Westpac Banking Corporation v Paterson

History of the Matter 6 On 17 March 1995 Westpac lodged with the Supreme Court of New South Wales a Statement of Claim against David Colin Paterson and Jonnie Maclean Stirling Paterson (Supreme Court Proceedings No 10507 of 1995). 7 In those proceedings Westpac claimed that Mr David Paterson and Mrs Jonnie Paterson were and continued to be in default of a mortgage and loan agreement made in their favour against a property at 22 Barclay Road, North Rocks, New South Wales. 8 On 10 November 1994 Westpac had served on each of Mr David Paterson and Mrs Jonnie Paterson Notices under the Real Property Act 1900 (NSW) in respect of their default under the mortgage and loan agreement. Mr Paterson and Mrs Jonnie Paterson failed to comply with the demands contained in those Notices namely the payment of $6,300.00 within one month of service. 9 On or about 9 February 1995 Westpac pursuant to the mortgage and loan agreement served on each of Mr David Paterson and Mrs Jonnie Paterson a Notice demanding payment of the whole of the monies outstanding under Account No. 72289, namely $183,100.69 within six clear business days after service. Mr David Paterson and Mrs Jonnie Paterson did not comply with these Notices. 10 On or about 10 February 1995, Westpac despatched to each of Mr David Paterson and Mrs Jonnie Paterson a letter seeking delivery up of vacant possession of the North Rocks property. 11 As at the date of lodgment of the Statement of Claim in this matter the total amount owing to Westpac by Mr David Paterson and Mrs Jonnie Paterson was $186,687.18 being the principal plus interest. 12 Westpac sought orders for possession of the North Rocks property owned by Mr David Paterson and Mrs Jonnie Paterson; the payment of $186.687.18 being monies owing to Westpac in default of the mortgage and loan agreement; costs and interest. None of these matters were contested by the parties. Subsequently Westpac withdrew its application for orders of possession of the North Rocks property. 13 On 21 April 1995 however Mr David Paterson and Mrs Jonnie Paterson filed a Defence and Cross Claim in the proceedings claiming: - that Mrs Jonnie Paterson, his former wife, was under a special disability in dealing with Mr Paterson such that there was no reasonable degree of equality between them. It was claimed that the transaction gave no benefit to Mrs Jonnie Paterson and was improvident for her; the transaction did not result in the forwarding of any money to her personally or to any other party for her benefit; the transaction resulted in her putting her only substantial asset, her home, at great risk and she was not able to make a judgment as to her bests interests as she was not in receipt of independent legal advice when she entered into the legal obligations;

• that this special disability of Mrs Jonnie Paterson should have been evident to Westpac and, in particular, that Westpac knew that Mrs Jonnie Paterson was the ex-wife of Mr David Paterson and that Endormer Pty Limited ("Endormer") (of which Mr David Paterson was a director) was the recipient of the substantial benefit of the mortgage transaction. It was claimed that Westpac sought to use the special disability of Mrs Jonnie Paterson to execute and enforce an agreement in circumstances where it was inconsistent with equity and good conscience to do so;

• because of the antecedent relationship between Mr David Paterson and Mrs Jonnie Paterson (as ex-husband and ex-wife) Mr David Paterson had ascendancy over Mrs Jonnie Paterson in such a manner that her will was suborned;

• that Westpac was sufficiently aware of Mrs Jonnie Paterson's circumstances as to put it on notice that the will of Mrs Jonnie Paterson was suborned by Mr David Paterson; and

• that Westpac is liable for the undue influence of Mr David Paterson. 14 Mr David Paterson and Mrs Jonnie Paterson sought:
  • an order declaring the mortgage to be void so far as it relates to them and Westpac and an order requiring the execution by Westpac of a discharge of the mortgage; and

• a declaration that the mortgage and loan agreement were unjust in the circumstances within the meaning of the Contracts Review Act 1980 (NSW) and that it be set aside. 15 This matter did not, however, proceed to hearing in the Supreme Court because, by Notice of Motion filed on 23 February 1996 Mr David Paterson and Mrs Jonnie Paterson moved to transfer Supreme Court proceedings No. 10873 of 1995 to the Federal Court of Australia and on 6 May 1996, Abadee J of the Supreme Court of New South Wales (pursuant to the Jurisdiction of the Courts (Cross-Vesting) Act 1987 (NSW)) ordered these proceedings to be so transferred.

Amended Cross Claim - AGC related claims 16 On 16 August 1996 Mr David Paterson and Mrs Jonnie Paterson lodged an Amended Cross Claim in the now Federal Court proceedings. The basis of the claims was to include AGC-related claims in support of their defence to the action taken by Westpac. Mr David Paterson and Mrs Jonnie Paterson allege, inter alia, (a) that from about February 1993 Westpac (through its servant or agent Peter Rodd) represented that in order for Endormer to satisfy AGC's security requirements and for finance restrictions to be relaxed Mr David Paterson (and his business partner, Mr Glenn Jarrett) must refinance with Westpac. The cross claimants say that were it not for the representations made by Peter Rodd they would not have increased their exposure to Westpac or Westpac's group by executing the mortgage over their property; and (b) that the mortgage was unjust and unconscionable in the circumstances in which it was obtained by Westpac within the meaning of ss 7 and 9 of the Contracts Review Act 1980 (NSW). In relation to this issue, the cross claimants repeated their original claims. 17 The application by Westpac and the cross-claims by Mr David Paterson and Mrs Jonnie Paterson (as amended) will be referred to as the "Westpac proceedings".

Adjournment Applications 18 On 1 May 1998 a Notice of Motion was lodged by the respondents' solicitors to have the hearing dates in the Endormer and Westpac proceedings which were jointed proceedings vacated on the basis that the Mr David Paterson and Mrs Jonnie Paterson required "more time" to finalise their evidence. An order was made adjourning the commencement of the hearing of the proceedings until 6 May 1998. 19 On 6 May 1998 Mr Glenn Jarrett purporting to represent Mr David Paterson and Mrs Jonnie Paterson as well as himself advised the Court that their legal representation had been withdrawn and sought a further adjournment of the hearing until such time as new lawyers could be retained and fully briefed on the proceedings. Orders were made further adjourning the proceedings to 11 May 1998. 20 On 11 May 1998, Mr David Paterson and Mrs Jonnie Paterson filed further Notices of Motion in these proceedings seeking another adjournment of the fixed hearing dates again based on their lack of success in retaining legal representation. Mr David Paterson and Mrs Jonnie Paterson were represented by counsel in relation to this adjournment application. On 12 May 1998, orders were made that the Westpac proceedings be adjourned to 25 May 1998 for hearing. The Court advised counsel for Mr David Paterson and Mrs Jonnie Paterson that should they be unsuccessful in obtaining legal representation by that date they would be required to attend court in person to take carriage of the matter. 21 On 25 May 1998, Mr Paterson did not appear and counsel appeared on behalf of Mrs Jonnie Paterson. The Westpac proceedings in relation to Mr David Paterson were then concluded and the proceedings in respect of Mrs Jonnie Paterson were adjourned to 30 November 1998 for hearing. 22 At the conclusion of two days of hearing on 1 December 1998 the Court made orders that the parties provide written submissions. The Court subsequently sought clarification on matters raised in the written submissions and relisted this matter for further submissions on 26 February 1999. 23 On 26 February 1999 Counsel for Mrs Jonnie Paterson filed a Notice of Motion seeking orders that Mrs Jonnie Paterson be allowed to re-open her case to tender further evidence and that these proceedings be adjourned until the delivery of a judgment of a Full Court of this Court in a related matter (ie. Jarrett v Westpac Banking Corporation - NG 829 of 1998). 24 The Court granted the application. 25 The Full Court judgment was delivered on 16 April 1999 and these proceedings were relisted for hearing on 14 May 1999. At that hearing Mrs Jonnie Paterson's motion was dismissed and the Court subsequently heard the parties on their written submissions in the substantive proceedings.

CLAIMS AND EVIDENCE 26 The applicant in their evidence tendered and relied on documents relating to the mortgage and loan agreement between them and the respondents and correspondence with the respondents (and their solicitors) in relation to their default under the mortgage and loan agreements. The applicant also tendered and relied on affidavit evidence of Westpac bank officers including Mr Peter Rodd, the Westpac employee whom the respondents allege that were it not for the representations made by him they would not have increased their exposure to Westpac or Westpac's group by executing the mortgage over the North Rocks property. These witnesses were cross-examined by Counsel for Mrs Jonnie Paterson. 27 The respondent, in her evidence, tendered to the Court a Term Deposit book as evidence of payment of monies towards repayment of the mortgage. She also tendered and relied on affidavits sworn by herself, Mr David Paterson, Mr Robert John Stewart (solicitor who gave her independent advice in relation to an earlier mortgage with Barclays Australia (Finance) Limited) and Mr Edwin Robert Jarrett (father of Mr Glenn Jarrett, business partner to Mr David Paterson). Mrs Jonnie Paterson, Mr David Paterson and Mr Edwin Jarrett were cross-examined by Counsel for Westpac.

The Loan Transaction 28 Westpac submitted that it was a condition of Edwin Jarrett's agreeing to guarantee a new overdraft to Endormer that David Paterson and Glenn Jarrett, his son, "had to be on the hook" to Endormer's financier, ie. Westpac. In practical terms Westpac said this would make little difference to these parties as both only had their interest in their respective homes (in David Paterson's case, the North Rocks property at that time the home of his ex-wife Jonnie Paterson) which were fully encumbered. Westpac was banker to Edwin Jarrett. 29 Westpac therefore submitted that the evidence supports the conclusion that it was Edwin Jarrett who suggested that the home loans should be refinanced with Westpac. Edwin Jarrett denied this but Westpac submits his evidence should not be accepted for the following reasons:

• the objective of having David Paterson and Glenn Jarrett face the "wrath of the bank" if the business went sour could only be achieved if the overdraft and the home loans were taken out with the same financier. When giving evidence Edwin Jarrett at first accepted this; he then attempted to resile from it.

• it was common ground that Edwin Jarrett had a prior relationship with Westpac Parramatta, and that Glenn Jarrett and David Paterson did not. The only way in which Glenn Jarrett and David Paterson would have contacted personnel of the bank namely Mr Whitten and Mr Borg at the Parramatta branch of Westpac was through Edwin Jarrett who was a long standing customer of the branch.

• the suggestion from Edwin Jarrett that Westpac should refinance the home loans is recorded in the bank's diary note dated 3 June 1993 and the accuracy of that note has not been challenged. 30 The home loans were refinanced. In the case of the Patersons, this was documented as a home loan from Westpac to David and Tracey Paterson, secured by a mortgage from David and Jonnie Paterson over the North Rocks property. 31 This transaction, so far as Jonnie Paterson was concerned was a "third party" one. What was additionally unusual about the transaction (identified by the bank officers Borg and Joseph) was that they were surprised that an ex-wife would be on such good terms with her ex-husband as to provide a third party security for him. Westpac submits that this did not mean that the transaction itself was suspect because it contained nothing more, and was no more financially disadvantageous, than any other third party security. Neither did the transaction have, on its face, anything to do with AGC (a wholly owned subsidiary of Westpac) which was regarded by the officers as "just another financier". 32 Westpac, however, concedes in submissions that the home loan transaction was seen as a prerequisite to Westpac granting an overdraft to Endormer Pty Ltd - a business having no connection to Jonnie Paterson. However Westpac explans that that was because the overdraft was to be guaranteed by Edwin Jarrett and he would not give that guarantee until the properties had been refinanced with Westpac. Westpac submits that the home loan transaction and the overdraft were linked only in the sense that the home loan transaction was occasioned by the overdraft; the home loan transaction remained a "perfectly valid stand-alone transaction". 33 At the time of the home loan transaction, the North Rocks property was encumbered by a mortgage in favour of Barclays Bank. The mortgage secured a liability of approximately $175,000 from David and Jonnie Paterson to Barclays. The interest (and all other outgoings on the property) were being paid by David Paterson alone. This arrangement had been created pursuant to Family Law proceedings. 34 The liability to Barclays dated back to 1991, when additional funds had been borrowed on the security of the property. Prior to the Barclays transaction, the liability secured on the property had been about $10,000 to $15,000. The Barclays transaction had increased that liability substantially; the additional funds borrowed had, according to the evidence of David Paterson, been invested in Endormer Pty Ltd. Jonnie Paterson had received independent legal advice before entering into this transaction with Barclays, warning her that if the business "went bad" she would lose her share in the property. The evidence before the Court contained a solicitor file note to that effect. 35 Westpac submits that in these circumstances, the assumptions underlying the respondents' case that Westpac and AGC were acting in concert and that any interest Jonnie Paterson had in the transaction was through Endormer (her ex-husband's business), creating a duty to explain the ramifications of Endormer's financial arrangements with AGC at the time of executing the loan documents with Westpac are all misconceived.

Meeting at Parramatta Branch to sign the documents 36 There is no contest between the parties to these proceedings that a meeting for the purpose of signing documents to effect the refinancing of this mortgage was arranged by David Paterson and Westpac. David Paterson accompanied Jonnie Paterson to that meeting and remained at all times with her. 37 Westpac submit that the criticisms made in the respondents' submissions of the Westpac officers' conduct at the meeting on 9 September 1993 at which Jonnie Paterson signed the mortgage are not justified on the evidence. The evidence suggests, on the contrary (by reference to documents), that a "detailed explanation" of the home loan transaction was given on that occasion. However, all the witnesses agreed that the meeting lasted only fifteen minutes or so. Jonnie Paterson in her evidence said that:

(a) she understood that the property was to be security for the debts of David and Tracey Paterson;

(b) she understood that if they did not pay their debts to Westpac, Westpac could sell the property; and

(c) she did not at any stage ask for any further explanation, or information. 38 However she did not have copies of the documents she signed before attending the meeting. She had not therefore read or considered them independently. This is not contested. 39 Westpac contends that Jonnie Paterson was offered, at the meeting, the opportunity to obtain her own legal advice at this meeting and that she declined because she had had advice in connection with the Barclays transaction in 1991 and saw "no need to do so again". Although both Jonnie Paterson and David Paterson did not recall this happening, it was recorded in Grace Joseph the bank officer's note of the meeting. Westpac submits that as Ms Joseph could not otherwise have known about that advice there would have been no other reason to mention it in the note and the only rational conclusion is that the note is correct. 40 There is in fact no suggestion that Jonnie Paterson raised any complaints or asked for any amendments to the standard form documents. It did not appear, on the evidence, to be a meeting where negotiation was considered or possible.

ISSUES BEFORE THE COURT 41 Westpac submits that the only issue for consideration in the matter before the Court in relation to Jonnie Paterson, is that the home loan transaction was an unconscionable bargain entitling her to equitable relief against that transaction. Although the respondent's claims and submissions refer to the Contracts Review Act 1980 (NSW) ("the Contracts Review Act"), they do not contend that the application of that Act if applicable would produce any different result from that produced by the application of settled equitable principles. 42 All other claims pleaded in the Cross Claim were not pursued in the respondent's submissions and the Court considers they are not pressed. 43 The respondent's claim to unconscionable conduct by the Westpac is based on two propositions:

(i) That, although the transaction was on its face a housing loan (being refinanced), it was, in fact, part of a larger business transaction designed to secure credit facilities to Endormer (her former husband's business). At no time, the respondent says, was she ever informed of the difficulties with or the complexities (and risk) of the Endormer facility even though Westpac was aware of her position as a third party.

(ii) The procedures adopted by the bank in relation to the execution of the mortgage adversely affected her ability to exercise her own free will when signing the relevant security documents because:

• she was not given the opportunity to peruse the documents before or after attending the bank's offices so as to consider their contents;

• arrangements to execute the mortgage documents were made through David Paterson with no attempt being made by the bank to contact Jonnie Paterson directly;

• the meeting was held in David Paterson's presence in a small room in circumstances where there was no need for David Paterson to be present;

• although the bank's guidelines required (in some circumstances) for the bank to insist upon independent legal advice being given to mortgagors, there was no such insistence in Jonnie Paterson's case;

• the diary note purporting to evidence that she had understood the "full ramifications" of the documents does not cover the context in which they were executed;

• she had never borrowed money previously on her own account and had always relied on her former husband for such transactions; and

• she had limited education and business experience.

Does the Court Have Jurisdiction to Determine These Claims? 44 In its reasons for decision on the appeal from Westpac Banking Corporation v Paterson [1999] FCA 1254, the Full Court in Westpac Banking Corporation v Paterson [1999] FCA 1609 at paragraph 17 raised a possible qualification to Federal Court's jurisdiction to determine these proceedings when they said: "The possible qualification arises from the decision of the High Court in Smith v Smith (1986) 161 CLR 217. It may follow from that case that the accrued jurisdiction of the Federal Court does not extend to a claim under the Contracts Review Act, since the relevant powers are conferred by that Act on 'the Court', (see s 7(1)), an expression that is defined to mean the Supreme Court of New South Wales, the District Court of New South Wales or a Local Court (s 4(1)). See also The Rochester Communications Group Pty Ltd v Adler (1996) 65 FCR 572 (Beaumont J). Since the significance of Smith v Smith was not addressed in argument, we merely draw attention to the case." 45 In the light of this, Westpac submits that this Court does not have jurisdiction to entertain claims for relief under the Contracts Review Act made by the respondent in her cross-claim because the Contracts Review Act confers power on particular courts, namely, the State Supreme Court, the District Court and the Local Court (s 4), to make orders varying or discharging obligations under existing contracts. 46 The jurisdiction under the Contracts Review Act Westpac says is indistinguishable from the jurisdiction conferred on the Industrial Court of New South Wales which was considered in Rochester Communications Group Pty Ltd v Adler (1996) 65 FCR 572. Rochester applied the High Court decision in Smith v Smith (1986) 161 CLR 217. 47 The judgments of Mason, Brennan, Deane JJ in Smith v Smith support the proposition that the conferral of State power in question on a particular State court prevents a claim to the exercise of that power from falling within the accrued Federal jurisdiction, irrespective of any factual overlap between the State and Federal claims (at 251). Westpac therefore says it is immaterial whether there is a factual overlap or linkage between the Federal claims and the Contracts Review Act claim and any claim under the Contracts Review Act cannot be determined by this Court. However, what remains of the proceedings can and should be determined. 48 The respondent submits that the Full Court's comments at paragraph 17 of Westpac Banking Corporation v Paterson are not binding on this Court and on the filing of the Amended Cross-Claim the Federal Court assumed jurisdiction over "the litigious or justiciable controversy between parties of which the federal claim or cause of action forms part" (see Re Wakim; Ex parte McNally (1999) 163 ALR 270 at 294 citing Stack v Coast Securities (No 9) Pty Ltd (1983) 154 CLR 261 at 290, per Mason, Brennan and Deane JJ. 49 The respondent further submits that the Contracts Review Act issues are so related to Westpac's claim for possession that the determination of these issues is essential to the determination of Westpac's claims and in addition Westpac is estopped from raising this jurisdictional bar "at this late stage" because it "unexplainedly failed to raise" the issues before the Full Court. 50 The respondent argued that it would be impractical for the Court to make an order when it would remain open for the Supreme Court to make a contradictory order if an application were made under the Contracts Review Act. 51 In such circumstances the respondent argued that the court should make no order even if there were power to do so. Westpac however, pointing out the delay in the resolution of the claims, urged the Court if discretion to do so were available to deal with the claims not dependent on the Contracts Review Act. 52 It is not necessary for the Court in this case to consider the power of this Court to entertain claims in the accrued jurisdiction arising under the Contracts Review Act because of the conclusions reached in relation to the issue of unconscionable conduct on the part of Westpac. However, I do not consider there is a bar to the determination of issues which do not arise under that Act, either because of their relation to the Contracts Review Act claim or by estoppel. As a discretionary matter, I agree with the submission made by Westpac that finalisation of this matter is desirable.

Has Westpac's Conduct Been Unconscionable? 53 The respondent claims the home loan transaction was an unconscionable bargain for her and that as a consequence she is entitled to equitable relief to have the transaction set aside. The respondent relies for this submission on the principles expounded in Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 (Amadio) and Garcia v National Australia Bank (1998) 194 CLR 395 (Garcia). 54 In support of it submission the respondent relied on the following matters which, it submits, are supported by the evidence:

• Jonnie Paterson was in a position of "some special disability" vis-a-vis the bank (See Amadio per Mason J at 461 and Deane J whose reasoning was adopted by Wilson J at 474);

• The bank used David Paterson as an intermediary in its dealings with Jonnie Paterson. It was or ought to have been clear to the bank that Jonnie Paterson was in a position of "special disability" vis-a- vis her former husband. The ex-wife, providing security for her ex- husband and his current wife's personal guarantees (which were secured by Jonnie Paterson's security only) when Jonnie Paterson had absolutely no advantage to gain and risked losing her only asset as required by a Family Law Property Settlement;

• David Paterson's relatively strong personality and business experience (as shown in his involvement with Endormer), his resourcefulness in circumventing the problems created for Endormer by Mr Rodd; his ability to involve Mr Edwin. Jarrett in helping secure the Endormer facility and his statement to Mr Borg, a Westpac bank officer, that Jonnie Paterson had agreed to sign the mortgage because the property was really his own and not her's, all implied that Jonnie Paterson did not have much say in the matter and the Court should so find;

• at no time was Jonnie Paterson provided with documentation or correspondence relating to the transaction; all such material was provided to David Paterson;

• even when Ms Joseph, another Westpac bank officer, suggested that Jonnie Paterson had a right to Endormer's financial statements, Mr Borg openly disavowed Jonnie Paterson of having such a right. 55 The respondent claims that the bank turned a "blind eye" to Jonnie Paterson's "special disability" and raised no query even when David Paterson had implied to Mr Borg that Jonnie Paterson had no real choice but to sign the mortgage documents because the property was really his. 56 Even if the "special disability" was not actually known to the bank (however on Jonnie Paterson's behalf it is submitted that the bank had actual knowledge) the matters, facts and circumstances set out above impute such knowledge to the bank (see Amadio per Gibbs CJ at 458-459; per Mason J at 467 and per Deane and Wilson JJ at 479); at the very least the bank had a duty to enquire into Jonnie Paterson's circumstances which they had noted were unusual. 57 Given Jonnie Paterson's "special disability", the respondent submits that the onus was on the bank to show that the transaction was fair, just and reasonable (see Amadio per Gibbs CJ at 460 and per Deane and Wilson JJ at 474) and the bank has failed to discharge the onus. The bank had a duty to reveal to Jonnie Paterson the "unusual features" of the transaction: (see Amadio per Gibbs CJ at 456-457 and per Mason J at 463). 58 The respondent also submits that, in this particular case, the ramifications of the Endormer facility included the following significant features which were not mentioned to Jonnie Paterson:

• there was urgency in completing the security documents in order to provide temporary cash flow relief to Endormer;

• a substantial reason for completion of the security documents was to improve AGC's inadequate security for funds already committed to Endormer;

• the bank would have recourse against Jonnie Paterson's security in priority to recourse against any asset provided by Mr Edwin Jarrett;

• the complexity of the floor plan arrangements for Endormer which were not explained simply because Mr Borg and Ms. Joseph themselves did not understand the complexity of this particular banking product. 59 In view of the matters raised above, the respondent submits that the bank failed in its duty to ensure that Jonnie Paterson obtained independent legal advice (see Amadio per Mason J at 468 and per Deane and Wilson JJ at 477). See also Garcia at 1251, paragraph 41. 60 In addition, the property was subject to Family Court orders as part of a property settlement and had independent legal advice been obtained, David Paterson's failure to meet his obligations under the property settlement orders may well have been relevant to his own right to provide security over the property. 61 Although Westpac argues to the contrary, the respondent says that the bank knew or ought to have known that Jonnie Paterson was a volunteer in relation to the Endormer facility. 62 The respondent submits that the matters, facts and circumstances set out above establish that Jonnie Paterson did not, in the factual circumstances of this case, bring a free will to the execution of the documents. The bank was guilty of "unconscionable conduct" towards Jonnie Paterson under general law principles. Consequently, the mortgage ought be declared void "ab initio".

RELEVANT LEGAL PRINCIPLES 63 As applied by the majority in Amadio, equitable relief against unconscionable transactions of this kind involves a two-fold enquiry. First, was the party seeking relief at a "special disadvantage"? If so, did the other party take unconscientious advantage of that disability. 64 The majority decisions in Amadio proceed on the basis that, even if the party seeking relief was at a special disadvantage in connection with the transaction, equity will not intervene if the other party did not know of that special disadvantage (See Mason Jat 462, 466-468; Deane Jat 477). In such circumstances any advantage obtained from the transaction will not have been unconscientious. 65 However, in Garcia, a majority of the High Court held that equity will grant relief in favour of a married woman in relation to transactions of this kind:

(i) if she enters the transaction as a result of actual undue influence on the part of her husband; or

(ii) if she misunderstands the nature or effect of the transaction. In such a situation, it is not necessary for the lender to have specific notice of the misunderstanding; it is enough that the misunderstanding exists in fact and the lender knows that the surety is a married woman. This is because "the lender is taken to have understood that, as a wife, the surety may repose trust and confidence in her husband and therefore to have understood that the husband may not fully and accurately explain the purport and effect of the transaction to his wife". 66 The majority emphasised that, so far from being inconsistent with the general principle applied in Amadio, the principles applicable to married women were a particular application of those principles. 67 Garcia therefore extends the principles applied in Amadio in the following way. In the usual case, it is necessary to fix the lender with notice of the misrepresentation or unconscionable transaction affecting the surety. Without such specific notice, no relief will be granted. But where the surety is a married woman, no such specific notice is necessary it is enough that the lender knows that the surety is a married woman and the lender does not explain the transaction or ensure that it is independently explained to her. 68 Westpac argues that this case does not fall within the Garcia particular circumstances. Jonnie Paterson was not a "wife" nor was she a volunteer. 69 Westpac submits that the respondent's submissions present the case for this ex-wife as if it fell within the usual run of cases in this regard where a creditor's financial position is improved and the surety's worsened. But the true position was quite different. At the time she dealt with Westpac, Jonnie Paterson was already under obligations as a surety, to Barclays. Those obligations were already secured on her share of the property. All Westpac did was to refinance the obligations. In substance, there was no change in Jonnie Paterson's financial position and no additional encumbrance of her share of the property. Although as a result of the home loan transaction, Jonnie Paterson came under a contingent liability to Westpac to repay the loan to David and Tracey Paterson; in return she received the benefit of the discharge of an equivalent contingent liability to Barclays Bank. It follows Westpac argues that, unusually for this type of case, Jonnie Paterson was not a volunteer.

Application of Amadio 70 Approaching the case using the two-stage approach followed in Amadio, Westpac submits firstly that the Court should not hold that Jonnie Paterson was under a special disadvantage in her dealings with Westpac. The mere fact that there may have been a difference in bargaining power arising from Westpac being a large institution and Jonnie Paterson an individual customer does not amount to "special" disadvantage: Mason Jin Amadio, at 462 made this point. 71 The respondent's submissions argue that Jonnie Paterson was under a special disadvantage vis a vis David Paterson. However, that is not the question to be answered; the application of the doctrine depends on the Court holding that there was a special disadvantage between Jonnie Paterson and Westpac. The respondent's submissions do not really identify any factors giving rise to such a special disadvantage. The aspects of Jonnie Paterson's circumstances which are relied upon, such as relative inexperience are quite different from the extreme disabilities resulting from age, illiteracy, drunkenness or inability to comprehend English which one finds in the cases. 72 Although, in Amadio,the majority judges held that, where the lender relies upon the borrower to explain the transaction to the surety, the provision of inaccurate information by the borrower can contribute to a finding that as between the surety and the lender there was a special disadvantage: see Mason Jat 467; Deane Jat 477. However, in this case there is no room for any such finding, because:

(a) there is no evidence that David Paterson made any misrepresentation to Jonnie Paterson about the transaction, indeed there was no evidence whatsoever as to the content of any discussions between them prior to the visit to the bank; and

(b) although the officers of Westpac relied upon David Paterson to set up the meeting with Jonnie Paterson, they gave her a full explanation of the transaction before she signed: contrast Amadio, where the bank officer approached the sureties in their home and made no attempt to explain the nature of the transaction: see Deane J. at 476. 73 The evidence Westpac says supports a conclusion that Jonnie Paterson understood the nature of the transaction she was undertaking and the risks associated with it. She had not been deterred by the independent advice she received at the time of the Barclays transaction. She also received independent advice in connection with some documents she signed to secure David Paterson's liabilities to AGC in March 1994. The evidence suggests that she made the decision to enter into the transaction with Westpac with a clear appreciation of the risks she was undertaking. 74 It must follow, Westpac submits, that the evidence in this case falls far short of demonstrating that, in relation to the transaction with Westpac, Jonnie Paterson's ability to make a judgment as to her own best interests was seriously impaired. 75 Second, the Court should not find that Westpac took any unconscientious advantage of Jonnie Paterson's position. 76 If Jonnie Paterson was labouring under any disability as a result of her lack of education and experience or desire to go home to her daughter, there is no evidence that the Westpac officers were aware of it. The supposed disabilities were not even put to the Westpac officers in cross- examination. 77 There was no unseemly haste or "corner cutting" by the Westpac officers. They both gave evidence that because of the surprising nature of the transaction, they took special care to explain it. That evidence was not challenged. 78 It is true that the explanation did not include aspects of the relationship between Endormer and AGC, such as details of the floor plan agreement. But of course the Westpac officers would not have known about those details, and would have been under no obligation to explain them to Jonnie Paterson even if they had known about them, because it was submitted they were irrelevant to the liabilities she assumed under the home loan transaction. 79 As part of the explanation, the Westpac officers recommended to Jonnie Paterson that she obtain independent legal advice. She declined the recommendation, saying that she had already obtained such advice in connection with the Barclays transaction. The Westpac officers had no reason to second-guess that decision. 80 It follows that there is no basis for a claim of unconscionable conduct, based on Amadio principles. 81 This result is not affected by the principle in Yerkey v Jones (1939) 63 CLR 649, as restated in Garcia, for the following reasons.

• In Garcia, the High Court left open the question of whether the Yerkey v Jones principle might extend beyond married women. Whether it should be extended at all is questionable, but it certainly should not be extended to the circumstances of this case. In Garcia, the High Court imposed a special obligation on creditors dealing with married women as sureties because, it held, the creditor ought to suppose that a married woman would trust and confide in her husband. But there is no reason why a creditor should make any such assumption with respect to an ex- wife whose ex-husband has remarried and is living elsewhere.

• Further, the Yerkey v Jones principle has always been seen as depending on the wife being a volunteer: see Garcia at 31. But for reasons already given, Jonnie Paterson was not a volunteer in the home loan transaction with Westpac. Compare European Asian of Australia Limited v Kurland (1985) 8 NSWLR 192 at 200F-G. This is an additional reason why the principle should not be applied in this case. 82 Even if the Garcia principle were applicable in this case, it is dependent on: (a) a mistake or misunderstanding being engendered by the "husband"; and

(b) a failure by the creditor to explain the transaction to the "wife". 83 There is no evidence that (a) and (b) is denied by the facts. 84 Finally, Westpac submits that, even if the above issues were resolved against Westpac, as a condition of equitable relief Jonnie Paterson would first have to do equity by restoring to Westpac, or recompensing Westpac for, the benefits she obtained from Westpac under the transaction. In the circumstances, this would entail the repayment of the $176,000.00 advanced by Westpac which was applied in reduction of the Barclays loan, thereby extinguishing Jonnie Paterson's contingent liability to Barclays. It would also involve making recompense for the fact that since 1993 Jonnie Paterson has been living in the property rent-free and interest-free Of course, the practical impact of doing equity is that Jonnie Paterson would have to do what she is not prepared ( or perhaps, financially unable) to do, namely repay Westpac. But, however explicable this may be from a tactical point of view, the fact is that Jonnie Paterson has not offered to do equity in this way (or otherwise) and that is an additional reason why her claim must fail.

FINDINGS 85 The Court finds that the bank's officers Mr Borg and Ms Joseph were aware that Jonnie and David Paterson were ex-spouses. They remarked that at the time of the mortgage transaction they thought this arrangement unusual. The bank made contact with David Paterson to arrange an appointment with Jonnie Paterson for the documents to be signed; David Paterson brought Jonnie Paterson to the appointment and remained in the room with her during the signing. The bank made no independent contact with Jonnie Paterson. They did not provide her with a copy of the relevant documents before the appointed meeting to sign them. 86 The Court finds that the bank, on notice of the existence of an ambiguous and unusual relationship between the surety and beneficiary of the transaction, failed to assess the independence of the surety and to ensure to a reasonable degree that the surety was acting independently. There was no commercial reason for the bank to avoid this issue and it was unreasonable to do so. 87 The Court accepts Jonnie Paterson's evidence that she was not aware of the consequences of the transaction and finds that it is inaccurate to characterise the signing meeting as simply a mortgage transaction because such a characterisation ignores the context in which the transaction was taking place; the refinancing of the home loan was part of a larger commercial scheme. The Court finds that Jonnie Paterson was unable to assess the business risks inherent in her signing as she was not informed as to the reasons for the refinancing transaction. The Court finds that she misunderstood the nature of the transaction, in particular the risks involved. 88 Once the bank realised that the transaction was unusual (and it is conceded that this is so), they were, in the Court's view bound to ensure that Jonnie Paterson was dealt with at arms length from her ex-husband. The refinancing was of no benefit to the respondent. She did in fact, misunderstand the transaction by not being aware of its context or consequences. The bank was aware of her relationship with David Paterson and they were aware that they had no independent dealings with her. 89 She was in the Court's view in a worse situation than if she had been still married to David Paterson. She demonstrated her "trust and confidence" in him by allowing him to deal with the bank in all respects in relation to the transaction. The bank even permitted him to be in the room while the officers gave an explanation of the documents and process. At no stage, and I so find, did the bank ever deal with Jonnie Paterson independently. They could not, in such circumstances, be said to discharge their obligation to ensure that she was a free and informed agent. This failure establishes the basis for a finding that Westpac's conduct in relation to Jonnie Paterson was unconscionable and the transaction upon which this application to the Court is made should be set aside ab initio by reason of that conduct. I certify that the preceding eighty-nine (89) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice O'Connor.

Associate: Dated: 14 May 2001 Counsel for the Applicant and Cross Respondent: T G R Parker

Solicitor for the Applicant and Cross Respondent: Allen Allen & Hemsley

Representative for the First Respondent and First Cross Claimant: No Appearance

Counsel for the Second Respondent and Second Cross Claimant: C R de Robillard

Solicitor for the Second Respondent and Second Cross-Claimant: Gunnar Mollenbeck & Associates

Date of Hearing: 26 May 1998, 30 November 1998 & 1 December 1998

Date of Judgment: 14 May 2001