FALINSKI v COMMONWEALTH BANK OF AUSTRALIA

This brings me to Mrs Falinski's contention that Rolfe J should have been satisfied on the evidence that CBA had engaged in unconscionable conduct. Where it is shown (i) that a party to a transaction was under a special disability in dealing with the other party with the consequence that there was an absence of any reasonable degree of equality between them and (ii) that disability was sufficiently evident to the stronger party to make it prima facie unfair or unconscientious that the stronger party procure, or accept, the weaker party's assent to the impugned transaction in the circumstances in which the stronger party procured or accepted it, the onus is cast upon the stronger party to show that the transaction was fair, just and reasonable; per Deane J in The Commercial Bank of Australia v Amadio (1983) 151 CLR 447 at 474.

Faced with the insuperable obstacle of disturbing Rolfe J's findings of fact in the circumstances where his Honour had heard Mrs Falinski give evidence which, in important respects, damaged her credit, where she proffered no explanation for signing the guarantee and where Mr Falinski was not called to give evidence, her counsel relied upon what was said to be her position of special disadvantage in order to cast upon CBA the onus of establishing that the transaction was fair, just and reasonable.

It was claimed on behalf of Mrs Falinski that she was at a special disadvantage by reason of her personal financial position vis - 4 - vis CBA's, her need to maintain her marital relationship and to assist her husband, her belief that the business of Nimari was profitable and the absence of knowledge on her part of the financial circumstances of the business. Mrs Falinski was said to be at a disadvantage because of pressure from her husband to sign the guarantee, and the potential risk involved in guaranteeing the debt of a company the solvency of which depended on the value of stock which could easily become obsolete. Further, it was said, that her entry into the guarantee was not to her advantage and that CBA was put on constructive notice of those circumstances by which she was placed at a special disadvantage. Ex facie, entry into the guarantee was improvident. It was submitted that it was unconscionable for CBA to leave it to Mr Falinski to procure his wife's signature under circumstances where it was not reasonable to assume that her previous failures to meet requests to execute the guarantee were due to inadvertence. Added to this was the contention that the

trial Judge should have found that the guarantee was executed on the date it bore, that is to say the day after her father had died suddenly.

Rolfe J referred to Mr Craik's evidence about Mrs Falinski's attendance at his office in late March 1992. On that occasion, Mrs Falinski told him that Mr Falinski wanted her to sign the document and was placing "a lot of pressure on" her. However, his Honour said that Mrs Falinski demonstrated she was able to withstand Mr Falinski's requests even when he became angry. He was not satisfied that she signed as a consequence of pressure brought to bear upon her. There was no evidence that CBA was aware of the circumstances in which she signed the guarantee or that her father had passed away on 26 June 1990.

Mrs Falinski's claim is met by the findings, which, in my opinion, are beyond challenge, that she understood the document was a guarantee, that CBA never telephoned her nor put any pressure on her to sign the document, that she full well understood the nature and effect of the guarantee and did not need any explanation as to its effect, that she did not suggest in her evidence that she was pressured by Mr Falinski to sign the document, that she understood the guarantee was for the indebtedness of Osborne, which then stood at $5 million, and that if she signed the guarantee, as she did, and returned it to CBA the Belrose property would be put in jeopardy.

On 25 May 1989 CBA wrote to Mrs Falinski "Re: Nimari Pty Ltd" enclosing a form of guarantee, the same as that she signed, and stating:

"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."

At that time, Mrs Falinski refused to sign the guarantee. On 1 March 1990 CBA again wrote to Mrs Falinski "Re: Nimari Pty Ltd" enclosing a form of guarantee. The letter was addressed to Mrs Falinski at the matrimonial home at Belrose. The paragraph that I have quoted was repeated in this letter. The form attached was the form which Mrs Falinski ultimately signed. In my opinion, and in the circumstances of the case, CBA was not in conscience required to do more.

I agree with Rolfe J that the appellant failed to demonstrate that she was entitled to relief under the Contracts Review Act or that CBA acted unconscionably.

Rolfe J referred to Phillips & O'Donovan, "The Modem Contract of Guarantee", in the 3rd edition of which, at 435, it is said, in my opinion correctly, that if a guarantee provides that it is revocable by notice, the revocation must be clear and explicit and comply strictly with the terms of the clause of revocation. This does not mean that the guarantor is required to use any set form of words; Dickson v Royal Bank of Canada (1976) 66 DLR (3d) 242 at 257. In Preston v J Murray-More (NSW) Pty Ltd (unreported), Court of Appeal, 13 May 1983, the Court held that a purported notice did not comply with a clause in a guarantee, which provided that if the guarantor should give notice in writing to the supplier of its desire to discontinue its liability under the guarantee, then the liability of the guarantor should cease and determine fourteen days after receipt of the notice so far as any liability with respect to moneys whether then due or at any time thereafter becoming due in respect of goods supplied by the supplier to the

URJ FALINSKI v COMMONWEALTH BANK OF AUSTRALIA (Sheller JA) 15

principal debtor after the date on which the notice was received, and failed in its object. Hutley JA held that the instrument was not a notice under the terms of the guarantee at all and said:

"Tt is in writing but it does not exhibit 'a desire to discontinue liability hereunder' which must mean 'a present desire then operating to discontinue hereunder'. 'Discontinue hereunder' means cease to acquire further liabilities under the guarantee."

Cll of the guarantee Mrs Falinski signed provided that, subject to cl2, the guarantee should be a continuing guarantee. C12 indicated both the form the notice should take and the effect of a notice under the clause. The written notice was required to be of the desire of the guarantor to discontinue any further liability under the guarantee. The notice operated then and immediately after it was given. At that point of time, the liability under the guarantee of the guarantor giving the notice ceased and determined in relation to any liabilities which should be incurred after the receipt of the notice, except so far as any future liability should arise out of any of the documents, engagements or transactions referred to, at that time current or outstanding. Upon receipt of the notice of discontinuance and without notice to the debtor, the bank might forthwith discontinue the making and affording of any further advances or accommodation to the debtor. I emphasise that the notice, if in accordance with cl2, determined any further liability of the guarantor under the guarantee, subject to one proviso, and gave CBA the option forthwith not to afford any further accommodation to Nimari. The notice could not operate to determine existing liability.

CBA submitted with some force that properly understood and in its context the third paragraph of the letter of 1 April 1992 related only to temporary seasonal facilities due for repayment on or before 31 July 1992. The earlier paragraphs in the letter confirmed the guarantee in respect of the existing as distinct from the temporary facilities. However, that part of the third paragraph which states that as at 31 July 1992 "the guarantee shall cease to have any force or effect" purports to determine all liability including existing liability under the guarantee.

In my opinion, neither the letter as a whole, nor the third paragraph standing alone, was effective as a notice under cl2 of the guarantee. The expressed object of para3 was quite different from that contemplated by a cl2 notice. In the first place, para3 acknowledged Mrs Falinski's continuing liability "solely" in respect of temporary seasonal facilities due for repayment before a certain date in the future. In the second place, at that date, it purported to determine all liability existing and future by providing for the guarantee to cease to have any force or effect. Thus it purported to expunge existing liability other than temporary seasonal facilities as from the date of the notice, and all liabilities, including then existing liabilities arising from the temporary seasonal facilities, as from 31 July 1992. This is the antithesis of what a notice properly given under cl2 was intended to effect. The notice the clause contemplated was concerned only with "further liability", that is to say, liability by the debtor incurred after the notice was given and had no effect upon liability incurred before the receipt of such notice.

In my opinion, Rolfe J rightly held that the paragraph in the letter of 1 April 1992 was not a notice within the teens of cl2 of the guarantee. The appellant did not rely upon the letter in any other way, despite suggestions from the Court, that by agreeing to its terms, CBA may have been estopped from departing from the arrangement apparently arrived at. Mrs Falinski did not seek to put her case in this way.

CBA submitted that even if the earlier acknowledgment constituted a notice under cl2 of the guarantee, the letter of 14 April 1993 estopped Mrs Falinski from relying on it. It was submitted that the letter acknowledged and represented a state of affairs concerning the existence and terms of the legal relationship between Mrs Falinski and CBA, namely:

(a) Mrs Falinski's guarantee dated 27 June 1990 presently secured repayment of advances made or to be made by CBA to Osborne from time to time up to $10,858,045 as well as interest and costs; and

(b) that if Osborne did not reduce its liability to CBA by $5 million to $5,858,045 by 31 July 1993, Mrs Falinski would remain liable under the guarantee for the full amount of Osborne's debt up to the limit of $10,858,045.

CBA invoked what Mason CJ in The Commonwealth v Verwayen (1990) 170 CLR 394 at 410 called the one overarching doctrine of estoppel which, his Honour said at 413 "provides that a court of common law or equity may do what is required, but not more, to prevent a person who has relied upon an assumption as to a present, past, or future state of affairs (including a legal state of affairs), which assumption the party estopped has induced him to hold, from suffering detriment in reliance upon the assumption as a result of the denial of its correctness." This unifying doctrine of estoppel found favour in Verwayen with Deane J (440 and 444-5) and Gaudron J (487) but not necessarily with the other four members of the Court. For present purposes it is sufficient for CBA, if estoppel by convention survives as a separate doctrine, to rely on such an estoppel as stated by Dixon J in Thompson v Palmer (1933) 49 CLR 507 at 547 and repeated in Grundt v The Great Boulder Gold Mines Pty Ltd (1937) 59 CLR 641 by Latham CJ at 657 and by Dixon J at 676-7. In Thompson v Palmer at 547 Dixon J said: "Whether a departure by a party from the assumption should be considered unjust and inadmissible depends on the part taken by him in occasioning its adoption by the other party. He may be required to abide by the assumption because it formed the conventional basis upon which the parties entered into contractual or other mutual relations, such as bailment;".

In Amalgamated Investment & Property Co Ltd (In Liquidation) v Texas Commerce International Bank Ltd [1982] 1 QB 84 the question was whether Amalgamated gave Texas a binding and effective guarantee or, alternatively, was estopped from denying that it gave such a guarantee. At first instance Robert Goff J said, at 108, that by confirming the bank's erroneous belief that the guarantee was binding and effective, the plaintiffs contributed to the continuance of the bank's error as to the true legal effect or, rather, lack of legal effect of that document and to the bank's failure to take the opportunity of putting matters right. "v.00... I can see no reason why, in principle, a representation that such a non-contractual document has a certain contractual effect should be incapable of giving rise to an estoppel precluding the representor from thereafter going back upon that representation where, as in the present case, it would be unconscionable for him to do so."

In the Court of Appeal, Lord Denning MR at 121 referred to the judgments of Latham CJ and Dixon J in Grundt and held that the parties were bound by the "conventional basis" on which they conducted their affairs. Everleigh LJ, at 126, said that estoppel operates so as to prevent a party from denying a representation or an assumed state of facts in relation to the transaction supported by that representation or assumed state of facts. Brandon LJ said that the facts produced a classic example of estoppel by convention and quoted, at 130-131, from

URJ FALINSKI v COMMONWEALTH BANK OF AUSTRALIA (Sheller JA) 17

Spencer Bower and Turner, Estoppel by Representation, (1977) 3rd ed, at 157-160, where the authors observed that estoppel by convention is founded "not on a representation of fact made by the representor and believed by a representee, but on an agreed statement of facts the truth of which has been assumed, by the convention of the parties, as the basis of a transaction into which they are about to enter. When the parties have acted in their transaction upon the agreed assumption that a given state of facts is to be accepted between them as true, then as regards that transaction each will be estopped as against the other from questioning the truth of the statement of facts so assumed." In Eslea Holdings Ltd v Butts (1986) 6 NSWLR 175 at 189, Samuels JA, with whom Kirby P agreed, said that he could see no reason in principle or utility why the belief or expectation of the person relying upon the convention should not concern the legal rights of the parties.

The thrust of Mrs Falinski's argument was that to the extent that CBA relied upon the assumption of the truth of what the letter of 14 April 1993 said that reliance did not persist, and to the extent that there was a detriment arising from the provision by CBA to Osborne of accommodation that detriment was exhausted when the accommodation was repaid.

Counsel referred to later forms of acknowledgment which CBA sent to Mrs Falinski to sign but which she refused to sign. The argument was that the sending of these letters indicated that CBA no longer relied upon what was said in the letter of 14 April 1993 but sought further assurances. Thus on 23 June 1993 CBA wrote to Mrs Falinski saying that approval had been given to increase facilities for Osborne "taking total loans to $12,718,044 subject to your acknowledgment." The letter continued: "As part of the security to support this loan is a guarantee and mortgages from yourself, your formal consent and acknowledgment is required." The guarantee referred to was that of 27 June 1990.

Later letters to like effect, though in respect of different amounts, were sent on 17 August, 1993 and 23 May 1994 with a number of follow up letters after those dates. On 30 September 1994 an internal memorandum said that a letter of acknowledgment from Mrs Falinski was never returned. "As excesses have now been cleared and previous [letter of acknowledgment] is for more than amount of current facilities and the likelihood of Mrs Falinski returning outstanding [letter of acknowledgment] is minimal, please confirm that situation is acceptable as is." Leaving all else aside, the terms of these letters make plain that CBA was relying upon the assumed state of affairs acknowledged in the letter of 14 April 1993 that Mrs Falinski's guarantee dated 27 June 1990 secured repayment of advances made or to be made by CBA to Osborne. The fact that moneys advanced to Osborne were from time to time repaid, perhaps in full, does not exhaust the detriment. The detriment was the continuance of the facility against which Osborne remained able to draw.

Rolfe J made no findings about reliance or detriment. His Honour noted that there was initially an issue about whether what purported to be Mrs Falinski's signature on the document, was, in fact, her signature. She was neither prepared to admit nor deny that it was. CBA obtained a report from a handwriting expert who stated that, in his opinion, the writer of Mrs Falinski's signature on a number of specimen documents, which undoubtedly contained her signatures, wrote her signature on the letter. This evidence was not challenged and in the circumstances her counsel accepted that on the balance of probabilities she signed the document. Rolfe J said that even if this had not been accepted he would have decided on the evidence that she did.

William Foxlee, an officer of CBA, who, in 1992 and 1993, had overall supervision of the accounts of Osborne, did not recall seeing the acknowledgment of | April 1992, but at some time before the request for seasonal facilities being dealt with in April 1993, became aware that the document contained a limitation to the ongoing guarantee of Mrs Falinski. His statement continued:

"5. I was concerned to be informed that the document had been amended so as not to reflect the standard form of bank acknowledgment and, to the best of my recollection, I instructed either Gil Baker or Ian Pike or some other officer to ensure that before any further seasonal accommodation was granted to Osborne in 1993 that a legally binding acknowledgment be obtained from Mrs Falinski, not only in relation to the seasonal facilities, but in respect of all Osborne's facilities on a continuing basis.

6. I do not recall seeing the document dated 15 April 1993 (Annexure 'B' to this statement Bundle 335) until shown to me for the purpose of preparing this statement. I assumed that the instructions referred to in paraS hereof had been carried out.

7. If I had been told in April 1993 that Mrs Falinski had not signed or was unwilling to sign an acknowledgment in the form of Annexure 'B' to this affidavit (Bundle 335) or another form acceptable to the Bank and its Legal Department I would not have authorised the extension of temporary seasonal facilities of $5.858 million to Osborne for the 1993 year. Further, I would have placed the existing facility of $5 million in reduction, that is, no further advances would have been made on that account and a schedule for the repayment of the $5 million would have been put in place.

8. I regarded the security of Jill Falinski, and in particular her share of the family home, as extremely important in the overall funding of Osborne not simply for its financial value but for its value to the Bank in ensuring, as best as we were able, that Mr Falinski devoted his best efforts to the success of the company.

9. Although I regarded the Osborne connection as a valuable one to the Bank, equally I regarded the commitment of the directors, mortgagors and guarantors as highly significant and would have viewed Mrs Falinski's failure to sign an acknowledgment in the terms of Annexure 'B' very seriously."

Mrs Falinski did not attempt to challenge the application of the principle of estoppel by convention but made submissions under two heads; first, that Mrs Falinski had simply adopted a statement put before her by CBA that CBA had granted accommodation against the security of the guarantee, and that she understood that the guarantee would "also secure" the payment to CBA of interest and any costs, charges and expenses; secondly, that the effect of the document in giving rise to an estoppel against her was exhausted in 1993 when the temporary seasonal accommodation was repaid and the account reduced to nil, and that CBA could not rely on the document once Mrs Falinski failed to sign later acknowledgments.

With the second of these submissions I have already dealt. The first submission overlooks the essence of an estoppel by convention as stated in Spencer Bower and Turner and recognised by Brandon LJ in the Texas Bank case at 130-1. The estoppel is founded not on a representation, but on an agreed statement of the relationship between the parties, the truth of which has been assumed, by the convention, as the basis upon which they will thereafter proceed. In the present case, in my opinion, as CBA submitted, that relationship was one which

URJ FALINSKI v COMMONWEALTH BANK OF AUSTRALIA (Cole JA) 19

recognised the continuation of the guarantee Mrs Falinski signed in 1990. The effect of the doctrine is that she was estopped from denying that relationship and hence from denying her liability to CBA in accordance with the terms of the guarantee. Accordingly, even if the third paragraph of the letter of 1 April 1992 were a notice in accordance with cl2 of the guarantee, which had the effect of terminating Mrs Falinski's liability under the guarantee, in these proceedings she was estopped from denying a continuing liability under the guarantee after she signed the letter of acknowledgment of 15 April 1993.

CONCLUSION The appeal should be dismissed with costs.

Counsel for the appellant: J A Timbs QC/M J Condon Solicitors for the appellant: Lane & Lane

Counsel for the respondent: A J Meagher SC/A J Payne