior point or perhaps slightly differently, whether or not logically anterior, it still amounts to a defence to the claim on the guarantee which would call - a defence which would call for pleading and proof. It is the second of the juristic grounds that I was going to refer your Honours to.

HAYNE J: Let me pursue it a bit further. Your plea at page 22 paragraph 10(c) was that, in effect, Mr Gattellaro had guaranteed to the Bank payment of all moneys owing to the Bank by Falgat.

MR SHEAHAN: Yes.

HAYNE J: Was it an essential part of demonstrating or proving that allegation that your side prove the content or terms of the guarantee?

MR SHEAHAN: No.

HAYNE J: That is, do you say it was sufficient for you to say Mr Gattellaro had executed a document entitled "Guarantee" which was a secondary obligation to the primary obligation of Falgat?

MR SHEAHAN: I think, in substance, yes. We say that there was evidence which his Honour was entitled to accept and the Court of Appeal has now joined in in that respect, that Mr Gattellaro executed in favour of the Bank a guarantee of the obligations of Falgat Constructions Pty Limited. There was secondary evidence of the document which could be characterised in that way.

HAYNE J: Sorry, what was the secondary evidence? The document was simply a diary note.

MR SHEAHAN: Yes, the diary notes. There was secondary evidence of a document which could be characterised that way. Having established that, that was the point that was pleaded in 10(c), and found.

HAYNE J: But a guarantee is not, as Justice Gummow put in the special leave application, "a piece of cheese"; it is "a complex of obligations".

MR SHEAHAN: Quite so, and if the Bank's case depended upon things that might be caught up in the universe that would be encompassed in a guarantee, the complex of obligations, then it would behove the Bank to prove the individual terms. Our submission to your Honours here is that the Bank, having pleaded and proved a guarantee by Mr Gattellero, it behove the defendants to plead and prove an answer to that. They could do it - and this is what I was about to say to your Honours - in four or five ways.

The first is obvious enough. They could plead and prove that there was a term of the guarantee that he signed that meant that he was not liable unless something else happened, Mrs Gattellaro signed. That is essentially paragraph 1 of Justice Powell's reasons in Marston. Alternatively, it might be a precondition to the operation of the instrument at all, you might have a guarantee that is complete on its face - not, on its face, conditional - but an agreement between the parties outside the guarantee or a common intention that it not become effective until something happened, a Pym v Campbell-type of clause, as it is sometimes referred to.

McHUGH J: Escrow.

MR SHEAHAN: In effect, in the context of a deed, an escrow. Analogous principles, both at common law and in equity, where the party, the guarantor, believes that they are not bound unless something else is to happen and the other party, the creditor, knows they are acting on that footing. The common law defence of mistake on the principle mentioned by Justice Hannen in Smith v Hughes, or an equitable defence on the grounds discussed in this Court in Taylor v Johnson, or the mistaken belief on the part of a surety that they would not be liable unless someone else signed might be induced by the form of the document. The document might call for more than one signatory, it might make their liability joint and several and they might believe, by virtue of the form of the document or something else said by the creditor, that they would not be liable until everything was done. That mistake would be given effect in equity by either recision or rectification. All of those matters are matters of defence which require to be pleaded and proved. None of them was.

McHUGH J: Another possibility is that the terms of the guarantee signed by the other person had been changed in some way so that there were different obligations.

MR SHEAHAN: I am not trying to say that that is the universal grounds on which guarantees might cease to become effective, but just focusing on the factual circumstance of one person who it was hoped or thought or expected or intended might sign, did not, what juristic bases give rise to relief in that circumstance.

HAYNE J: This, in the context where it is pleaded against the Gattellaros that the Bank cannot produce the guarantee, that is, it cannot produce their instrument, is that right?

MR SHEAHAN: Yes.

HAYNE J: And therefore where the Bank is seeking to rely on secondary evidence of an instrument which was in their custody and under their control solely, is that right?

MR SHEAHAN: Yes. I should say, your Honour, that there was evidence that the Bank had looked for and could not find, after all proper searches, this document, so that it was not just that - - -

GLEESON CJ: There was some attempt to explain how it might have been lost. The accounts of the Gattellaros were transferred from one branch of the Bank to another and documents were handed over from one branch to another.

MR SHEAHAN: Yes.

HAYNE J: And the evidence that is given, the secondary evidence that is given, is evidence of the nature of the transaction that is made, not evidence of the transaction.

MR SHEAHAN: Well, your Honours, it is evidence of what, from the Bank's point of view, was a sufficient element of the transaction to entitle the Bank to plead as it did in the case.

HAYNE J: Do you accept that the Bank did not tender evidence of the agreement that the parties had made?

MR SHEAHAN: No, your Honour. We say the Bank did tender that evidence, and that evidence was accepted, but that evidence did not amount to evidence of every single term of the agreement between the parties.

McHUGH J: Yes, but from your point of view, as I understand it the way you put your case is that this is pleaded in answer to a claim under the Contracts Review Act and the only matter that is relevant is proof of a fact that these moneys were guaranteed at an anterior point of time.

MR SHEAHAN: Yes.

McHUGH J: And you could have proved that by an admission, for example.

MR SHEAHAN: Yes.

McHUGH J: As it was you did not have the documents, but you sought to prove it by a diary note.

MR SHEAHAN: Yes. we could have proved it, as your Honour says, for example by a letter from the Gattellaros mentioning, "apropos our mortgage, apropos the guarantee that we gave last month in favour of the Bank for Falgat Constructions" and that would have been sufficient.

KIRBY J: Given that the female appellant said she did not sign, given that the judge said she was generally honest, given that his Honour said he would not be prepared to find that she did sign, add to that then the principle of law which we have to get very clear in our minds concerning the necessity of the signature of both, why is it not then for you to prove affirmatively that both signed, contrary to the evidence which I have just mentioned?

MR SHEAHAN: Because there is no such principle of law of the kind that your Honour mentioned. There is no principle of law that the creditor, entitled to the benefit of a guarantee, fails unless they prove that all contemplated guarantors sign. The relevant principles of law are those that I mentioned to your Honours a minute ago; the possibility of there being a term of the instrument which might be express or implied, the possibility there might be a term outside the instrument which makes its operation conditional, the possibility of common law or equitable answers based upon mistake or misrepresentation.

KIRBY J: But given that the document is in your possession and that you do not produce it, why is not the inference available, especially as - not only do you not produce it but you fail to establish its content by some other available means.

MR SHEAHAN: Might I say this, your Honour. One of the curious things as we sit together and talk about these events at the trial is that it would have been so easy, one thinks, for the Bank to give better evidence of the contents of this guarantee, and that cannot be gainsaid. The best explanation for the Bank's failure to do so is that this was not a live point at the trial.

GLEESON CJ: I am not sure that Mr McVay is asking us to infer as a matter of fact that the guarantee that Mr Gattellaro signed contained a clause that had the legal effect that if Mrs Gattellaro did not sign it it was ineffective against him.

MR SHEAHAN: No, although that was the point that was alluded to in the passage in their submissions in the Court of Appeal, that your Honour drew attention to a little while ago. But what is important for Mr McVay's case, and that has never been grappled with, just going back to the statement of principle in Marston for example, is the necessity to prove that the document, the guarantee, contemplated or named another guarantor and provided that the two guarantors be jointly and severally liable.

GLEESON CJ: But that is why it comes down to a question of onus, is it not? Both sides before us are saying there is an absence of proof in relation to this particular aspect of the guarantee. Question; who loses, by reason of the failure of proof?

MR SHEAHAN: Your Honours, I am not sure that I am disagreeing with what your Honour the Chief Justice has said. The way we would put it is that the question whether Mrs Gattellaro's failure to sign had any significance did not arise in law as an issue in the case, until one could at least assume or find that Mr Gattellaro had signed something that provided for another guarantor, namely, her, and that her obligation was to be joint and several with his.

In other words, it is the appellants who need to ask the Court to make findings about the content of the instrument signed by Mr Gattellaro before they can start talking to the Court about the significance of Mrs Gattellaro's failure to sign.

McHUGH J: It was never part of your case, in your pleadings, that both appellants signed the guarantee. You confined yourself to the male.

HAYNE J: There is a further way in which I would have thought your argument could be supported by reference to, I assume, the existence in New South Wales of the pleading rule that says you do not have to plead conditions precedent. Conditions precedent are matters to be put in issue by a plea in answer. They are not to be positively pleaded.

McHUGH J: That is Part 15 rule 11, is not it?

MR SHEAHAN: Yes, and we do rely on that in our written submissions and it is set out, I think, at about page 6 or 8 of the written submissions, your Honour.

GLEESON CJ: As a matter of pleading, there were only two pleadings, were not there? There was a statement of claim and what was called - it was called in the index a, "Notice of grounds of defence", and a cross-claim and a defence to the cross-claim. There was no reply?

MR SHEAHAN: No reply, and the consequence is that there is a deemed joinder of issue on the bare question raised by paragraph 10(c) - - -

GLEESON CJ: But the consequence of failure to file a reply, in a sequence of pleadings, is that there is a joinder of issue but nothing raised by confession and avoidance?

MR SHEAHAN: Quite so.

McHUGH J: But in fairness to the appellants - the diary note was discovered, so it was open to them, I suppose, to know what the contents of that diary note was?

MR SHEAHAN: Yes, indeed, it had been not just discovered but pleaded in the particulars as the basis on which the Bank alleged. There was something else relied on in the particulars - and I mention it now because of the reference to Mrs Gattellaro having been cross-examined about whether she signed a guarantee - as well as the file notes, the Bank, at the trial, relied upon an affidavit of documents, the affidavit of documents of the appellants in those proceedings. One of the documents referred to in the list was copy of guarantee of Mr and Mrs Gattellaro in favour of Westpac, undated. It did not appear whether it was signed or unsigned from the entry in the list of documents.

The Gattellaros, too, had their difficulties in terms of losing things, because it appeared that that document, despite them having discovered it in the action, could not be found. The Bank relied on that as some evidence that Mrs Gattellaro had given a guarantee, they could not produce it. They, the Gattellaros, sought to undermine the Bank's reliance on the affidavit of documents by saying that it was ambivalent as to whether the guarantee that had been in their possession at some stage had been signed, and in support of that attack, adduced evidence-in-chief from Mrs Gattellaro that she had never signed a guarantee, and the Bank, of course, challenged that evidence because it would like to rely on the list of documents to support its case.

KIRBY J: But if the question ultimately is where does the burden lie and who loses out because of the failure of proof, you are the Bank, you are the Bank with the documents, you have lost the documents, you have not proved the practice and the alternative ways you might have got material in. Mrs Gattellaro says she did not sign, and in that respect the judge says he is not prepared to say that she did.

MR SHEAHAN: Your Honour, with respect though, we could have done a better job of proving a document.

KIRBY J: You certainly could.

MR SHEAHAN: One thinks it would naturally have happened if the issue had been fairly and squarely raised at the trial.

GLEESON CJ: There are two questions that are quite distinct. One is a Jones v Dunkel question about what inferences of fact you might draw from the Bank's failure to call evidence about something, and the other quite distinct question is who carried the onus of proving a particular fact. I do not understand there to be a Jones v Dunkel argument being put against you. I do not understand Mr McVay to be saying we ought to infer that the Bank knows that the document that was signed by Mr Gattellaro contained a clause saying it was not effective unless Mrs Gattellaro signed it.

MR SHEAHAN: What your Honour says is right.

McHUGH J: Can I add to that, there are two different issues arising in this context. One is whether or not there is sufficient evidence to bring Mrs Gattellaro in and whether there is sufficient evidence to enable Mr Gattellaro to escape what might be a prima facie obligation against him.

MR SHEAHAN: Yes. The question whether Mrs Gattellaro signed the guarantee was not really important for the Bank's case. The Bank's case to scoop up the 1977 mortgage depended simply on Mr Gattellaro having signed, and that was the way it was pleaded. So the Bank did not undertake in its case to prove that Mrs Gattellaro had signed the guarantee. Indeed, if your Honours look at the submissions - I will have to go to them in a second, I am afraid - the Bank did not even seek a finding that Mrs Gattellaro had signed in terms. It was not important for its case.

GLEESON CJ: It would have made its case easier if she had signed it.

MR SHEAHAN: Of course, and that was the sense in which it ended up being agitated between the parties. But what one will not find, in our submission, is in the course of the conduct of the trial before his Honour - and we have the transcript, part of our learned friend's opening, we have all the written submissions of both sides, which were quite full, and the judgment and the pleadings. One will not find a syllable directed towards an assertion that Mr Gattellaro's liability under the guarantee he signed was conditional upon or affected by in any way the failure of Mrs Gattellaro to sign.

HEYDON J: Why did Mr Justice Hulme mention clause 20 then?

MR SHEAHAN: That is a good question, your Honour, and all I can do is say that it may be that it was something that was his own idea and to remind your Honours that our learned friend said to your Honours a minute ago that neither counsel had referred to it.

HEYDON J: But Mr McVay's assertions of fact about what happened four years ago were qualified by his similar assertion that he has a very bad recollection of what happened four years ago. In working out what happened at the trial, we have something in the trial judge's judgment that suggests an argument may have been put to him. We do not have any transcript of any oral argument and we do not have any affidavit saying what was or was not said and we have no agreement on the point. Is it not open to draw an inference from what the judge said?

MR SHEAHAN: Your Honour, if what Justice Hulme had said looked like a careful deliberation on a point that was important to the outcome of the case, I think the answer to your Honour's question might be yes. It does not have that appearance. It is, in effect, almost a throwaway line and it is a throwaway line without any reference to authority, without reference to any submissions, without reference to competing considerations, without reference to any reasoning process, factual or legal, and it is a throwaway line in the context of a passage in his Honour's reasons that is all obiter.

GLEESON CJ: Presumably, if the argument that is now being put to us had been put to Justice Hulme, it would have raised exactly the same considerations that we are sitting here discussing.

MR SHEAHAN: Indeed.

GLEESON CJ: What difference would it have made if this point was raised at the trial?

MR SHEAHAN: It depends when, your Honour. If it had been raised at the very end of the trial, after all the evidence was - - -

GLEESON CJ: I mean raised in argument, not as a matter of pleading.

MR SHEAHAN: If it was raised merely as a matter of argument, then in the long run it should have made no difference. The outcome should have been the same. Your Honours would read a quite different judgment because quite different matters would have had to have been adverted to and explained and findings made and reasons given for the findings.

GLEESON CJ: But if the point that has now been put to us had been put in argument at the conclusion of the evidence at the trial before Justice Hulme, he would have had to decide what we are going to have to decide, would he not?

MR SHEAHAN: Forgive me, your Honour, when your Honour says the point that is now being put to your Honour - - -

GLEESON CJ: If everything that Mr McVay has said to us this morning had been said to Justice Hulme in the submissions of counsel at the conclusion of the trial, that would have meant that Justice Hulme would have had to decide exactly the same matters that we are going to have to decide, would it not?

MR SHEAHAN: Yes.

GLEESON CJ: In particular, it would have meant that Justice Hulme would have had to decide who carried the onus on the issue on which there was said to have been a failure of proof?

MR SHEAHAN: Yes, and he would have had to have decided what was pleaded, what issues were litigated in fact and, having regard to those matters, what findings are open on the evidence.

KIRBY J: But he would have been in a better position to decide what the issues litigated were than we are because we have no affidavit, we do not have even counsel's recollection which we would normally accept and we do not have, save for the reference to clause 20, much indication from the judge's reasons and we do not have a transcript of argument. But all of that would have been available at the time.

MR SHEAHAN: Undeniably, your Honour.

GLEESON CJ: Are not the issues litigated defined by the pleadings?

MR SHEAHAN: They are. They are, and if one stops there in this case, the appellants lose, in our submission.

McHUGH J: Water Board v Moustakas says that prima facie the pleadings define the issue. However, in certain cases, the conduct of the trial may enlarge the issues or modify them.

MR SHEAHAN: Conscious of that, we have in our written submissions gone into what happened in the conduct of the case before his Honour Justice Hulme, not just the pleadings, but what questions were asked of which witnesses and, more particularly, not asked, what issues were agitated in the written submissions. The things that one would expect to find done at a trial if the Marston point were alive were not done. There was no questioning of Mr Power, the Bank manager, with a view to establishing that the Bank's form called for joint and several liability. There was no question - - -

McHUGH J: There was just no evidence led from Mr Gattellaro as to what effect it had on his state of mind.

MR SHEAHAN: Yes, and state of mind here, his belief, would clearly have been relevant if the point had been put on the equitable bases that I mentioned to your Honours earlier. Indeed, in one of the leading cases in that area, Re Harding, which is, I think, No 1 on our list, Lord Justice James said this is an equity which must be alleged and proved.

McHUGH J: If there is no positive rule of law to the effect that if certain people have contemplated signing a guarantee and some of them do not, that the remainders are discharged from the guarantee. They may be, but it depends upon the terms of the contract or common law principles of mistake or equitable doctrine. It is unconscientious behaviour.

MR SHEAHAN: Your Honour, we would adopt that, with respect. I mean, there is a sense in which the whole case can be reduced to this proposition: Is it enough to avoid liability under a guarantee to prove that the creditor hoped to obtain an additional guarantor and did not succeed in doing so. Now, we put it that way because all the appellants established, all that they could ask the court to find, by reference to the evidence at the trial was that the creditor hoped to obtain an additional guarantor. They succeeded in establishing that and while they did not plead it, it is uncontroversial. But if more than that is necessary in order to avoid liability under a guarantee, the appellants ought to have failed because they neither pleaded nor proved anything else. It behoved them to do so.

HEYDON J: Is discovered document 22 in these appeal books?

MR SHEAHAN: It is not because the appellants lost it.

HEYDON J: I see. They discovered it and lost it?

MR SHEAHAN: Yes.

HEYDON J: Right. Even though it was a document of yours as well? I mean the "Copy of undated Guarantee document from R and Y Gattellaro to Westpac" would have been something that was generated by Westpac presumably?

MR SHEAHAN: Yes, and it was why - - -

HEYDON J: So both sides lost it?

MR SHEAHAN: We lost our copy of the guarantee and they lost their copy of that document, whatever it was.

GLEESON CJ: I was going to ask you that, Mr Sheahan. Was there evidence as to whether or not copies of the security documents were given to the Gattelaros?

MR SHEAHAN: I am not sure, your Honour. I certainly do not think there was any evidence of copies of guarantees. Whether or not as a matter of course copies of guarantees are given to - - -

GLEESON CJ: I have to say with all the judicial notice that is flying around here, I cannot even tell you whether banks, as a matter of ordinary practice, give copies of security documents to borrowers.

MR SHEAHAN: I can tell your Honour my last experience but I do not think that advances the inquiry.

KIRBY J: It might depend on who the customer is.

GLEESON CJ: I am pleased to say I do not know.

MR SHEAHAN: Your Honours, I will not trouble to go through the details of what we have in paragraphs 10 to 12 of our written outline which cover what was litigated in fact. There are detailed references there to topics that ought to have been raised and are not, paragraphs of the outlines of submissions in the trial before Justice Hulme.

I was going to make this point, that even on the appeal the appellants did not seek a finding consonant with the principles in Marston's Case. Your Honours have already been taken to the paragraph in the outline of submissions in volume 3 at page 619 where what was put was that there might have been a clause in the guarantee which got Mr Gattellaro out, not that there should have been found to have been a term of the guarantee - should have been found to have been a term of the guarantee.

GLEESON CJ: That is what I put to you earlier about Jones v Dunkel.

MR SHEAHAN: Indeed.

GLEESON CJ: I do not understand it to have been argued or to be argued here that we ought to infer, as a matter of fact, that there was a term in the guarantee that brought Westpac unstuck on this point. The argument against you is that Westpac's failure to prove that there was a term that protected its position in relation to this eventuality means it ought to fail.

MR SHEAHAN: Your Honours, we have mentioned that fundamental to the case is what the appellants did have to plead. I will not take your Honours to the reference unless you think it is necessary, but in Harding's Case, which is the first in our outline of submissions, we rely on the judgment of Lord Justice James which speaks of this equity having to be alleged and proved. There is a judgment of Mr Justice Powell in Marston which talks about it as a defence. There is, in addition, a judgment of Justice Hope, with which your Honour Justice Kirby agreed, in Bleyer v Neville Jeffress which is set out in quite some detail in a more recent decision of the Court of Appeal in Prosilis.

GLEESON CJ: You could take an analogy, could you not, of the established principle that if there are two guarantors and a concession is extended to one of them without the knowledge or approval of the other that will discharge the other, unless there is some term in the form of guarantee that prevents that result.

MR SHEAHAN: Yes.

GLEESON CJ: If it had been proved in the present case that Mr and Mrs Gattellaro had both signed the guarantee, it would not have been necessary for the Bank to prove that they had not extended a concession to one of them without the knowledge of the other.

MR SHEAHAN: Quite so. These are all matters of defence which ought to be pleaded and proved by the person seeking to escape their prima facie liability under the guarantee obligation which has been proved.

GLEESON CJ: Well, in pleading terms they are matters of confession and avoidance.

MR SHEAHAN: Yes, precisely. Now, your Honours, what we have said so far relates to the larger, but only the first aspect of the matter, that is paragraph 4 of the proposed notice of contention. The other matter is the point on which the appellants did rely in the Court of Appeal which was whether there was in the evidence a factual basis for a finding that the guarantee probably included a term along the lines of clause 20 of the Falcomata guarantee.

We have set out the considerations in that respect in paragraphs 19 to 22 of our written outline and do not need to add to them, but we would like briefly to respond to what the appellants have said by way of reply in paragraphs 21 to 25 of their submissions. I ask your Honours to go to those and (i) and (ii) are essentially the same point, and it is the point to which our paragraphs 20 and 21 are directed, that is while there may have been other forms of guarantee in use, this was the same type of transaction within a few months of the other between the same parties, that is a guarantee of the same obligations. There is no basis for inferring that a different form would have been likely to have been apt or appropriate or sought out.

Point No (iii) - it is, in our submission, unlikely that the Bank would have struck out a clause that is designed to protect its position of its own motion, and there was no suggestion that Mr Gattellaro had asked it to or would have asked it to or would even have known to ask for such an amendment to the Bank's form of guarantee.

Point (iv) raises a possibility undeniably, although we might say that if there were two forms of guarantee prepared it would have been more difficult for the appellants to justify a finding that there was a term that each would be entitled to be relieved from liability unless the other signed. These cases normally involve a single form of guarantee with provision for more than one person to sign. Even if it were the case, that each form of guarantee referred to the fact that another form of guarantee by a third person was intended, the existence of clause 20, although not in terms apt, would still negate the implication or inference of the term that the guarantor's liability should be conditional in the way contended for.

KIRBY J: But is this not getting very close to the realm of speculation? I mean, we just do not know.

MR SHEAHAN: Your Honour, we cannot put it any higher than the Bank just got over the line.

KIRBY J: I saw that you said that, but that is a real question.

MR SHEAHAN: It is, and I do not mean by saying that to deflect what your Honour put to me. The document that was in evidence on which we rely came about six months later than the transaction in question. The document is clearly a standard form. It may not be the only standard form of the Bank but it is clearly a standard form. I do not think that is in question. It refers to - - -

KIRBY J: You could have 100 standard forms in your cupboard.

MR SHEAHAN: Your Honour, we might, but may I say this. This was a standard form which was intended to apply Australia-wide. You can see that from the marginal instruction notes which give you different things to do and different jurisdictions around the country. So one asks, "Well, why would you use a different form?" For a different type of transaction, perhaps. Was the guarantee that we were looking at a different type of transaction? No. It was a guarantee by two natural people of the obligations of the very same - in one case it was a company and in another case it was natural people who had taken over the debts of the company.

KIRBY J: But this is where to me - and I may be wrong on this - the failure of your camp to call people who are the comptrollers of the forms and of the practice as at that time. You cannot really expect the appellants to prove this.

MR SHEAHAN: No.

KIRBY J: It is not in their knowledge and it is not really readily available to them.

MR SHEAHAN: I concede that, your Honours, and if we get to this point - - -

KIRBY J: It is available to you. It is within your knowledge. You would have the experts. You would probably have manuals and forms and the manager at the time, and you failed to bring it. Well now, if you do not then bring it, it seems to me if we are in the realm of asking what inferences one draws as distinct from speculation, it is really too bad for you. You are big boys. You are the Bank. You are a multinational Bank. That does not mean you do not have the same rights as anybody else, but one could draw an inference from that that you have lots of resources to have a search for this. You are well-lawyered, you have good advice, you have senior counsel here before this Court, experienced people who can track these things down.

MR SHEAHAN: Your Honour, all of that is right.

GLEESON CJ: The question is whether additionally you have the onus of proof.

MR SHEAHAN: Essentially, yes. I do not want to say anything more about that subject, your Honour. I should make clear though, your Honours, that on whichever side the onus of proof lay - I suppose it depends on identifying the question - our submission is that on the point that the appellants wish to rely on, which is Marston's Case, which is that there was a term of the guarantee - that is the way Justice Powell puts it - no matter which way the onus goes there is no basis for finding such a term. In other words the point - - -

GLEESON CJ: I cannot understand why you say "no matter which way the onus goes". I would have thought - when you say onus of proof, it is onus of proof of what? You have the onus of proof of a fact. If you have the onus of proving that the terms of the guarantee were such that Mr Gattellaro remained liable even if Mrs Gattellaro did not sign it then you lose. But if your opponent has the onus of proving that the terms of the guarantee were such that Mr Gattellaro was discharged from liability unless Mrs Gattellaro signed it, then on one possible view of the case he loses.

MR SHEAHAN: I think I accept what your Honour has put to me.

KIRBY J: I have an idea at the back of my mind that courts have said - maybe this Court, I am not sure - that onus of proof in assignment of the burden of proof is simply a tool for judges to decide where, at the end of the case, the matters that are relevant for determination lie and we all know that some judges apply the onus of proof very often and people fail because it was not proved and others are less inclined to deal with it that way. I just wonder if we are not falling into a trap of a mechanical approach to the drawing of inferences from the entirety of evidence of, as it were, reaching for the easy tool of burden and onus of proof.

MR SHEAHAN: Your Honours, I think the correct analysis is that one distinguishes between legal burdens and evidentiary burdens. Here, we are speaking of legal burdens which remain on the same party throughout. In the context of legal burdens, there are settled rules that cover most cases. Where the law is unsettled, where the factual circumstances are new, an ad hoc decision - - -

KIRBY J: There certainly are in criminal matters.

MR SHEAHAN: - - - effectively, an ad hoc decision has to be made and Professor Stone wrote a learned article about it in the Law Quarterly Review which I think tended to suggest that these were pragmatic decisions rather than principled ones in that area, outside settled rules. Here, in our submission, there is nothing unsettled about this. The courts of New South Wales for a century have acted on the basis that equities which are raised in answer to a legal obligation have to be pleaded and proved and they have acted on the basis consistently with the express rules, Part 15, rule 11, that you have to plead a condition precedent, you have to prove the condition precedent, then the onus might shift to the other party to prove satisfaction of it, but you have to get to the first hurdle of there being a condition precedent and the burden in that respect falls on the defendant. So, we are not dealing in unsettled territory where ad hoc case-by-case decisions as to burden of proof have to made, your Honour, in our submission.

McHUGH J: You also have Part 15, rule 13, ruling surprise.

MR SHEAHAN: Of course. I should just say something briefly by way of clarifying Justice Priestley's decision below in case it has not become clear. The way the case was conducted in the Court of Appeal was that the appellant said there was a short answer to the Contract Review Act point, which is this 1977 mortgage and 1985 guarantee.

GLEESON CJ: You said the appellants said that.

MR SHEAHAN: The appellants conceded that, that was the Bank's argument, this is a short answer. The majority decided the case on the basis of the short answer. Justice Priestley was not able to accept the short answer. He had to look at the Contracts Review Act point the long way, looking at the merits of the circumstances in 1986, what was said and done by the Bank, the burden imposed on the borrowers. In other words, he was not dealing with a separate defence. He was still dealing, as all the judges were, with the one Contracts Review Act point, but he was dealing with the long answer rather than the short answer.

GLEESON CJ: Was it only the Contracts Review Act, or was there some wider equity?

MR SHEAHAN: No, just the Contracts Review Act.

GLEESON CJ: Thank you.

MR SHEAHAN: There had been many, many cases argued at the trial, but I think they had fallen by the wayside. Finally, your Honours, what was said by Mr Stevenson on the special leave hearing, in our respectful submission, cannot have any bearing on how the Court ought to decide the matter. It may have been a concession or it may not have been, depending upon how one reads it. What matters is how the trial was conducted in light of the pleadings. Those are our submissions, your Honours.

GLEESON CJ: Thank you. Yes, Mr McVay.

MR McVAY: Thank you, your Honour. In relation to the onus of proof, your Honours - I know I have submitted to your Honours that the conduct of the case was a certain way, but it seems clear, and Mr Sheahan, I think, acknowledged it, that the Bank was acting on a footing that both had to sign. That is as clear as it can be from those diary notes, that Mr Gattellaro had - - -

GLEESON CJ: What do you mean by "had"? Both had to sign in order for it to become legally effective or both had to sign in order to do what the Bank wanted them to do?

MR McVAY: Become legally effective.

GLEESON CJ: That was an opinion of law on the part of somebody in the Bank, was it?

MR McVAY: Yes, I would submit so. Perhaps if I put it another way. The Bank was of the view that two signatures had to be on that mortgage.

GLEESON CJ: Yes, but that is an ambiguous statement. Do you mean the Bank wanted both of them to join in as guarantors, or do you mean the Bank believed that Mr Gattellaro's guarantee would not be binding on him unless Mrs Gattellaro signed it?

MR McVAY: Yes, the latter, and I say that for this reason. If there was a joinder of issue, as my friend suggests, then there would be a lot of cross-examination in this case - I have already taken you to some of Mrs Gattellaro - which would have been irrelevant and objectionable, and there is some further cross-examination of Mr Power who was the Bank manager of the branch, and what I am about to take you to, this cross-examination would have been entirely irrelevant and objectionable had there been this specific joinder. If your Honours go to volume 1, page 152.

GLEESON CJ: This is your cross-examination?

MR McVAY: It is, of Mr Power, at line 10, your Honour:

Q. Do you have any recollection of actually asking him for the guarantee?

A. Yes, I do. He may have signed it.

Q. May you have given him a document to take away and sign and get his wife to sign it?

A. I'm not able there to be honest with you.

Q. You wanted a guarantee signed by both of the directors?

A. Yes.

Q. Because you knew they were joint tenants of real property?

A. Yes.

Q. I know it is a long time ago but it is quite conceivable, isn't it, that you said to Rocco Gattellaro, "Here is a mortgage document, take it away and sign it."

Now, there was an objection there, but that was because in the immediately above line, I used the word "mortgage" rather than "guarantee". I do not remember, but I assume that is what the objection was. I said "mortgage" instead of "guarantee".

Q. That would have been something you would do, you would give to Rocco Gattellaro a guarantee form, perhaps partly filled out and say, "Take it away and get it signed."

A. I can't recall whether he signed or didn't . . .

Q. What I was putting to you was this: it could well have happened that you have said to Rocco Gattellaro, "Here is a guarantee, take it away and have Yolanda (his wife) and bring it back."

Now, if the joinder of issue was as it was, it would be totally irrelevant, because the joinder of issue my friend suggests is that - - -

McHUGH J: Well, would it be, because was it not an issue in the case concerning, and was not the real issue in the case, the knowledge of the Gattellaros concerning the mortgage securing both Falgat's indebtedness and their personal indebtedness to the Bank? If you could make out that Mrs Gattellaro knew nothing about these things, then it strengthens your case on the contracts review point.

MR McVAY: Yes, it does.

McHUGH J: Was that not what the cross-examination was directed to?

MR McVAY: No, your Honour.

McHUGH J: That is possible.

MR McVAY: Possible. That is all I wanted to say on the onus issue, but I want to come back to the inference issue, if I may, your Honours, and there is a case that I have brought along, but it is not in my written submissions, which I found personally very helpful and of good guidance in this question of the issue of inference and I - - -

GLEESON CJ: Just a minute. When you talk about inference, are you inviting us to infer that the document that Mr Gattellaro signed contained a clause that had the effect that unless it was signed by Mrs Gattellaro it was not binding on Mr Gattellaro?

MR McVAY: No, I accept what your Honour said, the alternative to my friend that it was up to my friend to prove that simply by obtaining Mr Gattellaro's signature, that that was sufficient to bind Mrs Gattellaro.

GLEESON CJ: Exactly, it is a question of who it was up to to prove what.

MR McVAY: I hate to come back to it because your Honours have all heard this a hundred times, but if this had been raised earlier at the trial judge hearing - I can say this, I think, totally honestly - I had lots of discussions with Mr Stevenson about these amendments. I cannot remember the terms of them, but if four years ago or three years ago, three and a half years ago we were debating this before Justice Hulme, I could have turned to Mr Stevenson - your Honours all know the way that barristers conduct with each other - and say "What about what you said to me beforehand". It has gone from my mind, but this case clearly shows that the way that the case was conducted that there was more to it than just the pleadings. That is why those rules, Holcombe, whatever it is, that is the rationale behind those cases because they do recognise that there is an injustice and if things are let go on too long before there is a hearing about it.

But coming back to the inference to be drawn from the proven guarantee, your Honour, there is a case called Jones v Sutherland Shire Council [1979] 2 NSWLR, it is a decision of the Court of Appeal - - -

McHUGH J: It is really Justice Mahoney, is it not?

MR McVAY: Yes, great judge that he was. On questions of causation Justice Mahoney was, as your Honours know, particularly strong. He wrote about it quite often. Your Honours at page 222 at line F:

Subject to the matters to which I shall refer -

I commend this case, your Honours -

there are, in my opinion, no special rules of law which determine whether an inference of this kind is capable of being drawn. Whether it is capable of being drawn is to be determined by "the ordinary laws of reasoning" such as suffice for that purpose in ordinary human affairs . . . In the ordinary course of reasoning, whether a fact is capable of being inferred from the existence of given facts, depends upon what has been or is taken to be the human experience as to the relationship which exists between those facts. In Morgan v Babcock and Wilcox Ltd Knox CJ and Dixon J said that the matter "must inevitably be judged by considering whether general human experience would be contradicted, if the proved facts were unaccompanied by the fact sought to be proved".

He goes on to talk about "inductive logic" and deductive logic.

But, your Honours, it is impossible to say that ordinary human experience would tell anybody that simply because a bank, an institution as huge as Westpac, used one particular form of guarantee in June of 1986, that something signed by Mr Gattellaro in November 1985 at a different branch of the Bank was in the same form. That just does not follow as a matter of ordinary common experience. For example, if there is lightning there is thunder, or if a billiard ball hits the cushion, it will bounce off. It is not a sufficiently strong ordinary conception of human understanding that the inference my friend seeks to be drawn can be drawn. They are my submissions, your Honours.

GLEESON CJ: Thank you, Mr McVay. We will reserve our decision in this matter. We will adjourn until 9.30 tomorrow morning at Sydney and 9.30 tomorrow morning at Melbourne.

AT 12.17 PM THE MATTER WAS ADJOURNED