BYLANDER v MULTILINK

THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL

40741/00 DC 9139/98 HANDLEY JA GILES JA HEYDON JA

BYLANDER INTERNATIONAL CONSORTIUM (AUSTRALIA) PTY LIMITED & ORS v MULTILINK INVESTMENTS PTY LIMITED & ANOR

EQUITY - unconscionable conduct - guarantee - husband and wife

A company controlled by a husband borrowed $275,000 for 30 days on the security of a guarantee by his wife and himself. The company failed to repay the loan and the wife was sued on her guarantee. The trial Judge held that a Yerkey v Jones (1939) 63 CLR 649 defence was not open on the pleadings but the defence failed in any event because she was not a volunteer. The wife appealed. HELD : (1) The Yerkey v Jones defence was open to the wife on the pleadings; (2) The wife, in giving the guarantee, was a volunteer; (3) The defence was established; (4) The fact that the wife was a director and shareholder in the borrower company, and that the loan funds were paid into the joint bank account of the husband and the wife before the bulk of the funds were paid out, almost immediately, for the husband's business purposes, did not prevent the wife being, in substance, a volunteer for the purposes of this defence. ORDERS (1) That the appeal be allowed;

(2) That the judgment for the third defendant entered in the District Court be set aside and in lieu thereof there be judgment for the third defendant in the action with costs; (3) The respondent should pay the appellants' costs of the appeal but, if qualified, should have a certificate under the Suitors Fund Act. THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL

40741/00 DC 9139/98 HANDLEY JA GILES JA HEYDON JA

BYLANDER INTERNATIONAL CONSORTIUM (AUSTRALIA) PTY LIMITED & ORS v MULTILINK INVESTMENTS PTY LIMITED & ANOR JUDGMENT

1 HANDLEY JA : This is an appeal by the third defendant, who I will call for short Mrs Satchi, from the judgment of Boland ADCJ in the District Court given on 18 August 2000. 2 The action was brought by the respondent, Multilink Investments Pty Limited, to recover a loan from the borrower Bylander International Consortium (Australia) Pty Limited and Mr and Mrs Satchi who had guaranteed the loan. The loan was for $275,000 and was made pursuant to a contract dated 29 September 1997, the lender taking as security the guarantee of Mr and Mrs Satchi who were the only directors and shareholders of the borrower. The loan was for 30 days.

3 The Judge found a verdict in favour of the plaintiff lender against all defendants. The only appeal that remains on foot against that judgment is that by Mrs Satchi, the third defendant.

4 Mrs Satchi had severed her defence from those of her husband and the borrower. She filed a notice of grounds of defence, which she verified, and a cross-claim. The cross-claim relied upon the matters pleaded in the notice of grounds of defence but only claimed relief under the Contracts Review Act and the Trade Practices Act. It need not be further considered.

5 The questions which have been argued in the appeal are whether a defence based on the principles stated by Sir Owen Dixon in Yerkey v Jones (1939) 63 CLR 649, and re-stated in Garcia v National Australia Bank Limited (1998) 194 CLR 395, was open to Mrs Satchi on the pleadings and was supported by evidence.

6 The trial Judge held that the Yerkey v Jones defence was not open on the pleadings and on that ground entered judgment against her. He also went on to hold that in any event the defence was not made out on the facts.

7 The Court first called on Mr Trebeck, counsel for the respondent, on the pleading question. It is unnecessary to set out in these reasons the relevant paragraphs of Mrs Satchi's notice of grounds of defence because when Mr Trebeck was asked what facts necessary to plead a case within the principles in Yerkey v Jones had not been pleaded he said that Mrs Satchi had not pleaded that she was a volunteer in the transaction of loan she had guaranteed.

8 It is sufficient to refer to para 14 of the notice of grounds of defence which pleaded:

"The third defendant did not receive any benefit or any consideration of any kind as a result of signing the guarantee or any other document". 9 In my judgment para 14 sufficiently pleaded facts which, if proved at the trial, would establish that the transaction was a voluntary one, so far as Mrs Satchi was concerned. It follows that the Yerkey v Jones defence was open to Mrs Satchi on the pleadings and the trial Judge fell into error in ruling otherwise. 10 Mr Trebeck also relied upon the conduct of Mrs Satchi's lawyers at the trial as establishing that any Yerkey v Jones defence had effectively been abandoned. The Court was referred to a number of passages in vols 1 and 2 of the black book. It is not necessary to quote these references in these reasons. It is sufficient to say that while the solicitor and counsel appearing for Mrs Satchi did not signal a Yerkey v Jones defence in the course of those exchanges, nevertheless, nothing was said which amounted to an abandonment of any defence open to Mrs Satchi on the pleadings. 11 The evidence in support of the defence consisted of her statement which was tendered by her counsel and her affidavit which was tendered by counsel for the plaintiff. This evidence supported all elements of this defence, it was not relevantly contradicted by other evidence, and Mrs Satchi was not cross-examined. 12 The defence based on Yerkey v Jones being open on the pleadings, supported by evidence and not having been abandoned, had to be dealt with by the trial Judge. He, in fact, dealt with it by holding that Mrs Satchi was not a volunteer within the principles established by the High Court. 13 The Judge noted that Mrs Satchi was a director and shareholder in the borrower company and obtained a financial benefit when the funds were advanced to the company and paid into the bank account of herself and her husband. He also found that Mrs Satchi was involved in the operations of the company because of the conversation she had with Mr Mohanty at the Standard Chartered Bank in October 1997. This conversation and the opening of a bank account for the borrower at that time have no direct relevance to the subject transaction but showed her acting on behalf of the borrower. 14 The Judge accepted a further submission that Mrs Satchi had previously been involved in borrowing funds jointly with her husband from the National Australia Bank, prior to the acquisition of the borrower company, for purposes similar to those envisaged by the borrowing that gave rise to these proceedings. The Judge found that Mrs Satchi was directly involved in the conduct of the company's business and was to obtain a financial benefit from it. 15 The High Court made it clear in Garcia that the characterisation of a guarantee as a voluntary transaction did not fall to be determined by the presence or absence of sufficient consideration to support the validity of a simple contract. There must be consideration in that sense for any such guarantee to be legally enforceable. The question whether the transaction was a voluntary one, so far as the surety is concerned, falls to be decided as a matter of substance, and guidance has been given as to the type of benefits which will not exclude such a finding. 16 Mrs Garcia was a director and shareholder in the debtor company but these facts alone did not take her out of the status of a volunteer in relation to her guarantee. 17 There was evidence that in the past Mrs Garcia had received some benefits from her husband's companies but the trial Judge found that they were in the complete control of the husband. The High Court held that these findings established that Mrs Garcia obtained no real benefit from entering into the transaction and was a volunteer. In substance, she had no effective entitlement to a financial interest in the company. Subsequent decisions of the Supreme Court of New South Wales and the Supreme Court of Victoria have applied the same approach. 18 Mr Trebeck sought to distinguish Garcia because the funds lent by the plaintiff passed through a joint bank account of Mr and Mrs Satchi and because payments were from time to time made out of that account for the benefit of Mrs Satchi and the family. He also relies upon the evidence referred to by the trial Judge that Mrs Satchi took some part in the business of the company in the ways he mentioned. It is sufficient to say that Mrs Satchi's involvement was simply that of one of the two directors and did not establish that she obtained or was likely to obtain a personal benefit from this transaction. 19 The money trail showed that by the direction of Mr and Mrs Satchi as the directors of the borrower and guarantors of its liability the proceeds of the loan were paid into their joint bank account at the National Australia Bank, Bankstown, on 30 September 1997. On the same day on the authority of the husband the bulk of the moneys were transmitted to a bank account in Brunei. However, some $16,000 of the loan funds remained in the joint account, being withdrawn progressively over the next month or so, until a withdrawal of $7,500 on 23 October. 20 Mrs Satchi said in her affidavit that the bank account was a joint account in which her husband deposited moneys "for me to pay our living expenses such as food, electricity and clothing" and on the evidence of the bank statements themselves it would appear that payments were made on the home loan of the husband and wife and on a debt to AGC Limited, which may have been for a motor vehicle. Other amounts may also have been disbursed from the balance of the funds wholly or partly for the benefit of Mrs Satchi. However, an amount of just under $7,000 was in the account before the proceeds of the loan were paid into it and it has not been established that the pre-loan funds in the account would not have sufficed to meet all domestic or personal expenses paid out of the account after the loan funds were paid in. In substance the loan funds were used solely for the benefit of the company and the husband and any incidental benefits flowing to the wife from payments out of the joint bank account are not sufficient to distinguish this case from Garcia and the other cases which have followed it. 21 The case is not one where any attempt was made to lead evidence in order to distinguish Garcia on the facts on the ground that the standard of living of the wife, the family and the husband were dependent upon his income earning activities carried on either personally or through one or more corporate vehicles and that benefits of this kind took the case outside the principles applied in Garcia. The existing authorities decided since Garcia, in particular Armstrong v The Commonwealth Bank of Australia, a decision of Hamilton J in the Equity Division, provide no support for such a basis for distinguishing Garcia, but the matter was not explored at the trial and could not be developed on appeal. 22 For these reasons I am satisfied that the trial Judge erred not only in holding that the Yerkey v Jones defence was not open on the pleadings but also in distinguishing Garcia on the facts. 23 I would therefore propose the following orders: (1) That the appeal be allowed;

(2) That the judgment for the third defendant entered in the District Court be set aside and in lieu thereof there be judgment for the third defendant in the action with costs; (3) The respondent should pay the appellants' costs of the appeal but, if qualified, should have a certificate under the Suitors Fund Act. 24 GILES JA: I agree with the reasons of Handley JA, and would add only this in relation to whether Mrs Satchi was a volunteer. 25 The money was borrowed to be paid on to a third party. A small amount of it was in fact not paid on. To the extent to which that small amount may, in part, have ended up being used for the benefit of Mrs Satchi, which I will assume, it is plain enough that she knew nothing of the fact that the whole amount borrowed had not been paid on or that she was being benefited. Any benefit so far as Mrs Satchi was concerned was unlooked for, accidental, and so far as appears unknown to her. 26 That adds, to my mind, to the conclusion that it should not be regarded as a real benefit whereby she was not a volunteer. 27 I agree with the orders which have been proposed. 28 HEYDON JA: I agree with the reasons for judgment of Handley JA and also with the additional remarks of Giles JA. 29 HANDLEY JA: The orders of the Court are as I had proposed.

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