National Australia Bank Ltd v Savage

Supreme Court of NSW|2013-11-05|Before: Adamson J

Introduction 1The plaintiff (the Bank) claims possession of two properties in the Orange district, a residential property in Byng Street (the Home) and a rural property known as "Willapines" (the Farm). Mr and Mrs Savage, the registered proprietors, purchased the Home as tenants in common and the Farm as joint tenants. 2Mr Savage was declared bankrupt on 30 June 2011, at which time s 58 of the Bankruptcy Act 1966 (Cth) operated in equity to sever the joint tenancy of the Farm: Sistrom v Urh (1992) 40 FCR 550, 556. Accordingly Mrs Savage's interest in the Farm is now that of a tenant in common. By letter dated 4 November 2013, Mr Savage's trustee in bankruptcy confirmed that he did not wish to take part in the proceedings. 3The Bank relied on six facilities, defined below as follows: (1)The 2002 Mortgage Facility; (2)The 2004 Mortgage Facility; (3)The 2005 Mortgage Facility; (4)The 2006 Mortgage Facility; (5)The 2006 Bill Facility; (6)The 2006 Business Loan Facility. 4The Bank also relied on a Guarantee and Indemnity (the Guarantee) whereby Mrs Savage was the surety for her husband's liabilities under the 2006 Business Loan Facility. 5Mrs Savage was a co-borrower in all facilities except (6), in respect of which she was a guarantor. Each obligation owed by Mrs Savage to the Bank was secured by the mortgage over the Home or the Farm, or both. Although the evidence does not establish that Mrs Savage signed all of these agreements, she accepts that, absent equitable intervention, she is bound by them. 6If all of Facilities (1) - (5) and the Guarantee are set aside, there would be no amount owing by her to the Bank and thus the claim for possession of her interest in the Home and the Farm would fail. I am informed by Mr Newlinds SC, who appeared for the Bank, that, in that event, the Bank would proceed to seek an order for sale of these properties pursuant to s 66G of the Conveyancing Act 1919. 7Mrs Savage accepted that the Bank was entitled to possession of the Home and the Farm unless the transactions, on the basis of which the Bank would otherwise be entitled to possession, are set aside in accordance with the principles enunciated in Yerkey v Jones [1939] HCA 3; 63 CLR 649 and Garcia v National Australia Bank [1998] HCA 48; 194 CLR 395. Mrs Savage expressly disavowed reliance on the Contracts Review Act 1980.

Agreements between the Bank and Mr and Mrs Savage 8Several standard form agreements are referred to in the narrative below. It is not necessary for the purposes of these reasons to set out the clauses creating the liabilities on which the Bank relies. Where a clause is the subject of negotiation and is relevant it will be referred to, but not otherwise. Mr Savage deposed to the use to which the monies advanced pursuant to the various agreements were put. His evidence was not challenged. 9On or about 5 August 1994 Mr and Mrs Savage mortgaged the Home, of which they were both registered proprietors, to the Bank. 10By mortgage dated 9 November 2001 Mr and Mrs Savage mortgaged the Farm to the Bank. 11On 28 October 2002 the Bank granted an overdraft facility to Mr and Mrs Savage in an amount of $60,000 pursuant to a Mortgage Facility Agreement (the 2002 Mortgage Facility). According to Mr Savage these funds were used to purchase stock and maintain the Farm. 12By Mortgage Facility Agreement dated 21 January 2004, the Bank advanced $150,000 to Mr and Mrs Savage (the 2004 Mortgage Facility). According to Mr Savage the money was used for home renovations. 13By an agreement entitled "Facility Agreement", the disclosure date of which was 28 September 2005, the Bank advanced $345,000 (the 2005 Mortgage Facility). This loan was referable to a product called "Variable Home Loan National Choice Package with Building Loan Conditions". Mr Savage's unchallenged evidence is that these funds were used by him for water licences. 14Three relevant agreements were entered into in the period March to May 2006. Pursuant to a Mortgage Facility Agreement the Bank advanced $1.1M to Mr and Mrs Savage (the 2006 Mortgage Facility). According to Mr Savage he used the funds for investments, principally stock market trading. 15Pursuant to a Bill Facility Agreement (the 2006 Bill Facility Agreement) the Bank advanced a facility of $2.85M to Mr Savage in respect of which it made an offer by letter dated 22 March 2006. Mr Savage used these funds to buy Flowers Financial Group shares and related investments. On or about 26 May 2006, Mrs Savage executed the Guarantee by which she guaranteed her husband's indebtedness under the Bill Facility Agreement.

The execution of the 2006 Mortgage Facility Agreement and the Guarantee 16The Bank adduced evidence of the circumstances in which Mrs Savage was said to have executed the 2006 Mortgage Facility Agreement and the Guarantee. Mr Wallace witnessed Mrs Wallace's signature on the Guarantee. There is no executed copy of the 2006 Mortgage Facility in evidence. The Bank did not adduce evidence of the execution of any of the other agreements to which Mrs Savage was a party. The determination of what occurred on 26 May 2006 when Mrs Savage executed at least the Guarantee in the presence of Mr Wallace is not straightforward. Neither recalled the occasion. The Bank's records of what occurred are somewhat opaque and, in certain material respects, have been shown to be incorrect. 17Mr Wallace, who was the Relationship Manager at the Bank's branch in Orange from December 2005 until July 2007, had no specific recollection of meeting Mrs Savage to explain any documents and gave his evidence by reference to the Bank's business records. He did, however, recall that he had met Mr and Mrs Savage on about four or five occasions while he was at the Orange Branch. 18Mr Wallace gave his evidence by reference to his usual practice and bank records. Mr Wallace principally relied on two documents as recording what occurred with respect to Mrs Savage's execution of the 2006 Mortgage Facility and the Guarantee: a "Consumer Customer Interview Record" (in respect of the 2006 Mortgage Facility) and a "Guarantor Interview Record" (in respect of the Guarantee) both of which are standard form checklists produced by the Bank. 19Mrs Savage gave her evidence by reference to what she thought she would have recalled if it had happened. She accepted that she was distracted and unwilling to prolong any attendance at the Bank, which she regarded as an imposition. I accept her evidence that she did not spend more than 15 minutes at the Bank on any given occasion.

The execution of the 2006 Mortgage Facility 20The documentation regarding the execution of the 2006 Mortgage Facility is scant. The date of the Bank's offer is expressed to be 17 March 2006. No executed copy is in evidence. I am informed that none has been discovered. 21All of the handwriting on the Consumer Customer Interview Record was Mr Wallace's. The top of the form identified the account name as Mr and Mrs Savage. The facility type is identified as "Flexiplus Mortgage National Choice Package" and the amount is recorded as $1,100,000. 22The record is divided into five sections: (1)Document preparation (2)Document review period (3)Legal advice sought (4)Document execution (5)After execution. 23Various documents are listed under the heading "Document Preparation", which occupies the top half of the form. The date on which such documents are recorded as having been provided is 22 March 2006. This part of the form was initialled by Mr Wallace and dated 22 March 2006. 24In the "Document Review Period" section, Mr Wallace dated the following two entries 26 May 2006: I have recommended and advised all parties to seek independent legal and financial advice before signing relevant documentation. I confirm that all parties have been given the opportunity to read and consider all documentation before entering into the credit contract. 25In the "Legal Advice Sought" section, the "yes" box has been ticked in answer to the question: Has the debtor/s sought independent legal and financial advice? 26In the space provided for identification of the solicitor or financial adviser, Mr Wallace wrote: "Michael Niven (for Lisa)" and dated the entry 26 May 2006. The Bank did not challenge the evidence given by Michael Niven, the solicitor referred to in the Bank's documents, that he does not recall giving advice to Mrs Savage in the relevant period. Furthermore, he gave evidence of his usual practice to keep a file note of any such advice and the absence of any such file note. I am satisfied, by this, and Mrs Savage's, evidence that Mr Niven did not give her any legal advice in relation to the 2006 Mortgage Facility Agreement or the Guarantee. 27In the "Document execution" section, Mr Wallace confirmed that on 26 May 2006 he enquired as to the debtor's understanding of the credit contract and, if applicable, security documentation. He also confirmed that the debtor acknowledged understanding the nature and implications of the transaction and that all debtors had signed the relevant documentation. 28At the foot of the document, Mr Wallace initialled to signify that he had completed all items. This entry is dated 26 May 2006. 29I am not satisfied that Mr Wallace gave any explanation of the 2006 Mortgage Facility to Mrs Savage or, indeed, that she ever signed it. In my view, Mr Wallace believed, possibly as a result of what Mr Savage had told him, that Mr Niven would give such an explanation but did not have reasonable grounds for believing that Mr Niven had done so when Mrs Savage attended the Bank to sign the Guarantee on 26 May 2006. Nor would it have been reasonable for him to accept Mr Savage's word for what had occurred without checking with Mr Niven and Mrs Savage.

The execution of the Guarantee 30It is accepted that Mrs Savage executed the Guarantee. 31An additional clause was added to the Guarantee, which was otherwise in standard form. It was typed onto page 13, the page immediately before the execution page, and provided: 31. Notwithstanding anything to the contrary contained in this guarantee and indemnity the Bank's right of recourse against you is limited to your interest in the properties at: (a) xx Byng Street, Orange, New South Wales, being the whole of the lands comprised in Certificate of Title Folio Identifier 1/xx; and (b) "Willapines", Molong Road, Orange, New South Wales, being the whole of the lands comprised in Certificate of Title Folio Identifier 2/xx; mortgaged or to be mortgaged to the Bank. 32Mrs Savage initialled clause 31. I infer that she did so on the same occasion on which she executed the Guarantee. I am satisfied that the clause was not introduced at her behest. The only reasonable inference is that her husband asked for the additional clause to be inserted into the Guarantee, although there is no direct evidence that he did so. 33Mrs Savage also signed a form of a statutory declaration that was dated (but not by her) 26 May 2006 in which she purported to declare that: (1)She was the guarantor named in a guarantee and indemnity in favour of the Bank on account of Mr Savage's liabilities; (2)She had received independent legal advice regarding the guarantee and indemnity; and (3)After receiving the advice she freely and voluntarily signed the guarantee and indemnity. 34Provision was made for the signature of a Justice of the Peace or a solicitor who was to administer the affirmation but this remained blank, although the date was filled in in writing other than Mrs Savage's. Mrs Savage's middle name, Margaret, is misspelled on the statutory declaration, which reads "Marget". Because Mrs Savage's signature was not witnessed, the document is not a statutory declaration: Oaths Act 1900, s 18. I am not satisfied that she signed the form at the Bank in Mr Wallace's presence since, had she done so, he would, in my view, have witnessed her signature and she would have pointed out the misspelling of her name. Mr Wallace's omission to have Mrs Savage make a declaration that she had received legal advice in his presence indicates either that he was unconcerned about whether she had done so, or, more probably, that he understood that the advice was provided, or to be provided, by Mr Niven, who could reasonably be expected to record the giving of any such advice. 35Mr Wallace identified all the handwriting on the Guarantor Interview Record form as his. The document identified Mrs Savage as the guarantor and the guarantee amount as $2.85M. Section 1 is concerned with compliance with Code of Banking Practice, about which no issue arises. 36Sections 2 and 2a are concerned with document preparation and record that several documents were provided to Mrs Savage on 22 March 2006. 37Sections 3 and 3a concern document review. Mr Wallace dated all entries in these sections 26 May 2006 and relevantly ticked the following boxes: I have recommended and advised all parties to seek independent legal advice and financial advice before signing relevant documentation. I confirm that all parties have been given the opportunity to read and consider all documentation before entering into the Guarantee. 38Section 4 is entitled, "Legal Advice Sought". Mr Wallace has recorded that the guarantor has sought legal advice and that the solicitor's name is Michael Niven at Baldock's. For the reasons given above in respect of the 2006 Mortgage Facility, I do not accept that Mr Niven gave any advice to Mrs Savage. 39In Section 5, entitled "Document execution", Mr Wallace ticked all entries and dated them 26 May 2006, including one that is inapplicable since it relates to corporate guarantors. He ticked that he confirmed that he asked about the guarantor's understanding of the credit contract and applicable security documentation and that the guarantor acknowledged that she understood the nature of the transaction. There is a note on the form which reads: Note: If the Guarantor/s appear not to understand the relevant documentation they must seek independent legal or financial advice. 40I am not satisfied that Mr Wallace ever explained the Guarantee to Mrs Savage. Indeed, I am satisfied that it is unlikely that he did. Mr Wallace appreciated that he was obliged to explain a guarantee to a surety in circumstances where the surety had not obtained independent legal advice but that he was absolved of that responsibility when such advice had been obtained. That he specifically noted the name of a solicitor on both the Consumer Loan Interview Record and the Guarantor Interview Record shows that the name was given to him and that he believed that Mrs Savage had, or would, obtain independent legal advice from Mr Niven. I am satisfied that Mrs Savage did not proffer Mr Niven's name; nor did Mr Niven represent that he had given any such advice. It is difficult to conceive of any possibility other than that Mr Savage himself named Mr Niven, although it is not necessary to make such a finding. 41From Mr Wallace's point of view, he did not need to satisfy himself that Mrs Savage understood the purport of the Guarantee, since he expected that Mr Niven had explained, or would explain, it to her. I do not accept that he followed what he described as his usual practice of explaining such documents when she came to the Bank on 26 May 2006.

The 2006 Business Loan Facility 42By Business Loan Facility entered into in about July 2006, the Bank advanced $595,000 to Mr and Mrs Savage (the 2006 Business Loan Facility). The term of the facility was expressed to be one year. Mr Savage gave unchallenged evidence that, to the best of his recollection, the sum of $595,000 was used to purchase the Farm and pay the associated stamp duty. I am not satisfied that this was the case since the Farm was already mortgaged to the Bank. Accordingly, I do not accept Mr Savage's evidence on this matter. There is, in these circumstances, no evidence of the use to which these funds were put.

The Deed, the breach and the aftermath 43On 31 March 2010, a deed was executed to which the Bank and Mr and Mrs Savage were parties (the Deed). The Background to the Deed is expressed in the following recitals: A. NAB has provided the Facility to Matthew Savage. B. Matthew Savage and Lisa Savage provided the Securities to NAB to secure the payment of the Facility Indebtedness. C. NAB and Matthew Savage have agreed to provide for reduction of the Facility Indebtedness in accordance with the terms and conditions of this deed. D. Lisa Savage consents and agrees to the terms and conditions of this deed. 44The Facility referred to in the recitals is the 2006 Bill Facility Agreement. The Secured Properties are defined as the Home and the Farm. The Securities are defined as a general mortgage over 20,000 shares in Flowers Financial Group Limited and the Guarantee. 45The Deed provided for a reduction in the amount of the 2006 Bill Facility, changed its expiry date to 31 May 2010 and provided that upon expiry the whole amount of the indebtedness under the 2006 Bill Facility would become due and payable. By clause 7.2, Mr and Mrs Savage expressly warranted that each of them had read the terms of the deed, taken independent legal advice as to the Deed, that they entered into the Deed freely and voluntarily and that they were aware that the Bank was relying on the warranties in executing the Deed. Mrs Savage executed the Deed in the presence of her husband, who signed it as a witness. 46The Bank does not rely on the Deed in support of its claim for relief. Mr Newlinds submitted that Mrs Savage's preparedness to sign the Deed is relevant because it demonstrates that she would have signed all of the previous agreements even if she had understood their import and the financial risk she was running by doing so, because she signed everything her husband asked her to. 47On 5 July 2010, the Bank issued a notice of cancellation to Mr and Mrs Savage in respect of the 2002, 2004 and 2006 Mortgage Facilities, under which a total sum in the order of $1.3M was owing. Further notices of default were issued in respect of the other loans and facilities. 48Mr Savage was declared bankrupt on 30 June 2011. He continues to live with his wife at the Home. 49By Dobbs certificate (after Dobbs v National Bank of Australasia Ltd [1935] HCA 49; 53 CLR 643) issued on 28 October 2013 the Bank certified, pursuant to its rights under the registered mortgages over the Home and the Farm and the Guarantee, that the amount owing by Mrs Savage as at 15 October 2013 was $7,415,855.54. Mr Newlinds confirmed that he relied on the certificate to establish default to justify the claim for possession but that I would not be required to make a finding as to the level of default.

Mrs Savage's circumstances and her attitude towards financial affairs 50Mrs Savage was born in 1963. She spent part of her childhood in Fiji. When she was seven the family moved to Orange. Her mother was a housewife until she was widowed when Mrs Savage was 11. Her mother then ran a local boutique. Mrs Savage recalled money being tight, although she never discussed financial issues with her mother. 51Mrs Savage met the boy who was later to become her husband when she was eight and he was ten. Mrs Savage found in her prospective father-in-law a father figure which she lacked because of the death of her own father. Mr and Mrs Savage married and purchased their own house in 1987, when she was 24. By this time her husband was admitted to practice as a solicitor and she was working full-time as a teacher at a State school in Orange. 52After their first child was born in 1990, Mrs Savage worked part-time. She gave birth to their second in 1992 and their third in 1995. 53Mrs Savage and her husband had a joint bank account. Mr Savage would pay the bills and would give his wife a weekly allowance to pay for housekeeping expenses. Mrs Savage trusted her husband completely and did not acquaint herself with anything to do with their financial affairs. She was aware that her husband was engaging in property development but did not concern herself with the details. 54Mrs Savage recalled several occasions on which her husband had brought documents home for her to sign. She would sign at the place indicated, either by her husband, or by an adhesive sticker. She did not read any of the documents. She had no interest in finances. 55Mrs Savage could not recall any more than three of four occasions when she was required to go to the Bank's premises at Lords Place in Orange to sign documents with her husband. On none of these occasions was she present at the Bank for more than 15 minutes. She has no recollection of a bank officer asking her whether she understood what she was signing or asking her whether she had any legal or financial advice. She did not know for what purpose the money they borrowed would be used and made no enquiry of her husband or the Bank. 56When she was shown copies of the various facilities she had signed and the Guarantee, she had no recollection of seeing the documents before or the circumstances in which she signed them. 57Between 2002 and 2006 all of Mrs Savage's children lived at home and attended the same local school. She would drive them to school in the morning and pick them up in the afternoon. She described the after-school period as "hectic and chaotic". She drove her three children around the neighbourhood to enable them to take part in extracurricular activities. 58From 2002 until 2005 she worked two days a week in a small school ten minutes' drive from Orange. In 2006 she resigned from the Department of Education and became a casual teacher. 59From 2000 until her mother's death in 2007, Mrs Savage looked after her mother, who lived next door. Mrs Savage also did all the household chores, as well as managing and maintaining the Farm and the horses, supervising the children's homework and looking after her children, her mother and, quite possibly, her husband. 60The various demands on Mrs Savage's time left her with neither inclination for, nor interest in, reading transactional documents that her husband brought home for her, or for which she was required to attend the Bank, to sign. She was content to sign the documents without reading them because she was happy to go along with whatever decision her husband had made about the acquisition of assets or investments. She understood that the documents she was asked to sign were "important legal documents". She considered it to be inconvenient to have to go to the Bank to sign documents because of her other commitments and because she was prepared to sign anything her husband asked her to. 61Although she was prepared to sign documents without reading them, if anyone at the Bank had asked her whether she had read documents, she would have said that she had not. 62She denied ever getting legal advice or being asked by the Bank whether she had received independent legal advice. She said that if she had been asked by anyone whether she had received independent legal advice she would have said that she had not. 63Although Mrs Savage did not read the documents, she understood that a mortgage was a security over a property which had the effect that the property could be sold by the Bank if the borrowers defaulted on repayments of a loan. She understood that loans had to be repaid and that, from time to time, they had borrowed money from the Bank. She did not, however, know what a guarantee was and was unable to distinguish it from a mortgage. She was aware at least in a general sense that some of the documents she signed were for the purpose of borrowing money or were "contracts of some sort" but she did not know the details because she did not read them. I accept her evidence of her ignorance: ". . . I did not know the amounts of money involved, how long the loans were for, what the repayments were, whether the loans were principal and interest or interest only, the security arrangements referred to in some of the documents (being whether they were secured by a mortgage and if so, how). I did not know a default under one facility would operate as a default for all facilities, or any of the circumstances in which there may be a default." 64Even when Mrs Savage realised, in 2010, that things were going badly as far as the family finances were concerned, she still signed the Deed because her husband told her that it was the best thing for her to do. She did not see the need for independent legal advice because, although she knew solicitors who practised locally and felt comfortable with them, she was prepared to do whatever her husband thought best. 65In the week prior to the hearing of the proceedings, she read the documents that she had failed to read before signing them. It did not take her long to read them or understand their import.

Mrs Savage's credibility 66The challenge made by the Bank to Mrs Savage's credibility was not directed to her honesty, but to her reliability. The Bank submitted that she did not recall what actually happened at the Bank's premises because she was too distracted by the many things that occupied and preoccupied her to pay attention to what Mr Wallace said to her. It contended that, to the extent to which she denied that Mr Wallace said certain things, she ought not be accepted because she was reconstructing what had happened through the unreliable prism of hindsight. 67Mrs Savage impressed me as an honest witness. She readily conceded that she understood certain things and that she was capable of reading and understanding the documents associated with the various agreements that she sought to have set aside. She came across as intelligent and trusting of her husband, to whom she was, and apparently still is, devoted. Her lack of curiosity, lack of financial sophistication and preparedness to sign documents that she recognised as being important without reading them, notwithstanding that she was capable of so doing, were, in my view, genuine. 68This is not to say that she was generally credulous. In my view, she reserved her unquestioning trust for her husband. She was prepared to sign documents that contained statements she would have known, had she taken the time to read them, were false, including that she had read and understood the documents, that she had received independent legal advice and so on. Had a bank officer asked her these questions, rather than required her to sign such statements, I am satisfied that she would have answered the officer honestly and admitted that she had neither read the documents, nor sought legal advice.

Legal principles: the nature of the equity 69Under general equitable principles, equity will intervene to set aside contracts on the grounds of unconscionable conduct. In Yerkey v Jones, Dixon J identified circumstances concerning husbands and wives where equity might set aside a transaction as unconscionable. Of present relevance is the circumstance where a creditor fails to explain to the wife adequately or accurately the suretyship transaction which the husband seeks to have her enter for his immediate economic benefit or the circumstances in which her liability may arise. 70In Garcia v National Australia Bank [1998] HCA 48; 194 CLR 395 at 404 - 405 Gaudron, McHugh, Gummow and Hayne JJ explained that the equity was not based on any presumption of subservience, inferior economic position or vulnerability to exploitation of married women. Rather, it was based on trust and confidence whereby a wife might leave all business judgments to her husband in circumstances where she is neither consulted, nor advised, in any substantial way about the legal effect of documents she signs which concern her financial interests as well as those of her husband. 71Although the equity is not necessarily limited to agreements sought to be set aside by a wife against her husband's creditor, it is well established that it arises in that context. 72The basis for equitable intervention appears from the following passage in the judgment of the plurality in Garcia v National Australia Bank at [33]: " . . . it depends upon the surety being a volunteer and mistaken about the purport and effect of the transaction, and the creditor being taken to have appreciated that because of the trust and confidence between surety and debtor the surety may well receive from the debtor no sufficient explanation of the transaction's purport and effect. To enforce the transaction against a mistaken volunteer when the creditor, the party that seeks to take the benefit of the transaction, has not itself explained the transaction, and does not know that a third party has done so, would be unconscionable." 73The plurality in Garcia v National Australia Bank adverted to the means by which a creditor can protect itself at [41]: If the creditor itself explains the transaction sufficiently, or knows that the surety has received "competent, independent and disinterested" advice from a third party, it would not be unconscionable for the creditor to enforce it against the surety even though the surety is a volunteer and it later emerges that the surety claims to have been mistaken. 74For equitable intervention to be warranted, proof is required of four matters: (1)She did not understand the purport and effect of the transaction; (2)The transaction was voluntary, in that there was no direct or immediate gain for her from the transaction; (3)The creditor, the Bank, knew that she was Mr Savage's wife and could be expected to repose trust in him in financial matters; (4)The Bank did not itself take steps to explain the transaction to her, or find out that a stranger had explained it to her. 75Mr Curtin accepted that he was obliged to establish at least propositions (1) to (3) above and appeared to accept that Mrs Savage bore the onus of establishing (4), although he acknowledged that there were dicta to the contrary in Einstein J's review of the authorities in State Bank of NSW v Chia [2000] NSWSC 552; 50 NSWLR 587 at [171] - [176]. 76The Bank conceded that proposition (3) was established. 77Mr Newlinds submitted that Mrs Savage was also required to prove that, had she appreciated the true import of the document, she would not have signed it.

Whether Mrs Savage understood the purport and effect of the transaction 78An understanding of the purport and effect of the transaction requires, at least, an understanding of the fact of liability, the general extent of liability and the possible consequences of default. An appreciation either of the degree of risk associated with the transaction or the prudence of entering into it is not required: Yerkey v Jones at 689. 79Mrs Savage's admissions in cross-examination showed that she knew that loans had to be repaid and that, if they were not, there was a risk that the Bank would sell the Home or the Farm if the loans were secured by mortgages. However, although Mrs Savage admitted that she knew that the documents she signed were important documents from the Bank, I accept that she did not read any of them and therefore did not know that they concerned loans made by the Bank to her and her husband that were secured by mortgages. She merely signed the documents where indicated and did not take the time to read them. I am satisfied that Mrs Savage did not appreciate, when she signed each of the Mortgage and Facility Documents (1) - (5), that the documents were loan agreements. Because of her fundamental lack of understanding of what she was signing, she did not appreciate that the loans were secured by the mortgages over the Home or the Farm. 80I accept Mrs Savage's evidence that she did not know what a guarantee was. I am accordingly satisfied that she did not understand the purport and effect of the Guarantee, since she did not read it and did not understand what the term meant. 81Mr Newlinds relied on Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; 219 CLR 165 in support of the submission that a party is bound by his or her signature on a document, whether or not he or she has actually read it. He pointed to the document in the form of a statutory declaration that Mrs Savage had signed in which she represented that she had read and understood the document, signed it willingly and that she had received independent legal advice. He also relied on the prominent admonitions on the cover and signature page of the Guarantee itself, cautioning the guarantor to obtain independent legal advice and warning that if the debtor does not pay, the guarantor is obliged to pay and that the guarantor might lose everything, including his or her home. Mr Newlinds submitted that equity would not disregard representations made by a surety to a lender, on which the lender could be expected to rely. 82The difficulty with the Bank's submission is that it is at odds with the premiss of the Yerkey v Jones equity: that the wife has signed a document without understanding its purport and effect. The equity cannot therefore be defeated by a document signed by the wife as volunteer, that contained a representation that she understood its effect, if in fact she did not. To hold otherwise would be to permit the creditor to profit from its own unconscionability.

Whether Mrs Savage was a volunteer 83It is common ground that Mrs Savage was a volunteer in respect of the Guarantee for which she was a surety. The question arises whether she was a volunteer in respect of all other advances of which she was a co-debtor. 84Mr Curtin submitted that Mrs Savage ought be treated as a quasi-surety since, as a matter of fact, she received no direct benefit from any of the facilities, with the possible exception of the $150,000 advanced pursuant to the 2004 Mortgage Facility which, as Mr Savage deposed, was used for home renovations. He submitted that whether someone is a volunteer is to be decided as a matter of substance and not according to legal rights and obligations: Bylander International Consortium (Australia) Pty Ltd v Multilink Investments Pty Ltd [2001] NSWCA 53 at [15] per Handley JA, Giles and Heydon JJ agreeing. 85Mr Curtin relied on Garcia v National Australia Bank where Mrs Garcia was treated as a volunteer although she was both a director and shareholder of the debtor company. As the High Court noted at [7], the trial judge in that case was not satisfied that the companies were other than her husband's creation of which he was in complete control and found at [43] that in these circumstances she was in substance a volunteer since she had "no financial interest in the fortunes of the company". 86Mr Curtin also relied on dicta in Agripay Pty Limited v Byrne [2011] QCA 85; [2011] 2 Qd R 501 (Agripay) as supporting the proposition that benefit is to be adjudged by reference to the substance of the transaction. In Agripay, the husband and wife were both doctors. The husband borrowed money to invest in schemes designed to minimise his tax liability. His wife guaranteed the loan. The Queensland Court of Appeal rejected the argument that the wife was not a volunteer because she stood to receive a benefit from the superannuation fund if the schemes were profitable. 87Mr Curtin accepted that although the Yerkey v Jones equity is not confined to guarantees (as Garcia itself demonstrates), the question whether the wife is a volunteer is relatively clear in such instances. He submitted that where a wife is a co-debtor on a loan, an assessment is required of the benefit, if any, which the wife actually receives from the loan, since in respect of the whole, or part, which is not for her direct and immediate benefit she is, in substance, a volunteer. 88Mr Curtin relied on the obiter remarks of Santow J, with whom Campbell J agreed, in Elkofairi v Permanent Trustee Co Ltd [2002] NSWCA 413 (Elkofairi), at [92]: 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. 89In Bank of Western Australia Limited v Abdul [2012] VSC 222 (Abdul) Croft J applied these obiter remarks to find that Mrs Abdul was, in substance, a volunteer in respect of a loan made to her and her husband jointly, the proceeds of which were paid into their joint bank account. His Honour found that the businesses conducted by the Abdul companies were effectively the same business as was conducted by the Abdul partnership, of which Mrs Abdul was a partner. Mr Abdul controlled the companies and the partnership. Mrs Abdul was a guarantor in respect of loans to the Abdul companies and a principal debtor in respect of the loans to the Abdul partnership. Croft J found at [90]: Just as the second defendant was a volunteer in relation to the extension of credit to the Abdul Companies, so too she was a volunteer in relation to the Abdul Facility which was, in essence, another extension of credit to the Abdul businesses, similarly secured by, among other things, Mrs Abdul's personal liability. The fact that the moneys paid by Bankwest under that facility were in fact paid into the joint bank account of the defendants does not change the position for the reasons indicated previously. The allocation of moneys to assist in financing the Lonsdale House Residential Age Care Facility was not, contrary to the submissions of Bankwest, merely a choice of the first and second defendant in relation to how they subsequently chose to allocate moneys within the family business from the funds that had been paid into their joint account. Rather, that position was required under the provisions of the Abdul Facility. 90For the following reasons I do not consider that Mrs Savage has established that she is a volunteer in respect of any of the facilities. She is a volunteer only in respect of the Guarantee. 91I consider the instant case to be distinguishable from Garcia and Abdul. In Garcia the monies were to be paid to a third party which the trial judge found to be under the complete control of the husband, and in respect of which the wife had no financial interest. In respect of each of the facilities to which Mrs Savage was a party, she was a co-debtor with her husband and the loan was advanced to both of them jointly. Nor was she in the same situation as Mrs Abdul, who, like Mrs Garcia was a director and shareholder of the debtor company. In Abdul, the bank knew that although Mrs Abdul was a partner, she had no control over the partnership or the business it conducted. 92Although the obiter remarks of Santow J in Elkofairi might appear to lend some support to the proposition that one ought dissect the monies advanced by reference to the use to which any portion will be put to determine whether, in respect of any part, the wife is a volunteer, I do not consider that this is an accurate statement of the present law. The reasons why the Yerkey v Jones equity was not available in Elkofairi appear from the following passages in Beazley JA's judgment, with whom Santow and Campbell JJ agreed: [47] This case is not one of guarantee. If it is sought to make the principles in Yerkey v Jones applicable to a case which is outside the case of a guarantee given 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. [48] Here, Mr Elkofairi and the appellant, as joint tenants of the property, applied for a joint loan secured on their joint property. The loan was, on its face, partly for refinancing and partly for business purposes. The respondent knew, by time it approved the loan that the refinancing part of the transaction was to pay out an existing debt, although the nature of that debt was not explained. It also knew that the balance of the monies were for business purposes and the home was the only security. There was no provision in the application form for any elaboration of the nature of the business to be undertaken or the interest of either of the borrowers in the proposed business and there was no evidence that this information was obtained or even sought. . . [49] The respondent did not have express notice or any other information sufficient to put it on notice that the appellant was partially a volunteer. Accordingly, the appellant has not established an entitlement to relief under the principles in Yerkey v Jones. In reaching this conclusion I have not sought to determine whether as a matter of principle, such relief is available in respect of transactions other than those of guarantee. Nor I have sought to determine whether, if the principle does apply outside of contracts of guarantee, actual notice of the voluntary nature of the transaction is required or whether some lesser form of notice would be sufficient. 93In the present case, Mrs Savage relied on the brief descriptions given by her husband in his unchallenged affidavit evidence as to the purposes of the various loans in support of the proposition that she was, in substance, a volunteer in respect of all of the facilities, except the 2004 Mortgage Facility, the funds for which were advanced for home renovations. 94Mrs Savage has not established that the Bank was on notice either of the use to which the funds advanced were to be put or what her interest was in that use. It is not sufficient for Mrs Savage to prove, for example, that the funds advanced under the 2006 Mortgage Facility were in fact used by Mr Savage largely for investments, principally stock market trading, when there is no evidence that the Bank knew of the purpose or that Mrs Savage was effectively a volunteer. 95The uses to which the monies advanced pursuant to the other facilities were put are even less susceptible to the inference that Mrs Savage obtained no direct benefit from them. According to Mr Savage, the monies advanced pursuant to the 2002 Mortgage Facility were used to purchase stock for the Farm and its maintenance. Mrs Savage was a joint tenant with Mr Savage of the Farm. In her affidavit she deposed to the work she did on the Farm, including managing the Farm and looking after the horses. 96The funds advanced pursuant to the 2005 Mortgage Facility were used, according to Mr Savage, for water licences. There is no reason for supposing that these licences were not held jointly with Mrs Savage, that they did not otherwise add value to the Farm or that Mrs Savage did not derive any benefit from them. 97As for the 2006 Business Loan Facility, I do not accept, for reasons given above, that it was used to buy the Farm and pay the stamp duty since this is at odds with the chronology. However, I do not consider there to be any basis for inferring that Mrs Savage obtained no benefit from these funds. 98Accordingly, I am not satisfied that Mrs Savage was a volunteer in respect of any of the agreements apart from the Guarantee.

Whether the Bank itself took steps to explain the transaction to the wife, or find out that a stranger had explained it to her 99I have made findings which are set out above that Mr Wallace did not take any steps to explain the Guarantee to Mrs Savage. If the Bank believed that Mr Niven had explained or would explain the Guarantee to her, it did not have reasonable grounds for the belief since it had neither asked Mrs Savage, nor Mr Niven. The Yerkey v Jones equity requires that the Bank not entrust either the explanation of the document or the assurance that the document has been explained to the very person, the husband, whom the surety, the wife, trusts implicitly.

Causation: whether Mrs Savage would have signed the Guarantee had she appreciated its nature and effect 100As referred to above, the Bank contended that it should not be deprived of its legal rights under the Guarantee because Mrs Savage would have signed it had she received independent legal advice or had she understood its nature and effect. Although she said that she would have been alarmed to appreciate that she could lose the Home and the Farm if her husband had defaulted on the loans, I am satisfied that Mrs Savage would have signed the Guarantee if her husband had asked her to even if she had appreciated its effect. 101The Yerkey v Jones equity is concerned with the conscience of the lender, not the reasonableness of the surety, or what the surety would have done had the lender not behaved unconscionably. Mrs Savage, as surety, is bound by a transaction in respect of which she is a volunteer if she understands its nature and effect or the Bank has taken steps to explain it to her or have a third party explain it to her. If she does not understand the transaction and the Bank has not taken steps to explain it to her or to have a third party do so, equity will relieve her of her obligations under the transaction by setting aside the transaction. Whether she would have entered into the transaction in any event is, in my view, immaterial to the equity. It is not to the point that she would have signed the Guarantee irrespective of what the Bank or Mr Niven had told her. Such matters are germane to the recovery of damages in tort or contract, but not to this form of equitable relief: see, by analogy, Maguire v Makaronis (1997) 188 CLR 449 at 467 per Brennan CJ, Gaudron, McHugh and Gummow JJ.

Competing equities 102The Bank also relied on statements which Mrs Savage had signed to the effect that she understood what she was doing, that she appreciated that she could lose her house in the event of default and that she had received legal advice. It submitted that it was inequitable that she not be held to such representations when the Bank relied on them. 103For the reasons given above, I reject this submission as being at odds with the premiss on which the Yerkey v Jones equity is based.

Conclusion 104Mrs Savage has brought herself within the principles identified and illustrated in Yerkey v Jones in respect of the Guarantee. In my view, it would be inequitable to enforce the Guarantee against her since she was a volunteer, whom the Bank knew was married to the debtor and who did not understand the nature and purport of the transaction. The Bank took no steps either to explain the Guarantee to Mrs Savage itsef or to have a third party explain it to her. Accordingly, I am satisfied that the Guarantee ought be set aside.

Orders 105At the conclusion of the hearing I understood it to be agreed that if Mrs Savage did not succeed in having all five loan agreements set aside and the guarantee, the Bank would be entitled to an order for possession. However, I foreshadowed that I would grant liberty to apply in respect of the proposed orders set out below, in case either the plaintiff or the second defendant wished to be heard on the form of the orders, whether any different result flows from my reasons, or the costs order. 106The orders I make against the first defendant are: (1)Judgment for possession of the whole of the land comprised in Certificate of Title, Folio Identifier 39/xx (formerly 1/xx) and known as xx Byng Street, Orange in the State of New South Wales. (2)Judgment for the possession of the whole of the land comprised in Certificate of Title, Folio Identifier 2/xx (formerly 7/xx) and known as "Willapines" Molong Road, Orange (also known as 'Willawong' Molong Road, Orange) in the State of New South Wales. (3)Leave to issue a writ of possession to enforce the judgment referred to in paragraphs (1) and (2) above. (4)Order the defendant to pay the plaintiff's costs of the proceedings. 107I make the following direction: (1)Direct the plaintiff and the second defendant to inform my Associate by email by 5 pm 25 November 2013 whether it or she, as the case may be, wishes to be heard against the making of orders against the second defendant in the same terms as set out above. If no such notification is made, the orders set out above will be made against the second defendant in chambers.

Amendments 03 December 2013 - amended reference in 'decision' Amended paragraphs: Coversheet; [106] 18 December 2013 - Order made on 3.12.13- The orders made on 21 November 2013 will be made against the 2nd defendant. Amended paragraphs: [107] DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 03 December 2013

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