National Australia Bank v Satchithanantham [2009] NSWSC 21 | Case summary

National Australia Bank v Satchithanantham [2009] NSWSC 21 | Case summary | Zoe

[18]

Witnesses 7 The bank did not call evidence from any witness to the circumstances in which Mrs Satchithanantham signed the transaction documents. The only employee of the bank who met Mrs Satchithanantham and her husband in the context of the loan was Ms Eva Colbran but she appears to have been reluctant to assist the bank in these proceedings. 8 The bank sought to explain Ms Colbran's absence by calling evidence from its solicitor, Ms Jane Pyke. Ms Pyke gave evidence of many calls she made to Ms Colbran with a view to obtaining a statement from her. Ms Colbran did not return many of the messages left for her. On the few occasions when Ms Pyke was successful in making contact, Ms Colbran forestalled the taking of a statement, claiming that she was too busy to assist. 9 Most recently, in March 2008, Ms Pyke's calls to the two telephone numbers she had for Ms Colbran were met with recorded messages stating that the number was disconnected. The bank took no other steps to locate Ms Colbran and did not attempt to serve a subpoena on her at any stage. 10 The bank's written submissions assumed, without developing the proposition, that Ms Pyke's evidence provided sufficient explanation to defeat any inference I might otherwise draw from the bank's failure to call its only witness to the impugned transaction. I do not accept that assumption. Having regard to the contents of both the original defence and the amended defence, Ms Colbran was plainly a person with knowledge of the facts relevant to a determination of the defences raised. Further, as a former bank officer, she may fairly be regarded as having been in the bank's "camp". It was not submitted otherwise. 11 The expected approach in the face of intransigence from such a witness is for the relevant party (here, the bank) to issue a subpoena to ensure the attendance of the witness at the hearing. It seems likely that the decision not to do so in the present case reflects a forensic assessment that the bank's case would not be any weaker for want of the evidence that might have been given by Ms Colbran. I see no reason why I should not proceed on that basis. 12 The principle discussed in Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298 and subsequent cases acknowledges that, where a particular inference or conclusion is available on the evidence, the Court may be assisted in drawing the inference or coming to the conclusion by the unexplained failure of a party to call a witness who is likely to have relevant knowledge and may be regarded as having been "in the camp" of that party. I am satisfied that it is appropriate for me to have regard to the absence of Ms Colbran for that purpose. 13 The other person present when Mrs Satchithanantham signed the documents was Mr Satchithanantham. He made a number of applications to be joined as a party in the proceedings and each of those applications was refused: see the decisions of Sully J of 11 September 2006 (in respect of which leave to appeal was refused by Beazley and Tobias JJA on 23 May 2007); Malpass As J of 24 September 2007; James J of 12 December 2007 (refusing an appeal from the decision of Malpass As J); Mason P and Handley AJA of 14 May 2008 (refusing leave to appeal against the decision of James J) and my decisions of 7 April 2008, 22 July 2008 and 5 September 2008. 14 At a time when Mrs Satchithanantham was still represented by Mr Krishnar, solicitor, he made what I infer was a considered decision not to call Mr Satchithanantham as a witness: see transcript 22 July 2008 at T34.15-42 and T40-44. Mrs Satchithanantham was directed that day to notify the bank of any further affidavits that would be read at the resumed hearing. That was not an idle direction. It was made on the application of counsel for the bank, Mr Leopold, who had already suffered the forensic disadvantage of an adjournment to meet Mrs Satchithanantham's interests in having legal representation at the hearing. No notice was given that the affidavits of Mr Satchithanantham were to be read. However, the bank did not submit that any Jones v Dunkel inference should be drawn as a result of those circumstances.

[20]

The first meeting 17 The first meeting was when her husband took her to the National Australia Bank at Parramatta in December 2002 where he introduced her to Ms Colbran. She said that Ms Colbran said, "Your husband has inquired for a home loan on your behalf, in your name, for the property you live in". Ms Colbran then gave her the loan application form and said, "You have to sign in it [sic]". There was no suggestion in the bank's case that Mrs Satchithanantham had provided any of the information recorded in the loan application form. It does not appear to have been completed in her handwriting. 18 Mrs Satchithanantham says she asked her husband what the loan amount was and he replied that it was $400,000. She then provided her driver's licence and passport to Ms Colbran for copying. I note that photocopies of those documents are included among documents tendered from the bank's file. Mrs Satchithanantham's address recorded on the licence is the address of the security property. That address is also shown as her address on other documents in the file including bank statements from the outgoing mortgagee, a council statement and a Centrelink income statement. 19 Although Mrs Satchithanantham says she did not follow much of the conversation, I am satisfied from her own version of the conversation that she clearly understood that the form she signed that day was an application for a home loan. However, there is an issue as to what information was recorded on the form when she signed it. 20 The bank tendered the original loan application document from its files (exhibit V). The appearance of that document, and a comparison of its contents with a photocopy apparently taken at an earlier time (exhibit W), suggest that it was completed in stages. 21 Mrs Satchithanantham's signature appears on the application form in black ink against the date 23/12/2002. Most of the form is completed in similar ink. However, several entries have been added in noticeably darker, thicker black ink. One of the additions relates to the stated purpose of the loan. The purpose is recorded in the light ink as "refinance". The words "home improvements" have been added in the darker ink. 22 Further, the photocopy records the "amount requested" as $520,000 whereas, on the original, that amount has been changed to $680,000. Significantly, the figure of $520,000 in the photocopy is in the darker ink. That suggests the likelihood that, at the time Mrs Satchithanantham signed the loan application, the amount requested was left blank, which is consistent with her evidence that she asked her husband (in Ms Colbran's presence) what the loan amount was and was told that the amount was $400,000. 23 Mr Leopold submitted that I should infer that the figure of $520,000 was on the loan application when Mrs Satchithanantham signed it. He relied on an admission in the original defence, as to which he said that no leave to withdraw had ever been sought or obtained. I do not think it is appropriate for me to proceed on that basis when, by the time of the hearing, that defence had been superseded by an amended defence. If the effect of the amendment was to withdraw an admission, it could have been opposed on that basis. Further, the admission now sought to be relied upon was not identified as material relied on by the bank during the hearing. If it had been, leave to withdraw it may have been sought at that stage. I am not prepared to draw the inference on any other basis. 24 It seems more likely that the amount of $520,000 (in exhibit W) was inserted at a later time, and that the words "home improvements" were added as a purpose of the loan at the same time, together with the other additions in darker ink (including Mrs Satchithanantham's alleged rental income discussed below). The amount requested must then have been changed after the photocopy was taken to record the final amount requested (in exhibit V) as being $680,000. Whether or not that is so, I am satisfied that the increased amounts were not applied for at Mrs Satchithanantham's request or with her consent. She said that she knew they were going to National Australia Bank to "save the house" but she did not know "that this amount of money [the $680,000] was being taken for him to spend unnecessarily" (T224.35). I accept that evidence. 25 I am satisfied that it was Mrs Satchithanantham's husband who sought the higher amounts. I am also satisfied that the information that the loan purpose was for "home improvements" in addition to refinancing and the information as to the alleged rental income did not come from Mrs Satchithanantham. 26 I accept that Mrs Satchithanantham was told, in Ms Colbran's presence, that the application was for a loan of $400,000 and that she believed she was signing an application for a home loan in that sum. 27 Mr Leopold submitted that I should not accept Mrs Satchithanantham as a credible witness. He contended that she was prone to exaggeration and that she showed a propensity to give answers she must have known did not respond to the questions asked. He said that her tendentious manner of giving evidence made it impossible for the Court to know which parts of her evidence were true and which were false. 28 That, of course, is a false dichotomy. Evidence may be wrong or unreliable without necessarily being false. I do not find it impossible to identify parts of Mrs Satchithanantham's evidence which I accept as being reliable. There were certainly some unsatisfactory aspects to her manner of giving evidence. At times she was very emotional. Some of her answers were probably coloured by self-interest. She was inclined, at times, to share her uninhibited perception of her predicament with the Court, which produced a deal of information that was irrelevant to the line of cross-examination then being pursued. 29 In respect of the details of the transaction, however, I formed the impression that Mrs Satchithanantham was endeavouring to provide honest answers to Mr Leopold's questions, as best she understood them. She made many frank concessions against her own interest. I am not persuaded that she gave evidence that was deliberately false. I accept her evidence as to what happened at the first meeting.

[21]

30 The application form records the value of the property as $850,000, which I note gives a loan to value ratio of 80%. The only independent information as to the value of the property included in the bank's documents tendered at the hearing is a brief report nominating a value of $840,000. That report states that the current use of the property is "two residential dwellings" and that the rental value of the property is $800 per week. The bank's schedule of securities records the market value as $850,000 and the "bank value" as 80% of that amount, being $680,000 (exhibit A tab 9). 31 The bank's file documents record its awareness that Mrs Satchithanantham was in receipt of a Centrelink allowance of $1430 per month. She has a severely disabled son who requires constant care, but there is no evidence as to whether that information was known to Ms Colbran. The proposal that she would be able to repay a loan of $680,000 appears to have been supported by the contention that she had a substantial rental income from the security property. There was no such income, and accordingly it is necessary to consider the extent to which the bank knew or ought to have ascertained the true position. 32 The loan application form recorded that Mrs Satchithanantham had a monthly rental income after expenses of $4980. That is one of the additions made in the darker ink. I accept that Mrs Satchithanantham did not provide that information to the bank. The documents tendered by the bank did not include any document to substantiate that income. The bank's schedule of securities, apparently completed by Ms Colbran, records that the property had four duplexes, each of which was rented, giving a total rental income of $1240 per week. However, the only document relevant to the supposed leases tendered from the bank's file is an exclusive management agency agreement dated 20 December 2002, three days before Mrs Satchithanantham signed the loan application form. That document does no more than to authorise a named real estate agent to let the premises. In the absence of Ms Colbran, there is no evidence as to whether she gave any consideration to the obvious implication that there were no existing leases, and consequently no income. 33 Nor does the evidence disclose what Ms Colbran knew or was told about where Mrs Satchithanantham lived. All of the identification documents tendered by the bank recorded the address of the security property as Mrs Satchithanantham's address. However, the application form identified a different residential address. There is no evidence as to what Ms Colbran made of those anomalies. If Ms Colbran knew or ought to have ascertained that Mrs Satchithanantham was living at the security property (as was the fact), she ought to have appreciated that the supposed rental income was, at the very least, overstated. 34 The bank approved a facility for $680,000 which was more than 80% of the valuer's estimate of the value of the security property. There is, of course, no direct evidence as to whether Ms Colbran was interested in the purpose for which Mr Satchithanantham had sought the higher limit of $680,000. The proposal recorded in the loan application did not make sense - it apparently sought funds to improve the property from which the income needed to service the loan was supposedly already being derived. Nor is there direct evidence as to whether Ms Colbran was concerned to satisfy herself as to Mrs Satchithanantham's ability to repay the loan, or whether she was content to rely only on the availability of the security property. 35 Having regard to the contents of the bank's file, and in particular the curious management agency agreement and the absence of any evidence of existing leases, there is in my view a proper basis for inferring that Ms Colbran paid scant regard to the purpose of the loan and Mrs Satchithanantham's ability to repay it. I am assisted in drawing that inference by the bank's failure to call Ms Colbran, although I think it is available in any event. I am satisfied that the facility approved by the bank was of the kind sometimes referred to as pure asset lending: see eg Perpetual Trustee Co Ltd v Koshaba [2006] NSWCA 41 at [128] per Basten JA.

[22]

The second meeting 36 Two weeks after Mrs Satchithanantham signed the loan application, her husband again took her to the bank. She said that Ms Colbran asked her to sign two further documents and that she signed them. There is no suggestion that she had received the documents beforehand. They were addressed to Mrs Satchithanantham at the address nominated on the loan application but that was not her real address, and it is unlikely that the documents were sent there. Mrs Satchithanantham said that Ms Colbran "did not say any other details on any other matter" to her. Her husband later told her that the documents she had signed were mortgage and loan documents. Mrs Satchithanantham said that, when she signed those documents, she assumed the loan amount was $400,000. 37 In fact, it appears that the two documents signed at the second meeting with Ms Colbran were the mortgage and an acceptance slip in respect of the "package" being offered to Mrs Satchithanantham. The documents tendered by the bank include a letter dated 7 January 2003 offering Mrs Satchithanantham a facility in the sum of $680,000 (the facility offer). Under cover of the facility offer letter, the bank provided the facility contract, three booklets setting out additional terms and conditions and a letter offering Mrs Satchithanantham its "National Choice Package" (the package offer). I am satisfied, as suggested by Mrs Satchithanantham's account of events, that she did not see those documents or have any knowledge of their contents before the second meeting with Ms Colbran. 38 By signing the acceptance slip for the package offer, Mrs Satchithanantham did not bind herself to the terms of the loan. Clause 2 of the facility contract provided that it was the drawing down of funds that constituted acceptance of the facility offer (tab 1 of exhibitx A). That did not occur until April 2003. 39 The acceptance slip is signed by Mrs Satchithanantham and dated 10 January 2003. There is no witness recorded against that signature. However, the mortgage is also signed by Mrs Satchithanantham and dated 10 January 2003 with Ms Colbran recorded as witness. No other part of any of those documents bears the signature of Mrs Satchithanantham. I am satisfied that on 10 January 2003 Mrs Satchithanantham attended her second meeting with Ms Colbran where she was presented with the letter dated 7 January 2003 and its enclosures. Further, I am satisfied that she signed the mortgage and the acceptance slip for the package offer on that occasion, in the presence of her husband and Ms Colbran. 40 There is no evidence that Mrs Satchithanantham's attention was drawn at that stage to the fact that the limit of the facility being offered was $680,000. Her evidence was that, when she signed those documents, she assumed the loan was for $400,000. I accept that evidence. I note that the limit of $680,000 is recorded on the second page of the facility contract. That figure also appears in the heading of facility offer. However, on the strength of the evidence before me, I doubt whether anyone paused to ensure that Mrs Satchithanantham had read those documents or been made aware of the increase in the amount sought. I accept that she was not aware that the limit of the facility offered was $680,000.

[23]

Involvement of Ms Karthikeyan and the direction to pay 41 The bank appeared to accept that Mrs Satchithanantham had received no independent legal or financial advice before she executed the mortgage. However, Mr Leopold submitted that Mrs Satchithanantham had her own solicitor acting for her in relation to the transaction for "many weeks before the drawdown". As noted above, it was the drawing down of funds in April 2003 that constituted acceptance of the bank's facility offer (clause 2 of the facility at tab 1 of exhibit A). It is doubtful, however, that Mrs Satchithanantham was aware of this aspect of the contract. Rather, she wrongly believed that she had signed a loan document when she signed the acceptance slip for the "National Choice Package". 42 The basis for the submission that Mrs Satchithanantham had her own solicitor for "many weeks" before the funds were drawn down was a letter of instruction to the bank dated 10 January 2003 (the day the mortgage was executed) and signed by Mrs Satchithanantham which identified Karthikeyan Solicitors as the party to whom the funds were to be provided (exhibit A page 79). I do not draw any comfort from that document. It does not follow, from the fact that a firm of solicitors had been identified to the bank, that they had necessarily been retained at that stage, or that Mrs Satchithanantham had received any independent legal advice from them as to the effect of the mortgage or the facility offered. 43 By 25 February 2003, it appears that Christine Karthikeyan of Karthikeyan Solicitors had been retained by or on behalf of Mrs Satchithanantham to act on the conveyance from the trustee in bankruptcy (see exhibit Y), but there is no evidence as to the scope of her retainer. Mr Leopold submitted that the Court should not conclude that her advice was anything other than independent. In fact, there is no evidence that she gave any advice whatsoever. The earliest evidence that Ms Karthikeyan accepted any instructions in respect of the loan is an authority to pay signed by her dated 9 April 2003. That letter authorised and directed payment of amounts totalling approximately $450,000 to various parties. 44 The following day the bank received a facsimile signed by Mrs Satchithanantham confirming the content of that authority and authorising the bank, in addition, to pay $228,000 to Mrs Satchithanantham. On 15 April 2003 the bank received a revised direction to pay signed by Ms Karthikeyan. That letter had not been signed by Mrs Satchithanantham. It directed payment of the loan monies as follows:

[24]

Bank of Western Australia Limited $361,469.82 Jones King Lawyers $ 546.04 Jamnadas and Associates $ 10,000.00 Jagdish Patel (barrister) $ 10,000.00 Official Trustee in Bankruptcy $ 25,000.00 Karthikeyan Solicitors $ 1,650.00 Mrs Satchithanantham $267,000.00 45 Mr Leopold suggested to Mrs Satchithanantham in cross-examination that there was nothing to stop her from having a full discussion with Ms Karthikeyan as to whether the transaction was a good one or a bad one for her. Her response was that her husband took her to see Ms Karthikeyan and was always with her when she met her. 46 Mr Leopold submitted that a Jones v Dunkel inference was available in respect of the issue of independent legal advice because Mrs Satchithanantham could have called Christine Karthikeyan as a witness. It is doubtful whether a solicitor, who is an officer of the Court, is necessarily "in the camp" of the party that retained him or her. Having regard to the contentions made in the amended defence, it might equally be thought that the bank should have contacted Ms Karthikeyan with a view to calling her as a witness if appropriate: cf No Fuss Finance Pty Ltd v Miller [2006] NSWSC 630 at [41] to [42] per Barrett J. 47 I am not assisted in drawing any inference as to the issue of independent legal advice by Mrs Satchithanantham's failure to call Ms Karthikeyan as a witness. I am satisfied that Mrs Satchithanantham did not receive any independent legal or financial advice in respect of the transaction either before she signed the mortgage or before the funds were drawn down. 48 The bank also relied on the fact that there was no specific evidence of coercion operating on Mrs Satchithanantham in relation to the instructions to send the authority to pay on 15 April 2003. However, as I have already noted, Mrs Satchithanantham had been told by her husband in January 2003 that the documents she had signed were "mortgage and loan documents". It is doubtful whether she appreciated, after that date, that the step by which she would bind herself to the terms of the loan facility was the drawing down of the funds.

[25]

Benefit 49 On 16 April 2003 Ms Karthikeyan reported in a letter to Mrs Satchithanantham that the funds had been paid in accordance with the authority to pay. The payment to Bankwest paid out the prior loan and Bankwest's mortgage appears to have been discharged that day. The payment to the trustee in bankruptcy was the consideration for the transfer to Mrs Satchithanantham of Mr Satchithanantham's interest in the Westmead property by his trustee in bankruptcy. The payments to Jones King Lawyers and Karthikeyan Solicitors were for legal fees incurred in respect of the loan transaction, by the bank and Mrs Satchithanantham respectively. I am satisfied that Mrs Satchithanantham obtained a benefit from each of those payments, the sum of which is $388,665.86. 50 As to the payments to Jamnadas and Associates and to Jagdish Patel, the bank adduced evidence which suggested that those payments discharged Mrs Satchithanantham's personal obligation to Jamnadas under a deed (exhibit X). I am satisfied that those payments also conferred a benefit on Mrs Satchithanantham. 51 As to the balance of $267,000, Mrs Satchithanantham said that she never received those funds. I accept that she did not apply those funds to her own use. The evidence established that the funds were paid to Mrs Satchithanantham by bank cheque and deposited into an account in her name. However, I accept her evidence that she did not control that account (in a practical sense). It appears that she signed blank cheques to enable her husband to obtain access to those funds. 52 Mr Leopold relied on evidence which suggested that payments in the sum of $137,149.98 "found their way back" into Mrs Satchithanantham's account with the bank. Even if I were satisfied as to the tracking of those payments, I am not satisfied that it is appropriate for present purposes to treat payments to the bank in reduction of the unpaid balance of the facility as conferring a benefit on Mrs Satchithanantham, who did not want to borrow such an amount. I am satisfied that Mrs Satchithanantham received the benefit of $408,665.86 from the loan.

[26]

Undue influence by Mr Satchithanantham 53 The basis of the undue influence defence is that Mrs Satchithanantham was forced to sign the documents by her husband. 54 There was no suggestion of any undue influence on the part of the bank. Mr Leopold submitted, in those circumstances, that the defence must fail because Mrs Satchithanantham has failed to establish that the bank had actual knowledge of any undue influence by the husband or knowledge of circumstances which ought to have put the bank on inquiry that such impropriety might occur. In support of that proposition, Mr Leopold cited Commercial Bank of Australia Ltd v Amadio [1983] HCA 14; (1983) 151 CLR 447 at 467.7. 55 It is possible, however, that paragraph 2 of the amended defence was also intended to invoke the principles stated in Yerkey v Jones. The two kinds of case dealt with by Dixon J in that decision were discussed in Garcia v National Australia Bank [1987] HCA 48; (1998) 194 CLR 395 at [23] to [25] per Gaudron, McHugh, Gummow and Hayne JJ. The first type of case involves actual undue influence. In cases of that kind, Yerkey v Jones holds that it would be unconscionable to enforce the transaction against the wife as a volunteer when in fact she did not bring a free will to its execution. 56 As I understand the judgment of the majority in Garcia at [31], the application of that principle does not depend on the creditor having notice of the husband's influence. However, the premise of the principles in respect of both kinds of case dealt with in Yerkey v Jones is that the wife had agreed to guarantee the performance of the obligations of her husband under a transaction from which she obtained no financial benefit. Accordingly, in addition to the issue raised by Mr Leopold, it is necessary to consider whether Yerkey v Jones has any application in the present case. 57 The threshold question is whether, at the time the transaction documents were executed by Mrs Satchithanantham, her will was not independent and voluntary because it was overborne: Amadio at 461.6 per Mason J. 58 The concept of free will is complex at the best of times and particularly so in the case of Mrs Satchithanantham. On the one hand, it is clear that she is a woman of some intelligence and liberal education. She was born in Sri Lanka. She completed high school and subsequently attended university in Colombo, where she obtained a Bachelor of Arts Degree with honours in philosophy. Her studies were in the Tamil language. She later taught philosophy (in Tamil) including ethics. After her marriage she moved to Singapore where she taught basic English to young children. She later moved to Australia, where she has studied English and worked as a presenter on a community radio station (also in the Tamil language). 59 On the other hand, there are aspects of her background and personal circumstances by reason of which I accept that she is prone to the influence of her husband. In her affidavit sworn in these proceedings Mrs Satchithanantham said that she was raised in a very traditional and conservative family and that, according to her culture, wives always do what their husbands ask them to do. She said that, owing to her own poor health and the fact that she was caring for her disabled son, she never refused to sign any document her husband asked her to sign and that this approach made it possible for her to avoid quarrels within the family. 60 Mrs Satchithanantham did not, in that affidavit, attribute her execution of the transaction documents in January 2003 to any threat of violence at the hands of her husband. However, she also relied in these proceedings on an affidavit sworn in earlier proceedings brought against her by different lenders. In that affidavit she stated (in respect of loan transactions entered into in 2004) that she would have signed those documents even if they had been explained to her because she is scared of her husband. She said that he has shouted at her and pushed her in the past, that he breaks things when he is angry and that he once pulled her by the hair after she refused to follow his orders. 61 When she was cross-examined in these proceedings, Mrs Satchithanantham provided further detail of violence against her by her husband and its impact on her decisions. The bank did not dispute that Mr Satchithanantham has been violent towards his wife but contended that she was exaggerating its extent. It was put to her by Mr Leopold that there had been "one or two acts of violence" by her husband against her and that they were a long time ago. Mrs Satchithanantham denied this and said that her husband had pushed her down and beaten her as recently as six months ago (T148.25). She denied that there had been only one isolated incident of violence, as suggested by the wording of her affidavit. She said that, following that particular incident, her husband has continued to beat her when she does not accede to his requests. She said that she has always signed documents when requested to by him, out of fear, not out of consent. 62 Mr Leopold asked Mrs Satchithanantham why, if she was scared of her husband, she did not go to the police. Her response was that she has no protection at home and that if she went to the police, she would still have to come home and then he would hit her. Having regard to her circumstances, I can readily understand Mrs Satchithanantham's perception of that issue. 63 It is appropriate to consider what Mrs Satchithanantham would have done had she not been subjected to the influence of her husband. She understood when she signed the mortgage that the outgoing mortgagee, Bankwest, was threatening to take the house unless its loan was repaid (T221.12). Interestingly, Mrs Satchithanantham said in evidence "if I had borrowed money from the National Australia Bank I would have borrowed enough money to pay the Bankwest, not so much money that is mentioned in the document". I infer that Mrs Satchithanantham may have been prepared, independently and of her own free will, to mortgage her home to secure a loan in the order of $400,000 to repay Bankwest, but not to secure a business facility that would provide additional funds for her husband. 64 I accept, however, that Mrs Satchithanantham remains in fear of violence at the hands of her husband if she does not accede to his requests. I am satisfied that, whether or not she knew the final amount of the limit of the facility, Mrs Satchithanantham signed the acceptance slip and the mortgage to secure the proposed facility at the behest of her husband, and only because he told her to. I am satisfied that her will to sign those documents was not independent and voluntary in the sense referred to in Amadio because it was overborne by fear of reprisal from her husband. 65 Although there is no specific evidence as to the direction to pay dated 15 April 2003, I am satisfied that if Mrs Satchithanantham gave instructions to Ms Karthikeyan in the terms recorded in that letter, she did so believing that she had already signed the loan agreement (when she signed the acceptance slip). Accordingly, I am satisfied that her will to accept the facility offer was not independent and voluntary.

[27]

66 That, however, is not the end of the matter. As discussed above, Mrs Satchithanantham must also establish either that she is a volunteer in the relevant sense, so as to bring her within the first limb of Yerkey v Jones, or that Mr Satchithanantham's influence over her was sufficiently evident to the bank to make it unconscionable for the bank to enforce the transaction: Amadio at 466-467 per Mason J; at 477 per Deane J. 67 As to the first issue, I have already found that Mrs Satchithanantham obtained the benefit of having the loan from Bankwest paid out (with associated legal fees) and the payments made to the trustee in bankruptcy and Jamnadas. 68 Mrs Satchithanantham appeared to contend that the payment to Bankwest was not a benefit to her because the original mortgage over the house had at one point been paid in full (T177.19). If the proposition was that the Bankwest loan funds were also funds that were used by her husband with no financial benefit to Mrs Satchithanantham, that was not established on the evidence. The fact is that there was a prior mortgage registered on the title of the property of which she had become the sole registered owner. The repayment of the loan secured by that mortgage was therefore a benefit to her. 69 The facts of the present case have some similarity to those in Elkofairi v Permanent Trustee Co Ltd [2002] NSWCA 413; (2003) ACR 90. In particular, part of the loan funds in that case were applied to pay out an existing mortgage (to the benefit of Mrs Elkofairi) and a substantial surplus was applied to her husband's business interests with no benefit to Mrs Elkofairi. The wife argued that she was in part a volunteer and that the principles in Yerkey v Jones applied to protect her in respect of that part of the transaction: at [43]. 70 The Court's reasoning assumed that proposition as a premise. However, its correctness did not need to be determined. The Court held that, assuming Yerkey v Jones applied to cases that did not involve a guarantee, it would be necessary in such cases to establish that the creditor was on notice of the fact that the person seeking to impugn the transaction was a volunteer: at [47]. The Court found that the lender was not on notice that Mrs Elkofairi was "partially a volunteer": at [49] per Beazley JA (Santow JA and Campbell AJA agreeing). 71 However, that discussion was limited to the second limb of Yerkey v Jones. Although Mrs Elkofairi said she was oppressed by her husband, she had not pleaded a case of undue influence. It is doubtful whether the reasoning of the Court of Appeal in Elkofairi as to the existence (outside a guarantee case) of a requirement to establish notice of the fact that the person seeking to impugn the transaction was a volunteer applies to a case of the first kind discussed in Yerkey v Jones. 72 Of the case of actual undue influence, Dixon J said at 684.6: "…the fact that the creditor, on the occasion, for example, of the actual execution of the instrument, deals directly with the wife and explains the effect of the document to her will not protect him. Nothing but independent advice or relief from the ascendency of her husband over her judgment and will would suffice".

[30]

74 If (contrary to my view) notice of the borrower's status as a volunteer is a requirement under both limbs of Yerkey v Jones, the bank had no such notice in the present case. It paid the cheque directly to Mrs Satchithanantham. Accordingly, the question remains whether the principle in respect of cases of undue influence under Yerkey v Jones protects a "partial volunteer" in respect of that part of the transaction. For my part, I doubt that it should. The majority in Garcia used the term "voluntary" in the sense that the surety obtained "no financial benefit" or "no gain" from the contract the performance of which was guaranteed: at [31]. Dixon J referred to principles he said were of special importance "when the transaction in question is one of suretyship and the wife without any recompense, except the advantage of her husband, saddles her separate property with a liability for his debt or debts" (at 676.4). What pricks good conscience, in such a case, is the complete absence of benefit; the fact that a person's separate assets are exposed entirely in the interests of another. 75 Whether or not my view on that issue is correct, in the present case, Mrs Satchithanantham was a borrower, not a guarantor, and the benefit she obtained from the loan was substantial. A large debt was repaid, forestalling a likely claim by Bankwest for possession of her property. I do not think the principles in Yerkey v Jones were intended to apply in such a case: cf King Mortgages v Satchithanantham [2006] NSWSC 1303 at [127] per Bell J. 76 I turn to consider whether Mr Satchithanantham's influence over Mrs Satchithanantham was sufficiently evident to the bank to make it unconscionable for the bank to enforce the transaction. The evidence as to what the bank knew is extremely limited. There is no evidence from which I could infer that the bank was on notice of any of the unhappy features of the relationship between Mrs Satchithanantham and her husband. Mrs Satchithanantham did not suggest that any aspect of her two meetings with Ms Colbran would have alerted a reasonable person to her fear of her husband. 77 There is no evidence of the kind in Amadio, where the misconduct of the son was plain and should have been evident to the lending officer. So far as the evidence suggests, the two meetings with Ms Colbran attended by Mrs Satchithanantham were entirely uneventful. There is no evidence of any misconduct on the part of Mr Satchithanantham of which Ms Colbran was aware. 78 On this issue, the absence of Ms Colbran as a witness is of no avail to Mrs Satchithanantham. The relevant inference is simply not available, and does not become so for the absence of evidence that might have been called by the bank. It follows that the defence of undue influence is not made out. The second limb of Yerkey v Jones 79 The amended defence alleges that, when Mrs Satchithanantham signed the transaction documents, she did not have a clear understanding of their legal effect (paragraph 2) and the bank was aware that she had received no independent legal advice (paragraphs 4 and 7). 80 That contention is relevant to a number of the grounds of defence relied upon by Mrs Satchithanantham, which are considered below. Without having had the benefit of any submissions on behalf of Mrs Satchithanantham, it is prudent to assume that it was intended, separately, to invoke the second kind of case dealt with by Dixon J in Yerkey v Jones in which there is no undue influence, but there is a failure to explain the transaction adequately and accurately: at 684; reaffirmed in Garcia per Gaudron, McHugh, Gummow and Hayne JJ at [18]-[20] and [23]-[33]. 81 For the reasons set out above, I am of the view that the principles stated in Yerkey v Jones do not apply to a primary borrower who obtains a substantial benefit from the loan. It follows that there is no defence on this ground.

[32]

83 The amended defence identifies a number of disabilities and disadvantages suffered by Mrs Satchithanantham. They include the fact that she is a married woman who is "a mere housewife"; her limited understanding of English; the absence of any explanation of the documents or independent legal advice; the influence of her husband; her limited means, skills, expertise or experience to engage in development of the kind apparently contemplated in the loan proposal; her limited education, skill and experience in financial negotiation and her lack of means to repay the facility. 84 The existence of such disadvantages does not in itself establish that it was unconscientious for the bank to accept Mrs Satchithanantham's assent to the transactions now sought to be impugned. The remedy bites when unfair or unconscientious advantage is taken of the opportunity created by those disadvantages: Amadio at 462.6 per Mason J. The difficulty with this ground of defence is an evidentiary one. The only person present when the documents were executed who gave evidence in the proceedings was Mrs Satchithanantham. Her evidence as to the circumstances of the two meetings provided scant information as to what transpired. She gave a very short account of the conversation between herself and Ms Colbran. Apart from this evidence, there is little else from which I can assess what the bank knew or ought to have known at the time the transaction documents were executed. The contents of the bank's file provide the only other assistance. 85 Some aspects of the transaction trouble me. The principal matter of concern relates to the information available to the bank as to Mrs Satchithanantham's means to repay the loan. It appears that her only substantiated income was her Centrelink benefit. There does not seem to have been any evidence to substantiate her supposed rental income. Without that income Mrs Satchithanantham had no prospect of repaying the loan at any stage except by selling her home. It appears to have been proposed that the excess funds (after repayment of the Bankwest loan) would be applied to improve the very property from which the rental income was being collected - how that could occur without interrupting that alleged income stream is not explained in any document. 86 Further, I accept that Mrs Satchithanantham received no independent legal or financial advice before she executed the transaction documents. The bank asserted in its submissions that she had a lawyer acting for her from at least January 2003 but, as discussed above, the document relied on (Ex A page 79) does not establish that fact. There is no evidence that she received independent advice at any stage before the funds were drawn down. There is no evidence from which I can conclude one way or the other whether Ms Colbran explained the documents or sought to ascertain whether Mrs Satchithanantham understood their effect. 87 Mrs Satchithanantham acknowledges that she understood she had applied for a home loan for $400,000 and that she understood she was signing a mortgage. The complaint as to her understanding of the legal effect of the documents she signed appears to be confined to two discrete issues. The first arises from her evidence that she assumed the amount of the loan was $400,000 rather than $680,000. The second is the allegation in the pleading that she was misled as to the term of the loan (paragraph 12). 88 As already indicated, I accept that, when Mrs Satchithanantham signed the mortgage and the acceptance slip, she assumed that the loan was for $400,000. That assumption derived from the exchange between Mrs Satchithanantham and her husband, in the presence of Ms Colbran, when the loan application was signed in late December 2002. Mrs Satchithanantham did not seek the increased amount and there is no evidence that any steps were taken to inform her that a higher amount had been sought (presumably by her husband) or to obtain her acquiescence to that request. 89 The bank submitted that it was entitled to assume that Mrs Satchithanantham was at least fully apprised of the amount borrowed. In the absence of Ms Colbran, I am not prepared to draw that inference. 90 As to the issue of her understanding of the term of the loan, however, Mrs Satchithanantham's evidence was unclear, except that she said she did not know any other details about the loan. I have some doubt as to whether she understood that the facility could be cancelled at any time, but I am unable to make a finding on that issue. 91 Notwithstanding those reservations, I am not satisfied that the bank unfairly took advantage of any disadvantage or disability of Mrs Satchithanantham such that it was unconscionable to accept her assent to the transaction. I see little significance in the fact (known to the bank) that Mrs Satchithanantham was a married woman, nor in the contention that she was "a mere housewife" (whatever that means). I accept that she has a limited understanding of English but I am not persuaded that would necessarily have been apparent to the bank. From her evidence in these proceedings, it is apparent that she is capable of understanding English, and of making herself understood in that language. On that basis, I conclude that it is quite possible that she presented herself to Ms Colbran as having a reasonable understanding of the events of the two meetings. I have already indicated my view that there is no basis for inferring that the bank was aware that Mrs Satchithanantham was unduly influenced by her husband. 92 In the absence of clear, detailed evidence as to what Ms Colbran was told or might have observed, I am not satisfied that she knew or ought to have known that Mrs Satchithanantham was operating under any special disability within the meaning of the decision of the High Court in Amadio. This ground of defence is not made out.

[35]

Was the contract unjust within the meaning of the Contracts Review Act? 95 The first task in considering the claim for relief under the Contracts Review Act is to determine, on the facts that I have found, whether the loan agreement or the mortgage or any of their provisions were unjust in the circumstances relating to them at the time they were made. The Court must have regard to the public interest and to all the circumstances of the case including any relevant matters under s 9(2) of the Act. 96 As noted in Mr Leopold's submissions, the unjust factors relied on by Mrs Satchithanantham appear to be coercion by Mr Satchithanantham, lack of understanding of the transaction, lack of independent advice and Mrs Satchithanantham's impecuniosity at the time she entered the transaction. 97 Having regard to Mrs Satchithanantham's concession that she knew they were going to National Australia Bank to save the house and my finding that she may have been prepared, independently, to mortgage her house for $400,000 to pay out the Bankwest loan, I cannot accept that the mortgage and the loan agreement were unjust in their entirety, notwithstanding coercion by Mr Satchithanantham and the lack of independent advice. 98 However, on the findings of facts I have made, I have come to the conclusion that the provision of the loan agreement that permitted funds to be drawn down to a limit of $680,000 rather than the $400,000 contemplated by Mrs Satchithanantham was unjust within the meaning of the Act. 99 My findings of fact are set out above. The following is a summary of the principal matters relevant to my conclusion. The loan was negotiated between Ms Colbran on behalf of the bank and Mr Satchithanantham. Mrs Satchithanantham was not involved in those discussions and had only two meetings with Ms Colbran. At the first, on 23 December 2002, Ms Colbran asked Mrs Satchithanantham to sign an application form for a home loan that her husband had inquired about on her behalf. The information on that form had not been provided by Mrs Satchithanantham. She was told, in Ms Colbran's presence, that the application was for a loan of $400,000. She believed she was signing an application for a home loan in that sum. She did not request or consent to the higher limit of $680,000 later sought by her husband. 100 The bank knew that Mrs Satchithanantham was in receipt of a Centrelink allowance of $1430 per month. Even a cursory analysis of the documents provided in support of her supposed additional income from letting the security property would have cast doubt on the existence of that income. Equally, the prospect of generating any immediate income with the funds to be advanced should have appeared doubtful. With scant regard to the purpose of the loan or capacity to repay, the bank approved a loan of more than 80% of the valuation it held. It should not have been satisfied that Mrs Satchithanantham had any capacity to repay such an amount other than by selling her home, especially when the facility could be cancelled by the bank at will. The transaction may be characterised as pure asset lending. 101 When Mrs Satchithanantham executed the mortgage on 10 January 2003, she did not appreciate that the limit of the facility being offered was $680,000. She assumed it was to secure a loan of $400,000. Regardless of that assumption, however, she signed the mortgage and a document she believed was the loan agreement out of fear of reprisal if she did not do as her husband requested. 102 If Mrs Satchithanantham had brought her independent will to bear at that time, she may have been prepared to mortgage her home to secure a loan in the order of $400,000 in order to repay Bankwest, but not to secure a business facility of up to $680,000 to provide additional funds for the use of her husband. She received no independent legal or financial advice either before she executed any transaction documents or before the funds were drawn down. She received the benefit of about $408,665.86 of the funds drawn down. 103 In reaching my conclusion, I have had regard to the matters considered in Elkofairi especially at [79] per Beazley JA and Koshaba especially at [70] to [85] per Spigelman CJ. I reject the bank's submission that this case is on fours with Kyabram Property Investments v Murray [2005] NSWCA 63. 104 I am mindful of the fact that I was not able to conclude, in respect of the defence on the equitable ground of unconscionability, that the bank was sufficiently aware of any disability suffered by Mrs Satchithanantham to warrant a finding of unfairly taking advantage. The ignorance of the lender is relevant, but not determinative. Chief Justice Spigelman had regard to the same issue in Koshaba at [94] to [96], but reached the conclusion that relief should not be refused, placing greater reliance on the lender's indifference to the purpose of the loan; see also at [119] per Basten JA. Similarly, in Elkofairi, Beazley JA (at [79]) placed particular emphasis on the fact that it was a substantial loan, the security for which was the appellant's only asset and the respondent's knowledge that the appellant had no income or other assets. 105 Similar considerations in the present case point, in my judgment, to the conclusion that the approval of the additional amount requested by Mr Satchithanantham was unjust, even if the bank was ignorant as contended in Mr Leopold's submissions. Mrs Satchithanantham's unjust conduct towards the bank 106 Before Mrs Satchithanantham executed the present transaction documents, she was successful in an appeal from a decision of the District Court in proceedings to enforce a guarantee executed by her. Her grounds of defence in those proceedings included the contention that she had signed the guarantee induced by the undue influence of her husband. 107 The bank relied on those circumstances as a matter going to the issue whether the contract was unjust within the meaning of s 7(1) of the Contracts Review Act and also as a factor militating against the exercise of the Court's discretion to grant relief (reply paragraph 10). In its written submissions, the bank also relied on certain concessions made by Mrs Satchithanantham in her evidence in the proceedings as to her awareness of her husband's dishonesty. 108 Mrs Satchithanantham sought to distance herself from an appreciation of what had occurred in the proceedings in the District Court. She said, in effect, that her husband gave instructions in those proceedings on her behalf. 109 In respect of the present transaction, she said that she did not like getting the loan because she knew her husband was not doing "the correct thing" (T175.21). She said she signed the documents entirely on the pressure of her husband (T176.13). She denied that she signed the documents intending to get out of any proceedings brought by the bank. 110 I accept Mrs Satchithanantham's evidence on that issue. I do not think she was so cynical as to sign the documents intending to default on the loan with a view to relying on the familiar defence if proceedings were commenced. 111 I am satisfied, however, that Mrs Satchithanantham must have had some appreciation when she signed the present transaction documents of the risk of a repeat of past events. She knew that she had no capacity to service any loan. She had always relied on her husband to do that, and he had a poor record in that respect. She must have appreciated the risk that he would again fail to make the repayments, with the likely consequence that the bank would seek to enforce the mortgage. She must have anticipated in that event that Mr Satchithanantham would seek to intervene to resist the claim against her, as she says he had in the past. 112 This issue is complicated, however, by the fact, as I have accepted, that Mrs Satchithanantham's will was overborne when she entered the agreements. I am satisfied that the same fear would have precluded her from disclosing the relevant history to the bank. 113 As to her evidence in the proceedings, Mrs Satchithanantham agreed (at T226.25) that as at December 2002 she believed that her husband was not an honest man and that she knew he was known for saying false things. 114 There was also the following exchange in cross-examination (at T233.39): "Q. When you signed that form you knew that there was a real possibility that your husband would use the form to include in it information just like that information about the gross rental income, that is false information as to income, didn't you? A. I did not realise that he would do that at that point of time but I realise that now. Q. You knew at the time, that is December 2002, that your husband's degree of honesty was such that he might try to inflate the income figures in the form to trick the bank into lending the money, correct?

[38]

Remedy 118 The next step is to consider whether I should exercise my discretion to grant any relief under the Contracts Review Act and, if so, what that relief should be. 119 There are two considerations that potentially militate against granting relief under the Contracts Review Act. The first is the bank's alleged "ignorance and innocence" of the matters said to make the contract unjust: see Beneficial Finance Corp Ltd v Karavas (1991) 23 NSWLR 256 at 277 per Meagher JA; Nguyen v Taylor (1992) 27 NSWLR 48 per Sheller JA. I do not think that is a basis for refusing relief in this case, for two reasons. The ignorance of the bank has not been established in any positive sense. Whilst I am not satisfied that Ms Colbran knew or ought to have known Mrs Satchithanantham was operating under any special disability (an issue on which Mrs Satchithanantham bears the onus of proof) it does not follow that I find the bank ignorant. 120 Further, I am satisfied that the bank is not innocent in respect of some of the principal matters that lead me to the conclusion as to unjustness. The security property was Mrs Satchithanantham's home and only substantial asset. The bank was prepared to lend the substantial sum of $680,000, over 80% of the independent valuation of that property. Mrs Satchithanantham had not sought that amount and it was substantially more than was required to refinance the existing loan, the original purpose stated on the loan application. The documents held by the bank disclose that it must have been indifferent to the purpose for which the additional amount was sought. It had information from which it should not have been satisfied that Mrs Satchithanantham would ever be able to repay the loan without selling the property. 121 The second matter that weighs against granting relief pertains to Mrs Satchithanantham's concession that she was reluctant to enter the loan agreement because she knew her husband was not doing the correct thing (T175.21) and her belief that he was not an honest man (T226.25). On the question of discretion to grant relief, I have not found the consideration of this issue an easy task. I accept that there is considerable force in Mr Leopold's submission that borrowers should not be encouraged to think they will be rewarded for misleading financiers or recklessly exposing them to financial loss. 122 Against that consideration, I take into account the conduct of the bank referred to above, which equally should not be encouraged. I also approach this issue on the basis that I accept that Mrs Satchithanantham's conduct in entering the agreements in the face of her reluctance was due to her being prone to her husband's undue influence. 123 I have decided that relief under s 7 of the Contracts Review Act should be granted. I consider it just to do so, for the purpose of avoiding as far as practicable an unjust consequence: s 7(1).

National Australia Bank v Satchithanantham

At a glance

Court

Decision date

Before

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Judgment (42 paragraphs)

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Legislation Cited (1)

Cases Cited (15)

Cited By (7)