Supreme Court of WA|2000-02-28|Before: Wheeler J

Commonwealth Bank of Australia v Ridout Nominees Pty Ltd & Ors [2000] WASC 37 (28 February 2000)

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : COMMONWEALTH BANK OF AUSTRALIA -v- RIDOUT NOMINEES PTY LTD & ORS [2000] WASC 37

HEARD : 14-18, 21-25 JUNE, 22 & 23 SEPTEMBER 1999

PETER ALLAN RIDOUT as Executor of the Will of GEORGE EDWARD RIDOUT

CHRISTOPHER JOHN RIDOUT as Executor of the Will of GEORGE EDWARD RIDOUT

Banking and financial institutions - Banker and customer and business of banking - Relationship between banker and customer - Customer under special disability

Corporations - Directors and special disadvantage - Whether corporation under special disability -Inter-company guarantees - Director's duties

Equity - Undue influence - Unconscionable conduct - Enforcement of guarantees

Guarantee and indemnity - Guarantees - The contract of guarantee - Rights of surety - Actions against surety - Indebtedness of company - Personal guarantees by directors - Unconscionability - Guarantee given by volunteers - Failure to understand effect of guarantee

Husband and wife - Contracts - Married women - Whether wife in position of volunteer - Whether principles in Yerkey v Jones applicable

Mortgages - Mortgages and charges - Execution of mortgages and agency - Remedies of mortgagor

Trusts and trustees - Construction of trust deeds - Breach of trust

Parties invited to make submissions on form of orders

Second Defendant : Mr W S Martin QC & Mr A Atkinson

Fourth Defendants : Mr W S Martin QC & Mr A Atkinson

Sixth Defendants : Mr W S Martin QC & Mr A Atkinson

Seventh Defendant : Mr W S Martin QC & Mr A Atkinson

Eighth Defendant : Mr W S Martin QC & Mr A Atkinson

Ninth Defendants : Mr W S Martin QC & Mr A Atkinson

A H McDonald & Co Ltd v Wells [1931] HCA 24; (1930-1931) 45 CLR 506

AGC (Advances) Ltd v Breton Bay Land Ltd, unreported; SCt of WA; Library No 8682; 18 January 1991

Alderton v The Prudential Assurance Company Limited [1993] FCA 127; (1993) 41 FCR 435

Aliotta v Broadmeadows Bus Service Pty Ltd (1988) 10 ATPR 40-873

Allcard v Skinner (1887) Ch D 145

ANZ Banking Group v Barry [1992] 2 Qd R 12

Australia & New Zealand Banking Group Pty Ltd v Petrik [1996] VicRp 91; [1996] 2 VR 638

Avon Finance Co Ltd v Bridger [1985] 2 All ER 281

Balls v Strutt (1841) 1 Hare 146; 66 ER 984

Bank of Credit & Commerce International SA v Aboody [1989] 2 WLR 759

Bank of Victoria Ltd v Mueller [1925] VicLawRp 37; [1925] VLR 258

Barclays Bank plc v Kennedy [1989] 1 FLR 356

Barclays Bank v O'Brien [1992] EWCA Civ 11; [1993] QB 109

Barclays Bank v O'Brien [1993] UKHL 6; [1994] 1 AC 180

Bawn v Trade Credits Ltd (1986) ANZ Conv R 709

Belmont Finance Corp Ltd v Williams Furniture Ltd (No 2) [1980] 1 All ER 393

Beneficial Finance Corporation v Karavas (1991) 23 NSWLR 256

Bridgewater v Leahy [1998] HCA 66; (1998) 194 CLR 457

Cairncross v Paterson [1894] VicLawRp 56; (1894) 20 VLR 258

Challenge Bank v Pandya [1993] SASC 3803; (1993) 60 SASR 330

Charterbridge Corp Ltd v Lloyds Bank Ltd [1970] Ch 62

Clough v North Western Railway Ltd (1871) 7 LR Ex 26

Cockerill v Westpac Banking Corporation (1996) 142 ALR 227

Commonwealth Bank of Australia v ABC Property Planners Pty Ltd, unreported; SCt of NSW (Equity Division); 23 May 1991

Corozo Pty Ltd v Total Australia Ltd [1988] 2 Qd R 366

Crisp v Australia & New Zealand Banking Group Ltd (1994) ATPR 41-294

Daniels v Anderson (1995) 37 NSWLR 438

Doneley v Doneley as executor of the Estate of Doneley [1998] 1 Qd R 602

Drozd v VAskas [1960] SASR 88

Erlanger v New Sombrero Phosphate Co (1878) 3 App Cas 1218

Familiar Pty Ltd v Samarkos (1994) 115 FLR 443

Group 4 Industries Pty Ltd v Brosnan (1992) 8 ACSR 463

Guthrie v ANZ Banking Corporation (1989) NSW Conv R 55,463

Harkness v Harkness (1903) 20 WN (NSW) 269

Hedley Byrne & Co Ltd v Heller and Partners Ltd [1963] UKHL 4; [1964] AC 465

Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd [1988] FCA 40; (1988) 79 ALR 83

HFMF v Porteous [1999] WASC 55

HG & R Nominees Pty Ltd v Fava [1997] 2 VR 368

Johnson v Buttress [1936] HCA 41; (1936) 56 CLR 113

Kabwand Pty Ltd v National Australia Bank Ltd (1989) 11 ATPR 40-950

Kings North Trust Ltd v Bell [1986] 1 WLR 119

Koorootang Nominees Pty Ltd v Australia & New Zealand Banking Group Ltd [1998] 3 VR 16

Lancashire Loans Company Ltd v Black [1934] 1 KB 380

Lisciandro v Official Trustee in Bankruptcy (1996) 139 ALR 689

Mayfair Trading Co Pty Ltd v Dreyer [1958] HCA 55; (1958) 101 CLR 428

Maguire v Makaronis [1997] HCA 23; (1996) 188 CLR 449

Metal Manufacturers Ltd v Lewis (1986) 11 ACLR 122

Miles v Shell Company of Australia, unreported; FCA; 9 June 1998

Nolan v Westpac Banking Corporation (1989) 51 SASR 496

Partridge v Equity Trustees Executors & Agency Co Ltd [1947] HCA 42; (1947) 75 CLR 149

Permanent Building Society (In Liq) v Wheeler (1993) 11 WAR 187

Perre v Apand Pty Ltd [1999] HCA 36; (1999) 164 ALR 606

Powell v Powell [1900] 1 Ch 243

Public Trustee v Symon [1944] SASR 102

Radin v Commonwealth Bank of Australia, unreported; FCA; 23 October 1998

Re Pearce [1936] SASR 137

Rema Industries and Services Pty Ltd v Coad [1992] FCA 114; (1992) 107 ALR 374

Rhone-Poulenc Agrochimie SA v UIM Chemical Services (1986) 12 FCR 477

Selangor United Rubber Estates Ltd v Cradock (No 3) [1968] 2 All ER 1073

Shephard v Midland Bank plc [1960] VicRp 42; [1987] 2 FLR 175

Southern Cross Commodities Pty Ltd (In Liq) v Ewing (1988) 14 ACLR 39

Spedley Securities Ltd (In Liq) v Greater Pacific Investments (In Liq) (1992) 7 ACSR 155

Statewide Tobacco Services Ltd v Morley (1990) 2 ACSR 405

Story v Advance Bank of Australia (1993) 10 ACSR 699

Sutherland Shire Council v Heyman [1985] HCA 41; (1985) 157 CLR 424

Swift v Westpac Banking Corporation (1995) ATPR 41-401

Teachers Health Investments Pty Ltd v Wynne (1996) ASC 56-356

The State Bank of New South Wales Limited v Vecchio (1998), unreported; SCt of NSW; 10 November 1998

Union Fidelity Trustee Co of Australia v Gibson [1971] VicRp 69; [1971] VR 573

Vadasz v Pioneer Concrete (SA) Pty Ltd [1995] HCA 14; (1995) 184 CLR 102

Walker v Wimborne [1976] HCA 7; (1976) 137 CLR 1

Warner v Elders Rural Finance Ltd [1993] FCA 117; (1993) 41 FCR 399

Western Australia v Bond Corp Holdings (1991) ATPR 41-129

Westpac Banking Corporation v Bowden, unreported; SCt of NSW; 13 December 1993

Westwill Pty Ltd v Heath (1989) 52 SASR 461

Wickstead v Browne (1992) 30 NSWLR 1

1 WHEELER J: This is an action to recover certain moneys and to enforce mortgages and guarantees securing the repayment of the moneys. The defendants are natural persons who are related to each other, and companies in which those natural persons have a variety of interests. It seems not to be disputed that money was advanced and that certain amounts were not repaid. The case of the defendants is essentially that the various security instruments upon which the plaintiff seeks to rely should be set aside by reason of, inter alia, unconscionable conduct on the part of the plaintiff, undue influence and misrepresentation, and participation in breach of trust.

2 A broad overview of the position of the natural persons involved in this matter is as follows. I propose to refer to those people by their first names throughout the rest of these reasons, in order to avoid confusion between them.

3 George Ridout met Dorothy Ridout during the Second World War. She was born in 1925 and left school at 14, having reached third year high school. She first worked in a shoe shop and then in a library and then during the war worked in an aircraft factory sewing and applying dope to main wing assemblies. George and Dorothy were married in September 1946. George died on 25 June 1993 at the age of 69.

4 When George and Dorothy married, George's parents had a small dairy farm in Victoria and the Repatriation Commission lent George the money to buy his parents' farm. Twelve years later, George and Dorothy left the farm having built up a substantial herd of cattle, selling it for approximately £96,000, which was then a considerable sum of money. They purchased a house in Adelaide at a cost of £6,200 and in about 1960 George invested approximately £26,000 into a company called Ranleigh Ware Pty Ltd ("Ranleigh"). It was a silverware business. A company called Cloverdale Pty Ltd ("Cloverdale") acquired the shares in Ranleigh. George and Dorothy were directors and shareholders of Cloverdale.

5 In 1961 George went to Western Australia to look for suitable land for a farm and, he having compiled a shortlist of properties, Dorothy travelled to Western Australia to discuss the final selection with him. Cloverdale purchased the farm at Boyup Brook, known as "Camballan", for cash. It is not entirely clear from the evidence whether the purchase price was the offered £29,000 or the asking price of £32,000, but in any event in 1961 the property was purchased and George and Dorothy moved to Camballan in February 1962.

6 During the first years of their time in Western Australia, George flew regularly to Adelaide for directors or shareholders' meetings of Ranleigh. By 1974, Cloverdale had acquired 100 per cent of Ranleigh's shares; Dorothy was not much involved in Ranleigh, apart from assisting in the selection of goods to be imported from overseas. From time to time she signed documents when George requested her to. From time to time, she would accompany George to Adelaide and would occasionally sit in on meetings between George and the officers of the banks (initially Westpac and later the Commonwealth Bank) which were Ranleigh's bankers.

7 In the meantime, George and Dorothy had a number of children. At the time of George's death, there were five children surviving him, being three sons and two daughters ranging in ages from 33 to 45. Peter and Christopher are two of those sons, while Lynette and Jillian are their respective wives.

8 In 1976 George and Dorothy's son David took over as manager of Ranleigh. He managed Ranleigh for about nine years, leaving in about 1985.

9 Christopher and Peter, who were born in 1957 and 1960 respectively, left school before they had completed five years of high school to assist full time with farm work. When they married, they and their wives lived on the family farms. For a period of time, Peter and Lynette lived on and developed a farm in South Australia (Kacoonda), which was owned by Ranleigh. In 1980, Cloverdale bought a farm adjoining Camballan, called Marshalls. In 1985, a company called Ridout Nominees Pty Ltd ("Ridout Nominees") bought another farm in the same area of Western Australia called Brantwood. It appears that finance for that purchase came partly from the sale of Kacoonda, and partly from a foreign currency loan taken out by Ranleigh from Westpac in the sum of $800,000. Ridout Nominees mortgaged Brantwood as security for that loan.

10 Peter and Lynette lived on Brantwood after their return from South Australia, while Christopher and Jillian lived on Camballan at a house about a kilometre from the house occupied by George and Dorothy. I will return in a little more detail to the personal circumstances of the natural persons later.

11 The corporate structure, through which assets were acquired and held, can most conveniently be set out in chart form. A chart showing the corporate structure is set out as an appendix to these reasons . Broadly, the directorships of the companies and the operations of the relevant trusts were as follows:

12 Ridout Nominees was a company, formed in 1976, of which George and Dorothy were the sole directors and shareholders. It operated as the trustee of the Cloverdale Trust, a discretionary trust of which the beneficiaries were George and Dorothy, their issue, and companies in which they held at least one share.

13 Cloverdale was formed in 1960. Cloverdale had 3500 issued shares, one of which was held by George and the remainder of which were held by Ridout Nominees. It was not a trustee. At all material times the directors of Cloverdale were George and Dorothy with their sons Christopher and Peter becoming directors in 1979 and 1985 respectively. Dorothy had been a director and secretary of Cloverdale since its formation in 1960. George was the governing director of Cloverdale with power under article 41:

"... to exercise all the powers authorities and discretions by the Memorandum of Association or these Articles expressed to be vested in the Directors generally and all the other Directors, if any, for the time being of the Company shall be under his control and shall be bound to confirm (sic) to his directions in regard to the Company's business."

14 Ranleigh had 50,500 issued shares, two of which were held by George and Dorothy and the remainder of which were held by Cloverdale. The directors were George, Dorothy, Peter and Christopher. Dorothy was first appointed a director and secretary in 1985. Peter and Christopher had been directors since 1981.

15 Viners Silverware Pty Ltd ("Viners") and Estelle Gifts Pty Ltd ("Estelle") were silverware companies of which George and Dorothy were the sole directors and shareholders. Dorothy had been a director of Viners since October 1987 and a director of Estelle since March 1984. Viners operated as the trustee of the G E Ridout No 4 Trust and Estelle operated as the trustee for the G E Ridout No 2 Trust. The beneficiaries of those trusts included George and Dorothy, their issue, Ranleigh, Cloverdale and Estelle.

16 Wanata Holdings Pty Ltd ("Wanata") was a company in which George and Dorothy were the sole directors and shareholders. Dorothy had been director since May 1985. It was trustee of the G E Ridout No 3 Trust, the beneficiaries of which included George and Dorothy, their sons and daughters-in-law and the issue of the latter.

17 Kamberoo Pty Ltd ("Kamberoo") was a company of which Peter and Lynette were the sole directors and shareholders. It was trustee of the P A Ridout Trust, a discretionary trust, the beneficiaries of which included Peter, his parents (George and Dorothy), spouse and siblings and any company in which any of those persons held a share.

18 Kacana Pty Ltd ("Kacana") was a company of which Christopher and Jillian were the sole directors and shareholders. It was trustee of the C J Ridout Trust, a discretionary trust, the beneficiaries of which included Christopher, his parents (George and Dorothy), spouse and siblings and any company in which any of those persons held a share.

19 Fergal Pty Ltd ("Fergal") was a company of which the directors were George and Christopher and Lyell Kenneth Pontifex and in which the shareholders were George and Lyell Pontifex. It was the managing partner of a limited partnership involved in the motel business described below.

20 RSA Holdings Ltd ("RSA") was a company of which Lynette and Jillian became directors in June 1993. The company was set up to sell Ranleigh's stock, and did so without informing the plaintiff. As will appear, the plaintiff by then would have been in a position to claim an interest in the stock. The proceeds of sale of all the stock sold have not been paid to the plaintiff.

21 The assets which were acquired by George and Dorothy and by their corporate entities and the entities owned by their children, can be broadly classified into: family farms and family home; silverware businesses; other farms; and motel units. An overview of those acquisitions, from 1960 onwards, is as follows:

22 In the early 1960's Cloverdale acquired an interest in Ranleigh which operated a silver plating business, importing and completing partially finished products. In about 1974, Cloverdale acquired 100 per cent control of Ranleigh. In 1984, George and Dorothy acquired Estelle, the business of which was primarily the importation from overseas and sale within Australia of silver plated items. In March 1987, George and Dorothy purchased Viners, a silverware company with a business similar to that of Estelle. At some time prior to 1980, Ranleigh acquired an industrial property at Deloraine Road, Edwardstown, South Australia. Ranleigh was the principal silverware business, in that the business of Estelle and Viners was run from the Edwardstown property and Ranleigh charged Estelle and Viners for labour, storage, etc.

23 In 1961, Cloverdale acquired Camballan at Boyup Brook, Western Australia. In about 1980, Cloverdale acquired Marshalls, a farm adjoining Camballan and later run as one with it. In the 1980's, George and Dorothy acquired a home in Adelaide, known as the Panorama (a suburb of Adelaide) home. Dorothy, who was originally from South Australia, seems to have been particularly attached to this house, referring to it on occasions as "my home". In 1985 Ridout Nominees acquired Brantwood, another farm at Boyup Brook, Western Australia, some little distance from Camballan. George, Dorothy and their children lived mostly on the Boyup Brook farms.

24 In 1971 Cloverdale acquired a property called Timaru near Camballan which was subsequently sold at a profit. In 1981 George and Dorothy, or companies owned by them, bought the farm Kacoonda at Kingston in South Australia, and sold it in 1984 for a considerable profit. At about the same time, another farm at Naracoorte in South Australia was bought, which was sold within two and a half years for a considerable profit.

25 In October 1987, 29 units at the All Travellers Motel, Belmont, were acquired as follows:

Relationship Between the Group Businesses, and Between the Business and Family Members.

26 Broadly, the division of labour within the Ridout family seems to have been that George was the one who was primarily concerned with the making of financial and business planning decisions. He was the person who dealt with banks, accountants and solicitors as required. He was the person who was regarded as having the final decision as to what properties would be purchased or sold, although it appears that, in relation to farming properties at least, he consulted with Dorothy. So far as the practical running of the farms was concerned, Dorothy made a very substantial contribution to the running of the farms by drafting sheep, cooking for shearers, and performing the myriad of tasks that fall to a farmer's lot. Additionally, she was of course for many years very busy bringing up her and George's children. As Peter and Christopher grew up and gradually took over the running of the Western Australian farms, a great many day to day farming decisions were delegated to them, although it appears that within the family it was considered that all major expenditure or novel departures were required to be cleared with George.

27 Dorothy, and, when they were older, Peter and Christopher, had some interest in the running of the silverware businesses, but had by no means a detailed knowledge of them. Those businesses seemed to have been regarded largely as George's creatures. George seems to have been very pleased with, and proud of, the silverware businesses. From time to time, moneys were taken from the farming enterprises when the silverware businesses were in need of cash and directed to the silverware businesses. Dorothy was aware that the silverware businesses were from time to time and to an extent "propped up" with money from the farming operations and she did not like this practice but appears to have made no protest. Peter and Christopher were aware of the practice to a lesser extent.

28 Various inter-company loans were made from time to time amongst the enterprises and interest was charged on an ad hoc basis. So far as one can tell, these decisions were taken from time to time on the advice of accountants in order to minimise the incidence of taxation.

29 Additionally, funds borrowed by Cloverdale from external lenders, using the family farms as security, were channelled to the silverware businesses, while the silverware business also borrowed money from an external lender which they lent to Ridout Nominees in order to purchase a family farm which was used as security. The major transactions of this kind were as follows. In March 1976, Cloverdale mortgaged Camballan to secure Ranleigh's facilities with the Bank of Adelaide. In June 1976 Cloverdale mortgaged Marshalls in order to raise funds for Ranleigh's business. In April 1985, it appears that the foreign currency loan taken out by Ranleigh was on-lent to Ridout Nominees to provide a substantial amount of the funding for the purchase of Brantwood, which was mortgaged by Ridout Nominees to Westpac by way of security. In March 1987, Cloverdale mortgaged Camballan to the ANZ as security for Viners' debts to the ANZ.

30 The picture which emerges from the evidence is that of a gradual expansion of the business activities of what might be called the "Ridout Group", using that term in a non-technical sense to describe the family's business interests. Over time, George and Dorothy, and interests associated with them, bought seven farming properties, ending up eventually with the two Western Australian family farms (Camballan - including Marshalls - and Brantwood) which were run on a large scale and which were generally very successful.

31 Over time, they built up their holding in Ranleigh and expanded into other silverware businesses. Although money was from time to time directed into the silverware businesses from the farms, it appears that the silverware businesses were overall profitable and successful. Finally, they decided to branch out into other real property by purchase of the motel units. These decisions were taken by George, with some input from other family members, and under George's direction.

32 As the businesses expanded, their requirements for capital increased from time to time and George approached a variety of financial institutions for assistance. Over the years, George and Dorothy signed very many documents associated with loan transactions, and providing security as required. In an attempt to manage the very high interest rates prevailing at the time, George accepted advice from Westpac and caused Ranleigh to take out an $800,000 foreign currency loan which assisted in the purchase of Brantwood.

33 In the early 1990's, a number of things went badly wrong with what until then had been a prosperous and expanding set of enterprises. Wool prices plummeted, so that the farms were no longer making enormous gross profits. Currency fluctuations saw the amount of the foreign currency loan blow out in Australian dollars from $800,000 to almost $1.3M. The silverware businesses declined; the reasons for this are not entirely clear, but appear to include financial difficulties faced by the Proud's chain, which was a major customer, and a general market decline in demand for silverware. In about 1990, George's health began to decline. By the time of his death in 1993, it had become apparent that the Ridout Group would be unable to continue to service the level of debt which it was then carrying. Some asset sales were undertaken, but the shortfall was such that it appeared that the family farms would have to be sold in order to clear the amounts owing to the plaintiff. It is against that background that the plaintiff seeks to enforce its securities.

34 The relevant borrowings began in 1973 and continued through to a complex revised lending arrangement in late 1990 and early 1991. The plaintiff relies first upon the 90/91 instruments. However, if they are to be set aside for any reason, it relies upon arrangements in force as at March 1990, which are attacked by the defendants on grounds which overlap but do not wholly duplicate the grounds relating to the 90/91 instruments.

35 If those instruments should be set aside, the plaintiff points to still earlier instruments which would entitle it to recover at least some portion of the sums claimed. Even if those earlier transactions were not relied upon by the plaintiff directly, it would be necessary to understand them in order to grasp the nature of the 1990/1991 arrangements. As later mortgages and security instruments were obtained, earlier ones were not discharged, except where other external lenders, such as Westpac, were concerned. In relation to those other external lenders, the purpose of the transactions with the plaintiff was to enable those external lenders to be paid out, and consequently securities given to them were discharged.

36 In 1973 the plaintiff agreed to provide Cloverdale with $45,000 worth of finance in the form of a $30,000 farm "carry on" overdraft and $15,000 farm development loan, both secured by mortgage over Camballan (excluding Marshalls which was at that time not acquired). In that mortgage, which is the usual lengthy document in rather small type and written in somewhat impenetrable legal jargon, cl 1 provides that, as is usual in such a document, it "secures all moneys now or hereafter to become payable to the bank by the debtor and mortgagor" (the debtor and mortgagor in this case both being Cloverdale). That facility increased from time to time and by July 1986 had risen to $150,000. By July 1989 it had increased to $400,000.

37 Although the practice does not seem to have been invariable, in relation to most of the increases in overdraft, there is a formal letter of request signed by George as director and Dorothy as secretary and bearing the common seal of Cloverdale. In each case, a form letter was sent by the plaintiff addressed to "The Proprietors" of Cloverdale advising of approval of the increase in overdraft and containing reference to the security which is expressed as "to comprise securities already held by the bank in connection with advances to Cloverdale".

38 By mortgage dated 21 August 1989, Cloverdale mortgaged Marshalls to secure "the same moneys as are secured by mortgage ... 11 May 1973 from the said Cloverdale Pty Ltd to and in favour of the bank ...". Marshalls thus became part of the Cloverdale mortgage of Camballan. In August 1990 the plaintiff increased Cloverdale's facilities to $530,000, the letter dated 8 August 1990 from it referring to security for the increase as "securities already held in connection to Cloverdale" (ie Camballan and Marshalls).

39 A further application for accommodation was made by Cloverdale dated 2 November 1990, signed by George as director and Dorothy as secretary. No amount appears on the application. Further accommodation was granted as part of a package in late 1990 and early 1991. The details of the package will emerge later. For the moment, it is sufficient to note that in addition to the $530,000 facility already in existence (being $500,000 bill discount facility and a $30,000 overdraft limit), a further "multi-option facility" in the amount of $940,000 was approved, taking Cloverdale's total borrowings to $1,470,000. Approval was given by letter addressed to George c/- Ranleigh dated 6 December 1990 and security for Cloverdale was described as comprising, inter alia, "a mortgage by Cloverdale Pty Ltd over 1533ha property known as 'Camballan' ..." together with "a mortgage by Cloverdale Pty Ltd over 750ha property being Wellington Location 4931 WA [Marshalls]".

40 As part of the same re-financing package, the plaintiff again wrote to George on 3 January 1991, referring to the letter of 6 December 1990 and advising that revaluations on Western Australian farming properties and on the Edwards Town South Australia property showed "a substantial decrease in property values from those previously recorded". The letter continued that the approval given for the package "may stand subject to provision of additional security as follows"; that security included what was described as "amended fresh registered second mortgage by Cloverdale Pty Ltd over the farm 'Camballan'" and "amended fresh registered mortgage by Cloverdale Pty Ltd over the farm at Wellington Location". It appears no amended mortgages were prepared; rather (apparently to avoid further fees and stamp duty) the plaintiff decided to rely upon the earlier mortgages.

41 Finally, on 18 January 1991, again referring back to the letter of 6 December 1990, the plaintiff advised George that it confirmed approval for increased facilities, which together totalled almost $5M, to companies under his control. The letter advised, "A summary of facilities and securities is provided for your information." So far as Cloverdale was concerned, that summary relevantly was:

Registered second mortgage by Cloverdale Pty Ltd over "Camballan" farm WA.

Registered first mortgage by Cloverdale Pty Ltd over farm at Wellington location WA.

[The reference in (1) to a second mortgage is because a prior mortgage existed in favour of the Commonwealth Development Bank]

42 It is unnecessary to set out the security summarised under this heading here. It consisted of registered first mortgages over various of the motel units by various companies, a registered equitable mortgage, and guarantees by a variety of persons and entities including something described as "guarantee interlocking by ... Cloverdale Pty Ltd". It is to be noted that there is no reference under this heading to a mortgage of Camballan or Marshalls. The Clovelly Park Branch was the branch which approved the 1990/91 finance.

43 In relation to the Cloverdale mortgage, the defendants plead, as was the fact, that it was executed by George and Dorothy in 1973 as security for farm "carry on" finance. It is pleaded that George and Dorothy had no reason in December 1990 to suspect, and did not suspect, that the mortgage given by Cloverdale 17 years previously remained in existence and applicable to secure additional advances in excess of $1M. It is pleaded that the plaintiff was put on notice that there was a danger or likelihood that George and Dorothy would assume the Cloverdale mortgage did not secure indebtedness of Cloverdale to the plaintiff, other than the carry on finance; and that the plaintiff was on notice that George and Dorothy would not expect "the obligation purportedly imposed by the Cloverdale mortgage to the effect that the Cloverdale mortgage secured all moneys which at any time for whatever reason and on any account whatsoever ... might be or become due from Cloverdale to the plaintiff" to exist.

44 It is asserted that this silence and inaction amounted to an implied representation to Cloverdale and to George and Dorothy that those obligations did not exist, which representation was a false representation made in trade or commerce. It is then asserted that Cloverdale executed the Cloverdale mortgage in reliance upon that representation and that the Cloverdale mortgage was by reason of those matters obtained by means of unconscionable conduct.

45 The most cursory examination of the chronology reveals that the conclusion which it is said should be drawn from the events of 1990 cannot stand. The mortgage referred to as the Cloverdale mortgage was executed in 1973, and for that reason alone cannot have been executed in reliance upon, or obtained by means of, a series of representations which commenced after execution and culminated in implied representations made in 1990 and 1991.

46 If it is intended to suggest that there was an implied representation that the mortgage would not be used as security for later advances, or that the later advances were unsecured, then the pattern of correspondence up to and including the $530,000 facility is, in my view, inconsistent with any such representation. While the $1.09M facility gives rise to more complex issues, the events leading up to the grant of that facility, discussed in detail later, make it clear, in my view, that the plaintiff required all the farming properties to be included within its security "package". The defendants' attack on this security cannot be sustained.

47 By letter dated 25 February 1988, the plaintiff approved finance for Viners in the sum of $500,000. The application for accommodation was made on Viners' behalf on a standard bank "application for accommodation" form, and signed by George and Dorothy. The mortgage was signed on behalf of both Viners and Cloverdale by George and Dorothy as director and secretary respectively.

48 By this mortgage, Cloverdale mortgaged Camballan to secure the Viners' facility and to secure all moneys payable by Cloverdale to the plaintiff on any account. By virtue of its terms, the 1989 mortgage of Marshalls later also became security for Viners' debts. By a request signed by George and Dorothy as director and secretary and made under seal, which is undated but appears to have been made in about August 1988, an increase in the Viners' facility to $600,000 was sought. This increase was approved by letter dated 16 August 1988, and one condition of approval was said by the plaintiff in that letter to be "security already held by the Bank in connection with advances to the company".

49 With respect to this mortgage, the defendants plead that Dorothy, the "only director of Cloverdale other than George Ridout" was to the knowledge of the plaintiff in a position of special disability at its time of completion, that she was unduly influenced by George to the knowledge of the plaintiff, that the mortgage was of no benefit to Cloverdale, that George was the agent of the plaintiff for the purpose of obtaining execution of the mortgage by Dorothy and that the plaintiff was therefore liable for his undue influence and misrepresentation, and that certain implied representations which were false and which were made in the course of trade and commerce, were made by the plaintiff to Dorothy in the course of execution of the mortgage. There are in this pleading a number of themes which occur in relation to later transactions also. However, it is convenient to consider how matters stood in 1988, before turning to the later and more complex transactions.

50 There appears to be no shorthand way of summarising the pleadings. It is therefore necessary to set them out in all their detail. The defendants plead with respect to this mortgage that:

"44A With respect to Mortgage D777666 the defendants further say that:

44A.1 The fifth defendant, the only director of Cloverdale other than George Ridout, was to the knowledge of the plaintiff as at April 1988 or thereabouts in a position of special disability by reason that:

Personal details concerning the fifth defendant including her age were held on the plaintiff's file.

Personal particulars concerning the fifth defendant including her personal history were held on the plaintiff's file.

44A.1.3 She had little or no knowledge of financial matters and no involvement in the management of Cloverdale and Viners.

(a) The defendants repeat paragraph (a) of the particulars to paragraph 43.2.3.

[ie (a) The fifth defendant has lived in Boyup Brook, a small country town, since 1962 and had been a customer of the plaintiff since that time. She, her circumstances, and history were known to the managers who from time to time were stationed at the Boyup Brook branch of the plaintiff.]

(b) Cloverdale had obtained financial accommodation from the plaintiff since 1973 during which time the plaintiff dealt exclusively with George Ridout, the other director of Cloverdale.

(c) The plaintiff dealt exclusively with George Ridout one of the directors of Viners in relation to all financial accommodation granted by the plaintiff to Viners.

44A.1.4 She was unduly influenced and controlled by her husband George Ridout such that she was likely to sign whatever documents George Ridout requested that she sign and was likely to rely entirely upon whatever explanation was given to her by George Ridout concerning the nature of Mortgage D777666 in order to form an understanding of the said transaction and irrespective of the inadequacy of any such explanation.

The defendants repeat the particulars to paragraph 43.2.5.

[ie (a) By reason of the relationship of husband and wife between George Ridout and the fifth defendant undue influence arises by presumption of law.

(b) Further or in the alternative by reason of the high degree of trust and confidence reposed in George Ridout by the fifth defendant she was unduly influenced by George Ridout.]

(a) The fact that the fifth defendant was the wife of George Ridout was information held on the plaintiff's file.

(b) The plaintiff's knowledge was constructive arising from its knowledge that:

(i) George Ridout was the controlling mind and will of Cloverdale and Viners of which the fifth defendant was a director.

(ii) all written correspondence concerning the affairs of Cloverdale and Viners had been between the plaintiff and George Ridout;

(iii) George Ridout behaved with respect to all decisions concerning Cloverdale and Viners as the person in whom ultimate control resided;

(iv) the fifth defendant was shy, quiet and retiring person while her husband George Ridout was a firm, confident, opinionated, persuasive and optimistic person in apparent control of Cloverdale and Viners.

44A.2 With respect to Mortgage D777666 no copy of memorandum number 18 had been supplied to the fifth defendant by the plaintiff and no explanation had been given to the fifth defendant by the plaintiff of the meaning and effect of memorandum 18.

44A.3 By Mortgage D777666 the plaintiff was obtaining security for advances of $600,000 made by the plaintiff to Viners.

44A.4 The entry by Cloverdale into Mortgage D777666 was of no benefit to Cloverdale and was detrimental to Cloverdale.

Cloverdale did not have an ownership interest in Viners.

Viners' financial position was uncertain having made a substantial net loss in the preceding financial year.

The mortgage was an all monies mortgage which would secure all future debts of Viners to the plaintiff.

44A.5 To the knowledge of the plaintiff Camballan, excluding Marshalls Farm, was the home of the fifth defendant and her family, and had been since the early 1960's and was the primary source of the livelihood of the fifth defendant and her family and entering into Mortgage D777666 by Cloverdale as security for borrowings of Viners, a peripheral enterprise of George Ridout of doubtful financial standing, resulted in the fifth defendant risking the loss of her family home and livelihood which risk was ill-advised and avoidable.

44A.6 The fifth defendant was unaware that the substance and effect of Mortgage D777666 as is pleaded in paragraphs 44A.3, 44A.4 and 44A.5.

44A.7 The fifth defendant and Cloverdale did not obtain any independent advice as to the terms of Mortgage D777666 and as to the advisability of entering into Mortgage D777666.

44A.8 The plaintiff took no steps to ensure that the fifth defendant and Cloverdale obtained, alternatively to encourage them to obtain, independent advice as to the terms of Mortgage D777666 and as to the advisability of entering into Mortgage D777666.

44A.9 The plaintiff addressed all correspondence concerning Mortgage D777666 to George Ridout personally and took no steps to communicate in writing concerning the transaction with the fifth defendant.

44A.10 The plaintiff relied upon George Ridout to obtain the execution by Cloverdale and by George Ridout's wife, the fifth defendant, of Mortgage D777666 and relied upon George Ridout to convey to the fifth defendant the information necessary to appreciate the nature and extent of the obligations imposed upon Cloverdale by Mortgage D777666.

44A.11 George Ridout failed to disclose to the fifth defendant the information necessary to appreciate the nature and extent of the obligations imposed upon Cloverdale by Mortgage D777666.

44A.12 By reason of the facts and matters pleaded in paragraphs 44A.1 to 44A.11 the execution of Mortgage D777666 was procured in a manner which amounts to unconscionable conduct and at equity Mortgage D777666 should be set aside.

44A.13 Further and alternatively in all the circumstances the fifth defendant did not consent to Cloverdale entering into Mortgage D777666 and did not authorise the use of the company seal of Cloverdale for the purpose of executing Mortgage D777666 and that mortgage is not enforceable against Cloverdale."

Unconscionable Conduct in Relation to Cloverdale

51 The first broad observation that may be made about this pleading, is that it seeks to apply to the position of the company Cloverdale, which granted mortgage D777666, the equitable principles which are applicable to persons in a position of special disability. If one looks at the often quoted passage in Blomley v Ryan [1956] HCA 81; (1956) 99 CLR 362 (at 405 per Fullagar J) the circumstances adversely affecting a party which may induce a court of equity to set a transaction aside include -

"... poverty or need of any kind, sickness, age, sex, infirmity of body or mind, drunkenness, illiteracy or lack of education, lack of assistance or explanation where assistance or explanation is necessary."

52 It is immediately apparent that only a natural person can suffer from the majority of the disadvantages there mentioned. There have been few cases in which the principle has applied to a corporation. The learned authors of "Cheshire and Fifoot on Contract" (Butterworths 1997 p 560) observed:

Commonwealth Bank of Australia v Ridout Nominees Pty Ltd & Ors [2000] WASC 37

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (421 paragraphs)

Commonwealth Bank of Australia v Ridout Nominees Pty Ltd & Ors [2000] WASC 37 (28 February 2000)

Parties

Cases Cited (35)