Commonwealth Bank of Australia v Khouri [1998] VSC 128

5. On 28 November 1996 Master Wheeler ordered that the two proceedings be heard together. At the same time, the Master granted leave to the Bank to amend its statement of claim in proceeding No. 6111 of 1992. That statement of claim, however, remains in its original form. Instead, an amended document was filed, without leave, in proceeding No. 5509 of 1991. This step was and is extraordinary. It is matched in this regard by the amended statement of claim itself. It commences not with a reference to the first mortgage (which is the subject of the proceeding in which the amended statement of claim is filed) but to a guarantee dated 28 May 1990. This is the day upon which, according to evidence called by the Bank, the second mortgage was executed. It was and is the Bank's case that the guarantee and the second mortgage form part of one transaction.

8. Having commenced with the guarantee dated 28 May 1990, the statement of claim proceeds with a fine disregard for chronological, or any other kind, of logical order. It next refers to a guarantee allegedly made on 9 August 1989. This is a guarantee which the bank sought to link to the first mortgage - which is the document next pleaded, thus taking the reader further backwards: to 1 March 1988. This is followed by a leap forwards: to 4 July 1990, the day upon which the second mortgage was dated although (according to the Bank) it was actually signed some six weeks before. There follows, in the statement of claim, references to certain alleged "advances" made by the Bank to one or other or both of the defendants. In the order in which these are pleaded, they allegedly were effected on, respectively, 2 June 1989, 29 September 1988, 29 May 1990 and 4 September 1989. Finally, the statement of claim pleads a number of defaults; again, as these appear in the statement of claim, they are alleged to have occurred on, respectively, 17 November 1989, 6 June 1990, 2 October 1991, 30 July 1990 and 13 November 1990. I observe that this order does not correspond to the order in which the corresponding advances were presented earlier in the statement of claim. Each default is said to be "evidenced" by a written demand (a proposition which every lawyer ought to know is ridiculous - a lender cannot "evidence " a default by a borrower simply by the preparation and service of a notice of demand) and the last two are said to arise, somehow, "pursuant to" precisely the same "guarantee".

11. The statement of claim was not analysed in depth during the course of the trial. Indeed, it was largely ignored, except when occasionally used as a (very uncertain) basis for objection on the grounds of relevance. I dwell upon it here because it accurately reflects the haphazard means by which the case for the Bank was presented. This has considerably increased my difficulty in preparing this judgment. Of greater significance, however, is the fact that by these proceedings the Bank (on at least one version of its case) claims against two individuals sums which total almost $700,000.00, together with possession of what was once their matrimonial home. One of the defendants continues to live there. Claims of this magnitude ought not be persued in the manner in which the Bank conducted this litigation.

14. Although there are two mortgages under which the Bank claims, there are four transactions in dispute, as follows: a $10,000.00 loan ("the MIAS loan") made on 29 September 1988 by the State Bank to a business owned by the defendants, Metropolitan Interpreting and Advisory Services ("MIAS"); a $100,000.00 loan, described as a "home loan", made on or about 2 June 1989 by the State Bank to the defendants; a $150,000.00 loan ("the Atlantic Quest loan") made on 4 September 1989 by the State Bank to a company called Atlantic Quest Pty. Ltd.; and a $10,000.00 loan ("the MBG loan"), made on 28 May 1990 but dated the following day, by the Commonwealth Bank to the defendants' incorporated successor to MIAS, a company named Metropolitan Business Group Pty. Ltd. ("MBG").

17. I commence with a brief summary of the positions taken by each side. The Bank argues that, because it holds two registered mortgages executed by the defendants, it necessarily enjoys an indefeasible title, unless the defendants can show it engaged in fraud such as to impeach its title. It says the onus, which Mrs Horkings has failed to discharge, lies on the defendants to establish that registration of the mortgages was procured by fraud. Indeed (so the Bank submits) not only has Mrs Horkings failed to discharge that onus, but she has conceded that she signed both of the mortgages in question. It follows, according to the Bank, that each of the four loans is secured by one or other of the mortgages. Any attack by Mrs Horkings on the underlying documentation cannot be relied upon to defeat the Bank's title. It says the defendants have defaulted, the appropriate notices of default were served, and the defendants have failed to give possession of the Convery Close property. It therefore claims the moneys outstanding plus interest the amount of which it submits is evidenced by what it calls a "Statement of Account" (Exhibit 3). It also seeks possession.

20. The first defendant did not appear at trial. Mrs Horkings was represented by counsel. It was argued by Mr Moshinsky on her behalf that neither mortgage constituted good security, at least as against her interest in the land, for any of the four disputed transactions. First, it was not intended by the Bank, and certainly not by her, that either the MIAS loan or the "home loan" be secured by the first mortgage; secondly, the Bank cannot rely merely on what it chooses to designate as a "Statement of Account" as proof of the existence of indebtedness under the first mortgage; thirdly, Mrs Horkings did not authorise either the MIAS loan or the "home loan" and therefore neither comes within the relevant clause of the Memorandum of Common Provisions relating to the first mortgage; fourthly, the Atlantic Quest loan was not directly secured by the first mortgage nor was it intended to be so; and, finally, a guarantee given by Mr Khouri (but not his wife) to secure the Atlantic Quest loan cannot attract liability under the first mortgage. Mrs Horkings therefore seeks to have the first mortgage discharged, it having been (on her view of the matter) paid out. It was also argued that the Commonwealth Bank engaged in unconscionable conduct when on 28 May 1990 at that Bank's request Mrs Horkings executed a guarantee and second mortgage to secure the MBG loan, and therefore that that guarantee is unenforceable, and the mortgage should be set aside.

23. It is at this point useful to consider the facts giving rise to this dispute. On 14 December 1987 the defendants entered into a contract to purchase 14 Convery Close, Gladstone Park with a 90 day settlement. A housing loan for $99,000.00 was granted to the defendants by the State Bank. This loan was expressed to be secured by the first mortgage. Both defendants, as Mrs Horkings acknowledges, signed the mortgage in the presence of John James Schmidt, the manager of the Coburg branch of the State Bank. This mortgage has been described as an "all moneys" mortgage which incorporates the provisions contained in Memorandum of Common Provisions ("MCP") No. AA1. The defendants also signed a Transfer of Land (No. N357079S) (Exhibit 31) in the presence of M. Talaf. Mrs Horkings accepts that her signature appears on that document.

26. Mrs Horkings gave evidence that at the time she executed the first mortgage she was not given an explanation by Mr Schmidt about the nature of the document. In particular, she was not told - and had no independent knowledge of the fact - that it was an "all moneys" mortgage, still less what that description meant. She conceded in cross-examination that at that time she knew that the defendants had an obligation to repay the moneys borrowed and, if they defaulted, they would be at risk of losing their house. However, (according to her evidence) she believed that the liability was confined to the loan of $99,000.00 and that once that debt was repaid, with appropriate interest and charges, the mortgage would be discharged. I accept this evidence. Moreover, it was not in my opinion unreasonable for Mrs Horkings to believe that, in the context of that transaction, the mortgage she gave was to secure the original purchase price, or so much of it as was borrowed from the Bank. In the absence of any explanation, she had no reason to think that the Bank would also rely upon the mortgage to secure her husband's borrowings for the businesses which he operated nominally on behalf of the family.

29. Mrs Horkings also gave evidence that on 30 June 1989 the loan for $99,000.00 was fully repaid when the then outstanding balance of $49,427.62 was forwarded to the Bank. She understood that at that point the Bank should have released the Certificate of Title to the defendants. However, she conceded in cross-examination that she did not ask for the return of the Certificate of Title. Mr Wilson on behalf of the Bank informed me that his client does not seek to recover any moneys with respect to this loan in these proceedings, although the Bank does rely on the first mortgage in respect of the three other loans with which the State Bank was involved.

32. In September 1988 Mr Khouri established Metropolitan Interpreting and Advisory Services which (as, from its name, one might expect) provided interpreting and translating services. Mrs Horkings gave evidence that her involvement with this business was limited to secretarial and receptionist duties for about a month when the business was first established; and that in any event, from about March 1989, she and her husband saw little of each other, and her knowledge of his business dealings was limited. I accept this evidence. I find, further, that she was never a participant in any decisions involving those dealings (or, at the very least, none which are presently relevant) and any benefits which she obtained from them were entirely at his discretion. She and her husband separated on 25 March 1991 and were divorced in 1992.

35. An overdraft of $10,000.00 for working capital (the MIAS loan) was on 29 September 1988 granted by the State Bank to the defendants trading as MIAS. I note that paragraph 14(i) of the further amended statement of claim has been amended to substitute the sum of $10,000.00 for the amount earlier appearing ($500,000.00). Mrs Horkings denies signing the application for this loan, dated 29 September 1988, (Exhibit T) in which the word "unsecured" is written by hand in the box headed "Security Offered". She also denies signing the business account authority (Exhibit U) and the Offer to Take Up Financial Accommodation (Exhibit V) (which also notes in the attached specific terms and conditions that no security was required). Both of these documents bear the same date as that of the application for loan, ie. 29 September 1988.

38. Given the form of Exhibits T and V, each of which indicates that the loan was unsecured, I am not satisfied on the balance of probabilities that the parties to this transaction intended that it be secured by the first mortgage. In any event, I find as a fact that Mrs Horkings did not sign any of the documents upon which the Bank here relies.

41. The issue of the authenticity of Mrs Horkings' signature is one of the principle areas of dispute in this case. Mrs Horkings admits that she did sign the first and second mortgages, but she denies signing several of the documents authorising or seeking loans under these mortgages. During the hearing Mrs Horkings undertook an exercise with counsel and myself to examine and compare the various versions of her signature on the documents tendered. The documents were laid out in chronological order and the signatures identified by her as either hers or not. The exercise was necessarily subjective and unscientific given that no one present could claim to be an expert in handwriting. It was Mrs Horkings' evidence that it is not her signature which appears on the application for the MIAS loan (Exhibit T), or the business account authority (Exhibit U) or the Offer to Take Up Financial Accommodation (Exhibit V). Each of these documents relates to the MIAS loan. Mrs Horkings also gave evidence that the signatures on, respectively, the loan application for the "home loan" (Exhibit X), the Declaration as to Occupancy and Entitlement (Exhibit Y), and the letter of offer in respect of that loan (Exhibit Z) are not hers.

44. In written submissions the Bank asserted that the reasons advanced by Mrs Horkings for adopting or disavowing her signatures were "almost childlike in their simplicity" and were "completely subjective and ... defy any objective analysis". Mr Wilson on behalf of the Bank pointed to the inconsistency between, on the one hand, Mrs Horkings' adoption, during this exercise, of the signature on the second mortgage (Exhibit 9), and, on the other, her claim, in an affidavit sworn on 6 June 1991, that it was a forgery. The Bank also relies on the proposition that, as Mrs Horkings is in effect alleging fraud (the forgery of her signatures), I should be particularly careful before I accept her evidence. My attention was in this context drawn to the well-known case of Briginshaw v. Briginshaw [1938] HCA 34; (1938) 60 C.L.R. 336.

47. This raises the question whether the onus of proving that the signatures were or were not Mrs Horkings' lay on the Bank or on her. The Bank, of course, is the plaintiff and must prove its case on the balance of probabilities. It is only as part of her defence to this claim, and not in support of a positive claim of her own, that Mrs Horkings asserts that some of the signatures on which the Bank relies are not hers. In these circumstances, the burden of introducing evidence to the effect that the signatures which she disavows are not hers lies on Mrs Horkings. If she is able to persuade me that there is a doubt about the authenticity of those signatures, the onus then shifts to the Bank to show that the signatures are hers by, for example, calling the Bank officer before whom she purported to sign to give evidence of the circumstances in which the document was executed; or by calling a handwriting expert to demonstrate that the signatures are hers.

50. Although Mrs Horkings' reasons for adopting some signatures and not others were not particularly convincing in themselves, an inspection of the signatures did, in my opinion, suggest that there were and are some noticeable and consistent discrepancies between (on the one hand) the signatures Mrs Horkings adopted and (on the other) those she did not. Moreover, I found her to be a generally credible witness. I am satisfied, after carefully considering her evidence on this point, that she did not sign the documents which she contends she did not sign. It is relevant in this context that the Bank did not call evidence from Mr Schmidt or any other Bank officer to verify the purported signatures; nor did it call evidence from a handwriting expert. In these circumstances I am able to accept with a greater degree of comfort Mrs Horkings' evidence as to which signatures were hers and which were not.

53. There followed, after the MIAS loan, two transactions involving Mr and Mrs Khouri and the Bank which, although not directly relevant to this litigation, should nevertheless be recorded here. On or about 17 May 1989 the defendants purchased a property for Mr Khouri's parents at 15 Sheldon Court, Gladstone Park. The purchase price was $120,000.00. I note that the copy Contract of Sale (Exhibit 14) does not include a copy of the particulars of sale. Mrs Horkings denies that the signatures appearing on the registered Transfer of Land (No. P418139A) (Exhibit 29) or the registered mortgage (No. P418140A) (Exhibit 30) are hers. She believes she may have been in the Philippines between 10 to 24 May 1989. According to the plaintiff, however, the defendants obtained a loan from the State Bank for the purpose of purchasing this property. By October 1990 they were in default, although Mrs Horkings could not recall receiving any Notices of Default.

56. It appears that, at some stage prior to September 1989, Mr Khouri requested and obtained a temporary increase in the MIAS overdraft account from $10,000.00 to $40,000.00. This increase was removed by letter dated 20 September 1989 (Exhibit W) at which stage the account was overdrawn by $26,733.97. Consistently with her evidence that she was not kept informed by her husband about the affairs of the family business, Mrs Horkings denies any knowledge of the increase in the overdraft limit.

59. The next directly relevant transaction was that described as the "home loan". It has been put by Mr Moshinsky on behalf of Mrs Horkings that Mr Schmidt and Mr Khouri participated in a fraud, ostensibly arranging that loan to the defendants as borrowers when in fact the money was advanced to Atlantic Quest Pty. Ltd., a company in which he (Mr Schmidt) had an undeclared interest.

62. There is some evidence, which I will examine in this and the following four paragraphs of this judgment, to support that submission. On 2 June 1989 an application was made to the State Bank for a loan of $100,000.00. As I have already noted, Mrs Horkings denies (a denial which I accept) that the signature on the loan application form (Exhibit X) is hers; and indeed, she maintains (and again I accept) that she did not authorise the application for that loan, which was approved by Mr Schmidt. The application form states that 50% of the advance was to be used for the "purchase [of] 50% of Atlantic Quest T/A Vinicol Liquor Distributors" and 50% was to go towards the purchase of an unspecified Gladstone Park property. The security was said to be the first mortgage over the property at 14 Convery Close. Mrs Horkings also denies that it is her signature on either a Declaration as to Occupancy and Entitlement dated 2 June 1989 (Exhibit Y) or on a letter of offer dated 23 May 1989 to the State Bank in respect of this loan (Exhibit Z). She further denies that either she or Mr Khouri received all or any part of the $100,000.00 advance.

65. In 1989 Mr Khouri became involved in a liquor distribution business located in Brunswick called Vinicol Liquor Distributors ("Vinicol"). The Vinicol Unit Trust was established in July 1988. Atlantic Quest Pty. Ltd. was the trustee. Mr Khouri was a director of that company between 25 May 1989 and 20 October 1992 (Exhibit 8). By contrast, Mrs Horkings never held office in it. Her role was limited to assisting Mr Schmidt's wife, Jacqui, for a month inputting stock data on a new computer system. She gave evidence that during the month she was working at Vinicol Mr Schmidt (who was still the Manager of the Coburg branch of the State Bank) visited a few times, sometimes during the day and at others after Bank hours, to check that "everything was going smoothly" and on one occasion to participate in a meeting at which he decided to sack one of the managers of Vinicol.

68. Mr Moshinsky asked me to infer that an entry in the State Bank account (A/C No. 145-2200-4628) of Atlantic Quest Pty. Ltd. for a $100,000.00 "Term Advance" on 5 June 1989, (which as Exhibit AA reveals was drawn down on that day) shows the proceeds of this loan being advanced in full to Atlantic Quest Pty. Ltd. (Exhibit BB). In evidence which, according to Mr Moshinsky, was consistent with this, Mrs Horkings said that on several occasions Mr Schmidt gave Mr Khouri a cheque from Vinicol in the same amount as the scheduled monthly repayments (of $1,850.00) on that term advance. No evidence was led about the documentation, or the absence of any, in respect of any loan taken out by or on behalf of Atlantic Quest Pty. Ltd. for $100,000.00 relating to A/C No. 145-2200-4628.

71. Equally, no evidence was adduced to show that the "home loan" proceeds were paid in full or in part into the defendants' bank account. State Bank statements for the defendants' A/C No. 145-2164-0684 (Exhibit R) show no credit for any substantial amount on or about 5 June 1989 despite the fact that in a letter to the defendants dated 6 June 1989, the Bank advised that the loan had been advanced in full on 5 June. (Exhibit AA). Those statements do show an amount of $49, 427.62 described as "Instalment" being paid in on 30 June 1989. I have already noted Mrs Horkings' evidence that this money was paid to settle the outstanding debt on the original home loan for the purchase of the Convery Close property. The source of the moneys was a settlement received from "the Tramways Board" by Mr Khouri for injuries sustained at work.

74. In these circumstances I find that the "home loan" proceeds were not paid directly to either of the defendants and were not paid, directly or indirectly, to Mrs Horkings. Moreover, the Bank has failed to satisfy me on the balance of probabilities that Mrs Horkings was a party to this transaction. I find that Mrs Horkings did not sign any of the documents relied upon by the Bank in this part of its case. Indeed, in my opinion Mr Moshinsky's submissions about the true nature of the "home loan" are substantiated by the evidence.

77. Another transaction involving Atlantic Quest must now be examined. The Bank alleges that, on 6 September 1989, Mr Khouri and Mr Mottese applied on behalf of Atlantic Quest to the State Bank for a loan of $100,000.00 for working capital and a term advance of $150,000.00 (Exhibit FF). I note that paragraph 18 of the amended statement of claim states that the advance was for $150,000.00 with no mention of the $100,000.00. The security noted in the "Specific Terms and Conditions" attached to the letter of offer comprised guarantees to be given by Mr Khouri and Mr Mottese. It is the Bank's case that, on or about 9 August 1989, Mr Khouri signed a State Bank guarantee in the presence of Anthony Graham Cole guaranteeing the obligations of Atlantic Quest for an unlimited amount (Exhibit 16). Of particular importance in the present context is item 5 of the schedule to the Guarantee. It reads "(Where appropriate) Particulars of mortgage or charge by Guarantor to Bank". If the Bank is correct, this is where a reference to 14 Convery Close should appear. The item, however, is blank. On 7 September 1989 Atlantic Quest gave a fixed and floating charge over the company's property to the State Bank (Exhibit 15). That charge was, according to the Bank, signed by Mr Khouri and his fellow director Mr Mottese. I note that there is a letter from the Commonwealth Bank to Mr Khouri dated 28 May 1990 which purports to enclose a guarantee by him and Mr Mottese in respect of the indebtedness of Atlantic Quest (Exhibit F). It is unclear whether this is a further guarantee. I accept that Mrs Horkings was not involved in this transaction. The Bank itself concedes that she did not sign any of the security documentation relating to it, and does not, in its amended statement of claim, allege her involvement. These considerations, however, did not prevent the Bank relying upon a certificate (Exhibit 3) which included Mrs Horkings as jointly liable to make good the Atlantic Quest debt.

80. In addition to relying upon Mrs Horking's lack of involvement, Mr Moshinsky argued that the Atlantic Quest guarantee was never intended to be secured by the first mortgage. I have noted above that the guarantee on its face does not, in item 5 of the schedule or elsewhere, refer to the first mortgage. Mr Moshinsky also relied upon internal memoranda prepared by Mr Johnson, the Bank officer investigating the status of the Atlantic Quest accounts for the purposes of recovery action. A memorandum dated 17 July 1990 (Exhibit DD) lists, as security held, both a registered mortgage debenture over the assets of Atlantic Quest and unlimited personal guarantees provided by Mr Khouri and Mr Mottese; but no reference is made to the first mortgage over the Convery Close property. In a memorandum concerning the accounts of the defendants also dated 17 July 1990, Mr Johnson says:

"Mr Khouri who is a Shareholder/Director of Atlantic Quest Pty Ltd has provided his unsupported Guarantee to that entity for both an Overdraft (Account No. 2200 4628) and a Term Advance (Account No. 10007 04088 102), with balances presently outstanding at $129,737.88 and $176,913.55 respectively. Other security held comprises a further unsupported Guarantee from his fellow Director/Shareholder Mr Giuseppe Mottese whose own borrowings through this Branch are in [the] course of being forwarded to your Section for action under securities held." (Emphasis in the original.)

Finally, Michael John Smale, a Regional Branches Officer of the Bank, swore an affidavit on 21 July 1992 (Exhibit GG) in which he stated that while moneys were advanced to Atlantic Quest the Bank was not seeking to recover those moneys under the first mortgage as those moneys were unsecured. In my opinion, these documents demonstrate that it was not intended that the Atlantic Quest loan be supported by the first mortgage.

85. On 20 September 1989 MIAS incorporated, at which stage both the defendants were appointed directors and Mrs Horkings company secretary. On 8 January 1990 it changed its name to Metropolitan Business Group Pty. Ltd. ("MBG") (Exhibit 7).

88. By October 1989 the defendants were, according to the Bank, indebted to it in excess of $273,000.00; and they were in default (Exhibit 18). Despite discussions between Bank officers and Mr Khouri, this position worsened in the ensuing month. On 17 November 1989 a number of letters of demand were issued by the State Bank addressed to the defendants (at 14 Conwey (sic) Close). I note that there appear to have been several copies of each notice discovered by the Bank, with no evidence on their face that any of them were sent to the defendants. Mrs Horkings cannot recall receiving those notices. Further discussions occurred between State Bank officials and Mr Khouri in the ensuing months to enable Mr Khouri to satisfy the Bank that the defendants could pay the arrears. At no stage did Mr Khouri protest that neither he nor Mrs Horkings were responsible for their indebtedness. Discussions also took place between the Bank and Mr Mottese regarding the position of Atlantic Quest.

91. On 25 May 1990 the State Bank issued Notices of Demand addressed to the defendants (again at the misspelt 14 Conwey Close, Gladstone Park) cancelling three facilities, including the $100,000.00 "home loan" (seeking arrears of $102,130.30) and the $10,000.00 MIAS loan (seeking arrears of $30,735.15) (Exhibit 26). These three notices bear an annotation that they were posted on 25 May 1990 at the Coburg PO by Mr Russell Johnson, the Bank officer with the State Bank who was responsible for negotiations with Mr Khouri. When Mr Johnson later made contact with him, Mr Khouri denied receiving these demands. Fresh notices of demand were therefore prepared and sent on 7 June 1990. The matter was then referred to the Bank's recovery section.

94. In the meantime, on 29 May 1990 the Commonwealth Bank agreed to grant to MBG a loan of $10,000.00 (the MBG loan), together with a personal loan in a similar amount to Mr and Mrs Khouri. John Douglas Cantrill, the manager of the Pascoe Vale South branch of the Commonwealth Bank in May 1990, gave evidence that he prepared documents to secure each of these transactions. The documents thus prepared comprised an Application for Accommodation (Exhibit B), two mortgages, one (a second mortgage) over the Convery Close property (Certificate of Title Volume 9015 Folio 107) (Exhibit 9) and the other over the Sheldon Court property (Certificate of Title Volume 8921, Folio 521) (Exhibit 10) together with a guarantee (Exhibit 11) and what is known as a "S33" form of acknowledgement, one for each of the defendants (Exhibits A & E). The mortgage over the Sheldon Court property was typed, while the other documents were all completed in Mr Cantrill's handwriting. Mr Cantrill's explanation for the handwritten completion of the documents was that there was only one typist at his branch and it may have been her rostered day off.

97. Mr Khouri attended at the Bank's premises at Pascoe Vale South early in the afternoon on 28 May 1990 to sign these documents. Mrs Horkings could not attend because of a sick child.

100. Mr Cantrill gave evidence that he was due to take annual leave after Friday 29 May 1990 for four weeks (in fact 29 May 1990 was a Tuesday). He asked Mr Khouri to arrange for him to visit Mrs Horkings after working hours on 28 May 1990 to obtain her signatures to the documents. He then attended the defendants' home at Convery Close. He gave evidence that he was met by Mr Khouri and, having laid out the documents on the dining room table, asked Mrs Horkings to come out of the kitchen (where she was attending to the sick child) to sign them. Mr Cantrill says that, when they were presented to the defendants to sign, the documents contained all relevant details such as the names and addresses of the parties and the description of the land. Mrs Horkings says she cannot recall any handwritten details on the documents she was asked to sign but says she did not look at them properly because Mr Cantrill flipped to the pages to be signed without giving her time to read anything. On this state of the evidence, I am unable to accept the allegation, made in Mrs Horkings' amended defence, that when Mrs Horkings signed them the documents had not been completed.

103. Although he cannot recall the exact conversation, Mr Cantrill gave evidence that before Mrs Horkings signed the documents, he "would have" explained the two facilities and that the documents she was about to sign were to support those facilities. In relation to the significance of entering a second mortgage, he believes he would have mentioned that it would impose on the defendants joint and several liability for the Bank debt, and likewise would have explained the conditions requiring the property to be maintained and for payment of rates and taxes. He says he was not asked any questions by Mrs Horkings before or after signing and therefore believed she understood the nature of the transactions and the facilities the Bank offered. He gave evidence that he did not detect any coercion or duress, that she signed willingly and that he did not rush her.

106. According to Mrs Horkings, Mr Cantrill came to quite the wrong conclusion about her position. She gave evidence that Mr Khouri at times was violent towards her and threatened to leave her. In cross examination she said: "I think I would have signed in front of people because of embarrassment. I really didn't want anyone to know of my situation." Her evidence was that Mr Cantrill did no more than ask her to sign some documents, the nature of which was not explained to her, and that he said something such as: "Oh, this is just standard procedure.". She said in examination in chief:

"I tried to signal him like a distress sign I was giving out by asking him the question, 'Can you please tell me what am I signing' and I was hoping he would pick that up and he just said, 'Well, James will tell you later'. So I do remember signing documents, I don't know what they are." She said she believed that she was signing documents for a $10,000.00 overdraft facility to the defendants for the purposes of paying tax liabilities which would be refunded. She also said that she had no knowledge that she was signing a mortgage. I accept this evidence. She cannot recall what documents she signed, but she adopted as her signature those appearing on the guarantee (Exhibit 11), the Application for Accommodation for MBG (Exhibit B) and the mortgages over the Sheldon Court property (Exhibit 10) and the Convery Close property (Exhibit 9).

110. As I have noted, there is in evidence (Exhibit A) a form known by the Bank as form "S33". The exhibit is marked "duplicate". It is addressed to Mrs Khouri (as she then was) and is dated 28 May 1990. It was completed by hand by Mr Cantrill and signed by him. The original could not be produced by the Bank. Exhibit A contains the following paragraph:

"Prior to signing the document(s) 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."

114. Although he could not recall specifically, Mr Cantrill asserted his belief that he would have drawn Mrs Horkings' attention to that paragraph. However, he agreed in cross-examination that there was no practical way for Mrs Horkings to obtain legal advice on the night she signed the documents; but if she had asked to do so, the transaction would have stopped there.

117. Form S33 is apparently a standard form of covering letter. It commences with the words "The documents described below are provided herewith for your signature." Then, at the foot of exhibit A under the heading "Documents" the following appears:

"A guarantee by you and Hassan James Khouri in respect of the indebtedness to the Bank of Metropolitan Business Group Pty. Ltd."

This guarantee is that which was, as she acknowledges, signed by Mrs Horkings (Exhibit 11). It is also the guarantee referred to in an inter-office memorandum to the Pascoe Vale branch from the North Western Regional office dated 19 June 1991 (Exhibit J) which states (among other things):

"Security documents are enclosed following checking by Legal Dept. Discrepancies that may prevent realisation are: ... S 33 for advances N/O Metropolitan Business Group P/L does not indicate that guarantee is supported by mortgage we are seeking further clarification on these matters. We await your report in due course regarding present status of SBV Dept and any contact with Khouri."

123. Mr Cantrill gave evidence that it was his intention to support the guarantee of the MBG debt with the second mortgage over the Convery Close property. He agreed in cross examination that a standard term in Commonwealth Bank documentation is designed to ensure that the Bank does not give a second mortgage without the consent of the first mortgagee, and he conceded that he did not notify the State Bank or seek its consent until 3 August 1990 (Exhibit L). By letter dated 15 August 1990 (Exhibit M) the State Bank indicated it would not consent to "the proposed second mortgage". Nonetheless, the mortgages were registered.

126. Despite the lack of the State Bank's consent, and despite the form taken by Exhibit J, I am satisfied that Mr Khouri intended that the MBG loan be secured by the second mortgage. This conclusion is strengthened by reference to cl 4 of the guarantee (Exhibit 11). This provides (in effect) that the security for the MBG loan shall include the second mortgage.

129. The Bank generally relies on the principles of indefeasibility of title to establish its case against the defendants. It says in effect that the question of possible forgery of Mrs Horkings' signature on documents other than the mortgages and guarantees does not undermine the Bank's title as mortgagee. It seems to me, and Mr Moshinsky accepted, that this analysis is correct, as far as it goes. However, the argument raised on behalf of Mrs Horkings in respect of the transactions concerning the State Bank turns on other issues; indefeasibility of title is, according to this argument, irrelevant. It is an argument with which I agree.

132. Mr Moshinsky submitted that in relation to the first mortgage, the Bank cannot take advantage of clause 7 of the MCP by relying on a certificate (Exhibit 3) signed by an officer of the Bank, Mr Doherty, purporting to show the indebtedness of the defendants. Clause 7 provides:

"That the statement of the account of the Mortgagor with the Bank as appearing from time to time in the books or other records of the Bank is prima facie binding upon the Mortgagor who shall bear all costs charges and expenses reasonably or properly incurred by the Bank in settling or taking the said account whether in proceedings brought by or against the Mortgagor or otherwise."

136. On behalf of Mrs Horkings it is said that this clause requires the production not of a certificate in the form of Exhibit 3 but of the Bank statements for the defendants' accounts as appearing in the books or records of the Bank. It is further said that a statement of account prepared in accordance with clause 7 would in any event be no more than prima facie evidence of the amount of indebtedness. I agree with both these propositions. It seems to me, however, that (despite Mr Moshinsky's submission to the contrary) the latter carries with it the conclusion that a "clause 7" statement of account would also be prima facie evidence of the fact of indebtedness.

139. The point, however, is - in the case against Mrs Horkings - academic. The Bank has established the quantum of its claim by different means. Mr Doherty, who is a manager in the credit management section of the Bank, gave evidence (which I accept) that he is familiar "with the accounts in the name of Hassan James Khouri and Nadia Khouri and companies associated with each of these people". He is, in particular, familiar with the accounts which relate to the MIAS loan, the "home loan", the Atlantic Quest loan and the MBG loan. He has, according to his oral evidence before me, verified from the Bank's records the balance in each account as at 9th June 1998, the date upon which he gave his evidence. Each such balance is recorded in Exhibit 3 (with the irrelevant qualification that a typographical error, corrected by Mr Doherty by hand, initially appeared against one entry). Putting aside that error, Mr Doherty swore that the figures shown in the exhibit were accurate. I accept that, once liability is established, this evidence is - in the absence of any evidence to the contrary - sufficient to properly establish the quantum of the plaintiff's claim. But it says nothing about liability; and since Exhibit 3 is not a statement of account within the meaning of that expression as used in clause 7, that clause cannot give it an evidentiary quality which it does not otherwise have. Even if, under the aegis of clause 7, Exhibit 3 was evidence of liability as well as quantum, it would be no more than prima evidence of the former. In my opinion, Mrs Horkings has by her evidence destroyed any usefulness of the exhibit in that regard in the case against her. I will, later in this judgment, examine its position in the case against her husband. For the present, it is only necessary to observe that, despite there being no allegation in the statement of claim of her involvement in the Atlantic Quest loan, by Exhibit 3 the plaintiff asserts, under this head, Mrs Horkings' joint liability with her former husband in the sum of $344,267.65. In this regard, Exhibit 3 is an example of the danger of allowing reliance upon evidence of the kind constituted by this exhibit.

142. Mr Moshinsky submits that, as against Mrs Horkings, the Bank cannot in any event rely on the first mortgage in relation to the MIAS loan and the "home loan" because it has not complied with the terms of the MCP in obtaining authorisation for the loans. If I accept not only that Mrs Horkings did not sign the documents authorising either the MIAS loan or the "home loan" but also that the funds were paid without her authority or consent, then those loans do not come within the definition of "Money Hereby Secured" in clause 1(1)(a) of MCP AA1 (Exhibit 5). Sub-paragraph (i) of that clause refers to money lent or advanced to the mortgagor "either alone or together with any other person or on any account whatsoever or to any other person for the use of or at the express or implied request of or for the credit or accommodation of or for the benefit of the mortgagor". Clause 1(1)(a)(ii) refers to "Any money which the Bank has advanced or paid or may hereafter advance or pay or become liable to advance or pay to any person by reason of the Bank, pursuant to any express or implied request by the Mortgagor or ... in the Bank's discretion ..."

145. It is said that, in the absence of anything to the contrary in the terms of the particular mortgage, the reference to "Mortgagor" must mean both mortgagors where (as here) there are two. In support of this contention, Mr Moshinsky argued that the first mortgage names as "Mortgagor" both Hassan James Khouri and Nadia Khouri. He also relied on clause 1(2) of the MCP, which states:

Words importing persons shall include a body corporate and vice versa; words importing the singular number shall include the plural number and vice versa; words importing any one gender shall include the other gender. Any marginal notes or headings shall not affect the interpretation of this Mortgage. (emphasis added)

Where two or more persons are named and described as "the Mortgagor" the provisions of this Mortgage shall apply to and be binding upon all of them jointly and each of them severally.

Mr Moshinsky argued that a distinction must be drawn between joint and several liability imposed under the mortgage, and the definition of "moneys hereby secured" where moneys have been lent at the request of only one of two mortgagors.

152. By way of contrast Mr Moshinsky referred me to clause 4(mm) of MCP AA 161 (Exhibit 6) which is incorporated by reference into the second mortgage. This provides in part:

"Except to the extent that such interpretation shall be excluded by or be repugnant to the context whenever the same are used herein the words the Mortgagor shall mean and include the Mortgagor and the executors administrators and assigns of the Mortgagor and when two or more Mortgagors are parties hereto shall mean and include the Mortgagors and any of them their or any of their executors administrators and assigns ... "(emphasis added).

The absence of any similar clause in MCP AA1 containing words such as "and any of them" is, it is said, significant.

157. It is of course in the interest of lenders to obtain the maximum possible security for each loan. A mortgagee who is contemplating a further advance will therefore consider, and if appropriate seek to realise, the possibility that that further advance be secured in whole or in part by a mortgage already in place. But difficulties might arise if the wish of one of a number of joint mortgagors to obtain further financial accommodation is not shared by the others. A mortgagee who, in such circumstances, provides additional financial support pursuant to the mortgage will not be able to enforce the security against the remaining mortgagor or mortgagors unless, at the least, the relevant terms of the instrument of mortgage allow that to be done. And they will not allow that to be done unless the necessary provision is expressed in clear language or by clear implication. It follows that, where there is ambiguity, the mortgagee will not be allowed to realise the security except to the extent of the interest in the land held by the mortgagor at whose request the additional funds were supplied.

160. I have already held that Mrs Horkings did not sign any of the documents upon which the Bank relies as evidence of her consent to the MIAS loan, the "home loan", or the Atlantic Quest loan. I further find that she did not know about, and therefore did not otherwise consent to, any of those transactions. In these circumstances, the Bank must fail in its attempt to realise any security it might have as first mortgagee over her interest in 14 Convery Close, Gladstone Park, unless the terms of the mortgage dictate otherwise. In my opinion, they do not.

163. In my opinion, cl. 1 of MCP AA1 does not by clear words or clear implication allow the Bank to use the interest of Mrs Horkings in the Convery Close property as security for that additional financial accommodation which was provided to Hassan James Khouri without his wife's knowledge or consent. In other words, the definition of "Money hereby secured" in cl. (1)(a) of the MCP does not cover money which the Bank, after the date of the first mortgage (1 March 1988) "has advanced... by reason of the Bank, pursuant to any... request by the mortgagor... providing any... financial accommodation" if Mrs Horkings did not join in the request. It is true that, by cl. 1(2) "words importing the singular number shall include the plural number"; but it was at the heart of the arrangement when the mortgage was taken out that each of Mr Khouri and Mrs Horkings be the borrowers, and that each of them give the security constituted by the mortgage. In my opinion, cl. 1 of the MCP does not allow the relationship subsequently to change so that only one of the two mortgagors becomes, to the exclusion of the other, the person with whom the mortgagee negotiates and concludes a transaction in which additional financial accommodation, fully secured by the mortgage, is provided to that person. Such a change from the original position, in which the participation of both mortgagors was seen by all as a necessary component of the arrangement, could not be brought about by some mere deeming provision by which a word may slide from the singular to the plural and back again according to the convenience of the reader.

166. Even if I am wrong in my construction of cl. (1)(a) of the MCP, nevertheless it seems to me that the Bank would obtain an unconscientious advantage over Mrs Horkings were it, in the circumstances of this case, to be permitted to enforce, against her interest in 14 Convery Close, the security given to it by either mortgage. I have already referred (paragraph 9 above) to my conclusion that, when Mrs Horkings executed the first mortgage, she was given no explanation of it and that she believed her liability to be confined to the original debt by which the purchase of 14 Convery Close was effected. I have also referred (paragraph 11 above) to Mrs Horkings' limited knowledge of her husband's business dealings; and (paragraph 35 above) to her belief that the MBG loan was in reality merely a temporary facility to enable her and her husband to meet their tax liabilities. This being so, it seems to me that the principle enunciated by the High Court in Garcia v. National Australia Bank Ltd [1998] HCA 48, 6 August 1998; [1998] HCA 48; (1998) 72 ALJR 1243; (1998) 155 ALR 614 applies.

169. Mr Wilson complained, in his oral submissions, that the issue of unconscionability had not been pleaded and, indeed, had only been raised for the first time during closing submissions. He also argued that if Mrs Horkings' case is to fall within a claim under the principles enunciated in Amadio v. Commonwealth Bank of Australia [1983] HCA 14; (1983) 151 C.L.R. 447 she must show not only that she suffers from a special disability but also that this was sufficiently evident to the Bank to make it unfair or unconscientious for the Bank to rely upon its security. He says there is no evidence either of such disability or that Mr Cantrill had any notice of it. Amadio should therefore be distinguished. As for Garcia, the High Court had not handed down its judgment by the conclusion of the trial.

172. Mr Moshinsky argued in written submissions that, by paragraphs 2 and 9 of his client's amended defence in proceeding No. 5509 of 1991, it is alleged that Mr Cantrill failed to explain the nature and effect of the MBG guarantee and second mortgage to Mrs Horkings, that the second defendant's case was opened on that basis, and that the Bank in conducting its case recognised the position taken by his client. He further noted that the original defence in proceeding No. 6111 of 1992 specifically alleges in paragraph 4 that the second mortgage is "not enforceable by virtue of the misrepresentation, negligence, and unconscionable dealing of the [Bank] ..." Paragraph 15 pleads that the failure by the Bank to explain the "documentation" to Mrs Horkings when she enquired after it, or the failure to advise her to seek independent legal advice, amounted to unconscionable dealing; and the Bank is therefore estopped from relying on the second mortgage or, alternatively, ought not in equity be entitled to rely on that mortgage.

175. In my opinion the Bank was on notice that issues of unconscionability are relevant. Notwithstanding Master Wheeler's order allowing the Bank to amend its Statement of Claim in proceeding No. 6111 of 1992, the Bank for reasons unexplained purported to amend its statement of claim in proceeding No. 5509 of 1991. In those circumstances, the Bank can hardly complain if a defendant seeks to rely on a defence pleaded in the former proceeding. In any event, I do not agree that Mrs Horkings' defence in the latter proceeding should have expressly pleaded unconscionable conduct on the part of the Bank; it is sufficient if (as here) the facts alleged to support unconscionable conduct have been pleaded. Taken with the plea of unconscionable conduct in proceeding No. 6111 of 1992, I am of the opinion that Mrs Horkings should not be precluded from relying on this aspect of her defence.

178. Mr Moshinsky conceded that he could not impugn the Bank's registered title on the basis of an Amadio claim. As I have indicated above, it seems to me that the Bank's position with regard to the indefeasibility of title is correct - again as far as it goes. However, Mr Moshinsky argued that, as Mr Cantrill's conduct was unconscionable, the Bank could not enforce the guarantee and as such there is no liability secured by the second mortgage.

181. At the time that I heard counsel's oral submissions, recent decisions of the N.S.W. Court of Appeal in National Australia Bank v. Garcia (1995) 39 N.S.W.L.R. 577 and Teachers Health Investments v. Wynne (1996) A.S.C. 56-356 and a decision of Merkel, J in Gregg v. Tasmanian Trustees Ltd. (1997) 73 F.C.R. 91 suggested that the views of the High Court, in particular Dixon, J, expressed in Yerkey v. Jones [1939] HCA 3; (1939) 63 C.L.R. 649 should be subsumed under the principles laid down in Amadio. On 6 August 1998, however, these issues were settled when the High Court delivered judgment in Garcia v. National Australia Bank Limited.

184. The relevant facts in Garcia are similar to those in the case before me. In August 1979 Mr and Mrs Garcia executed an all moneys mortgage over their home in favour of the Commercial Banking Company of Sydney Ltd., a bank with which the National Australia Bank Limited ("NAB") later merged. The mortgage was to secure a $5,000.00 loan for the husband's business. Mr Garcia bought and sold gold through a company called Citizens Gold Bullion Exchange Pty. Ltd. ("Citizens Gold"). Four guarantees, each in favour of the Bank, were executed by Mrs Garcia between 1985 and 1987 to secure debts of Citizens Gold. Of these guarantees, that which was the subject of the proceedings was executed by Mrs Garcia in November 1987. It was limited to $270,000.00 plus interest, costs and charges. Mr and Mrs Garcia separated in September 1988 and were divorced on 1 January 1990.

187. The trial Judge found (a) that the Bank knew that Mr and Mrs Garcia were married at the time she executed the guarantee; (b) that she knew that it was a guarantee but did not understand that it was supported by the all moneys mortgage; and (c) that she believed that it was a guarantee of a limited overdraft accommodation to be applied only in the purchase of gold. His Honour also found that Mrs Garcia thought that the guarantee was "risk-proof" because she accepted her husband's assurance that "If the money isn't there the gold is there". Although Mrs Garcia was a shareholder and director of Citizens Gold, the trial Judge found that she was not directly involved in the company. Moreover, he was not satisfied, on the whole of the evidence, that the companies were "anything more than Mr Garcia's creation and that he was in complete control of them." The trial judge also accepted Mrs Garcia's evidence that she was not directly involved in Citizens Gold, or in the other companies with which her husband was associated. There was, it is true, no suggestion of duress or undue influence; and if there was any unconscionability on the part of the husband, the Bank had no notice of it. But the Bank took no steps to explain the transaction to Mrs Garcia or ensure that she obtained independent legal advice. As a result, her understanding of the transaction remained flawed.

190. Having come to these conclusions, the trial judge granted relief to Mrs Garcia on the basis of the principle referred to in Yerkey v. Jones. He declared that she was not bound by any of the guarantees which she had given. He also declared that she owed nothing to the Bank under the mortgage in respect of that interest which, at the relevant time, she had in the mortgaged property.

193. The Bank appealed to the Court of Appeal of the Supreme Court of New South Wales. The appeal was successful. But Mrs Garcia then took the matter to the High Court. There, her appeal was allowed. In the joint judgment of Gaudron, McHugh, Gummow and Hayne, JJ. their Honours noted that Dixon, J in Yerkey v. Jones dealt with two kinds of circumstances: actual undue influence by a husband over a wife; and a failure adequately and accurately to explain the surety transaction which the husband seeks the wife to enter for his economic benefit alone. Their Honours were concerned with the second situation. At para. 31 their Honours said:

"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 ... that to enforce that voluntary transaction 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 ... 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 she 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 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."

"It will be seen that the analysis of ... Yerkey v. Jones ... depends upon the surety being a volunteer and mistaken about the purport and effect of the transaction, and the creditor being taken to have appreciated that because of the trust and confidence between surety and debtor the surety may well receive from the debtor no sufficient explanation of the transaction's purport and effect. To enforce the transaction against a mistaken volunteer when the creditor, the party that seeks to take the benefit of the transaction, has not itself explained the transaction, and does not know that a third party has done so, would be unconscionable."

201. In written submissions the Bank argued that Mrs Horkings did understand the purport and effect of the MBG loan. I find to the contrary. It may be true that she had a generally satisfactory understanding of the key elements of a mortgage, having borrowed from banks in the past to purchase real property. I am, nevertheless, not satisfied that in May 1990 she was aware that she was signing a guarantee or a second mortgage in support of that guarantee in respect of this loan. Her evidence, which I accept, was that she believed the documents she was signing related to a personal overdraft of $10,000.00 taken out by her and Mr Khouri, and not to a loan to MBG for $10,000.00 secured by a guarantee supported by a second mortgage on her home. She denied that she knew she was signing a mortgage. Further, Mrs Horkings' evidence was that while she now understands what an all moneys mortgage is, at the time she executed the first mortgage she did not. There is no evidence that Mr Cantrill remedied the deficiency. I am not satisfied, therefore, that at the time she signed the second mortgage she knew what an all moneys mortgage was or that she was in fact executing such a document.

204. The Bank maintains that it did take steps to explain the MBG transaction to Mrs Horkings. I accept Mrs Horkings' evidence that she sought an explanation of the effect and purport of the documents and did not receive one. This evidence in itself demonstrates that Mr Cantrill should have understood that Mr Khouri had not fully and accurately explained the purport and effect of the transaction to Mrs Horkings. I am satisfied that, even taking Mr Cantrill's evidence at its highest, Mr Cantrill himself did not take reasonable steps to explain adequately the transaction to Mrs Horkings or insist that she obtain independent legal advice before signing the documents. In my opinion the procedure adopted by Mr Cantrill in presenting the documents to Mrs Horkings left much to be desired; it demonstrated a faith in a standardised approach that cannot be justified when the Bank is dealing with a customer with limited experience in business.

207. The Bank also submits that the transaction was not voluntary because, as a shareholder, Mrs Horkings had a direct financial interest in the fortunes of MBG, a company of which she was also a director and secretary. But her position in this regard is very closely analogous with that of Mrs Garcia; and the High Court agreed that the latter was a volunteer. At paragraph 43 of the judgment in Garcia, their Honours said:

"The trial judge found that the appellant was not 'directly involved' in Citizens Gold. And he made this finding notwithstanding that the surety was shown in records held by the Australian Securities Commission to be both a director of, and a shareholder in, the company ... . Although the trial judge found that from time to time some benefit flowed to the family from the companies, he found that they were companies that were in the 'complete control' of the appellant's husband. Taken as a whole, those findings demonstrate that the appellant in fact obtained no real benefit from her entering the transaction; she was a volunteer. The fact that she was a director of the company is nothing to the point if, as the trial judge's findings show, she had no financial interest in the fortunes of the company."

211. In my opinion, a like conclusion is indicated in this case. The Bank argues that Mrs Horkings was a director and shareholder of MBG, that MBG was the company through which Mr Khouri earned his livelihood and supported his family, and as such, Mrs Horkings stood to gain a benefit from the transaction. I do not agree. Mrs Horkings gave evidence that while she was (unbeknownst to her) a director and shareholder of MBG, she was preoccupied with raising her three children and had no real involvement with the company. In my opinion, any benefit gained from MBG came to Mrs Horkings not as of right, but as a result of the exercise of discretion by Mr Khouri. Mrs Horkings was in truth a volunteer.

214. The Bank further argued, in effect, that the principle enunciated by the majority of the Justices in Garcia only applied where the surety reposed "trust and confidence" in the debtor. It is true that the majority judgment resorts to that expression on a number of occasions. It would nevertheless be a mistake to think that there is any particular magic in its use. The important point is that the relationship be one, such as a marriage relationship, of which the creditor has knowledge, and which may result in the surety not receiving from the debtor all the information to which the surety is entitled - given that a conscientious creditor and a conscientious debtor would be astute to ensure that a surety, in that relationship and who was also a volunteer, would be placed in a position from which a fully informed decision could be made.

217. That this is consistent with the majority judgment in Garcia is, I think, demonstrated by their Honours' statement, at paragraph 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 creditor (sic - read 'borrower'). Other questions of notice do not intrude."

221. It is also consistent with the proposition that, at the relevant time (November 1987, when Mrs Garcia signed the impugned guarantee), the relationship between Mr and Mrs Garcia was probably not one in which the latter placed trust and confidence (at least as Mr Wilson employed those terms in his written submissions to me) in the former. At paragraph 12 of the majority judgment, there appears a passage which hardly points to a finding by the trial judge in Garcia that Mrs Garcia reposed trust and confidence in her husband:

"Although the appellant [Mrs Garcia] had pleaded a case of actual undue influence by her husband, the trial judge made no positive finding that the appellant's execution of the November 1987 guarantee had been procured by actual undue influence. He did find that 'the husband pressured the wife to sign the document' and that '[s]he appeared to have done so because her husband consistently pointed out what a fool she was in commercial matters whereas he was an expert, and because she was trying to save her marriage'. But it was not contended (whether in the Court of Appeal or in this Court) that this was a positive finding of actual undue influence by the husband such that the appellant's execution of the guarantee was not the exercise of her 'independent and voluntary' will because it was overborne."

225. In my opinion, an application to this case of the principles in Yerkey v Jones and in Garcia leads to the result that the Bank should not be entitled to enforce the MBG guarantee against Mrs Horkings. Indeed, it is arguable that the application of those principles to the other three transactions with which I am presently concerned would lead to the result that the Bank would thereby be unable to enforce against Mrs Horkings such security as it might otherwise have. She was not told, and had no independent knowledge of the fact, that the first mortgage was an "all moneys" mortgage. Nor did the Bank tell her that, before becoming a party to the mortgage, she should seek legal, or at least independent, advice from an appropriate source. Accordingly, she never understood the purport and effect of the first mortgage.

228. At the same time, Mrs Horkings was not, in relation to the granting of the first mortgage, a volunteer. The monies originally secured were used to purchase her matrimonial home, in which Mrs Horkings and her husband, as joint proprietors, were equally interested. Accordingly, it seems that the proper application of the Garcia principles to that transaction would not result in the conclusion that the Bank had, to that point, acted unconscientiously.

231. The position changes once the subsequent applications for finance are introduced. Even if it be accepted that Mrs Horkings signed all the documents upon which (as the Bank contends) her signature appears, there is no evidence that the Bank sought to cure the deficiencies in her understanding of the first mortgage. She was not subsequently told that additional financial accommodation sought by her husband for business purposes was to be secured by that mortgage; and, again, she had no independent knowledge of that fact. Moreover, she was, in relation to the provision of the additional finance (in contra-distinction to her position as a joint mortgagor of the property which was purchased, with the Bank's assistance, as the matrimonial home) a volunteer. Even if it be accepted that the Bank's case in relation to the provision of the subsequent loans is otherwise made out, there is no evidence that the Bank informed her, before she became a party to the arrangements by which the additional finance was to be supplied, that she should seek legal, or at least independent, advice from an appropriate source. Yet she did not understand the purport and effect of these transactions; and the Bank must be taken to have understood that the relationship between Mrs Horkings and her husband was such that he might not fully and accurately explain them, and their relationship to the "all moneys" mortgage, to her. All the elements which indicate the applicability of Garcia seem therefore to be present.

234. On the other hand, neither side sought to argue the question whether the principles enunciated by the High Court in Garcia's case could properly be applied to the facts of the transactions in which the State Bank was involved. Moreover, while Mrs Horkings pleads in her defence that the Bank failed either to explain the nature of an "all moneys" mortgage or to suggest that she obtain properly qualified and independent advice, such failure does not become relevant under the Garcia principles until she is placed in the position of a volunteer. That would necessarily be some time after the signing of the first mortgage, the purpose of which was to raise finance for the purchase of property in which she had as full and direct an interest as her husband. It follows that the Garcia principles do not apply until she is asked to join in an application for financial accommodation for purposes in respect of which she is a volunteer. It is at this point that a pleading difficulty would arise were she now to seek to call those principles in aid in relation to the MIAS loan, the "home loan" and the Atlantic Quest loan. Her defence does not allege that those transactions, or any of them, were vitiated by reason of unconscientious behaviour on the part of the Bank.

237. It is not to the point to ask whether it was for this or some other reason that Mr Moshinsky did not seek to argue the applicability of the Garcia principles to the first three of the transactions with which I am here concerned. The issue having been neither pleaded nor made the subject of submissions, it would be inappropriate for me to come to any concluded view about this aspect of the proceedings.

240. In the result, the Bank must fail as against Mrs Horkings on the claim made pursuant to the MIAS loan because it has not established that the parties to it intended that it be secured by the first mortgage, and because Mrs Horkings was in any event not one of those parties. Even if it be proved that her husband signed the relevant form of application (exhibit T) - and she herself gave evidence that he did - he did not thereby effect her joinder to the application, or affect the correct classification of the resultant financial accommodation; that classification being that the accommodation did not fall within the true meaning of the expression "moneys hereby secured".

243. The Bank must also, as between itself and Mrs Horkings, fail in relation to the "home loan". She was not a party to that transaction either. Moreover, the proceeds of the loan were paid to Atlantic Quest Pty Ltd and not the defendants: Mrs Horkings did not receive them directly or indirectly. They were not paid to her; nor were they paid at her direction.

246. Two other transactions remain. As between itself and Mrs Horkings, the Bank must fail in relation to the Atlantic Quest loan - again because Mrs Horkings was not involved in the transaction and because the first mortgage was not intended by the parties to form part of the security for it. Finally, application to the MBG loan of the principles enunciated by the High Court in Garcia prevent the Bank from recovery as against Mrs Horkings.

249. It is now necessary for me to consider the position of the Bank as against the first defendant, and whether Mrs Horkings' interest in the Convery Close property is available under either mortgage to satisfy such liability, if any, as he may have. As I have noted above, Mr Khouri did not appear at, or attempt through counsel to participate in, the trial. The Bank says that it has proved all necessary security documents against him. It relies on the document headed "Statement of Account" (Exhibit 3) and the notices of default served on Mr Khouri. It therefore seeks judgment for the money sums set out in that Statement of Account. It also seeks possession of the Convery Court property.

252. Even if Exhibit 3 were a "statement of account" within the meaning of that expression in cl. 7 of the MCP, it would still be necessary for the Bank to prove the mortgage by which the provisions of the MCP, including cl. 7, are incorporated into the contractual relationships (if any) between the Bank and Mr Khouri. This it can do by proving (a) registration of the mortgage as recorded on the certificate of title of 14 Convery Close, and (b) that the Hassan James Khouri to which the certificate of title refers is the first defendant. In this case, the second element was provided by para. 3 of the first defendant's defence in proceeding number 5509 of 1991, in which "the first named defendant admits that by instrument of mortgage registered in dealing number N357080S the first named defendant mortgaged the land to the Commissioner (sic) of the State Bank of Victoria ".

255. Once it is established that the person named on the certificate of title as Mr Khouri is also the first defendant, the bank's task of proving its case against him becomes considerably easier - but by no means finalised. The mere fact that one is a mortgagor does not necessarily mean that one is indebted to the mortgagee, let alone in a particular amount: a lending institution may, as mortgagee, agree with a mortgagor to keep the mortgage alive even after all debts have been paid. One rationale for such an arrangement is that it allows each party ready access, should it be contemplated that further financial accommodation be provided at some later time, to the security granted thereby.

258. It is therefore necessary for the Bank to prove that Mr Khouri is indebted to it and, such indebtedness being established, in an amount which can properly form part of any judgment for which the Bank is otherwise entitled. In this case, the Bank has attempted to achieve this end through the evidence of Mr Doherty and Exhibit 3. According to the exhibit, to the correctness of which Mr Doherty has sworn, Mr Khouri was, as at 9 June 1998, indebted to the Bank in the sum of $79,170.15 in relation to the MIAS loan, $235,980.76 in relation to the "home loan", $344,267.65 in relation to the Atlantic Quest loan and $32,874.63 in relation to the MBG loan.

261. In the absence of anything to cast doubt upon the evidence given by Mr Doherty, that evidence would suffice to prove on the balance of probabilities that, if Mr Khouri was indeed indebted to the Bank, then the extent of his indebtedness was as Mr Doherty deposed. But it has already been shown that Exhibit 3 is false in attributing to Mrs Horkings joint liability for the Atlantic Quest loans. Even in the absence of that demonstrable error, once evidence is introduced the effect of which is to prevent the plaintiff from discharging the relevant onus simply by relying on the evidence of Mr Doherty, then of course the Bank must go further. And even given the breadth of the terms of the mortgage, proof of personal indebtedness does not necessarily carry with it proof that that indebtedness is thereby secured. To take the Atlantic Quest loan as one example, the Bank seeks to rely not on the proposition the Mr. Khouri was the principal, or even a principal, debtor, but on the (alleged) fact that he gave a guarantee to the Bank, and that by doing so he guaranteed the fulfilment by Atlantic Quest of its obligations as principal debtor. The Bank argued that Mr Khouri is liable under the guarantee, and that that liability is in turn secured by the first mortgage. But these facts cannot be proved simply by stating them. Nor is it necessarily enough to establish that, in the books of account of the Bank, Mr Khouri is shown as being indebted to the bank in relation to that transaction, and that the terms of the first mortgage are broad enough to catch liability.

264. The facts of this case illustrate these points. It is true that Mrs Horkings identified her husband's signature on the form of application for the MIAS loan (exhibit T) but, given Mr Doherty's evidence, concerning Mr Khouri's liability pursuant to that loan, this identification does not advance the case which the Bank seeks to make good. More importantly, the form itself indicates that the loan is unsecured. I find, therefore, that while Mr Khouri is liable pursuant to that loan, his liability is unsecured. The Bank is entitled, under this head, to judgment in the sum of $79,170.15. It is not in this respect entitled to exercise any of the rights of a mortgagee.

267. The Bank also faces difficulties in relation to the "home loan" There is evidence that the proceeds of this loan were not paid to Mr Khouri or to his wife; rather, at about this time, an equivalent amount was paid to Atlantic Quest. This might not be of particular significance were there proof that Mr Khouri was an applicant for the loan the proceeds of which went to the company - he was, as the evidence (Exhibit 8) showed, a director of Atlantic Quest; and it could therefore be inferred that, given that he was the borrower, the relevant funds were paid, at his direction, to that company.

270. In this case, however, there was no admissible evidence that Mr Khouri was the borrower. The bank did not call evidence to prove his signature on the form (Exhibit X) which, although tendered by Mrs Horkings, was (as the Bank argued) the relevant form of application for the "home loan". Mrs Horkings gave evidence of Mr Khouri's signature on Exhibit T. But it was her own counsel (Mr Moshinsky) who asked the question which produced that answer. No one asked her about Exhibit X, which is a photocopy of uncertain quality and which in any event (a) was not tendered by the Bank and (b) may well not be, for relevant purposes, the best evidence. In these circumstances I am not prepared to say that any signature on it, whether purporting to be that of Mr Khouri or someone else, is genuine. Nor was Mr Khouri's signature to that document proved by other means. Accordingly, the Bank has failed to make the connection between Mr Khouri and the financial accommodation which, as I find, was made available by the Bank to Atlantic Quest following the Bank's entry into the transaction known as the "home loan".

273. The Bank did tender, as Exhibit 16, the original guarantee by which, as it alleges, Mr Khouri guaranteed the obligations of Atlantic Quest to the Bank. It did not prove his signature to that guarantee. The best it could do was prove the signature of Anthony Graham Cole, the witness to that signature. By comparison with other original exhibits on which Mr Khouri's signature has been proved (Exhibits 1, 9, 10 and 11) I am, however, prepared to say that Mr Khouri signed the guarantee. The Bank is therefore entitled to judgment in the amount sworn to under this head by Mr Doherty ($344,267.65). But the guarantee contains no reference to any other security. Accordingly, I find that the Bank is not entitled to exercise the rights of a mortgagee, in relation to the Atlantic Quest loan.

276. The Bank has proved, through Mr Cantrill, its claim against Mr Khouri to a secured interest, under the second mortgage, in the repayment of the indebtedness to which Mr Doherty swore in relation to the MBG loan. Accordingly, the Bank is entitled to judgment against Mr Khouri in that sum ($32,874.63) together with such orders as would enable it to exercise the rights of a mortgagee in relation to his interest (which for these purposes is unaffected by any order of the Family Court) in 14 Convery Close. It has no rights against Mrs Horkings' interest in that property (again, for present purposes, her interest is not affected by any order of the Family Court).

279. For these reasons, the claim against Mr Khouri will be allowed to the limited extent set out in this judgment. The claim against Mrs Horkings will be dismissed. For the purposes of pronouncing judgment, I will proceed on the basis that, having been filed in the wrong proceeding, the amended statement of claim is ineffectual. Accordingly, in preceeding number 5509 of 1991 there will be judgment for the plaintiff against the first defendant in the sum of $423,437.80. The plaintiff's claim for possession of the land known as 14 Convery Close Gladstone Park is dismissed. The plaintiff's claim against the second defendant is dismissed. There will be judgement for the second defendant on her counter-claim. On that counter-claim, I declare that the second defendant has paid to the plaintiff the total of principal and interest which was owed by her pursuant to the instrument of mortgage dated 1 March 1988 and registered as mortgage number N357080S at the office of the Registrar of Titles. I order that the plaintiff forthwith deliver to the second defendant a discharge, in registerable form, of that mortgage. I order that the first defendant pay the plaintiff's costs of the proceeding, and that the plaintiff pay the second defendant's costs of the proceeding.

282. In proceeding number 6111 of 1992, there will be judgement for the plaintiff against the first defendant in a sum of $32,874.63, together with a declaration that the plaintiff may exercise such rights as it may have as mortgagee over the first defendant's interest in the property known as 14 Convery Court Gladstone Park to such extent only as may be necessary to recover the said sum together with the plaintiff's costs of the proceeding against the first defendant and any interest to which the plaintiff may be entitled, and no more. There will be judgement for the second defendant on the plaintiff's claim against that defendant. There will be an order that the plaintiff pay the second defendant's costs of the proceedings.