I agree with this. The cases justify a doctrine at least as wide as this (see amongst many other places Mason J in Amadio at 467) and possibly wider, although it is not necessary to consider the wider possibility in the present case".
311 Barclays Bank v O'Brien, insofar as it decided that there was no basis for providing special protection in equity to wives in relation to surety transactions, was expressly not followed by the High Court in Garcia v National Australia Bank. In Garcia the High Court, overruling the New South Wales Court of Appeal (National Australia Bank v Garcia (1996) 39 NSWLR 577), held that a married woman who became a surety for her husband's debt could still rely on the special protection afforded to married women by the decision of the High Court in Yerkey v Jones (1939) 63 CLR 649, which did not depend upon the creditor having notice, at the time the guarantee was taken, of some unconscionable dealing between the husband as borrower and the wife as surety.
312 As regards Barclays Bank v O'Brien generally, Gaudron, McHugh, Gummow and Hayne JJ in their joint judgment said at par15:-
"Sheller JA, who gave the leading judgment in the Court of Appeal, considered the decision of the House of Lords in Barclays Bank PLC v O'Brien and, in several respects, found difficulty in accepting the reasoning therein. The New Zealand Court of Appeal has said that 'the jurisprudential basis of O'Brien remains uncertain' ( Wilkinson v ASP Bank Limited (1998) 1 NZLR 674 at 689). After referring to the English authorities decided after O'Brien , Sir Anthony Mason has suggested that 'the plethora of cases may suggest that all is not well with the O'Brien principle'. It is unnecessary for us to enter upon the matter, beyond noting that in O'Brien the House of Lords discounted what it understood was the 'special equity theory' supported by Dixon J in Yerkey v Jones".
313 In the Court of Appeal Sheller JA had said at 597:-
"I have some difficulty with the propositions Lord Browne-Wilkinson advanced… which led him… to identify a number of other special relationships, including that of a son to his elderly parents, which would put a creditor accepting security from the party assumed to be the weaker, on enquiry".
314 As I have already indicated, Kirby J in his judgment in Garcia offered a "re-formulation" of the principles stated by Lord Browne-Wilkinson in O'Brien, suggesting that Kirby J was not satisfied with the principles as originally formulated.
315 In his judgment in the High Court in Garcia Callinan J said at par109:-
"I would not, with respect, adopt the principles settled by the House of Lords in Barclays Bank PLC v O'Brien , that any exceptional rules formally applicable to guarantees by wives of husbands' obligations should be extended to co-habitees in cases in which the creditor is aware of an emotional relationship between the co-habitees".
316 I have concluded that I should not apply the principles stated by Lord Browne-Wilkinson in Barclays Bank v O'Brien, except to the extent to which they may be in accordance with the principles stated by the High Court in Amadio.
317 Nor do I consider that I should apply Kirby J's "re-formulation" in his judgment in Garcia of the principles stated by Lord Browne-Wilkinson in O'Brien. At par73 Kirby J said:-
"I favour a re-formulation of the principle expressed by Lord Browne-Wilkinson in O'Brien .. It is my view that the principle should be stated thus: Where a person has entered into an obligation to stand as surety for the debts of another and the credit provider knows, or ought ot know, that there is a relationship involving emotional dependence on the part of the surety towards the debtor: (1) the surety obligation will be valid and enforceable by the credit provider unless the suretyship was procured by the undue influence, misrepresentation or other legal wrong of the principal debtor; (2) if there has been undue influence, misrepresentation or other legal wrong by the principal debtor, unless the credit provider has taken reasonable steps to satisfy itself that the surety entered into the obligation freely and in knowledge of the true facts, the credit provider will be unable to enforce the surety obligation because it will be fixed with notice of the surety's right to set aside the transaction; (3) unless there are special exceptional circumstances or the risks are large, a credit provider will have taken such reasonable steps to avoid being fixed with constructive notice if it warns the surety (at a meeting not attended by the principal debtor) of the amount of the surety's potential liability, of the risks involved to the surety's own interests and advises the surety to take independent legal advice. Out of respect for economic freedom, the duty of the credit provider will be limited to taking reasonable steps only".
318 What Kirby J said in this paragraph is explicitly a departure from what was said by Lord Browne-Wilkinson in Barclays Bank v O'Brien and advanced by Kirby J for the first time and is not adverted to by any of the other members of the High Court.
319 I will now turn to the decision of the High Court in Amadio. The leading judgments in Amadio on the subject of unconscionability were given by Mason J and Deane J. Wilson J agreed with Deane J. Dawson J dissented and Gibbs CJ , on this point, also dissented.
320 At p474 Deane J said concerning the jurisdiction of courts of equity to relieve against an unconscionable dealing:-
"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".
321 At p462 Mason J said:-
"…an underlying general principle which may be invoked whenever one party by reason of some condition or circumstance is placed at a special disadvantage vis--vis another and unfair or unconscientious advantage is then taken of the opportunity thereby created. I qualify the word 'disadvantage' by the adjective 'special' in order to disavow any suggestion that the principle applies whenever there is some difference in the bargaining power of the parties and in order to emphasize that the disabling condition or circumstance is one which seriously affects the ability of the innocent party to make a judgment as to his own best interests, when the other party knows or ought to know of the existence of that condition or circumstance and of its effect on the innocent party".
322 Mason J was at pains to point out that this principle allowing equitable relief on the ground of unconscionable conduct is quite distinct from the limited duty of disclosure owed by a creditor to an intending surety, which I have dealt with earlier in this judgment. His Honour observed:-
"But the fact that a bank's duty to make disclosure to its intending surety, arising from the mere relationship between principal creditor and surety, is so limited has no bearing on the availability of equitable relief on the ground of unconscionable conduct. A bank, though not guilty of any breach of its limited duty to make disclosure to the intending surety, may nonetheless be considered to have engaged in unconscionable conduct in procuring the surety's entry into the contract of guarantee".
323 As to whether the stronger party knows or ought to know of the existence of the special disability to which the other party is subject, Mason J said at 467:-
"As we have seen, if A having actual knowledge that B occupies a situation of special disadvantage in relation to an intended transaction, so that B cannot make a judgment as to what is in his own interests, takes unfair advantage of his (A's) superior bargaining power or position by entering into that transaction, his conduct in so doing is unconscionable. And if, instead of having actual knowledge of that situation, A is aware of the possibility that that situation may exist or is aware of facts that would raise that possibility in the mind of any reasonable person, the result will be the same".
324 The first question to determine is whether Mr Sullivan was subject to a special disability or disadvantage in his dealing with the Bank.
325 Mr Sullivan was not subject to any disability of the types often encountered in cases in which unconscionability is invoked. He was not subject to any disability by reason of lack of intelligence, lack of knowledge of the English language, illiteracy, sickness or lack of any business experience. I have also found that, although he was sixty-seven years old at the time he entered into the mortgage, he was not subject to any disability by reason of his age. Although Mr Sullivan had not had much formal education, this lack of formal education did not disadvantage him. Moreover, as I have found, Mr Sullivan had previously entered into numerous mortgages, understood the nature of a mortgage and understood the standard features of a mortgage, including that money secured by the mortgage must be paid to the lender and that in the event of default the mortgagee can take possession of, and sell, the mortgaged land.
326 However, as Deane J said in Amadio the circumstances which may constitute a special disability may take a wide variety of forms and are not susceptible to being comprehensively catalogued. In his judgment in Amadio Deane J referred to some examples of a special disability given by Fullagar J in Blomley v Ryan (1956) 99 CLR 362 at 405, which included "lack of assistance or explanation, where assistance or explanation is necessary". Lack of information about a transaction and misinformation about a transaction can place a party to the transaction in a position of special disadvantage.
327 In the present case, I find that Mr Sullivan, by reason of lack of information and misinformation about the transaction, was in a position of special disability or special disadvantage in his dealing with the Bank.
328 Nobsa, the company whose indebtedness to the Bank Mr Sullivan was to guarantee and secure, was in serious financial difficulties, as was well known to the Bank but was unknown to Mr Sullivan. So far as Mr Sullivan was aware, Nobsa appeared to be doing good business and to be prospering. Mr Sullivan was not told by anyone how much Nobsa owed the Bank. Mr Sullivan was not shown financial documents of Nobsa by either Craig Kelly or by Nobsa's accountant, Mr Weidenhofer. Neither Craig Kelly or Mr Weidenhofer explained Nobsa's financial position to Mr Sullivan. Mr Sullivan had been told by Mr Weidenhofer that he would have no problems or worries, if he entered into the mortgage. Nobsa's serious financial difficulties were exacerbated by the failure to sell Craig Kelly's property at the auction on 13 October 1990.
329 Because of Nobsa's serious financial difficulties, the Bank, unknown to Mr Sullivan, was seriously contemplating enforcing securities it held for Nobsa's debt. I do not fully accept a submission made on behalf of Mr Sullivan that the Bank, before Mr Sullivan entered into the mortgage, had already decided that it would commence the process of enforcing securities it held for Nobsa's indebtedness, on the day after Mr Sullivan was to give the mortgage over the land, "if the indebtedness (of Nobsa) to the Bank was not greatly reduced". As I have already indicated, the decision made by the Bank's Regional Lending Manager on 22 October 1990 was that, if Nobsa's debt had not been reduced to $250,000 by 15 November 1990, the Branch Manager should submit the mortgage on Mr Kelly's property for call-up. As at 22 October and as at the time Mr Sullivan entered into the mortgage, Nobsa's indebtedness did not greatly exceed $250,000 and the Bank anticipated, in the event correctly, that Nobsa's indebtedness would be reduced to or below $250,000 by 15 November 1990, by the injection of funds from Marjory Craig. However, although the commencement of recovery procedures as early as 15 November 1990 was unlikely, and did not in fact happen, the Bank knew, and Mr Sullivan did not know, that there was a very real likelihood that the Bank would take steps to enforce whatever securities it held for Nobsa's indebtedness, including the mortgage to be given by Mr Sullivan, soon afterwards. The Bank had concluded that Nobsa's business was "not performing" and that its capacity to service its loan was "non-existent". The only other security the Bank held for Nobsa's indebtedness (apart, possibly, from an equitable security over Nobsa's assets which was of little value) was the mortgage over Craig Kelly's property. The mortgage over Craig Kelly's property also secured Craig Kelly's personal indebtedness to the Bank. Craig Kelly's personal indebtedness was substantial and was not being serviced and difficulties were being experienced in selling Craig Kelly's property. Mr Sullivan knew that Craig Kelly owed money to the Bank but he did not know how much.
330 Mr Sullivan also believed, as a result of what he had been told by Craig Kelly, that as soon as Craig Kelly's house had been sold, which Mr Sullivan was led to believe would happen within a couple of months or at least within a few months, the mortgage over Mr Sullivan's property would be discharged, whereas the true position was that, even after a sale of Craig Kelly's property, the Bank would continue to require a mortgage over Mr Sullivan's land.
331 It was submitted on behalf of the Bank that it had not been shown that what Craig Kelly said to Mr Sullivan, if it was said, was a misrepresentation in the strict sense, in that it consisted of assertions as to the future and the limited circumstances in which assertions as to the future can constitute misrepresentations were not established. I do not consider that Craig Kelly had grounds for believing that a mortgage from Mr Sullivan would be required for only a few months but I would not find that Craig Kelly was knowingly fraudulent. However, even if what Craig Kelly said did not amount to an actionable misrepresentation by him, it nevertheless contributed to Mr Sullivan misapprehending the onerousness to him of the transaction he was entering.
332 Counsel for the Bank also submitted that Mr Sullivan was misinformed about the transaction he was entering into, as a result of what he had been told by Mr Lyons at the meeting at the Bank. However, I have already found that Mr Lyons did not at the meeting at the Bank make any misrepresentation on which Mr Sullivan relied in deciding to enter into the mortgage.
333 The next question to determine is whether the Bank knew or ought to have known of the existence of the matters giving rise to the special disability to which Mr Sullivan was subject, or whether the special disability was "sufficiently evident" to the Bank so as to make it prima facie unconscientious for the Bank to procure or accept Mr Sullivan's assent to the transaction. I will proceed on the basis that these two formulations are substantially equivalent.
334 The Bank did not know, nor ought it to have known, that Craig Kelly had told Mr Sullivan that his mortgage would be required only for a short time until Craig Kelly's property had been sold or that Mr Weidenhofer had told Mr Sullivan that he would have "no worries", if he entered into the mortgage.
335 A key question is whether the Bank knew or ought to have known, or whether it would have been sufficiently evident to the Bank, that Mr Sullivan was not informed or misinformed about the financial position of Nobsa and the gravity of the risk he was incurring by giving a guarantee and a mortgage to secure Nobsa's indebtedness. I consider that this question should be answered in the affirmative.
336 The Bank had actual knowledge that Mr Sullivan was an intending guarantor, who would not be benefiting personally from the proposed transaction, that he was a retired pensioner living in Queensland and that he had not been a shareholder and had not held any position in Nobsa and was not to become a shareholder in Nobsa. It would have been evident to the Bank that, unless Mr Sullivan received reliable information, he would be unlikely to be able to make a judgment as to his own best interests. Possible sources of information for Mr Sullivan were the Bank itself, the continuing principal of Nobsa Mr Sullivan's "step-son" Craig Kelly or a professional adviser, such as a solicitor or accountant.
337 As far as the Bank itself was concerned, I have found that Mr Lyons did not tell Mr Sullivan the amount of Nobsa's indebtedness and I am satisfied that Mr Lyons did not supply information about Nobsa's financial position to Mr Sullivan. The Bank is to be regarded as knowing that it itself had not supplied information about the financial position of Nobsa to Mr Sullivan
338 As regards Craig Kelly, I consider that it would have been evident to the Bank that Mr Sullivan trusted Craig Kelly, that Craig Kelly was not taking a realistic view of Nobsa's finances or his own personal finances and, to the extent to which he supplied information to Mr Sullivan, that information would be likely to be unduly optimistic. On 1 August 1990 a proposal had been made by Nobsa that the Bank provide Nobsa with accommodation totalling $2.5m to enable the purchase of another restaurant and reception lounge and the re-financing of the existing debts of Nobsa. The Bank obviously regarded this proposal as quite unrealistic, given Nobsa's financial state. On 13 October 1990 Mr Kelly's property had not been sold at auction. As the Bank knew, Mr Kelly was unwilling to reduce the asking price, even though the highest bid at the auction had been more than $100,000 less than the asking price.
339 The Bank knew that the only solicitor acting (apart from the Bank's own solicitors) was Mr Williams, that Mr Williams was also acting for Nobsa and Craig Kelly and that Mr Williams had acted for Nobsa and Craig Kelly in the past. It would have been evident to the Bank that Mr Williams would be unlikely to give information or advice to Mr Sullivan, which was not in the interests of his established clients Nobsa and Craig Kelly, for whom it was important that the transaction should proceed. The matters certified to by Mr Williams in his certificate of witness would have given no ground for inferring that Mr Williams had explained the financial position of Nobsa to Mr Sullivan.
340 The Bank knew that Mr Weidenhofer was Nobsa's accountant and Craig Kelly's personal accountant. Mr Weidenhofer had participated in the unrealistic proposal for further accommodation of 1 August 1990. The Bank's Branch Manager's faith in Mr Weidenhofer had been weakened, when Mr Weidenhofer at a first meeting had asserted that Nobsa could meet its own financial repayments on its own, an assertion which the manager regarded as groundless and contradicted by Nobsa's actual past performance. It would have been evident to the Bank that Mr Weidenhofer would be unlikely to have given accurate information about Nobsa to Mr Sullivan.
341 Mr Weidenhofer had prepared the accounts of Nobsa for the year ended 30 June 1990. In their final form these accounts showed a deficiency in both shareholders' funds and working capital and showed a worse position than in the earlier draft accounts. However, the true position of Nobsa was much worse than appeared on the surface of either the draft or the final accounts, because these accounts showed as assets of Nobsa "loans to directors or persons/entities associated with directors" and "intangibles", which would have little realisable value. In preparing a statement of the financial position of Nobsa for the purposes of the application, Mr Lyons eliminated these assets shown in the balance sheet prepared by Mr Weidenhofer. However, it would have been evident to the Bank that a person such as Mr Sullivan, even if he had been shown the accounts, would have been unlikely to have had the accounting knowledge to make these adjustments.
342 The very gravity of the risk Mr Sullivan was incurring, the relationship between him and Craig Kelly's mother and Craig Kelly himself which could have provided a non-commercial reason for Mr Sullivan agreeing to enter into the transaction, and the haste which Mr Williams requested in his letter of 18 October 1990 to the Bank's solicitors were all factors known to the Bank, which would tend to suggest that Mr Sullivan might not be properly informed about the financial state of Nobsa and the risk he was running by entering into the transaction.
343 I have found that the Bank knew or ought to have known (or it would have been evident to the Bank) that Mr Sullivan was not informed about the serious financial state of Nobsa, including the amount of its indebtedness to the Bank and the gravity of the risk he was incurring by giving a guarantee and a mortgage to secure Nobsa's indebtedness. Furthermore, the Bank would have known that Mr Sullivan was unaware of the serious attitude the Bank took to Nobsa's indebtedness and of the real likelihood that the Bank would be seeking to enforce any security Mr Sullivan gave. Mr Sullivan's lack of information on these matters, even without his misapprehension induced by Craig Kelly's misrepresentation that the mortgage would only be a temporary mortgage until Craig Kelly's house was sold, constituted a lack of information about the proposed transaction such as to amount to a special disability or special disadvantage, so as to make it prima facie unconscientious for the Bank to procure or accept Mr Sullivan's assent to the transaction. If Mr Sullivan had known of Nobsa's true financial position including the amount Nobsa owed the Bank and the attitude taken by the Bank to Nobsa's indebtedness and the likelihood that the Bank would be seeking to enforce any mortgage given by Mr Sullivan, then he would not have entered into the mortgage.
344 I consider that the transaction has not been shown to have been fair, just and reasonable. Mr Sullivan did not derive any personal benefit from the transaction. The property mortgaged was his home and his only substantial asset. By entering into the mortgage, he incurred, without his knowledge, the imminent risk of losing his home.
345 Under the principles in Amadio the mortgage is not binding on Mr Sullivan. It was suggested in argument that, if the mortgage was found not to be fully binding, a distinction should be drawn between its enforceability as a security and its enforceabilty as giving rise to a personal debt. However, I do not consider that Mr Sullivan's misapprehension was limited to a misapprehension about the remedies open to the mortgagee under the mortgage and I see no basis for drawing the distinction suggested. There should be judgment for Mr Sullivan on the Bank's claims against him for possession of the land and for judgment for the amount alleged to be due under the mortgage.