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[2010] QSC 189
Supreme Court of Queensland
2010-06-08
Chief Justice
Original judgment source is linked above.
Forbes Dowling Lawyers acting as Town Agent for Simons Ravden Lawyers for the plaintiff
Shannon Donaldson Province Lawyers for the second defendant
[1] CHIEF JUSTICE: The second defendant, Dr Joan Byrne ("Dr Byrne"), is the widow of Dr Murray Byrne ("Murray"), both of them medical practitioners. The plaintiff ("Agripay") lent money to Murray. Dr Byrne guaranteed the repayment of those monies. They were not repaid.
[2] Murray died in early February 2007. Dr Byrne is the executrix of his estate, which was sequestered in bankruptcy on 7 August 2009.
[3] On 5 August 2009, this Court had entered judgment against the deceased estate, in favour of Agripay, for the amount of $786,492.39, which included an interest component of $207,393.
[4] To that point the estate had contested Agripay's claim on the basis that Agripay was, as principal, fixed with misrepresentations allegedly made by one Peter Cooke, said to be its agent, in relation to the intended investment by Murray of the funds advanced. Accepting that it could not establish that agency, the estate acquiesced in the entering of judgment on 5 August 2009.
[5] The deceased's widow, Dr Byrne, has resisted Agripay's claim under the guarantee on the basis of the principle of Yerkey v Jones [1939] HCA 3; (1940) 63 CLR 649, 685 and unconscionability within the meaning of the Australian Securities and Investments Commission Act 2001 (Cth).
[6] At the commencement of the hearing Dr Greinke, who appeared for Dr Byrne, abandoned all defences except that based on the principle in Yerkey v Jones, and he acknowledged that if that defence failed, there should be judgment against Dr Byrne in the amount of $786,492.39 together with the interest which will have accrued since 5 August 2009 when the judgment was entered against the estate.
[7] The only relief sought by Dr Byrne is an order setting aside Dr Byrne's guarantee given in favour of Agripay in respect of Murray's indebtedness.
[8] Exhibit 1 is an agreed collection of the relevant documents.
[9] The only supplementary evidence was given by Dr Byrne. Mr Bell, who appeared for Agripay, cross-examined Dr Byrne. Notwithstanding some criticisms advanced by Mr Bell, to which I will later refer, I accepted Dr Byrne's evidence as honest and reliable.
[10] I give some transcript references in what follows. They are intended as "pointers", rather than a comprehensive reference to the relevant evidence.
[11] Dr Byrne married Murray in March 1998. They had two children, born in 1999 and 2001. Murray died in February 2007. Dr Byrne is his executrix. Murray left all of his estate to Dr Byrne.
[12] Dr Byrne has always worked in the public health system. Murray's approach may be termed entrepreneurial.
[13] The family home at Boundary Road is in joint names, as was a bank account, which Dr Byrne maintained to pay the bills (p 1-29 transcript).
[14] Murray apparently did not run his financial affairs in close consultation with his wife. For example, he telephoned her once to say that he had, without prior consultation with her, offered $1,000,000 to purchase a house, with the contract to settle in seven days (p 1-5 transcript). Murray developed an emergency medical centre which he sold for a substantial sum, and that led to tax problems. Those problems provoked his interest in the "approved managed investment schemes" which produced the debt reflected by the 5 August 2009 judgment.
[15] A theme of Dr Byrnes' evidence was that she was only peripherally involved in Murray's business affairs. Her primary involvement was in her own public health work, which she carried on to supplement Murray's substantial earnings and maintain the household. The latter appears to have been her prime responsibility.
[16] As to that peripheral involvement, she was a director of MJ Byrne Pty Ltd, set up after the sale of the emergency centre, to run the Medici Medical Centre in Curzon Street. Notwithstanding paragraph 48 of her affidavit of 2 August 2007, contained within Exhibit 4, I accepted Dr Byrne's evidence that she had no substantial involvement in the workings of that centre. As to Balquhain Pty Ltd, a family trust company set up in 2005 to acquire art works, although a director, her role was substantially subordinate to Murray's.
[17] Mr Bell submitted that paras 3, 46 and 97 in Exhibit 4 suggest that Dr Byrne had downplayed her role in Murray's business affairs. I accepted, rather, her explanations. Para 3 does not say anything about the extent of the role she actually performed as director (see also her evidence at pp 1-17, 1-18 transcript). Neither does para 46, beyond confirming her awareness of the intended interview. See her explanation at pp 1-16, 1-17 transcript. And the reference to "his" professional advisers in the last sentence in para 97 is significant. Also see her evidence at p 1-28 transcript.
[18] Dr Byrne became aware in 2005 that Murray was talking to Peter Cooke, an investment adviser, about possibly investing in agricultural managed investment schemes, such as plantations (p 1-7 transcript). By mid-2006, Murray was anxious about his tax liabilities (p 1-8 transcript). He had not put the necessary monies aside. He tended to blame his wife for not herself making a sufficient contribution to the family finances. He put pressure on her. See p 1-8 transcript.
[19] An important meeting occurred on Saturday, 3 June 2006. Cooke came to their house. Murray and Cooke spoke extensively. Then Dr Byrne was called over to sign documentation (p 1-9 transcript). The reason given was to facilitate Murray's taking up investment opportunities in order to deal with his tax liability. Cooke told Dr Byrne, before she signed the documentation, that she should obtain legal advice, but at the same time he said that if she did not sign then and there, Murray would lose the opportunity to seize this tax advantage (p 1-9 ll 40-50, p 1-37 ll 10-20 transcript).
[20] Dr Byrne admits that she signed as appears at pp 79, 81, 82, 83 and 84 of Exhibit 1. See p 1-40 transcript. She thus signed as guarantor under a "financial application", under which Murray would borrow from Agripay. Note 10 on p 81 of Exhibit 1 confirms that Dr Byrne was entering into a binding obligation as guarantor.
[21] Murray borrowed a total of $658,285.05 from Agripay, and obtained other loans. The effect of the financial arrangements is set out in a spreadsheet at p 143 of Exhibit 1.
[22] Dr Byrne did not read the finance application (p 1-9 l 55). Had she done so, she would have realised that the statement of assets and liabilities on p 73 of Exhibit 1 was substantially incorrect. The residential property was then worth much less than $3,000,000 for example, and the values ascribed to "gold and art" and "furniture and effects" were substantially overstated. On the other hand, the monthly mortgage repayments were then much greater than the specified $4,000, probably more like $10,000 (p 1-35 l 55 transcript). Neither was Dr Byrne aware of the amount of the liability being guaranteed (pp 1-10, 1-11 transcript).
[23] Dr Byrne accepted that she was signing as intended guarantor of Murray's debts. See p 1-41 l 10 transcript. She understood that if Murray did not discharge his obligations, she would as guarantor be liable (p 1-32 transcript). I infer however that as at June 2006 when she signed the finance application, she was confident that Murray would be able to meet his obligations. He was earning a lot. Should he die, she had the prospective benefit, as she knew, of a $2,000,000 insurance policy on his life.
[24] Yet Dr Byrne signed the finance application without any proper understanding of her actual, potential liability. She did not know the amount being advanced, or the term of the loan. She mistakenly thought the term of the loan was seven years, whereas it was ten. When, subsequently to her signing, Cooke showed her a spreadsheet setting out matters of detail, she could not understand it. She did not know the consequences should Murray default, which were peculiarly significant in two respects: first, this was not a short-term plantation investment, but one described as "relatively illiquid" for want of a resale market (p 18 Exhibit 1); and second, the management fees which had to be paid in the first three years were comparatively substantial (more than $400,000), whereas no net proceeds were expected to be received over that period.
[25] Dr Byrne said that she signed, notwithstanding she had not received independent advice as recommended, even though she was upset and felt that she was being "ambushed". See, for example, p 1-39 ll 30-50 transcript. I accepted her evidence about that. I infer that she signed to help her husband in the confidence that he would pull through financially and that they would be able to maintain their financially luxurious lifestyles (cf p 1-36 l 20 transcript). Dr Byrne had faith in Murray, in short, maybe blind faith notwithstanding his sometimes indifferent personal treatment of her.
[26] The finance application (pp 59ff) led to the formal guarantee signed by Dr Byrne at p 96 of Exhibit 1, contained in the loan agreement commencing at p 94. She signed that on or after 22 June 2006. The principal monies were then advanced on or about 30 June 2006. See pp 132, 134 and 136 of Exhibit 1.
[27] Dr Byrne's evidence focused comprehensively on what she was told, and not told, prior to her signing the finance application on 3 June 2006. That led into the formal guarantee signed on or after 22 June 2006, before the actual advances on or about 30 June 2006.
[28] There was no suggestion that any further knowledge of the transaction was imparted to Dr Byrne between 3 June and her signing of the guarantee later in June prior to the making of the advances. Mr Bell, for the plaintiff, emphasised Dr Byrne's inability to recall the circumstances of the signing of the guarantee at the later date. The inference however is that nothing had occurred to dispel the position established as at 3 June, which was that although Dr Byrne committed herself to the role of guarantor, knowingly, she knew little of the particular head transaction which would govern her own potential liability.
[29] Dr Greinke relied on the "second kind of case" discussed in Garcia v National Australia Bank Ltd [1998] HCA 48; (1998) 194 CLR 395 at 408, where:
"... to enforce it [the guarantee] against her if it later emerges that she did not understand the purport and effect of the transaction of suretyship would be unconscionable (even though she is a willing party to it) if the lender took no steps itself to explain its purport and effect to her or did not reasonably believe that its purport and effect had been explained to her by a competent, independent and disinterested stranger. And what makes it unconscionable to enforce it in the second kind of case is the combination of circumstances that: (a) in fact the surety did not understand the purport and effect of the transaction; (b) the transaction was voluntary (in the sense that the surety obtained no gain from the contract the performance of which was guaranteed); (c) the lender is to be taken to have understood that, as a wife, the surety may repose trust and confidence in her husband in matters of business and therefore to have understood that the husband may not fully and accurately explain the purport and effect of the transaction to his wife; and yet (d) the lender did not itself take steps to explain the transaction to the wife or find out that a stranger had explained it to her."
[30] While Dr Byrne knew that she was assuming an obligation as guarantor of her husband's liability, and while she knew in general terms what a guarantee entailed, she was not aware of or informed about important aspects of this particular transaction: the amount of the principal debt, the identity of the lender, the term of the loan, and the risks peculiar to the investment being facilitated, in relation to upfront management fees and the absence of a secondary market for sale.
[31] Mr Bell submitted that it sufficed that Dr Byrne knew the "purport and effect" of the transaction (Garcia, p 408), which he would confine to knowledge that she was entering into a contract as surety, and what being a surety generally involved. The issue under Garcia is to identify "the transaction of suretyship". Garcia must be taken to be referring to the particular transaction into which the guarantor has entered.
[32] My approach is similar to that followed by Campbell J in Brueckner v The Satellite Group (Ultimo) Pty Ltd [2002] NSWSC 378 paras 185, 186:
"185. The first requirement is that Ms Broster did not understand the purport and effect of the transaction. That she had the limited understanding of what a 'guarantee' is which she admitted in cross-examination does not mean that she understood the particular transactions that she entered into, by executing these particular guarantees. In State Bank of New South Wales v Chia (2000) NSWLR 587, at 600 Einstein J said:
An understanding of the "purport and effect" of the transaction includes, at least, an understanding of the fact of liability, the general extent of liability, and the possible consequences of default: Yerkey v Jones (at 689). However it is not productive of an equity that the wife misunderstood or failed to appreciate the degree of risk associated in the transaction, or the improvidence or unwisdom of the uses to which the money so secured will be put: Yerkey v Jones (at 686). Further the wife's misapprehension must be of a material matter: Bank of Victoria Ltd v Mueller (at 648); that is, material to the liability the creditor wishes to impose upon the wife."
[33] Like Ms Broster, Dr Byrne knew little of the "purport and effect" of this particular transaction.
[34] Garcia confirms (para 43) that to avoid a guarantor's being characterised as a volunteer, the lender must demonstrate that the guarantor obtained some "real benefit" from the principal transaction.
[35] Dr Greinke referred to a number of cases where the prospect of an indirect benefit, or a comparatively small actual benefit, did not exclude that characterisation (CBA v Wenczel (2006) VSC 324; Bylander v Multilink (2001) NSWCA 53, para 15; Brueckner, supra, paras 190, 191; Garcia, supra, para 43).
[36] Dr Greinke emphasised the need for a "direct or immediate gain", in order to avoid a voluntary character. He relied on this passage in Cranfield Pty Ltd v Commonwealth Bank of Australia [1998] VSC 140:
"[104] So far as the evidence went, Cranfield borrowed the monies and erected the shops (and subsequently collected the rent in order, no doubt, that its interest obligations might be paid). I do not think that the fact that the shops were erected on her land or that ultimately benefit or gain might have flowed to Guiseppina Papalia as one of the owners of the Arcade property prevents the application of the equitable principles (except perhaps to the Arcade mortgage itself). Her transaction with the CBA was voluntary in the sense that Guiseppina Papalia obtained no direct or immediate gain from the bill discount facility or other obligation of Cranfield which she guaranteed (see Garcia at 31). Further, Guiseppina Papalia, whilst she was one of the registered proprietors of the Arcade property, had provided none of her own funds for its purchase and held her interest for all practical purposes for the benefit of the family and at the direction of her husband, the other registered proprietor."
[37] It is useful also to reproduce this summary by Einstein J in State Bank of New South Wales v Chia [2000] NSWSC 552 at 601:
"(2) The second requirement is that the wife is a volunteer. It is not sufficient that the wife has received consideration as would be recognised in the law of contract: Bank of Victoria Ltd v Mueller (at 649). The consideration for the guarantee must be of 'real benefit' to the wife: Garcia (at 412). Incidental benefit which accrues generally to the family of which the wife is a member is not sufficient benefit to render a transaction which does not otherwise contain a 'real benefit,' non-voluntary: Armstrong v Commonwealth Bank of Australia (unreported, 17 June 1999, New South Wales Supreme Court, per Hamilton J), Cranfield Pty Ltd v Commonwealth Bank of Australia (unreported, 20 November 1998, Supreme Court of Victoria, per Mandie J). Where the wife expects to reap direct profit from the transaction, the transaction cannot be said to be voluntary: State Bank of New South Wales Ltd v Vecchio (Unreported, 10 November 1998, New South Wales Supreme Court, per Kirby J). Neither can it be said to be voluntary where the moneys secured by the guarantee are used to purchase an asset in which the wife is equally interested with her husband: Commonwealth Bank of Australia v Khouri (Unreported, 4 November 1998, Supreme Court of Victoria, per Harper J). However, where the interest of the wife is a shareholding in the company through which her husband conducted his business and in which she has no real involvement, then a guarantee given by the wife over that company's debts will be voluntary: Commonwealth Bank of Australia v Khouri (supra). But where the wife has an active and substantial interest in the conduct of, and the fortunes of, the business run by her husband, she will not be a volunteer in relation to any guarantee over the debts of that business: Radin v Commonwealth Bank of Australia (Unreported, 23 October 1998, Federal Court of Australia, per Lindgren J). Where the transaction is not ex facie for the benefit of the wife, then the onus will lie on the party seeking to enforce the security to show that the wife was not, relevantly, a volunteer: Warburton v Whiteley p1989] NSW ConvR 55-453 at 58, 288 per McHugh JA."
[38] In its reply and answer (para 30), Agripay contends that Dr Byrne directly benefited because the MJ Byrne Superannuation Fund, of which Dr Byrne was a trustee and beneficiary, was a joint venture applicant for funding together with Murray.
[39] The facts are that Murray applied for 35 lots in an "almond project" worth $262,500, and 34 lots in an "avocado project", worth $317,900, totalling $580,400 (p 92 Exhibit 1), the entire amount of the overall investment in Timbercorp Securities Projects. The investment was in the name of Murray, with the MJ Byrne Superannuation Fund as a joint venturer.
[40] The Agripay loan, which led to the debt founding the judgment against the deceased's estate, funded only part of that joint venture investment, limited to nine almond lots worth $67,500 and 13 avocado lots worth $121,550 (pp 77, 143 Exhibit 1).
[41] Prior to the Agripay loan, Murray had obtained a loan in his name from Timbercorp Securities of the entire $580,400 (p 92). When obtained later, the Agripay monies were used to make a lump sum payment (totalling $189,050) against the Timbercorp loan (p 147 Exhibit 1).
[42] It may therefore be seen that the prospect of any profit would provide "only long term and uncertain returns to the superannuation fund", as submitted for Dr Byrne, "indirect through the mechanism of the superannuation fund and subject to applicable superannuation rules".
[43] I do not consider that the existence of the prospect of such a return, uncertain and indirect as it was, denied Dr Byrne the character of "volunteer" in respect of this transaction. Significantly in addition, she had no active involvement or interest in the management of the fund, and little knowledge of the investment; the real focus of the transaction was a taxation benefit for Murray, not any financial return to Dr Byrne; Dr Byrne in no degree relied on the transaction for a financial benefit - she was independently supporting; and any possible financial benefit was contingent and indirect in the respects previously covered.
[44] In his cross-examination of Dr Byrne, Mr Bell referred to possible benefit to her in the event that Murray were able, through these investments, to "lower his tax bill" (p 1-36 transcript). Any such benefit would be too indirect and prospective to deny Dr Byrne the capacity of volunteer in relation to this particular transaction, which was plainly and predominantly, if not exclusively, designed for Murray's benefit as the entrepreneur whose business activities, which he effectively kept from his wife (p 1-22 l 19 transcript), were focused on his own material advancement.
[45] From Dr Byrne's point of view, there was no "real benefit" from the principal transaction (Garcia), no "direct or immediate gain" (Cranfield). She should be regarded as a volunteer in this suretyship.
(c) Lender's understanding of marriage relationship
[46] Agripay must be taken to have known of the marriage relationship. In documentation, the guarantor is described as "Mrs Joan Byrne" (p 72 Exhibit 1). Furthermore, the direct debit balance account was a joint account, between husband and wife (p 79 Exhibit 1).
[47] Agripay had sufficient "notice" within the meaning of the authorities (see Garcia, para 40).
[48] Agripay did not explain the transaction, or take steps to ensure that an explanation was given.
[49] Anything said by Cooke (and little was), could not qualify. Cooke was not an agent of Agripay, but in any event he was not disinterested in the matter, because of his own financial return by way of commissions (p 30 Exhibit 1).
[50] The only adequate explanation could be one which was "competent, independent and disinterested" (Garcia, p418; Australian Regional Credit v Mula [2009] NSWSC 325 para 17).
[52] Mr Bell pointed out that Dr Byrne received more than $1,000,000 payout under a life insurance policy upon Murray's death. Also, she is the sole beneficiary under his will and will therefore, he submitted, effectively retain the benefit of these investments. See pp 1-34, 1-35 transcript. Otherwise facing her liability as guarantor for a debt of this magnitude, she cannot, he submitted, generally in terms of conscientiousness, "have her cake and eat it too".
[53] These are quite separate matters. Dr Byrne's return under the life insurance policy has nothing to do with this impugned transaction of suretyship, or the principal transaction to which it relates.
[54] Further, any return from the investment belongs to the deceased estate, and in the present circumstances, vests in its trustee in bankruptcy. In terms of legal principle, it is quite incidental, in any case, to the present issue, that Dr Byrne is the sole beneficiary of Murray's deceased estate.
[55] The requirements to warrant setting aside the guarantee, established by Garcia, are met in this case.
Agripay Pty Limited
The Estate of Murray Andrew Byrne & Anor
(1940) 63 CLR 649
(1998) 194 CLR 395