Narain v Euroasia

1 This is an appeal from a judgment given in the Commercial and Equity Division to allow an appeal from a decision of a Master to set aside a judgment entered against the appellant pursuant to a Deed of Settlement.

2 So much of the history of the litigation as is relevant for present purposes is set out in a judgment of Robson J concerning an earlier aspect of the litigation.[1] In brief it is as follows.

3 The proceeding was instituted by the respondent (Euroasia) on 23 August 2005 against Andrew John Michael (Mr Michael), the appellant (Mrs Narain) and her husband, Ravi Amrit Narain (Mr Narain). By its statement of claim, Euroasia alleged that, in or about late 2004, it lent Golden Dragon Abalone Pty Ltd (GDA) the sum of $500,000 as working capital and, subsequently, a further $1 million. It further alleged that in or about early May 2005, Euroasia, GDA as borrower and Mr Michael, Mr Narain and the appellant as guarantors entered into a loan deed (the Deed of Loan) to avoid the requirement for GDA to repay the $1.5 million immediately. It claimed payment of the sum of $1,621,519.97, comprised of the principal sum of $1.5 million and interest and legal costs due under the Deed of Loan.

4 On 20 September 2005, Beveridge Eaton Lawyers, a firm of solicitors of which Mr Michael was a member, entered an appearance on behalf of all defendants and, on 19 October 2005, Beveridge Eaton filed a defence settled by counsel on behalf of all defendants.

5 On 28 October 2005, all parties to the litigation executed a Deed of Settlement for settlement of the proceeding. By the deed each of GDA, Mr Michael, Mr Narain and the appellant covenanted as principal obligors to pay the amounts of $1,641,034.25 then outstanding, as to $250,000 by retention by the respondent of a sum of $250,000 previously advanced to the respondent in contemplation of the formation of a joint venture; $275,000 upon execution of the deed; four further payments of $250,000 each on 30 November 2005 and thereafter on the last day of each month until 28 February 2006; and one payment of $116,034.25 on 15 March 2006. Clause 2 of the deed provided inter alia that in the event of default of any payment the respondent would give 14 days' notice in writing, and:

(b) In the event that the notice of default is not complied with Euroasia will be entitled to enter judgment against the defendants in these proceedings for

(i) The settlement sum or so much of it that may be outstanding as at the date of default.

(ii) Subject to cl 2.2(e) of the deed, interest on all amounts that have at any time been outstanding from 1 December 2004 until the entry of judgment calculated and capitalised pursuant to cl 6(b) of the loan deed or as claimed in these proceedings.

(iii) Costs of these proceedings on an indemnity basis up to the entry of judgment and including the cost of entering judgment.

(c) During any notice period referred to in cl 2.1 of the deed, interest on the then outstanding balance of the settlement sum will be calculated at the rate prescribed in the Penalty Interest Rates Act 1983 (Vic).

(d) The deed will constitute the irrevocable consent of each of the parties to the entry of judgment in these proceedings and the production of the deed to the court will be conclusive evidence of all necessary consent to give effect to cl 2.2(a) of the deed including consent (if necessary) to have the application for judgment before the court and for the entitlement of Euroasia to apply for judgment in these proceedings and to enter such judgment in these proceedings.

6 On or about 1 December 2005, the respondent served notice of default on each of the defendants and, when they then failed to comply, on 30 December 2005 the respondent's solicitors began the process of attempting to enter judgment pursuant to the Deed of Settlement.

7 The application for judgment was several times adjourned and delayed, at first, to allow the respondent to file further necessary material in support of it and, ultimately, because there was a further settlement. On 23 February 2006, the respondent's solicitors sent an email to Mark Eaton at Beveridge Eaton setting out the proposed terms of the further settlement and, on 23 February 2006, a law clerk in the employ of Beveridge Eaton replied by email that the terms were accepted by all defendants.

8 Thereafter, the defendants failed to comply with that further settlement and in turn that resulted in the respondent renewing its application to enter judgment pursuant to the Deed of Settlement.

9 On 12 May 2006, Master Evans gave judgment for the respondent on the Deed of Settlement in the sum of $1,116,034.25, plus interest in the sum of $169,000.54, and ordered that the defendants pay Euroasia's costs of the proceeding including the costs of the application assessed on an indemnity basis, such costs to be taxed in default of agreement.

10 On 1 June 2006, the respondent served bankruptcy notices dated 22 May 2006 on each of Mr Michael, Mr Narain and the appellant (the debtors). That was followed by a period of inconclusive without prejudice negotiations between the respondent's solicitors and Beveridge Eaton on behalf of the debtors.

11 On 16 July 2006, the respondent issued creditor's petitions for the bankruptcy of the each of the debtors, returnable on 24 August 2006.

12 On 9 August 2006, a Master ordered that GDA be wound up in insolvency. There were then further without prejudice negotiation between the respondent's solicitors and Mark Eaton of Beveridge Eaton on behalf of the debtors and, as part of that process, the creditor's petitions were adjourned until 14 September 2006.

13 On 13 September 2006, the parties entered into a further deed of settlement and, on 14 November 2006, the creditor's petitions were withdrawn in accordance with that deed.

14 The respite was short lived, however. On or about 10 December 2006, Mrs Narain and the other defendants defaulted under the deed of settlement of 13 September 2006 and, on 22 December 2006, notice of Mrs Narain's default and of Euroasia's intention to re-commence bankruptcy proceedings against the debtors was sent to Mark Eaton at Beveridge Eaton.

15 On 29 July 2007, a second bankruptcy notice was served on the appellant and, on 19 April 2007, a creditor's petition was presented for the bankruptcy of Mr Narain, returnable on 17 October 2007. There were then further settlement negotiations which resulted in a payment of $350,000 on 17 October 2007, with the balance to be paid at a later date. That reduced the debt to the amount of $935,034.79. There was then a further payment of $150,000 on 19 October 2007, which further reduced the debt to $785,034.79. But after that, there were no further payments and, on 21 December 2007, the Federal Magistrates' Court made a sequestration order against the estate of Mr Narain.

16 On 5 March 2008, the respondent served a creditor's petition for the bankruptcy of the appellant, returnable on 13 March 2008.

17 On 12 March 2008, the appellant served the respondent with an application to set aside the judgment which had been entered against her in May 2006.

18 On 11 April 2008, Master Daly set aside the judgment. In her reasons for judgment, the Master said that it appeared to be arguable that the principles in Garcia v National Australia Bank Ltd[2] applied to the appellant's position under the Deed of Loan and the Deed of Release. The Master noted that the appellant had first become aware of the possible application of Garcia in June 2007 and had taken no action to set aside judgement until March 2008. The Master considered that the delay was insufficiently explained. But, because no prejudice had been demonstrated, and because the appellant had substantial assets, the Master determined that it was appropriate to set aside judgment in the exercise of discretion.

19 On 24 April 2008, Robson J allowed an appeal from the Master's order on the ground that the application to the Master was formally incompetent. In his Honour's reasons he also expressed the view in obiter dicta that the Master had been wrong in holding that it was arguable that Garcia applied to the Deed of Settlement.

20 The appellant then applied in correct form to Hollingworth J. Her Honour dismissed that appeal for the same reasons as Robson J had expressed as to the inapplicability of Garcia to the Deed of Settlement.

The basis on which it was sought to set aside judgment

21 In an affidavit sworn by Mr Narain in the Federal Magistrates' Court bankruptcy proceedings on 29 August 2007,[3] he deposed that he first met one Bee Kok Peh in August 2004, when Mr Peh approached him with a view to purchasing equity in GDA. At that time, GDA carried on a business of buying and processing abalone for export to Asia and Mr Peh was interested in expanding sales of abalone through his vineyards. There were then protracted negotiations and many drafts of a proposed purchase agreement. Part of the reason for the delay, Mr Narain said, was that he had invented an organic antiseptic for use in the processing of abalone, and Mr Peh was keen to buy the intellectual property in the product, but Mr Narain was unwilling to sell it. Eventually, in December 2004 Mr Peh made an advance payment of $1.5 million on account of the anticipated purchase of equity in GDA.

22 Only a few months later, however, in April 2005, Mr Peh told Mr Narain that he had been diagnosed as suffering from cancer and might only have a year to live. He was, therefore, no longer willing to proceed with the purchase and he required the advance payment to be converted to a loan. Mr Narain said that he agreed to do so and to co-operate with anything else which Mr Peh required to set his mind at rest. Unbeknownst to Mr Narain, however, on 12 May 2005, the respondent had already instituted Supreme Court proceeding No 6332 of 2005 against GDA seeking the recovery of $1,116,034.25. Mr Narain said that he was still not aware that the proceeding had been instituted when he signed the Deed of Loan on 19 May 2005.

23 In her affidavit of 12 March 2008, the appellant deposed that she had had only limited business experience and no 'independent business experience'. After completing secondary school, she attended the University of Western Sydney, from which she graduated with a Bachelor of Arts degree majoring in communications, and then worked for a time with the Australian Jockey Club as a trainee judge. She had been married to Mr Narain for some 15 years and spent most of that time raising their three children and in the voluntary teaching of horse riding to the disabled. She said that she had not been involved in paid employment at any time during their marriage.

24 The appellant further deposed that, in or around June 2005, her husband telephoned her and asked her to go to the respondents' office to execute a document which he said was important. She said that she was initially reluctant to do so but that he told her that it was urgent and that he needed her to do it, even though it was only a formality. Consequently, she agreed to do as he asked.

25 She went to the respondent's premises where she was met by Mr Peh's son, Lincoln Peh. He took her upstairs to his father, whom she had met previously on social occasions. Mr Peh indicated where she was to sign the document, which she did, but he did not explain it to her or give her a copy of it to take away.

26 The Deed of Loan which she so signed as one of the three guarantors of the loan provided for repayment of the $1.5 million with interest at 10 per cent. It also called for the first interest payment to be made on 16 May 2005, notwithstanding that the document was not signed until 19 May 2005 and was dated 23 May 2005. Thus, by the purported time of execution, GDA and the guarantors were already in default by a week. The deed further provided that, upon default, the whole of the debt was immediately due and payable with penalty interest calculated at the rate provided for in the Penalty Interest Rates Act 1983.

27 The default led to service of the Notice of Default on or about 24 June 2005, followed by the institution of proceedings and entry into the Deed of Settlement on 28 October 2005. The Deed of Settlement recited inter alia that the respondent had lent GDA $500,000, had entered into Heads of Agreement for the purchase of 50 per cent of the equity in GDA, and paid GDA $1,000,000 on account of the purchase price; that the purchase had not proceeded and that GDA had entered into the deed of loan to avoid the requirement to repay the $1,000,000 immediately; that, under the loan deed, Mr Michael, the appellant and Mr Narain had jointly and severally guaranteed the payments due by GDA under the deed; that GDA had failed to make payments; that the respondent had served GDA with a bankruptcy notice and GDA had issued Federal Court bankruptcy proceedings to have the notice set aside ('the first proceeding'); and that the appellant had issued Supreme Court proceedings No 7851 of 2005 ('the second proceeding') against Mr Michael, Mr Narain and the appellant pursuant their guarantees and that they were defending the first proceeding.

28 In a further affidavit sworn on 22 April 2008, the appellant deposed that, although she executed the Deed of Settlement dated '26 October 2005 [sic]' in the offices of Beveridge Eaton, she did not consider that Beveridge Eaton were her solicitors. Her understanding was that they were acting for Mr Narain and his companies, and all communications from Beveridge Eaton were directed to Mr Narain, not to her.

29 She also deposed that she knew very little about how the judgment came to be entered against her on 12 May 2006, other than what she had since been told by her current solicitor, Mr Main. She admitted that she recalled being approached on more than one occasion around the middle of 2006 and served with documents which she knew were 'legal documents,' and 'probably' realised that they were 'court documents' which she associated with a dispute that she believed was being fought out between her husband and the respondent in the Supreme Court. She said that on each such occasion, however, she simply gave the documents to her husband.

30 She deposed that in or about mid-2006 her husband told her that a deal had been done to resolve the dispute, and that he was going to issue some shares to Bee Kok Peh, and that, in September 2006, he directed her to sign the Deed of Settlement. She said that that document was not explained to her, either by her husband or by Beveridge Eaton, and that she had no idea of its contents other than that it was intended to resolve the dispute. She also said that whenever she asked her husband about the dispute, he would almost always say that it was 'being taken care of' and that there was nothing she need be concerned about.

31 Robson J and thus Hollingworth J considered that, although the appellant may have had an arguable Yerkey v Jones[4] defence to the respondent's claim for payment under Deed of Loan, Yerkey did not apply to the Deed of Settlement. As they put it, 'the Garcia principle[5] only applies to a suretyship agreement'.[6]

32 Robson J observed that the 'settlement cannot be regarded as immune or unsusceptible to equity doctrine'. But his Honour considered that the appellant could not resist the respondent's claim under the Deed of Settlement unless she could show that she had been subject to undue influence, or that she had not received competent, independent and disinterested advice, and that the respondent 'knew the facts and circumstance surrounding Mrs Narains' signing of the terms of settlement that would have indicated to an honest and reasonable person that she had been subject to undue influence in signing the terms of settlement or that she had not received competent, independent and disinterested advice'.

33 Robson J considered that it was arguable that the appellant had not received 'competent, independent and disinterested advice'. But his Honour held that, given the respondent had instituted proceedings for the recovery of the debt due under the Deed of Settlement, and that a settlement had then been constructed with the aid of solicitors on both sides, the circumstances were not such as should have put the respondent on inquiry as to whether the appellant had received adequate advice.

Ground (e): Whether Garcia applied to the Deed of Settlement

34 Under the heading of Ground (e), counsel for the appellant argued that Robson J and thus Hollingworth J were in error in holding that the application of Garcia was limited to suretyship arrangements. In counsel's submission, there was no principled reason why Garcia should not extend to many forms of arrangement. The raison d'être of Garcia, he said, is 'to protect a wife who enters into a transaction at the request of her husband and who is not given an adequate explanation of the effect of the transaction'. Thus, so far from defining the limits of Garcia, suretyship arrangements should be seen simply as a particular exemplification of a more general underlying principle; just as illness, ignorance and inexperience are properly seen as particular exemplifications of the general equitable principle which precludes a party taking unfair or unconscious advantage of another.[7]

35 Garcia was decided on the basis of a 'proposition' which Dixon J identified in Yerkey as follows:

if a married woman's consent to becoming a surety for her husband's debt is procured by the husband and without understanding its effect in essential respects she executes an instrument of suretyship which the creditor accepts without dealing directly with her personally, she has a prima facie right to have it set aside.[8]

36 The majority in Garcia referred to 'the principles applied in Yerkey v Jones'[9] - an expression which tends to imply the existence of something underlying the 'proposition' - but elsewhere in their judgment they spoke in terms that equated 'the principles' to the 'proposition.' For example, they observed that 'to hold ... the enforcement of the guarantee would be unconscionable represents no departure from accepted principle',[10] and that to hold that 'the description of "unconscionable" can and should be applied in these circumstances is supported by reference to other circumstances in which that description has been applied'.[11] Their Honours also referred to the manner in which Cussen J in Mueller[12] 'drew support for his conclusion that a guarantee should be set aside ... from a comparison with equity's treatment of gifts made by a mistaken donor' and the 'long established principles which would preclude enforcement of a guarantee in some cases where the creditor has not disclosed to the intending surety some features of the transaction'. All of that is redolent of a specific rule or special equity as opposed to any underlying 'principles' capable of wider application.

37 The idea that Garcia can be applied or extended to a transactions other than suretyship arrangements, however, does derive some support from Dixon J's exposition in Yerkey of what he described as 'three equitable propositions of invalidating tendency'. They were (1) a presumption or rule of evidence 'that, if a voluntary disposition in favour a husband is impeached, the burden of establishing that it was not improperly or unfairly procured may be placed upon him by proof of circumstances raising any doubt or suspicion';[13] (2) that 'strangers who deal through the husband in a transaction operating to the husband's advantage may, by that fact alone, be affected by any equity which, as between the wife and the husband might arise from his conduct;[14] and (3) that 'it still is or may be a condition of the validity of a voluntary dealing by a wife for the advantage of her husband that she really obtained an adequate understanding of the actual nature and consequences of the transaction'.[15]

38 Dixon J referred to the first proposition as undoubted, albeit in some respects vague. He described the second as 'connected with the rule established in the case of relations of influence [of which his Honour noted that the relation of husband and wife is not one] ...'that where there is a relation of influence and the dominant party is the person by or though whom an instrument operating to his advantage is obtained from the other the instrument is voidable'.[16] And as to the third, Dixon J observed that 'the earlier leaning towards, and the later temporary acceptance of, [a since discredited wider doctrine][17] have contributed to the adoption or expression of the view that unless it appears that a wife clearly understood the effect of an instrument conferring a voluntary benefit on her husband it may be invalidated'.[18]

39 Each of the 'invalidating presumptions', particularly the second and the third, suggests that Yerkey should be capable of application or extension beyond instruments of suretyship as such to any 'instrument operating to [a wife's husband's] advantage' or any 'instrument conferring a voluntary benefit on her husband'.

40 There is also some support for that idea in Dixon J's observation in Yerkey that, in Bank of Victoria Ltd v Mueller, Cussen J:

began with a very important deduction from the cases. It was that the 'doctrine as to the necessity for fully understanding the transaction is extended to transactions of a commercial nature, such as guarantees given to a creditor by a wife for the benefit of her husband, particularly if there is a heavy past indebtedness ...'[19]

and, in turn, in Cussen J's approval of the following statement of the law in Lush on Husband and Wife:

A contract made by a wife in favour and for the benefit of her husband - a guarantee, for example, by a wife of her husband's banking account - follows the rule applicable to a gift of disposition of her separate estate for her husband's benefit ... The contract is valid till set aside by the wife or those claiming under her; misrepresentation or concealment of material facts or undue pressure by the husband are grounds for setting aside the contract; but the mere fact that the wife has not had independent advice is not of itself enough to avoid the contract if she in fact understood the nature of her undertaking.[20]

41 Contrary to that broader view of Yerkey, however, in Elkofairi v Permanent Trustee Co Ltd[21] Santow JA, with whom Campell JA agreed, concluded that it was not permissible for an intermediate court of appeal to treat Yerkey as capable of application or extension to anything other than suretyship. His Honour said that:

In the present case, relief purely under Yerkey v Jones principles would therefore involve their extension in two respects. First to a transaction where the wife was a volunteer only as to part. Second, to a transaction not framed as a guarantee. The latter point seems in argument to have been subsumed in the first. It was not as such part of the reasoning of the trial judge. Because relief is available under the wider doctrine of unconscionability, for the reasons stated by Beazley JA, it has not been necessary to consider whether the form of the transaction should matter. Here the lender lends under a transaction where the money is intended to go to the husband, though framed in terms rendering husband and wife jointly liable as co-principals. Such a situation may, in the eye of equity, involve a transaction of guarantee or, as sometimes described, constructive suretyship.

...

The relevance of this analysis in the present context is not to anticipate what the High Court might, or might not, do in extending the doctrine of Yerkey v Jones to cases outside the conventional guarantee by a wholly volunteer wife. It is not for an intermediate appellate court to do that. Rather it is to support the proposition that, when resorting instead to the wider doctrine of unconscionability, here in granting relief to the wife (compare Commercial Bank of Australia Ltd v Amadio[22] the fact that the transaction is in the strict sense not one of guarantee need not provide an insuperable obstacle to relief.

42 Beazley JA did not find it necessary to decide the point, simply remarking that:

If it is sought to make the principles in Yerkey v Jones applicable to a case which is outside the case of a guarantee give by a wife as a volunteer in respect of her husband's obligations (again without commenting upon the possible application of the principle to other relationships) it would be necessary for the creditor to be on notice that the person seeking to impugn the transaction was a volunteer. Otherwise, the underlying premise upon which the principle operates is missing.[23]

43 Were it not for Elkofairi, I should have thought that it was open to this court to construe Yerkey as capable of application to instruments apart from suretyship which operate to a wife's husband's advantage or confer a voluntary benefit on him. I say that because, although Dixon J reasoned in Yerkey from the premise that the three invalidating presumptions 'have a special importance when the transaction in question is one of suretyship', I find it hard to see why in logic or principle those presumptions should have any less importance in cases of other instruments operating to a husband's advantage in respect of which the obligee is on notice that the husband's wife is a volunteer. I know of no policy which would dictate a different result. The point of distinction appears to be arbitrary.

44 As I understand the High Court's most recent edict on stare decisis,[24] however, this court does not have power to change the common law of this country, only to apply it, and we are not to depart from another state appellate court's interpretation of the common law of this country unless we think it is plainly wrong. Strictly speaking, Santow and Campell JJA's remarks in Elkofairi were obiter, but I take them to be 'seriously considered'[25] obiter and, with respect, I am not persuaded that they are plainly wrong.

45 It follows that I reject the contention that Yerkey is capable of application to instruments apart from suretyship which operate to a wife's husband's advantage or confer a voluntary benefit on him. In my judgment, therefore, Hollingworth J was right to hold that Yerkey does not apply to instruments other than instruments of suretyship.

The Deed of Settlement was not an instrument of suretyship

46 Counsel for the appellant argued that, even if Yerkey is limited to instruments of suretyship, the Deed of Settlement was in substance an instrument of suretyship and thus attracted the operation of Yerkey. He invoked the analogy of a wife who enters into an instrument of suretyship in circumstances which attract the operation of Yerkey, and then, having defaulted, but while still in ignorance of the effect of the instrument, enters into a variation of the instrument to allow her more time to pay. In those circumstances, counsel submitted, there could be little doubt that Yerkey would apply to the instrument as so varied, and if so, he said, the Deed of Settlement should also attract the operation of Yerkey; for it is in substance a variation of the Deed of Loan allowing the appellant more time to pay.

47 Counsel for the respondent replied that, accepting for the sake of argument that Yerkey would apply to a simple variation of a guarantee in the circumstances postulated (which he did not concede), the Deed of Settlement was not in form or substance a variation of the Deed of Loan. It was a new and separate instrument which imposed new and separate obligations on the appellant as principal debtor, not as surety. Alternatively, even if one could conceive of the appellant's obligations under the Deed of Settlement as in effect obligations to pay the debt for which she had been liable under the Deed of Loan as guarantor, and thus as obligations qua surety, the appellant was not a volunteer in respect of the Deed of Settlement. The Deed of Settlement expressly provided that, in consideration of agreeing to pay the debt as principal, the appellant would upon payment be discharged of her obligations under the Deed of Loan and this proceeding would be ended.

48 In my view, the respondent is correct. Assuming without deciding that Yerkey is capable of application to a simple variation of an instrument of suretyship, the Deed of Settlement was not in form or substance a simple variation of the Deed of Loan. For by the time the Deed of Settlement was executed, a notice to pay had been served on GDA. GDA had instituted proceedings in the Federal Court to have the statutory demand set aside. The respondent had served notices of default on the appellant and other sureties under the Deed of Loan, and had instituted this proceeding for payment of the amounts alleged to be due by them. The Deed of Settlement was in substance as well as form a comprehensive settlement of all of those claims and disputes in return for compliance by GDA and the appellants and other sureties with a restructured payment regime.

49 It may be that, under Yerkey, the appellant had no liability under the Deed of Loan or at least that her liability under the Deed of Loan was voidable. But contrary to the submission put by counsel for the appellant, it does not follow that the appellant thereby derived nothing from the Deed of Settlement. Until and unless it were determined that she was entitled to have the Deed of Loan set aside as against her, there was a chance that she was liable under the loan. Consequently, even if she got no more from the Deed of Settlement than the promise of release from her ostensible liability under the Deed of Loan, she received something of value and thus received good consideration.

50 It may also be[26] that the appellant was not advised of the effect of the Deed of Settlement and had no idea of 'the arrangements that had been agreed upon in that document'. But that would not avail her under Yerkey unless she had entered into the Deed of Settlement as a volunteer. And she was not a volunteer.

51 So to hold does not imply that a woman in the appellant's position will in all circumstances be without a remedy. Depending on the circumstances of the case, she might be able to say that, because the substantial effect of the Deed of Loan was not explained to her by a competent, independent and disinterested stranger, she had a prima facie right to have her obligation under the Deed of Loan set aside in accordance with Yerkey; that she incurred her obligation as a principal debtor under the Deed of Release without understanding that she was thereby surrendering her prima facie right to have her obligations under the Deed of Loan avoided; and that her creditor was aware of facts that would raise in the mind of a reasonable person that she was proceeding in ignorance of her prima facie right to have her obligations under the Deed of Loan set aside, and so could not make a judgment as to whether her entry into the Deed of Settlement was in her own interest. In such circumstances, it may well be that the creditor would be guilty of unconscionable conduct by allowing her to enter into the Deed of Release without taking reasonable steps to explain the effect of the Deed of Settlement to her or without believing on reasonable grounds that she had received competent and independent advice.[27]

52 Counsel for the respondent submitted that, be that as it may, in this case it was apparent that the appellant had received independent advice from Beveridge Eaton.

53 In case it matters, I do not accept that Beveridge Eaton were independent. A solicitor who acts for both the principal debtor and the surety is not independent. As Farwell J said in Powell v Powell:[28]

a solicitor who accepts such a post puts himself in a false position; if he acts for both, he owes a duty to both, to do the best he can for both ... The solicitor, therefore, must be independent of the donee in fact, and not merely in name, and this he cannot be if he is a solicitor for both.

Beveridge Eaton's independence for present purposes was thus manifestly compromised,[29] if indeed it was not also compromised for the purposes of conducting the defence of the respondent's claim on behalf of both the principal debtor and the sureties.[30]

54 It is it is unnecessary, however, to consider the question of unconscionable conduct any further. Although the possibility of relief under the broad principle enunciated in Amadio was considered by Robson J and Hollingworth J, counsel for

the appellant expressly abandoned reliance on that principle and upon all other equitable principles apart from Yerkey.

55 For that reason, it is also unnecessary to consider the further question (which was the subject of determination below) of the degree of notice required to engage the principle in Amadio.[31] Robson J and thus Hollingworth J concluded that it would require the obligor to show that the creditor had at least the degree of notice required to attract liability for knowing receipt of trust property under the second limb in Barnes v Addy.[32] It is not immediately apparent to me why that should be so. But I do not stay to consider the point any further. It is a problem for another day.

57 For the reasons I have given, I would dismiss the appeal.

59 I have read the judgment of the presiding judge in draft and agree with the orders proposed and with the reasons of his Honour.

[1] [2008] VSC 153.

[2] [1998] HCA 48; (1998) 194 CLR 395.

[3] Which was exhibited to the affidavit of 1 April 2008 of Mr Main in support of the application before Hollingworth J.

[4] Yerkey v Jones [1939] HCA 3; (1940) 63 CLR 649.

[5] Garcia v National Australia Bank Ltd [1998] HCA 48; (1998) 194 CLR 395, 412.

[6] [2008] VSC 153, [130].

[7] The Commercial Bank of Australia Ltd v Amadio & Anor [1983] HCA 14; (1982) 151 CLR 447, 462 (Mason J).

[8] Yerkey v Jones [1939] HCA 3; (1939) 63 CLR 649, 683 (emphasis added).

[9] [1998] HCA 48; (1998) 194 CLR 395, 404 [22].

[12] Bank of Victoria Ltd v Mueller [1925] VicLawRp 74; [1925] VLR 642 [35] on which Dixon J expressly based his judgment in Yerkey v Jones.

[17] That, in the case of any large voluntary gift or the like, the burden of justifying it as fairly and honestly obtained was on the party benefiting.

[19] [1939] HCA 3; (1939) 63 CLR 649, 680.

[20] [1925] VicLawRp 74; [1925] VLR 642, 656 (emphasis added).

[21] [2002] NSWCA 413.

[22] [1983] HCA 14; (1983) 151 CLR 447.

1. [24] Cal (No 14) Pty Ltd (t/as Tandara Motor Inn) and Anor v Scott [2009] HCA 47; (2009) 260 ALR 606, 622 [48]-[51].

[25] Farah Construction v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89, 150 [134].

[26] As the appellant swore in her affidavit of 22 April 2008, [8].

[27] Cf Commercial Bank of Australia Ltd v Amadio [1983] HCA 14; (1983) 151 CLR 447, 467-8 (Mason, J).

[28] [1900] 1 Ch 243, 246-7.

[29] See Watkins v Combes [1922] HCA 3; (1922) 30 CLR 180, 197 (Isaacs J); Whereat v Duff (1972) 2 NSWLR 147, 169 (Astbury JA) (rev'd on appeal, but on other grounds) (1973) 47 ALJR 540; Ritz v Perpetual Trustee Australia Ltd [2007] NSWSC 1153, [116] et seq; Young, Croft, Smith, On Equity, [5.500].

[30] See and compare Nangus Pty Ltd v Charles Donovan Pty Ltd (In Liquidation) [1989] VicRp 17; [1989] VR 184, 185 (Young CJ).

[31] See, however, Kranz v National Australia Bank [2003] VSCA 92; (2003) 8 VR 310, 325 [38] (Charles JA); Tresize v National Australia Bank Ltd (1994) 50 FCR 134, 147.

[32] (1874) 9 Ch App 244.