CBA v Amadio
Commercial Bank of Australia v Amadio
(1983) 151 CLR 447; [1983] HCA 14 (High Court of Australia)
Case details
Court
High Court of Australia
Citations
(1983) 151 CLR 447
[1983] HCA 14
Judges
Gibbs CJ
Mason J
Wilson J
Deane J
Dawson J (dissenting)
Appeal from
Supreme Court of South Australia
(Full Court)
Judges
King CJ
Zelling J
Jacobs J
Trial
Supreme Court of South Australia
Judge
Wells J
Issues
Unconscionable conduct
Misrepresentation
Full case
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Overview
This case considered the issue of unconscionable conduct.
It involved a bank guarantee given by elderly parents for their son. The bank manager attended the home of the parents to obtain their signatures on a mortgage. He did not provide any explanation about the document. The bank subsequently demanded payment on the guarantee and when that could not be met the bank served notice that it would exercise power of sale under the mortgage.
The Court (by majority) held that the bank had engaged in unconscionable conduct and could not rely on the guarantee. This required a finding that the parents suffered from a 'special disadvantage' in their dealings with the bank and that the bank had taken advantage of that special disadvantage.
Facts
The respondents, Mr and Mrs Amadio, executed a guarantee and mortgage (as security for the guarantee) in favour of the appellant bank. The purpose was was to guarantee debts of their son's (Vicenzo Amadio's) company.
Mr and Mrs Amadio were Italian migrants in their 70's, with limited English skills, little formal eduction and limited (in the case of Mr Amadio) or no (in the case of Mrs Amadio) business experience.
Vincenzo controlled a number of companies and appeared to be successful, living a very opulent lifestyle. In fact, he was in significant debt and had arrangements with the bank's local branch manager, Mr Virgo, to selectively nourished cheques to keep his company running. After some time the bank advised that he could continue to have an increased overdraft if security was given by his parents. Vincenzo subsequently asked his parents to guarantee the account and provide security. He told them the guarantee was for around $50,000 and would be for about six months. In fact, liability was not limited in this way. Mr Virgo visited the home of the Amadio parents and obtained their signatures on the mortgage. He did not provide an explanation about the document, save that upon overhearing Vincenzo remark that the mortgage was only for six months, Mr Virgo pointed out there was no such limitation.
After the guarantee and mortgage were signed by the Amadio's, the bank paid on a number of cheques, raising the overdraft from $189,000 to over $270,000 within a few days. Shortly thereafter the company's accounts further deteriorated and the company went into liquidation. The bank demanded payment by the Amadio's on the guarantee; when it was not met they served notice they would exercise the power of sale under the mortgage.
At trial the judge found that, at the time of signing the document, the Amadio's believed that liability was limited to $50,000 and for a period of six months. This belief was induced by their son's representations and, the trial judge found, they would not have signed the document had they known its true effect.
Judgment (highlights)
On the issue of unconscionable conduct
By majority (Justices Mason, Wilson and Deane JJ) held the Amadio's suffered from a special disadvantage vis-a-vis the bank making it unconscionable for them to rely on the guarantee. Justice Mason stated, in part:
[2] ... relief on the ground of "unconscionable conduct" is usually taken to refer to the class of case in which a party makes unconscientious use of his superior position or bargaining power to the detriment of a party who suffers from some special disability or is placed in some special situation of disadvantage ...
[22] ... if A having actual knowledge that B occupies a situation of special disadvantage in relation to an intended transaction, so that B cannot make a judgment as to what is in his own interests, takes unfair advantage of his (A's) superior bargaining power or position by entering into that transaction, his conduct in so doing is unconscionable. And if, instead of having actual knowledge of that situation, A is aware of the possibility that that situation may exist or is aware of facts that would raise that possibility in the mind of any reasonable person, the result will be the same. [emphasis added]
[23] The knowledge of Mr Virgo was the knowledge of the bank. Whether we treat Mr. Virgo as having knowledge of the possibility already discussed or as having knowledge of facts which would raise that possibility in the mind of any reasonable person the inevitable conclusion is that the bank was guilty of unconscionable conduct by entering into the transaction without disclosing such facts as may have enabled the respondents to form a judgment for themselves and without ensuring that they obtained independent advice.
Justice Deane stated, in part:
[12] The jurisdiction of courts of equity to relieve against unconscionable dealing ... is long established as extending generally to circumstances in which (i) a party to a transaction was under a special disability in dealing with the other party with the consequence that there was an absence of any reasonable degree of equality between them and (ii) that disability was sufficiently evident to the stronger party to make it prima facie unfair or "unconscientious" that he procure, or accept, the weaker party's assent to the impugned transaction in the circumstances in which he procured or accepted it. Where such circumstances are shown to have existed, an onus is cast upon the stronger party to show that the transaction was fair, just and reasonable: ...
Chief Justice Gibbs held (obiter) that there was no unconscionable conduct but that the guarantee could be set aside on the basis of the bank's misrepresentation.
Justice Dawson dissented.
On the issue of misrepresentation
Justice Gibbs based his decision on the issue of misrepresentation by non-disclosure. His Honour held that, while the duty of a bank to disclosure information to a customer in these cases 'arises only where there is a special arrangement between the bank an the customer of a kind which the surety would not expect', that was the case here and, the bank having failed to disclose those special arrangements, misrepresented a material part of the transaction with the result that the guarantee was not binding. The special circumstances in this case included
the arrangement with the bank and Vincenzo to increase the overdraft and to require Vincenzo to significantly limit that overdraft within a short period of time
the bank's selective dishonouring of cheques in an 'endeavour to maintain the [company's] facade of prosperity'
His Honour was not prepared to find an express misrepresentation by the bank; although there was such a misrepresentation, it was made by Vincenzo and not the bank.
Justice Dawson held that there was no actionable misrepresentation.
Facts and claims
Facts
The respondents, Mr and Mrs Amadio, executed a guarantee and mortgage (as security for the guarantee) in favour of the appellant bank. The purpose was was to guarantee debts of their son's company. Their son had induced them to provide the mortgage by certain misrepresentations.
At the time they signed the mortgage:
Mr Amadio
was 76 years old
had lived in Australia for more than 40 years, having been born in Italy
had little formal education
had limited written English skills, but could speak English reasonably well
was retired but had previously worked as a market gardener and had engaged in several land transaction; for most of these he received assistance from Vincenzo Amadio (their son)
Mrs Amadio
was 71 years old
had lived in Australia for more than 40 years, having been born in Italy
had little formal education
spoke a limited amount of English (gave evidence through an interpreter)
had no business experience.
Vincenzo Amadio
had a business as a land developer and controlled a number of companies, the annual turnover of which was in the millions
appeared to be very successful - lived an opulent lifestyle
Justice Dawson observed (at para 10) that he 'was concerned to maintain the impression of prosperity [and as] late as Christmas 1976 he threw a large party for two to three thousand people at which his father was present' by which they could not have failed to be impressed.
was in fact in significant debt - his company was unable to keep within its overdraft, which was repeatedly increased by the bank; by 17 March 1977 debt exceeded $193,000
arranged with the bank's local branch manager, Mr Virgo, to selectively dishonour cheques (it was insolvent)
advised the bank that his parents would give security to the bank if the bank would allow him to continue operating with an increased overdraft (he had not spoken to his parents about this)
The Bank
decided to stop operations on the overdraft account and require the company to open a second account; within days of opening the second account it became overdrawn and cheques were dishonoured.
following Vincenzo's advice that his parents would provide security, the bank informed him that it would take a mortgage over his parents' property and allow the company to keep operating the account with an overdraft limit of $270,000, to be reduced in certain increments (including a reduction of $90,000 in the space of a fortnight)
On 25 March 1977 Vincenzo called on his parents and asked them to guarantee the account and provide security. He asked his parents to give a guarantee for around $50,000 and advised his parents it would be for about six months. This was, in fact, untrue, and Vincenzo had not even seen the memorandum of mortgage. Later that day Mr Virgo went to the home of the Amadio's and obtained their signatures on the mortgage. That document required the Amadio's to pay the bank, on demand, all moneys owing, or that thereafter became owing, by the company to the bank. It mortgaged an office property owned by the Amadio's as security for this payment.
There was little discussion prior to the signing of the document. The Amadio's did not read the document and Mr Virgo did not explain it, believing that Vincenzo had explained it to them. When Mr Amadio remarked that the mortgage was only for six months, Mr Virgo pointed out that there was no such limitation. Nevertheless, the trial judge found that, at the time of signing the document, the Amadio's believed that liability was limited to $50,000 and for a period of six months. This belief was induced by their son's representations and, the trial judge found, they would not have signed the document had they known its true effect.
After the guarantee and mortgage were signed by the Amadio's, the bank paid on a number of cheques, raising the overdraft from $189,000 to over $270,000 within a few days.
The company's accounts continued to deteriorate and subsequently it went into liquidation and Vincenzo declared bankrupt. The bank made a demand on the Amadio's; it was not met and they served notice they would exercise the power of sale under the mortgage.
The Amadio's instituted proceedings and the bank counterclaimed for the amount due under the guarantee ($239,830.85).
[Detailed facts appear in the judgments of Chief Justice Gibbs (para's 1-9), Justice Deane's (para's 1-11) and Justice Dawson (para's 1-11)]
The claims
The respondents claimed that the bank could not enforce the guarantee on a number of grounds:
it was an unconscionable bargain
it was procured by undue influence
it was induced by misrepresentation or 'concealment of facts which it was the bank's duty to disclose' (Gibbs CJ, para 10)
Trial (Justice Wells)
The Amadio's were not entitled to relief. He held that the bargain was an ordinary one and that there was no evidence of undue influence. While there was a misrepresentation, it was by Vincenzo Amadio and not the bank.
He ordered the respondents to pay Amadio $239,830.85 (the amount in the Bank's counterclaim representing the payment due under the guarantee).
Court of Appeal
Appeal upheld. Ordered that mortgage be set aside.
The Court held the bank was under an obligation to reveal the true position of the company's accounts and that it was liable for Vincenzo's misrepresentations. They further held that the transaction was an unconscionable one, for which equity would provide relief.
'if not an exception, they are open to the observation that the notification of the acceptance need not precede the performance. This offer is a continuing offer. It was never revoked, and if notice of acceptance is required - which I doubt very much ... the person who makes the offer gets the notice of acceptance contemporaneously with his notice of the performance of the condition. If he gets notice of the acceptance before his offer is revoked, that in principle is all you want. I, however, think that the true view, in a case of this kind, is that the person who makes the offer shews by his language and from the nature of the transaction that he does not expect and does not require notice of the acceptance apart from notice of the performance.'
High Court
Chief Justice Gibbs
Misrepresentation
His Honour dismissed the appeal on the ground of misrepresentation through non-disclosure.
In relation to non-disclosure
His Honour first observed that a 'contract of guarantee is not uberrimae fidei' [para 12; meaning, of 'utmost good faith' in which one party is under a duty to disclose all material facts to the other]. Rather:
[para 12] 'a bank which takes a guarantee "is only bound to disclose to the intending surety anything which has taken place between the bank and the principal debtor 'which was not naturally to be expected', or [quoting Pollock MR in Lloyds Bank Ltd v Harrison] 'the necessity for disclosure only goes to the extent of requiring it where there are some unusual features in the particular case relating to the particular account which is to be guaranteed'"...The reason why a creditor is bound to reveal to an intending surety anything in the transaction between himself and the debtor which the surety would expect not to exist is that a failure to make disclosure in those circumstances would amount to an implied representation that the thing does not exist ... A surety who guarantees a customer's account with a bank will not expect that the account has not been overdrawn or that the bank is satisfied with the customer's credit, for the probable reason why the bank requires the guarantee is that the customer has been overdrawing his account, and wishes to do so again, and that the bank is not satisfied with his credit ... The general rule therefore is that a bank is not obliged to disclose to the surety matters affecting the credit of the customer ...
In this case Vincenzo's company was in 'grave financial difficulties'. However, this fact, and the fact that it was:
[para 13] 'consistently exceeding its overdraft limit, and that its cheques were being dishonoured, in themselves did no more than throw light on the credit of the company. If there were no more to the case than that, in my opinion the bank would not have been bound to make disclosure of those facts. ... at least in the case of banker and customer the duty of disclosure arises only where there is a special arrangement between the bank and the customer of a kind which the surety would not expect. ... To require a bank to make disclosure to a surety of the details of all unusual transactions which, to the knowledge of the bank, had taken place between the customer and third parties might prove to be both vexatious and misleading, as well as a breach of confidence. ...' [my emphasis]
[para 14] 'However, there were other circumstances in the case besides those to which I have just referred. First, and perhaps most important, was the arrangement made between the bank and Vincenzo Amadio on behalf of the company on 24 March. Although pursuant to that arrangement the company was to obtain an immediate overdraft limit of $270,000 (which was about $35,000 more than the sum of its existing overdraft and the amount of the outstanding cheques), it was a condition of the arrangement that the limit would be reduced to $220,000 within a week, with a further reduction to $180,000 within a fortnight. In other words, within three weeks the overdraft limit was to be reduced below the debit balance which already existed. Then it was intended that the entire overdraft should be cleared; the evidence suggests that this was to be done within a short time although it does not precisely appear when the clearance was to be effected. I find it impossible to suppose that a surety who undertook to meet the past and future liabilities of the company, and to give substantial security, would have expected that the arrangement between the bank and the company included such unusual terms, which meant that the company was given merely a temporary respite, whereas the bank improved its existing and inadequate security. Further, there was the circumstance that the bank had not merely dishonoured the cheques, but had made itself a party to their selective dishonour, in an endeavour to maintain the facade of prosperity that the company, although insolvent, had erected - a facade which, the bank should have expected, may well have deceived the respondents, since, as Mr. Virgo knew, Mr. Amadio was present at his son's ostentatious Christmas party. Cheques held pursuant to those arrangements, and amounting, as I have said, to about $44,000, were held at the time when the guarantee was given. There were indeed unusual features relating to the account which was to be guaranteed, and the bank was in my opinion bound to disclose them. [my emphasis]
For these reasons his Honour concluded that:
[para 15] 'the failure by the bank to make disclosure of these circumstances amounted to a misrepresentation (albeit unintended) of a material part of the transaction between the bank and the company, and that the memorandum of mortgage, including, of course, the guarantee which it contains, is not binding on the respondents.'
On the issue of express misrepresentation
Gibbs CJ noted that the express misrepresentation was made by Vincenzo and not the bank:
[17] There was in this case an express misrepresentation which induced the respondents to enter into the guarantee. The misrepresentation was however made not by a servant or agent of the bank but by Vincenzo Amadio. It is clear that the rights of a principal creditor will not be affected by a misrepresentation made by the debtor to the surety unless the creditor knew of or assented to the making of the misrepresentation:... However, ... there has been adopted the principle which was stated by Lord Cranworth LC in Owen and Gutch v Homan [1853] EngR 883; (1853) 4 HLC 997, at pp 1034-1035(10 ER 752, at p 767)
"Without saying that in every case a creditor is bound to inquire under what circumstances his debtor has obtained the concurrence of a surety, it may safely be stated that if the dealings are such as fairly to lead a reasonable man to believe that fraud must have been used in order to obtain such concurrence, he is bound to make inquiry, and cannot shelter himself under the plea that he was not called on to ask, and did not ask, any questions on the subject. In some cases wilful ignorance is not to be distinguished in its equitable consequences from knowledge. If a person abstains from inquiry because he sees that the result of inquiry will probably be to show that a transaction in which he is engaging is tainted with fraud, his want of knowledge of the fraud will afford no excuse."
It will be observed that when Lord Cranworth LC spoke of "wilful ignorance", he appears to have been referring not merely to a case in which circumstances put the creditor on inquiry, but to a case where the creditor does not inquire because he is afraid of what he may discover. In the present case the respondents pleaded that misrepresentations had been made by Mr Virgo, not by Vincenzo Amadio, and it was not suggested in cross-examination to the witnesses who gave evidence on behalf of the bank that they deliberately refrained from inquiring into the question what [sic] Vincenzo Amadio had told his parents. It does not seem to me that the issue of "wilful ignorance" was clearly raised at the trial. In those circumstances I do not consider that it is now open to the respondents to rely on the submission that the bank was responsible for the misrepresentations of Vincezo Amadio.
Unconscionable conduct
Although it was not necessary for his Honour to reach a concluded decision on this claim, given his finding in relation to misrepresentation, his Honour nevertheless expressed the view that this was not a case of unconscionable conduct.
[18] In my opinion it should not be held that this was the case of an unconscientious bargain of the kind which equity would set aside, even in the absence of fraud, misrepresentation or undue influence. Of course, the bank and the respondents did not meet on equal terms, but that circumstance alone does not call for the intervention of equity, .... A transaction will be unconscientious within the meaning of the relevant equitable principles only if the party seeking to enforce the transaction has taken unfair advantage of his own superior bargaining power, or of the position of disadvantage in which the other party was placed. The principle of equity applies "whenever one party to a transaction is at a special disadvantage in dealing with the other party because illness, ignorance, inexperience, impaired faculties, financial need or other circumstances affect his ability to conserve his own interests, and the other party unconscientiously takes advantage of the opportunity thus placed in his hands": Blomley v. Ryan [1956] HCA 81; (1956) 99 CLR 362, at p 415, per Kitto J.... In the present case it is true that the respondents were elderly, did not have a complete mastery of the English language and had had no formal education. However, the bank did not take unfair advantage of any of those disabilities, if disabilities they were. ... the bank relied on Vincenzo Amadio to explain the transaction to his parents, and he in fact persuaded them to enter into it. He was experienced in business matters, and well able to understand and explain the effect of the memorandum of mortgage. Of course, he did not give his parents a true explanation of the effect of the guarantee, and the bank did not disclose those matters which it should have disclosed. If one ignores the effect of the misrepresentation by Vincenzo Amadio and the non-disclosure by the bank there is simply no evidence that the bank made unfair use of its position. In other words, if misrepresentation (whether express or by non-disclosure) is established, there is no need to resort to the rules as to unconscientious bargains, and if misrepresentation is not established the bank made no unfair use of its position.
Justice Mason
Justice Mason agreed with Deane J's 'conclusion that the respondents are entitled to relief on the ground that the bank was guilty of unconscionable conduct in procuring the execution of the mortgage guarantee by the respondents.' [para 1] In the course of his Judgment Mason J also usefully discussed the distinction and overlap between various equitable claims.
[2] Historically, courts have exercised jurisdiction to set aside contracts and other dealings on a variety of equitable grounds. They include fraud, misrepresentation, breach of fiduciary duty, undue influence and unconscionable conduct. In one sense they all constitute species of unconscionable conduct on the part of a party who stands to receive a benefit under a transaction which, in the eye of equity, cannot be enforced because to do so would be inconsistent with equity and good conscience. But relief on the ground of "unconscionable conduct" is usually taken to refer to the class of case in which a party makes unconscientious use of his superior position or bargaining power to the detriment of a party who suffers from some special disability or is placed in some special situation of disadvantage, e.g., a catching bargain with an expectant heir or an unfair contract made by taking advantage of a person who is seriously affected by intoxicating drink. Although unconscionable conduct in this narrow sense bears some resemblance to the doctrine of undue influence, there is a difference between the two. In the latter the will of the innocent party is not independent and voluntary because it is overborne. In the former the will of the innocent party, even if independent and voluntary, is the result of the disadvantageous position in which he is placed and of the other party unconscientiously taking advantage of that position.
[3] There is no reason for thinking that the two remedies are mutually exclusive in the sense that only one of them is available in a particular situation to the exclusion of the other. Relief on the ground of unconscionable conduct will be granted when unconscientious advantage is taken of an innocent party whose will is overborne so that it is not independent and voluntary, just as it will be granted when such advantage is taken of an innocent party who, though not deprived of an independent and voluntary will, is unable to make a worthwhile judgment as to what is in his best interest. (at p461)
[4] It goes almost without saying that it is impossible to describe definitively all the situations in which relief will be granted on the ground of unconscionable conduct. As Fullagar J said in Blomley v Ryan ...:
"The circumstances adversely affecting a party, which may induce a court of equity either to refuse its aid or to set a transaction aside, are of great variety and can hardly be satisfactorily classified. Among them are poverty or need of any kind, sickness, age, sex, infirmity of body or mind, drunkenness, illiteracy or lack of education, lack of assistance or explanation where assistance or explanation is necessary. The common characteristic seems to be that they have the effect of placing one party at a serious disadvantage vis-a-vis the other."
[5] Likewise Kitto J (1956) 99 CLR, at p 415 spoke of it as "a well-known head of equity" which - ". . . applies whenever one party to a transaction is at a special disadvantage in dealing with the other party because illness, ignorance, inexperience, impaired faculties, financial need or other circumstances affect his ability to conserve his own interests, and the other party unconscientiously takes advantage of the opportunity thus placed in his hands".
[6] ... the situations mentioned are no more than particular exemplifications of an underlying general principle which may be invoked whenever one party by reason of some condition of circumstance is placed at a special disadvantage vis-a-vis another and unfair or unconscientious advantage is then taken of the opportunity thereby created. I qualify the word "disadvantage" by the adjective "special" in order to disavow any suggestion that the principle applies whenever there is some difference in the bargaining power of the parties and in order to emphasize that the disabling condition or circumstance is one which seriously affects the ability of the innocent party to make a judgment as to his own best interests, when the other party knows or ought to know of the existence of that condition or circumstance and of its effect on the innocent party.
...
[8] Of course the relationship between the present parties and the transaction into which they entered were by no means novel...
[9] To say this involves no contradiction of the well-entrenched proposition that a guarantee is not a contract uberrimae fidei, that is, a contract which of itself calls for full disclosure. However, it is accepted that the principal creditor is under a duty -
". . . to disclose to the intending surety anything which has taken place between the bank and the principal debtor 'which was not naturally to be expected', or as it was put by Pollock M.R., in Lloyds Bank Ltd v Harrison (1925); ... 'the necessity for disclosure only goes to the extent of requiring it where there are some unusual features in the particular case relating to the particular account which is to be guaranteed'" (Goodwin v. National Bank of Australia Ltd. [1968] HCA 30; (1968) 117 CLR 173, at p 175, per Barwick CJ).
[10] It has been said that this duty to disclose does not require a bank to give information as to matters affecting the credit of the debtor or of any circumstances connected with the transaction in which he is about to engage which will render his position more hazardous ... No surety is entitled to assume that the debtor has not been overdrawing, the proper presumption being in most instances that he has been doing so and wishes to do so again ...
[11] But the fact that a bank's duty to make disclosure to its intending surety, arising from the mere relationship between principal creditor and surety, is so limited has no bearing on the availability of equitable relief on the ground of unconscionable conduct. A bank, though not guilty of any breach of its limited duty to make disclosure to the intending surety, may none the less be considered to have engaged in unconscionable conduct in procuring the surety's entry into the contract of guarantee.
[12] It is to be hoped that the respondents' amended statement of claim does not find its way into the precedent books. It leaves much to be desired. It alleges unconscionable conduct and alternatively undue influence on the part of the bank. It does not, as it might have done, allege undue influence on the part of the respondents' son Vincenzo, with notice on the part of the bank. ... The critical issue then is whether, in accordance with the principle already explained, the respondents are entitled to relief on the ground of unconscionable conduct.
[13] There are a number of factors which go to establish that there was a gross inequality of bargaining power between the bank and the respondents, so much so that the respondents stood in a position of special disadvantage vis-a-vis the bank in relation to the proposed mortgage guarantee. By way of contrast to the bank, the respondents' ability to judge whether entry into the transaction was in their own best interests, having due regard to their desire to assist their son, was sadly lacking. The situation of special disadvantage in which the respondents were placed was the outcome of their reliance on and their confidence in their son who, in order to serve his own interests, urged them to provide the mortgage guarantee which the bank required as a condition of increasing the approved overdraft limit of his company ... from $80,000 to $270,000 and misled them as to the financial position of the company. Their reliance on their son was due in no small degree to their infirmities - they were Italians of advanced years, aged 76 and 71 respectively, having a limited command of written English and no experience of business in the field or at the level in which their son and the company engaged. They believed that the company's business was a flourishing and prosperous enterprise, though temporarily in need of funds. In reality, as the bank well knew, the company was in a perilous financial condition. [emphasis added]
[14] In the weeks immediately preceding the execution of the mortgage guarantee the company was unable to pay its debts as they fell due. In this situation the bank had selectively paid cheques drawn by the company in favour of suppliers in order to ensure continuity in the supply of building materials, the company being a building contractor. In this period the bank had regularly and continuously dishonoured other cheques, the payment of which was not essential to the maintenance of the supply of building materials. In pursuing this course and in agreeing to an increase in the company's overdraft limit, the bank was substantially influenced by a special consideration. The company was a major customer of the bank, indeed the largest customer at the Glynde branch of the bank, and the company's continuation in business was advantageous to General Credits Ltd., a finance company and subsidiary of the bank.... The respondents, needless to say, were quite unaware of these circumstances. [emphasis added]
[15] The effect of the respondents' execution of the mortgage guarantee was disastrous for them though advantageous to the bank. ... the bank's security, which was inadequate before 25 March, was significantly improved.... Immediately after execution of the instrument the bank met unpaid cheques amounting to $45,000 approximately. Thereafter the company's business quickly deteriorated.
[16] No doubt the respondents' age and lack of business experience played a part in their reliance on their son's judgment and in their failure to make any inquiries as to the financial position of the company and their failure to seek advice as to the probable or possible consequences of the transaction into which they entered. Their lack of command of English, especially written English, apart from contributing to their reliance on their son, had an additional importance. Vincenzo had informed them that the bank would present for signature a guarantee and very probably a security of some sort, though the precise nature of that security ... was not specified. He had incorrectly said that the liability would be limited to a period of six months and to an amount of $50,000. Mr Virgo, the bank manager, in the conversation which took place immediately before execution, informed them that their liability under the instrument was unlimited in time, the question having been raised by Mr. Amadio senior. Mr Virgo said nothing on the topic of unlimited liability because the respondents did not mention it.
[17] The primary judge found that if Vincenzo "had disabused his parents' minds of their confidence in him, his parents would not have helped him". The correctness of this finding has not been challenged. Nor could it be for the simple reason that any rational person knowing the circumstances of the company at the time would not have executed the instrument which they signed. [emphasis added]
[18] In deciding whether the bank took unconscientious advantage of the position of disadvantage in which the respondents were placed, we must ask, first, what knowledge did the bank have of the respondents' situation?
[19] Mr. Virgo was aware that the respondents were Italians, that they were of advanced years and that they did not have a good command of English. He knew that Vincenzo had procured their agreement to sign the mortgage guarantee. He had no reason to think that they had received advice and guidance from anyone but their son. In cross-examination he conceded that he believed that Vincenzo had acted in the "role of adviser/explainer" in relation to the transaction and referred to him as acting "in his capacity as dominant member of the family". Mr. Virgo also knew that, in the light of the then financial condition of the company, it was vital to Vincenzo to secure his parents' signature to the mortgage guarantee so that the company could continue in business. It must have been obvious to Mr. Virgo, as to anyone else having knowledge of the facts, that the transaction was improvident from the viewpoint of the respondents. In these circumstances it is inconceivable that the possibility did not occur to Mr. Virgo that the respondents' entry into the transaction was due to their inability to make a judgment as to what was in their best interests, owing to their reliance on their son, whose interests would inevitably incline him to urge them to sign the instrument put forward by the bank. [emphasis added]
[20] Indeed, the inquiry by Mr. Amadio senior as to the duration of the arrangement should have alerted Mr. Virgo to the likelihood that Vincenzo had not adequately or accurately explained the intended transaction to them, let alone the possible or probable consequences which attended it.
[21] Whether it be correct or incorrect to attribute to Mr Virgo knowledge of this possibility, the facts as known to him were such as to raise in the mind of any reasonable person a very real question as to the respondents' ability to make a judgment as to what was in their own best interests. In Owen and Gutch v Homan (1853) 4 HLC, at p 1035 (10 ER, at p 767) , Lord Cranworth LC said:
". . . it may safely be stated that if the dealings are such as fairly to lead a reasonable man to believe that fraud must have been used in order to obtain" (the concurrence of the surety), "he is bound to make inquiry, and cannot shelter himself under the plea that he was not called on to ask, and did not ask, any questions on the subject. In some cases wilful ignorance is not to be distinguished in its equitable consequences from knowledge."
The principle there stated applies with equal force to this case. The concept of fraud in equity is not limited to common law deceit; it extends to conduct of the kind engaged in by the respondents' son when he took advantage of the confidence and reliance reposed in him to induce his parents to enter into a transaction in order to serve his ends, thereby depriving them of the ability to make a judgment as to what is in their interests.
[22] ... if A having actual knowledge that B occupies a situation of special disadvantage in relation to an intended transaction, so that B cannot make a judgment as to what is in his own interests, takes unfair advantage of his (A's) superior bargaining power or position by entering into that transaction, his conduct in so doing is unconscionable. And if, instead of having actual knowledge of that situation, A is aware of the possibility that that situation may exist or is aware of facts that would raise that possibility in the mind of any reasonable person, the result will be the same. [emphasis added]
[23] The knowledge of Mr Virgo was the knowledge of the bank. Whether we treat Mr. Virgo as having knowledge of the possibility already discussed or as having knowledge of facts which would raise that possibility in the mind of any reasonable person the inevitable conclusion is that the bank was guilty of unconscionable conduct by entering into the transaction without disclosing such facts as may have enabled the respondents to form a judgment for themselves and without ensuring that they obtained independent advice.
His Honour concluded (at 24) that he was of opinion that the respondents were entitled to an order setting aside the mortgage guarantee and that the appeal to this Court should be dismissed.
Justice Wilson
Justice Wilson agreed with the reasons of Justice Deane, adding some brief observations:
[2] At the heart of this case is the finding of the learned trial judge that, on the facts as known to the bank, the bargain was an ordinary one struck in the usual and regular course of commerce. With all respect, such a finding fails to have sufficient regard to the extraordinary features attendant on the transaction. The relationship between the bank and its client Vincenzo Amadio was more than an ordinary business relationship. It was a relationship which embroiled the bank in a conflict of interest which, in the special circumstances of this case, inhibited the proper conduct of its banking business. I refer to the procedure whereby Vincenzo and Mr. Virgo conferred daily in the early part of 1977 with a view to the selective payment of cheques drawn on an account with the bank which was already seriously overdrawn beyond the stipulated limit and in respect of which overdraft the bank held inadequate security. The criterion upon which that selection was based was the agreed objective of maintaining the appearance of a prosperous business capable of paying its way by ensuring that those who supplied materials to the company were paid. If ordinary banking practice had been followed the company would have been facing liquidation in the weeks preceding the giving of the guarantee and mortgage by the respondents. The reason for the bank's patient and generous accommodation of Vincenzo's company was the value to the bank prior to that time of the Amadio connexion and the fact that the financial fortunes of the bank's wholly owned subsidiary, General Credits Ltd., were closely related to those of Vincenzo.
[3] The learned trial judge found that if the respondents had been fully informed of the company's financial predicament they would not have executed the document. That finding has not been challenged. Indeed, it could not be, having regard to the fact that the immediate effect of its execution was to render their assets liable to be substantially swallowed up in meeting existing liabilities of the company and without any real assurance of benefit to anyone but the bank. The circumstances required that the respondents be acquainted with the true financial position of the company and thereby enabled to make an informed decision. Having regard to the special circumstances surrounding the bank's relationship to Vincenzo, Mr. Virgo was obliged either to ensure that his parents understood what they were doing or to advise them to seek independent advice and allow them the opportunity to do so. He was not entitled to assume that Vincenzo would already have informed them adequately.
[4] I would dismiss the appeal.
Justice Deane
His Honour first set out the facts in some detail and continued:
[11] The evidence established that the relationship between the bank and Amadio Builders was an unusual one. ...
[12] The jurisdiction of courts of equity to relieve against unconscionable dealing developed from the jurisdiction which the Court of Chancery assumed, at a very early period, to set aside transactions in which expectant heirs had dealt with their expectations without being adequately protected against the pressure put upon them by their poverty... The jurisdiction is long established as extending generally to circumstances in which (i) a party to a transaction was under a special disability in dealing with the other party with the consequence that there was an absence of any reasonable degree of equality between them and (ii) that disability was sufficiently evident to the stronger party to make it prima facie unfair or "unconscientious" that he procure, or accept, the weaker party's assent to the impugned transaction in the circumstances in which he procured or accepted it. Where such circumstances are shown to have existed, an onus is cast upon the stronger party to show that the transaction was fair, just and reasonable: "the burthen of shewing the fairness of the transaction is thrown on the person who seeks to obtain the benefit of the contract"...
[13] The equitable principles relating to relief against unconscionable dealing and the principles relating to undue influence are closely related. The two doctrines are, however, distinct. Undue influence, like common law duress, looks to the quality of the consent or assent of the weaker party ... Unconscionable dealing looks to the conduct of the stronger party in attempting to enforce, or retain the benefit of, a dealing with a person under a special disability in circumstances where it is not consistent with equity or good conscience that he should do so. The adverse circumstances which may constitute a special disability for the purposes of the principles relating to relief against unconscionable dealing may take a wide variety of forms and are not susceptible to being comprehensively catalogued. In Blomley v Ryan (1956) 99 CLR, at p 405 , Fullagar J listed some examples of such disability: "poverty or need of any kind, sickness, age, sex, infirmity of body or mind, drunkenness, illiteracy or lack of education, lack of assistance or explanation where assistance or explanation is necessary". As Fullagar J. remarked, the common characteristic of such adverse circumstances "seems to be that they have the effect of placing one party at a serious disadvantage vis-a-vis the other".
[14] In most cases where equity courts have granted relief against unconscionable dealing, there has been an inadequacy of consideration moving from the stronger party. It is not, however, essential that that should be so ... Notwithstanding that adequate consideration may have moved from the stronger party, a transaction may be unfair, unreasonable and unjust from the view point of the party under the disability. An obvious instance of circumstances in which that may be so is the case where the benefit of the consideration does not move to the party under the disability but moves to some third party involved in the transaction. Thus, it is established that the jurisdiction extends, in an appropriate case, to relieve a guarantor of the burden of a guarantee of existing and future indebtedness ... [emphasis added]
"In the first place, it is obvious that a large benefit is conferred both on the creditor and the debtor, which, so far as any advantage to the guarantor is concerned, is voluntary, though no doubt 'consideration' exists so far as the creditor is concerned, so soon as forebearance is in fact given or advances are in fact made. It is, I think, to some extent by reference to the rule or to an extension of the rule that, in the case of a large voluntary donation, a gift may be set aside in equity if it appears that the donor did not really understand the transaction, that such a guarantee may be treated as voidable as between the husband and wife."
Cussen J's above analysis was made in the context of a guarantee procured by a husband from his wife in favour of the husband's bank. There is, however, no basis in principle or in policy for confining the process of reasoning therein contained to cases of the relief of female spouses. It is appropriate to the circumstances of the present case. ...
[15] I turn to consider the question whether, at the time they executed the guarantee/mortgage, Mr. and Mrs. Amadio were under a relevant disability in dealing with the bank. This question is best approached by a comparison of the relative positions of the bank on the one hand and Mr and Mrs Amadio on the other.
[16] The bank, for its part, was a major national financial institution. It was privy to the business affairs and financial instability of Amadio Builders. It was aware that that company had, for some time, been unable to meet its debts as they fell due. It was aware of the state of Amadio Builders' two overdrawn accounts with it and of past failures to observe agreed borrowing limits. It had actually suggested ... that Mr. and Mrs. Amadio enter into the mortgage transaction to secure Amadio Builders' indebtedness to it. It was aware of the contents of its own document which Mr Virgo presented to Mr and Mrs Amadio for their signature. ...
[17] In contrast was the position of Mr and Mrs Amadio. ... They were advanced in years. Their grasp of written English was limited. They relied on Vincenzo for the management of their business affairs and believed that he and Amadio Builders were prosperous and successful. They were approached in their kitchen by the bank, acting through Mr Virgo, at a time when Mr Amadio was reading the newspaper after lunch and Mrs Amadio was washing dishes. They were presented with a complicated and lengthy document for their immediate signature. They had received no independent advice in relation to the transaction which that document embodied and about which they had learned only hours earlier from Vincenzo who, it is common ground in the present appeal, had misled them as regards the extent and duration of their potential liability under it. Apart from indicating that the guarantee/mortgage was unlimited in point of time, Mr Virgo made no personal attempt to explain it to them. Foolishly, but - in view of their limited grasp of written English and their knowledge that Mr Virgo came to them with the approval of their son - perhaps understandably, they did not attempt to read the document for themselves. They signed it in the mistaken belief that their potential liability was limited to a maximum of $50,000.
[18] It is apparent that Mr and Mrs Amadio, viewed together, were the weaker party to the transaction between themselves and the bank. ... That weakness constituted a special disability of Mr and Mrs Amadio in their dealing with the bank of the type necessary to enliven the equitable principles relating to relief against unconscionable dealing. Put more precisely, the result of the combination of their age, their limited grasp of written English, the circumstances in which the bank presented the document to them for their signature and, most importantly, their lack of knowledge and understanding of the contents of the document was that, to adapt the words of Fullagar J. quoted above, they lacked assistance and advice where assistance and advice were plainly necessary if there were to be any reasonable degree of equality between themselves and the bank.
[19] The next question is whether the special disability of Mr and Mrs Amadio was sufficiently evident to the bank to make it prima facie unfair or "unconscientious" of the bank to procure their execution of the document of guarantee and mortgage in the circumstances in which that execution was procured. In procuring it, the bank acted through Mr Virgo: his actions were the actions of the bank and his knowledge was the knowledge of the bank. His evidence indicates that he was not unacquainted with the personal circumstances of Mr and Mrs Amadio and their reliance on Vincenzo whom he described as the "dominant member of the family". He was aware of the inability of Amadio Builders to pay its debts as they fell due and must also have been aware of the potential consequences to Mr. and Mrs. Amadio of the unlimited guarantee in the document which he tendered to them for their immediate execution.
[20] It has not been argued on behalf of the bank that Mr Virgo was so unaware of the circumstances in which Mr and Mrs Amadio executed the document that he was entitled to believe that the transaction was one where no advice, independent or otherwise, was called for. The argument for the bank has been to the effect that, at relevant times, Mr Virgo honestly and reasonably relied upon a representation made to him, by Vincenzo, that the latter had discussed the transaction with his parents, informed them of its nature and effect, explained it fully to them and duly obtained their consent to it.
[21] The evidence that Vincenzo made any such representation to Mr Virgo is unimpressively sparse. Upon analysis, it consists of Mr. Virgo's own evidence that he assumed that Mr and Mrs Amadio's "agreement or offer to give this mortgage was a result of a family conference of some sort". When it was suggested to him that there was nothing upon which he could base that assumption apart from the fact that Vincenzo had told him that he had spoken to his parents about the transaction and that the bank could proceed with it, Mr Virgo answered:
"That is right. The whole thing had come to me as a fait accompli, not only from the bank's point of view but also having then been informed by Vin Amadio that the matter had been agreed within the family and all that required to be done was for the execution of the document."
The references to "a family conference" and to the matter being "agreed within the family" are explained in a later passage in the evidence where Mr Virgo described an allegedly well-known Italian custom of submitting business propositions to penetrating and exhaustive familial discussion presided over by "the head of the family group". When asked whether he believed that Vincenzo occupied the role of "adviser/explainer" in respect of the transaction between his parents and the bank, Mr Virgo replied:
"I suppose you could say that; but really I just assumed that the matter had been discussed. Now, whether any direction had been given by Mr. Amadio Jnr in his capacity as dominant member of the family or not, I really have no idea. I certainly was led to believe that the matter was a fait accompli and had been discussed."
[22] It must, in fairness, be stressed that there is no suggestion that Mr Virgo or any other officer of the bank has been guilty of dishonesty or moral obliquity in the dealings between Mr and Mrs Amadio and the bank. The evidence does, however, demonstrate that there was no proper basis at all for any assumption that Mr and Mrs Amadio had received adequate advice from Vincenzo .... Even if that were not the case, it would be difficult to accept as reasonable a belief that Vincenzo had successfully explained to his parents the content and effect of a document which embodied eighteen separate covenants of meticulous and complicated legal wording in circumstances where, to Mr Virgo's knowledge, Vincenzo had himself never seen the document at the time when any such suggested explanation must have taken place. If there were otherwise room for doubt, what transpired when Mr Virgo called on Vincenzo in his office and on Mr and Mrs Amadio in their kitchen makes clear that Mr Virgo simply closed his eyes to the vulnerability of Mr and Mrs Amadio and the disability which adversely affected them.
[23] Mr Virgo gave evidence that Vincenzo did not trouble even to read the document before agreeing that Mr Virgo should take it to Mr and Mrs Amadio for execution. He also gave evidence that Mr and Mrs Amadio did not read it. In other words, in a situation where it was apparent to him that advice and assistance were necessary, he knew that no one who might have rendered such advice and assistance to Mr and Mrs Amadio had even read the document ... the only comment which either Mr or Mrs Amadio made as to the contents of the guarantee/mortgage on the occasion when they executed it, namely Mr. Amadio's comment that it was only for six months, was of unmistakable significance. That statement revealed that Mr Amadio and, it must be assumed, Mrs Amadio were seriously misinformed as to a basic term of the transaction. It would, at least by that stage, have been plain to any reasonable person, who was prepared to see and to learn, that he was put on inquiry. The stage had been reached at which the bank, through Mr Virgo, was bound to make a simple inquiry as to whether the transaction had been properly explained to Mr and Mrs Amadio. The bank cannot shelter behind its failure to make that inquiry. The case is one in which "wilful ignorance is not to be distinguished in its equitable consequences from knowledge" ... Mr and Mrs Amadio's disability and the inequality between themselves and the bank must be held to have been evident to the bank and, in the circumstances, it was prima facie unfair and "unconscientious" of the bank to proceed to procure their signature on the guarantee/mortgage. With that conclusion, the onus is cast upon the bank to show that the transaction was "in point of fact fair, just, and reasonable" (Fry v Lane (1888) 40 ChD, at p 321 ).
[24] Mr. and Mrs. Amadio were not wholly misinformed as to the terms and effect of the guarantee/mortgage. ... they correctly understood that the document which they were signing was a guarantee supported by a mortgage .... While it is true that Mr. and Mrs. Amadio were initially led to believe that the guarantee/mortgage was limited in duration to six months, they were disabused of that notion by the clear indication given by Mr Virgo, prior to execution of the document, that the guarantee/mortgage was a "continuing" one and unlimited in point of time. ... if they had been informed as to the true financial position of Amadio Builders, it would be strongly arguable that the guarantee/mortgage could not properly be said either to have resulted from their special disability or to be other than fair, just and reasonable.
[25] As has been said however, the guarantee/mortgage did not contain any such limit upon potential liability and Mr and Mrs Amadio were under a complete misapprehension as to the financial stability of the company whose indebtedness to the bank they were guaranteeing. The learned trial judge found that had they known of the financial troubles Amadio Builders was then experiencing, they would not have executed the guarantee/mortgage. That finding has not been challenged on the appeal. In the circumstances, the execution of the guarantee/mortgage by Mr and Mrs Amadio flowed from the position of special disability in which they were placed. From Mr and Mrs Amadio's point of view, the great difference between a potential liability of up to $50,000 under a guarantee of a financially successful company and a potential liability under a guarantee of a financially troubled company in whatever amount that company might become indebted to its bank requires little elaboration. The one would have been within their means to incur to assist their son. The other represented their potential financial ruin. In the circumstances in which it was procured, the guarantee/mortgage was unfair, unjust and unreasonable. Indeed, in fairness to the bank, I did not understand the contrary to be submitted on its behalf.
[26] Relief against unconscionable dealing is a purely equitable remedy. The concept underlying the jurisdiction to grant the relief is that equity intervenes to prevent the stronger party to an unconscionable dealing acting against equity and good conscience by attempting to enforce, or retain the benefit of, that dealing. Equity will not, however, "restrain a defendant from asserting a claim save to the extent that it would be unconscionable for him to do so. If this limitation on the power of equity results in giving to a plaintiff less than what on some general idea of fairness he might be considered entitled to, that cannot be helped" .... Where appropriate, an order will be made which only partly nullifies a transaction liable to be set aside in equity pursuant to the principles of unconscionable dealing .... Where an order is made setting aside the whole of a transaction on the ground of unconscionable dealing, the order will, in an appropriate case, be made conditional upon the party obtaining relief doing equity.
[27] While the matter was not raised in the bank's notice of appeal, I was, at one stage, inclined to think that the appropriate relief in the present case would be an order setting aside the guarantee/mortgage only to the extent to which it imposed upon Mr and Mrs Amadio a potential liability in excess of $50,000 or that any order wholly setting aside the guarantee/mortgage should be conditional upon Mr and Mrs Amadio paying to the bank the amount of $50,000 which represents the amount of the potential liability which they intended to undertake. Ultimately, I have come to the view that Mr and Mrs Amadio are entitled to have the whole transaction set aside unconditionally. It is true that it is not ordinarily encumbent upon a bank to bring to the attention of a potential guarantor of a customer's account details of a type which are ordinarily to be expected ... In the present case however, it was, as has been said, evident to the bank that Mr and Mrs Amadio stood in need of advice as to the nature and effect of the transaction into which they were entering. It is apparent that any such advice would have included the importance to a guarantor of ascertaining from the bank the state of the customer's account which was being guaranteed and any unusual features of the account. If such information had been obtained by Mr and Mrs Amadio, they would not, on the evidence and in the light of the learned trial judge's finding, have entered into the guarantee/mortgage at all. The whole transaction should properly be seen as flowing from the special disability which was evident to the bank and as being unfair, unjust and unreasonable.
His Honour then stated that the appeal should be dismissed with costs.
Justice Dawson (dissenting)
After setting out the facts his Honour stated:
On the issue of misrepresentation
[12] The respondents did not dispute and, indeed, upon the authorities could not dispute, the basic propositions of law upon which the appellant bank relied. These were, first, that a bank is not under any obligation to disclose to a prospective guarantor facts relating to its customer or the customer's account which are material to the risk being undertaken by the guarantor, subject to the exception that a bank is required to disclose matters between it and the customer which a prospective guarantor might not naturally expect to have taken place in relation to the customer's affairs. ...
[13] The second proposition of law which was not disputed was that if a guarantor has, short of non est factum, been induced to give a guarantee to a bank as a result of some misrepresentation or other impropriety by its customer or a third party, then the validity of the guarantee is not affected so far as the bank is concerned unless the bank had notice of the impropriety or ought to have been put upon inquiry that impropriety might occur. It may be added that a contract of suretyship is not a contract uberrimae fidei but it may be set aside on the ground of misrepresentation. However, it is settled law that mere non-disclosure of a material fact does not invalidate such a contract.
[His Honour then referred to Gutch v Homan regarding misrepresentation by non-disclosure]
[14] Special considerations apply in cases where a husband procures his wife to become surety for his debt and the cases dealing with these circumstances may be put to one side. ...
[15] It was against this background that counsel for the respondents submitted that there were unusual features in the dealings between the company and the bank which the bank in breach of its duty failed to disclose, that the bank was guilty of misrepresentation to the respondents and that the contract of suretyship was an unconscionable bargain which ought to have been set aside.
[16] The chief features of the relationship between the bank and the company which were said to be unusual and to call for disclosure were the company's critical financial position, the value of the company's account to the bank because of the collateral advantages which it brought and the relationship of the bank to the company's joint venturer, General Credits. It was also suggested that the practice of selectively paying cheques drawn on the company's account, leaving a number of cheques worth a total of approximately $45,000 to be met when the bank extended the company's overdraft on the faith of the guarantee and mortgage, called for disclosure.
[17] ... the fact that a bank requires a guarantee of its customer's account is of itself an indication that the customer's financial resources are insufficient in the bank's view to secure its position. Moreover, the requirement of a guarantee points to the fact that the account to be guaranteed is, or is likely to be, overdrawn, because there is no purpose to be served by a guarantee of an account which is always required to be in credit. ... But, it was said, the respondents could not have anticipated the extent of the company's need for credit; it was, so far as they were concerned, a successful company sharing the apparent prosperity of their son. Be that as it may, it amounts to no more than an assertion that the amount of the indebtedness of the bank's customer was, or was shortly to be, rather more than the circumstances suggested to the intending guarantors.
[18] Whether or not the respondents would have been justified in taking such a view of the company's position, the mere fact that the amount by which the company was overdrawn or was to become overdrawn exceeded the respondents' expectations did not amount to a concealment of anything which the bank was bound to reveal. It would, of course, have been prudent for the respondents to have made specific inquiries concerning the level of the company's overdraft, actual and proposed, before executing the guarantee and mortgage, and had such inquiries been made, the bank would have been bound to answer them. But the bank was not bound to volunteer the information and mere silence on its part did not in any way suggest that its arrangements with the company were other than they actually were. Any outward appearance of the continued prosperity of the company must have been belied to an appreciable extent by its need for the respondents' guarantee and the magnitude of the company's previous operations must have suggested that the credit required by it may not have been inconsiderable. What is of importance is that if the respondents failed to appreciate the position of the company and the consequent obligations which their guarantee imposed upon them, there was no failure to appreciate the nature of the relationship between the bank and the company which bore no unusual features.
...
[20] The fact that the bank held cheques for a substantial amount which it met, and intended to meet, on the faith of the guarantee and mortgage given by the respondents indicated no more than a need on the part of the company for further credit to meet its obligations and a readiness on the part of the bank to extend that credit when adequate security was provided. In the context of the bank's requirement that the company obtain a further guarantee, such a situation did not amount to an unusual arrangement between the bank and the company....
[21] The misrepresentation relied upon by the respondents was that of Vincenzo Amadio made in the absence of the bank but for which, it was said, the bank must shoulder responsibility because it must have realized that there had been, at best, only a partial presentation of the facts to the respondents for them to have executed the guarantee and mortgage. The misrepresentation relied upon, which is to be found in the evidence of Vincenzo Amadio, was to the effect that the guarantee was to be for around $50,000 and for about six months. So far as the duration of the mortgage is concerned there can have been no misrepresentation by the bank by silence, no "wilful ignorance", because Virgo on behalf of the bank corrected a misconception on the part of the male respondent before he signed the guarantee and mortgage. This, it was said, should have put the bank upon notice that the respondents may have also misconceived or been misinformed about the amount of the guarantee, but the one is unconnected with the other and the fact that the respondents were apparently prepared to accept the unlimited duration of the guarantee when it was explained to them would not suggest that they had been misled by their son into signing a guarantee which they believed was limited to "about $50,000". There is no basis in the evidence for any suggestion that the bank abstained from inquiry of the respondents in order to avoid learning of their misapprehension, if any. The circumstances of themselves do not suggest that the respondents must have been misled. The relationship between Vincenzo Amadio and his parents provided a reason which was unlikely to be financially based for their readiness to assist their son. Even if they had believed in their son's prosperity and business abilities, it was at least clear that he was asking for financial assistance to obtain credit or further credit from the bank. The trial judge found that Virgo and the other bank officers believed that no explanations were necessary because Vincenzo Amadio had sufficiently explained to the respondents the nature of the transaction and the reasons for it. The evidence provides no reason for disturbing that finding.
On the issue of unconscionable conduct
[22] The respondents sought to invoke the equitable jurisdiction which is raised "whenever one party to a transaction is at a special disadvantage in dealing with the other party because illness, ignorance, inexperience, impaired faculties, financial need or other circumstances affect his ability to conserve his own interests, and the other party unconcientiously takes advantage of the opportunity thus placed in his hands": Blomley v Ryan ... What is necessary for the application of the principle is exploitation by one party of another's position of disadvantage in such a manner that the former could not in good conscience retain the benefit of the bargain.
[23] The trial judge found that the respondents, who migrated to Australia in the nineteen thirties, had a limited grasp of written English but that the female respondent, although not good at expressing herself, had a fair understanding of spoken English. He found that the male respondent understood spoken English quite well and expressed himself with reasonable fluency. He also found that the female respondent knew little, but the male respondent was far from ignorant, of business transactions and the latter had been active in promoting many land transactions before his retirement. Moreover, he found that nothing said or done by Vincenzo Amadio or by his parents gave, or was reasonably capable of giving, to any bank officer the impression that the plaintiffs were so ignorant, decrepit, senile or ill-informed that some bank officer ought, in all honesty, to have explained the substance and the effect of the principal document. The trial judge was unable to find that in March 1977 the male respondent was incapable of sufficiently appreciating the nature and consequences of the document he executed at that time. There was no suggestion that the female respondent would have done other than follow her husband's lead and there is no basis for treating her position differently for the purpose of the application of the relevant principle.
[24] Those findings afford no foundation for the conclusion that the respondents were in any position of disadvantage which was used by the bank for its benefit. The age of the respondents did not amount to an infirmity and the fact that English was not their first language did not signify any incapacity to understand sufficiently. True it was that they had nothing to gain financially by executing the guarantee and mortgage, but that will ordinarily be the case with the guarantee of a current bank account; it affords no evidence that a position of disadvantage existed or that an unfair use was made of the occasion as may be the case in other circumstances where there is inadequate consideration. There is no evidence that the respondents relied upon the bank for advice. ... Nevertheless when it was apparent that clarification was needed as to the duration of the guarantee it was supplied by the bank. It was not a situation in which assistance or explanation was so evidently needed by the respondents that the bank could be said to have taken advantage of them. The respondents had evidently discussed the matter of the guarantee with their son who was fluent in both Italian and English and upon whom they relied for advice. If that reliance was misplaced that does not convert the occasion into one of exploitation on the part of the bank.
[25] For the foregoing reasons it is my view that the appellant bank was not guilty of any non-disclosure amounting to a breach of duty on its part, was not guilty of any misrepresentation to the respondents and was not guilty of any unconscionable dealing. I would allow the appeal.
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