Plaintiff v First Defendant

Supreme Court of Victoria|2012-06-01|Before: CROFT J

GUARANTEE AND INDEMNITY - Defendants provided guarantees and indemnities to the Plaintiff as security for five financial facilities agreements in favour of them and four companies - default of facility agreements by Defendants - certificates of indebtedness issued by the Plaintiff under the facility agreements - whether amounts stated in certificates is sufficient evidence of the amounts payable by the Defendants - construction of certificates provisions - Dobbs v National Bank of Australasia Limited [1935] HCA 49; (1935) 53 CLR 643 - Permanent Trustee Company Ltd v Gulf Import and Export Co [2008] VSC 162.

EQUITY - undue influence - husband and wife - application of the Garcia principles - whether the Plaintiff explained the transaction to the Second Defendant - whether the Second Defendant understood the purport and effect of the transaction - whether the Second Defendant is a volunteer - absence of independent legal advice - effect of statutory declarations executed by the Second Defendant - whether constructive suretyship - whether the Second Defendant is absolved from liability to the Plaintiff - Garcia v National Australia Bank [1983] HCA 14; (1983) 151 CLR 447 - Yerkey v Jones [1939] HCA 3; (1939) 63 CLR 649

EQUITY - unconscionable conduct - whether Second Defendant suffered from special disadvantage - whether Plaintiff on notice of special disadvantage - relevance of Code of Banking Practice - Commercial Bank of Australia v Amadio [1983] HCA 14; (1983) 151 CLR 447

Ms T. Spencer-Bruce (final day in respect of closing submissions)

1 In this proceeding, the plaintiff, Bank of Western Australia Ltd ("Bankwest"), seeks to enforce a financial facilities agreement whereby it advanced moneys to the defendants, Mr Naseem Abdul (the first defendant) and Mrs Theresa Abdul (the second defendant), and also various guarantees which they gave with respect to other financial facilities agreements whereby moneys were advanced to four companies at their request.

2 The financial facilities in question are in favour of -

(a) the defendants - Bankwest Commercial Advance Facility number 111-084783-1 ("Abdul Facility");

(b) BNA Corporation Pty Ltd ("BNA") - Bankwest Commercial Advance Facility number 111-084768-7 ("BNA Facility");

(c) Raheem Corporation Pty Ltd ("Raheem") - Bankwest Commercial Advance Facility number 111-084787-3 ("Raheem Facility");

(d) Shamrock Nursing Home Pty Ltd ("Shamrock") - Bankwest Commercial Advance Facility number 111-084803-1 ("Shamrock Facility"); and

(e) Torkar Pty Ltd (formerly Razak Corporations Pty Ltd) ("Torkar") - Bankwest Commercial Advance Facility number 111-084798-8 ("Torkar Facility"),

3 By separate written agreements, each dated 1 June 2007, between Bankwest and the defendants, the defendants jointly and severally guaranteed to Bankwest payment on demand of all amounts payable to Bankwest by -

under the BNA Facility, the Raheem Facility, the Shamrock Facility and the Torkar Facility, respectively, including all interest, costs and expenses payable by BNA, Raheem, Shamrock and Torkar, respectively, to Bankwest ("the guarantees").

4 On or about 22 May 2007, Bankwest advanced funds to BNA, Raheem, Shamrock and Torkar, and to the defendants. BNA and Shamrock operated aged care facilities and Torkar operated a number of supported residential service businesses as well as childcare businesses. Raheem held a number of freehold interests in real property. The first defendant was a director of BNA, Raheem, Shamrock and Torkar, and the second defendant, his wife, was a director of Shamrock when the loans were provided by Bankwest. The first defendant became a director of Shamrock in 2009, but says that he was involved in running that company when the loan was given by Bankwest. All these companies are now in liquidation. Unless indicated otherwise, these companies are referred to, collectively, as "the Abdul Companies".

5 Under the terms of the various Facilities, Bankwest lent the following sums of money to the defendants and to the Abdul Companies -

6 As a result of failure to comply with the provisions of the various Facility agreements, Bankwest served notices, dated 10 June 2009, on each of BNA, Raheem, Shamrock, Torkar and the defendants, demanding payment of all amounts payable to Bankwest under the relevant facility agreements. The failure to meet these demands is the basis of the Bankwest claim in these proceedings, a failure which, in turn, enlivened the guarantees, hence Bankwest's claim against the defendants for repayment of all moneys lent to them and to the Abdul Companies, together with interest and costs.

7 More particularly, Bankwest claims that as at 31 March 2010, the defendants are jointly and severally indebted to it pursuant to the Abdul Facility and the guarantees in the total sum of $18,897,136.45, together with interest continuing to accrue on that amount at the rate of $3,034.31 per day from 31 March 2010 to the date of payment (both days inclusive).

8 Bankwest applied for summary judgment against both defendants pursuant to Order 22 of the Supreme Court (General Civil Procedure) Rules 2005 ("the Rules"). In the alternative, it sought orders that the defendants' defences be struck out pursuant to Order 23.01 or Order 23.02 of the Rules. Bankwest subsequently abandoned its application for summary judgment against the second defendant, Mrs Theresa Abdul, in relation to the Facilities provided to the Abdul Companies, but maintained that judgment should be entered in relation to the Abdul Facility; which was provided to both her and to the first defendant personally.

9 These applications were heard by Efthim AsJ in November 2011, with judgment given on 23 November 2011 refusing the application for summary judgment. Both defendants were given leave to re-plead their defence.

10 The critical issue before Efthim AsJ, at least in terms of the Facility agreements, was whether Bankwest could rely upon a certificate of indebtedness under each of those agreements given pursuant to clause 18.2 of Bankwest's General Terms for Business Lending, which formed part of those agreements. Clause 18.2 provides:

"We may give you a certificate about an account payable or other matter in connection with a Facility document. The certificate is sufficient evidence of the amount of the matter, unless it is proved to be incorrect."

Bankwest relied upon the legal and evidentiary effect of the certificates under these provisions on the basis of the decision of the High Court in Dobbs v National Bank of Australasia Limited.[1] In that case, the High Court held that a clause that provided that a certificate be conclusive evidence of indebtedness was not contrary to public policy as ousting the jurisdiction of the courts. Consequently, a certificate given pursuant to such a clause is conclusive upon the parties in relation to the debtor's indebtedness.

11 In his Honour's reasons for refusing the summary judgment application, Efthim AsJ said:

"25. Clause 18.2 here would enable Bankwest to certify what was borrowed, what was paid by the companies, what the interest is and the balance owed under the loan. It is arguable that the costs and expenses cannot be the subject of such a certificate. The only evidence relating to the expenses is that of Mr Hatting and Mr Wallace-Smith. Mr Hatting prepared a spread sheet which showed how the costs were incurred which he deposes was prepared by using bank account statements of the various debtors, supply invoices and time records of the receivers."

"31. In my view it is not appropriate to enter judgment here where Bankwest has made a loan of $18 million on properties that have realised $21 million and where $10 million in costs and expenses are claimed and there is no evidence demonstrating how those costs and expenses were incurred or calculated. The defendants should have a right to challenge these amounts on the evidence that is before the Court. The certificates cannot be relied upon to demonstrate what is owed. In accordance with s 64 of the [Civil Procedure] Act it is not in the interests of justice that there be summary judgment and that it is appropriate that there be a full hearing on the merits."

12 Bankwest sought leave to appeal the decision of Efthim AsJ and, for various reasons not now relevant, this application was set down for hearing at the commencement of the trial of this proceeding. In order to expedite both this application and the conduct of the trial, the parties agreed to a series of questions which were to be determined by the Court and which, depending upon the answers, might resolve all matters in dispute between the parties the subject of these proceedings. These questions are contained in Schedule A to Orders made on 9 February 2012, and are in the following terms:

"Schedule A

PRELIMINARY QUESTIONS FOR DETERMINATION BY THE COURT

Question 1

On a proper construction of the certificate provision in clause 18.2 of the plaintiff's General Terms and Conditions for Business Lending at pages 212 to 242 (inclusive) of the Court Book and equivalent provisions in the other facility and security documents included in the Court Book, are the certificates at pages 1024 to 1027 (inclusive) and 1035 of the Court Book sufficient evidence in this proceeding of the amount payable by each of the defendants to the plaintiff as certified therein?

Question 1A

Have the defendants proven that the sum certified by the plaintiff in each of the certificates on pages 1024 to 1027 (inclusive) and 1035 of the Court Book as the total amount payable by the defendants to the plaintiffs, is calculated incorrectly?

Question 2

Did the plaintiff direct the exercise of the powers of the receivers and managers appointed by it to any or all of BNA Corporation Pty Ltd, Shamrock Nursing Home Pty Ltd, Torkar Pty Ltd and Raheem Corporation Pty Ltd, or interfere with their conduct in the realisation of the assets of those companies, in a manner that displaced the agency relationship between the receivers and managers and those companies or otherwise rendered the plaintiff directly liable for the conduct of the receivers and managers?

Question 3

Is the second defendant absolved from liability to the plaintiff by reason of any or all of the matters pleaded by her in paragraphs 5, 6, 12 (where it first appears), 11 (where it second appears), 12 (where it second appears) and paragraphs 14 to 21 (inclusive) of her amended defence and counterclaim dated 14 December 2011 or entitled to the orders sought by her by counterclaim as set out in her defence and counterclaim dated 14 December 2011?"

13 For the purpose of this question-based process, the answer to Question 1 was of pivotal importance and was addressed and answered in the course of the trial on the basis that the reasons for this decision would be published at a later date.[2] On this basis, Question 1 was answered "Yes", which meant that the remaining questions were addressed. This process was agreed on the basis that if the answer to Question 2 was to the effect that the agency relationship between the receivers and managers and the Abdul Companies otherwise rendered Bankwest directly liable for the conduct of the receivers and managers, then the trial would be adjourned so that the evidentiary matters and matters of law arising could be properly addressed by Bankwest. Otherwise, the effect of this process was to circumvent the need for consideration of the formal appeal from the decision of Efthim AsJ, at least at this stage.

14 The answer to this question depends upon the proper construction of clause 18.2 of the Bankwest General Terms and Conditions for Business Lending and equivalent provisions in other facility and security documents, including the guarantees which contain provisions in terms which are relevantly the same. These provisions are referred to as "the certificate provisions".[3] For the purpose of considering the construction and effect of these provisions, reference is made to the provisions of clause 18.2.

15 The terms of clause 18.2 are set out above and reference has already been made to the critical decision of the High Court in relation to the effect of such provisions, namely, Dobbs v National Bank of Australasia Limited.[4] At the outset, it is noted that the certificate the subject of consideration in Dobbs was a certificate which was to be "conclusive evidence" of indebtedness, whereas a certificate in accordance with the terms of clause 18.2 is to be "sufficient evidence". Additionally, it should be noted that the certificate provided for in the critical clause considered in Dobbs provided that the certificate was to be conclusive evidence of the customer's "indebtedness to the bank", whereas under the terms of clause 18.2, the certificate is sufficient evidence of "the amount or matter, unless it is proved to be incorrect". Thus, contrasting these provisions, a "conclusive" certificate will not, in general terms, leave any room for contradiction. Additionally, a "sufficient" certificate as provided for in clause 18.2, though leaving room for contradiction, casts its net, at least linguistically, more broadly than simply "indebtedness". I turn now to consider the effect of these differences in light of the principles established by the High Court in Dobbs and as those principles have been explained and developed in subsequent cases.

16 The principle established in Dobbs appears from the following passage:[5]

"The bank could recover without the production of a certificate if, by ordinary legal evidence, it proved the actual indebtedness of the customer. But the clause, if valid, enables the bank by producing a certificate to dispense with such proof. It means that, for the purpose of fixing the liability of a surety, the customer's indebtedness may be ascertained conclusively by a certificate. It was contended, however, for the appellant that, upon its true construction, the clause did not make the certificate conclusive of the legal existence of the debt but only of the amount. It is not easy to see how the amount can be certified unless the certifier forms some conclusion as to what items ought to be taken into account, and such a conclusion goes to the existence of the indebtedness. Perhaps such a clause should not be interpreted as covering all grounds which go to the validity of a debt; for instance, illegality, a matter considered in Swan v Blair, [1835] EngR 147; 3 C. & F. 610 at pp 632 and 635-6[1835] EngR 147; , 6 ER 1566 at pp 1574 and 1575-6, 10 Bligh N.S 626 at pp 632 and 637-8, 6 ER 231 at pp 233 and 234-5. But the manifest object of the clause was to provide a ready means of establishing the existence and amount of the guaranteed debt and avoiding an inquiry upon legal evidence into the debits going to make up the indebtedness. The clause means what it says, that a certificate of the balance due to the bank by the customer shall be conclusive evidence of his indebtedness to the bank.

17 I accept that the following principles arise from the decision of the High Court in Dobbs:[6]

(a) It is not necessary to rely on a certificate. A provision for a certificate merely provides a ready means of establishing indebtedness;

(b) The principle in Dobbs is evidentiary in operation. It facilitates proof of a material fact and thereby operates as an exception to the general rule in adversarial litigation that it is for the party alleging a material fact, when that fact is put in issue, to prove that fact;[7]

(c) The purpose of a provision for a certificate is to enable the establishment of the indebtedness of a customer to a bank both expeditiously and finally;[8]

(d) The effect of the certificate is to determine the incidence of burden of proof as to the matters permitted by the certificate;[9]

(e) In recognising the effect of certificates of this kind, the courts are simply giving effect to the contractual bargain struck between the parties;

(f) Nothing in Dobbs confines its operation to clauses expressed in the same or substantially identical terms to the clause providing for a certificate which was considered in that case; as is demonstrated by the application of the same approach to certificates used in an unrelated context;[10] and

(g) The principal task of the Court is always to construe and to give effect to the terms of the particular clause providing for such a certificate.

Dobbs has been applied in a variety of cases, including several decisions of this Court.

18 In Papua and New Guinea Development Bank v Manton,[11] Beach J said:[12]

"Although the clause in the guarantee is in a form different from that in the instrument of guarantee considered by the Court in Dobb's case, in my opinion the effect of it is the same. It is conclusive evidence of the amount owing and of the defendant's indebtedness in respect of that amount. Is it conclusive evidence of the fact that a written demand for payment was made on the defendant? In my opinion it is. The certificate is conclusive evidence of all the matters set forth in it. I see no reason to read those words down in the manner suggested by counsel for the defendant."

19 Further, in Permanent Trustee Company Ltd v Gulf Import and Export Co,[13] the plaintiff relied on certificates signed by its officer to prove the amount owing by the defendants under instruments of guarantee. The amounts certified accounted for realisations by the receiver and manager of the assets of the debtor, amounting to approximately $9.3 million. Clause 18.1 of the relevant facility document provided as follows:

"A certificate signed by the Security Trustee or its solicitors about a matter or about a sum payable in connection with this guarantee and indemnity is sufficient evidence of the matter or sum stated in the certificate unless the matter or sum is proved to be false."

In considering the effect of this clause, Hansen J concluded:[14]

"The clause in Dobbs was different from that in the present case, in that it made the certificate "conclusive evidence of indebtedness" whereas cl 18.1 merely states that the certificate is "sufficient evidence" of the matter or sum stated in the certificate "unless the matter or sum is proved to be false". Nevertheless, it is clear from Dobbs that cl 18.1 should be read, and given effect, in accordance with its terms. The object of cl 18.1 was to provide a means by which the plaintiff could, by tendering a certificate, establish both the legal existence and amount of the guarantors' debt, unless it is proved that the matter or sum referred to in the certificate is false."

It followed that the certificates were sufficient to establish the amount payable to the plaintiff and judgment was entered for the amount stated in the certificates.[15]

20 The decision in Permanent Trustee v Gulf Import and Export Co is particularly significant for two reasons. First, it involved the construction of a clause in very similar terms to clause 18.2, the subject of the present proceedings. Secondly, the amount specified as owing in the certificates, as in the present case, accounted for realisation proceeds obtained by the plaintiff from the receiver and manager appointed by it pursuant to the relevant security documents for the guarantee.[16]

21 Turning now to the decision of Efthim AsJ in Bank of Western Australia Ltd v Abdul,[17] I note that his Honour does not refer to any authority in support of the narrow view of operation ascribed to certificates within the principle of Dobbs. It appears that his Honour gained support for the view that the proper construction of clause 18.2 was to limit the operation of certificates under those provisions to certifying principal and interest on the basis of the particular provisions of the clause considered in Dobbs, which specifically limited the matters to be certified to principal and interest, rather than applying the principle for which the decision stands to the terms of the relevant instruments in this case.

22 In light of Dobbs and the other authorities considered, I am of the opinion that the proper approach in this case, and more generally, is to ascertain the objective intention of the parties to the documents containing the certificate provisions concerning the scope of those provisions, applying the usual rules of construction. On this basis, I turn now to consider the proper construction of the certificate provisions.

23 The certificate provisions, according to their own terms and in the context of the documents in which they are found, appear to be intended to have a wide scope of operation. In particular, clause 18.2 makes reference to a certificate "about an account payable" or "other matter in connection with a Facility document". There is no limitation on the nature of the "account payable" and nor is there any limitation with respect to "other matter", save that it be "in connection with" a Facility document. In this context, I am of the view that the sense in which the issues which may be addressed by a certificate are accurately described in terms of "any" account payable or "any" other matter, save that the latter must be connected with a Facility document. This qualification is, in itself, very broadly cast as "in connection with" is an expression of very broad ambit, both as a matter of ordinary English usage and having regard to the interpretation of this phraseology in many authorities.[18] Finally, it is clear that, in context, the word "or" is used in clause 18.2 in a conjunctive, rather than disjunctive sense.[19]

24 Additionally, the certificate provisions are not limited in their operation temporally and nor are they limited to the certification of outstanding principal or interest, or both. Neither do these provisions prevent the certificate stating merely a single amount of money certified as payable, whether or not the components of that amount are, in effect, itemised on the face of the certificate. In my view, there is no textual basis for reading down the certificate clauses to prevent Bankwest from certifying an amount payable that takes into account the realisation proceeds received from the receivers and managers appointed pursuant to the security for the various Facilities.

25 In order to accurately state the amount payable at a particular point of time, in this case as at 7 April 2011, Bankwest is required to take into account the realisation proceeds it has received.[20] Those realisation proceeds were, as would be expected, remitted net the costs and expenses of the receivership. It also follows that when the certificates under the certificate provisions were issued, the amount payable at the time under the guarantees was reduced by the realisation proceeds received by Bankwest. Finally, it should also be noted that the amount payable under the Abdul Facility, as certified, was not reduced by the realisation proceeds because those proceeds were insufficient to discharge the debt under the various company Facilities and therefore did not flow down to the Abdul Facility.

26 The security documents, in particular the fixed and floating charges, are part of the relevant agreements between Bankwest, the Abdul Companies and the defendants. The receivers and managers were appointed under clauses 18.2(b) and 19 of the various fixed and floating charges.[21] Also of importance under these agreements are the following clauses:

(a) clause 22.1, which provides that the money receivable by Bankwest under the charges is to be used towards the amount owing (as defined) unless Bankwest is obliged to pay the money to anyone with a prior claim;

(b) clause 22.3, which provides that Bankwest may use any money received under the charges towards paying any part of the amount owing it chooses; and

(c) clause 26.1, which provides that Bankwest may give the principal debtor a certificate about a matter or about an amount payable in connection with the charge.

Such a certificate is sufficient evidence of the matter or amount, unless proved to the contrary.

27 Consequently, I am of the opinion that when the certificates clauses are construed in light of these interrelated provisions in the security documents, it is clear that the parties intended to provide for Bankwest issuing certificates of an amount payable which would take into account the realisation proceeds actually remitted to Bankwest from the receivers and managers, and, it must follow, the costs and expenses of receivership. These costs and expenses are deducted from the proceeds of realising the securities in the accounts of the receivers and managers and never become part of the moneys remitted to Bankwest, being the realisation proceeds. Thus, the certificates certify the amounts paid by Bankwest to the defendants to each of the Abdul Companies, plus accrued interest, less money that has actually been received by Bankwest, being repayments by these companies by their agents, the receivers and managers. Accordingly, the certificates are sufficient evidence of the amount payable by the defendants.

28 This does not mean, as was the case in Dobbs where the certificates were conclusive, that the defendants are unable to challenge the accuracy, hence effectiveness, of the certificates given by Bankwest as establishing the extent of their indebtedness. The effect of the certificate clauses is, however, to impose on the defendants the onus to prove that a certificate is incorrect, the issue to which Question 1A is directed.

29 An additional matter going to the effectiveness of the certificates as proof of the extent of indebtedness is the question whether or not the receivers and managers were acting at all relevant times as agents of the defendants and the Abdul Companies; or whether Bankwest had interfered with their conduct in the realisation of the assets of those companies in a manner which displaced the agency relationship between the receivers and managers and those companies or otherwise rendered Bankwest directly liable for the conduct of the receivers and managers. This is a matter addressed in the context of Question 2.

30 Subject to the agency question (Question 2), it was clear as a result of discussions in the course of submissions that it was common ground between the parties that if Bankwest had, in effect, credited the accounts of the defendants and the Abdul Companies with all the sums of money actually received by it from the receivers and managers as a result of realising the securities after deducting costs and expenses of the receivership, then the certificates are correct as to the monetary amounts shown. It follows that the monetary amount shown in each certificate is sufficient evidence of the indebtedness of the defendants or the Abdul Company to which the particular certificate applies.

31 Bankwest submitted that the certificates had been accurately calculated by the bank, taking into account all the remittances from the receivers and managers. The calculations were determined by adding sums owing under each of the Facilities as at 9 March 2010[22] and subtracting the distributions received by Bankwest from the receivers.[23] The date of 9 March 2010 was critical as it was the date of the last entry in the statement for each Facility before the Writ was issued on 1 April 2010. This is summarised as follows:[24]

Amounts owing under each facility at 9 March 2010

Total of Amounts owing under all facilities at 9 March 2010

Less Amount remitted to Plaintiff by receivers per Exhibit DH2-2

32 The aggregate amount of the certificates is $10,676,328 and the specified amount payable for each facility[25] corresponds precisely with the indebtedness under each of the Facilities after distributions as set out in Mr Hatting's revised costs schedule.[26] The total amount, $8,130,119, equates to the remittances in the bank statements, which evidence receipt by the bank of those remittances.[27]

33 I am satisfied, as a result of extensive submissions by the first defendant, on behalf of both himself and the second defendant, Mrs Abdul, after full opportunity was provided for careful consideration of the bank statements and related documents, that his submissions proceed from the misconception that the closing amounts in the bank statements for each of the Facilities (which speak of a date after 9 March 2010) must match the amounts specified in the certificates. What is decisive is that the amounts received by Bankwest (as evidenced by the bank statements) equate with the figure of $8,130,119 in Mr Hatting's revised costs schedule.[28] Bankwest is entitled to rely on the receivers and managers as to the allocation of that remitted amount across the indebtedness of the various Abdul Companies. As was emphasised in this context in the Bankwest submissions, absent the defendants establishing that the receivers and managers were other than the agents of the debtors, the bank's position is that it is receiving funds, in effect, from the defendants (though via their agents) in circumstances where the allocation of those remittances is specified by them (or on their behalf). Consequently, in these circumstances, it does not lie in the defendants' mouths to challenge the allocation of funds which Bankwest has accepted and applied.

34 For these reasons, I am not satisfied that the defendants have proved the certificates to be incorrect in any way. Consequently, the answer to Question 1A is "No".

35 This question arises in the context of the general position that a receiver appointed out of court is almost invariably appointed on the basis that he or she is the agent of the mortgagor, the secured debtor. This does not mean that the receiver so appointed owes no duties to the mortgagor, the secured debtor. Einstein J considered the general position of a receiver as agent of the mortgagor, the secured debtor, and the duties owed by the receiver in that context in State Bank of New South Wales Ltd v Chia,[29] as follows:

"[868] The purpose of the appointment of a receiver out of court is somewhat different; they are not appointed for the benefit of the company but for the purpose of realising the security held by the appointer: see Re B Johnson & Co (Builders) Ltd [1955] 1 Ch 634 at 644 per Evershed MR, Ostrander v Niagra Helicopters Ltd (1973) 20 DLR (3d) 161 at 167 per Stark J (Ontario High Court). The appointment of such a receiver is performed by the mortgagee, however, it is invariably the case, and is here the case, that the instrument under which the receiver is appointed provides that the receiver is the agent of the mortgagor. It has been said that the agency is 'a very special' and 'limited' one: see W R D Stevenson, 'Receivers' (1973) 44 ALJ 438 at 444. The purpose and effect of rendering the receiver the agent of the mortgagor is to relieve the mortgagee from the liabilities which the law casts upon a mortgagee going into possession and to place upon the mortgagor the liability for the acts and defaults of the receiver: Gaskell v Gosling [1896] 1 QB 669 at 692 - 693, per Rigby LJ (dissenting), approved on appeal: Gosling v Gaskell [1897] AC 575 at 589, 590, 595; Visbord v Commissioner of Taxation (Cth) [1943] HCA 4; (1943) 68 CLR 354 at 368, per Latham CJ.

[869] To make the receiver the agent of the mortgagor is, of course, something of a contrivance. As Starke J said in Visbord v Federal Commission of Taxation (supra at 376) '[w]e must not lose sight of the substance of the appointment. It was made for the benefit of the mortgagee and to protect the mortgagee from liability as mortgagee in possession or as principal.' Yet it is a contrivance which has the effect of removing a receiver appointed out of court from those classes of persons who may be said to be fiduciaries. As Professor Finn explained in his work [Fiduciary Obligations (1977, p12)], there are no reasons for the imposition of fiduciary obligations where, although one party agrees to act for or on behalf of another, the other party is able to control what powers are exercised for or on his or her behalf or able to control the manner of its exercise. Because the receiver is made the agent of the mortgagee, 'the receiver-mortgagor relationship becomes one founded upon agreement and escapes the imposition of general fiduciary obligations' [see p13]. Accordingly, it is said in [Meagher, Gummow and Lehane, Equity: Doctrines and Remedies (3rd edition, para 2845)] that the receiver appointed out of court is the only genuinely non-fiduciary agency: see also Ostrander v Niagara Helicopters Ltd (supra, at 167).

[870] To say that a receiver appointed out of court is not, generally, a fiduciary, is not to say that they are in no circumstances a fiduciary nor to say they owe no duties in the conduct of their receivership. Outside of those imposed by Statute, the general law imposes at least three duties upon a receiver. In the first place, the receiver has a duty to the mortgagee to collect and realise the assets of the company for the purpose of discharging the security: Re B Johnson & Co (Builders) Ltd (supra, at 645 per Evershed MR), Expo International Pty Ltd v Chant [1979] 2 NSWLR 820 at 831 per Needham J. In the second place, the receiver holds in trust for the mortgagor, any proceeds from the sale of the company's assets after the satisfaction of the claims of the mortgagee and subsequent creditors: Visbord v Federal Commissioner for Taxation (supra, at 384 per Williams J), Expo International Pty Ltd v Chant, (supra, at 830). In the third place, and most relevantly for these proceedings, the receiver, as the donee of a power, must exercise the powers and duties granted to him or her in good faith and for a proper purpose."

36 Whether or not the appointment of the receiver as the agent of the mortgagor, the secured debtor, might have been regarded as something in the nature of a "contrivance", it is a longstanding and accepted common practice which, in my view, is not now open to question, short of legislative intervention. This is, in the present circumstances, reflected in the charges under which the receivers and managers were appointed each of which provided, in the usual way, that the receivers and managers were the agents of the various Abdul Companies.[30] The deeds of appointment contain provisions to similar effect.[31]

37 Consequently, Bankwest is not liable for the conduct of the receivers and managers unless the defendants can establish that Bankwest so directed, interfered with, or instructed, the receivers and managers in relation to the performance of their duties as to displace the agency relationship. The answer to this question depends upon the particular facts and circumstances against which a receivership is conducted and, unsurprisingly, there is not necessarily any "bright line" which will indicate that, when crossed, the receiver becomes the agent of the mortgagee, the secured creditor. In this context, it must also be kept in mind that communications between the receiver and the mortgagee, the secured creditor, are not only quite proper in themselves, but likely to be desirable in the interests of both the mortgagor, the secured debtor, and mortgagee, the second creditor, in seeking to maximise the proceeds of realisation of secured assets.

38 Reporting and communication will be particularly important in circumstances where the realisation of assets is not a simple matter and, clearly, in circumstances where the mortgagee, the secured creditor, is also assisting in maximising the proceeds of realisation by funding the continuation of the business or businesses the subject of the security; thereby protecting the value of goodwill.

39 It is also important also not to lose sight of the fact that it is very common for a defaulting mortgagor to reach agreement with its mortgagee to realise the mortgaged property itself, rather than see the mortgagee resort to a mortgagee's sale. Whatever the commercial reason for this course, it would be expected that the mortgagee in those circumstances would need assurance that the mortgagor is proceeding to a sale of the assets in an expeditious and satisfactory manner designed to maximise the proceeds of realisation. Unless the mortgagee in those circumstances effectively takes over control of the selling process, it could not be suggested that communication and consultation between mortgagor and mortgagee would have this effect. In circumstances like the present, the receivers and managers are simply standing in the shoes of the mortgagor in an analogous situation.

40 The relationship between the receiver and the mortgagee, the second creditor, was also explained in detail by Einstein J in State Bank of New South Wales Ltd v Chia,[32] where the authorities and academic writing on the subject was reviewed and considered:[33]

"[881] The first point to make is that a mortgagee has no power to direct the receiver in the performance of the receiver's task: Medforth v Blake (supra, at 94-95 per Scott V-C); Knight v Lawrence [1993] BCLC 215 at 223 per Browne-Wilkinson V-C. But there is no doubt that the law allows, and even requires, interaction between a receiver and his or her appointors. The receiver occupies a fiduciary relationship with his or her appointors, one aspect of which is the duty of the receiver to keep his or her appointors informed about the progress of the receivership: Re Magadi Soda Co, Ltd (1925) 41 TLR 297 at 302 per Eve J; Gomba Holdings UK Ltd v Minories Finance Ltd [1988] 1 WLR 1231 at 1233 per Fox LJ. However, there is authority for the proposition that where a mortgagee directs the exercise of the powers of the receiver, it comes under the duties of the receiver: American Express International Banking Corporation v Hurley [1985] 3 All ER 564 at 571 per Mann J; Standard Chartered Bank v Walker [1982] 1 WLR 1410 at 1416 where Lord Denning MR said:

'...The debenture holder, the bank, is not responsible for what the receiver does except in so far as it gives him directions or interferes with his conduct of the realisation. If it does so, then it too is under a duty to use reasonable care towards the company and the guarantor. (Emphasis added.)'

[882] The authority of these two cases is weakened by the fact that they were decided upon the discredited premise that the receiver's duty lay in negligence because of the 'proximity' between the receiver and mortgagor. To decide that an intermeddling mortgagee was similarly proximate was a short step.

[883] Another possibility is that by directing the receiver on certain matters, the mortgagee constitutes the receiver as its agent on those matters, notwithstanding that generally the receiver is the agent of the mortgagor. However, in the judgment of Somers J in R A Price Securities Ltd v Henderson [1989] 2 NZLR 257 at 262, the following passage occurs:

' As between the receiver on the one hand and the company and third parties on the other, directions given to the receiver by the debenture holder will not render the latter liable at the suit of the company or such third parties. Such directions are taken as emanating from the company ... I do not think it possible that a receiver can be the agent of the debenture holder in the sense that he is agent of the company when the debenture so provides.'

[884] After quoting part of this passage [Blanchard and Gedye, The Law of Company Receiverships in Australia and New Zealand (2nd Edition, 1984 at 52)] go on to say that: '...in agency law generally, an agent can have two principals and it should not be thought that a receiver could never be the agent of the debenture holder in relation to particular matters whilst generally being the agent of the company.' The matter was also the subject of discussion by the Ontario Court of Appeal in Peat Marwick Ltd v Consumers' Gas Co (1980) 113 DLR (3d) 754 at 762 where Houlden JA considered that, notwithstanding the language of a debenture which clearly made the receiver the agent of the mortgagor, in performing acts such as exercising the power of sale, the receiver acts as agent for the mortgagee while, in performing acts such as occupying the premises and carrying on the business, the receiver acts as agent for the mortgagor. Conversely, in Robinson Printing Co, Ltd v Chic, Ltd [1905] 2 Ch 123 at 132, Warrington J, in considering a debenture that did not constitute the receiver the agent of the mortgagor, said that although such a receiver was generally the agent of the mortgagee, 'he is also for some purposes the agent of the company, and certainly to such an extent as may be necessary to enable him to exercise the powers conferred upon him by the debenture'.

[885] Certainly, as Blanchard and Gedye say (supra at p52), the intervention of a mortgagee will have to be serious before that mortgagee is found liable for the defaults of the receiver and in particular it will have to go beyond mere consultation or the communication of preferences by the mortgagee. Nevertheless, the position is, to my mind, correctly stated by Scott V-C in Medforth v Blake (supra at 95) as follows:

' If a mortgagee establishes a relationship with the receiver he has appointed under which the receiver exercises his powers in accordance with instructions given by the mortgagee, I can see the force of an argument that if the receiver is liable to the mortgagor then so will the mortgagee be liable. ... If the mortgagee chooses to instruct the receiver to carry on the business in a manner that is a breach of the receiver's duty to the mortgagor, it seems to be quite right that the mortgagee, as well as the receiver, should incur liability. This conclusion does not in the least undermine the receivership system. What it might do is to promote caution on the part of mortgagees in seeking to direct receivers as to the manner in which they (the receivers) should exercise their powers. I would regard that as salutary.'

[886] Here the evidence clearly reveals that the Bank was heavily involved in the performance of the Receiver's duties, even to the extent of directing when and to whom the Receiver was to exercise his power of sale. In those circumstances, it is proper that the Bank be held to account in the same manner as the Receiver and to the same standards."

41 It is clear from Chia and the authorities to which reference was made that a receiver has a duty to keep the mortgagee, the secured creditor, informed as to the progress of the receivership.[34] This process of keeping the mortgagee, the secured creditor, informed is not to be confused with direction, interference and instruction necessary to displace the agency relationship with the mortgagor, the secured debtor. Communication between the receiver and the mortgagee, the secured creditor, is entirely proper and will not lead to displacement of the agency relationship unless it goes beyond mere consultation or the communication of preferences by the mortgagee, the secured creditor.[35] This position is unsurprising, as it is the mortgagee, the secured creditor, that appoints the receiver and pays the receiver's fees during the course of the receivership. In general terms, both parties, the mortgagor and the mortgagee, have a direct interest in the outcome of the receivership, but the mortgagee significantly more so where the secured assets are unlikely to realise sufficient funds to meet the principal, interest and costs associated with default and realisation of assets. The present circumstances are just such a case. It is for these practical and commercial reasons that more than mere consultation or the communication of preferences by the mortgagee, the secured creditor, is required.[36] As is indicated by the judgment in Chia,[37] it is necessary to establish in a case like the present that the mortgagee, the secured creditor, was "heavily involved" in the performance of the activities of the receiver. The evidence must show that the mortgagee, the secured creditor, was so intimately involved in the performance of the receiver's activities as to transform the character of the relationship between the mortgagee, the secured creditor, and the receiver into one of principal and agent. It is in this context that I turn to consider the evidence relating to the sale of the assets of the businesses of the Abdul Companies by the receivers and managers.

42 The degree of communication and interaction generally between a receiver and a mortgagee, as secured creditor, depends very much on the nature of the secured property, hence the size, nature and complexity of the receivership task. In the present circumstances, the receiverships were undoubtedly complex, involving 17 separate operating businesses with significant sensitivity in terms of statutory, regulatory and licensing issues. For example, two of the companies (BNA and Shamrock)[38] operated businesses which were aged care facilities and which, for their continued operation, required maintenance of licensing from the Commonwealth government which, in turn, required maintenance of prescribed standards for service providers and for facilities and services. Any loss of the ability to maintain licences and to continue to operate business of this kind is likely to convert the asset realisation process to one of merely selling fixtures and fittings; having lost the value of the goodwill of the particular business, an asset that may be the most valuable, and of considerable worth.

43 Consequently, in the present circumstances, it is unsurprising that there was frequent interaction between Bankwest and the receivers and managers. It is also clear that, depending upon the nature of the business involved and the stage of the asset realisation process, more or less frequent consultation was required to deal with the needs of the stage of the process of realisation that was being reached. The evidence establishes that the receivers and managers considered it important to keep Bankwest informed at regular intervals of the conduct of the receiverships, a view which is consistent with the discharge of the receivers' duty to keep the mortgagee, the secured creditor, informed; as indicated in the authorities to which reference has been made. More specifically, it is the clear and uncontradicted evidence that Bankwest followed all of the recommendations of the receivers and managers. Further, there is no evidence of any interference by Bankwest in the performance by the receivers and managers of their activities relating to the sale of the assets of the businesses of the companies. The evidence of Mr Wallace-Smith (chartered accountant and partner of Deloitte Touche Tohmatsu), the receiver and manager, and Mr Alcock, the officer of the bank charged with dealing with the receiver in relation to the receiverships, is consistent on all these matters.

44 The evidence of Mr Wallace-Smith, the receiver and manager, is to the effect that:

• Bankwest had no involvement in the day-to-day running of the various businesses;[39]

• the selection of the valuers and selling agents were decisions made by the receivers and managers which were endorsed by Bankwest;[40]

• the receivers and managers made recommendations to Bankwest based on the reports of the third-party consultants and in all cases Bankwest agreed with the recommendations of the receivers and managers;[41]

• in terms of dealings with the Commonwealth government relating to the large amount of regulatory oversight and compliance, Bankwest only attended one of many meetings with officers of the Department of Health and Ageing ("DOHA") and Bankwest attended that meeting at the request of DOHA;[42]

• in those instances where the receivers and managers recommended that businesses be closed down, Bankwest agreed with the receivers and managers;[43]

• the receivers and managers sought the formal consent of Bankwest to reserve prices and contracts of sale they had negotiated, because they could not conclude the contract unless they knew Bankwest would release its security - in the same way that a mortgagor (for example, Shamrock - through its agents the receivers and managers) realises an asset with the consent of a mortgagee (Bankwest).[44] Again, Bankwest agreed 100 per cent of the time and did not attend any of the auctions;[45]

• the receivers and managers had a general process for keeping Bankwest informed of the progress of the receiverships by way of regular reports and any questions arising from those reports were directed to the anticipated timing of the sale of assets and the expected realisation from those sales;[46]

• the process of keeping Bankwest informed did not materially differ from the process that a receiver usually undertakes in relation to the appointing mortgagee but there was more interaction because of the number and complexity of the businesses;[47] and

• Bankwest funded the ongoing operation of some of the businesses on the recommendation of the receivers so as to maximise the prospect of a sale of those businesses on a going-concern basis consistently with the duty of the receivers and managers to maximise the return to Bankwest from the sale of those businesses.[48]

45 The evidence of Mr Alcock, the Bankwest officer primarily responsible for liaising with the receivers and managers in the conduct of the receiverships, was relevantly to similar effect in that he:

considered the receivers and managers' proposals and strategies for the realisation of the assets of the businesses, including the trading performances of the businesses and any recommendations or requests to continue funding; and he could recall of no instance when the bank did not agree with the receiver and managers' recommendations;[49]
liaised with the receivers and managers and their staff about issues arising in the course of the receiverships, especially issues of a sensitive nature where Bankwest might be impacted by negative publicity affecting the aged or children; but expected the receivers and managers to address all operational matters pertaining to the businesses;[50] and
relied on the expertise and advice of the receivers and managers concerning the day-to-day conduct of the receiverships, including the realisation of the assets of the Abdul Companies to maximise the return to the bank on those realisations.[51]

46 Thus, the evidence of Mr Wallace-Smith and Mr Alcock establishes a position which does stand in sharp contrast to the facts found with respect to the receivership in Chia.[52] The evidence in that case established that the bank was "heavily involved" in the performance of the receiver's duties to the extent of directing when and to whom the receiver was to exercise its power of sale. There is no suggestion in the present case of a single instance where Bankwest directed the receivers and managers as to when any asset was to be sold or to whom any asset should be sold. The evidence demonstrates a contrary position. The facts as established by the evidence do not even rise to establishing that Bankwest stated any preference as to the timing or purchaser in respect of any particular significant sale. In any event, evidence of this nature would not, on the basis of the South Johnstone decision take the matter over the line, because there it was considered insufficient to indicate anything in the nature of an instruction or direction to the receiver as a result of the statement of a preference.[53]

47 It is also wrong, in my view, to conclude that the recommendations made by the receivers and managers to Bankwest implicitly left the final decision to the bank, thus, as was submitted by the defendants, establishing a position of ultimate control by Bankwest. More particularly, in this respect, the defendants submitted:[54]

"7. Mr Wallace-Smith repeatedly described his communications with the Bank as the making of recommendations and the solicitation of feedback.[55] Implicit in this language is a relationship whereby the Bank is the ultimate determiner of major decisions. A 'recommendation' goes beyond mere consultation, it implies the recommender is leaving the final decision as to the recommended course of action to the party receiving the recommendation.

8. In fact, Mr Wallace-Smith acknowledged that he would not take steps such as closing down a business without the Bank's approval,[56] or undertake other action that the Bank did not support. As he so candidly stated, '[u]ltimately ... [he] had to get the bank's permission'.[57] Similarly, Mr Alcock confirmed that 'if at any time we have an issue with how we felt the receivers were conducting the receivership we would retain the right to retire them and replace them if necessary.'[58]

9. As is apparent from this evidence, ultimately it was the Bank that was making the final decisions with respect to the conduct of the receivership. Accordingly, it is appropriate that the Court look past the 'contrivance'[59] of the Receiver being appointed the agent of the Abdul Group and instead hold the Receiver's true principal, the Bank, liable for its conduct."

48 In my view, having regard to the absence of any evidence to indicate that Bankwest did anything other than adopt the recommendations of the receivers and managers, it is mere speculation as to a hypothetical state of affairs which has been put by the defendants; that is some theoretical ability of Bankwest to override the receivers and managers on major decisions. In my view, given the state of the evidence as to what actually occurred in terms of communications, consultation and Bankwest's actions, there is no evidence of any conduct by the bank sufficient to displace the relationship of agency established by the security documents. Similarly, Bankwest's theoretical ability to terminate the appointment of the receivers and managers if it was not satisfied with their performance is of no significance. It did not occur. There is nothing in the evidence to establish that Bankwest was "heavily involved in the performance of the receivers' duties".[60] In my view, Bankwest's concluding submissions on this question accurately state the nature of the relationship and dealings between the bank and the receivers:[61]

"Mr and Mrs Abdul point to nothing other than the unremarkable fact that the receivers conscientiously kept the bank informed as to the progress of the receiverships and otherwise viewed it as desirable for the bank to endorse their recommendations and strategies to ensure (as any mortgagor is required to do) that the relevant securities would be released and in the interests of maintaining a co-operative relationship throughout the course of the receiverships."

49 For these reasons, I find that the answer to Question 2 is "No".

50 Question 3 makes reference to various paragraphs of the Amended Defence and Counterclaim of the second defendant (dated 14 December 2011). In essence, the paragraphs of the pleading to which reference is made raise by way of defence in favour of the second defendant the principles enunciated by the High Court in Garcia v National Australia Bank[62] with respect to the Abdul Facility and also in relation to the guarantees. Additionally, in relation to the guarantees, the pleadings raise the issue of unconscionability against Bankwest and also a defence on the basis of the principles enunciated by the High Court in Commercial Bank of Australia Ltd v Amadio.[63] The possible application of these principles is now considered in turn in the context of Question 3.

The principle in Yerkey v Jones and Garcia v NAB

51 In Garcia,[64] the High Court confirmed the principles in Yerkey v Jones,[65] explaining, relevantly for present purposes:[66]

"...that to enforce [a guarantee] against her if it later emerges that she did not understand the purport and effect of the transaction of suretyship would be unconscionable (even though she is a willing party to it) if the lender took no steps itself to explain its purport and effect to her or did not reasonably believe that its purport and effect had been explained to her by a competent, independent and disinterested stranger. And what makes it unconscionable to enforce it ... is the combination of circumstances that:

(a) in fact the surety did not understand the purport and effect of the transaction;

(b) the transaction was voluntary (in the sense that the surety obtained no gain from the contract the performance of which was guaranteed);

(c) the lender is to be taken to have understood that, as a wife, the surety may repose trust and confidence in her husband in matters of business and therefore to have understood that the husband may not fully and accurately explain the purport and effect of the transaction to his wife; and yet

(d) the lender did not itself take steps to explain the transaction to the wife or find out that a stranger had explained it to her."

52 It was submitted on behalf of the second defendant that this case falls squarely within the principles enunciated by the High Court in Garcia and that, accordingly, it would be unconscionable for Bankwest to enforce the guarantees against the second defendant. Additionally, it was submitted that, as a matter of substance, the Abdul Facility was a transaction of suretyship and therefore it would also be unconscionable for Bankwest to seek to enforce it against the second defendant. I turn now to consider whether there are circumstances which, in combination, would attract the application of the Garcia principles as stated by the High Court. In doing so, I am also mindful of the indication in that statement that the principle relies upon unconscionability arising from a combination of circumstances. The application of the Garcia principles transcends the legal and binding effect that would otherwise flow from the execution of an instrument.[67]

53 The first element or circumstance referred to in Garcia is lack of understanding of "the purport and effect of the transaction". This aspect has been examined in subsequent cases. In State Bank of New South Wales Ltd v Chia,[68] Einstein J said:[69]

"An understanding of the 'purport and effect' of the transaction includes, at least, an understanding of the fact of liability, the general extent of liability and the possible consequences of default."

It was submitted that the second defendant did not understand any of these matters.

54 Unlike the professional women in Garcia and Byrne,[70] at the time of signing of the documents, it was submitted the second defendant did not even understand what a guarantee was, let alone the extent of any potential liability to Bankwest which might flow from its execution.[71] Additionally, the evidence was that beyond the fact that the documents which she signed were legal documents because they had signature blocks,[72] the second defendant did not understand what the documents she was signing were, and her unchallenged evidence was that had she known she could lose her family home and end up bankrupt as a result of signing them, she would not have done so.[73] The evidence was that the various documents, of which there were many, were signed at the same time and the picture painted of the process was of a reasonably thick pile of paper, being the documents, with tags of some sort attached to the various signing pages to which the second defendant was directed for the purpose of placing her signature in the appropriate signing box. The evidence indicates that the physical process adopted for the execution of these documents meant that unless one dismantled the "pile of paper" to examine each document in turn, one would not know what was being signed. The evidence also indicates that there was some urgency in the execution of the documents. In any event, there is no evidence that the second defendant was invited to examine the documents in any detail, or at all, or told what she was signing, document by document.

55 It was also submitted that the evidence demonstrates that the second defendant had no real involvement in the management of the businesses and that the first defendant did not discuss matters of finance with her.[74] It was submitted that, at its highest, it could be said that the second defendant understood that the documents she was signing related to the refinancing of the Abdul Companies;[75] a position which, in my view, is supported by the evidence. Nevertheless, there is no evidence that she understood any of the details of the transaction beyond the broad notion of refinancing, such as the amount of money to be borrowed, the term of the facilities or the interlinking of security arrangements. The matter must, on any view, be regarded as complex, both from the point of view of a lay person and also for many lawyers who do not deal with these type of security arrangements on a regular basis.

56 Having regard to the evidence of the second defendant as to the first defendant's usual practice of not discussing matters of finance with her,[76] together with evidence of only limited involvement on her part in the management of the businesses (other than perhaps in the early stages of the development of businesses by the first and second defendant over the years, beginning with their newsagency business which was conducted in partnership), I am of the view that it can be inferred with an appropriate degree of confidence and assurance that the second defendant's knowledge that these documents related to "refinancing" was insufficient to give her an understanding of the purport and effect of the transaction. Further, I gained the strong impression from the second defendant's evidence that she did not have a high level of business and financial acumen. In saying this, I wish to make it very clear that this observation is not intended as a criticism or any negative comment in relation to her knowledge or ability. Clearly, the evidence indicated that the second defendant had supported the first defendant in the development of various businesses by the first defendant over a number of years and had contributed in a variety of ways, but principally by way of performing administrative tasks. Nevertheless, I am satisfied that in the particular circumstances, she did not know what the documents she was signing were and that even had she known, she did not understand their nature and effect.

57 Bankwest relied upon the execution by the second defendant of a number of documents prior to the execution of the documents critical in these proceedings; being documentation for the financing of aspects of various businesses, including guarantees.[77] However, in the circumstances, these events do not, in my view, change the present position or lead me to think that the second defendant's evidence as to her lack of understanding of these financing and guarantee documents was other than quite truthful. As a matter of logic, the fact that a person signs, for example, nine guarantees at various times, never understanding what they were signing, does not mean that when, say, the tenth is signed, they must be taken to know what they were signing and understand the nature and effect of that transaction. In the absence of evidence of an appreciation of the nature and effect of a guarantee, either during the signing of the nine or on the signing of the tenth, the situation does not change. This analogy applies aptly, in my view, to the second defendant.

58 It is not in controversy that the guarantees were part of the security for the various Facilities extended by Bankwest to the Abdul Companies, rather than as security for credit extended to the second defendant. On this basis, reliance is placed on the statement of Einstein J in State Bank of New South Wales Ltd v Chia[78] that: "Where the transaction is not ex facie for the benefit of the wife, then the onus will lie on the party seeking to enforce the security to show that the wife was not, relevantly, a volunteer." It follows that Bankwest bears the onus of establishing that the second defendant was not a volunteer.

59 In order to establish that the second defendant was not a volunteer, Bankwest must show that she obtained a direct and immediate gain from the credit facilities extended to the Abdul Companies.[79] In terms of direct and immediate gain, it should be observed that the authorities indicate that "incidental benefit which accrues generally to the family of which the wife is a member is not sufficient benefit to render a transaction which does not otherwise contain a 'real benefit', non-voluntary".[80] Additionally, "[T]he question of whether a guarantor is a volunteer is not, necessarily, determined conclusively by the examination of legal rights and interests".[81] On this basis, I turn to consider the nature of the second defendant's interest and involvement with the Abdul Companies and the extent to which this may lead to some "real benefit" flowing to her as a result of Bankwest's financing of those companies.

60 The second defendant is a shareholder of Torkar, a company which is, in turn, a shareholder of Shamrock. She was also a director of Shamrock at the time of execution of the guarantees. The second defendant has no interest in any of the other Abdul Companies. In relation to her involvement with these companies, the evidence is that she was employed by Torkar to perform administrative tasks, which include filing, attending to mail, authorising and payment of accounts for various businesses (noting that she was a signatory for the cheque account for Torkar, presumably for this purpose) and making tea.[82] She received a small salary as Torkar's employee.[83] The evidence is that the second defendant did not receive any payments or drawings from the companies.[84] This is the context against which any of the second defendant's involvement with the companies must be viewed. It is plain from the evidence that although the second defendant was a director of Shamrock at the relevant time, she had little or no involvement in or understanding of the management of that company.[85] The evidence is that her role in relation to the businesses run by the first defendant through the Abdul Companies and otherwise has always been assistance with "front line"[86] or routine administrative tasks. It is clear from the evidence that the second defendant did not appreciate that she was a shareholder in Torkar until these proceedings were commenced,[87] and nor did she understand that this meant that she owned half of that company.[88]

61 The fact that the second defendant was a director of Shamrock and a shareholder of Torkar does not mean that she was not a volunteer for the purpose of these transactions. Bankwest has not, in my view, established that the second defendant had any real involvement in the management of the companies or that she received any direct and immediate gain - any "real benefit", from the provision of credit to these companies. Indeed, in the Garcia case, Mrs Garcia was both a director and a shareholder of the relevant company, neither of which was an obstacle to the finding that she was a volunteer. Further, in State Bank of New South Wales Ltd v Chia, Einstein J said:[89]

"[W]here the interest of the wife is a shareholding in the company through which her husband conducted his business and in which she has no real involvement, then a guarantee given by the wife over that company's debts will be voluntary."

Furthermore, evidence that cash flows from the businesses were used to make interest payments on the family home which the defendants owned jointly is, in my view, irrelevant in this context as being no more than an "incidental benefit that accrues generally to the family".[90]

62 In conclusion, in relation to the volunteer question, I am of the opinion that, on the evidence, not only has Bankwest not established that the second defendant was not a volunteer, but that, rather, the evidence indicates that she was a volunteer in the real sense as contemplated by the authorities.

Bankwest's knowledge of the defendants' marriage

63 There is no question that Bankwest knew that the first and second defendants were married.[91] Consequently, Bankwest is "to be taken to have understood that, as a wife, [Mrs Abdul] may repose trust and confidence in her husband in matters of business and therefore to have understood that [Mr Abdul] may not fully and accurately explain the purport and effect of the transaction to his wife."[92]

"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."[93]

65 The evidence establishes that the second defendant only ever dealt with Bankwest on one occasion, which was a meeting (as submitted by Bankwest) or an encounter (as submitted on behalf of the second defendant) with Mr Charles Rounds, a Bankwest officer, at the offices of the Abdul Companies in Queensland, on 12 April 2007. The evidence of Mr Rounds is that he travelled to Brisbane to meet with the first and second defendants to discuss the financing arrangements and met with both defendants, together with their son, Mr Ben Abdul, and their finance broker, Mr Fogg. Mr Rounds says that he explained the broad terms of the proposed facility and security arrangements to these individuals during the course of the meeting.[94] The first and second defendants dispute Mr Rounds' account of any meeting and, in particular, the second defendant was adamant that although she was introduced to Mr Rounds, she did not meet with him at any point and nor did she have lunch with him after that meeting.[95] I turn now to consider the evidence in relation to this meeting or encounter in more detail.

66 It is common ground that Mr Rounds travelled to Brisbane for the day on 12 April 2007 for the sole purpose of meeting with the first and second defendants to discuss the proposed lending transaction. Mr Rounds' evidence in relation to the events at the offices of the Abdul Companies is to the following effect:

• the purpose of the meeting was to discuss the indicative term sheet[96] which was handed out at the meeting and left with the Abduls at the conclusion of the meeting;[97]

• both defendants were present at the meeting, as was their son, Mr Ben Abdul;[98]

• he explained the nature of the cross-collateralized security in some detail and the reason for and effect of the guarantees;[99]

• his recollection is that the second defendant actively participated in the meeting and answered a question around the structuring of the group of entities;[100] and

• the first and second defendant indicated that they were satisfied with the terms as set out in the indicative term sheet as explained to them but the first defendant impressed on him some urgency in relation to the financing.[101]

67 The recollection of events on the part of the first and second defendants is rather different. Their evidence was that only the first defendant was present at the meeting and the discussion was limited and formal. Their evidence was that the meeting or encounter did not meaningfully rise above a "meet n greet" and a social visit, although the first defendant did acknowledge there was some discussion around the proposed interest rates for the loan. The second defendant's evidence was that she was not present for the discussion with Mr Rounds in the first defendant's office and that she only briefly said "hello" to Mr Rounds. She did, however, concede that she went to the door of the first defendant's office when Mr Rounds was present, but this is not to suggest that any meaningful discussion of anything occurred in this environment.

68 In cross-examination of Mr Rounds, the first defendant sought to challenge his recollection of events on 12 April 2007, questioning Mr Rounds in relation to whether or not there was a conference table in the Abdul Companies' offices. The recollection of Mr Rounds in relation to the office layout was different to that put by the defendants, which is perhaps not surprising, given that the meeting occurred nearly five years ago. It was submitted on behalf of Bankwest that Mr Rounds' recollection of events is consistent with the matters he recorded shortly after the meeting in the first Credit Risk Submission. By way of example, acceptance by the defendants of the indicative term sheet is said to be corroborated in the second page of the second Credit Risk Submission.[102] This material does not, however, amount to a contemporaneous note of discussions which took place at the Abdul Companies' offices on 12 April 2007. Rather, the Credit Risk Submission material is both conclusionary and transactional, it is not a record of discussions.

69 Given the time that has elapsed since Mr Rounds' visit and having regard to the usual experiences of memory any claims of detailed recollection of discussions on the part of Mr Rounds need to be treated with a significant degree of caution. The same applies to the recollections of the defendants, but the difference is that Bankwest bears the evidentiary burden on this issue. Indeed, the submissions of Bankwest in relation to the reconciling of the evidence of Mr Rounds and the defendants in relation to this meeting themselves suggest that Mr Rounds' claimed recollection is more likely reconstruction than recollection:[103]

It is consistent with his other evidence that Mr Rounds would have expected Mrs Abdul to be present during at least part of his meeting. Following the due-diligence, to his mind, Mrs Abdul was one of the business principals and her guarantees were an essential aspect of any proposed transaction. It is also consistent with his description of the Bank's lending policies.
The logic of Mr Rounds' recollection is compelling. Following extensive due-diligence, the Bank prepared an indicative term sheet and had a senior officer of the Bank responsible for the file meet with the Abduls to go through that term sheet. That term sheet having been agreed in substance a formal credit risk submission was prepared for approval.
The competing account, that Mr Rounds flew to Brisbane for the day without a term sheet to merely identify the Abduls and have some loose and informal discussion about the proposed transaction defies common sense.
Similarly, it is very unlikely that he would not have considered it important to meet with Mrs Abdul in light of the conclusion he formed following due diligence, having regard to the Bank's lending policies."

70 In summary, Mr Rounds' evidence amounts to an uncorroborated and partial recollection of events that occurred at the offices of the Abdul Companies nearly five years ago. Additionally, those events occurred in circumstances where Bankwest was proposing to advance a very significant sum of money under the various facilities secured by personal guarantees where any prudent banker would wish to be very sure that someone in the position of the second defendant clearly understood the nature of the transactions and her personal liability. Bankwest, on the other hand, was content with what amounts to a general discussion of the proposed transaction evidenced only by an indicative term sheet and in the presence of both defendants and, at least on the basis of Mr Rounds' evidence, with no attempt, even on the part of Mr Rounds, to explain the position separately to the second defendant, or to ensure that she had independent legal and financial advice.

71 The evidence of the defendants is, as Bankwest submits, not without basis for criticism. I accept that it is most unlikely that, as the first defendant claimed, Mr Rounds travelled to Brisbane especially for a social visit and to confirm the identity of the first defendant. The first defendant also acknowledged some material inaccuracies and omissions in his and the second defendant's affidavit evidence, in particular the failure to make mention of, what Bankwest says, was the important meeting with Mr Rounds. However, another possible explanation for this failure would mean that more weight should be given to the evidence of the first and second defendants in relation to this meeting - because the failure to mention it in their affidavit evidence is indicative of its being a very general discussion to which they attached no great significance.

72 Bankwest also submitted that the second defendant presented as a witness with a superficial and incomplete recollection of events. It was submitted that on a number of occasions her response to questions was that she could not remember or did not know the answer. In this respect, it was submitted that: "It was clearly a busy and stressful time for the Abduls. She had attended many meetings with her husband over the years relating to the businesses. It is likely that she had an incomplete and confused recollection of the circumstances relating to the meeting with Mr Rounds".[104] In my view, the responses highlighted in the Bankwest submissions are consistent with and go to confirm my assessment of the second defendant as a person who had no real involvement in the businesses and did not understand business or financial matters. In this respect, I note the evidence of Mr Rounds that he recollected that the second defendant actively participated in the meeting and answered a question around the structuring of the group of entities.[105] Again, this recollection claimed by Mr Rounds is uncorroborated in any contemporaneous documentation, it is at odds with the evidence of the second defendant and my assessment of her as a witness. At best, I think this evidence is reconstruction, at worst it is simply self-serving, and that the evidence of the second defendant should be preferred.

73 For these reasons, I prefer the evidence of the first and second defendants in relation to the events of 12 April 2007, particularly with respect to the apparently relatively casual encounter which the second defendant had with Mr Rounds at that time. The second defendant was insistent that there was no formal meeting or detailed discussion of any kind between her and Mr Rounds at this time, a position confirmed by the evidence of the first defendant. The second defendant was, in my view, a candid witness and her participation in a meeting of the kind claimed by Mr Rounds would be contrary to all the evidence which indicates that she had a limited involvement in the business of the Abdul Companies, and the position, which the evidence indicates, that the first defendant was in control of the business or businesses and did not discuss financial or business matters with her.[106]

74 Additionally, I accept that even if the account of the visit to the offices of the Abdul Companies which was given by Mr Rounds is accepted, there is no evidence, on his part or otherwise, that he suggested to the second defendant that she should seek independent legal or financial advice in relation to the financing arrangements and the guarantees. Additionally, it should be kept in mind that the evidence of Mr Rounds is that the only document which he had with him on 12 April 2007 was all or part of an indicative term sheet.[107] He did not have a copy of the documentation for the various Facilities and the guarantees which the second defendant was later asked to sign. This is not surprising, as the visit to the company offices took place some six weeks before the documents were executed and before the Bankwest credit committee had approved the transaction.[108] Nevertheless, the absence of detailed documentation might well cause difficulty in providing a full explanation to a potential borrower or guarantor in relation to their liability or the extent of that liability. True it is that the position could be explained in general terms on the basis of indicative terms or draft heads of agreement, but, given the state of documentation, such an explanation would necessarily be regarded as preliminary and one which would be followed up when final documentation had been prepared and provided for consideration and execution by the potential borrower and his or her advisers. The evidence was that the indicative terms were included in the first Credit Risk Submission, which tends to confirm the preliminary nature of discussions that might have taken place on 12 April 2007.

75 It appears that the need for further finance for the development of the businesses conducted by the Abdul Companies and the defendants became urgent because of the need to settle the purchase of further aged care facility bed licences. Consequently, a temporary bridging facility was established by Bankwest because the permanent facility awaited valuations and the satisfaction of other conditions precedent. The bridging finance arrangements were entered into on 7 May 2007, with the second defendant as a guarantor of that facility and the security for the loan included a second mortgage over the defendants' family home. The entering into of the loan documents for the temporary facility was accompanied by signed statutory declarations in a form substantially identical to the statutory declarations that accompanied the entry into the permanent facilities on 27 May 2007. Nevertheless, there is no evidence that the second defendant appreciated the nature and extent of her personal liability with respect to the temporary facility, that this had been explained to her or that she had been advised to obtain independent legal and financial advice. In the context of the course of dealings between Bankwest and the defendants, the fact that she may have been given some document or declaration to sign which contains some exhortation to this effect is not, in my view, sufficient, in the absence of any real understanding as to the nature of the documents which were being signed.

76 The process whereby the documents for the permanent facilities were executed was, it must be said, somewhat disturbing, having regard to the magnitude of the sums secured. In this process, Bankwest took no steps to ensure that documents sent to the second defendant, complete with warnings, were sent to her personally.[109] Nor, it appears, did Bankwest ensure that the second defendant had adequate time to read the documents, much less understand them and have the opportunity to take independent legal or financial advice. In my view, the process of procuring the second defendant's signature on the documents ignored all of the safeguards that should have been in place to ensure that the guarantees would be enforceable against her, both on the basis of the authorities to which reference has been made. The process was also at odds with the procedure contemplated by the Code of Banking Practice ("the Code"), which specifically deals with execution of guarantees.[110]

77 Bankwest, in support of its position, placed reliance upon various statutory declarations which were executed by the second defendant which, on their face, declare that she received independent legal and financial advice prior to the entry into of the guarantees.[111] It was submitted on behalf of the second defendant that Bankwest cannot rely upon these statutory declarations. I accept this submission on the basis of three submissions advanced in support.

78 The first reason advanced was that the statutory declarations cannot be treated as evidence of anything as they are not statutory declarations within the meaning of s 107(1)(b) of the Evidence (Miscellaneous Provisions) Act 1958. That provision requires that "[A] statutory declaration must be signed by the person making it in the presence of a person who is authorized under section 107A(1) to witness the signing of a statutory declaration." (emphasis added). The undisputed evidence of the second defendant was that Mr Fogg, who purports to witness each of the statutory declarations, was not present when she signed the declarations; and she does not know when he signed the declarations.[112]

79 The second reason is that each of the statutory declarations is dated 27 May 2007,[113] whereas the guarantees are all dated 1 June 2007.[114] The statutory declarations state: "I have freely and voluntarily signed the following documents." (emphasis added). Accordingly, it is submitted on behalf of the second defendant that, on the face of the documents, Bankwest was on notice that the statutory declarations were untrue, given that the guarantees are dated after the declarations, and yet the declarations use the past tense with respect to the guarantees. No evidence has been pointed to by Bankwest showing that it knew all of the documents were executed at the same time.

80 The third reason advanced is that, as a matter of policy, Bankwest should not be able to defeat the equity in favour of the second defendant by adding an additional document to the pile to sign,[115] that effectively purports to waive her rights. It was submitted that the equity could be routinely defeated, without offering any protection to the people it is designed to protect, if banks were able to escape it by simply adding a waiver to be signed.[116] As was observed on behalf of the second defendant, a similar waiver was signed in Byrne,[117] but that did not relieve the lender from the otherwise unconscientious nature of its attempt to enforce its legal rights.

81 In the course of cross-examination, the second defendant was also taken to an accountant's letter and to a solicitor's signature in a bundle of documents relating to a facility extended by LM Investments. It was submitted that any attempt by Bankwest to rely upon these documents, and in the context of the decision in Westpac Banking Corporation v Paterson,[118] is misconceived. As was submitted, in Paterson, the court found that the bank was entitled to rely upon the rejection by Mrs Paterson of independent advice on the basis that she had previously received the same. However, in the present circumstances, Bankwest never suggested to the second defendant that she should seek independent advice, and I accept that this is a failure that goes to the heart of the present issue. Additionally, as was observed on behalf of the second defendant, the bundle of documents relating to the facility extended by LM Investments were produced on subpoena from a third party in circumstances where there is no clear evidence that the second defendant received any independent legal advice in relation to those documents - and where there is no evidence that Bankwest was even aware of these matters at the relevant time. Even if there were evidence that independent advice had been given in relation to the LM Investments transaction, Bankwest cannot rely on past advice of this nature in relation to a different transaction of which it was not aware to discharge its obligations in the present circumstances.

82 Accordingly, I find that each of the four elements identified in Garcia are made out in this case, both individually and in combination in the sense indicated by the High Court in that case, and that it would be unconscientious for Bankwest to enforce the guarantees against the second defendant. Consequently, they should be set aside.

The Abdul facility as a transaction of suretyship

83 The defendants submitted that the Abdul Facility was procured in the same manner as the guarantees and, consequently, should suffer the same fate. It is common ground that the Abdul Facility was not in form an instrument of suretyship. The parties differ on whether, as a matter of substance, it was an instrument within this category.

84 The express purpose of the Abdul Facility is stated to be "[a]n acquisition finance of age care leasehold business known as Lonsdale House Residential Age Care Facility consisting of 60 pre-1997 allocated age care places for contract price of $3,150,000".[119] It follows that Bankwest knew that the funds extended under the Abdul Facility were to be used for the purpose of a business conducted within the scope of operations of the Abdul Companies. Nevertheless, Bankwest argued that the Abdul Facility was not in substance an instrument of suretyship.

85 Turning to legal principles, Bankwest argued that the second defendants' attempt to characterise the Abdul Facility as a constructive suretyship should be rejected as it would constitute an extension of the principles in Garcia beyond application to guarantees; an extension of principle that, it said, the Court of Appeal has held that it is not permitted to make.[120] In response, the second defendant submitted that although Nettle JA did hold the principles in Garcia could only apply to guarantees, his Honour left open the possibility, foreshadowed in the New South Wales Court of Appeal in Elkofairi v Permanent Trustee Co Ltd,[121] that constructive suretyship would attract the application of the principle. It also appears from the judgment of Nettle JA in the Court of Appeal that, but for the decision of the New South Wales Court of Appeal in Elkofairi, his Honour would have been inclined to extend the principles in Garcia beyond guarantees, particularly, on the basis of the reasoning of Dixon J in Yerkey v Jones[122] which were applied in Garcia. In this respect, his Honour said:[123]

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

44. As I understand the High Court's most recent edict on stare decisis,[124] however, this court does not have power to change the common law of this country, only to apply it, and we are not to depart from another state appellate court's interpretation of the common law of this country unless we think it is plainly wrong. Strictly speaking, Santow and Campell JJA's remarks in Elkofairi were obiter, but I take them to be 'seriously considered'[125] obiter and, with respect, I am not persuaded that they are plainly wrong.

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

86 The remarks of Santow JA and Campbell AJA in Ekofairi to which Nettle JA was referring are set out earlier in his Honour's judgment:[126]

"41. Contrary to that broader view of Yerkey, however, in Elkofairi v Permanent Trustee Co Ltd[127] Santow JA, with whom Campell JA agreed, concluded that it was not permissible for an intermediate court of appeal to treat Yerkey as capable of application or extension to anything other than suretyship. His Honour said that:

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

...

The relevance of this analysis in the present context is not to anticipate what the High Court might, or might not, do in extending the doctrine of Yerkey v Jones to cases outside the conventional guarantee by a wholly volunteer wife. It is not for an intermediate appellate court to do that. Rather it is to support the proposition that, when resorting instead to the wider doctrine of unconscionability, here in granting relief to the wife (compare Commercial Bank of Australia Ltd v Amadio[128]) the fact that the transaction is in the strict sense not one of guarantee need not provide an insuperable obstacle to relief.'"

Clearly, both Santow JA and Campbell AJA left open the possibility of "constructive suretyship", in which case the principles of Garcia would be applicable.

87 In terms of the Garcia principles, it is established that where funds are lent to pay on to a third party, even when those funds travelled through a joint account, one of the account holders may still be considered a volunteer if they are not interested in the transaction with the third party.[129] It was submitted on behalf of the second defendant that just as she was a volunteer in relation to the extension of credit to the Abdul Companies, so too was she a volunteer in relation to the Abdul Facility which was, in essence, another extension of credit to the Abdul Companies similarly secured by, among other things, her personal liability. It was submitted that, in this light, in the eye of equity the Abdul Facility ought properly be construed as constructive securityship vis-à-vis the second defendant.

88 On the other hand, Bankwest submitted that whilst the Abdul businesses were clearly integrated and functioned as a group, they remained, nevertheless, five separate businesses, comprising the four Abdul Companies and the Abdul partnership. It said that each business had its own revenue stream and the identity of the borrower for the five loan facilities and the size of those facilities was determined by reference to the historical and projected revenues of those separate businesses. In relation to the Abdul partnership, Bankwest emphasised that it was a separate business that owned and operated the Camelot Child Care Centre. Further, it said that the size of the Abdul Facility, namely $682,000, reflected an averaging of the projected revenues for 2008 and 2009 ($660,000 and $726,000 respectively) for that business. The Abdul Facility was, Bankwest submitted, the result of a deliberate decision by it and the defendants to allow them to borrow as much as possible, backed by the revenue of that business with a view to raising the necessary $18 million across the businesses of this partnership and the Abdul Companies to meet the re-financing of these businesses. Again, it emphasised that the defendants owned the business and so they were the principal debtors of the Abdul Facility.

89 In my opinion, on the basis of the evidence as to the second defendant's involvement in the businesses of the Abdul Companies, which was evidence in relation to her involvement with the businesses which the first defendant controlled, no distinction having been made between the businesses conducted by the Abdul Companies and the partnership, and the other matters considered in relation to the application of the Garcia defences with respect to the guarantees, the Abdul Facility must be regarded on the same basis; namely, as in substance a contract of suretyship as far as the second defendant is concerned. I am strengthened in this view by evidence, reinforced in the submissions of Bankwest, that the businesses conducted by the Abdul Companies and the Abdul partnership were in a real sense part of one group of businesses which were controlled by the first defendant, Mr Abdul. It was clear from the evidence that Mr Abdul made all the financial and business decisions, that Mrs Abdul had little appreciation of business and financial matters and, consequently, it is, when one has regard to the substance rather than the form, an accident of business structure that the Abdul partnership had remained as such a business unit and not been "transformed" into another of the Abdul Companies.

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.

91 An issue arose as to the extent to which the Defence and Counterclaim of the second defendant contemplated the Abdul Facility within its pleading in relation to the Garcia principle and request for declarations. Accordingly, leave was sought pursuant to Order 36.01 of the Rules to make the necessary amendments to this pleading. It was submitted that such an amendment is necessary to enable the Court to determine the real question in controversy between the parties and that as the second defendant was not represented during the trial (other than in respect of closing submissions), the application for amendment was made at the earliest possible juncture after becoming aware that such an application was necessary. Notwithstanding the late application it was submitted that Bankwest would not be unduly prejudiced as the question is purely a legal one which does not require further evidence to be adduced. In my view, it is appropriate that leave be granted for the reasons advanced on behalf of the second defendant. As the trial was conducted with respect to this and related issues no prejudice was suffered by Bankwest as it had the opportunity to argue this point, which it did so at the trial and in written submissions which were addressed at the trial. No further evidence was required.

92 In the alternative, the second defendant submitted that Bankwest had engaged in unconscionable conduct in respect of the guarantees and the Abdul Facility rendering each liable to be set aside against the second defendant. In this respect, reference was made to the judgment of Deane J in Commercial Bank of Australia Ltd v Amadio, as follows:[130]

"The jurisdiction is long established as extending generally to circumstances in which (i) a party to a transaction was under a special disability in dealing with the other party with the consequence that there was an absence of any reasonable degree of equality between them, and (ii) that disability was sufficiently evident to the stronger party to make it prima facie unfair or 'unconscientious' that he procure, or accept, the weaker party's assent to the impugned transaction in the circumstances in which he procured or accepted it. Where such circumstances are shown to have existed, an onus is cast upon the stronger party to show that the transaction was fair, just and reasonable".

93 On this basis, it was submitted that the second defendant was under a special disadvantage in dealing with Bankwest due to her limited understanding of business and financial matters, her dependency upon her husband in financial matters and the lack of independent advice, when such advice was clearly called for. Further, it was said that the special disadvantage was compounded by the value and complexity of the transaction, particularly the interlinking security arrangements.

94 In this respect, Bankwest submitted that, even assuming, which it did not accept, that the second defendant was under some special disadvantage of the kind alleged, there was no evidence capable of sustaining the conclusion that this special disadvantage was sufficiently evident to Bankwest. It was submitted that, on the contrary, the evidence of Mr Rounds, the Bankwest officer who met with the defendants at the Abdul Companies' offices in Brisbane, was that the defendants operated "on an equal footing".[131] Mr Rounds said that he witnessed no evidence of domineering or disrespectful treatment of the second defendant by the first defendant. As conceded by Bankwest, this is the only evidence of any direct contact between it and the defendants.

95 I have already indicated my views in relation to the conflict of evidence in relation to the meeting with Mr Rounds and have already considered the evidence in relation to the execution of these facilities by the second defendant, in a "pile of documents" where she was asked merely to sign the signature pages, with no explanation of each document.

96 Additionally, the Bankwest Credit Risk Submission makes it clear that it only considered the ability to service the debt on a consolidated basis[132] and the evidence indicates that it never gave any consideration to the capacity of the second defendant to pay as a joint and several obligor under either the guarantees or the Abdul Facility. Having regard to the fact that the total liability under the transaction, looked at with respect to the Abdul Companies and the Abdul partnership was approximately $18 million, for which the second defendant was made personally liable, diligence and prudence might, as contemplated by clause 25.1 of the Code of Banking Practice, have led Bankwest to make some inquiries as to her ability to pay all or part of such a sum. In any event, putting aside any possible relevance of the Code of Banking Practice in this respect, one would expect that the ordinary diligence and prudence of bankers would mean that great care would have been taken to ensure that the second defendant was aware of the nature of the transaction and understood the potential consequences in terms of her personal liability in executing the guarantees and the Abdul Facility. In all the circumstances, and having regard to the state of the law, of which Bankwest must be well aware, it is, to my mind, quite extraordinary that Bankwest would have allowed the second defendant to sign any of these documents without insisting that she obtain independent legal advice in addition to assuring itself that she was fully cognisant of the nature of the transaction and her personal risk. None of these steps were taken.

97 In light of the evidence that has already been considered in relation to the second defendant's lack of understanding of business and financial matters and the inadequacy of steps taken by Bankwest, matters that were not redeemed or addressed in any way as a result of the meeting with Mr Rounds, I am of the view that the second defendant's special disadvantage in this respect was or at least ought to have been evident to the bank. As discussed, Bankwest was aware that the first defendant, Mr Abdul, was the person managing the businesses and it was also aware that the defendants were married, and that the second defendant was a volunteer to the transaction. As in Elkofairi, the extremely large borrowing, of approximately $18 million, combined with no disclosure of any income of any significance for the second defendant, together with Bankwest's knowledge of her volunteer status, was sufficient to put Bankwest on notice of the second defendant's, Mrs Abdul's, special disadvantage.

98 In addition, the second defendant relied upon the failure by Bankwest to comply with the Code of Banking Practice in securing the consent of the second defendant to the transaction. Bankwest submitted that these references to the Code of Banking Practice did not advance the unconscionability argument. They proceed, it was said, from the false premise that the Code operated as a "free-standing doctrine of unconscionability". It was submitted by Bankwest that the Code does not operate in that way, but does no more than establish principles to guide bank behaviour and, at best, could found an argument in express or implied contract, an argument which it was said the second defendant did not advance.

99 In any event, Bankwest submitted that there was no evidence that it had breached or acted inconsistently with any of the clauses of the Code referred to by the second defendant. It said, with respect to the execution of the various documents and related guarantees, that they included prominent notices urging independent legal advice. It was said that the defendants were given sufficient time to consider the guarantees and in fact executed those documents three days after they were provided to their agent, Mr Fogg, their financial adviser, by Bankwest. In my opinion, this argument fails entirely to address the issues that have been discussed in the context of the Garcia defence relied upon by the second defendant and, particularly, the failure on the part of Bankwest to ensure that she obtained independent legal advice and that the documents were executed in an appropriately considered manner and not via signing tags on a pile of papers.

100 I accept, on the other hand, that the Code of Banking Practice does not, in the present circumstances, have any contractual force. Nevertheless, Bankwest does not suggest that the Code represents something other than a distillation of fair and prudent banking practice which represents a consensus in the banking and financial sector. As the circumstances of these proceedings indicate, compliance with reasonable standards of this nature is clearly in the interests of all parties, bankers and customers alike.

101 Finally, there remains the question whether the second defendant should be given leave to enlarge her defence to accommodate a plea of unconscionable conduct against Bankwest. Leave to extend the defence is sought by the second defendant pursuant to Order 36.01 of the Rules. It was submitted that such an amendment is necessary to enable the Court to determine the real question in controversy between the parties. The second defendant was not represented during the trial (other than in respect of closing submissions) and the application was made at the earliest possible juncture after becoming aware that such an application was necessary. It was submitted that Bankwest would not be unduly prejudiced by the requested amendment as it was already on notice of issues relating to unconscionable conduct and the Code of Banking Practice as a result of the defence of the first defendant. Accordingly, no further evidence would be required in order for it to address the claim made against it. I accept the position as submitted by the second defendant and, accordingly, give leave as requested. For these reasons, I do not regard this application, late in the trial process, as inconsistent with the principles in Aon Risk Services Australia Ltd v Australian National University.[133] In any event, Bankwest had full opportunity at trial, both in written submissions and in oral submissions, to address the unconsionability issue, an argument of law not requiring additional evidence.

102 For the preceding reasons, I find that it would be unconscionable for Bankwest to seek enforcement of the guarantees or the Abdul Facility against the second defendant.

103 Consequently, the answer to Question 3 is that the second defendant is absolved from liability to Bankwest.

104 In summary, the answers to the Preliminary Questions for Determination by the Court[134] are:

(d) Question 3 - The second defendant is absolved from liability to Bankwest.

105 I will hear the parties in relation to appropriate orders flowing from the answers to these questions, including with respect to the disposition of the appeal from the decision of Efthim AsJ.

[2] See orders of 9 February 2012 - Other Matters, paragraph (B).

[3] The certificate provisions as contained in the guarantees are in the following terms:

16. We may give you a certificate about a matter or about an amount payable in connection with this guarantee and indemnity. The certificate is sufficient evidence of the matter or amount, unless it is proved to be incorrect."

The certificate provisions as contained in the charges are in the following terms:

26.1 We may give you a certificate about a matter or about an amount payable in connection with this charge. The certificate is sufficient evidence of the matter or amount, unless it is proved to be incorrect."

[5] [1935] HCA 49; (1935) 53 CLR 643 at 651-2 (Rich, Dixon, Evert and Tiernan JJ).

[6] See Bankwest's Submissions on Appeal, (7 December 2011), paragraph 11.

[7] Malika Holdings Pty Ltd v Stretton (2001) 204 CLR 290 at 292-3, [5] (Gleeson CJ).

[8] Dobbs v National Bank of Australasia Limited [1935] HCA 49; (1935) 53 CLR 643, at 651 (Rich, Dixon, Evatt and McTiernan JJ). See also State Bank of New South Wales v Chia [2000] NSWSC 552; (2000) 50 NSWLR 587 at 609, [252] (Einstein J).

[9] Deputy Federal Commissioner of Taxation v Richard Walter Pty Ltd [1995] HCA 23; (1995) 183 CLR 168 at 184. See also Heydon, Cross on Evidence (8th ed) at [7185].

[10] South Australian Railways Commissioner v Egan [1973] HCA 5; (1973) 130 CLR 506 at 531-532.

[16] It is also noted that the clause considered by Gardiner AsJ in National Australia Bank Limited v Lawrence [2011] VSC 556 is in even closer form to clause 18.2 of the various facility agreements, a clause to which his Honour applied in Permanent Trustee v Gulf Import and Export Co (see [2011] VSC 556, at [41]-[42]).

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