• The litigation process
• Legal principles and their effect on outcomes
• Evidential issues
• Do the banks always finish last?
• Conclusion

“It is not easy to suppress an uncomfortable feeling that had the defendant been able to engage competent legal representation, he might have been able to present a more focussed case. Further, though it is not here intended to criticise the plaintiff bank for conduct which there is no sufficient basis to criticise, the defendant might, with competent legal representation, by utilising the processes of discovery and subpoenas, the facility of better evidence in chief, and the tool of cross-examination, have elicited material favourable to his case.

The court room contest revealed a gross disparity in power between the plaintiff bank and the defendant. The plaintiff bank was legally represented, was very experienced in this type of litigation, and was prepared to make full use of the opportunities which the rules of evidence and procedure afford a party not bearing the burden of proof in an adversary system. The defendant was not represented, was wholly inexperienced and was evidently almost wholly unable to do his cause any justice. The disparity in forensic power was akin to their disparity in economic power.”¹

7.2 The research project could not establish the number or proportion of transactions involving third party guarantees that are disputed or that result in litigation compared to those that are executed and conclude without difficulty (see Chapter 4: The Lenders). This chapter relies upon data drawn from our review of the cases that did proceed to litigation and data drawn from our surveys, particularly of barristers and judges. While these cases are almost certainly not representative of guarantees generally, they are quite likely to be representative of recent litigated guarantee cases.

7.3 This Chapter examines the process of litigation, how it commences and what defences and doctrines are most commonly employed. We examine the impact of the Contracts Review Act 1980 (NSW) and the High Court decision in Garcia, both of which are perceived to have considerably broadened the availability of relief to guarantors at the expense of lenders.⁴ We also explore some themes and issues that were prominent in the litigated cases: the role of lenders’ “usual practice” in determining facts, the reluctance of courts to examine issues of domestic violence, the issue of guarantor credibility, and the question of cultural and gender stereotyping.

THE LITIGATION PROCESS

How litigation commences

7.4 Litigation is rarely instigated by the guarantor; in our review of litigated cases we found that in 76% of cases litigation was commenced by the lender.⁵ Litigation most commonly starts with a claim by the lender for possession of the security given by the guarantor which in most cases is the family home of the guarantor.⁶ Guarantors are therefore almost always on the defensive, belatedly marshalling evidence as to why the guarantee should not be enforced. This has clear implications for how litigation is run, and is evident in the often disorganised and scattergun approach to defences evidenced in the research.

Settlement once litigation has commenced

7.5 As noted in Chapter 6, few disputed cases settle prior to litigation or during any alternative dispute resolution process.⁷ Where cases did not settle, most proceeded to litigation and very few went on from a failed settlement process to any form of alternative dispute resolution.⁸

7.6 Our research indicates that many cases settle in the course of litigation. Fifty-nine per cent of solicitors reported that their last guarantor case settled. Barristers, who are far more likely to be engaged in litigation, reported that just less than half of their cases settled.⁹

7.7 Cases are a little more likely to settle just before or during the hearing rather than in the earlier stages of litigation or at court ordered mediation.¹⁰

figure 7.1: settlement once litigation commenced

Defences and cross claims

“the usual raft of unsustainable defences.”¹¹

figure 7.2: pleadings in case law review

7.9 It is clear that litigation is often a complex maze of claims and cross claims. For example, in Ribchenkov v Suncorp-Metway Ltd, Mrs Ribchenkov, an 81 year old retiree was made a joint borrower with her son-in-law after the bank refused to allow her to be a third party mortgagor as she clearly received no benefit from the loan. After her son-in-law went bankrupt and the bank sought to enforce the mortgage against her, Mrs Ribchenkov sought to have the mortgage set aside on the grounds of undue influence, unconscionable conduct, fraudulent misrepresentation or misleading conduct in contravention of s 52 of the Trade Practices Act 1974 (Cth). She also sued the solicitor who advised her on the transaction for negligence. The bank cross-claimed against the solicitor and the solicitor, in turn, claimed against his professional indemnity insurer who declined to provide indemnity because it is alleged the claim arose out of, inter alia, fraud and therefore was within an exclusion clause in the contract of insurance.¹⁷

7.10 We found that guarantors are very likely to rely on more than one defence and cross claim. Our review of litigated cases found that guarantors were commonly pleading from three to six different claims or defences.¹⁸ The responses of barristers and solicitors to our surveys confirmed that guarantors tend to rely on more than one ground or category of defence or cross claim.

Conduct of litigation

7.11 Solicitors, barristers and judges all agreed that litigation in this area is often technical, lengthy and complex. Interlocutory applications are also common in third party guarantee matters, with many matters being subject to strike-out or summary judgment applications by lenders.¹⁹ These applications can substantially increase the costs of litigation, and may serve as a serious impediment for those impecunious guarantors seeking access to the courts for redress.

7.12 Our research reveals that those involved in litigation involving third party guarantees have a range of strong views concerning the effectiveness and conduct of litigation. Some were of the view that the current law went too far in giving guarantors avenues to challenge enforcement of guarantees, while others considered that the financial power of lenders meant they could unfairly use the litigation process. Overall comments were coloured by the practice and experience of the lawyer and in particular, whether they work predominately for lenders or guarantors.

7.13 There is some evidence that lenders are quick to get default judgment and then commence bankruptcy proceedings. For example, in litigation between Mr and Mrs Hubner and the ANZ Bank in Queensland, the bank quickly got default judgment in the possession list in the Supreme Court, despite some evidence that the bank was aware that the Hubners were preparing a defence. When the Hubners unsuccessfully applied to have the default judgment set aside, they had costs orders entered against them. On the basis of these orders (and other costs orders on other unsuccessful applications) the bank commenced bankruptcy proceedings against them. Without yet having effectively ventilated their substantive case, including a Garcia claim from Mrs Hubner, the Hubners have been involved in at least six matters in the Queensland Supreme Court and two in the Court of Appeal, in addition to six Federal Court interlocutory applications and a High Court special leave application.²⁰

7.14 Several judges suggested that where a number of claims or defences are raised it affects the efficiency of the trial. The data from the survey of judges tends to confirm that at least in some cases parties raise claims or defences that are, in the opinion of the presiding judge, without merit.²¹ Some judges commented that the wide range of claims or defences lead to “unnecessary additional claims” or submissions that are “often hopeless or barely arguable”. A few judges commented that this can mean a less focussed trial: sometimes one defence becomes the focus of the trial, and the evidence and law relating to the other defences is overlooked or inadequate. This often necessitates adjournments and clearly adds to the costs of litigation. One judge noted that:

“It depends very much on who the counsel are who are running the case. There are clear differences between the ways of attacking guarantees, both as to the elements that need to be established and how onus of proof operates (eg if a presumption of undue influence can be made out). Provided counsel know what they are doing, a trial which raises several defences may take longer than a trial which raised only one defence, but it could hardly be said to be for that reason, less efficient.”

7.16 One barrister interviewed for the project expressed the view that many guarantors are very disorganised due to their inability to separate out their emotion and make a commercial decision about their case, or because they don’t want to confront the inevitable loss, but also noted the inability of guarantors to marshal legal resources because of the high cost.²⁴

Legal representation in litigation

7.17 One barrister advised the research project that, in his experience, guarantors are often poorly prepared in litigation.²⁵ Many guarantors do not have the same resources as banks to retain solicitors and barristers and conduct litigation effectively. A common scenario in litigated cases concerning third party guarantees is that the guarantors are generally fighting over their last remaining asset, the family home, therefore they have little or no funds to spend on solicitors and barristers but are determined to proceed with the litigation.

7.18 Lack of legal representation always disadvantages litigants, especially where one side is disproportionately well resourced. Clearly, lenders will always be represented in these kinds of matters.²⁶ We were unable to get a definitive picture of how often third party guarantors went to trial without legal representation, but it was apparent from our survey of judges and court observations that a reasonable proportion of these matters proceed without the guarantor having legal representation.²⁷

7.19 Efficient conduct of litigation is clearly affected by what kind of legal representation the parties have. In one recent New South Wales case, the guarantors were represented by three different solicitors with a change of solicitor just before the trial.²⁸ At the commencement of the trial no pleading had been filed on behalf of the wife even though leave had been granted prior to the trial. Two applications for adjournment of the trial were made, just prior to the trial and on the first day of the trial, however these were refused. A defence and cross claim on behalf of the wife was filed on the last day of the trial however it did not clearly plead Garcia and/or any claim under the Contracts Review Act 1980 which were both arguably available to the wife. The guarantors’ representative abandoned a claim under the Contracts Review Act 1980 during the trial.

7.20 During a day of court observations in 2002, we viewed an unrepresented husband and wife of non-English speaking background appear before the Supreme Court defending a possession application by a major bank lender. The bank was agitating for the possession application to be expedited and finalised that day; and it seemed that the couple were on the verge of consenting to those orders. From the facts, it appeared that the matter disclosed that the wife may have had a separate Garcia type defence of which she was completely unaware. This kind of ignorance about legal rights and entitlements and lack of preparedness was far from uncommon in our observations. In the course of interviewing respondents about their experiences with guarantees, there were many occasions where it appeared a woman would have had a Garcia defence, but this was never pleaded. When asked whether she had ever sought separate advice, it was not uncommon for women to express dismay at the thought of getting advice which may put her claim differently from her husband’s: “we’re in this together”, was a typical response. There was also a sense that a separate approach would be perceived as causing further disquiet in their relationships; this was all the more common where women left the dispute entirely in the hands of their husbands.

7.21 It was not uncommon to hear that some guarantors who had sought legal advice away from their partners or spouses did not appear to be advised of the availability of Garcia or Contracts Review Act claims or defences. This appeared to be more common from guarantors from rural areas. One judge said that sometimes the most common causes of action/defences are overlooked because of the inexperience or lack of ability of the legal advisors.²⁹

Cost and delay

7.22 Delay and the high costs of litigation and enforcement of guarantees emerged from the research as issues of concern.

7.23 Many guarantee contracts contain a specific provision allowing the lender to claim all reasonable costs of recovery from the guarantor.³⁰ Most solicitors and barristers commented on the burden of costs in the enforcement and litigation process:

“Extraordinary costs add to guarantor’s debt before guarantor given opportunity to respond.”

“From a creditor’s perspective they (court proceedings) are time consuming and expensive, with a risk of no return. From the guarantor’s perspective they are costly and difficult to defend and guarantors have little bargaining power.”

7.25 While not a third party guarantee matter, the case of Ristic v Greater Building Society Ltd gives a good indication of how costs in mortgage cases can quickly accrue. In 1998 Mr Ristic had a $20,000 loan. In 2001 the balance of the loan account had reached $92,937. Of this, the solicitor’s costs and costs of the enforcement proceedings totalled $72,294.³²

7.26 Some respondents to the research project surveys expressed the view that delay by litigation is unreasonably caused by guarantors who raise defences with little or no merit.³³ The following comments are from solicitors and barristers surveyed for the project:

“In the cases where I acted for the lender, while the lender succeeded (as it should have), the guarantor caused a great deal of delay and inconvenience.”

“Funds are wasted and expectations unnecessarily raised by false hopes in the usual raft of unsustainable defences.”

“The process presently provides debtors and guarantors with an extremely broad basis to obfuscate and delay. Unfortunately, however, substantial amendment would likely result in injustice to those who do have genuine grounds for complaint.”

“a procedure where I try to flush out those defendants who are simply delaying the inevitable. I order most defendants …to file an affidavit at the beginning setting out all facts and circumstances relied on to establish a defence/cross claim. This often brings an early resolution to claims, especially where there is less than $100,000 involved.”

“Proceedings too expensive for client and Legal Aid insufficient for time and expense in proceedings.”

“the lender used its superior financial position to make the guarantee enforceable.”

“Impossible for impecunious guarantor to fund.”

“Yes, the litigation process (although expensive) allowed the parties to raise all issues involved.”

LEGAL PRINCIPLES AND THEIR EFFECT ON OUTCOMES

Contracts Review Act 1980 (NSW)

7.31 The NSW Law Reform Commission’s Issues Paper on third party guarantees notes there has been little research into the operation of the Contracts Review Act.³⁶ Since the publication of the Issues Paper some research has been published by Tyrone Carlin. That research examined a selection of cases including many cases concerning mortgage contracts and guarantees. It concluded that the legislation provides for an individual, case by case approach to establishing “unjust contracts” which more readily gives a remedy than traditional common law doctrines.³⁷ It concludes that the legislation offers some benefits over equitable remedies but also notes it has produced some inconsistency in the decided case law.³⁸ Carlin also noted a trend towards the granting of partial relief as opposed to complete relief.³⁹

7.32 The findings of our review of litigated cases are consistent with Carlin’s research. We found that the Contracts Review Act does provide relief where other remedies, such as the rules of unconscionability, do not provide a remedy for a guarantor seeking to impugn a guarantee or mortgage. Remedies under the Act have been available to guarantors of loans to businesses despite the provisions in section 6 of the Act.⁴⁰ It is also useful for situations where a guarantee transaction is disputed, and Garcia is not applicable.⁴¹ The provisions of the Act have been interpreted broadly, consistent with its characterisation as remedial legislation. In particular it appears that courts may be prepared to grant a remedy under the Act where the lender has knowledge about the risky nature of the business enterprise that is not disclosed to the guarantor,⁴² or in circumstances of asset based lending (where it is apparent that the guarantor or borrower do not have the capacity to service the loan).⁴³ However there are also cases demonstrating a narrower interpretation of the Act.⁴⁴

7.33 Our research also confirms that those practising in the area consider it a useful tool for guarantors, in particular, because of the broad discretionary considerations available to the Court. For example, the Contracts Review Act may provide a remedy even where the guarantor has obtained independent legal advice but nevertheless proceeds with the arrangement where the contract itself is unfair or the loan improvident.⁴⁵ One barrister who participated in the survey commented that the defences available under the Contracts Review Act are more “user friendly” and that the other mechanisms available are more unwieldy or cumbersome in terms of pleading and proof. A number of barristers also commented on the wide discretion the Act provides for the Court to consider the loan contract, although one felt that the Act was “too vague”.

The influence and application of Garcia

7.34 The 1998 decision of the High Court in Garcia⁴⁶ confirmed that the “special wives’ equity” in Yerkey v Jones⁴⁷ had survived. This rule holds that if a wife is a volunteer to a transaction, and does not understand its effects in essential respects, she may be able to have it set aside, even in the absence of unfair dealing, if the lender did not take steps to explain the transaction or to recommend the guarantor seek advice.

7.35 At the time of the decision, there were fears that Garcia would unleash a floodgate of claims against lenders.⁴⁸ However such fears appear to have been unfounded. In 58% of litigated cases in the pool we surveyed, the guarantor sought to rely on the principle confirmed in Garcia.⁴⁹ Guarantors were successful on the basis of this equity in only 27% of cases where it was claimed.

7.36 We asked lawyers whether the decision in Garcia had made any difference to their practice. Most responses indicated that it had not made much difference as it merely supplements existing law. A few barristers commented that Garcia had given wives unwarranted protection; and some stated that it made settlement easier, although others felt that the judge allocated to hear the case was a more important determinant of outcomes than the legal principles. Only two barristers suggested Garcia had clarified the principles in this area of law⁵⁰ and our review of cases suggests a significant degree of uncertainty about the scope and application of the principle.

7.37 In her discussion of UK cases, Belinda Fehlberg has argued that in adjudication:

“judges tend to take an ultimately creditor’s-eye view of suretyship, with the underlying judicial assumption usually being that the surety’s prospect of material benefit (assumed to be shared between spouses), which is measured against financial risk, often with little or no analysis of, or weight attached to, the surety’s point of view.

The interests of wives have tended to be ‘lumped in’ with their husbands … This situation is made more complicated by the tendency of surety wives themselves to see their own interests as being closely entwined (although significantly not identical to) those of their debtor husband.”⁵¹

Does Garcia only cover wives?

7.39 While the High Court decision in Garcia was based upon the claim of a married woman, there were suggestions in decisions that the principle could apply to a broader range of relationships of trust and confidence beyond marriage.⁵² The majority judgment in Garcia suggested that the principles which justified equitable intervention could apply also to “long term and publicly declared relationships short of marriage between members of the same or opposite sex”.⁵³ It appears that other courts have been hesitant to apply the principle to relationships other than marriage.

7.40 While de facto relationships would appear to be the most closely analogous to formal marriages, there is considerable uncertainty over even this extension of principle: some cases have applied the principle to heterosexual de facto partners,⁵⁴ other decisions have denied that Garcia could extend to cover them.⁵⁵ It is also unclear whether ex-spouses can be covered by the principle.⁵⁶

7.41 The claims of elderly parents based on Garcia principles were accepted by the NSW Supreme Court⁵⁷ but more recently rejected by the ACT Court of Appeal.⁵⁸ The Court of Appeal held that the “real vulnerability” of parents in relation to guaranteeing loans of children usually stems not from a failure to comprehend the transaction or insufficient information, but “from the love of their children … the principles in Yerkey v Jones and Garcia offer no protection for people lured into improvident transactions by feelings of this kind”.⁵⁹

7.42 The claims of in-laws,⁶⁰ clients who guaranteed the loans of solicitors,⁶¹ and those of close friends⁶² have also been denied coverage under the Garcia principle.

7.43 It is notable that the dilemma over what relationships may be afforded protection in third party guarantee transactions has been simplified in the United Kingdom by the House of Lords decision in Royal Bank of Scotland plc v Etridge. In that case Lord Nicholls of Birkenhead held there is “no rational cut-off point” as to the kinds of relationships which may be susceptible to undue influence in surety transactions. In the absence of banks evaluating the extent to which a debtor may have influence over a guarantor “the only practical way forward is to regard banks as ‘put on inquiry’ in every case where the relationship between the surety and the debtor is non-commercial”.⁶³

Who is a volunteer?

7.44 In Garcia the Court held that the Yerkey v Jones principle applied where the wife is a “volunteer”.⁶⁴ Although Mrs Garcia was a director and shareholder of the company operated by her husband, the Court adopted the trial judge’s findings which characterised Mrs Garcia as a volunteer to the transaction. Even though the family would have received some benefit from the business controlled by her husband, the court found that she obtained “no real benefit from her entering the transaction”.⁶⁵ Our analysis of relevant decisions since Garcia suggests that courts have had considerable difficulty in determining who is a volunteer in guarantee transactions, particularly those for the benefit of a family business.

7.45 Two issues arise in considering whether a guarantor is a volunteer when guaranteeing the debts of a family business. One is the issue of “ownership” or control of the company if the guarantor is a director or shareholder of the company; while the second, and related, issue is whether the guarantor will receive any direct or indirect “benefit” from the loan to the company.

7.46 In State Bank of NSW v Chia, Einstein J sets out a summary of the case law on whether a given transaction is voluntary when discussing the elements of equity as identified in the majority judgment in Garcia:

“The second requirement is that the wife is a volunteer. It is not sufficient that the wife has received consideration as would be recognised in the law of contract. The consideration for the guarantee must be of ‘real benefit’ to the wife. 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. Where the wife expects to reap direct profit from the transaction, the transaction cannot be said to be voluntary. Neither can it be said to be voluntary where the moneys secured by the guarantee are used to purchase an asset in which the wife is equally interested with her husband. However, where 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. But where the wife has an active and substantial interest in the conduct of, and the fortunes of, the business run by her husband, she will not be a volunteer in relation to any guarantee over the debts of that business. 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.”⁶⁶

Ownership of the business

7.47 In many cases involving a wife who guarantees loans to a family company, she is also on paper a director or shareholder of the company. In many decisions the court has imputed a director with knowledge about the company, regardless of her control, involvement or understanding of the company’s affairs.⁶⁷ In other cases the courts have been prepared to look at the substance rather than the form of the wife’s involvement in the company. These decisions have found that women are still volunteers and not in fact owners or beneficiaries if the wealth of the company is controlled by the husband and any benefit comes to her as a result of his “discretion” rather than as a right.⁶⁸

7.48 When the business is structured as a partnership it may be very difficult for a guarantor wife to prove that she was not in control of the enterprise. In Westpac v Bagshaw the wife was held not to be a volunteer because she was in a partnership with her husband, even though her role was secondary to that of her husband. There was no partnership deed in evidence although other documents such as partnership taxation returns, bank accounts and business registration indicated the involvement of the wife at a formal level. She signed an “all moneys” mortgage over the family home to secure debt to the business. While the Court held that she probably was not aware of the all moneys provision, and that there was no evidence that anyone explained this provision to her, the principles in Garcia were not applied. The Court’s decision was influenced by the fact that Mrs Bagshaw received half of the proceeds of the sale of plant and business on her husband’s bankruptcy.⁶⁹

7.49 In many cases the approach taken is whether the wife’s “interest” in her husband’s business undertaking was an active or passive one or whether she received a “real” benefit as opposed to an incidental one.⁷⁰

Benefit

7.50 If a guarantor has received benefit from the loan transaction then they are not a volunteer and the protections of Garcia do not apply. The difficulty facing the courts is in determining what constitutes a benefit. In some cases the Courts have assumed that a benefit for one partner in a relationship, or to a family company, necessarily translates to a benefit for the guarantor. In other cases, benefit is construed less strictly: sometimes the court considers who makes the decisions about where funds from an enterprise are directed. There is considerable uncertainty: an intangible benefit which flows through a family unit from a spousal guarantee will not necessarily undermine reliance on Garcia principles⁷¹ although it has been held to in several cases.⁷²

7.51 Another difficulty that arises in construing benefit is where the guarantee, however onerous, is used to replace an earlier security. In a number of cases guarantors were held to have received a benefit because earlier security obligations were discharged by the transaction under challenge.⁷³ For instance in Micarone, the South Australian Court of Appeal held that the plaintiffs (who had mortgaged their home in favour of their son’s business) did obtain a benefit as a result of the refinancing because their monthly repayments were reduced in comparison to their earlier mortgage.⁷⁴ Likewise a refinancing that secured additional funds was held to provide a benefit to a guarantor wife.⁷⁵

7.52 Similarly, the issue of “partial” benefit from a guarantee, where some funds loaned on the basis of a guarantee flow to a business and some are freed for personal purposes, has been considered. As no firm principle has evolved, the decisions vary greatly. In the case of State Bank of NSW v Chia, the wife was not considered a volunteer when she guaranteed funds even though, of the $5 million that were advanced to the husband, some portion assisted her to carry out renovations at her home.⁷⁶

7.53 Furthermore, many commentators have contested judicial analysis of the issue of voluntariness. Belinda Fehlberg argues that the:

“approach of measuring the strength of a surety’s case by the extent to which she was involved in or benefited from the business is too simplistic, as it ignores a fundamental aspect of the position of sureties: their lack of power over the way the business was conducted and therefore of access to that benefit. Moreover, this approach ignores the fact that the often self-sacrificing acts of sureties for the furtherance of often non-profitable businesses were apparently motivated by non-financial rather than financial factors, particularly commitment to the debtor, and fundamental economic realities (the debtor having usually been the main breadwinner throughout the relationship).”⁷⁷

EVIDENTIAL ISSUES

Violence and litigation

7.55 Our research found that many guarantors entered the transaction because they were too scared to refuse or believed they had no choice. (See Chapter 3). Despite this finding, violence, intimidation and threats were rarely raised or discussed in the litigated cases we surveyed. Violence was raised as an issue by the guarantor in only 8% of the cases in our pool. A close examination of these cases reveals some disturbing aspects about the way the issue of violence arose in the litigation process and was subsequently treated by the Court.

7.56 In all of these cases details of the violence emerged in the course of the trial and was not therefore detailed in the pleadings of the guarantor. Once the issue emerged the Court then tended to disregard or discount the evidence because of the way in which it emerged or because of its lack of proximity to the transaction in question.

7.57 In Sialepis v Westpac⁷⁸ the issue of violence arose during the cross examination of the wife on the second day of the hearing. The wife had earlier deposed to violence in the marriage in an affidavit filed in Family Court proceedings. Despite this, her case in the Supreme Court was not framed around any allegations of violence. The wife’s evidence was that there had been violence in 1992 and earlier and in 1993 that she had obtained a domestic violence order against her husband after he had threatened her “it will only cost $800 to get rid of you. You could be sunk to the bottom of Sydney Harbour with a slab of concrete”.⁷⁹ Some ten days after the issue arose in the trial the wife’s counsel made an “informal application” to amend the wife’s pleadings to include a claim of undue influence and duress. The Court rejected the application to amend the pleading partly on the basis that if there were any substance in the case of duress it would have received consideration by the wife’s solicitors.⁸⁰ The Court concluded, if the mortgage transaction was signed by the wife as a result of duress or undue influence, it was difficult to see why these instructions were not “forthcoming in a timely way.”⁸¹ The Court also rejected the claim of duress and undue influence because the evidence disclosed that there was no act of violence – only threats of violence – committed by the husband towards his wife for several years prior to the execution of the mortgage.⁸²

7.58 In Permanent Trustee Company Limited v Elkofairi,⁸³ Mrs Elkofairi who with her husband gave a mortgage over the family home to secure funds advanced to the husband, gave evidence that her husband continually abused and yelled at her, that she had attempted to leave her husband on 3 or 4 occasions and attempted suicide because of the way her husband treated her. She feared violence if she did not do as he said and in April 1996 she obtained an apprehended violence order against her husband.⁸⁴ The evidence of threats and violence given by the wife during the trial was largely disregarded and barely discussed in the trial judgment. In the subsequent appeal the Court of Appeal was critical of this aspect of the case: “[o]n the unchallenged facts it would have been hard to resist an argument that this was a clear case of imbalance of power. However, undue influence was neither pleaded or argued…”.⁸⁵

7.59 The problem with violence or threats in the context of a domestic relationship is that they will generally be hidden and remain unreported. Both victim and perpetrator are unlikely to disclose these matters to a bank or even a solicitor consulted for the purpose of obtaining independent legal advice for a transaction. The lender is therefore highly unlikely to have any notice concerning circumstances of violence or intimidation in the context of a third party guarantee. Further a guarantor who consults a solicitor once problems arise with the guarantee may also be reluctant to reveal that violence to a solicitor she is consulting about a business or commercial matter. An insistence in the law that acts of violence be proximate to the act of signing the relevant documents ignores the possibility that threats of violence towards a guarantor, or previous experience of violence perpetrated against the guarantor, are just as likely to influence a guarantor to concur with any demands by the perpetrator to sign documents, as a demand accompanied by violence. The distinction made in the cases between documents signed as a result of a specific threat or act of violence and documents signed in the context of a violent relationship is a highly artificial one from the perspective of a person subjected to violence within a relationship.

Usual practice versus recollection of the guarantors

“It is not uncommon in this kind of case, [that] bank officers are relying not upon independent recollection of particular events or instances of document signing, but rather [on] ‘general practice.’”⁸⁶

7.61 With litigation focusing so closely on the actual point of execution, it is a difficult hurdle for a guarantor to convince the court of the veracity of their recollection when compared to the evidence of the lender or advisor that they followed a constant and unerring practice. For example, in Westpac v Bagshaw the Court accepted evidence that bank documents were executed in the presence of the witnessing bank officer rather than the evidence of the wife that she signed the documents at home in the presence of her husband only.⁸⁹ In Australia and New Zealand Banking Group Ltd v Alizerai, the solicitor instructed by the bank to give independent legal advice to Mr Alizerai was admitted as a solicitor in October 1991, and gave the independent legal advice in December 1991. Despite the solicitor giving evidence that he could not recall any of the details of the advice he gave to Mr Alizerai, the court nonetheless accepted the solicitor’s “practice” in advising guarantors.⁹⁰

7.62 From time to time some Courts have conceded that there may be dangers in accepting evidence of usual practice as conclusive of what actually occurred on a particular occasion. One obvious question in relation to accepting evidence of usual practice, particularly where a guarantor is asserting a contradictory account of what occurred, is the extent to which usual practice develops over time or is susceptible to departure due to the actual circumstances of the case.⁹¹ In some decisions, courts have noted that the guarantor is more likely to recall the circumstances of the execution of documents because it is an unusual event for them whereas for the bank officer it is a routine transaction and therefore indistinguishable from many other transactions.⁹² For example, in National Australia Bank v Petit-Breuilh, Balmford J referred to the execution of mortgage and guarantee documents as “a matter of common routine for [the bank officer], but a very unusual event for the defendants, and accordingly it may well be that it was more readily remembered by them than by [the bank officer]”.⁹³

7.63 In such cases, much will hinge upon the Court’s determination on the credibility of witnesses. These kinds of cases where credibility is critical are known as “credit cases”: if one side’s oral testimony is believed they are entitled to relief, if they are disbelieved they are not.⁹⁴

Credibility as a determining issue

7.64 It appears that a critical issue in most cases that go to trial is the credibility of the various parties: the lender, the guarantor and sometimes the independent advisor. Therefore cases are often determined on the basis of whom the Court finds most credible. Almost all of the judges who had experience of these trial, and responded to our survey, confirmed that the critical issue in cases is the contest between the guarantor’s evidence and the evidence of the lender or advisor concerning the guarantor’s understanding of the transaction at the relevant time.⁹⁵ Rulings substantially based on credibility are even more important when it is noted that there are tight restrictions on appealing findings of credibility.⁹⁶

7.65 The following section examines the credibility of the guarantor in the litigation process, with particular reference to the courts’ interpretation of the credibility of guarantor wives and those who are from a non-English speaking background. A close reading of the litigated cases reveals that many decisions are based on adverse findings on credibility, and this is particularly apparent in matters where guarantors are from non-English speaking backgrounds. This is not to say that in all cases adverse findings by a trial judge are unfounded.

7.66 In third party guarantee cases where one of the guarantors is from a non-English speaking background credibility arises in a number of situations. In many cases the court has made adverse findings on credibility based upon the guarantor appearing evasive and/or unresponsive in cross-examination. In some instances the guarantors limited ability to speak or understand English is not given serious consideration by the court.⁹⁷

7.67 In cases where the guarantor is a wife of the primary borrower, credibility arose in different ways. Because of the importance of being characterised as a volunteer under Garcia, many cases brought by wives involve a detailed cross-examination on her role in the business enterprise and her knowledge of the transaction (or other similar transactions). In cases where the borrower and guarantor have separated, the court has made adverse findings on credibility based on the wife’s alleged antipathy towards the borrower due to relationship break down.⁹⁸

Stereotyping

“It might represent a convenient division of labour. Maybe the wife defers to her husband in relation to certain matters of business and maybe he defers to her in relation to decisions as to where the children will go to school”.⁹⁹

“I always believed, during the course of the marriage, that I always had an implied permission, or implied consent, from my wife to sign her name when she was not able to, because of the fact that I was taking care of the business and I was the provider. That was my role. My wife’s role was to be the housewife and to be the mother of my children. So, in the business sense, that is what I believed and I always believed that I had that implied permission.”¹⁰⁰

7.69 One of the concerns about the doctrines relied in Yerkey v Jones and Garcia is that they rely on an outdated presumption that women are, generally, defenceless, uninformed about financial matters, and in need of protection from unscrupulous husbands.¹⁰¹ Numerous commentators have noted a tendency for guarantor wives to be placed at either end of an extreme dichotomy.¹⁰² Either they are capable agents in which case they are seen as knowledgeable and involved in the family business and are not relieved of liability (regardless of whether they had any real decision-making role or power within the business¹⁰³ ) or they are seen as subservient with no knowledge at all about the business, in which case they are more likely to have guarantees set-aside.¹⁰⁴ In one extreme example, in Gough v Commonwealth Bank of Australia, Mrs Gough was described by a judge who would have set aside the transaction as “a housewife … with extremely modest intellectual pursuits generally confined to simple magazines”¹⁰⁵ while another (in majority) denied relief, stating that while Mrs Gough “may not be extremely sophisticated or well lettered … she is no gaping rustic.”¹⁰⁶

7.70 Disturbingly, if a woman who was otherwise characterised as “subservient” gave evidence that she would not have entered into the transaction had she been better informed of the risks, this assertion of agency was taken to undermine either her status as subservient at the time of the transaction or her credibility at the time of trial. So, for example in McCauley v Panagiotidis, the court commented: “While it was claimed that [Mrs Panagiotidis] was subservient to her husband in financial matters she did assert that she would not have signed the mortgages if she had known what they were. That suggests that she was not necessarily totally subservient, and could exercise some independence.”¹⁰⁷ This suggests that women, in particular, must fit within stereotyped confines of “weakness” in order to be able to gain relief:

“Q: Why did you sign the document?

A: Because my husband sign and I sign.

Q: Why did you sign because you’re your husband signed? Why was that reason for you to sign?

A: Because he is my husband and you know we follow our husbands.

Q: When you say ‘we follow’ what do you mean ‘we’?

A: Like in our custom.

Q: When you say ‘our custom’ – personal, the custom of yourself and your husband?

A: This is how we learn to be, we go along with our husband, what he say, what he wants.

Q: Who do you mean by ‘we’?

A: We Arab people.”¹⁰⁸

7.72 It is very difficult for the courts to take factors such as culture, language and ethnicity into account in a framework of “special disability” without falling into stereotypes. This may also reflect the arguments put before the court. In State Bank v Layoun the court considered an argument by the lender that the borrower, an eldest son, had not explained the transaction to his guarantor parents because of a culture of trust, that should be distinguished from the trust and confidence referred to in Garcia:

“It was submitted [by the bank] that this is a special kind of trust and confidence which is part of the Syrian culture – the eldest son in the family ‘looks after’ everyone else and is treated like a second father. ‘Whatever he says goes’. That level of trust is so high that no-one thinks to ask for, or needs an explanation from him. The trust and confidence reposed in him is, if you like, ‘blind faith’. In those circumstances, it is to be questioned whether anyone would have been concerned to hear the bank’s explanation of the transaction, given that Joseph had requested the parties to give the security. So far as they were concerned, they needed to hear nothing more.”¹¹¹

“To suggest that the trust and confidence reposed as part of Syrian culture (arguably rendering the ‘truster’ in as great a need of the equitable protection afforded by Garcia as any other party falling within its principles) is not subject to scrutiny and protection in equity because it is ‘special’ and ‘Syrian’ is an inappropriate and inexcusable exception to the equitable protection offered by the Courts of this country. To hold otherwise could render a creditor’s ability to rely upon a security partly dependent upon the nationality and culture of its customers. That is not the law; to the contrary, in this regard, justice is impartial and ‘culture-blind.’”¹¹²

7.74 In some cases courts will hold that a culture of deference by wives to their husbands may give rise to a special disadvantage on the part of the wife. For instance in McAuley v Panagiotidis, the court held that some of the mortgages should not be enforced against Mrs Panagiotidis. Mrs Panagiotidis was born in Greece, had less than 1 year of schooling and was illiterate in English and Greek. She was principally a housewife and carer of her five children. The court found that Mrs Panagiotidis “was part of the generation of immigrants in whose culture wives were expected to be subservient to their husbands in financial matters”.¹¹³

7.75 However findings of deference or subservience were equally held to deny relief on the basis that such wives would have agreed to the transaction no matter how well informed or advised they were. In Micarone v Perpetual Trustees Olsson J found that the deference of both Mrs Bechara, and Mrs Micarone to their husbands did not assist them:

“where the evidence shows that a wife has deferred to the wishes of her husband, the wife must accept the consequences of relying on her husband in that way. In such cases, the wife cannot shield behind the fact that she relied on her husband and so escape the consequences of her husband’s knowledge. Thus, although the female plaintiffs deferred to their husbands in these financial transactions, they must be treated as having the same degree of understanding as their husbands.”¹¹⁴

“that in business and financial matters she defers to her husband by and large” and so she “was not concerned about any advice that [the solicitor] might give. She was prepared to act on the decision of her husband, and to a lesser extent her son, after they had listened to [the solicitor]. Accordingly, she stands or falls with them.”¹¹⁵

DO THE BANKS ALWAYS FINISH LAST?

“The publicity given to decisions such as Amadio has no doubt influenced some guarantors to concoct defences based on the cases where the guarantors have successfully avoided liability.”¹¹⁶

7.79 It has been argued that remedies available under the Trade Practices Act 1974 (Cth), such as that provided by s 51AC on unconscionability, give too much protection to small business and encourage the Courts to “intrude” into commercial activity,¹¹⁸ or that the new rules make it easy for a borrower or guarantor to avoid their legal obligations.¹¹⁹ It has been suggested that, to the contrary, the intensely competitive lending industry is driven by a need to gain new business, and that the comparatively small number of losses in the courts are outweighed by the value of business obtained.¹²⁰

7.80 The perception that banks and other lenders “always finish last” when a guarantor challenges the enforcement of a guarantee was not confirmed in our research. While guarantors were partially or fully successful in 35% of the litigated cases we reviewed, these cases in themselves represent a very small fraction of disputed transactions. Data from the solicitor’s survey confirms that in most cases the lender is largely successful in pursuing the guarantee, even in disputed transactions.¹²¹

CONCLUSION

7.81 The data from this research clearly shows that the litigation process is a less than satisfactory way to seek redress. The research confirms that the litigation process is fraught. Excessive costs, delays and polarisation are hallmarks of litigation in guarantee transactions. Litigation is marked by a complex maze of claims and cross claims on a variety of common law and statutory bases. We found that it was common for three or more grounds of defence to be relied upon in any single matter and late amendments to pleadings were a regular event.

7.82 Legal costs are obviously high. The high cost of legal services impacts disproportionately on guarantors as they have both fewer financial resources and less experience compared to lenders. We were unable to determine clearly how many guarantors were proceeding to litigation without legal representation, although several judges stated that they saw a significant portion of unrepresented litigants.

7.83 The scope of the Garcia principle remains uncertain 5 years after it was handed down by the High Court, with considerable confusion about the breadth of relationships that are covered by it and what is required to be characterised as a volunteer. With this and other principles, we also found a wide variance of application in the decided cases, with some disturbing evidence of stereotyping on the grounds of gender and ethnicity.

7.84 There is a perception among some commentators that there has been an explosion in successful litigation by guarantors and the law has gone “too far” such that commercial certainty in this area has been undermined. This concern was not borne out by our research.

1. Conley v Commonwealth Bank of Australia [2000] NSWCA 101 per Heydon JA at para 102.

2. See generally, New South Wales Law Reform Commission, Guaranteeing Someone Else’s Debts (Issues Paper 17, 2000); John Carter and David Harland, Contract Law in Australia, (4th ed, Butterworths, 2002) Chapters 14 and 15; David Harland, “Unconscionable and Unfair Contracts: An Australian Perspective” in Brownsword, Hird and Howells (eds) Good Faith in Contract: Concept and Context (Ashgate, 1999).

3. Report of the Expert Group on Family Financial Vulnerability, Good Relations, High Risks: Financial Transactions Within Families and Between Friends (Report, 1996) at 36-37.

4. See Robin Baxedale, “Garcia v National Australia Bank Limited – Ensuring Equity in Surety Transactions: A Legal Debt End?” (1999) 21 Sydney Law Review 313. For a comparative analysis see: Misty Bailey, “Sexually Transmitted Debt: Criticism and Perspectives” (1999) 8 Auckland University Law Review 1001.

5. Case Law Review, Issue 26: 22% of cases were commenced by the guarantor.

6. Case Law Review, Issue 12: in 88% of litigated cases the family home was mortgaged as security for the guarantee.

7. Solicitor Survey, Question 34: 33% of solicitors reported that their last guarantor case settled prior to litigation, 67% said it settled during litigation.

8. Solicitor Survey, Question 39: 91% of respondents stated that when their last case did not settle it went to litigation, 5% reported it went to ADR and 5% stated that it went to both ADR and litigation.

9. 46% reported that the last case they acted on settled, while 54% said it did not.

10. Solicitor Survey, Question 35: 43% of solicitors reported that their last case settled before the hearing, 5% said at the hearing, 10% said after the preliminary or directions hearing, 10% said at mediation and 33% said at another stage in the proceedings which included after default judgment, after the service of the statement of claim and after judgment but before the hearing of an appeal. Barrister Survey, Question 16: 21% of barristers said their last case settled before the hearing, 32% said during the hearing, 11% said it settled at a strike out/procedural hearing, 5% said at court ordered mediation and 32% said it settled at another stage which included after judgment but before an appeal was heard.

11. Barrister Survey, Respondent 36.

12. For an overview of the requirements of common law and statutory claims of unfairness, see New South Wales Law Reform Commission, Guaranteeing Someone Else’s Debts (Issues Paper 17, 2000), Chapter 2.

13. See Ben Zipser, “Unjust Contracts and the Contracts Review Act 1980 (NSW)” (2001) 17 Journal of Contract Law 76. In our review, we found that the Contracts Review Act was relied on in 17% of cases.

14. Commercial Bank of Australia v Amadio (1983) 151 CLR 447. Amadio-type (special disability) principles were raised in 26% of cases.

15. Garcia v National Australia Bank (1998) 194 CLR 395. Garcia principles were relied on in 20% of the cases.

16. Undue influence was raised in 10% of the surveyed cases, the Trade Practices Act in 8%, the Fair Trading Act in 3%, misrepresentation in 4% and non est factum in 4%. Other types of claims were raised in 8% of the cases.

17. Ribchenkov v Suncorp-Metway Ltd (2000) 175 ALR 650.

18. Of the 52 surveyed cases, 19 raised three separate defences or causes of action, while 13 raised four or more. Only 9 cases relied on one type of claim or defence and 11 cases pleaded two claims or defences.

19. One judge commented that in five years on the bench, he had only presided on one trial involving a guarantee, but had dealt with between 10 to 20 applications by notice of motion to strike out or amend defences or claims, or applications to set aside judgments.

20. See eg: Hubner v Australia and New Zealand Banking Group (Unreported, Federal Court of Australia, Dowsett J, 7 December 1998); Australia and New Zealand Banking Group v Hubner (Unreported, Qld Supreme Court, Byrne J, 15 October 1997); Australia and New Zealand Banking Group v Hubner (Unreported, Qld Supreme Court, Jones J, 6 November 1997); Hubner v Australia and New Zealand Banking Group (Unreported, Federal Court, Beaumont J,

21 November 1997); Hubner v Australia and New Zealand Banking Group (Unreported, Qld Supreme Court, Jones J, 28 May 1998); Hubner v Australia and New Zealand Banking Group (1999) 88 FCR 445; Australia and New Zealand Banking Group Ltd v Hubner [1999] FCA 1346; Hubner v Australia and New Zealand Banking Group Ltd (2000) 21(12) Leg Rep SL5a.

21. Judge Survey, Question 15: out of the 15 judges who responded to this question, 7 reported that this occurred in some trials, 3 said in about half of the trials while 2 said in many trials.

22. In 54% of cases late amendments were made, in 8% there were no late amendments while in 38% it was unclear from the judgment.

23. Sialepis v Westpac Banking Corporation [2001] NSWSC 101. This case is discussed in further detail in relation to domestic violence issues later in this chapter.

24. Barrister, Confidential Interview 19 August 2002.

25. Confidential Submission, 18 September 2002.

26. In cases where the lender retains counsel (or senior counsel) there are serious costs implications for the unsuccessful self-represented litigant.

27. While most judges reported that in all their trials, the third party guarantor had legal representation, 25% of judges stated that in 11-40% of trials the third party guarantor had no legal representation.

28. Sayer v Turk [2001] NSWSC 750.

29. Judge Survey, Respondent 43.

30. 91% of solicitors reported the last time they gave advice to a guarantor the contract contained a provision allowing the lender to claim all reasonable costs of recovery. 91% of solicitors reported the last time they acted for a guarantor in enforcement proceedings the contract contained a provision allowing the lender to claim all reasonable costs of recovery.

31. Stella Sykiotis, Legal Aid Commission, Telephone Consultation July 2000.

32. See Ristic v Greater Building Society Ltd [2002] NSWCA 266.

33. Barrister Survey, Respondents 32 and 29.

34. Solicitor Survey, Respondent 31.

35. Barrister, Confidential Interview 19 August 2002.

36. New South Wales Law Reform Commission, Guaranteeing Someone Else’s Debts (Issues Paper 17, 2000) at 6.

37. Tyrone Carlin, “The Contracts Review Act 1980 (NSW) – 20 Years On” (2001) 23 Sydney Law Review 125 at 136-137.

38. Tyrone Carlin, “The Contracts Review Act 1980 (NSW) – 20 Years On” (2001) 23 Sydney Law Review 125 at 144.

39. Out of the 21 cases studied that concerned mortgages and guarantees, complete relief was granted in 11 of those cases while partial relief was granted in 10. Tyrone Carlin, “The Contracts Review Act 1980 (NSW) – 20 Years On” (2001) 23 Sydney Law Review 125 at 135.

40. Section 6(2) of the Contracts Review Act provides that relief is not available in respect of contracts entered into “in the course of or for the purpose of trade, business or profession carried on or proposed to be carried on by the person seeking relief” other than a “farming undertaking.” Remedies under the Contracts Review Act were granted in State Bank of New South Wales v Hibbert (2000) 9 BPR 17,543; Fraser v Power (2001) Aust Contract R 90-127; Karam v Australia and New Zealand Banking Group [2001] NSWSC 709; Reisch v Commonwealth Bank of Australia [1998] ANZ ConvR 628; Farrow Mortgage Services Pty Ltd (In Liq) v Torpey (1998) NSW ConvR 55-857where the guarantee was provided for a business undertaking. However in Westpac Banking Corporation v Bagshaw [2000] NSWSC 650 the wife’s claim for relief under the Act was rejected because the contract was made for a business partnership conducted primarily by the husband.

41. See, for example, Elkofairi v Permanent Trustee Co Ltd [2003] Aust Contract R 90-157.

42. For example, in Reisch v Commonwealth Bank of Australia [1998] ANZ ConvR 628 the Court specifically found that the bank did not act unconscionably but granted relief under the Act. The mother who provided security for her son’s business enterprise was found to have understood the nature and consequences of the transaction, but the bank was aware of past problems with one of the company’s directors and that the business enterprise did not have any assets of significance. The Court held it was unfair of the bank not to divulge this information or satisfy itself that the guarantor had obtained independent advice about the transaction. The Court declared that the contract (mortgage) was unjust in the circumstances and ordered that the mortgage be amended to limit the guarantor’s liability to $60,000, plus simple interest, and not be enforced until after the death of the plaintiff. See also Melverton v Commonwealth Development Bank of Australia (1989) ASC 55-921 where the bank was ordered to not enforce its security during the guarantor’s life.

43. See eg State Bank of New South Wales v Hibbert (2000) 9 BPR 17,543. It was evident that neither the borrower nor the guarantor could realistically service the loan from their incomes. The guarantor, who provided security with a mortgage over her home for the business in which her de facto partner had an active interest, was also a director of the company that received the benefit of the loan. The Court held that the bank did not act unconscionably but the contract was unjust in all the circumstances and that the guarantor should be relieved of all her liability pursuant to the mortgage and guarantee. See also Pasternacki v Correy [2000] NSWCA 333 and Elkofairi v Permanent Trustee Co Ltd [2003] Aust Contract R 90-157.

44. IMB Society Ltd v White [2000] NSWSC 1085; Zorbas v Avco Financial Services Ltd [1999] NSWSC 54.

45. See Farrow Mortgage Services Pty Ltd (In Liq) v Torpey (1998) NSW ConvR 55-857.

46. Garcia v National Australia Bank (1998) 194 CLR 395.

47. Yerkey v Jones (1939) 63 CLR 649.

48. See, for example, Steven Mackay “Banks Don’t Always Finish Last” (2002) 16 Property Law Bulletin 41; Anne Finlay “Unconscionable Conduct and the Business Plaintiff: Has Australia Gone Too Far?” (1999) 28 Anglo-American Law Review 470; David Purcell, “Guarantees: their facts and their validity” (2002) NSW Young Lawyers Continuing Legal Education Seminar Papers.

49. The Case Law Review only considered cases decided post-Garcia.

50. Barrister Survey, Respondents 22, 47.

51. Belinda Fehlberg, Sexually Transmitted Debt: Surety Experience and English Law (Clarendon Press, 1997) at 20.

52. See Garcia v National Australia Bank (1998) 194 CLR 395 at para 22 per Gaudron, McHugh, Gummow and Hayne JJ and at para 109 per Callinan J.

53. Garcia v National Australia Bank (1998) 194 CLR 395 at para 22 per Gaudron, McHugh, Gummow and Hayne JJ.

54. Liu v Adamson [2003] NSWSC 74.

55. State Bank of New South Wales v Hibbert (2000) Aust Contract R 90-119; [2000] NSWSC 628.

56. In Westpac Banking Corporation v Paterson¸ O’Connor J of the Federal Court found that Garcia principles could apply where a woman guaranteed her ex-husband’s debts. This decision was reversed on appeal, although the Full Court did not decide whether the principles in Garcia apply to former spouses, as they found against Mrs Paterson on other points: Westpac Banking Corporation v Paterson (2001) 187 ALR 168.

57. State Bank of New South Wales Limited v Layoun [2001] ANZ ConvR 487; [2001] NSWSC 113 at para 72-75.

58. Watt v State Bank of New South Wales [2003] ACTCA 7.

59. Watt v State Bank of New South Wales [2003] ACTCA 7, per Higgins CJ and Crispin P at para 22.

60. National Australia Bank v Starbronze Pty Ltd (2001) V ConvR 54-640; [2000] VSC 325.

61. Australia and New Zealand Banking Group v Alirezai [2002] ANZ ConvR 597; [2002] QSC 175.

62. Equitiloan Securities v Mulrine [2000] ACTSC 48.

63. Royal Bank of Scotland plc v Etridge (No 2) [2002] 2 AC 773 at para 87. On the UK law prior to this decision, see Belinda Fehlberg, “The Husband, the Bank, the Wife and Her Signature” (1994) 57 Modern Law Review 467 and “The Husband, the Bank, the Wife and Her Signature – the Sequel” (1996) 59 Modern Law Review 675.

64. Garcia v National Australia Bank (1998) 194 CLR 395 at 409.

65. Garcia v National Australia Bank (1998) 194 CLR 395 at 412. Anne Finlay argues that the High Court should have examined this issue more critically: “Australian Wives are Special: Yerkey v Jones Lives On” (1999) Journal of Banking Law 361.

66. State Bank of New South Wales v Chia (2000) 50 NSWLR 587 at 601. Case citations within the quote are omitted here.

67. State Bank of New South Wales v Watt [2002] ACTSC 74; Commonwealth Bank of Australia v Ridout Nominees Pty Ltd [2000] WASC 37.

68. See eg, Commonwealth Bank of Australia v Horkings [2000] VSCA 244; Commonwealth Bank of Australia v Khouri [1998] VSC 128; Armstrong v Commonwealth Bank of Australia [2000] ANZ ConvR 470; [1999] NSWSC 588; Cranfield Pty Ltd v Commonwealth Bank of Australia [1998] VSC 140.

69. Westpac Banking Corporation v Bagshaw [2000] NSWSC 650.

70. For example see the discussion in Brueckner v The Satellite Group (Ultimo) Ltd [2002] NSWSC 378 para 190-195.

71. Bylander v Multilink [2001] NSWCA 53. See Bryan Horrigan, “Unconscionability breaks new ground – avoiding and litigating unfair client conduct after ACCC test cases and financial services reform” (2002) 7 Deakin Law Review 4.

72. Commonwealth Bank of Australia v Liptak (1998) 196 LSJS 466; Radin v Commonwealth Bank of Australia [1998] FCA 1361. Susan Barkehall Thomas reviews several cases and is critical of Radin, see: “Garcia v National Australia Bank: Would the Real Volunteer Please Stand Up?” (1999) 14 Journal of International Banking Law 319.

73. State Bank of New South Wales v Watt [2002] ACTSC 74; Westpac Banking Corporation v Paterson (2001) 187 ALR 168; Burrawong Investments Pty Ltd v Lindsay [2002] QSC 82.

74. Micarone v Perpetual Trustees Ltd [1997] SASC 6438; Micarone v Perpetual Trustees Ltd [2000] ANZ ConvR 597. See also Westpac Banking Corporation v Paterson [2001] FCA 556; (2001) 187 ALR 168.

75. Permanent Trustee Company Limited v Elkofairi [2003] Aust Contract R 90-148. The New South Wales Court of Appeal affirmed that the principle in Garcia was not available for Mrs Elkofairi because the bank did not have notice that she was a partial volunteer. However that Court did find for her under general principles of unconscionability and the Contracts Review Act. Interestingly in his judgment Santow JA considers the issues that arise where the wife is a constructive guarantor (a guarantor in substance rather than form) and where the wife is a partial volunteer.

76. State Bank of New South Wales v Chia (2000) NSWLR 587. However, partial relief was granted under the wider doctrine of unconscionability and pursuant to the Contracts Review Act 1980 (NSW).

77. Belinda Fehlberg, Sexually Transmitted Debt: Surety Experience and English Law (Clarendon Press, 1997) at 147. See also 143.

78. Sialepis v Westpac Banking Corporation [2001] NSWSC 101.

79. Sialepis v Sialepis (Unreported, NSW Supreme Court, Hunter J, 1 September 2000) at para 20.

80. By the time of the trial Mrs Sialepis had been represented by 3 different solicitors in the proceedings in the Family Court and the Supreme Court.

81. Sialepis v Sialepis (Unreported, NSW Supreme Court, Hunter J, 1 September 2000) at para 29 – 30. Similarly, see Radin v Commonwealth Bank of Australia [1998] FCA 1361.

82. Sialepis v Westpac Banking Corporation [2001] NSWSC 101 at para 133. See also Challenger Management v Davey [2002] NSWSC 430 where one of the two guarantors, both elderly women who gave guarantees for a business operated by their children, sought to reopen her case after she advised her solicitor, during the trial, that she had signed the documents because of fear of her son. Cripps AJ refused the application because he believed that if this had been a “real issue” in the case it would have been raised at an earlier point in the proceedings.

83. Permanent Trustee Company Limited v Elkofairi [2003] Aust Contract R 90-148.

84. Permanent Trustee Company Limited v Elkofairi, submissions from NSWCA Court File CA 41071/01.

85. Elkofairi v Permanent Trustee Company Limited [2003] Aust Contract R 90-157; [2002] NSWCA 413 at para 40.

86. State Bank of New South Wales v Layoun [2001] ANZ ConvR 487 at para 30.

87. See, for example, Commonwealth Bank of Australia v Liptak [1998] SASC 6632.

88. Judge Survey, Question 19(b): 35% of judges reported that this occurred in about half of the trials they sat on, 30% said many trials, 15% said most trials.

89. Westpac Banking Corporation v Bagshaw [2000] NSWSC 650. See also Permanent Trustee v Elkofairi [2003] Aust Contract R 90-157; [2001] NSWSC 1113.

90. Australia and New Zealand Banking Group v Alirezai [2002] QSC 172 at para 42.

91. See Westpac Banking Corporation v Bagshaw [2000] NSWSC 650; Commonwealth Bank of Australia v Ridout [2000] WASC 37 and Burrawong Investments Pty Ltd v Lindsay [2002] QSC 082. In all of these cases the Court acknowledged or commented on the risk of accepting such evidence but ultimately accepted the evidence of usual practice in preference to the account given by the guarantor.

92. See eg Westpac Banking Corporation v Mitros [2000] VSC 465; State Bank of New South Wales v Vecchio [1998] NSWSC 546; Reisch v Commonwealth Bank of Australia [1998] ANZ ConvR 628.

93. National Australia Bank v Petit-Breuilh [1999] VSC 395 at para 90.

94. See Anjoul v Westpac Banking Corporation [2000] NSWCA 355.

95. Of 15 judges who responded to this question 14 agreed that the critical issue is the guarantor’s understanding of the guarantee at the time of signing and that this leads to a contest between the credibility of the guarantor’s evidence and the evidence of the lender or advisor.

96. Note the “general rule” that if a trial judge’s findings on credibility form a substantial part of the judge’s reasons for a finding of fact, then an appellate court will not interfere with that finding unless if can be shown that the judge failed to use or misused that advantage (Pham v ANZ Banking Group [2002] VSCA 206) or has acted on evidence inconsistent with facts incontrovertibly established elsewhere or which are glaringly improbable (see Walsh v Law Society of New South Wales (1999) 198 CLR 472 at 479 per McHugh, Kirby and Callinan JJ).

97. For example, in the one case the researchers observed in the Supreme Court in 2002, when the elderly Italian-born parents of the borrower were being cross examined the barrister and at one point the judge were keen not to use the interpreter even though it was quite clear that while they could speak some English complex questions were causing them considerable difficulty.

98. See eg, Equuscorp v Wright [2002] VSC 109.

99. Micarone v Perpetual Trustees Ltd (2000) 21(10) Leg Rep SL3c per Gleeson CJ.

100. Sialepis v Westpac Banking Corporation [2001] NSWSC 101at para 47.

101. Richard Haigh and Samantha Hepburn, “The Bank Manager Always Rings Twice: Stereotyping in Equity After Garcia” (2000) 26 Monash University Law Review 275.

102. See eg Paula Barron, “The Exercise of Her Free Will: Women and Emotionally Transmitted Debt” (1995) 13 Law in Context 23; Kristie Dunn, “Yakking Giants: Equality Discourse in the High Court” (2000) 24 Melbourne University Law Review 427; Nicola Howell, “Sexually Transmitted Debt: A Feminist Analysis of Laws Regulating Guarantors and Co-Borrowers” (1994) 4 Australian Feminist Law Journal 93; Nicola Howell, “Sexually Transmitted Debt: Where Emotion Meets the Law” (1998) 2(3) Consumer Rights Journal.

103. See, for example State Bank of New South Wales v Chia [2000] NSWSC 552; Sialepis v Westpac Banking Corporation [2001] NSWSC 101.

104. See, for example, Commonwealth Bank of Australia v Horkings [2000] VSCA 244; Karam v Australia and New Zealand Banking Group [2001] NSWSC 709; Brueckner v The Satellite Group (Ultimo) Pty Ltd [2002] NSWSC 378.

105. Gough v Commonwealth Bank of Australia (1994) ASC 56-270; (1994) Aust Contract R 90-044 per Kirby P.

106. Gough v Commonwealth Bank of Australia (1994) ASC 56-270; (1994) Aust Contract R 90-044 per Meagher JA.

107. McCauley v Panagiotidis (No 2) [1998] SADC 3916; (1998) LSJS 205, at para 52.

108. Sayer v Turk [2001] NSWSC 750, Transcript, Tuesday 21 August 2001.

109. Hubner v ANZ Banking Group Ltd [1998] FCA 1779.

110. Pasternacki v Correy [2000] NSWCA 333 at para 33.

111. State Bank of New South Wales v Layoun [2001] ANZ ConvR 487; [2001] NSWSC 113 at para 47.

112. State Bank of New South Wales v Layoun [2001] ANZ ConvR 487; [2001] NSWSC 113 para 48 quoting the written submissions for the defendant guarantors in Reply page 8 para 19.

113. McAuley v Panagiotidis (No 2) [1998] SADC 3916; (1998) LSJS 205 at para 52.

114. Micarone v Perpetual Trustees Ltd [1999] SASC 265 at para 591.

115. National Australia Bank v Mitolo [2002] SASC 102. See also Cranfield Pty Ltd v Commonwealth Bank of Australia [1998] VSC 140.

116. David Purcell, “Guarantees: their facts and validity” (2002) New South Wales Young Lawyers Continuing Legal Education Seminar Papers.

117. Steven Mackay, “Banks Don’t Always Finish Last” (2002) 16 Property Law Bulletin 41; Anne Finlay “Unconscionable Conduct and the Business Plaintiff: has Australia gone too far?” (1999) 28 Anglo-American Law Review 470; David Purcell, “Guarantees: their facts and their validity” (2002) New South Wales Young Lawyers Continuing Legal Education Seminar Papers.

118. Anne Finlay, “Unconscionable Conduct and the Business Plaintiff: Has Australia Gone Too Far?” (1999) 28 Anglo-American Law Review 470 at 500. On the contrary see Janine Pascoe, “The Effect of the Federal Government’s Small Business Package on Guarantees of Business Debts” (1998) Commercial Law Quarterly 17.

119. Mackay states “Over the last few years, most banks could be forgiven for thinking that they were unlikely to succeed in any action against them by a disgruntled borrower …”: Steven Mackay, “Banks Don’t Always Finish Last” (2002) 16 Property Law Bulletin 41 at 41.

120. Lynden Griggs, “Financial Institutions and Unconscionability – the banks are in the wars again” (2001) 9 Competition and Consumer Law Journal 88 at 92.

121. Solicitor Survey, Question 40: 50% of respondents reported that in the last case they acted in, the guarantor paid the debt with interest, 5% said the guarantor paid most of the debt, 9% said the guarantor was partially released from the debt and 9% said the guarantor was wholly released.