Babsari P/L v Douglas Chee Yin Wong & Ors [1999] QSC 326

[1] By the time this action came to trial the multitude of its parties had dwindled to only three (counting the third and fourth defendants, whose interest is the same, as one). The first defendant has become bankrupt and the seventh defendant is defunct. The plaintiff has come to terms with the second, fifth and sixth defendants. What remained was the plaintiff's claim against the third and fourth defendants ("the Chows") and their claim against the eighth defendant ("Westpac" or "the bank").

[2] The seventh defendant ("Asean") was promoted to acquire the rights to the design and manufacture of an article of furniture which could be configured to function as a double bed, a sofa or two bunk beds. When the design and process of manufacture had been perfected Asean was to operate as wholesaler and retailer of the manufactured articles. It sought to finance the development of the sofa bunks, as they were called, by way of advances from Westpac. To secure its loan Westpac took guarantees from the first and second defendants (who are brother and sister) and a guarantee from the plaintiff which was supported by mortgages given by the plaintiff over four parcels of real estate which it owned.

The Chows signed a bill of mortgage over six home units they owned in the Brisbane suburb of Stafford by way of a guarantee of Asean's indebtedness to Westpac.

[3] The plaintiff is a company which acted as trustee of a trust which existed to benefit the family of Mr Raymond Tsui. He and his wife were the directors of the plaintiff which was in fact controlled by Mr Tsui who caused it to act without reference to his wife.

[4] The sanguine hopes which were entertained for the commercial success of the sofa bunks were disappointed. Few, if any, were sold and Asean did not generate sufficient income to repay its debt to Westpac which made demand on the plaintiff to discharge Asean's obligation pursuant to its guarantee and mortgages. Eventually this was done through the utilisation of the proceeds of sale of all of the properties save for Mr & Mrs Tsui's home.

[5] The plaintiff claimed against the first to sixth defendants contribution in respect of the money it had paid to discharge the debt to Westpac on the basis that they were all co-guarantors with the plaintiff of Asean's debt. The claim against the first defendant was partly satisfied by a distribution from his estate which has been administered in bankruptcy. The claim against the second defendant was settled for the modest sum of $28,000 which included interest and costs. The claim against the fifth and sixth defendants was settled on terms which yielded the plaintiff nothing. The Chows have stoutly resisted the plaintiff's claim against them which was the principal issue litigated in the action.

[6] The Chows commenced their own action against Westpac which was by order consolidated with the plaintiff's action and was conducted in essence as a third party proceeding in the suit by the plaintiff against the Chows. The case against Westpac was that:

1. It engaged in misleading and/or deceptive conduct in contravention of s 52 of the Commonwealth Trade Practices Act 1974 by reason of which the Chows were induced to mortgage their property to secure Westpac's loan to Asean. The Chows sought an order that the mortgages be set aside. The effect of such an order would, of course, defeat the plaintiff's claim against the Chows by eradicating their guarantee and therefore the basis for a claim for contribution.

2. It took the benefit of the mortgage in breach of fiduciary duties it owed to the Chows.

[7] Westpac denied conduct in contravention of the Trade Practices Act or in breach of fiduciary duty but lent its support to the Chows' defence of the plaintiff's claims on other grounds.

[8] It is necessary to deal in a little more detail with the circumstances by which the guarantees were given and the relationship between the parties.

[9] The plaintiff paid Westpac a total of $562,611.40. It received from the first defendant's estate $133,230 and the sum of $28,000 from the second defendant. The net amount outlaid is therefore $401,381.40. It claims from the Chows their rateable contribution.

[10] Mr Tsui and the first and second defendants are first cousins. They have another cousin, Richard Wong, who married the Chows' daughter, Miriam. I have already mentioned that the first and second defendants are brother and sister. Mr & Mrs Tsang are the parents-in-law of the first defendant.

[11] When they speak now of the first defendant, his relations, including those by marriage, do so with a sense of embarrassment tinged with sadness. At the time of the events from which this action arises the first defendant cut a dashing figure as an enterprising and successful businessman. He was a clothing supplier with shops in several locations throughout Papua New Guinea. He gave every outward appearance of affluence and success. He was much admired and respected by the members of his extended family, including Mr Tsui, Mr Richard Wong and the Chows. It is less clear that his sister so regarded him. The reality appears to be that the first defendants' businesses were failing though he sought to conceal the fact by deceit.

[12] Late in 1986 the first defendant sought to expand his business interests. With his wife and sister he acquired Price Point Franchising Pty Limited ("Price Point") the business of which was designing, manufacturing and selling "high quality furniture". Between September 1986 and April 1987 the first and second defendants acquired Asean which commenced trading under the name "Interio". It supplied fabrics and other materials to Price Point. It was Asean which acquired the "exclusive licence [for] the revolutionary Sofa bunk from its designers [the inventors Felsaden Pty Ltd]". The licence involved "the exclusive distribution rights over Australia/Asia and the Pacific region." By letter dated 9 April 1987 the first defendant requested Westpac to make available "the necessary banking facilities to accommodate the anticipated orders to be processed". The amount sought to be borrowed was $350,000. The proffered security for the loan were personal guarantees from the first and second defendants and first registered mortgages over four properties all of which were owned by the plaintiff. The letter described Mr Tsui as general manager of Asean whose shareholding was said to be held as to half by the first defendant and his wife and the other half by the second defendant.

[13] On 7 May 1987 the first defendant and the second defendant (whom I will sometimes call "Mrs Wong"), who were the directors of Asean, met and resolved to appoint Mr Tsui as an additional director and to allot two shares to each of Kizkey Pty Ltd, Bryaden Pty Ltd and the plaintiff. Kizkey was a company controlled by the second defendant. Bryaden was the first defendant's company. This allotment of shares brought to 10 the number of shares issued by Asean. Two of the original shares were held by the second defendant. The first defendant and his wife held one each. The result of the meeting of 7 May was that Mr Tsui became a director of Asean and his company, the plaintiff, held 20 per cent of its share capital.

[14] Mr Tsui's explanation of how he and the plaintiff became involved with the first defendant in Asean lacked both detail and coherence. As I understood what he was trying to say, Mr Tsui had the plaintiff execute the mortgages to secure the advance to Asean because he was asked to do so by the first defendant for whom he had feelings of respect and admiration amounting almost to awe. He was promised that the plaintiff's assets would not be required to satisfy Asean's debt because the first and second defendants had given their personal guarantees to Westpac in respect of Asean's debt. Mr Tsui was reassured by his cousins' apparent substance and success. He was energetic in his testimony that neither he nor the plaintiff played any part in Asean's business affairs or stood to gain anything from its commercial success. He took no responsibility for the running of Asean or the operation of its business. He did not regard himself or the plaintiff as an investor in Asean though he did hope to obtain employment with the company.

[15] I cannot accept this depiction of Mr Tsui's involvement in Asean. I have no doubt his evidence was influenced by his desire that the plaintiff succeed in the action and by his understanding of how that result might be achieved. I infer that Mr Tsui accepted with alacrity the opportunity offered by the first defendant to join in a new business venture to be conducted by Asean for which considerable optimism was held. I would accept that the first defendant was the dominant figure in Asean and that Mr Tsui and the second defendant were both accustomed to act in accordance with the first defendant's directions without question or resentment. I am satisfied that the plaintiff mortgaged its properties because it became the holder of 20 per cent (later increased to 40 per cent) of Asean's share capital and anticipated receiving 40 per cent of its profits. I am also satisfied that Mr Tsui played an active part in Asean's affairs though he appears not to have appreciated for some time that it was floundering.

[16] In making these findings I rely upon the following:

1. On 15 April 1987 Mr Tsui forwarded to Westpac a letter written by the first defendant providing financial information, including projected receipts, about Asean's proposed business.

2. A little before 16 April 1987 Mr Tsui together with the first and second defendants met Westpac's district commercial manager at Gosford to discuss a loan of $350,000 to Asean to be secured by mortgages over the plaintiff's properties and an unlimited joint and several guarantee from the first and second defendant's. By letter dated 16 April 1987, Westpac offered a loan inter alia on those terms and on 7 May 1987 Mr Tsui on behalf of the plaintiff accepted the offer by signing a duplicate of the letter. The loan was to allow Asean to develop and market the sofa bunk venture.

3. On 13 May 1987 Mr Tsui wrote on behalf of the plaintiff to Westpac to confirm that "a benefit will accrue to the beneficiaries of the trust" of which the plaintiff is trustee "by consenting to secure advance made to Asean ... as [the plaintiff] ... will be carrying a 20% interest in Asean ... the trust will receive a share of the profits".

4. The facts mentioned in par [13] of these reasons.

5. On 7 July 1987 Mr Tsui on behalf of Asean wrote to its solicitors seeking advice in relation to a dispute that had arisen with Felsaden. The letter shows a detailed grasp of Asean's business arrangements.

6. On 17 August 1987 Mr Tsui signed as correct minutes recording that the plaintiff had resolved to accept an offer to increase its investment in Asean by taking up a further 20 per cent interest in the company "in consideration for agreeing to provide ... assets as security for the borrowings of Asean".

7. On 28 August 1987 Mr Tsui and his wife, and the first and second defendants, attended the bank's offices and executed respectively the mortgages on behalf of the plaintiff, and the guarantee.

8. On 4 September 1987 Mrs Wong resigned as a director of Asean and the shares in that company held by Kizkey Pty Ltd were transferred to the plaintiff.

9. On 2 October 1987 Mr Tsui and the first defendant called upon Westpac's relieving manager, Mr Cruickshank, to bring him up to date with developments and to advise him that the second defendant was to quit Asean and transfer her shares to the plaintiff so that Asean would be owned as to 60 per cent by the first defendant or his interests and 40 per cent by the plaintiff.

[17] The genesis of the rearrangement by which the second defendant was to retire from Asean and the plaintiff was to acquire her shareholding was left obscure. Perhaps Mrs Wong succeeded in penetrating her brother's facade and realised the risk to which her assets were exposed by reason of the guarantee she had given Westpac. In any event when the first defendant and Mr Tsui spoke to Mr Cruickshank on 2 October 1987 to inform him of developments in Asean it was said that the second defendant was "to be released from her guarantee when all tangible security is in place." The alteration was said to be urgent. There is no satisfactory evidence of the arrangements that were discussed between the first and second defendants and Mr Tsui at this time. However, from subsequent correspondence and memoranda of meetings compiled by officers of Westpac, I am satisfied that the gist of them was that the first defendant said he could procure mortgages over real property owned by his parents-in-law, Mr & Mrs Tsang, and by the Chows which would guarantee Asean's indebtedness and, in return, Westpac said that it would release the second defendant from her guarantee upon receipt of the third party mortgages.

1. On 14 September 1987 Mr Cruickshank made a note of a conversation he had had with Mr Tsui four days earlier from which "it would appear that [Westpac] had been offered additional real estate backing in lieu of guarantee executed on 1/9/87 by [the first and second defendants]".

2. At the meeting already mentioned of 2 October 1987 when the first defendant and Mr Tsui advised Mr Cruickshank of the change in shareholding consequent upon the second defendant's transfer of shares and resignation as a director of Asean, the first defendant, in Mr Tsui's presence, said that Mrs Wong "is to be released from her guarantee when all tangible security is in place". In his diary note of the meeting Mr Cruickshank noted that the additional third party mortgages were to be put in place as a matter of urgency in order to release Mrs Wong "within a fortnight".

3. On 11 January 1988 Mr Cruickshank's assistant spoke to Mr Tsui and advised him that:

(a) the mortgage documents charging the Stafford units was held at Westpac's Sunnybank branch and awaited initialling by the Chows;

(b) the mortgages over the Dulwich Hills property was at the Indooroopilly branch awaiting signing by Mr & Mrs Tsang;

(c) the second defendant could not be released from her guarantee until both mortgages were completed.

Mr Tsui was to inform the first defendant of the situation. The Stafford units were those owned by the Chows and the real property at Dulwich Hills was owned by Mr & Mrs Tsang.

4. On 3 May 1988, Westpac's relieving manager noted on the file that the "Execution of new security documents [was] to take place of Guarantee after release of Janet Wong ... from guarantee" and that the "New security is in addition of security already held. Upon receipt of documents correctly executed we will then be in a position to release Janet Wong from Guarantee. Until we do, present Guarantee to remain in force".

The "new security" was a reference to the third party mortgages to be provided by the Chows and Mr & Mrs Tsang.

5. In a statutory declaration of 3 October 1991, Mr Tsui deposed that the certificate of title to land owned by Mr & Mrs Tsang "was lodged with Westpac ... with the authority of the said registered proprietors on the basis ... that the same should form part of the security held by Westpac for the liabilities of Asean ..." because the first defendant was anxious to bring about the release of a guarantee which the second defendant had given to Westpac in relation to the liabilities of Asean.

6. Having perused Westpac's file a senior commercial manager on 23 May 1990 concluded "that Mr & Mrs Tsang's Deed was forwarded to [Westpac] by [the first defendant] on 9/9/87 to enable a Mortgage to be taken in conjunction with Mr & Mrs Chows' property. Once this new security was in place we were to release [the second defendant] from her Guarantee".

[19] It is most unlikely that the first defendant would have offered to provide mortgages over property owned by the Chows and Mr & Mrs Tsang except in return for the exoneration of some or all of the security previously provided on behalf of Asean in respect of its bank debt. Westpac had agreed to, and had advanced, $410,000 on the strength of the guarantees from the first and second defendant and the plaintiff's real property. It is inconceivable that further security would have been offered by Asean except as a substitution for the existing securities. The only convincing explanation for the additional mortgages was that the second defendant, having transferred her shares in Asean to the plaintiff and resigned as a director, was to be free of her obligation as guarantor. There was some evidence led by Mr Tsui that the additional third party mortgages were proffered in order to release the mortgage over his home and/or to increase the amount Asean could borrow. However, the only reference in contemporaneous documents is the release of the second defendant's guarantee and I am satisfied that the mortgages from the Chows and Mr & Mrs Tsang was to allow that release to occur.

[20] It is convenient now to turn to the Chows' story. The first defendant offered to sell Richard Wong his clothing retail business at two locations, Lae and Kieta for a price equal to the landed cost of the stock-in-trade of each business. Mr Richard Wong accepted but could finance only one of the purchases from his own resources. He needed 100,000 kina to complete the second purchase and approached the Chows, his parents-in-law, for assistance. They agreed to help. They had almost immediately at hand the sum of 300,000 kina which was held as accumulated cash reserve in a business, a bakery at Rabaul, which they owned with Mr Chows' younger brother. The Chows owned 60 per cent of the business. They could not obtain the money without the brother's consent but believed, with good reason, that he would consent. In case, against expectation, money could not be obtained from the bakery the Chows offered to make properties available for Mr Richard Wong to use as security to obtain the money by way of a bank loan. The property was six home units owned by the Chows in Brisbane. Details of the Chows' offer must have been relayed by Mr Richard Wong to the first defendant who told Mr Richard Wong that he had had experience in borrowing from Westpac and that the process could be protracted. He suggested that a loan application should be made immediately so that the money could be obtained without delay should the younger Mr Chow withhold his consent to a withdrawal of money from the bakery. Accordingly the first defendant suggested that Mr Richard Wong should ask his parents-in-law "to prepare documentation to secure the funds". Mr Chow agreed and gave certificates of title to Mr Richard Wong who passed them on to the first defendant who took upon himself the task of communicating with Westpac and arranging for the preparation of appropriate loan documentation.

[21] The circumstances by which the first defendant obtained possession of certificates of title to property owned by Mr & Mrs Tsang were not explained in the evidence. Mr Tsui had a recollection that on 27 August 1987 when he and his wife attended at Westpac to execute the mortgages on behalf of the plaintiff the first defendant handed over the certificates of title to the Chows' properties and Mr & Mrs Tsang's properties telling Mr Tsui that those properties would be used as security for Asean's borrowings. There appeared no corroboration for this account in any contemporaneous document and I am reluctant to accept Mr Tsui's recollection without such corroboration. It seems clear that the Tsangs' certificate of title was not given to the bank until 9 September 1987. It is apparent that the Chows' certificates of title were delivered to Westpac by the first defendant prior to 7 September 1987. His express authority was limited to the delivery of the certificates and the preparation of a mortgage to secure a loan of the equivalent of 100,000 kina to enable Mr Richard Wong to purchase the first defendant's business at Lae. Westpac, it seemed, was not informed of this specific purpose but was instead told by the first defendant that the property was to be mortgaged as substitute security for the second defendant's release from her guarantee.

[22] The first defendant and Asean dealt with Westpac at its branch and District Commercial Banking Centre at Gosford on the central coast of New South Wales. The Chows resided at Sunnybank in Brisbane. Westpac's Sunnybank branch was the most convenient one for them to attend to sign the mortgages. On 8 October 1987 they went there and signed a bill of mortgage which secured Asean's indebtedness to Westpac. The circumstances of their attendance and the content of conversations had with Westpac's officers at Sunnybank form the basis of the Chows' claim for relief under the Trade Practices Act. For present purposes it is enough to record that the mortgage signed by the Chows recites that the consideration for the grant of the mortgages was the bank forbearing to make any demand for repayment of moneys advanced to Asean and Mr Chow, if not Mrs Chow, noticed this fact when signing the mortgages. Moreover the identity of the debtor whose obligations were guaranteed by the mortgages was specifically drawn to the Chows' attention by bank officers, one of whom advised the Chows that the level of the debt was then in the order of $410,000. Notwithstanding this advice the Chows were content to sign the mortgages believing that in doing so they were giving effect to arrangements made between the first defendant and Richard Wong for the acquisition by the latter of the former's business in Lae. They trusted both men and did not wish to inquire into the intricacies of their arrangement.

[23] The money for the acquisition of the Lae business was provided from the bakery. Neither Mr Richard Wong nor the Chows requested Westpac to advance any money to fund the purchase.

[24] On its face the mortgage executed by the Chows operated as a guarantee of Asean's debt to Westpac. The mortgages provided by the plaintiff have the same effect.

[25] Some further facts should be mentioned. Officers of Westpac at Gosford prepared the mortgage documents for execution by the Chows and sent them by the bank's internal system of communication to the Sunnybank branch with the request that the Chows be contacted and asked to attend and sign. The rationale for the transaction was not explained to the bank's officers at Sunnybank who took the transaction to be what appeared from the terms of the documents: an obligation undertaken by the Chows to be answerable for the debt of Asean to Westpac in respect of which they charged their real property.

[26] Mr & Mrs Chow were infected with the same malady that afflicted Mr Tsui. Their recollection of their dealings with Westpac at Sunnybank was, perhaps consciously, influenced by their desire to avoid contributing towards the amount the plaintiff paid to discharge Asean's debt. I accept their evidence to the extent that they explained that their purpose in giving the mortgage was to obtain finance to allow their son-in-law to buy the business at Lae and that Mr Chow, indifferent to the detail of how that end might be achieved, believed that Asean was a company owned by the first defendant and that the loan to it was part of an arrangement by which Mr Richard Wong would make the acquisition. Otherwise I prefer the evidence of the bank's officers, particularly Ms Orcher. I accept that the Chows were told that the effect of the mortgage was to make their units available to Westpac in the event that Asean defaulted in the payment of debt or interest which it owed to Westpac and that the amount of the debt was approximately $400,000.

Although Mr Richard Wong was inclined to be protective of his parents-in-law I thought he endeavoured to give honest and accurate evidence and I generally accept what he said.

[27] "A surety is entitled to contribution from his co-sureties so that the common burden is borne equally and so that no surety is required, as between himself and his co-sureties, to pay more than his due share. The right arises whether the sureties are bound jointly, jointly and severally, or severally, and whether by the same or different instruments, and whether or not the sureties knew of each other's existence, provided that they are liable in respect of the same debt. The right to contribution arises when a surety has paid or provided more than his proper share of the principal debt ... The amount of contribution recoverable depends on the number of sureties who are solvent at the time when contribution is sought ..."

Per Gibbs CJ in Mahoney v McManus [1981] HCA 54; (1981) 180 CLR 370 at 376.

[28] At first sight these principles are applicable to the plaintiff's claim and it relies upon them. There is, however, a question whether the Chows are truly guarantors in respect of the same debt of Asean that the plaintiff guaranteed. It is apparent from the facts I have recited that both Westpac and the Chows had radically different intentions when the one proffered, and the others signed, the mortgage. The Chows intended to secure an advance to Mr Richard Wong to fund his purchase of a business in Lae. The bank intended the mortgage, together with one from the Tsangs, to replace the personal guarantee given by the second defendant in respect of its advances to Asean for Asean's own business. This was Westpac's intention notwithstanding the explanation given by Ms Orcher. The bank's left-hand at Sunnybank did not know what the right-hand at Gosford was doing but I have no doubt that for the purposes of the transaction Westpac's controlling mind was to be found in the officers at Gosford, not at Sunnybank, and that Westpac did not intend the mortgage to take effect except as a reorganisation of security for Asean's loan. The reorganisation intended third party mortgages by the Chows and Tsangs in substitution for the second defendant's personal guarantee.

The Chows' intention was to provide the mortgage in return for an advance to Mr Richard Wong.

[29] Do these mismatched intentions affect the validity of the Chows' mortgage? The answer is usually thought to be negative. When deciding whether a contract has been made the law has preferred to rely upon objective indications of agreement rather than assertions by one, or both, of the parties that no agreement was actually intended. As Blackburn J put it in Smith v Hughes [1871] LR 6 QB 597 at 607:

"If, whatever a man's real intention may be, he so conducts himself that a reasonable man would believe that he was assenting to the terms proposed by the other party, and that other party upon that belief enters into the contract with him, the man thus conducting himself would be equally bound as if he had intended to agree to the other party's terms."

This theory of the law of contract was said by Mason ACJ, Murphy and Deane JJ in Taylor v Johnson [1983] HCA 5; (1983) 151 CLR 422 at 429 to represent "the clear trend in decided cases and academic writings".

[30] An early understanding of the law of contract was that there was no contract unless there was a true meeting of minds of the contracting parties, that each intended to contract on the same terms. That is, the parties must have actually intended to contract with each other on the same terms. The requirement was explained by James LJ in Dickinson v Dodds [1876] 2 Ch D 463 at 473:

"... [the] existence of the same mind between the two parties which is essential in point of law to the making of an agreement."

[31] It is, I think, a mistake to regard subjective intention as being in all cases irrelevant when considering whether a contract has been made. Lord Diplock thought in Paal Wilson & Co v Partenreederei Hanna Blumenthal [1983] 1 AC 854 at 916-7:

"... to treat that ingredient of consensus ad idem as unnecessary would introduce into the law of contract a novel heresy ..."

Closer to home in Air Great Lakes Pty Ltd v KS Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309, Mahoney JA said (at 330, 331):

"The proper view is ... that the existence of a contract is a consequence which the law imposes upon, or sees as a result of, what the parties have said and done. Actual subjective intention to contract is a factor which the law takes into account in determining whether a contract exists but it is not, or not always, the determining factor.

The result is therefore that intention to contract, in the subjective sense, is relevant to but not determinative of the existence of a binding contract. It acts, in a sense, as a limiting factor, that is, as a reason for not giving to what on the face of it is an exchange of congruent promises, the legal consequences which would otherwise be given to it."

McHugh JA at 335, having reviewed a number of authorities and authors concluded that "most courts and writers have championed the objective theory" but went on

"Nevertheless, some of the most influential writers have refused to accept either the subjective or objective theory as explaining the law of contract ..."

Air Great Lakes was a case in which the issue was whether the parties had intended to be bound by the terms of a document they had signed. It was unsuccessfully contended that the parties did not intend to make a contract on those terms. The present case is different. Here, both parties intended to contract but each intended to effect a different contract. Even if one took a narrower view of the parties' respective intentions than the one I have described there still remains a lack of reciprocity in intention. If one takes the Chows' intention to be to mortgage their property to guarantee the debts of Asean, and ignores the context that the money advanced to Asean was to benefit Mr Richard Wong, it remains the case that Westpac did not intend there to be such a mortgage, except as part of the reorganisation of securities, and that the mortgage was not to take effect until the rearrangement was complete.

[32] There is considerable academic support for the view that the subjective intentions of the parties are, in some circumstances, relevant to the question whether they have contracted. Professor Treitel in the 9th edition of his work The Law of Contract says (page 1):

"The factor which distinguishes contractual from other legal obligations is that they are based on the agreement of the contracting parties. This proposition ... is subject to a number of ... qualifications. The first ... is that the law is often concerned with the objective appearance, rather than the actual fact, of agreement ... this objective principle is based on the needs of commercial convenience ... The principle is an important one; but it would be wrong to say that the law of contract has no concern at all with actual agreement. This would put too much emphasis on the exceptional situation; for in most cases, the appearance corresponds with the fact of agreement ... In particular, there will be no contract if [in spite of the objective appearance of agreement] B actually knows that A in fact has no intention to contract with him, or to contract on the terms alleged. A subjective element thus qualifies the objective principle; and this follows from the purpose of that principle, which is to protect B from the prejudice which he might suffer as a result of relying on a false appearance of agreement. There is clearly no need in this way to protect a party who knows that the objective appearance does not correspond with reality. ... More generally, it may be said that the objective principle applies only where serious inconvenience would be caused by allowing a party to rely on his 'real intention'."

[33] The author of Corbin on Contracts revised edition (1993) volume 1, ch 4.12 (page 627) writes:

"There has been a good deal of discussion with respect to two so-called theories of contract, known as the 'objective theory' and the 'subjective theory'. By the first, it is argued that a valid contract is created by agreement in expression, the subjective intention of the parties being immaterial. By the second, it is argued that a contract is not created unless there is agreement in intention, properly expressed. The law of contract cannot be explained by either of these theories.

The cases demonstrate plainly enough that a person's expressions as understood by the other party, may bind the person even though the person's own intention and meaning were different. This has led courts and writers to adopt the so called 'objective' theory, and to say that parties are bound by what they say and not by what they think ... The actual decisions do not justify this statement. ... However, at times, the courts can and do get closer to the actual understandings of the parties. Particularly this is appropriate where the parties had a common understanding that may differ from the understanding of hypothetical third persons ...

It is certain that the purpose of the court is in all cases the ascertainment of the 'intention of the parties' if they had one in common. The court may be convinced that they did so, in spite of their conflicting assertions in subsequent litigation. In cases in which the court is not so convinced, it must either hold that no contract was made ... or that one of the parties is bound in accordance with the intention and understanding of the other party. The court adopts the latter alternative if [and only if] the one party knew or had reason to know the intention and understanding of the other and the latter had no reason to know that a difference existed."

"... a 'meeting of the minds' is not an unvarying prerequisite to an enforceable contract. But if it is made clear that there has in fact been no such 'meeting of the minds', the court will not hold a party bound by a contract varying from the party's own understanding unless this party's words and conduct were in a context giving the party reason to know that the other party would be and was in fact misled."

[35] The author of Williston on Contracts, 4th edition, quite strongly supports the "objective theory" but even so allows one exception. In ch 6.57 - 59 it is said:

"It follows from the general rule that manifested mutual assent rather than actual mental assent is the essential element in the formation of contracts, that a mistaken idea of one or both parties in regard to the making of an offer or acceptance will not generally prevent the formation of a contract ... It is often stated broadly that if the parties do not understand the same thing there is no contract. But in light of what has just been said, it is clear that so broad a statement cannot be justified ... Though it is the manifestation of assent and not the actual assent which creates a contract, a writing purporting to be a contract and not ambiguous in its language may nevertheless be wholly void. If, without negligence on his part, a signer attaches his signature to a paper assuming it to be a paper of a different character, the paper is void. Such a mistake as to the character of the instrument may relate to its existence as a contract or legally operative document of any kind, or to whether it is the kind of contract or legal document which it purports or is represented to be ... In the latter type of case, ... a mistake without negligence will not often occur in the absence of some fraud ... Nevertheless, it is possible that this situation may arise without ... fraud, and if it occurs, ... no contract will be formed."

[36] As already noted, Taylor approved the "objective theory" of contract but appeared to allow an exception where a contracting party was mistaken as to the nature of the contract, utilising language similar to that found in Williston.

[37] This conclusion is supported by the analysis of Taylor found in Equity Doctrines and Remedies, 3rd edition by Meagher, Gummow and Lehane, par 1409 in which the authors say:

"... the 'subjective theory' ... probably does apply where the mistake is as to the nature of the contract (as contrasted with the existence of a contract or content of an actual term)."

[38] The point is found in the context of a discussion of unilateral mistake, that is, a mistake made by one only of the contracting parties. The conclusion should be stronger in the case of mutual mistake when the parties contracted at cross-purposes.

[39] Although mistake is usually treated as a separate topic in the law of contracts, as Professor Treitel points out (page 286), there is a considerable overlap between the application of the principles which vitiate a contract because of mistake and those which prevent the formation of a contract because offer and acceptance do not coincide because the parties intend to deal with different things.

[40] One further opinion should be noted. The authors of Halsbury's Laws of Australia, Volume 6, para [110-35] say:

"Element of subjective intention necessary. Subject to the doctrine of estoppel, an intention to create a legally enforceable contract is a necessary element in the formation of a contract. Thus, a contract cannot be inferred from a person's conduct where the other party entertained no belief that the first person intended to contract."

[41] If it be the law that no contract comes into existence where the parties negotiating for it do not come to the point where their intentions coincide it would follow that the Chows did not guarantee Asean's indebtedness to Westpac. It may be accepted that the circumstances of this case are unusual but it is the fact that the intentions of the Chows and of Westpac did not coincide. They were very seriously at cross-purposes. The bank, by its relevant officers in Gosford, intended to accept the benefit of the Chows' mortgage only as a means of releasing Mrs Wong from her guarantee and only if the Tsangs also provided a mortgage. The Chows intended to support their guarantee of Asean's obligations by a mortgage over their property only in order to obtain a loan for Mr Richard Wong. The bank did not intend the guarantee and mortgage to be effective until the Tsangs' mortgage was also executed and the guarantee released . The Chows did not intend the guarantee and mortgage to be effective at all except to secure an advance to or for the account of Mr Richard Wong.

[42] The mortgage has to be viewed in its transactional context. Although the document by itself appears to be a complete record of the bargain between Westpac and the Chows, it is accepted by all concerned that it was part of a larger transaction. Evidence of that fact and of the larger transaction is admissible, so long as it is not adduced for the purpose of contradicting the written part of the agreement. See the discussion and cases collected in par 39185 of Cross on Evidence, Australian Edition by Byrne and Haydon. The consideration stated in the mortgage was the bank's forbearing to make immediate demand for the money then due by Asean and/or making further advances to Asean at the request of the Chows' and/or Asean. The bill of mortgage is thus a memorandum in writing signed by the Chows evidencing a contract of guarantee. The Chows intended a term of the contract to be that the money, the payment of which they guaranteed, was to be advanced to or to the account of Mr Richard Wong for the purchase of the Lae business.

[43] It might be said that the Chows' intention that the advance to Asean was to enable Mr Richard Wong to purchase the Lae business should be ignored because that intention goes only to the purpose for which the money was to be applied, and the Chows did actually intend to make the bargain which is embodied in the bill of mortgage. Even if this be so, it remains the fact that the subjective intentions of the parties did not coincide because the bank did not intend the mortgage to stand alone. As I have explained, the bank intended the mortgage from the Chows, together with another, to secure advances to Asean only in substitution for an existing guarantee.

[44] From the bank's point of view, the contract can be analysed in several ways. It can be said that the bank made an offer to the first defendant (or Asean) to release Mrs Wong's guarantee in consideration of the first defendant procuring a guarantee from the Chows and the Tsangs. Or it could be said that the first defendant offered to provide the mortgages in consideration of the bank releasing the guarantee. Or it might be said that the bank made an offer which, if accepted, would have resulted in a unilateral contract. The offer was to release Mrs Wong's guarantee in return for the Chow and Tsang mortgages. The contract would have come into existence upon acceptance of the offer by providing the two mortgages. Whichever analysis is preferred it is clear that the execution of the mortgage by the Chows was a part of the process of making a contract and that one of the parties to that process, the bank, did not intend the mortgage to take immediate effect on execution.

[45] The rigorous application of the "objective theory" would represent in this case a resounding triumph of form over substance. There was every objective appearance of agreement. The Chows signed a document reciting the hypothecation of their land to secure their promise to pay the debts of Asean in consideration of Westpac's forbearance and/or making further loans. Even viewed from the bank's standpoint there is nothing to disturb the appearance of agreement. Westpac did not know of the Chows' actual intention because the first defendant assuredly did not pass on the real reason he was given possession of the certificates of title.

The reality is that neither party to the "contract" contends the Chows were bound to guarantee Asean's debt. The bank accepts that it would (or would probably) have accepted the guarantee and mortgage together with one from the Tsangs and substituted them for Mrs Wong's guarantee but it does not assert that the incomplete performance of the offer or acceptance to provide substitute security conferred upon it any rights pursuant to the Chow's mortgage. The Chows, of course, resist being made liable under the bill of mortgage.

[46] It is to be observed that it is the plaintiff, not one of the parties to the "agreement", who insists that the objective phenomenon of agreement has resulted in an enforceable guarantee. The parties to that contract have a different view of it. It does not seem right that legal theory can impose on parties contractual obligations (or benefits) which both, without artifice, disavow. Where the parties accept neither of them intended to contract on the terms that the other intended to constitute the bargain, a stranger cannot insist that they are bound because the mistake is not obvious to outsiders. There is no inconvenience in not holding parties to an agreement that neither intended to make.

[47] To hold that no contract comes into existence where both parties accept that neither intended to make the contract which the other had in mind, and neither seeks to enforce the contract on the basis that the other behaved in such a way as to induce the belief that a contract had been made on the terms it intended, is consistent with legal theory as expounded by Professor Treitel and the authors of Corbin. It is also supported by the authority of Paal Wilson and Air Great Lakes, both of which insist that consensus between contracting parties remains a relevant factor when deciding whether a contract has been made. To so hold also appears within the exceptions to the objective theory of contract allowed by Williston and Taylor.

[48] It should be noted that the plaintiff did not argue that the Chows were estopped from denying, as between them and it, that it was bound by the terms of the mortgage. Apart from the difficulties of proving a necessary representation, such an argument must have foundered on lack of reliance. The plaintiff agreed to guarantee the advance to Asean in May 1987, months before the Chows were asked to charge their property to assist their son-in-law.

[49] For these reasons I conclude that in the circumstances of this case there was no agreement between Westpac and the Chows by which the latter agreed to guarantee the debts of Asean. Accordingly the Chows were never co-sureties with the plaintiff. The claim for contribution must fail.

[50] The Chows did not argue their case exactly as I have analysed it and did not emphasise the lack of subjective intention to contract that I have found was fatal to the existence of the guarantee and therefore the plaintiff's right to contribution. Mr Morris QC who appeared for the plaintiff insisted, not unreasonably, that the Chows should be held to their pleaded defences. However, the defence expressly denied the plaintiff's allegations (contained in par 7, 11 and 16 of their statement of claim) that they had, for the consideration recited in the bill of mortgage, covenanted with Westpac and charged their land with the payment of Asean's debt, and that they were liable as co-debtors with the plaintiff in respect of advances to Asean. From the pleadings provided to me it does not appear that particulars were sought of the basis on which those denials were made. A pleading in that form was sufficient prior to 1 July 1999. The defence allowed the Chows to resist the claim against them on the basis that they were not co-guarantors with the plaintiff and it has been established to my satisfaction that they did not agree to and did not become bound to guarantee Asean's debt.

[51] The Chows had a different argument for their position that they never became guarantors of Asean. Westpac supported their argument. The submission is, in essence, that the guarantee given by the Chows was subject to a condition precedent which was never satisfied so that the guarantee never became effective. The condition was two-fold: the Tsangs also had to provide a mortgage and Westpac had to release Mrs Wong's guarantee.

[52] I think it is right that the first defendant and Mr Tsui came to an understanding with Westpac that Mrs Wong's guarantee would be released in the event that mortgages over real property owned by the Chows and the Tsangs, securing Asean's indebtedness, were executed. It was a term of this understanding that the real properties were, in the bank's opinion, suitable as security. I have already set out the relevant evidence which leads me to this conclusion.

[53] Counsel for the plaintiff opposes the finding that the understanding was as I have described on a number of grounds. Firstly it is said that the evidence is insufficient to establish the substitutionary nature of the Chows' mortgage. Mr Cruickshank's evidence, which I accept, appears to me sufficient to prove the arrangement. Westpac's internal memoranda point uniformly to the same conclusion. Moreover, as I have noted, there is no other explanation for the offer of guarantees from the Chows and the Tsangs. As early as May 1987 the bank had made an agreement with the first and second defendants and Mr Tsui for an advance of $350,000 secured by the plaintiff's properties and guarantees from the first and second defendants. The provision of further third party mortgages can only have been to replace some or all of the existing security for the advance. The evidence points to the release of Mrs Wong's guarantee. Mr Tsui did say that it was the mortgage over his home that was to be replaced, perhaps as well as Mrs Wong's guarantee, but there is no support for this hope in any of the documents and I am not prepared to act on Mr Tsui's uncorroborated evidence. Furthermore the release of Mrs Wong's guarantee fits in with the contemporaneous circumstances. Mrs Wong severed her connections with Asean's business. She resigned as director and had her company transfer its shares in Asean to the plaintiff.

[54] There is no support in the material for a conclusion that the further mortgages were to be provided in return for an increase in the amount Asean could borrow. There is a fragment of evidence that the fact that certificates of title to land owned by the Chows and/or the Tsangs had been delivered to Westpac, persuaded it to allow Asean to borrow approximately $50,000 before all the formalities necessary to document the Asean facility were complete: see document 33 in the agreed bundle.

[55] A more substantial objection taken by Mr Morris QC is that any agreement that the Chows' mortgage should be taken in substitution for Mrs Wong's guarantee can only have been made if the Chows were party to it and they were not. They knew nothing of it and for reasons of their own would not have agreed to any transaction that might have conferred a commercial advantage on Mrs Wong.

[56] The Chows themselves had no dealings with Westpac save the occasion they attended to execute the bill of mortgage. They authorised Mr Richard Wong and the first defendant to communicate with Westpac to make whatever arrangements were necessary to enable Mr Richard Wong to borrow money for the acquisition of the Lae business (T 130.30-.40; 131.5; .28-.38; .51 - .55). In particular the Chows gave the certificates of title to Mr Richard Wong to be delivered to the first defendant and given by him to Westpac. This delivery was part of the process of mortgaging the land to secure the advance to Mr Richard Wong.

[57] In these circumstances it is clear that the first defendant was the Chow's actual agent for the purpose of delivering the certificates of title to Westpac for the purpose of perfecting a mortgage over the land. It is true that the first defendant did not have actual authority to make the agreement for substitution of the mortgages for the guarantee, but in my opinion the circumstances that:

1. the first defendant was authorised by the Chows to make an agreement with Westpac for a mortgage of their land to secure a loan to Mr Richard Wong to enable him to buy a business from the first defendant,

2. the first defendant was given possession of the certificates of title,

clothed the first defendant with apparent agency to make the agreement for substitution. The case seems similar in principle to that of Abigail v Lapin [1934] UKPCHCA 1; (1934) 51 CLR 58 at 71-2. The limitation on the first defendant's authority, that the mortgage was to secure the consideration for Mr Richard Wong's acquisition of a business, was not promulgated to the bank. In Abigail the Privy Council approved the following principle, from Brocklesby v Temperance Permanent Building Society (1895) AC 173 at 180-1.

"Where a person has thus been entrusted with the possession of title deeds with authority to raise money upon them, the owner of the deeds cannot take advantage of any limitation in point of amount which he has placed upon the authority to raise money as against a lender who had no notice of it".

It follows in my opinion that the Chows were bound by the acts of the first defendant as their agent in making the substitution agreement.

[58] Next it is objected that Mrs Wong did not know of the agreement and was not a party to it. This does not do complete justice to Mrs Wong's evidence. She said (T232.30-.60) that when she resigned from the board of Asean she asked about her guarantee and the first defendant and Mr Tsui both said they would try to have it released. This is probably sufficient to constitute the first defendant Mrs Wong's agent to obtain a release of the guarantee but even if it is not, no mortal blow is dealt the substitution agreement. An agreement between Asean (or Chow, or the first defendant) and Westpac by which Mrs Wong's guarantee was to be released is, other things being equal, a valid contract notwithstanding that Mrs Wong was not a party to it and could not enforce it.

[59] Mr Morris QC submitted that the bank's conduct provided cogent evidence that it did not regard the mortgage as being conditional upon effecting the substitution. On 22 May 1989 the bank demanded from the Chows the amount then owing by Asean. On 16 January 1990 it registered the mortgage. Both acts are inconsistent with the bank not having an enforceable right under the guarantee. So much may be accepted but these facts are insufficient to overcome the clear evidence which I have found establishes the substitution agreement. I think it likely that faced with Asean's default the bank's officers charged with minimising any loss the bank might suffer pursued what appeared to be all available options without careful scrutiny of the basis on which it could recover payment. When calm returned the bank abandoned its claim against the Chows.

[60] If, contrary to my opinion, the evidence did not establish a contract the terms of which were that Westpac would release Mrs Wong's guarantee in return for mortgages over the Chows' and Tsangs' land, the plaintiff's position is not advanced. In that event the Chows' mortgage was proffered to Westpac in the hope that the bank would accept it and one from the Tsangs, and in return release Mrs Wong's guarantee. The Chow's mortgage would thus be the partial performance of an offer which was not accepted. The execution of the mortgage in those circumstances would not amount to an immediately binding contract of guarantee.

[61] The evidence in my opinion is sufficient to establish an agreement between Westpac and the Chows by their agent, the first defendant, the terms of which were that in consideration of the provision of mortgages over real property acceptable to the bank from the Chows and the Tsangs the bank would release Mrs Wong from her personal and unlimited guarantee. I would not myself see the contract as being of the unilateral kind in which the offer was made by the bank. If it matters (and I cannot see that it does) I would regard the first defendant, as agent for the Chows and Tsangs, as the offeror.

[62] Thus viewed the contract falls in the category of which Pym v Campbell [1856] EngR 480; 119 ER 903 is an example. That is, a written contract which on its face is final and binding is proved by oral evidence to be conditional upon the occurrence of an event. Non-fulfilment of the condition means the contract never becomes operative. The oral evidence is led not to vary or contradict the terms of the written agreement but to prove that it is part of a larger transaction which was never consummated.

[63] Accordingly, on this ground too I would hold that the Chows did not become guarantors of Asean's debts and were not co-sureties with the plaintiff.

[64] The result means that it is unnecessary to consider the Chows' claim for relief against the bank. They sought orders pursuant to the Trade Practices Act that the guarantee and mortgage be set aside and relief for breach of fiduciary duty in the event that they were found liable to contribute to the plaintiff. This relief is unnecessary but I was asked to adjudicate upon the claims against Westpac. Because they were argued at length and may have a bearing upon what order for costs should be made I will accede to the request but deal rather briefly with the arguments.

TRADE PRACTICES ACT

[65] Considerable artificiality and contrivance is apparent in the way in which the pleading attempts to construct a case that Westpac became the beneficiary of the Chows' mortgage by engaging in misleading and/or deceptive conduct, in contravention of s 52 of the Trade Practices Act.

1. When the Chows attended the bank's office to execute the mortgage a bank officer told them:

(c) it was in order for the documents to be signed;

(d) the Chows did not need to show the mortgage to their solicitor.

2. When the representations were made Westpac knew, or should have known:

(a) that in signing the documents the Chows would guarantee Asean's debt to Westpac;

(b) that by executing the document the Chows became potentially liable to contribute to the plaintiff in respect of its obligation as guarantor.

3. The Chows signed the mortgage documents because of the representations set out in 1.

4. Prior to signing the documents the Chows told Westpac's manager that the mortgage was not to be registered or used as security "unless and until funds to enable" Richard Wong to buy the Lae business were not available from the bakery.

5. Westpac impliedly represented that the "mortgage would not be called upon if the funds became available from New Guinea".

6. Westpac did not advise the Chows of the possibility that Asean could become liable to Westpac as a consequence of its use of the overdraft made available to it by Westpac.

(c) the mortgage was not in accordance with what the first defendant had represented the transaction would be.

8. Westpac did not tell the Chows that the mortgage was to be taken as a substitute in part for the release of Mrs Wong's guarantee.

[67] The contrived nature of the claim can be seen by the assertion that Westpac behaved deceptively because the mortgage did not conform to the representations made by the first defendant when it is not pleaded, and no attempt was made to prove, that Westpac was aware of what the first defendant had told the Chows and when, on the evidence, the Chows appointed the first defendant their agent to communicate with Westpac for the preparation of mortgage documents.

[68] It might be thought that the nub of the complaint is that the Chows were not told that the mortgage was to secure an advance to Asean rather than Mr Richard Wong and that Asean was then indebted to the bank for an amount in excess of $400,000. It will be recalled that Mr Chow himself gave evidence that he was aware, when signing the document, that the mortgage secured an advance to Asean and he was told the amount of the advance. The artificiality of the case of deception pleaded against the bank, in that it was known by the Chows to be false.

[69] As to the complaint that Westpac represented that the documents were in order and were standard in form and it was unnecessary to seek legal advice in respect of them, I find that the effect of the documents was adequately explained by Ms Orcher. In any event there is no doubt that Mr Chow was well aware of the nature of a mortgage and fully aware of what he was doing by making his properties available as security.

[70] The Chows' own evidence falsifies the allegation that they told Westpac that the mortgage was not to be registered "or otherwise utilised" until it was established that Mr Chow could not obtain the money from the bakery. At best something was said about not registering the mortgage after it had been signed. I accept the evidence of Mr Perkins that no such statement was made. I also accept the evidence of Ms Orcher, Mr Perkins and Mr Anderson that they did not discourage the Chows from seeking legal advice in relation to the mortgage. It should not be overlooked that no attempt was made to prove what advice would have been sought by the Chows had they gone to a solicitor or what advice would have been given in response to their request.

[71] The last particular of deception may have substance. It is true that the bank's officers at Sunnybank did not inform the Chows that the mortgage was to replace Mrs Wong's guarantee. The description they gave of the transaction was in fact quite the contrary. The advice was given honestly and in reliance upon the contents of the documents and because they had not been told of the wider arrangement by the bank's officers in Gosford.

I do not propose to consider this aspect of the claim because no loss resulted and the claims for relief under the Trade Practices Act were all made out of time.

[72] The relief for contravention of the Trade Practices Act is sought pursuant to s 82 and s 87. They prescribe a limitation period of three years from the date on which the cause of action accrues. The Chows allege that they suffered loss when they executed the mortgage on 8 October 1987. They commenced their action some time in 1993. Forster v Outred & Co [1982] 1 WLR 86 would appear to be authority for the proposition that loss, for which damages are sought, occasioned by executing a mortgage as a result of negligent advice, is suffered at the moment of execution. This is for the reason that upon execution the value of the mortgaged property is diminished by the amount of the debt which has to be paid to redeem the mortgage. The diminution occurs immediately and not when the mortgagee demands payment. A majority of judges in Wardley Australia Ltd v Western Australia [1992] HCA 55; (1992) 175 CLR 514 at 529 appears to have endorsed this view, and the notion that the diminution in the value of the equity of redemption suffered by a mortgagor on execution of the mortgage is actual loss. The cause of action is complete upon the execution of a mortgage.

[73] It was pointed out in Francis v Whatson [1994] 2 Qd R 584 at 589 (per Pincus JA and Moynihan J) and at 590 (per Davies JA) that Wardley decided that incurring a contingent liability does not amount to suffering actual loss so that a cause of action will not be complete where what has happened is that a party becomes bound, in the event of a contingency, to pay money or suffer a loss in the value of property.

[74] It might be thought that executing a mortgage to secure the debt of another in the event of that other's default gives rise to a contingent liability because until default and demand by the creditor there is no obligation to pay. Forster was such a case but it was held that loss occurred at the moment of execution. The explanation is probably that from the moment of execution the land is charged with the obligation to make good the principal debtor's default and the creditor would not release the mortgage without receiving some recompense. To that extent there is an immediate diminution in the value of the mortgagor's property which amounts to loss.

[75] On this analysis the Chows rightly plead that they suffered loss on 8 October 1987. However, if it be the case that loss was not in fact suffered until Asean defaulted and demand was made on the guarantor the Chows' claim is still out of time. On 22 May 1989 the bank demanded payment of the amount then owed by Asean. This, of course, is more than three years before the institution of proceedings under the act.

1. their execution of the bill of mortgage which did not conform to the representations made by the first defendant about the transaction;

2. Westpac's representations that the documents were standard in form and the Chows should sign them;

3. Westpac's understanding of the transaction which the mortgage recorded and the obligations it imposed on the Chows;

4. the Chows' intimation that they did not want the mortgage to be registered;

5. the fact that Asean was then indebted to Westpac;

Westpac was a fiduciary in relation to the Chows and was thereby under a duty to explain the effect of the bill of mortgage and the potential liability it imposed, including the amount of Asean's debt.

[77] Apart from any difficulty which might exists as a matter of law in establishing that Westpac stood as a fiduciary to the Chows it is apparent from what I have already written that the basic premises of fact on which the Chows rely for this plea have not been made out: see par [76]2 and par [76]4. Any duty on Westpac to give advice about the consequences of the Chows' execution of the mortgage and to explain their potential liability, including the amount then owed by Asean, was discharged in full.

[78] The Chows face an equally daunting task in constructing a fiduciary relationship from dealings between a bank and its customer.

"The law does not recognise the relationship of banker and customer as one of the accepted categories of fiduciary relationship. Of course, this does not mean that there will not be circumstances where such a relationship will arise ... Hill J in Golby v Commonwealth Bank of Australia ... stated, in our opinion correctly, that:

'It is not a critical feature of a banker/customer relationship that the banker undertakes or agrees to act for or on behalf of or in the interests of its customer in the exercise of some power or discretion affecting the interests of the customer in a legal or practical sense ... Absent therefore some special feature, such as the giving of advice in Smith, there is no reason to erect a fiduciary relationship between banker and customer when that relationship is essentially one founded in contract'."

Per Davies, Pincus JJA and Derrington J in Finding v Commonwealth Bank of Australia (CA 4500/98, 23 July 1999).

[79] In an article I have always found helpful on this topic, Contract and the Fiduciary Principle, Professor Finn (as Finn J then was) wrote in [1989] UNSWLawJl 5; 12 UNSWLJ 76:

"Though the raw materials of a fiduciary finding ... are a trust and confidence reposed, a dependence or reliance conceded, or an ascendancy or influence acquired, the important matter is the character to be attributed to the role the alleged fiduciary has ... in the circumstances of the relationship. It must so implicate that person in the conduct of the other's affairs or so align him with the protection and promotion of that other's interests [or their joint interest] that 'foundation' exists for the fiduciary expectation: it must be such as could properly entitle that other to expect that he will act in that other's interests [or their joint interests] ..." (page 93)

"What in the end one is seeking to identify is a relationship in which one party has in fact relaxed, or is justified in believing he can relax, his self-interested vigilance or independent judgment because, in the circumstances of the relationship, he reasonably believes ... that the other is acting ... in his [or in their joint] interests ... In the contracting context the cases must be rare indeed in which a fiduciary relationship will arise so as to regulate the contract of strangers who come together for the purpose of a dealing which does not itself create a fiduciary relationship." (page 94)

"Australian case law ... while demonstrating its own preparedness to exact a heightened standard of fair dealing from banks, has abjured the fiduciary in favour of an approach based on unconscionable dealing ... With banks having, and being expected to have a manifest self-interest in their dealings with customers in the provision of financial services, it is difficult to see, save in quite exceptional cases, that customers ... could reasonably be entitled to expect anything other than fair dealing and reasonable care and skill from the bank." (page 96)

[80] The analysis contained in the last passage quoted from the article was accepted as correct by Branson J in Truebit Pty Ltd v Westpac Banking Corporation [1997] 1290 FCA.

[81] There is nothing in the circumstances of this case to take the relationship between Westpac and the Chows out of the ordinary contractual one. They came together each to take a benefit from the other and in so doing to confer a benefit on the other. There is a complete lack of that element of expectation on the part of the Chows that the bank would act in their interests and not its own.

[82] In the end counsel for the Chows did not press the case for breach of fiduciary duty but instead sought to advance an argument based upon the more familiar principle, which finds expression in such cases as Goodwin v National Bank of Australasia Ltd [1968] HCA 30; (1968) 117 CLR 173 and in the judgment of Gibbs CJ in Commercial Bank of Australia Ltd v Amadio [1983] HCA 14; (1983) 151 CLR 447, that a creditor taking a guarantee should disclose any special or unusual feature of the relationship between the creditor and debtor which would not naturally be expected in the transaction. Submissions identify five features all of which are said to be special or unusual.

The facts necessary to give rise to this issue were not pleaded. The bank had no notice when its counsel cross-examined the Chows, and when it decided what evidence itself to adduce, that this submission was to be made. For this reason I hold that the Chows are precluded from advancing the argument and I do not consider it further.

[83] In the result I dismiss the plaintiff's claim against the Chows and their claim against Westpac. There will be judgment for the third and fourth defendants against the plaintiff and for the eighth defendant against the third and fourth defendants.