Armstrong v CBA [1999] NSWSC 588 | Case summary

JUDGMENT HIS HONOUR: 1 These proceedings arise as a result of a disastrous transaction entered into by a man who had otherwise been a successful small business man all his life. His name is Donald John Armstrong. The transaction was the purchase of a half interest in a resort at Salamander Bay. It was entered into through a company, D J Armstrong Investments Pty Limited ("Investments"). It turned into a fiasco. Investments failed and was in 1993 wound up by order of this Court. The liabilities of Investments were guaranteed by his wife, Gwenyth Louise Armstrong, and it is claimed that her guarantee was secured by mortgages over properties of hers. She is the plaintiff in these proceedings. The liabilities were to the Commonwealth Bank of Australia ("the Bank") which is the defendant in these proceedings. By its cross claim the Bank claims to recover moneys against her and to enforce the securities it holds over her properties. She seeks to have the guarantee and the mortgages set aside. BACKGROUND 2 Mrs Armstrong was born on 11 October 1930 at Mungindi. She was educated at the Pallamallawa Primary School and then for one year only at Moree High School. Thereafter she completed a one year nursing aide course at the Moree District Hospital. She had no other education. She then worked as a nurse's aide, first, for about 10 years at the Narrabri General Hospital and, after moving to Sydney in 1961, at the St George General Hospital. In 1963 she married her first husband, who was a soldier. She continued to work as a nurse's aide until about 1969. She then moved for 2 years to Singapore where her husband was stationed with the Australian Army. After her return to Sydney she resumed work as a nurse's aide. In 1973 she was divorced from her first husband and worked as a helping hand in the Royal Sheaf Hotel at Burwood. On 5 May 1974 she married Mr Armstrong, whom she had met some years before while working at the Stonehaven Nursing Home, which he owned. Since that marriage she has not been employed and has not done any work except occasional work at Mr Armstrong's request in connexion with some of his businesses. She has had a savings account and a cheque account with the Bank but no other bank accounts of her own. She has never done any bookkeeping work and does not know how to read financial accounts. Previously to the transactions mentioned in these proceedings, the only time she remembers being engaged in a borrowing transaction was when she bought a motor vehicle under a hire purchase agreement in about 1969. She had never previously bought land or entered into a guarantee or a mortgage. She had not, before marrying Mr Armstrong, been a director or shareholder of any company. The first time she ever owned any real property was when in about May 1975 Mr Armstrong bought her unit 5/24 Queenscliff Road, Queenscliff ("the Queenscliff property") as a first wedding anniversary present. Between 1975 and 1977 she became aware that she was a director of Investments, which had been incorporated in 1973 and was thereafter the vehicle for various of Mr Armstrong's business ventures. Originally Mr Armstrong held 75 per cent of the issued shares in Investments and his brother held 25 per cent. On 3 June 1978 the brother's shares were transferred to Mrs Armstrong. There is no dispute that, from that time she was the holder of 25 per cent of the issued shares in Investments, with Mr Armstrong continuing to hold the other 75 per cent. She says that she did not until the commencement of these proceedings understand the extent of her duties as a company director. She still does not have any great understanding of those duties. 3 Mr Armstrong had accounts with the Bank at its Hurstville branch from 1950. During his career as a businessman he had for many years been a valued and trusted customer of the Bank at that branch. Many employees of the Bank concurred in this description. Furthermore, he was closely friendly with Barry Moran, who was at the relevant times the Regional Manager of the Bank for its Southern Metropolitan (NSW) Region A, which included the Hurstville branch. He subsequently became the Bank's Chief Manager Corporate. They had known each other in boyhood. The closeness of the relationship is attested by evidence of dinner engagements of the Armstrongs with Mr and Mrs Moran, both in Sydney and at Tweed Heads, and of Mr Armstrong being able to telephone and visit Mr Moran at home concerning business matters during weekends. Notes in the Bank's records attest that Mr Moran from time to time gave directives and made decisions concerning Mr Armstrong's affairs and that employees at the branch were aware that Mr Moran showed an interest in them. Mr Moran died on 24 April 1996. The only form in which his evidence is available is an unsworn witness statement prepared for proceedings in the Commercial Division against Mr Armstrong. Mr Moran was not, of course, subject to cross examination. 4 In March 1977 the house property at 20 Beach Street Blakehurst ("the Blakehurst property") was purchased in the joint names of Mr and Mrs Armstrong as their matrimonial home. As already stated, in 1975 Mr Armstrong purchased the Queenscliff property as a first wedding anniversary present to Mrs Armstrong. In 1983 there were three transfers of property into Mrs Armstrong's name. First, on 28 April 1983 Mr Armstrong transferred his half share as joint tenant in the Blakehurst property to her. Secondly, on the same day, he procured the transfer by Investments to Mrs Armstrong of a home unit at Tweed Heads ("the Tweed Heads property"), one of two previously purchased there. Thirdly, there was transferred to her a part interest in the Stonehaven Nursing Home. This was subsequently transferred out of her name and does not play any further part in these proceedings. The reason given by Mrs Armstrong for the transfer of his share in the matrimonial home is that she felt insecure, had expressed this insecurity to him and told him that she wished the property to be in her name. The evidence does not really go further than that. The transfer to Mrs Armstrong of the Tweed Heads property recorded a consideration of $104,000. Her stated reason for this transfer was that, "I just suggested I would like to own one of them." Mrs Armstrong certainly did not provide the purchase price of this or the other properties or any part of it from her own funds. As to where the money came from, she said her husband "arranged it". There is no other evidence of the form of the transaction. No relevant accounts of Investments are in evidence. It is not even clear on the material available that Investments was the beneficial owner of the property. It should be said that there is no suggestion in the evidence of any financial threat hanging over Mr Armstrong or his enterprises at the time of any of these transfers of property to Mrs Armstrong. 5 It would seem that the marriage was never very happy. About this, more will be said later. But, whatever relations were, they undoubtedly took a turn for the worse in 1989, when Mrs Armstrong discovered that her husband had bought a car for another woman. Mrs Armstrong's complaint about this brought the response that Mr Armstrong would buy a car for whomever he pleased. Mrs Armstrong formed the view that he was having an affair with the other woman and moved out of the matrimonial home at Blakehurst and lived at Tweed Heads. Although Mr Armstrong continued to reside in the Blakehurst property, he had business interests at Tweed Heads, and he spent a good deal of time there. Mrs Armstrong deposes that between May and August 1989 they argued constantly and during that time, while she was at Tweed Heads, Mr Armstrong assaulted her for the first time. He hit her on the right hand side of her face. On another occasion during the same period he pushed her against a wall bruising her shoulder. In about August 1989 she consulted Mr Foster at Redmond Partners, Solicitors, at Kogarah about her matrimonial problems and the status of her property. In December 1989 she returned briefly to live in the Blakehurst property and the Armstrongs there entertained to dinner Barry Moran and his wife, Denise. During that dinner, in the absence of Mr Armstrong, but the presence of Barry Moran, the following conversation took place: " Denise Moran said: 'Peg, you look terrible. Is there anything wrong?' I said: 'I'm going through a terrible time with Don. I'll probably have to divorce him. He's wasting money by buying a new car for a woman he hardly knows. Don't let onto [sic] Don that I spoke to you about this. I don't want it to be an unpleasant evening.'" Soon after that Mrs Armstrong returned to live at Tweed Heads, but she was back in Sydney when, on 4 March 1990, she picked him up at Mascot Airport after he had flown from Coolangatta and drove him to the Blakehurst property where in the kitchen he told her that he wanted a divorce. She declined. He then flew into a rage and hit her on the right side of her face causing her nose to bleed. She walked out of the kitchen to the swimming pool area. He followed her and grabbed her by her neck and shoulders and pushed her saying, "I'll push you into the deep end of the pool and keep you there." She screamed until he let her go, when she ran next door, but there was no one home. After her return to the house she telephoned the Police who came to the house and arrested Mr Armstrong. He was charged with assault. On 7 March 1990 she swore out a complaint against him under s 562B of the Crimes Act 1900. Mr Armstrong corroborates these unworthy acts on his part. Lest that be thought convenient, they are also corroborated by the complaint which Mrs Armstrong swore out, the terms of which are as follows: "The parties have been married for 15 years. Since April, 1989 the defendant has become aggressive in his behaviour to the complainant. The defendant has assaulted the complainant in June, 1989, in January, 1990 and most recently on 4th March, 1990 when the Police were called and the defendant was charged with assault. That matter will be before Kogarah Court on 27th March, 1990. Since the assault the defendant has twice threatened the complainant saying 'I should have drowned you'. Since the assault on 4th March, 1990 the defendant has constantly harassed the complainant by constantly abusing her." In satisfaction of that complaint an apprehended violence order was subsequently made against Mr Armstrong. The summons issued on the complaint was returnable on 27 March 1990 and on that day the Local Court at Kogarah ordered Mr Armstrong: "not to assault, molest, harass or abuse or otherwise interfere with the protected person's peaceful occupation of the property at 20 Beach Street, Blakehurst." That was a temporary order but it was on 30 August 1990 extended up to 11 April 1991. 6 In August 1990 Mrs Armstrong again consulted Mr Foster of Redmond Partners at Kogarah who asked her to ascertain how much was owing to the Bank and advised her not to sign any further documents for her husband. Shortly thereafter she telephoned Barry Moran, attended at the Bank, was presented with some documents, found them of little meaning to her, but was, at her request, informed by the bank officer that the outstanding amount was then about $1.8 million. On 27 September 1990 Mr Armstrong flew to Coolangatta and Mrs Armstrong picked him up at the airport. They then visited Barry and Denise Moran who were holidaying on the Gold Coast and arranged to meet them for dinner that evening. After the daytime visit Mr Armstrong asked Mrs Armstrong to sign further documents (not being documents operative in these proceedings). She refused to do so. He told her she would have to sign them. He promised to buy her a new car if she would. She still refused. During the course of this argument he hit her in the face causing her mouth to bleed and grabbed her by the throat. Later in the day she went to see a solicitor in Tweed Heads whose name she believes was Piper. He said the only advice he could give her was not to sign any papers. Mr Armstrong waited outside the solicitor's office for her and drove her to the Tweed Heads branch of the Bank. She there signed the documents about which the argument had taken place. She says that her reason for doing so was as follows: "I was concerned that if I did not do what my husband wanted me to do I believe I would have been subjected to abuse and physical violence. Eventually I signed the documents to keep the peace." There is no evidence which directly contradicts any of the account set out in this and the preceding paragraph. Particularly in the light of the contemporaneous apprehended violence complaint and the view I have formed of Mr Armstrong, to which I shall return, I accept the matters set out in [5] and [6] as established. I should say specifically that I accept that Mrs Armstrong had the conversation with the Morans at dinner to which she deposed. THE MATERIAL DOCUMENTS 7 Over the years, Mrs Armstrong executed a considerable number of documents for the Bank. Those most material to these proceedings were set out in a schedule prepared by the Bank's counsel as follows: Documents (1), (4), (5) and (6) are documents which the Bank claims create or secure liability by Mrs Armstrong to the Bank. The relevance of documents (2) and (3) is that they bear same date as document (1) and may go to the circumstances in which that document was executed. They do not themselves operate to create or secure relevant liability. Documents (7), (8), (9) and (10) are acknowledgments signed by Mrs Armstrong which extend the limit of the liability that she was under to the Bank. Documents (9) and (10) were undoubtedly executed outside the Bank, one of them being witnessed by Mr Armstrong and the other by a Mrs Conaghan, who was a neighbour of Mrs Armstrong's at Tweed Heads. In document (7) Mrs Armstrong's signature is not witnessed. 8 None of the Bank's witnesses claims to remember witnessing any of Mrs Armstrong's relevant signatures. Bearing in mind the distance of time and the rote nature of such an act, it is hardly surprising that they do not, absent some quite remarkable event at the time. In swearing that they witnessed her signature they rely upon the fact that their signatures appear as witnesses on the documents and what they say was their universal practice in relation to such signatures. They also rely on the fact that they say that guarantees and mortgages were never allowed out of the Bank for signature but always signed and witnessed within a Bank branch. I should add that the evidence shows that the Bank's procedures and the general attitude towards the execution and witnessing of documents generally tightened up progressively over the years. The process seems to have commenced in the early to mid 1980s and to have intensified over the succeeding years up to 1990. The S 33 and S 34 forms referred to hereafter were introduced in 1987 as part of that process. Factors in the process were undoubtedly the entry of s 52 of the Trade Practices Act 1974 (Cth) into play as a commonplace of commercial litigation. Whether or not Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 is regarded as introducing any novelty into the law, the wide attention given it was perhaps a factor. In any event, it is clear that the attitude towards departures from the rules as to execution and witnessing was more relaxed in 1977, and still in 1983, than it was thereafter. THE EXECUTION OF THE DOCUMENTS Mrs Armstrong's Version 9 As I have said, Mrs Armstrong's account is that all the material documents were executed by her out of the Bank, and at the instance and insistence of her husband. For example, in relation to document (1), the mortgage over the Queenscliff property ("the Queenscliff mortgage"), she deposes as follows: "On or about 21 November, 1977 Don brought home at 20 Beach Street, Blakehurst a number of documents for me to sign. A conversation took place to the following effect: Don said: 'Peg, will you sign these documents here please.' He then pointed to the particular parts of the documents for me to sign. I said: 'What am I signing?' Don said: 'Just sign it.' I did as I was requested by my husband and signed the documents. I did not read through the documents nor did I have explained to me any part of them." Mr Armstrong's version corroborates that. In relation to document (4) ("the guarantee"), and document (5) ("the Blakehurst mortgage"), signed in September 1983, she again deposes that he requested her to sign the documents and that on that occasion she asked what she was signing and he replied, "Don't worry neither you nor your properties are at risk just leave it to me. Just sign the documents." Her execution of document (6) ("the Tweed Heads mortgage") in November of that year was in similar circumstances. 10 At the time these documents were signed there had not been any actual violence between Mr Armstrong and Mrs Armstrong. It was suggested to Mrs Armstrong in cross examination that, in effect, she was not at those times frightened of Mr Armstrong and that it was unlikely she would have remained in the marriage had she been. There are two significant passages in her cross examination, the first of which presents, in a sense, her vignette of he marriage as it was in the days before the troubles that commenced in 1989 and is as follows: "Q. I would like you to tell me how you would describe your relationship with your husband between the time of the marriage in 1974 - have I got the right date? A. Yes, sir, you have.

11 So far as the acknowledgments are concerned, whilst they were sent out by post for execution addressed to Mrs Armstrong at the Blakehurst property, her evidence is that she did not open business mail, even if addressed to her, but put it aside for Mr Armstrong. She did not read any of the covering letters sent with the acknowledgments, and, up to 1989, came to sign them in the same way as she came to sign the other documents. By the time of the October 1989 and September 1990 acknowledgments, actual violence had been applied to her. Later in September 1990, upon her refusal to sign further documents, Mr Armstrong again hit her. The Bank's Version 12 The Queenscliff Mortgage. This bears date 21 November 1977. The witness to Mrs Armstrong's signature is Mr Bruton. On the same day she executed a mortgage over a now irrelevant property, that mortgage also being witnessed by Mr Bruton. She also executed, jointly with Mr Armstrong, a mortgage over the Blakehurst property, they at that time being joint tenants of that property. That was witnessed by Mr Corcoran. All Bank documentation concerning the execution of these mortgages and the transactions in respect of which they were executed has been destroyed and was not available at the trial; only the mortgage documents themselves were available. Mr and Mrs Armstrong's version is that Mrs Armstrong's signatures were procured by Mr Armstrong away from the Bank and out of the presence of any Bank officer. Mr Bruton's position at the time was documents clerk. He says that he does not recall the circumstances of the mortgage being executed. He says he does recall being involved in the execution at the Bank by Mr and Mrs Armstrong on some occasions. He says that he never did that alone but in the presence of either the manager or senior loans officer. He says he did not on any occasion provide any explanation of documents to Mr and Mrs Armstrong. He says he does not recall the nature of any explanation given on the occasion or by whom. As to the mortgage of the same date which he witnessed (document (3)), Mr Corcoran said that he did not recall witnessing the mortgage. He claimed that he never witnessed a mortgage which had not been signed in his presence. He said that it was his practice as an officer of the Bank when signing a mortgage document as a witness to the signature of a mortgagor to ensure that he was actually present when the mortgagor signed the document. As to explanations, he says in relation to third party mortgages involving the mortgagor's home "my practice was to say to the mortgagor before the document was being signed, words to the effect of 'this is a mortgage over your home'". The Queenscliff mortgage is expressed to be given in "consideration of certain advances and accommodation granted or to be granted at the request of the Mortgagor to" Investments. Mrs Armstrong had not at that time become a shareholder of Investments and had on the evidence no interest in the company. 13 The Guarantee and the Blakehurst Mortgage. The guarantee bears a typewritten date 27 September 1983. It is stated to be given by Mr and Mrs Armstrong in consideration of advances and accommodation granted to Investments. The signatures of both guarantors are witnessed by Mrs Latham. In the body of the guarantee there are initials in only one place: against clause 3 and just above clause 4. They are plainly the initials of Mr and Mrs Armstrong. The original does not bear any sign of any mark indicating that it should be initialled there. Mr Armstrong said in evidence that he was told that the document should be initialled at that place. The Blakehurst mortgage was executed as mortgagor by Mrs Armstrong alone, she being by then the sole registered proprietor of the property. It bears Mrs Latham's signature as witness to the execution. The consideration again is "advances and accommodation granted or to be granted" to Investments. The occasion for the provision of the security is not clear. The mortgage bears the date 28 September 1983 in handwritting. In her affidavit Mrs Latham says that she does not recall the circumstances of the execution of the document. She recalls speaking with Mr Armstrong in her office on a number of occasions but has only a vague recollection of meeting Mrs Armstrong. She claims that she does not recall on any occasion executing a document as a witness when she did not actually witness the document's execution. She says that "by September 1983 she had a practice whereby in the case of a guarantee she would say that the guarantor was guaranteeing the debts of the debtor (whom she would name) that are owed to the Bank". She would say words to the effect: "You are guaranteeing the debts of [here I would name the debtor] that are owed to the Bank. You are liable to repay to the Bank the debts of the debtor should the debtor fail to repay them. The terms of the guarantee are set out in this document. I must draw your attention to clause 4 of the guarantee. Please read it carefully and then initial next to this clause recording that you have read it and that you understand it." Mrs Latham continued that she would advert to the unlimited nature of the guarantee (if it were unlimited) and then ask the guarantor to the sign at the place provided in the execution clause. The terms of the relevant clause 4 are as follows: "4 The Guarantor hereby records and acknowledges to the Bank that every security already executed or which may at any time and from time to time be executed by the Guarantor in favour of the Bank shall also be and remain continuing security to the Bank for the payment by the Guarantor to the Bank of all moneys for the payment whereof the Guarantor is or may be or may become liable to the Bank under or by virtue of this Guarantee." It may be noted that it is not a model of simplicity or clarity. Mrs Latham gave evidence of a practice of saying similar words in respect of the execution of a third party mortgage. 14 The Tweed Heads Mortgage. The Tweed Heads mortgage was signed by Mrs Armstrong, her signature again being witnessed by Mrs Latham. The mortgage is dated in handwriting 11 November 1983. The statement of consideration is the same as in the Blakehurst mortgage. It seems likely, but it is not entirely clear, that this mortgage was given in connexion with the purchase by Rimenu Pty Limited ("Rimenu") of a newsagency. Mrs Latham again has no recollection of the circumstances of execution, and relies on evidence of her practice as establishing what occurred. 15 The Acknowledgments. As is apparent from the schedule set out in [7] above, of the four acknowledgments identified as significant in this case, the signature of Mrs Armstrong to only one was witnessed by an officer of the Bank. In document (7), executed in 1984, Mrs Armstrong's signature is not witnessed. It was in document (8), dated 15 July 1988, that Mrs Armstrong's signature was witnessed by Miss Small. In document (9), dated 9 October 1989, her signature was witnessed by Mr Armstrong and in document (10), dated 13 September 1990, it was witnessed by Mrs Conaghan, Mrs Armstrong's neighbour at Tweed Heads. There seems little doubt that the 1984 acknowledgment was executed outside the Bank; it does not purport to be witnessed by a Bank officer and bears what appears to be a stamp of verification of the signatures after return of the document. The terms of the letter accompanying each of documents (8), (9) and (10) makes it plain that it was anticipated these documents would be sent out of the Bank for signature. It is therefore not surprising that two of them do not purport to have been witnessed by Bank officers. It is plain that that witnessed by Mrs Conaghan was executed away from the Bank and there is no reason to doubt that the same is true of document (9), witnessed by Mr Armstrong. The only one of the acknowledgments in which a serious case is put forward that the acknowledgment was executed in the Bank is document (8). The witness was Miss Small, whom I have found to be one of Bank's more satisfactory witnesses. The reason for the large extension of credit to Investments on this occasion was the purchase by it of a motel at Banora Point. Miss Small has no recollection of preparing the letter under the cover of which the acknowledgment was sent out or of witnessing Mrs Armstrong's signature to it. It is clear that these documents were at this time customarily sent out of then Bank for execution, because the letter was in a standard form, known as an S 33. It contained the following: "Prior to signing the document you should satisfy yourself that you understand the full nature and effect of your liabilities to the Bank and obtain appropriate advice, legal or otherwise, if you are at all uncertain of your position. Your signature to the document should be witnessed by an adult person (specially qualified where so called for in the document) who is not the borrower/debtor or a co-guarantor/mortgagor (if any) under the document." Miss Small made a diary note dated 15 July 1988 concerning the execution. That diary note was also in a standard form, known as an S 34, which by that time it had become the practice of the Bank to require its officers to create in relation to all executions of acknowledgments. The terms of that diary note were as follows: "I confirm that Mr & Mrs Armstrong read this letter (S 33) and they were clearly advised not to sign the document until they understood the full nature and effect of their liabilities if necessary by obtaining independent advise [sic]. Notwithstanding this explanation they freely signed the documents with apparent understanding of the nature of the liabilities incurred." Miss Small deposed that she could not remember signing a document as a witness without having seen the signature placed on the document and that she had never signed such a diary note if it were not true. Miss Small says that it was her practice (presumably when the acknowledgments were executed in the Bank) to hand the S 33 and S 34 to the customer and say words to the effect: "This document encloses a letter of acknowledgment which you are asked to sign by way of security. If you are unsure or do not understand your liabilities under this document you should seek your own legal advice. You are providing security for the [here I would name the debtor]. You are liable for the debt as recorded in the letter of acknowledgment. The amount is [here I would state the level of the debt recorded in the S 34]. The security referred to in the letter of acknowledgment, namely [here I would state the nature of the security provided] is available to the Bank to call up in the event that the debtor fails to repay its debts to the Bank. By signing this letter of acknowledgment you are acknowledging your liability for that debt. … This is the letter of acknowledgment you are being asked to sign. Please read it and sign it if you are happy." The four original documents that together constitute Exhibit 14 (Mrs Armstrong's acknowledgment, Mr Armstrong's acknowledgment and a request and a certificate by Investments) have the appearance of having been sent out of the Bank together. The request has been executed by another company, apparently out of the Bank, as well as by Investments. It seems strange that, if the acknowledgments were sent out, Mrs Armstrong should bring hers back into the Bank to sign. Although the acknowledgment does not display irregularities such as those commented on by Young J at first instance in Garcia v National Australia Bank Ltd (1993) 5 BPR 11,996 at 12,008. I do not think that it takes the matter much further; if a Bank officer did sign as a witness without seeing the signature applied, he or she, once S 34s were instituted, would be likely to complete one to regularise the record. 16 The Rimenu Guarantee. The facts relating to the execution of a document not being one of the series principally under consideration is of some significance in relation to the execution of the 1983 documents. That document is a guarantee dated 14 March 1984 by Mr and Mrs Armstrong of obligations of Rimenu. It was clearly procured in connexion with the purchase by Rimenu of a newsagency. There is no evidence that Mrs Armstrong had any interest in Rimenu. Mrs Latham had some association with this document as there is no doubt that the names Donald John Armstrong and Gwyneth Louise Armstrong are written into the testimonium clauses in her handwriting. Mrs Armstrong's signature is witnessed by Mr Armstrong and Mr Armstrong's signature is witnessed by Mr Rankin. The document, which is on the same printed form as the guarantee, which was executed in September 1983, bears the initials of Mr and Mrs Armstrong against each of clause 3 and clause 4. There are crosses against the places for them to sign in the testimonium clauses. There is a diary note of the Bank manager directing that it be handed out to Mr Armstrong. Contrary to what a number of Bank witnesses said was the practice, it is quite plain on the evidence that this guarantee was handed out for Mr Armstrong to take away and have Mrs Armstrong sign.. Furthermore, Mr Rankin who witnessed Mr Armstrong's signature, after looking at relevant documentation, deposed that he signed as the witness to Mr Armstrong's signature after the document came back to the Bank and without having seen Mr Armstrong put his signature on the document. In cross examination he conceded that this was not a matter of recollection, but of inferences drawn from the documentation referred to. Despite Mr Rankin's lack of actual recollection, after considering his evidence and examining the relevant documentation, I find that his evidence as to signing as witness although he had not seen Mr Armstrong sign is correct. Of course, none of this evidence proves that any other document was dealt with in these ways; but it does demonstrate graphically that the proposition that these things never occurred is simply not correct. THE CREDIBILITY OF WITNESSES Generally 17 This case throws up acute and difficult problems of credibility. Some of those problems are general and inhere in the distance in time and the rote nature of the acts to be remembered. Whilst in appropriate cases practice may be probative (see Connor v Blacktown District Hospital [1971] 1 NSWLR 713) evidence of a practice as proving the doing of an act must be approached with caution. It is stated thus in 1A Wigmore on Evidence (Tillers Rev) s 92: "Of the probative value of a person's habit or custom, as showing the doing on a specific occasion of the act that is the subject of the habit or custom, there can be no doubt. Every day's experience and reasoning make it clear enough …" …… There is, however, much room for difference of opinion about the admissibility of habit in concrete cases, owing chiefly to the indefiniteness of the notion of habit or custom. If we conceive it as involving an invariable regularity of action, there can be no doubt that this fixed sequence of acts tends strongly to show the occurrence of a given instance. But in the ordinary affairs of life, a habit or custom seldom has such an invariable regularity. Hence, it is easy to see why in a given instance something that may be loosely called habit or custom seldom should be rejected because it may not in fact have sufficient regularity to make it probable that it would be carried out in every instance or in most instances. Whether or not such sufficient regularity exists must depend largely on the circumstances of each case." The shortcomings of this sort of evidence in cases of this kind were commented on by Young J in Garcia v National Australia Bank Ltd supra at 12,006 - 7 and by McLelland CJ in Eq in State Bank of NSW v Muir (1997) 8 BPR 15,483 at 15,488. In this case, there were suggestions by witnesses for the Bank that mortgages and guarantees were never allowed out of the Bank for signature and that they knew of no instance where this had occurred. Similarly some witnesses said that they knew of no instance of a Bank officer signing as witness to a signature where the signature had not been applied in his or her presence. The facts concerning the Rimenu mortgage I have already recorded in [16]. In addition, a Mr Garrett, who was formerly a branch manager of the Bank, deposed that up to about 1986 he had had a practice of witnessing the signatures of valued customers with whom he was well acquainted without having seen them sign. He on at least one occasion wtnessed the signature of the wife of such a customer, although he did not see the wife sign, and had not met her. I accept this evidence of Mr Garrett. The documents concerned had nothing to with this case, but, again, the proposition that the practices contended for by the Bank were never departed from is proved simply to be incorrect. The departures were in respect of valued customers whom the Bank trusted. It is clear that Mr Armstrong was in this category. Numbers of witnesses said so and no witness denied or cast doubt upon it. It also seems likely that Mr Armstrong's position was enhanced by his relationship with Barry Moran, the Regional Manager, which various notations in the files show was well known in the branch. Another complicating factor is that, in relation to a number of the transactions, the surrounding documents have been destroyed by the Bank in the fullness of time. This is certainly so in the case of the 1977 documentation and also substantially so in the case of the 1983 documents. All that remains is the signed documents themselves. I should say at once that there is nothing sinister in this; there is no suggestion that the documents have been destroyed to preclude their production, but the fact remains that they simply do not exist, which is unfortunate in relation to transactions that are still alive. Mr Armstrong 18 Mr Armstrong impressed as a somewhat brusque man with a direct and forceful manner. He obviously prided himself on his business acumen and his successful conduct of affairs until the catastrophe. He impressed as a man who would generally be likely to tell the truth, out of pride if nothing else. He also impressed as a man very certain of his own views and of the rightness of any course of action on which he embarked. Whatever the Armstrongs' present relationship, and that was not entirely clear from the evidence, and whatever his motivation, one had the feeling that he was determined that Mrs Armstrong's property be saved from the Bank if at all possible. The great reservation about his credibility is that he clearly and squarely avowed that he had lied on oath in an examination before a Bankruptcy Registrar with the motive of keeping property from his creditors. He thus squarely marked himself as a man prepared to lie on his oath when it would serve his purposes, particularly his financial purposes. He struck as a man determined to have his own way. His manner made it easy to believe that he had assaulted Mrs Armstrong as is otherwise alleged in the evidence, when he felt he was thwarted. It is also easy to believe that prior to any assault he had brusquely and with a degree of menace demanded compliance with his wishes, particularly in financial matters. Mrs Armstrong 19 Mrs Armstrong was cross examined long and stringently. In general terms she adhered to her evidence despite this cross examination. One area, however, in which her credibility received damage again related to Mr Armstrong's examination in bankruptcy. She, unlike he, was not prepared to avow that she had given evidence that was not true. However, I formed the opinion that she had done her best to keep from the Registrar factual matter relating to rent received by her from a property and, in the end, she in effect conceded that she had been attempting to do so. Her evidence before me on the same subject matter was also unsatisfactory. This is of significance because the subject matter relates to money and the keeping of property from creditors of Mr Armstrong. It constitutes a compromise of her credit. However, her evidence was not clearly demonstrated to be inaccurate in other regards and her credit was not, in my view, otherwise seriously compromised. I regard her as a much more reliable witness than Mr Armstrong and her testimony must receive serious consideration as a possibly accurate version of events. Mr Bruton 20 Mr Bruton witnessed documents (1) and (2). He was no longer employed by the Bank. He impressed me as a witness of little credibility. He gave the appearance of not wishing to be in the witness box and of not being prepared to apply his mind with any great seriousness to the matters to which it was directed, which admittedly involved him in casting his mind back more than 20 years. His evidence contained inconsistencies and some of it was demonstrably wrong. I regard him as a witness of low credibility. Mr Corcoran 21 Mr Corcoran was the witness to document (3) in 1977. It was no longer an operative document, its only significance being that it was allegedly executed on the same occasion as documents (1) and (2). Unlike Mr Bruton, he was a witness whose credibility was not detracted from by his demeanour or cross examination. It must be remembered, however, that his mind, too, is reaching back more than 20 years. He does not, in any event, purport to remember the events and, when he speaks about what occurred and did not occur by way of practice in a Bank branch 20 years ago, he faces formidable problems in accuracy of recall. Mrs Latham 22 Mrs Latham was still in the employ of the Bank. She witnessed documents (4), (5) and (6). In the early stages of her oral evidence, I found her an impressive witness. She is of pleasant appearance and pleasant personality and appeared to be using her best endeavours to recount accurately the events and circumstances of the relevant past. However, Mrs Latham's evidence was seriously compromised by an accidental event during the course of her cross examination. The accident was that Mr Martin, of counsel for the plaintiff, erroneously put to her one afternoon that a document which he showed her was a document relevant to her evidence and that it demonstrated that her evidence concerning execution was wrong. I should say at once that Mr Martin was the first person the following morning to draw attention to his mistake. He avowed and apologised for it and for having misled the witness as to the identity of the document. It should also be said that the mistake was not perceived the previous afternoon by either the witness, the bench or either of the counsel for the Bank. The difficulty that was created for Mrs Latham's credibility by this incident was that, as soon as the evidence she had given in favour of the Bank was apparently compromised and rendered impossible by the error as to the identity of the document, she immediately began giving another version, not previously heard of, but which established the Bank's case. In light of this incident and observation of her during considerable further cross examination, I formed the view that Mrs Latham was a witness who was absolutely determined that things had occurred properly and in accordance with the Bank's procedures and was absolutely determined to say so whatever was occurring. In my view, her credibility as a witness was severely compromised by the incident I have referred to and this tendency. Miss Small 23 Miss Small also was still in the Bank's employ, She was a much more impressive witness. There was nothing in her demeanour or her cross examination which in effect detracted from her version of affairs. Again, however, that version depends entirely upon her signature appearing on certain documents and her recollection or perception as to what her practice had been at that time. The time of the events she was deposing to, although comparatively recent in terms of this case, was a good 10 years ago, and her recollection was not of the events themselves, but merely of her practice at that time and whether or not there were ever any exceptions to it. The Plaintiff's Claim 24 Although put on many bases, in the end the basis for relief that was in the forefront of Mrs Armstrong's case was the principle in Yerkey v Jones (1939) 63 CLR 649, as affirmed by the High Court in Garcia v National Australia Bank Ltd (1998) 72 ALJR 1243. That was not always so. The evidence and submissions in this case were completed before the High Court handed down the decision in Garcia. The matter was then relisted before me for further submissions on the basis of that decision. At the time of the evidence and the previous argument what was binding upon me in this regard was the pronouncement of the Court of Appeal in National Australia Bank Ltd v Garcia (1996) 39 NSWLR 577 per Sheller JA at 598 that "the so-called principle in Yerkey v Jones should no longer be applied in New South Wales." The basis on which the Court of Appeal had taken that stance was that Yerkey v Jones was based upon an outdated view of society generally and the role of women in society in particular. 25 In Garcia the High Court returned to the principles applicable to determine where the loss falls as between a lender and a wife (who may both be innocent) in respect of a husband's unsatisfied liabilities guaranteed by the wife. It considered both the decision under appeal and also the rather different approach of the House Lords in Barclays Bank Plc v O'Brien [1994] 1 AC 180. The High Court rejected the approach of the Court of Appeal and also differed from that taken by the House of Lords. The approaches have been usefully discussed by Santow J writing extra curially: GFK Santow, "Sex, Lies and Sureties - Touching the Conscience of the Creditor" (1999) 10 JBFLP 7; and see the Note by Simon Gardner, "Wives' Guarantees of their Husbands' Debts" (1999) 115 LQR 1. In the result, the principle in Yerkey v Jones was reaffirmed by the majority of the High Court (Gaudron, McHugh, Gummow and Hayne JJ) as follows: "[20] That Australian society, and particularly the role of women in that society, has changed in the last six decades is undoubted. But some things are unchanged. There is still a significant number of women in Australia in relationships which are, for many and varied reasons, marked by disparities of economic and other power between the parties. However, the rationale of Yerkey v Jones is not to be found in notions based on the subservience or inferior economic position of women. Nor is it based on their vulnerability to exploitation because of their emotional involvement ( Barclays Bank Plc v O'Brien [1994] 1 AC 180 at 198, per Lord Browne-Wilkinson; cf Wilkinson v ASB Bank Ltd [1998] 1 NZLR 674 at 689), save to the extent that the case was concerned with actual undue influence. [21] So far as Yerkey v Jones proceeded on the basis of the earlier decision of Cussen J in The Bank of Victoria Ltd v Mueller [1925] VLR 624, it is based on trust and confidence, in the ordinary sense of those words, between marriage partners. The marriage relationship is such that one, often the woman, may well leave many, perhaps all, business judgments to the other spouse. In that kind of relationship, business decisions may be made with little consultation between the parties and with only the most abbreviated explanation of their purport or effect. Sometimes, with not the slightest hint of bad faith, the explanation of a particular transaction given by one to the other will be imperfect and incomplete, if not simply wrong. That that is so is not always attributable to intended deception, to any imbalance of power between the parties, or, even, the vulnerability of one to exploitation because of emotional involvement. It is, at its core, often a reflection of no more or less than the trust and confidence each has in the other." The majority further said: "[23] In his reasons for decision in Yerkey v Jones , Dixon J dealt with at least two kinds of circumstances: the first in which there is actual undue influence by a husband over a wife and the second, that dealt with in Mueller , in which there is no undue influence but there is a failure to explain adequately and accurately the suretyship transaction which the husband seeks to have the wife enter for the immediate economic benefit not of the wife but of the husband, or the circumstances in which her liability may arise. The former kind of case is one concerning what today is seen as an imbalance of power. In point of legal principle, however, it is actual undue influence in that the wife, lacking economic or other power, is overborne by her husband and goes surety for her husband's debts when she does not bring a free mind and will to that decision. The latter case is not so much concerned with imbalances of power as with lack of proper information about the purport and effect of the transaction. The present appeal concerns circumstances of the latter kind rather than the former." The wife in Garcia was a professional woman who conducted a practice as a physiotherapist and otherwise had business experience but who was not informed as to the transaction of guarantee that she entered into on her husband's behalf. The basis on which the wife was afforded relief was set out as follows: "[31] The principles applied in Yerkey v Jones do not depend upon the creditor having, at the time the guarantee is taken, notice of some unconscionable dealing between the husband as borrower and the wife as surety. Yerkey v Jones begins with the recognition that the surety is a volunteer: a person who obtained no financial benefit from the transaction, performance of the obligations of which she agreed to guarantee. It holds, in what we have called the first kind of case, that to enforce that voluntary transaction against her when in fact she did not bring a free will to its execution would be unconscionable. It holds further, in the second kind of case, that to enforce it 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." The questions of notice to the lender and the way in which the lender may be protected from the consequences of the wife's position are dealt with as follows: "[40] We consider that the only question of notice that arises is whether the creditor knew at the time of the taking of the guarantee that the surety was then married to the borrower. Other questions of notice do not intrude. [41] As is apparent from what was said in Yerkey v Jones the creditor may readily avoid the possibility that the surety will later claim not to have understood the purport and effect of the transaction that is proposed. If the creditor itself explains the transaction sufficiently, or knows that the surety has received 'competent, independent and disinterested' advice from a third party, it would not be unconscionable for the creditor to enforce it against the surety even though the surety is a volunteer and it later emerges that the surety claims to have been mistaken." 26 The following passages from the judgment of Dixon J in Yerkey v Jones are also material to the present case. The first deals with the situation where there is actual undue influence. His Honour said at 684: "The difficulty, if not danger, thus created of attempting to state the conditions which must be fulfilled before a given kind of conduct or of unfairness amounts to an invalidating cause is greatly increased by the introduction of the consideration that the equity must be such as ought to prevail against the claims of the creditor as a possibly innocent third party. But it is clearly necessary to distinguish between, on the one hand, cases in which a wife, alive to the nature and effect of the obligation she is undertaking, is procured to become her husband's surety by the exertion by him upon her of undue influence, affirmatively established, and on the other hand, cases where she does not understand the effect of the document or the nature of the transaction of suretyship. In the former case the fact that the creditor, on the occasion, for example, of the actual execution of the instrument, deals directly with the wife and explains the effect of the document to her will not protect him. Nothing but independent advice or relief from the ascendancy of her husband over her judgment and will would suffice. If the creditor has left it to the husband to obtain his wife's consent to become surety and no more is done independently of the husband than to ascertain that she understands what she is doing, then, if it turns out that she is in fact acting under the undue influence of her husband, it seems that the transaction will be voidable at her instance as against the creditor." The second passage deals, in the case where there is no actual undue influence, with what dealing by the creditor is sufficient to displace the wife's equity. His Honour said at 685-686: "If the creditor takes adequate steps to inform her and reasonably supposes that she has an adequate comprehension of the obligations she is undertaking and an understanding of the effect of the transaction, the fact that she has failed to grasp some material part of the document, or, indeed, the significance of what she is doing, cannot, I think, in itself give her an equity to set it aside, notwithstanding that at an earlier stage the creditor relied upon her husband to obtain her consent to enter into the obligation of surety. The creditor may have done enough by superintending himself the execution of the document and by attempting to assure himself by means of questions or explanation that she knows to what she is committing herself. The sufficiency of this must depend on circumstances, as, for example, the ramifications and complexities of the transaction, the amount of deception practised by the husband upon his wife and the intelligence and business understanding of the woman. But, if the wife has been in receipt of the advice of a stranger whom the creditor believes on reasonable grounds to be competent, independent and disinterested, then the circumstances would need to be very exceptional before the creditor could be held bound by any equity which otherwise might arise from the husband's conduct and his wife's actual failure to understand the transaction: cf per Cussen J (1925) VLR at p 649. If undue influence in the full sense is not made out but the elements of pressure, surprise, misrepresentation or some or one of them combine with or cause a misunderstanding or failure to understand the document or transaction, the final question must be whether the grounds upon which the creditor believed that the document was fairly obtained and executed by a woman sufficiently understanding its purport and effect were such that it would be inequitable to fix the creditor with the consequences of the husband's improper or unfair dealing with his wife." 27 The majority of the High Court goes on to adopt the words of Dixon J in Yerkey v Jones where his Honour pointed out that in the former class of case nothing short of independent advice to the wife or relief from the ascendancy of her husband over her judgment would suffice to validate the transaction, whereas in the second case the effect would depend on the amount of reliance placed by the creditor upon the husband for the purpose of informing his wife of what she was about to do. 28 The elements which render enforcement unconscionable in the second class of case are set out in pars (a) to (d) in Garcia [31]. Adapting that formulation, the circumstances in which relief will be granted in the first class may, in the light of the reaffirmation by Garcia of Yerkey v Jones, be stated as follows: (a) it is not necessary that 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) a lender who is aware that a surety is the wife of a borrower is, in general terms, not protected against any equity that arises in the wife's favour if her execution of the documents is in fact procured by the exercise of actual undue influence by the husband; (d) the lender will not be affected by the equity only where the wife has had independent advice or relief from the ascendancy of her husband over her judgment and will before executing the documents. By virtue of what was said in Garcia [43], "no gain" in (b) should be understood as meaning no real benefit. Findings of Fact 29 The resolution of this case throws up matters of fact and questions of credibility of quite some difficulty. This is particularly so in relation to the circumstances of the execution of the various documents. I have borne in mind that the executions appear on their face to have been duly witnessed. I have considered earnestly the evidence of the relevant Bank officers with their varying degrees of impressiveness as witnesses. I have borne in mind that none of them recalls the actual executions in question or the circumstances surrounding them. I have considered earnestly the evidence of the Armstrongs, bearing constantly in mind the compromises that exist, to different degrees, of their veracity. I have examined the documents themselves, and what evidence there is of surrounding documentation and circumstances, with care. On the balance of probabilities, I accept Mrs Armstrong's evidence that she did not sign any of the documents in the schedule in the Bank or in the actual presence of the bank officers who have signed the same as witnesses. I have not neglected the argument on behalf of the Bank that I could not accept that so many Bank officers should have been in derogation of their duty by signing when they had not seen. I have not neglected the argument that the initials could not have got in the margin of the guarantee unless it had been signed in Mrs Latham's presence. As to the former, I bear in mind that there were proved to have been deviations from the Bank's practices as to sending documents out of the Bank and as to witnessing documents, particularly in the case of longstanding and valued customers, such as Mr Armstrong was. As to the latter, there are various possibilities as to how the initials got there without any indication of the place now being visible, including subsequent erasure of light pencil marks, indication by sticker, or even Mr Armstrong's answer that he was told orally, glib as it may seem at first blush; after all the initials are not against clause 4, as apparently intended, but rather against the preceding clause 3. I do not place any great weight on Mr Armstrong's corroborative evidence as to the place of execution. In the end, having carefully considered Mrs Armstrong's evidence and her demeanour, together with all the other evidence going to her execution of the documents and the surrounding circumstances, I accept her evidence on this subject matter. 30 I also find that she signed all the documents in the schedule under Mr Armstrong's actual undue influence, in the sense in which that term is used in Garcia. I accept her evidence that she signed documents (1) to (8) in the schedule at Mr Armstrong's insistence and without any explanation of their nature and effect. On a number of occasions he told her that they would not put her property at risk. When she asked for explanations, they were refused. The impression I have formed of Mr Armstrong to my mind makes it likely that he would have acted in this way. Not only do I accept Mrs Armstrong's version of the outbreak of actual violence towards her in and after 1989, but I find that Mrs Armstrong's vignette of life with Mr Armstrong during the period of the marriage up to 1989 has the ring of truth, and that even from the early days of the marriage there was a tone of aggression, particularly if any inquiry was made about business matters, and an undertone of threat. Asked in reexamination what she meant by his being aggressive at times before 1989 she replied that "he would shout at me and demand of me" and that she was afraid that if she refused he would hit her. I accept those answers. The outbreak of actual violence when Mr Armstrong was sufficiently thwarted in 1989 and 1990 gives reality to the underlying fear which Mrs Armstrong deposes that she had at earlier times. It was under the pressure that she felt arising from his insistence and aggression that she signed documents (1) to (8). I accept that she signed documents (9) and (10), whatever legal advice she had then had, under the real fear of a repetition of the actual violence which had by then been applied to her. That that fear had reality was again confirmed by the application of violence to her late in September 1990, after she had signed document (10). I also accept her evidence that she was induced to stay in the marriage despite the substratum of fear that it had from the start because of the greater deal of security in life that she experienced within the marriage. In this regard, while some of the findings I have made in respect of Mr Armstrong are not complimentary to him, it appears that he acted towards her with genuine generosity, both in the gift he made her on their first wedding anniversary and in his being prepared to transfer his half share of the home and the Tweed Heads unit to her in 1983. I should add, insofar as it is material, that, at least prior to 1989, Mrs Armstrong reposed trust in Mr Armstrong. Not only were they husband and wife, but he was a competent and successful businessman which contrasted with her limited education and lack of knowledge of affairs. Nonetheless, it was his insistence and actions that overbore her will and led her to sign without explanation as I find she did. 31 I have already said that I have found the decision as to whether or not the documents were executed before the Bank officers a difficult one, which I have resolved as set out in [29]. I should add that, even if I declined to accept Mrs Armstrong's evidence that she executed the documents in the absence of the Bank officers who signed as witnesses, I should not accept that any explanation or any adequate explanation was given to Mrs Armstrong of the documents. Even if Mrs Armstrong signed the Queenscliff mortgage in the presence of Mr Bruton, Mr Bruton does not claim to have proffered any explanation of it. I do not accept that Mr Corcoran explained the Queenscliff mortgage to her, an assertion based on the speculation that there was a "production line" for the execution at the same time of documents (1) to (3) and that Mr Corcoran gave an explanation in accordance with his then practice. In any event, his customary form of explanation as given in evidence contained no reference to the all moneys clause and was deficient. Mrs Latham, in respect of the 1983 documents, has no recollection of the circumstances of their execution. I am not prepared to accept by reference to evidence of practice that she uttered the words set out in her affidavit to Mrs Armstrong at the relevant times, or words to that effect. Initials in the general vicinity of clause 4 of the guarantee do not of themselves supply the deficiency. Even if I disbelieved Mrs Armstrong's evidence as to the circumstances of execution, that disbelief would not supply the deficiency of the evidence of explanation: Scott Fell v Lloyd (1911) 13 CLR 230 at 241 per Griffith CJ; Hobbs v Tinling (CT) and Co Ltd [1929] 2 KB 1 at 21 per Scrutton LJ; Steinberg v Federal Commissioner of Taxation (1975) 134 CLR 640 at 694 per Gibbs J (as his Honour then was); Atra v Farmers & Graziers Co-operative Co Ltd NSWCA, 24 October 1985, unreported per McHugh JA (as his Honour then was). Equally, despite Miss Small's more satisfactory performance as a witness, I have come to the conclusion that, on the balance of probabilities, I accept Mrs Armstrong's denial that she signed document (8) before Miss Small at the Bank. Again, even if I had not accepted this denial, but inferred from all the circumstances that the document was signed before Miss Small in the Bank, I still should not accept on the basis of the evidence of practice that Miss Small uttered to Mrs Armstrong either the very words which she sets out as being those she said as a matter of practice or the substance thereof. In those circumstances, I am of the view that document (8) could not operate to cure the defects in the mortgages or fix Mrs Armstrong with an extended liability under them. Indeed, if the guarantee and the supporting mortgages were vitiated, I doubt whether document (8) would cure the vice even if it were accepted that Miss Small uttered those words. In those circumstances, were it necessary, assuming Mrs Armstrong to be a volunteer, she may well be entitled to succeed as falling within the second class in Garcia, on the basis that she did not understand the purport and effect of the transactions and that no adequate explanation had been given to her of their effect and consequences. However, in view of my findings in [29] and [30], I do not need to determine whether Mrs Armstrong would be entitled to relief as falling within the second class in Garcia. Likewise, I do not need to determine any of the other bases on which her claim for relief was made. Was Mrs Armstrong a Volunteer? 32 Whether the matter falls in the first or the second class, it is a precondition to relief on this basis that the aggrieved wife be a volunteer. It was argued on behalf of the Bank that Mrs Armstrong was not a volunteer. This is said to flow from the fact that from 1978 she was recorded as the holder of 25 per cent of the shares in Investments. It is clear that this fact does not prevent her being a volunteer in the case of the Queenscliff mortgage. That records that it was given in respect of a liability of Investments and it was executed before Mrs Armstrong held any shares in Investments. By the time of the 1983 transactions it is undisputed that she did hold shares in Investments as alleged. It is argued by the Bank that by this fact alone she ceases to be a volunteer. Reliance is placed upon what was said by McHugh JA (as his Honour then was) in Warburton v Whiteley (1989) 5 BPR 11,628 at 11,634 where his Honour said: "If the evidence had established that Mrs Warburton had a shareholding in the company sufficiently substantial to warrant a finding that she had a shareholding in the company sufficiently substantial to warrant a finding that she had a beneficial interest in the company's debt, the prima facie application of the Yerkey principle would have been displaced: European Asian of Australia Ltd v Kurland (1985) 8 NSWLR 192. But I do not think that Mrs Warburton had any legal onus to tender evidence to show the nature of the shareholding in the company to prove affirmatively that she had no interest in the loan. If the respondents wished to rely on the nature of any interest of Mrs Warburton in the company to defeat her prima facie claim to a declaration that the guarantee was unenforceable against her, they bore the evidentiary onus of establishing the nature of her interest." It is submitted on behalf of the Bank that the 25 per cent shareholding is here undisputed and must on any basis constitute a real interest in the loan. It is said that, whatever is nominal or insubstantial, 25 per cent is "substantial". The requirement in Garcia [31] is that "the transaction was voluntary (in the sense that the surety obtained no gain from the contract the performance of which was guaranteed)". At [43] the majority said that the findings of the trial Judge demonstrated that the appellant in fact obtained no real benefit from her entering the transaction" and was consequently a volunteer. In this case, in relation to the Queenscliff mortgage in 1977 it is not even established what that transaction was. Nor does Mrs Latham recall the nature of the transaction or transactions that led to the execution of documents (4) and (5) in September 1983, nor is there other evidence of that transaction or transactions. It is not entirely clear, but it may be that the Tweed Heads mortgage related to the acquisition by Rimenu of a newsagency. There is no evidence of an interest of Mrs Armstrong in Rimenu. The acknowledgment in 1988 (document (8)), on which Miss Small is said to have witnessed the signature, was in connexion with the acquisition by Investments of a motel at Banora Point near Tweed Heads. The 1990 acknowledgment (document (10)) witnessed by Mrs Conaghan was in connexion with a borrowing to acquire an interest in the Salamander Bay Resort, which was the transaction which brought Mr Armstrong undone. 33 Although Mrs Armstrong was from 1978 the holder of 25 per cent of the shares in Investments, there is no evidence of her having gained anything from any transaction that was guaranteed. There is not even any evidence of her having benefited or gained from her shareholding in Investments. That company was, to use the words of McHugh JA in Warburton, "the 'pup' of her husband". It is conceded by the Bank that it was controlled by Mr Armstrong. Although she was a shareholder and director she played no part in its management or running; she was excluded by her husband from this as from all his other business affairs. There is no evidence that any dividend was ever declared by the company and paid to her. The only thing she ever received from the company was the unit at Tweed Heads, in the sense that it was transferred to her by Investments. This was for a consideration stated in the transfer to be $104,000. It is clear she did not pay that sum of money to the company. That does not mean that the $104,000 was not paid. However, the form of the transaction with the company is not in evidence nor are the company's books of account relating to the transaction. It is no part of the business of companies to make gifts. There is no doubt that the transfer was procured by Mr Armstrong, on terms dictated by him. In my view it is not established that the transfer to her of the Tweed Heads property was a benefit conferred on her by Investments (rather than by Mr Armstrong), much less a benefit conferred by Investments on her as a shareholder. The Bank says that it relies upon the lifestyle which Mrs Armstrong enjoyed and her husband's generosity in transferring to her the Queenscliff property, a half share in the Blakehurst property and the Tweed Heads property; these, it says, were benefits she obtained through Investments and which, together with the holding of 25 per cent of the shares, meant that she was not a volunteer. I do not accept these arguments. It seems to me that in actual fact it is not demonstrated that she received anything from Investments rather than from her husband. Mrs Armstrong, when asked how the purchase price of the properties transferred to her was paid, replied that her husband "arranged it". From the evidence I infer that whatever benefits Mr Armstrong conferred on her were conferred on her as a wife and not as a shareholder in or in any way by reference to Investments. The shareholding of 25 per cent may not have been insubstantial or nominal in amount, but was insubstantial or nominal in the sense that Mrs Armstrong in fact exercised no rights and received no benefits by reference to her shareholding (cf Commonwealth Bank of Australia v Khouri [1998] VSC 128 [65]). The conclusion to which I have come is that Mrs Armstrong derived no real benefit from the transactions and was a volunteer in relation to them. Is the Bank Protected by Independent Advice Had by Mrs Armstrong? 34 It seems to me impossible to argue that the Bank has established that Mrs Armstrong had had such advice as would protect it against the consequences of the exercise of actual undue influence by Mr Armstrong. I find that it did not. She had no advice at all until August 1989, when the evidence suggests she received generalised advice relating to her matrimonial problems and the status of her property. In August 1990 she was advised (not, so far as I can see, in relation to any particular document before the advising solicitor) that she should not sign any further documents for her husband. By this time, she had already executed documents (1) to (9). In relation to document (10), the advice she had was not in my view of the quality necessary to relieve the Bank from the consequences of actual undue influence. The advice did not relate to the document she in fact signed, which she had not received when that advice was taken. Whatever advice she had, her will was overborne by her husband's insistence and the threat emanating from his history of violence. She executed the document in mid September 1990 and avoided further violence. When later in the month she declined to execute another document, she was again beaten. Insofar as it matters, whatever advice she had, I find that the Bank did not know of it. It took no step to ascertain that she had actually had appropriate advice before she signed. I find that she did not read any of the letters suggesting that she might take advice before signing the acknowledgments. Insofar as it is alleged in Mr Moran's statement (and there is some reference to it in a diary entry of another Bank officer) that Mr Moran in September 1990 in a telephone conversation suggested that Mrs Armstrong get independent advice, in the face of Mrs Armstrong's denial of this and Mr Moran's absence, I do not accept that this occurred. In any event, it is not clear from Mr Moran's statement that the time at which he claims to have done this was before the execution of document (10). Conclusions 35 On the findings of fact that I have made, I have come to the conclusion that Mrs Armstrong's execution of each of the Queenscliff mortgage, the guarantee, the Blakehurst mortgage and the Tweed Heads mortgage was procured by the actual undue influence of Mr Armstrong. The same is true of the four acknowledgments. This is therefore a case in the first class in Yerkey v Jones. 36 Equally, I have found that Mrs Armstrong was a volunteer in relation to the above documents. 37 Whilst the Bank did not know of the particular circumstances in which the documents were executed, it knew that Mr and Mrs Armstrong were married. That, according to Yerkey v Jones and Garcia, is sufficient. As Mrs Armstrong was a volunteer, it was not necessary in order for her to obtain relief that the Bank should have notice of any unconscionable dealing between them. If more were needed, there were additional factors in this case. The Bank gave the documents to Mr Armstrong to go and obtain his wife's signature, or in the case of the acknowledgments, posted them to the Armstrongs' matrimonial home. Mr Armstrong was well known to officers of the Bank, both at the branch and in the person of Barry Moran, the Regional Manager. Mr Armstrong's forthright, impatient and forceful personality must have been apparent to those who dealt with him. That there were troubles within the marriage was conveyed to Mr Moran in the presence of his wife by Mrs Armstrong in 1989. 38 It was not demonstrated that Mrs Armstrong had adequate independent advice which operated to relieve the Bank of the consequences of Mr Armstrong's undue influence, or that she had had relief from the ascendancy of her husband. 39 I conclude that the guarantee and the Queenscliff mortgage, the Blakehurst mortgage and the Tweed Heads mortgage ought be set aside and that the acknowledgments do not assist the Bank. In those circumstances the Bank's cross claim against Mrs Armstrong will fail. Draft minutes should be brought in accordingly at a time I shall appoint. Any question as to the extent or form the appropriate orders and as to costs can be argued at the time the draft minutes are brought in.

Armstrong v CBA

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Judgment (24 paragraphs)

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Cases Cited (8)

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