Kranz & Anor v National Australia Bank Ltd [2003] VSCA 92

[ 2003] VSCA 92

EQUITY - Mortgage and Guarantee - Right to set aside - Unusual transaction between bank and customer - Misrepresentation - Unconscionable bargain - Whether unconscionable for bank to enforce guarantee - Commercial Bank of Australia Limited v. Amadio [1983] HCA 14; (1983) 151 C.L.R. 447.

EQUITY - Unconscionable conduct - Guarantee - Right to set aside - Alleged relationship of influence between brothers-in-law - Misrepresentation - Guarantor mistaken about purport and effect of transaction - Failure of bank to explain transaction - Whether unconscionable for bank to enforce guarantee and mortgage - Garcia v. National Australia Bank Ltd. [1998] HCA 48; (1998) 194 C.L.R. 395.

2. I have had the considerable advantage of reading, in draft form, the judgment of Charles, J.A. I agree with his Honour that the appeal should be dismissed, and for the reasons which his Honour assigns. I also agree with his Honour that, for the reasons which he gives, it becomes unnecessary for this Court to consider the matters raised in the respondent's notice of contention.

7. The plaintiff bank, now the respondent ("the bank"), brought action against seven defendants in respect of an advance made to the first defendant, Starbronze Pty. Ltd. ("Starbronze") in respect of securities provided by the remaining defendants to secure that advance. The fifth defendant, now the second appellant Mansville Pty. Ltd. ("Mansville"), the sixth defendant, Arieh Leo Muhlbauer, and the seventh defendant, Channa Hildegarde Muhlbauer, mortgaged to the bank by an instrument of mortgage dated 28 August 1989, in support of the advance, a property at Ballarat jointly owned by Mansville on the one hand and Mr & Mrs Muhlbauer on the other, as tenants in common in equal shares. Each of the defendants save for Starbronze, guaranteed, pursuant to a guarantee and indemnity dated 28 August 1989, the obligations of Starbronze pursuant to the terms under which the bank had made the advance to that company.

10. Mr & Mrs Muhlbauer settled the proceeding against them before the trial began. The Ballarat property was, after commencement of the proceeding, sold, and by agreement, Mansville's 50% share was held in trust pending the outcome of the proceeding.

13. The trial commenced in the Supreme Court on 21 June 1999 and continued for five days. Starbronze was represented at the outset, but during the hearing withdrew from the action, and judgment in respect of the advance, together with interest and costs, was entered in favour of the bank in the amount of $976,702.37, together with interest pursuant to statute. Judgment was delivered on 16 August

2000 in favour of the bank. The judge ordered Motek Kranz, the fourth defendant ("Kranz") and Mansville, the present appellants, to pay the bank the sum of $976,702.37 together with interest, and Mansville's share of the proceeds from the sale of the Ballarat property was ordered to be released and paid to the bank.

18. Tompet Nominees Pty. Ltd. ("Tompet"), before the end of 1989, had traded for some years in shares. The company was controlled by two brothers, Tom and Peter Lefkovic, who were both accountants. The company had traded successfully prior to the share-market collapse in October 1987. However it was badly hit by the collapse in share prices at that time and fell rapidly into financial difficulty. Tompet's bankers were the Armadale branch of the bank, the manager being Grantley Haag, and the regional manager being Lawrence Brooke. By the middle of 1989 Tompet owed the bank approximately $1 million. That indebtedness was secured, inter alia, by registered first mortgages over four properties. Two of these were investment properties and the remaining two were the family home of Tom Lefkovic and his wife Meira, and the family home of the mother of the Lefkovic brothers, Mrs Clara Lefkovic. In July 1989 Tompet attempted to sell the two investment properties, but the attempt was unsuccessful and both properties were passed in. Thereafter consideration had to be given to the sale of the two remaining family properties.

21. Peter Lefkovic, however, had a friendly relationship with Lawrence Brooke, and was his personal accountant, as well as a valued source of referrals for the bank. Brooke had had numerous dealings with him in relation to mutual clients. Accordingly Tom Lefkovic came to the bank in late July or early August 1989 with a proposal for a further advance by the bank. The amount involved an advance sufficient to enable Tompet to acquire a private placement of shares in a company known as Phoenix Oil & Gas, and the sale of those shares after a holding period, at what was expected to be a substantial profit. An initial proposal which entailed a holding period of six months was rejected by the bank, but a later approach, which involved an advance of $300,000 to enable the acquisition of two million shares at 15 cents each with a holding period of some two to three months, was accepted. The bank agreed on the basis that the shares would be sold, in any event, by 31 December 1989, and on terms and conditions set forth in a file note of 11 August 1989.

24. Tom Lefkovic was company secretary to the Phoenix Fingall Group. He held that position, both of Phoenix Oil & Gas, whose shares were to be acquired, and of First Phoenix Consolidated, the company from whom the shares were to be bought. Tom Lefkovic proposed that the shares be acquired by Starbronze rather than by Tompet. Starbronze was a shelf company which had not traded up to this point, and he had received advice from solicitors for the Phoenix Fingall Group that it would be prudent for the acquisition to be made by a company having no apparent connection with him. Therefore the proposal put to the bank was that Starbronze would acquire the shares and make the profit, and that that profit would be used in reduction of Tompet's debt. Tom Lefkovic, a director of Starbronze, was further advised by the solicitors that he should immediately resign as a director of Starbronze. Lefkovic raised the matter with the branch manager, Haag, who was "uneasy about the transaction, the insider trading implications of which explained the involvement of the regional manager". The shares in Phoenix Oil & Gas were expected to rise, as a result of the proposed acquisition of a thermal burner which it was contemplated would contribute substantial profit for the company. The transaction was, however, inherently speculative, since there was no other cause for optimism, based on the company's balance sheet, that the shares would rise, and there were risks in the transaction including the holding period during which the shares could not be sold, the fact that they had to be sold by the end of the year, and that the parcel involved represented 5% of the entire capital of the company.

27. On or about 11 August 1989 approval was granted. Tom Lefkovic drew a cheque on the account of Starbronze, after funds from the $300,000 advance were placed in the Starbronze account, in favour of First Phoenix Consolidated, the vendor of the shares. But that cheque was stopped. Tom Lefkovic, very anxious to clinch the deal, then approached his "brother-in-law", Kranz, to see if he would provide further security for the loan by putting up the Ballarat property of which the latter was part owner. Kranz, through his company Mansville, was a joint owner of that property with his parents-in-law, Mr & Mrs Muhlbauer. Tom Lefkovic and Kranz had married sisters. Tom Lefkovic had been Kranz's accountant and often his business adviser for some 12 years. Kranz had had eight years of schooling in Israel, and had commenced but not completed an apprenticeship as an electrician. He could read, but not write English, and could not write cheques or business letters. He had, however, worked in the retail clothing industry for some 15 years, and during that time owned his own businesses in that industry. He had also worked as a builder and property developer. He had been associated with various corporate entities through which he, and various partners, had conducted business. Kranz relied upon Tom Lefkovic, during this association, in relation to much, but by no means all, of his financial and business advice.

30. Shortly after 11 August, Tom Lefkovic approached Kranz seeking his agreement to provide his share of the Ballarat property as security for the bank's advance. Kranz said in evidence that Lefkovic told Kranz that a related company had purchased shares to the value of $300,000 with the proceeds of an advance from the bank, that the bank had reversed the cheque, and that he was in difficulties as he needed to provide the bank with more security and time was running out. Kranz also said that Lefkovic told him "that he was buying shares at a lower price than they were currently on the market, and that the directors of the company were trying to help him out and that the profit from those shares would relieve the pressure from the bank on Tompet which in turn would relieve the pressure on his mother's house". Kranz said that he agreed to the proposal and that he would provide the property as security if their mutual parents-in-law agreed also to provide their share. Kranz said he was told nothing about the possible risks in the share transaction.

33. The directors of First Phoenix Consolidated gave Tom Lefkovic an extension in the form of a strict deadline of 4 p.m. on 28 August 1989. Tom Lefkovic then applied for a line of credit from the bank, which was prepared by the branch on 25 August. He provided the bank with all the information necessary to enable the bank to obtain a valuation and accept the Ballarat property as further security. Tom Lefkovic also on 25 August provided the branch with a statement of the assets and liabilities of Kranz. On the same date the amount of the loan was apparently changed from $300,000 to $335,000 in order to include an amount by way of interest. Tom Lefkovic gave evidence that on the same day he also drafted a proposed letter to be signed by his parents-in-law who were overseas, and who were returning the following Monday 28 August, and he said he consulted Haag about the letter. He gave evidence that he faxed the letter to Brooke, late that afternoon. Tom Lefkovic said he then had a conversation with Brooke about the letter, which referred to a "pledge" but did not refer to a guarantee. Neither Haag nor Brooke recollected any discussion with Lefkovic of this draft letter, and the judge made no finding as to whether any such discussion took place. Tom Lefkovic also filled out the Statement of Position form for Kranz, and which was signed by Kranz on 28 August.

36. The mortgage and the guarantee, together with other documents, including an acknowledgment of the speculative nature of the transactions, were signed by the parties on Monday 28 August. The time at which and the circumstances under which those documents were executed were the subject of conflicting evidence. Haag said in evidence that on an unspecified date prior to the date of execution he had had a meeting with Tom Lefkovic and Kranz, at which he had fully discussed the loan and the obligations of Mansville and Kranz. Brooke gave evidence that he met Tom Lefkovic and his wife and Kranz some time between 15 and 25 August, at a meeting at which he explained the nature of the transactions and the nature and effect of the guarantees and supporting securities. Both Haag and Brooke gave evidence of the unusual and speculative nature of the transaction. Kranz, however, gave evidence that neither of these meetings took place and said that he never met Brooke until he gave evidence. He said he met Haag, for the first time, when he signed the documents in his office.

39. Haag gave evidence of a meeting on Monday 28 August at which all of the parties including the Muhlbauers were present. At this meeting, which Haag said lasted about an hour, he said he fully explained the transactions, including their speculative nature, to the guarantors and proposed mortgagors. On the other hand, Kranz said that he had signed these documents, separately from the other parties, at Haag's office where he had gone on the morning of 28 August with Clara Lefkovic. Kranz said that the meeting lasted no more than five minutes in total, and nothing occurred other than that the documents, which were presented by Haag folded open on the pages to be signed, were signed. The other parties gave evidence that they signed in Haag's office at 3.15 p.m. on the same day. Mr & Mrs Muhlbauer said that they arrived back from overseas in the late morning and spent some time unwinding at home before going in the afternoon to the Armadale branch. They said in evidence that the meeting lasted 15 to 20 minutes, and that pleasantries were exchanged but there was absolutely no discussion about the documents or the nature of the transactions. In his reasons, the judge rejected the evidence of Haag as to the time and duration of this meeting, and preferred the evidence of Mr & Mrs Lefkovic and the Muhlbauers as to the procedure adopted.

42. The judge made the following findings of fact -

(a) Tom Lefkovic did not explain to Kranz the risks in the share deal;

(b) the deal demonstrated fluidity in the negotiation process and evidenced relative haste under pressure generated by Tom Lefkovic;

(c) Kranz, by 28 August 1989, had not been provided with any explanation of the transaction by the bank;

(d) no explanation of the transaction was offered by Haag to Kranz in the meeting which occurred on the morning of Monday 28 August;

(e) Tom Lefkovic, despite his evidence to the contrary, knew that he was signing a guarantee, as well as a mortgage;

(f) Tom Lefkovic did not explain to Kranz the extent of his commitment;

(g) Kranz relied on Lefkovic's financial advice to a considerable extent;

(h) Kranz signed the documentation without reading it in reliance on Tom Lefkovic's statement as to the ambit of his liability, and a "desperate" Lefkovic misled Kranz;

(i) Kranz signed the documents in a mistaken belief as to their effect, and would not have signed if he had known the real nature of the documents.

"Tom Lefkovic advised Motek Kranz on many, but not all, of his financial dealings. Their relationship was no more intimate than that of brothers-in-law. There was nothing in their association to put the bank on notice that the property developer would not receive adequate explanation from the accountant of the proposed transaction or that he necessarily required an independent explanation of it. In any event, in consummating the transaction, the bank placed all of the documentation - including a letter setting out details of the loan and its speculative nature - before Mr Kranz as the property developer. No document was hidden from him. His past experience made him well aware of the documentation constituting both a mortgage and a guarantee. On his evidence he chose not to read those documents. Relying, (as I have found), on the misleading statements of his brother-in-law as to their purport and effect, he signed them. It follows from what I have said that Mr Kranz cannot avail himself of any equitable relief."

52. Mansville and Kranz contended during the trial that the mortgage (in the case of Mansville) and the guarantee were void and unenforceable. Although the pleadings made no mention of unconscionability, Mansville and Kranz contended that in all the circumstances it would be unconscionable for the bank to enforce the mortgage and the guarantee. They contended that Tom Lefkovic was in a position of influence over Mansville and Kranz, that this was known to the bank, and that Lefkovic (as agent for the bank) misrepresented the nature of the principal transaction to the proposed sureties, and that the execution of the mortgage and guarantee constituted a fraud in equity by the bank against Mansville and Kranz. The contention was that Kranz was misled by Tom Lefkovic as to the nature of the principal transaction and as to the nature of the surety, in circumstances where, to the knowledge of the bank, it was likely that Tom Lefkovic would provide Kranz with a misleading and incomplete account of the transactions. It was argued that there was a relationship of trust and confidence between Tom Lefkovic and Kranz which would have put the bank on notice of Kranz's vulnerable position. Kranz, being a volunteer, was entitled to an explanation of the transaction from the bank or such an explanation from an independent third party. The judge, however, found that despite the fact that Kranz had been misled by Lefkovic and no explanation had been provided to Kranz, nonetheless there was no duty on the bank to provide such an explanation because, although there may have been a relationship of trust and confidence, there was no added dimension of intimacy which might attract the application of the doctrines set out in Garcia v. National Australia Bank Ltd.[2]

56. Kranz and Mansville now appeal from the judge's decision on numerous grounds, including that the judge should have found that the relationship between Kranz and Tom Lefkovic was such that in all the circumstances of the case it was unconscionable for the bank to enforce the transactions against them without first having ensured that the nature of the transactions was explained to them; and that his Honour erred in concluding that various of the circumstances surrounding the transaction and the entry into it by the appellants were not sufficient to put the bank on notice that Kranz would not have received an adequate explanation from Tom Lefkovic or otherwise to make it unconscionable for the bank to enforce the transaction. I shall refer to the grounds in more detail in setting out the arguments made in submission on behalf of the appellants.

60. In this Court, Dr Bleechmore, for the appellants, submitted that the single issue in the appeal was unconscionability, saying that the trial judge took an unduly narrow approach to equitable principles and to the decision in Garcia. The submission was that it would be unconscionable to permit the bank to enforce the mortgage and guarantee signed by the appellants on 28 August 1989 because (a) they were volunteers; (b) Tom Lefkovic, the principal debtor, had perpetrated a legal or equitable wrong against them by misleading them as to the nature of the transactions and failing to warn them of the risks inherent in the transactions; and (c) the bank did not explain the transactions to the appellants, or provide them with the opportunity of obtaining legal advice. It was contended that the bank had notice of the possibility that Lefkovic would perpetrate a legal wrong against the appellants or was put on enquiry by such knowledge as it had. Furthermore, it was argued that the bank gained a distinct and unusual benefit from the fact that the appellants signed the mortgage and guarantee, was a party to Lefkovic's actions in concealing his personal involvement and was itself in breach of its obligations to the appellants as sureties as it understood these obligations. I shall return to these arguments when considering the facts said by the appellants clearly to be established, but it is first necessary to examine the legal propositions upon which the appellants relied.

Garcia v. National Australia Bank Ltd.[3] and the claimed relationship of influence

65. Dr Bleechmore argued that there was a relationship of trust and confidence between Kranz and Tom Lefkovic of which the bank knew or should have been aware. He claimed that Kranz reposed great trust in his brother-in-law, who was also his accountant. Accordingly it was submitted that the principles accepted by the High Court in Garcia were applicable. It is plain that this was the argument principally pursued by the appellants before the trial judge, and, indeed, the respondent put it to this Court that this was the sole case made by the appellants in the court below and that they ought not now be permitted to pursue any different argument. The Court permitted the bank to file a Notice of Contention raising this issue, leaving for consideration whether leave to rely upon such an argument should be given.

68. In Garcia, the appellant/plaintiff, a married woman, had executed a mortgage, together with her husband, over their matrimonial home in favour of a bank. The woman later signed four guarantees in favour of the successor to the mortgagee bank. The guarantees related to loans made to businesses conducted by her husband. The parties were divorced in 1989 and the woman commenced proceedings seeking to have the guarantees set aside. The successor bank demanded payment under the last of the guarantees executed by her. It was held by the High Court that enforcement of the relevant guarantees against the woman would be unconscionable.

71. At first instance, Young, J. relying on Yerkey v. Jones[4] held that none of the guarantees the plaintiff had given bound her and declared that no moneys were owing by her under the mortgage. The bank appealed to the New South Wales Court of Appeal which held that it was not bound to follow Yerkey v. Jones and allowed the appeal. That Court had taken the view that Yerkey v. Jones had been overruled by Commercial Bank of Australia Ltd. v. Amadio[5] or that the principles applied in Yerkey v. Jones had been subsumed in principles applied in Amadio.

74. In Yerkey v. Jones, Dixon, J. dealt with two different situations, the first where there had been actual undue influence by a husband over a wife, and the second where there had been a failure adequately and accurately to explain the transaction of surety which the husband wished the wife to undertake on his behalf. Of the latter, Dixon, J. said[6] -

"In the second case, that where the wife agrees to become surety at the instance of her husband though she does not understand the effect of the document or the nature of the transaction, her failure to do so may be the result of the husband's actually misleading her, but in any case it could hardly occur without some impropriety on his part even if that impropriety consisted only in his neglect to inform her of the exact nature of that to which she is willing blindly, ignorantly or mistakenly to assent. But, where the substantial or only ground for impeaching the instrument is misunderstanding or want of understanding of its contents or effect, the amount of reliance placed by the creditor upon the husband for the purpose of informing his wife of what she was about must be of great importance. If the creditor takes adequate steps to inform her and reasonably supposes that she has an adequate comprehension of the obligations she is undertaking and an understanding of the effect of the transaction, the fact that she has failed to grasp some material part of the document, or, indeed, the significance of what she is doing, cannot, I think, in itself give her an equity to set it aside, notwithstanding that at an earlier stage the creditor relied upon her husband to obtain her consent to enter into the obligation of surety. The creditor may have done enough by superintending himself the execution of the document and by attempting to assure himself by means of questions or explanation that she knows to what she is committing herself. The sufficiency of this must depend on circumstances, as, for example, the ramifications and complexities of the transaction, the amount of deception practised by the husband upon his wife and the intelligence and business understanding of the woman. But, if the wife has been in receipt of the advice of a stranger whom the creditor believes on reasonable grounds to be competent, independent and disinterested, then the circumstances would need to be very exceptional before the creditor could be held bound by any equity which otherwise might arise from the husband's conduct and his wife's actual failure to understand the transaction. (Cf Bank of Victoria Ltd. v. Mueller [1925] VicLawRp 74; [1925] VLR 642 at 649, per Cussen, J.) If undue influence in the full sense is not made out but the elements of pressure, surprise, misrepresentation or some or one of them combine with or cause a misunderstanding or failure to understand the document or transaction, the final question must be whether the grounds upon which the creditor believed that the document was fairly obtained and executed by a woman sufficiently understanding its purport and effect were such that it would be inequitable to fix the creditor with the consequences of the husband's improper or unfair dealing with his wife."

78. In Garcia, Gaudron, McHugh, Gummow and Hayne, JJ. said[7] of Yerkey v. Jones -

"The principles applied in Yerkey v. Jones do not depend upon the creditor having, at the time the guarantee is taken, notice of some unconscionable dealing between the husband as borrower and the wife as surety. 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, in what we have called the first kind of case, that to enforce that voluntary transaction against her when in fact she did not bring a free will to its execution would be unconscionable. It holds further, in the second kind of case, that to enforce it 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 it in the second kind of case 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 the surety 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 her husband 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. To hold, as Yerkey v. Jones did, that in those circumstances the enforcement of the guarantee would be unconscionable represents no departure from accepted principle. Rather, it `conforms to the fundamental principle according to which equity acts, namely that a party having a legal right shall not be permitted to exercise it in such a way that the exercise amounts to unconscionable conduct.' It will be seen that the analysis of the second kind of case identified in Yerkey v. Jones is not one which depends upon any presumption of undue influence by the husband over the wife. As we have said, undue influence is dealt with separately and differently. Nor does the analysis depend upon identifying the husband as acting as agent for the creditor in procuring the wife's agreement to the transaction. Rather, it depends upon the surety being a volunteer and mistaken about the purport and effect of the transaction, . 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." (Footnotes omitted, emphasis added.)

82. In the present case the judge made detailed reference to the judgments in Garcia and related cases and concluded as follows[8] -

"In my view, therefore, the current state of the law is that relationships of trust and confidence do not extend beyond the most intimate of family relationships. The fact that a person may have trust and confidence in another, (which trust and confidence may prove to be misplaced), cannot, without the added dimension of intimacy, attract this aspect of the equitable doctrine of unconscionability. Could it be said, for example, that the relationship should extend to a solicitor who persuades a grateful wealthy client whose confidence and trust he has won, to assist him by going surety in a particular financial transaction? I think not. Nor could a creditor such as a bank be expected to divine from such a relationship the need for a specific explanation to the surety or for independent legal advice."

86. This passage does, I think, with respect, confine the application of the principles applied in Garcia within limits that cannot be justified. The relationship between solicitor and client is, of course, one of those considered to involve such a reposing of trust and confidence and the likelihood of the exercise of authority by the solicitor over the client, that any substantial gift would require to be justified by the solicitor,[9] although the facts will need careful scrutiny, e.g. where the client is sophisticated in matters of business, and the presumption may easily be rebutted in such circumstances[10]. But, with more relevance to the present argument, as their Honours said in Garcia in the emphasised passage quoted in paragraph [22] above, the second kind of case identified in Yerkey v. Jones depends upon the "creditor being taken to have appreciated that because of the trust and confidence between surety and debtor, the surety may well have received from the debtor no sufficient explanation of the transactions purport and effect". The application of Garcia is not, in my view, to be limited to the most intimate of family relationships.

89. In Groom v. Hibbert[11] Bryson, J. said -

"Extension of the principles acted on in Garcia from wives to all married persons, or to all women, or all persons who are living in de facto relationships, or all persons who shared domestic relationships without consideration in detail of the circumstances of those relationships does not appear to me to be a development which the law can realistically be expected to take. The only extension which seriously falls for consideration if persons other than wives are to be protected appears to me to be an extension of the kind addressed by Kirby, J. and acted on by the House of Lords in O'Brien, that is, to all cases where one co-habitee stands surety for the co-habitee's debts and the creditor is aware that there is an emotional relationship between the co-habitees, and to other relationships where the creditor is aware that the surety reposes trust and confidence in the principal debtor. As a matter of judicial authority there has been no such extension."

On the other hand, in State Bank of New South Wales Ltd. v. Layoun[12], Levine, J. found on the facts that the defendants, a husband and wife who had mortgaged their house to secure advances to another party, did so under the influence of their eldest son, in whom they reposed a special kind of trust and confidence, that situation being found to be known to the plaintiff bank. Levine, J. held that the defendants were entitled to equitable relief against the bank's claim.

94. Similarly, in Blackshaw Services Pty. Ltd. v. Cureton[13], Palmer, J. made a finding of special disadvantage leading to a conclusion that the defendant had been guilty of unconscionable conduct in a situation where the relationship was merely one of friendship between a carpenter and joiner and an experienced businessman, his Honour saying[14] -

"Equity intervenes on the ground of unconscionable conduct whenever, by reason of circumstances affecting his or her ability to conserve his or her own interest, one party to a transaction is at a special disadvantage in dealing with the other party and that other party unconscientiously takes advantage of the opportunity misplaced in his or her hands. The circumstances by which a party may be placed at a special disadvantage in the ability to conserve his or her own interest are as infinitely various as human relationships. What is necessary for the intervention of equity is exploitation by one party of another's position of special disadvantage in such a manner that the former cannot, in good conscience, retain the benefit of the bargain. The doctrine applies as much to a gift as to a commercial transaction ...".

98. In ANZ Bank Group Ltd. v. Alirezai [15], a guarantee was given by Alirezai for the benefit of one Sarlak, the former permitting the title deed to his property to support the guarantee. The ANZ Bank advised Sarlak to inform Alirezai that he would have to take the mortgage to a solicitor and that one of the documents the bank required to be signed was a letter of independent advice from the solicitor consulted by Alirezai. At the time Sarlak requested Alirezai to allow his title deed to be used to support the guarantee, he knew that Alirezai felt a moral obligation to him and was making use of that friendship. The judge accepted that Alirezai agreed to provide the surety to Sarlak because he felt a moral obligation, arising from an earlier loan. The judge also found that Sarlak did not inform Alirezai that the guarantee would be used to support all the outstanding debts and liabilities of Sarlak's company.

101. Submissions were made on behalf of Alirezai seeking to expand the circumstances in which a court would find it unconscionable for a lender to enforce a guarantee against a volunteer, based upon Garcia. It was submitted that it was sufficient if the lender was to be taken to have understood that the surety may repose trust and confidence in the debtor and the debtor may not fully and accurately explain the purport and effect of the transaction to the surety. Mullins, J., however, confined the development of the principles in Garcia to relationships of a like nature to marriage and said that they had no application whatsoever to Alirezai's relationship with Sarlak.[16]

104. The appellants placed particular reliance on Royal Bank of Scotland plc v. Etridge (No. 2)[17], where the House of Lords considered eight appeals, seven of which were based on claims of undue influence said to have been exercised by parties seeking a loan over other parties who were to provide a charge over property as security. Following the earlier decision of Barclays Bank plc v. O'Brien[18] Lord Nicholls of Birkenhead said[19] -

"These considerations point forcibly to the conclusion that there is no rational cut-off point, with certain types of relationship being susceptible to the O'Brien principle and others not. Further, if a bank is not to be required to evaluate the extent to which its customer has influence over a proposed guarantor, the only practical way forward is to regard banks as `put on inquiry' in every case where the relationship between the surety and the debtor is non-commercial. The creditor must always take reasonable steps to bring home to the individual guarantor the risks he is running by standing as surety. As a measure of protection, this is valuable. But, in all conscience, it is a modest burden for banks and other lenders. It is no more than is reasonably to be expected of a creditor who is taking a guarantee from an individual. If the bank or other creditor does not take these steps, it is deemed to have notice of any claim the guarantor may have that the transaction was procured by undue influence or misrepresentation on the part of the debtor. Different considerations apply where the relationship between the debtor and guarantor is commercial, as where a guarantor is being paid a fee, or a company is guaranteeing the debts of another company in the same group. Those engaged in business can be regarded as capable of looking after themselves and understanding the risks involved in the giving of guarantees. By the decisions of this House in O'Brien and the Court of Appeal in Credit Lyonnais Bank Nederland NV v. Burch [1996] EWCA Civ 1292; [1997] 1 All ER 144, English law has taken its first strides in the development of some such general principle. It is a workable principle. It is also simple, coherent and eminently desirable. I venture to think this is the way the law is moving, and should continue to move. Equity, it is said, is not past the age of child-bearing. In the present context the equitable concept of being `put on inquiry' is the parent of a principle of general application, a principle which imposes no more than a modest obligation on banks and other creditors. The existence of this obligation in all non-commercial cases does not go beyond the reasonable requirements of the present times. In future, banks and other creditors should regulate their affairs accordingly."

108. In Garcia the High Court refused to follow the decision of Barclays Bank v. O'Brien, where the concept of constructive notice was embraced in this context for English courts. As will be seen from the passage quoted above from Etridge, the House of Lords has now taken the position further in that for non-commercial relationships of which a bank is aware, the bank is put on enquiry when a volunteer offers to stand surety for another.[20]

111. In the present case it was put to us by Mr Mukhtar for the bank that the judge had correctly confined the application of Garcia to a relationship of husband and wife, even though allowing for a possible extension to other intimate relationships (the judge elsewhere expressed it as extending to a person "perhaps involved in a similar long term relationship"). But the formulation in the judgment of the majority of the High Court in Garcia is not so confined. The principle stated by the High Court in Garcia would make it unconscionable for a bank to enforce a guarantee given by a volunteer if it has not explained the situation to the guarantor, and does not know that an independent person has done so, if the bank knows that there was a relationship of trust and confidence between the guarantor and the debtor whose debt has been guaranteed.[21] In Australia it remains therefore for the debtor to establish that the bank was aware of a relationship that put the bank on enquiry, such as that of husband and wife or solicitor and client, or that there was a relationship of trust and confidence between the debtor and the third party.

114. Dr Bleechmore did not cite any authority for the proposition that the presumption of undue influence could arise between brothers-in-law. Indeed, there is authority that the presumption does not extend even to brothers; see Armstrong v. Armstrong[22].

117. The respondent placed reliance on the decision in Lisciandro v. Official Trustee in Bankruptcy[23], in which Alminco Pty. Ltd. made a claim on a guarantee given by the appellant Lisciandro in respect of the obligations of TAG Industries Pty. Ltd. The trial judge[24] found that Lisciandro, who had a limited command of English, executed the guarantee without knowing what he was signing, at the request of one Radford, a friend, who wanted to set up TAG Industries as a vehicle for his expanding business. The trial judge found that Lisciandro executed the guarantee as a result of misrepresentations made to him by Radford, an undischarged bankrupt, together with the abuse by Radford of the friendship and trust placed in him by Lisciandro. Kiefel, J. held that insofar as the appellant's challenge relied on Amadio, there was nothing to show that Alminco had any knowledge of Lisciandro's position of disadvantage vis-à-vis Radford and that there was nothing in the circumstances of the case known to Alminco to put it on enquiry as to Lisciandro's circumstances or as to his understanding of the transaction involving the guarantee. Ryan and Drummond, JJ. said[25] -

"There is nothing in Amadio that lends support for the view, implicit in the appellant's argument, that whenever a third party provides security for another, the person taking the security is, for that reason alone, put on enquiry with regard to the circumstances in which the third party decided to accommodate the person for whose benefit the third party gave the security."

"Without some additional relevant circumstances, neither the fact that a creditor entrusts the procurement of the execution of a guarantee by a third party to a debtor who has a motive or interest in its being executed, nor the fact that a guarantee is provided by the debtor from a person unknown to the creditor and who, on the material before the creditor, is not in an apparent emotional or influential relationship with the debtor, would objectively give rise to a belief in the mind of any reasonable person that the third party was a person in a position of special disability in respect of the transaction and that the debtor would wrongfully take unfair advantage of that disability to procure the guarantee, or that such was a reasonable possibility."

123. Lisciandro was not mentioned in the judgments in Garcia. The passages quoted are, of course, inconsistent with the view now taken in English courts as a result of the decisions in Barclays Bank v. O'Brien and Etridge. But, for the reasons I have already given, the passages quoted above from the judgments in Liasciandro remain, in my view, a correct statement of the law in Australia.

A surety in a special situation of disadvantage?

127. The second limb of the appellant's argument involved a claim that the arrangement between the bank and Lefkovic was a speculative and unusual transaction fraught with risk, and that these matters were known to the bank. Accordingly, so the argument ran, the bank, aware of all this, was obliged to ensure that the appellants were warned of the speculative and risky aspects of the transaction and failed to give the appellants any appropriate warning. The bank, as I have said, complained in this Court that this was a new argument raised for the first time on appeal. Careful scrutiny of the submissions made in the Court below does not support the bank's contention. The appellants clearly based their case principally on the concepts expounded in Garcia and on the claim that the bank knew or ought to have known that there was a relationship of "trust and confidence" between Kranz and Tom Lefkovic, and that Kranz reposed trust in his brother-in-law and accountant. But under the general heading of unconscionability, reference was certainly made to the question whether the appellants had, in effect, been forced into an unconscientious bargain and to the decision in Amadio. The fact that these arguments were bundled together under the general heading of unconscionability, supported by the decision in Garcia, is, I think, responsible for the comparative brevity of the trial judge's reasons in reference to the second limb of the appellants' argument.[27]

130. Dr Bleechmore's submissions in this respect commenced with a reference to the judgment of Fullagar, J. in Blomley v. Ryan[28], where his Honour said -

"The circumstances adversely affecting a party, which may induce a court of equity either to refuse its aid or to set a transaction aside, are of great variety and can hardly be satisfactorily classified. Among them are poverty or a 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. The common characteristic seems to be that they have the effect of placing one party at a serious disadvantage vis-à-vis the other. It does not appear to be essential in all cases that the party at a disadvantage should suffer loss or detriment by the bargain." (Emphasis added.)

In Commercial Bank v. Amadio, Mason, J. dealt at some length with the situation where one party makes unconscientious use of a superior position or bargaining power to the detriment of a party suffering from some special disability or is placed in some special situation of disadvantage. His Honour said[29] -

"Relief on the ground of unconscionable conduct will be granted when unconscientious advantage is taken of an innocent party whose will is overborne so that it is not independent and voluntary, just as it will be granted when such advantage is taken of an innocent party who, though not deprived of an independent and voluntary will, is unable to make a worthwhile judgment as to what is in his best interest."

After making reference to the passage in the judgment of Fullagar, J. quoted above, Mason, J. continued[30] -

"It is made plain enough, especially by Fullagar, J., that the situations mentioned are no more than particular exemplifications of an underlying general principle which may be invoked whenever one party by reason of some condition of circumstance is placed at a special disadvantage vis-à-vis another and unfair or unconscientious advantage is then taken of the opportunity thereby created. I qualify the word `disadvantage' by the adjective `special' in order to disavow any suggestion that the principle applies whenever there is some difference in the bargaining power of the parties and in order to emphasise that the disabling condition or circumstance is one which seriously affects the ability of the innocent party to make a judgment as to his own best interests, when the other party knows or ought to know of the existence of that condition or circumstance and of its effect on the innocent party."

In Amadio, two elderly migrants, unfamiliar with written English, were asked by their son to execute a mortgage in favour of a bank over land which they owned to secure the overdraft of a company controlled by the son. The son had told his parents that the mortgage was to be limited to $50,000 and was to be for six months. The bank and the company had been selectively dishonouring the company's cheques to preserve the company's appearance of solvency. The bank and the company agreed that the overdraft the mortgage was to secure should be reduced and cleared within a short time, but these matters were not disclosed to the Amadios. A mortgage instrument which the bank submitted for execution contained a guarantee. The mortgage and the guarantee secured all amounts owing or which might be owing to the bank on the company's account. The mortgagors executed the deed mistakenly believing it to be limited to $50,000. The bank was aware that the Amadios had been misinformed about the contents of the instrument they were executing.

139. In Louth v. Diprose[31], Blomley v. Ryan and Amadio were applied in circumstances where a man gave $58,000 to a woman with whom he was infatuated for the purchase of a house for occupation by herself and her children by an earlier marriage. The man later sought to recover the land which had been purchased with this money. The trial judge found that the man had become emotionally dependent on the woman, who had great influence over his actions and decisions. The woman had manufactured an air of crisis about her situation in order to influence him to provide the money for the house, and was aware of (and manipulated) his infatuation and of his consequent inability to judge what was in his best interests. The High Court affirmed the view that the woman had been guilty of unconscionable conduct in procuring and retaining the gift. Deane, J. said[32] -

"It has long been established that the jurisdiction of courts of equity to relieve against unconscionable dealing extends generally to circumstances in which (i) a party to a transaction was under a special disability in dealing with the other party to the transaction with the consequence that there was an absence of any reasonable degree of equality between them and (ii) that special disability was sufficiently evident to the other party to make it prima facie unfair or `unconscionable' that the other party procure, accept or retain the benefit of, the disadvantaged party's assent to the impugned transaction in the circumstances in which he or she procured or accepted it. Where such circumstances are shown to have existed, an onus is cast upon the stronger party to show that the transaction was fair, just and reasonable: `the burthen of showing the fairness of the transaction is thrown on the person who seeks to obtain' or retain the benefit of it."

Then in Bridgewater v. Leahy[33], the owner of certain grazing land transferred the land to a nephew, in effect for a consideration which was substantially less than the value of the land. The High Court by a majority held that the uncle's strong emotional dependence upon or attachment to his nephew placed him in a position of disadvantage such that it was unconscionable for the nephew and his wife to retain the benefit. Gaudron, Gummow and Kirby, JJ. held[34], quoting Hart v. O'Connor[35] that such unconscionable conduct might consist either in the "active extortion of a benefit or the passive acceptance of a benefit in unconscionable circumstances".

144. When the issues in the present appeal are considered in the context of the cases quoted above, it is, I think, clear that the position of special disability or disadvantage in which the surety is placed must have been known or evident to the bank, or something which the bank ought to have known, before it would become unconscionable for the bank to enforce the guarantee and mortgage against the appellants. For example, in Amadio the bank was aware of the son's position of influence over his parents, of their disabilities, and of the fact that the parents had been misinformed about the contents of the document they were signing. In Louth v. Diprose, the woman was found to have been dishonest in her conduct. In Bridgewater v. Leahy the nephew was well aware of his position of influence over his uncle, and the initiative leading to the execution of the transfers and the deed of forgiveness had been taken by the nephew.

147. It then becomes necessary to examine the evidence to see whether any position of special disability or disadvantage in which the appellants were placed was known or evident to the bank, or something of which the bank ought to have been aware.

The position of Kranz and his relationship with Tom Lefkovic

151. The judge's findings set out in paragraph 12 above make a clear case of Kranz having been misled into signing the documents for this transaction in consequence of Tom Lefkovic's misrepresentations. His Honour said[36] that "Kranz signed the various documents in a mistaken belief as to their effect. He did so without properly reading them and in reliance upon the advice of his brother-in-law Tom Lefkovic as to the financial obligations he was undertaking". But, although Kranz was not specifically instructed by the bank as to the financial effects of the transaction, the judge did not accept that there was any effort by the bank to conceal the true nature of the transaction.

154. Not only was Tom Lefkovic Kranz's brother-in-law, but Lefkovic had also acted as Kranz's accountant and as his business adviser. Tom Lefkovic, whose evidence the judge frequently did not accept said that "basically Motti wouldn't scratch himself unless he asked me first if it was all right to do it". Kranz said in evidence that he relied on Tom Lefkovic's advice. But it is, on the other hand, plain from the evidence that Kranz did not lack business acumen. His evidence was that he was a director of "many companies", being unable to say in evidence how many. He had for eight years conducted two shops under the name "Delmonte Suits" in Richmond and Ascot Vale. He was involved in the management of companies which had nothing to do with Tom Lefkovic and was used to making commercial decisions. He had previously signed mortgage documents and had acted as guarantor in other dealings with the bank. The judge found that Kranz relied on Tom Lefkovic's financial advice "to a considerable extent".

158. The judge in the passage quoted at [14] above, found that the relationship of Tom Lefkovic and Kranz was no more intimate than that of brothers-in-law, and that there was nothing in their association to put the bank on notice that Kranz would not receive an adequate explanation, or that he necessarily required an independent explanation. On the evidence accepted by the judge, neither Brooke nor Haag, the manager of the Armadale branch, had met Kranz before 28 August 1989. Kranz himself said he had no dealings with the bank before 28 August 1989, and the evidence of both Brooke and Haag that they had met Kranz earlier than 28 August was not accepted by the judge. Haag said that he had had no dealings with Kranz other than in relation to the present transactions. Haag also said that he did not know Tom Lefkovic was Kranz's accountant. If the judge accepted Haag's evidence of these matters, the only information the bank had therefore relating to Kranz was the documentary enquiry and report dated 25 August which showed Kranz to be a businessman of some substance with interests in a number of properties together with the fact that Tom Lefkovic knew enough of Kranz's circumstances to be able to provide this information.

161. Dr Bleechmore argued that the bank knew of facts which made it likely that Kranz trusted Tom Lefkovic, including that Kranz was "family", Tom Lefkovic was an accountant, and a "dominant" member of the family, and that Tom Lefkovic handled all aspects of the transaction after Kranz gave the go ahead. It was argued that the bank knew that Lefkovic was providing all of the financial information relating to Kranz and therefore that he might well be Kranz's financial adviser, or that Kranz had trusted this information to Lefkovic so that it was likely that he trusted him.

164. Given the limited extent of the information available to the bank, I do not accept that the bank knew or should have assumed that there was a relationship of trust and confidence between Kranz and Tom Lefkovic, so as to bring into play the principles acted on in Garcia. My opinion that the judge confined the Garcia principle too narrowly is thus of no relevance to the conclusion that no error is to be found in his Honour's decision, on the facts established in evidence, that the Garcia argument should be rejected.

Was the bank on notice that Kranz was in a position of special disadvantage, or that the bargain he was being asked to make was unconscientious?

168. It is convenient to deal with these questions together since a number of the individual considerations urged by the appellants related to both issues. At the meeting between Haag and Kranz at Haag's office on Monday 28 August 1989, Kranz, as I have said, signed various documents including a personal guarantee and, as director of Mansville, a mortgage in relation to the Ballarat property. Amongst these documents was the following letter directed to the manager of the bank which Kranz signed both personally and as director and secretary of Mansville as trustee for the Kranz family trust. The letter was in the following terms -

"We hereby acknowledge the speculative nature of the transaction being undertaken by Starbronze Pty. Ltd. wherein the company has purchased two million shares in Phoenix Oil & Gas at a purchase price of $0-15 per share. In respect of the Guarantee & Indemnity to National Australia Bank Ltd. for $300,000 dated 28 August 1989 in favour of Starbronze Pty. Ltd. given by us, we confirm the provisions of the Guarantee have been explained and we clearly understand the nature of the document and the extent of the liability in terms of it - now and in the future. The Guarantee & Indemnity was entered into freely and with no undue influence on the part of the borrower or the Bank staff. We also acknowledge and concur that mortgage (sic) to National Australia Bank Ltd. over a property situate at 912-914 Geelong Road Ballarat as described in Certificate of Title Volume 3953 Folio 424 will secure and support the Guarantee detailed above."

Kranz, together with Tom Lefkovic and his wife, also signed the following undertaking at that time -

"We, the Directors of Starbronze Pty. Ltd., hereby undertake and agree to dispose of all Phoenix Oil & Gas scrip in the company's name prior to 31st December 1989 and place all proceeds to the clearance of debts on account of Starbronze Pty. Ltd. and to reduce debts on account of Tompet Nominees Pty. Ltd."

174. As Chernov, J.A. said in Marian Mitchell v. 700 Young Street Pty. Ltd. & Ors[37], as a matter of basic principle, where a person of full age and sound mind voluntarily executes a deed or a contractual document by which he or she assumes an obligation to another party that person is ordinarily bound by that document. The trial judge was plainly acting on such a view in the passage quoted above[38]. It is now necessary to turn to the various matters upon which counsel for the appellants relied in seeking relief in equity on the basis of unconscionable conduct. I shall take these matters seriatim.

178. During cross-examination of Haag at trial, counsel for the appellants launched a strong attack on the bank alleging that the transaction involved blatant insider trading. It is, I think, important in reading this cross-examination to bear in mind that Haag, and for that matter Brooke, were both being cross-examined in June 1999 about events which had occurred in August 1989. Haag said in cross-examination that Tom Lefkovic had told the bank what the Phoenix Oil & Gas group was doing and that it was their assumption that the shares would increase in price and that he would progressively sell them on the market and liquidate the debt. Haag said that "there was going to be some action within the Phoenix group" and counsel filled out this statement by suggesting that there was "some information about the acquisition of a thermal burner by Phoenix Oil & Gas". Counsel then put it that this was price sensitive information, information not generally available to the public. Haag agreed that he felt uneasy about whether the bank was doing the right thing in supporting this transaction and in answer to the question "It's a blatant case of insider trading wasn't it?" replied - "Yes, well that was the - my assumption and that's why Mr Brooke was involved." The same allegations were later put to Brooke.

181. The argument was pursued in this Court by counsel for the appellants, who again put it that this was a blatant case of insider trading in which the bank was complicit, and that the sureties were given no information about the insider trading aspects of the transaction at all.

184. Once the facts are examined in detail, it is apparent that these serious allegations have no fair basis. The evidence was that Tom Lefkovic approached Haag in late July or early August 1989 seeking a loan to enable Tompet to purchase the shares in Phoenix Oil & Gas. On 3 August Phoenix Oil & Gas announced in a letter to the Australian Stock Exchange in Brisbane that it was purchasing the first "waste conversion thermal burner which would be used to demonstrate in Australia that waste can now be treated as a fuel to power boilers and produce processed steam for various needs." It was the acquisition of this burner which it was hoped would cause the shares of Phoenix Oil & Gas to rise substantially on the open stock exchange market. The first internal bank document relating to this proposal was dated 9 August 1989 from Brooke to J.K. Dawson, the bank's Zone General Manager, Metro South East Zone. That memorandum contains the following paragraph -

"In view of the environmental impact interest among industry is said to be extremely high and the announcement to the Brisbane stock exchange on 3/8/89 has resulted in the share price of Phoenix jumping 20 cents to currently 32 cents. There are no sellers at present. Phoenix has in the past held various interests in resource exploration but will now direct all its energy to the thermal burner."

There was substantial cross-examination both of Haag and Brooke in relation to the question of insider trading, and submissions in relation to what was said to be insider trading were made by counsel to the trial judge. The matter was plainly present to the judge's mind when writing his reasons, for the announcement to the stock exchange and the expectation of an increase in share price was mentioned by his Honour[39]. From reading the judge's comments during cross-examination and from the absence of any further mention of these allegations in the reasons for judgment, I infer that his Honour was not impressed by the suggestion that the bank had been complicit in or aware of the transaction having insider trading implications.

The allegation that the bank was aware that Tom Lefkovic was willing to conceal his activities, in particular, his involvement with Starbronze, from the authorities and the public

190. The judge noted in his reasons that the loan was eventually made to Starbronze, which had replaced Tompet as the recipient of the loan and which was to become the vehicle for the purchase and ultimate sale of the shares. Evidence before the court demonstrated that on 18 July 1989 Tom Lefkovic resigned as a director and the secretary of Starbronze. During evidence Tom Lefkovic had said that he had been given advice by solicitors that it would not be prudent for Tompet to acquire the shares in Phoenix Oil & Gas from First Phoenix Consolidated, because he was a director of Tompet Nominees as well as being associated with the Phoenix companies as company secretary both of Phoenix Oil & Gas and First Phoenix Consolidated. Accordingly, he was advised that he should resign as an officer of Starbronze which was then substituted as the proposed purchaser of the shares. There was no suggestion that the bank was involved in the giving of this advice and the timing of Tom Lefkovic's resignation as an officer of Starbronze suggests that it occurred well before he first went to the bank seeking the loan.

193. Having regard to the announcement to the Stock Exchange of 3 August, and the internal bank memorandum of 9 August referred to above, there was, as I have said, no question of insider trading and no need for concealment on that account. There was a question of conflict of interest which would have made it necessary for Tom Lefkovic not to participate in any decision made by the companies in the Pheonix group to allow its company secretary to purchase shares at a discount. It was plainly a matter for the directors of those companies whether to allow one of the company's officers to receive the benefit of such a transaction, no doubt to be disclosed in due course to the company's shareholders.

196. In these circumstances there was, again, nothing to conceal, in my view, from any regulatory authority and the obvious purpose of Tom Lefkovic's resignation was to avoid any appearance of a conflict of interest. Haag was, however, vigorously cross-examined by counsel for the appellants about his knowledge of Tom Lefkovic's actions in resigning as a director of Starbronze and it was put to him that Lefkovic had resigned so that he would be "distanced from the transaction to some degree if he wasn't a director of Starbronze", to which Haag replied that "it would appear so". As I have said, it was put in argument to this Court by counsel for the appellants that the bank was thus a party to actions of Lefkovic carried out for the purpose of concealing his personal involvement in the principal transaction, a submission which, for the reasons I have given, seems to me to be quite unsupported by the evidence. Kranz was, of course, a director of Starbronze.

200. Counsel for the appellant also submitted that the bank had received information by way of a draft letter (in respect of which there was no finding by the learned judge) which, however, indicated that it was likely that Kranz was fundamentally mistaken as to the extent of his obligations. The submission proceeded that the bank should have realised that Tom Lefkovic was unscrupulous and capable of concealing aspects of the transactions and concealing his involvement in order to avoid or minimise official scrutiny.

203. The letter in question was sent by Tom Lefkovic to Brooke's office after 5 p.m. on the evening of Friday 25 August. Lefkovic's purpose was to ascertain whether the bank would regard it as an appropriate letter for signature by the Muhlbauers, indicating their willingness to pledge by mortgage their one-half interest in the property at Geelong Road, Ballarat, in support of the facility. The letter was in the following terms, addressed to Haag -

"We confirm that we are prepared to pledge our one-half interest in the property situated at 912 to 914 Geelong Road Ballarat, in support of the $300,000 facility being made available to the abovenamed Company. In addition we wish to advise that we authorise our power of attorney to sign the necessary documentation on our behalf, and undertake to sign same, if required, on our return to Australia."

Haag was cross-examined at length about the letter. Tom Lefkovic later said in evidence that he had discussed the contents with Haag before sending it, but despite being pressed at some length Haag had no recollection of discussing this document with him. On one view the letter demonstrated a serious misconception as to the transaction the Muhlbauers were being asked to enter since it made no mention of the guarantee they were also being asked to give. Thus, the argument continued, it also evidenced to the bank a willingness on the part of Tom Lefkovic to mislead the Muhlbauers and conceal from them the extent of the obligations they were undertaking. Brooke, whose office received the letter after 5 p.m. on the evening of 25 August, said he could not recall seeing the letter at the time.

208. The mortgage, guarantee and other documents which were to be signed by the parties had all been prepared before the time this letter was faxed to the bank on the evening of Friday 25 August. There is no evidence that Haag ever saw the letter, nor did he accept having discussed its contents with Tom Lefkovic. Although Lefkovic said in evidence that he had indeed discussed the contents of the letter with Haag, his evidence was frequently rejected by the judge as unreliable and requiring corroboration, and the judge made no finding adverse to the bank in relation to this matter. There is in the circumstances no basis for saying that the bank was or should have been aware from the contents of this letter that Tom Lefkovic was willing to conceal any aspect of the transaction, was unscrupulous, or was likely to mislead any member of his family in relation to these transactions.

212. It was put by counsel for the appellants that the transaction proposed by Lefkovic was speculative, unusual and possessed a "downside" with extremely negative features. The argument continued that the bank should have asked itself why a volunteer would have pledged all his assets in support of such an enterprise had he been provided with a complete explanation of the transaction.

215. The proposal originally put to the bank contemplated lending an additional $600,000 to Tompet to enable the company to purchase shares from Pheonix Oil & Gas by private placement. This first proposal was that Tom Lefkovic and Tompet should hold the shares for six months and then only sell them over a period of two to three weeks so as not adversely to impact on the market. This proposal was not acceptable to the bank, although Brooke's memorandum of 9 August dealing with the original proposal showed a willingness to support the proposal "on the basis that we are confident that the bank will not suffer a loss". In evidence Haag said that he was uneasy about the proposal, and had not been involved in a transaction like this before. He made it clear that the reason for his uneasiness was that the bank would be lending for the purpose of buying shares in the speculative hope that the shares were going to increase in value. It was in that sense that the transaction was unusual and, not having seen something like this before, he wondered why the bank was doing it. Brooke, who had supported the proposal in the memorandum of 9 August, accepted that the transaction was unusual in that it was "unusual for the bank to lend money for the acquisition of shares". But he said nevertheless that in the corporate environment he had done it on numerous occasions and that lending money to a share trader for further trading in shares was not entirely uncommon, and that there was a long history of it. I shall turn later to the arguments made by Dr Bleechmore in relation to the confined holding period of the shares.

The bank was said to have gained an unusual benefit

219. Next it was put that the bank knew that Kranz was a member of Lefkovic's family, and that Lefkovic was involving members of his family to provide the added security requested by the Bank. Counsel relied on the relationship between Peter Lefkovic and the regional manager Brooke. It was said that the bank had particular and unusual reasons for ushering the transaction through. The argument, based originally on Brooke's memorandum of 9 August, was that Peter Lefkovic was not only a valued longstanding customer of the bank, but had been responsible for the introduction of approximately "$20-million in good business over the last two years" and was the bank's major referral partner over ten years, responsible for its successful penetration into the Jewish community. He was also Brooke's accountant and, it was argued, close friend. Brooke's evidence was that the relationship was not nearly as strong as the appellants would have it. Nevertheless the memorandum of 9 August makes it plain that the connection with Peter Lefkovic was at least a substantial motivating factor in Brooke agreeing to promote a transaction which was unusual for the bank.

222. Next it was submitted that the transaction would also benefit the bank, if the shares were sold at an increased price, by assisting in the repayment of loans which had been outstanding for some time and avoiding any question of selling the family homes of Tom Lefkovic and his wife and Tom Lefkovic's mother. Brooke's evidence was that he had given the Lefkovic brothers an undertaking that the bank would not in any event dispossess their mother, but, if the worst came to the worst, would take possession of her house and give her a life tenancy of it. As to the other properties, Brooke said that he felt no compunction at all about selling them if it became necessary. Brooke agreed that he chose to promote this transaction as a possible alternative to forcing Tom Lefkovic to sell up his family home.

225. While all of these matters no doubt provided the bank with motivation to accept a transaction which the bank might ordinarily not have assisted, they did not in my view sound any warning to the bank that increased care was necessary in dealing with Lefkovic or Kranz. In the circumstances officers of the bank would have been likely to assume, with justification, that Kranz was well aware of the friendly connection between the Lefkovic brothers and officers of the bank.

The period during which Tompet was required to hold the shares before selling them.

229. The first proposal from Tom Lefkovic as set out in the memorandum of 9 August was that Lefkovic (or Tompet) was to hold the shares for six months and only then liquidate them over a period of two to three weeks. By the note signed by the directors of Starbronze on 28 August, Starbronze instead agreed to sell their shares by 31 December 1989 and reduce Tompet's debt accordingly. In fact this did not occur and the shares were actually held well beyond 31 December into 1990.

232. The proposal that Tompet had to hold the shares for six months was regarded by Brooke as "extremely negative" and the bank's memorandum of 9 August shows that the bank would not under normal circumstances have entertained the proposal. Tom Lefkovic however later came to the bank with a more modest proposition and this the bank found acceptable. The shares were now to be held by Starbronze until, say, late October and then sold in a period leading to the end of December 1989. But when Tom Lefkovic was cross-examined about these matters a much less precise picture emerged. Lefkovic gave the following evidence -

"Was the embargo to hold the shares initially for six months?---No, the embargo was initially for about two or three months, the only - the embargo changed, was that the price had to go from 50 cents to 60 cents. After the price went to 60 cents you were able to sell, is that right?---Once - either the 60 cents or the three months, whichever elapsed. In other words, if the price went to 60 cents before the three months I'd have to wait the three months. Before - - -?---It was either one or the other, so if the price went to 60 cents, say, in one month I couldn't sell, I'd have to wait three months. If the price went - if the three months elapsed and the price hadn't gone to 60 cents I was able to sell then. Sorry, I'm a bit confused as to those conditions. You'd have to wait for three months irrespective of the price then?---No, no, if the price got to 60 cents, all right - - - You had to wait?---I had to wait effectively three months, that was the whole transaction. Two to three months was the deal but that was in consultation with the people at First Pheonix. When could you sell - what happens if - you wouldn't know if the price got to 60 cents within the three months until the three months - - -?---We anticipated - we anticipated the price of the share going to a dollar. If it didn't reach the 60 cents were you able to sell before the three months?---If the price didn't go to 60 cents, no, because I would have to wait the three month period. And if it did go to 60 cents you still had to wait for the three month period?---Correct. So it didn't matter what price this share went to, you had to wait three months?---Correct. So there was no conditions, it was a simple three month embargo?---It was negotiable because as the price from 50 cents to 60 cents was negotiable, the other part was negotiable as well. HIS HONOUR: Well, I don't follow that. Where does it ever say it was negotiable? What you've told us is that you couldn't sell until three months had elapsed?---That's right. Well, what was negotiable?---With the vendors, that if I wanted to sell it I would approach them and, like, the price was varied from 50 cents to 60 cents, I had the opportunity to try and sell some if the right moment - if the right opportunity arose, especially if you were trying to do a private sale to an individual investor. One time the Pratt group was interested in buying that line of shares, sir. Was the bank ever informed about that?---Yes, sir."

236. The actual position, then, according to Lefkovic, was not that there was a strict prohibition on selling before a period of two months had elapsed, but rather that the matter was subject to negotiation with "the people at First Pheonix". I should add that no witness was called from the Phoenix group to substantiate the fact that Tom Lefkovic was under any prohibition against selling. Lefkovic's evidence was, as I have already said, not accepted by the judge on a number of matters.

239. It was put to us for the appellants that the holding period was seen by the bank as a very negative feature. Again this submission is not made good when the evidence is carefully examined. Haag said that he did not see the fact that Lefkovic could not sell the shares for six months "as necessarily a negative". In his view it meant only that "it took longer to get ... our money back". The evidence of Brooke was that he saw a holding period of six months as extremely negative and that he was not prepared to accept it. He did not however say that a two to three months' period was extremely negative, although he did accept that such a condition took it out of the hands of the acquirer to decide when he could sell them. But it was open to the judge on the evidence given by Lefkovic himself to conclude that a firm holding period of two to three months was not in place, rather that the matter was subject to negotiation, and that the bank had been informed of this.

243. Something was made of the fact that at the last moment, on 25 or 28 August, the amount of the loan was increased from $300,000 to $335,000, to include interest. This change was of no consequence in the circumstances. Haag was found not to have met Kranz before Monday 28 August. Kranz himself said in evidence that he was called back on 29 August to amend the transaction documents to increase the amount of the loan from $300,000 to $335,000.

246. Reference was made to the fact that the number of shares (2 million) in Phoenix Oil & Gas was 5% of the share capital of that company, and that this was a factor which would have made the sale of the shares a more risky proposition. Haag was not asked any question about this, and Brooke was simply asked whether he was aware that the shares represented "nearly 5% of the share capital of the company". But Brooke gave a positive answer only to the question "Are you aware of that?", speaking in June 1999. He was not asked what his state of knowledge had been in 1989.

249. Both Brooke and Haag said in evidence that they were not aware that the proposal may have contemplated that 25% of any profit made on the transaction had to be given to charity. Indeed Brooke said that such a proposition was "against the bank's condition, that all proceeds of the shares be placed in reduction of Tompet's debt, so clearly I couldn't have been aware of that."

The extent of Kranz's knowledge of these matters

253. Kranz gave evidence in some detail of how much Tom Lefkovic had told him of the transaction when his help was sought. Asked what discussion had taken place, given that it was a long time ago, he answered -

"Well, I agreed to provide [the property in Ballarat] as a mortgage for further security to the National Bank provided that Mr and Mrs Muhlbauer were agreeable to give their half, I was prepared to give my half of the property. What did he tell you about the purpose of the loan?---Well he said that he was buying shares at a lower price than they were currently on the market, that the directors of the company were trying to help him out and that the profit from those shares will relieve the pressure from the bank on Tompet which in turn will relieve the pressure of his mother's house. What did you say to this request?---Yes, that I was quite happy to give him my half share of the Ballarat property to try and save the properties."

Later in cross-examination Kranz added the following -

"You knew that on this occasion Starbronze was borrowing money?---No. As far as I'm concerned, Tom Lefkovic was borrowing money under certain companies, if it was Starbronze or any other company really didn't interest me to be honest. You knew money was being borrowed?---Absolutely, yes. You knew it was approximate sum of $300,000?---Yes. You say you did not know that the money was being borrowed by Starbronze?---No, I'm saying that it didn't really interest me if it was Starbronze or any other company. I see, so you weren't concerned at all as to who was borrowing the money?---No, not really. You were quite happy to leave that for Tom to organise?---Absolutely. But what you did know was that the money was going to be used to purchase shares?---Yes, I did know that. And that the plan was that those shares would ultimately be sold at a profit?---Yes. The reason why you were happy to participate in the transaction was that this was a way in which Tom might avoid selling his home?---That was part of, yes. And that Mrs Lefkovic senior might be able to stay in her home?---Yes. So that you were happy to assist in whatever way you could if those two ends could be met, that is the avoidance of the sale of the homes of Mrs Lefkovic senior and Tom's home?---Not in ever (sic) way I could, in the way that I could was to provide the Ballarat property as a security but not to jeopardise my own family. Yes, of course you had, I take it over the years, known of share purchases before?---Yes. You knew, did you not, that shares being the very nature of them might go up or down?---Absolutely, yes."

At various times in his evidence Kranz stated that he relied on Tom Lefkovic absolutely, and repeated a number of times that he was happy for Mansville to mortgage its half of the Ballarat property for the purposes of the loan. He agreed that on 29 August he was asked to go back to the bank to change the loan documentation from $300,000 to $350,000.

260. The evidence therefore establishes that Kranz was aware that the loan was for a speculative purpose, to buy shares which had been offered to Tom Lefkovic at a lower price than they were currently quoted on the market. He had been told by Lefkovic that "we'd have to clear it within two to three weeks", indicating that some condition as to the time of selling might be involved, and Kranz said his understanding was that the "scheme with Tom was to be a matter of weeks rather than months".

263. At no point in his evidence did Kranz express any concern that the shares might have to be sold by 31 December 1989, nor were Haag or Brooke cross-examined to the effect that it was a disadvantage that Tom Lefkovic had to sell before 31 December 1989.

266. After Kranz's re-examination had concluded, Dr Bleechmore was given leave to ask some further questions of Kranz, during which Kranz was asked -

"Had you been told at the time that there was a condition that after the shares were acquired that Mr Lefkovic or the company would have to retain the shares and would not be free to dispose of them for a particular point of time, may be two to three months. Had you been told that at the time, how would that factor have operated in your mind?---Well that would have drawn a different light on it altogether. Why was that?---Because he would have been restricted and it wasn't up to the market place which means that someone else is controlling it. It would have been, to my way of thinking, out of his control and therefore I don't think I would have been a party to it."

270. It was put in submissions to this Court that this evidence was accepted by the trial judge, reference being made to par.[60] of his Honour's reasons. An examination of the reasons for judgment does not bear out the submission. In the paragraph in question his Honour was dealing with the statement made by Kranz that he did not know the precise nature of the documents he was signing and his assertion that he did not appreciate that he was signing in his personal capacity as well as a director of Mansville. The judge accepted that in this respect he would not have jeopardised the financial interests of his own family.

273. It is, I think, significant that the trial judge made no finding in relation to this matter and indeed it seems to me highly unlikely that his Honour would have accepted this piece of evidence. Kranz was well aware of Tom Lefkovic's need for money and had stated in evidence on numerous occasions his willingness to support the transaction. His reliance on Tom Lefkovic's advice was "absolute" and I should have thought it most unlikely that his attitude would have changed had he been told the full truth as to the holding period i.e. that Tom Lefkovic had agreed with the bank that he would not sell the shares for two to three months but that this was in any event subject to negotiation with the Phoenix group (which was of course trying to assist Lefkovic). Even if he had been given independent advice that this increased the risk associated with the transaction, I doubt that his attitude would have changed. This conclusion is reinforced by the way in which Kranz's statement on this issue was elicited in evidence, not in evidence-in-chief or in reply, but rather as an afterthought.

277. Both Haag and Brooke gave evidence, speaking ten years after the events in question, that they had met with one or other of the borrowers and explained the risks in the transaction. Haag said he had met Kranz some short time beforehand. He also said that on 28 August it was his obligation to ensure that the guarantors understood the documents they were signing and that all parties fully understood the speculative nature of the transaction. He agreed that he did not suggest to Kranz or the other signatories that they get independent advice about the transaction, it not being the policy of the bank at the time. He agreed, speaking in retrospect, that it would have been fair to them to provide them with an opportunity to get independent advice.

280. Brooke said that he had had a meeting with Tom Lefkovic and his wife and Kranz and that he then "ran through the transaction" so that they "shouldn't be left in any doubt whatsoever that their guarantees and supporting security were relied upon in terms of the bank receiving repayment for the transaction". Later in his evidence Brooke agreed that there were negative features about the transaction, both that the shares could not be sold for a fixed period and that the quantity in question was substantial, 5% of the share capital of the company. Asked whether the guarantors "quite clearly as a matter of fairness ought to have the opportunity of considering all of those things as well", Brooke agreed. He also agreed that given the unusual nature of the transaction and the conditions imposed on Lefkovic as the acquirer the fair thing to do in all the circumstances would be to provide an opportunity or require the guarantors to obtain independent legal advice to which he replied that that would be normal. Later in cross-examination he said that "we had a duty of disclosure, I believe, both personally and professionally to specifically inform the prospective guarantors of the risks and obligations associated with the loan".

283. The judge did not accept the evidence of Haag and Brooke that any meeting had occurred with any of the guarantors before 28 August, preferring instead the evidence of the other parties that no such meetings had occurred. As I have said, his Honour accepted that Kranz signed the various documents in a mistaken belief as to their effect, without properly reading them and not having been specifically instructed by the bank as to the financial consequences of the transaction. It is equally clear, however, that in rejecting the evidence of the bank officers at this point his Honour made no other adverse finding against them, no doubt attributing his difficulty in accepting their evidence to the passage of time which had occurred. His Honour did not accept that there had been any effort by the bank to conceal the true nature of the transaction and I refer again to the passages[40] from his Honour's reasons quoted above.

287. I have already given my reasons for rejecting the appellants' arguments, in so far as they are based on the relationship between Kranz and Tom Lefkovic and the assertion that the bank is to be taken to have understood that Kranz might repose trust and confidence in Tom Lefkovic in matters of business. In so far as the second leg of the appellants' argument is concerned, it is necessary now to consider the facts before the trial judge, tested against the principles stated by Mason and Deane, JJ. in Amadio[41].

290. It was not disputed by the bank that Kranz and Mansville were volunteers. On the other hand, Kranz's evidence at the trial makes it plain that he was more than willing to assist his brother-in-law in joining in the transaction and was motivated by family considerations, and the wish to save the home of Lefkovic's mother. Tom Lefkovic was found to have misrepresented to Kranz, and thus to Mansville, the financial obligations they were being asked to undertake. Kranz signed the various documents in a mistaken belief as to their effect, and was not specifically instructed by the bank either as to the risks in the transaction or advised to seek independent advice. But, on the other hand, a number of the matters pressed by counsel for the appellants in argument were not made good by reference to the evidence.

293. The judge's conclusions demonstrate that his Honour did not take the view that there was any basis for the bank to have suspected that Tom Lefkovic would mislead Kranz in this way, or otherwise that Kranz would be mistaken as to the documents he was signing. Kranz was a very experienced businessman who had obviously prospered in a variety of commercial ventures for a number of years. He was familiar with bank documents such as mortgages and guarantees. He signed a number of documents in front of Haag, although without reading them properly, including an acknowledgment of the speculative nature of the transaction, a matter of which he was in any event well aware from what Tom Lefkovic had told him.

296. There was, I think, no basis for the allegations that the transaction was a blatant case of insider trading, that the bank was aware that Lefkovic was unscrupulous and capable of concealment, or that the bank was party to Lefkovic's attempts to conceal his personal involvement in the principal transaction. In so far as the bank regarded the transaction as speculative and unusual, the departure from the usual was that the bank rarely permitted share traders to borrow to purchase shares (an understandable reluctance particularly in light of the recent share market difficulties of 1987). Kranz was well aware that Tom Lefkovic's intention was to buy shares, that this was speculative and that the price of shares might rise and fall substantially. The fact that the amount of the loan was increased later to $335,000 to include interest is a matter of which Kranz was clearly informed. The bank was obviously aware that Tom Lefkovic was very anxious ("desperate" was the adjective used in argument) to complete the transaction quickly, but that urgency was not caused by the bank, rather it was a product of the insistence by the vendor of the shares that the transaction be settled by 4 p.m. on 28 August. On the judge's findings the bank's officers had never met either Kranz or the Muhlbauers before they met to sign the transaction documents on 28 August. All of them then signed each document. It would have been no easy matter for the bank's officers (particularly Haag, who handled the transaction) to insist that the guarantors be given independent advice that day, since to do so might well have meant delaying the parties' execution of the documents beyond the time when the vendor was insisting the transaction was required to be closed, and thus causing the whole transaction to collapse. Furthermore there is authority that there is in general no obligation upon the financier to ensure that the third party has independent legal advice before giving security in support of the debtor.[42] The bank's motivation for assisting in the transaction (Brooke's friendship with Tom Lefkovic and the bank's wish not to force the Lefkovics into the sale particularly of their mother's property) does not in my view bear significantly on this issue. [43]

299. I turn now to deal with the restriction on the holding period, a matter which is, I think, the most substantial of the arguments put forward by the appellants for saying that they were in a position of special disadvantage, and that it would be unconscionable now for the bank to enforce the securities. In considering this question I bear in mind the evidence of the bank officers to which I have referred in paragraphs [74]-[75] above, to the effect that the bank was under a duty of disclosure and that it would have been fair to have advised the guarantors to seek independent advice. I do not however regard that evidence as by any means determinative of the questions involved. The bank officers were, as I have said, giving evidence ten years after the events in question, at a time when the bank's practices had changed from the late 1980s, and in the course of cross-examination in which an extravagant, and, I have found, unjustified, series of allegations of matters such as blatant insider trading and the bank's participation in Tom Lefkovic's unscrupulous concealment, had been put to them. It seems to me that the relevant question is not necessarily to be decided by the bank officers' views, but rather that it is instead for this Court now to say whether the bank was obliged to act differently, dealing objectively with the facts established at trial and accepted by the judge, against the standard of what a reasonable person would regard as the possibilities[44].

302. The restriction on selling for a period was certainly a negative factor to be considered. But upon examination the actual restriction was less of an inhibition since it was in any event negotiable, and with parties who were endeavouring to assist Tom Lefkovic out of his difficulties. In all the circumstances, given the urgency to conclude the transaction on 28 August, the trial judge must, I think, have concluded that the bank did not know that the guarantors occupied a situation of special disadvantage in relation to the transaction, that a reasonable person would not have suspected that they were in any such situation, and that the bank did not take unfair advantage of its position by entering into the transaction. That this was his Honour's view is, I think, shown by reference to the concluding paragraphs in the reasons for judgment, particularly paragraphs [81], [86] and [87]. The brevity of his Honour's reasons at this point is, it seems to me, explicable having regard to the way in which the appellants' case was argued at trial, largely based on Garcia, compared with the much greater emphasis placed in this Court on appeal on the concepts considered in Amadio.

305. For all the foregoing reasons I do not think his Honour is shown to have erred in dealing with the second leg of the appellants' argument. It accordingly becomes unnecessary to consider the matters raised in the respondent's notice of contention in the appeal.

313. In this case I have had the considerable benefit of reading in draft the reasons of Charles, J.A. I agree with his Honour's reasons and his conclusion that this appeal should be dismissed.

316. The agreement of Kranz to provide security for the bank's advance to Starbronze Pty. Ltd. was, from his point of view, a non-commercial one. That fact was known or ought to have been known by the bank. The bank officers, Haag and Brooke, who gave evidence on behalf of the respondent, both agreed (when speaking with the benefit of hindsight some ten years after the events, and when agreeing with propositions put to them in cross-examination which were either without substance or else did not reflect what was known to the bank officers at the time) that they had an obligation, on behalf of the bank, to adequately explain the risks of the proposed transaction to the appellant Kranz. They each said that they had done so, but the learned trial judge concluded that they had not. Given those concessions by the bank officers and the finding by the judge as to their failure to ensure that Kranz understood the risk he was undertaking it may seem surprising that Kranz failed in his proceedings to set aside the securities which he provided to the bank to secure the advance to the first defendant in the proceedings. As the reasons of Charles, J.A. make clear, however, that analysis is far too simplistic.

319. The factual and legal matrix by which this case must be assessed is very complex, but it must be acknowledged that were this case to be determined by reference to the statements of law by the House of Lords in Royal Bank of Scotland plc v. Etridge (No.2)[45] Kranz might well have succeeded. However, for the reasons given by Charles, J.A, the decision in that case does not represent the law in Australia.

322. The comprehensive evaluation of the evidence in this case by Charles, J.A demonstrates that upon having regard to the findings made by the learned trial judge (and such findings as might be taken to be implicit from his reasons) the appellants failed to make out a case for setting aside the securities by reference to equitable principles relating to unconscionable conduct as stated by the High Court.

325. The decision in Etridge has been the subject of some trenchant criticism[46] but there has also been recognition that the approach adopted by the House of Lords provides the commercial and broader community with readily understood and easily applied principles to govern transactions with guarantors[47]. I find much to commend the principle that a bank upon becoming aware that the relationship between debtor and surety is a non-commercial one ought to be on notice that it has an obligation to bring home to a proposed guarantor the risks he or she is taking in acting as surety. That principle, as the reasons of Charles, J.A. demonstrate, is not the law in Australia.

[2] [1998] HCA 48; (1998) 194 C.L.R. 395.

[3] [1998] HCA 48; (1998) 194 C.L.R. 395.

[4] [1939] HCA 3; (1939) 63 C.L.R. 649.

[5] [1983] HCA 14; (1983) 151 C.L.R. 447.

[9] See the cases cited in Meagher, Gummow and Lehane, Equity Doctrines and Remedies, 4th ed., (2002) at paragraph [15-055] (c) ; Johnson v. Buttress [1936] HCA 41; (1936) 56 C.L.R. 113 at 134-135.

[10] Westmelton (Vic.) Pty. Ltd. v. Archer [1982] VicRp 29; [1982] V.R. 305 at 312-314, 319; Multi-Span Constructions No. 1 Pty. Ltd. v. 14 Portland Street Pty. Ltd. [2001] N.S.W.S.C. 696, per Barrett, J. at [66]-[68].

[11] [2000] N.S.W.S.C. 628, at paragraph [60].

[12] [2001] N.S.W.S.C. 113.

[13] [2001] N.S.W.S.C. 548.

[15] [2002] Q.S.C. 175.

[17] [2001] UKHL 44; [2002] 2 A.C. 773.

[18] [1993] UKHL 6; [1994] 1 A.C. 180.

[19] [2001] UKHL 44; [2002] 2 A.C. 773 at 814.

[20] The interrelation between Garcia and Etridge was considered by the Full Court of the Supreme Court of Western Australia in Siglin v. Choules [2002] W.A.S.C.A. 9 in the context of an application for summary judgment.

[21] Garcia [1998] HCA 48; 194 C.L.R. 395 at [33]; Meagher, Gummow and Lehane, op. cit. at [15-150].

[22] (1873) 8 Ir. Eq. R. 1.

[23] (1996) 69 F.C.R. 180.

[27] Compare the comments of Gummow, J. in his paper "Equity: Too Successful?", (2003), 77 A.L.J. 30 at 31 as to the undiscriminating use of terms such as "unconscionable" in argument in equity cases; and the references to Amadio, Louth v. Diprose [1992] HCA 61; (1992) 175 C.L.R. 621 and Bridgewater v. Leahy [1998] HCA 66; (1998) 194 C.L.R. 457.

[28] [1956] HCA 81; (1956) 99 C.L.R. 362 at 405.

[31] [1992] HCA 61; (1992) 175 C.L.R. 621.

[32] At 637, Dawson, Gaudron and McHugh, JJ. concurring.

[33] [1998] HCA 66; (1998) 194 C.L.R. 457.

[35] [1985] UKPC 1; [1985] A.C. 1000 at 1024.

[37] [2003] VSCA 42 at 26.

[38] Judgment par.[86], quoted at [13].

[41] 151 C.L.R. at 462, 467 and 474-475.

[42] Coldunell v. Gallon [1986] Q.B. 1184 at 1201; Meagher, Gummow & Lehane (op.cit.) at par 15-150.

[43] Cf. Lisciandro v. Official Trustee 69 F.C.R. at 196 per Cooper, J.

[44] See, for example, Mason, J. in Amadio, 151 C.L.R. at 467.

[45] [2002] A.C. 773.

[46] See Meagher, Gummow and Lehane, Equity Doctrines and Remedies, 4th ed, (2002), at 522-3.

[47] See M. Sneddon, "Non-commercial security transactions: the duty of banks", Australian Business Law Review, August 2002, Vol 30, 294-297.