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Federal Court of Australia |
Trade Practices Act 1994 (Cth) s 52
Fair Trading Act 1990 (Tas) s 14
The Commercial Bank of Australia v Amadio [1983] HCA 14; (1983) 151 CLR 447 Cons
Louth v Diprose [1992] HCA 61; (1992) 175 CLR 621 Refd
Legione v Hateley [1983] HCA 11; (1983) 152 CLR 406 Refd
Waltons Stores (Interstate) Limited v Maher [1988] HCA 7; (1988) 164 CLR 387 Refd
The Commonwealth v Verwayen (1990) 170 CLR 394 Refd
Jedda Investments Pty Ltd v Evangelos Krambousanos and Angela Krambousanos
No TG 2 of 1996
Burchett, Carr, Kiefel JJ
4 February 1997 Brisbane
(Heard in Hobart)
TASMANIA DISTRICT REGISTRY
GENERAL DIVISION
No TG 2 of 1996
ON APPEAL FROM A JUDGE OF THE FEDERAL COURT
BETWEEN:
JEDDA INVESTMENTS PTY LTD
Appellant
AND:
EVANGELOS KRAMBOUSANOS and ANGELA KRAMBOUSANOS
Respondents
JUDGES MAKING ORDER: Burchett, Carr, Kiefel JJ
DATE OF ORDER: 4 February 1997
WHERE MADE: Brisbane (Heard in Hobart)
THE COURT ORDERS THAT:
1. The appeal be dismissed.
2. The appellant pay the respondents' costs of the appeal.
Note: Settlement and Entry of Orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
TASMANIA DISTRICT REGISTRY
GENERAL DIVISION
No TG 2 of 1996
ON APPEAL FROM A JUDGE OF THE FEDERAL COURT
BETWEEN:
JEDDA INVESTMENTS PTY LTD
Appellant
AND:
EVANGELOS KRAMBOUSANOS and ANGELA KRAMBOUSANOS
Respondents
CORAM: Burchett, Carr, Kiefel JJ
DATE: 4 February 1997
PLACE: Brisbane (Heard in Hobart)
This is an appeal from a judgment of a judge of the Court (Branson J) which set aside a mortgage registered by the appellant against the respondents' matrimonial home. The mortgage was set aside because her Honour held that, when the respondents granted the mortgage, they were under a special disability in dealing with the mortgagee. The mortgagee was a company called New Imperial Pty Ltd ("New Imperial") which has been liquidated. The appellant is the successor in title to New Imperial by transfer of mortgage. Her Honour held that the appellant took the transfer of the mortgage with notice of the respondents' special disability affecting it.. She dismissed an alternative claim against the appellant which was based on s 52 of the Trade Practices Act 1994 (Cth) and its Tasmanian equivalent, s 14 of the Fair Trading Act 1990 (Tas). Her Honour also dismissed a claim against a firm of solicitors who had been engaged, at very short notice, to provide independent advice to the respondents in relation to the mortgage. That firm was the second respondent to the proceedings at first instance but is not a party to this appeal.
Factual Background
The following recital of the factual background to the matter is taken from the learned trial judge's reasons for judgment:
"The applicants were each born on the small Greek island of Lipsos. Each of them had a limited formal education. They married on Lipsos in 1947. Mr Krambousanos came to Australia in 1952 and Mrs Krambousanos in 1954. They settled in Hobart, Tasmania. During most of his working life in Australia Mr Krambousanos cooked in fish and chip shops. Initially he worked for other people. Later he worked in a business apparently owned by him and Mrs Krambousanos. Later again he worked for other people. When first in Australia Mrs Krambousanos' time was taken up caring for young children. Later she cooked in the family fish and chip shop and later again she undertook food preparation and cooking at a restaurant owned by Italian people. Each of the applicants came to Australia with some familiarity with the Italian language as the island of Lipsos had been occupied by the Italian army during the second world war.
On 7 July 1967 the applicants became the registered proprietors of a property at 40 Burnett Street, North Hobart. It became then and remains to this day their home.
There is perhaps a little uncertainty on the evidence as to Mrs Krambousanos' precise age. It appears, however, that at the time of the events with which this case is concerned, Mr Krambousanos was 74 years of age and Mrs Krambousanos 62 years of age.
Each of the applicants gave their evidence through an interpreter. The extent to which each of them speaks and understands the English language is in dispute. Plainly they do not speak English fluently. I accept that they speak in Greek between themselves. Each of them acknowledges the capacity to speak "a little" or "not a lot" of English. Their daughter-in-law, Cheryl Krambousanos ("Mrs Cheryl Krambousanos"), whose evidence I accept, described each of them as being able to carry on a simple conversation in English. I accept that they can do this, but I find that neither of them has a command of the English language. In particular, I find, that they lack the English vocabulary (indeed, probably also the Greek vocabulary) necessary to discuss anything more than simple commercial concepts.
The applicants have 5 children. Two of their children were born on Lipsos and the other three were born in Hobart, Tasmania. There is no suggestion that any of the applicants' children are other than fluent in the English language.
By an indenture of lease dated 30 April 1986 one of the applicants' children, Anna Cazaly ("Ms Cazaly") became the lessee of a hairdressing salon in the city of Hobart. The lessor of the premises was The New Imperial Pty Ltd ("New Imperial"). The applicant Mr Krambousanos was also a party to the indenture of lease as a guarantor of the due performance by Ms Cazaly of her obligations to the lessor.
In February 1988 New Imperial instituted proceedings in the Court of Requests, Hobart against Ms Cazaly and Mr Krambousanos with respect to unpaid rent under the indenture of lease. On 18 March 1988 judgment was entered against Mr Krambousanos by default for $3,228.32 with costs of $105.60 plus interest at the daily rate of $1.54 from 11 February 1988 until payment. On 18 August 1989 a caveat against the interest of Mr Krambousanos was entered on the certificate of title of the applicants' home at 40 Burnett Street, North Hobart to secure payment of the judgment debt.
On 6 September 1989 Ms Cazaly was declared bankrupt.
In 1991 another of the applicants' children, John Krambousanos ("Mr John Krambousanos") and his wife Mrs Cheryl Krambousanos (together "Mr and Mrs Krambousanos (jnr.)") became interested in a new business. The business was a supermarket in the Tasmanian town of Dover ("the Dover supermarket"). A Mr Ali Sultan had apparently been the developer of the building complex in which the proposed supermarket was to operate. The belief of Mr and Mrs Krambousanos (jnr.) was that Mr Ali Sultan would provide the necessary finance for the new supermarket business and Mr John Krambousanos would run the business. Mr and Mrs Krambousanos (jnr) had no money or other assets of their own at that time.
Krambo Holdings Pty Ltd ("Krambo"), a company controlled by Mr and Mrs Krambousanos jnr., commenced trading as the Dover Supermarket in September 1991. Mr John Krambousanos arranged with a supplier for the supermarket to be stocked. Mr Ali Sultan did not contribute any funds to the supermarket business. In October 1991 the supplier to the supermarket demanded payment of moneys owing to it by Krambo. Not surprisingly, the situation became a stressful one for Mr and Mrs Krambousanos jnr.
Mr John Krambousanos approached Trust Bank Tasmania ("Trust Bank") seeking a loan to support the supermarket business. He mentioned to an officer of the Bank that he may be able to offer his parents' home as security for a loan. This was not a matter which he had at that time discussed with his parents. Trust Bank by letter dated 18 November 1991 offered to provide finance to assist with the working capital requirements of the Dover supermarket by way of a fluctuating overdraft, but on the condition, amongst certain other conditions, that it was given a registered first mortgage over the property at 40 Burnett Street, North Hobart.
Mr John Krambousanos approached his parents to obtain their agreement to mortgage their home to secure borrowings in the name of himself and his wife to finance the Dover supermarket. The applicants' agreement was obtained.
Mr John Krambousanos' solicitor with respect to matters concerning the Dover supermarket was Ian Alfred Charles Creese ("Mr Creese"). On 18 November 1991 Mr Creese attended with Mr John Krambousanos at the home of the applicants and obtained the applicants' signatures to a mortgage whereby they guaranteed the repayment of all monies at any time owing by Mr and Mrs Krambousanos jnr to Trust Bank and secured such guarantee by a mortgage of their home. Mr Creese gave evidence that he spoke to the applicants in English and explained to them the document which they subsequently signed. He further gave evidence that Mr John Krambousanos was present whilst he was providing the explanation and that Mr John Krambousanos spoke on occasions to his parents in Greek.
Immediately after his attendance upon the applicants, Mr Creese, on behalf of his firm, signed a certificate addressed to The General Manager, Trust Bank that stated, amongst other things (some of which Mr Creese acknowledged in his evidence to be untrue) that the applicants had "... been advised by this firm of their respective rights, obligations and liabilities arising under the respective loan and/or security documentation entered into ...". Mr John Krambousanos then took the mortgage and the certificate signed by Mr Creese to the Trust Bank.
At the Trust Bank Mr John Krambousanos was advised that there was a caveat on the title of his parents' property which had been lodged by New Imperial. He telephoned Mr Creese. He mentioned his sister's earlier involvement with New Imperial.
Mr John Krambousanos formed the belief from information provided to him by Mr Creese, that once the judgment debt secured by the loan plus interest on such debt reached the value of the property at 40 Burnett Street, North Hobart, the caveator would be free to take possession of the property and to sell it.
It was agreed before me that such caveat could at that time have been removed from the title of the applicants' property by a payment to the Registrar of Titles [at the hearing of the appeal it was common ground that this should have been a reference to the judgment creditor] of the amount of the judgment debt to which it related plus interest accrued since judgment on the judgment debt. That is, the payment of $3,333.92 with interest at the daily rate of $1.54 from 11 February 1988 until payment.
Mr Creese was aware of the name of the solicitor who ordinarily acted for companies in the same ownership as New Imperial. He contacted that solicitor, Damien Francis Egan ("Mr Egan"). Mr Egan confirmed to Mr Creese that the caveat related to default under the lease which Ms Cazaly had earlier entered into with New Imperial. In response to a question from Mr Creese, he indicated that approximately $30,000 might be involved but he was unsure. Mr Creese formed the view that the caveat must secure the payment of an amount of approximately $30,000. He did not obtain a copy of the caveat for himself then or at any later time.
By letter dated 21 November 1991 Mr Egan, on behalf of his firm, wrote to Mr Creese's firm in the following terms:-
"We advise that our clients shall consider consenting to the registration of a First Mortgage to the Trust Bank provided:
(a) That we secure your undertaking to pay our costs with respect to the matter;
(b) That the Trust Bank's Mortgage is limited to an amount of $70,000;
(c) That your client execute in favour of our client a Second Mortgage for security of damages pursuant to the breach of the Lease dated 30th of April 1986. We do not have the exact amount of the damages, but understand that they are in the vicinity of $44,000.00."
Mr Creese advised Mr Egan by telephone on 22 November 1991 that "his clients" now wished to proceed with the second mortgage. I accept the accuracy of Mr Creese's telephone note which records that Mr Egan pointed out the risk to the applicants and the need for them to obtain independent advice. During this conversation Mr Creese requested a copy of the "Judgment Debt" and of "other documentation setting out the monies owing". In fact Mr Creese did not ever receive from Mr Egan, or obtain for himself, a copy of the judgment or the caveat.
On 25 November 1991, after learning from Mr Egan that the documentation concerning the proposed second mortgage would be ready that afternoon, Mr Creese telephoned Jill Susan Green ("Ms Green"), a solicitor then in the employ of the second respondent. He explained to her that his clients were borrowing money on the security of their parents' house and that an independent solicitor was required urgently to explain the mortgages to the parents. Ms Green agreed to give such advice and opened a file showing her client as Mr Creese's firm. Mr Creese provided Ms Green with a facsimile copy of the certificate of title of the property at 40 Burnett Street, North Hobart, the mortgage document to be signed and a copy of a letter addressed to Mr Creese's firm signed by Mr Egan which contained the following paragraphs:-
"We advise that our client's debt is made up as follows:-
a) Arrears of rent, rates and taxes of the
Lease to the expiration thereof (23/03/91) 44,037.82
b) Interest in accordance with the terms of
the Lease to 23/03/91 @ 18% 13,080.81
c) Interest from 23/03/91 to 23/11/91 on
principal sum @ 18% as per the Lease 5,284.49
62,403.12
The monthly payment of $1,200.00 is to be reduced firstly in reduction of the outstanding interest, secondly in reduction of the interest on the principal sum of $44,037.82, and thirdly in reduction of that principal sum.
. . . .
Please note that at the settlement we shall require a letter from Mr and Mrs E Krambousanos' Solicitors that they have been independently advised in relation to the Mortgage, that they understand the Mortgage and have executed it as security for the outstanding debt of their own free volition."
Ms Green was not advised by anyone, or by any document provided to her, of a relationship between the mortgage concerning which she was to advise the applicants and the caveat registered on the title of their property.
Ms Green was driven by Mr John Krambousanos to his parents' house on 27 November 1991. I accept the evidence of Ms Green as to what happened on that occasion. Her evidence was that she went into a room with the applicants and went through the mortgage explaining its significant features to them in simple language. At one stage she asked Mr John Krambousanos to come in to the room to explain to his parents where payments were to be made under the mortgage and how the interest was to be calculated. Ms Green gave evidence that she advised the applicants of the amount of the debt secured by the mortgage, that such amount could increase with the accrual of interest, that they would be personally liable for the debt and that if one of them died the other would take on the total responsibility, that their home was available for sale by the mortgagee if the debt was not paid, and that they had no obligation to sign the mortgage. Ms Green gained the impression that the applicants had understood her advice and explanations. Her evidence was that as soon as she arrived at their home the applicants said to her words to the effect "We want to sign, tell us where to sign". Nonetheless, she explained the mortgage as described above, and thereafter witnessed the applicants' signatures on the mortgage.
On the same day Ms Green wrote on the letterhead of the second respondent to Mr Egan's firm in the following terms:-
"Dear Sirs,
Krambousanos - New Imperial Pty Ltd
We act for Mr. and Mrs. E Krambousanos, the Mortgagors in the above matter.
We have advised Mr. and Mrs. Krambousanos in relation to the Mortgage over their property at 40 Burnett Street. We are satisfied that the Mortgagors understand the Mortgage and the legal effects thereof. We are also satisfied that they have executed the Mortgage of their own free volition, without undue influence from the Borrowers."
On 29 November 1991 the executed second mortgage ("the mortgage") was provided by Mr Creese to Mr Egan along with the above letter signed by Ms Green. A withdrawal of caveat was provided to the Trust Bank and the Trust Bank opened an overdraft facility in the names of Mr and Mrs Krambousanos jnr.
On the case of the applicants, ten payments of $1,200.00 each were made under the mortgage to New Imperial, principally from monies provided by the applicants who were at that time in receipt of pensions which I understand to have been aged pensions. On the case of the cross-claimant, 9 such payments were made. There is agreement that the last payment was made early in September 1992. The Dover supermarket business failed on a date which the evidence does not make clear.
On 15 January 1992 New Imperial went into liquidation. On that day a transfer of the mortgage from New Imperial to the first respondent was executed. Such transfer was registered on the applicants' certificate of title on 9 March 1992.
On 27 June 1994 the applicants received a demand made on behalf of the first respondent, for the payment of all monies due under the mortgage. The amount outstanding as at 30 May 1994 was said to be $74,401.66."
The Trial Judge's Reasons for Judgment
The learned trial judge found that when the respondents executed the mortgage, they understood the nature of that document and that they signed it of their own free will to assist their son Mr John Krambousanos, and not by reason of any pressure placed on them by him. However, her Honour held that, in the circumstances of the matter, this was not of itself sufficient to demonstrate that the respondents were not under a special disadvantage in dealing with New Imperial. In that regard, her Honour made findings of fact which included the following:
* the respondents' son and daughter-in-law had, as at the date when the mortgage was executed, acute financial problems involving the possible loss of the Dover supermarket business and bankruptcy for each of them;
* the planned solution whereby the respondents would give a mortgage guarantee of a fluctuating overdraft to be provided by the Trust Bank appeared likely to be frustrated at the last moment, due to the caveat on the title to the respondents' property;
* neither the respondents nor Mr John Krambousanos had earlier been aware of the registration of that caveat and none of them had a proper understanding of its significance or the means available to cause it to be lifted from the title;
* neither the respondents nor Mr John Krambousanos, nor Mr Creese, knew that the caveat could be removed by payment of a relatively modest sum;
* Mr Creese had told Mr Egan that Mr and Mrs John Krambousanos jnr were borrowing $70,000 from the Trust Bank "in a final attempt to save their business", had alerted Mr Egan to the fact that if their creditors commenced proceedings then bankruptcy would "no doubt" result and sought "urgent and compassionate consideration" of the matter;
* Mr Egan, at the time when Mr Creese first telephoned him in November 1991, was aware of the caveat and believed that it secured payment of a sum of approximately $1,500. During that telephone conversation Mr Egan told Mr Creese that "approximately $30,000 was owing". [There is no finding as to whether Mr Egan said that this was the amount of the judgment debt];
* Neither the respondents nor Mr John Krambousanos understood the difference between the amount owed by the male respondent by reason of the judgment debt and the amount of any liability that he might have had for on-going claims for rent under the lease. Nor did any of them understand that the caveat reached only to the male respondent's undivided half interest in the property;
* New Imperial, through Mr Martin and Mr Egan, knew that Mr and Mrs Krambousanos jnr were receiving legal advice in respect of the caveat. Each of Mr Martin and Mr Egan had grounds to suspect and did suspect that such advice as Mr John Krambousanos had received had not alerted him to the difference between the judgment debt which was secured by the caveat, and the asserted liability of the male respondent under the indenture of lease which he had signed as a guarantor;
* Mr John Krambousanos also negotiated directly with Mr Martin as to the rate of interest to apply under the proposed mortgage. It must have been plain to Mr Martin during these negotiations that Mr John Krambousanos was acting in the belief that the only way to remove the caveat, to allow registration to the Trust Bank, was to reach an agreement with New Imperial.
* each of Mr Martin and Mr Egan must, in the circumstances, have been alerted to the possibility that the respondents were similarly not alert to the difference;
* Mr Egan's request, in his letter of 25 November 1991, for a letter confirming that the respondents had received independent legal advice was "insufficiently explicit unambiguously to raise the issue" of whether execution of the mortgage was necessary to achieve the removal of the caveat;
* Ms Green's letter of 27 November 1991 was sufficient to put New Imperial, through its solicitors and Secretary, on notice that the respondents had not been advised about the significance of the caveat on their title or as to the means, short of their execution of the mortgage, available to remove it. That letter made it plain that Ms Green considered her obligation to be to proffer advice to the respondents on the basis that they were considering the execution of a third party mortgage in circumstances of no particular significance.
Earlier in her reasons for judgment, the learned trial judge cited key passages from the judgment of the High Court of Australia in The Commercial Bank of Australia Ltd v Amadio [1983] HCA 14; (1983) 151 CLR 447 at pp 462, 474. On the matter of special disability her Honour concluded:
"I find that the special disability which the applicants [the respondents to the appeal] were under in dealing with New Imperial was sufficiently evident to New Imperial through Mr Egan and Mr Martin to make it unconscionable for New Imperial to accept the applicants' assent to the mortgage in the circumstances in which it was given."
Her Honour noted that at the time of the transfer of the mortgage from New Imperial to the appellant, Mr Egan's firm was acting and continued to act as solicitors for the appellant, that Mr Egan had been the Secretary of the appellant since 1951 and that Mr Martin was then and apparently remained the Principal Executive Officer of the appellant. In those circumstances, her Honour found that the appellant took the transfer of the mortgage with notice of the unconscionable circumstances outlined above. Her Honour then held that the appellant had not satisfied the onus of showing that the mortgage transaction was "fair, just and reasonable" (a reference to a passage in the reasons for judgment of Deane J in Amadio at p 474). Her Honour expressed the view that so far as the male applicant was concerned, the mortgage transaction was unduly favourable to the appellant: so far as Mrs Krambousanos (snr) was concerned it was oppressive. Her Honour ordered that the mortgage be set aside.
The Grounds of Appeal
The appellant's principal submission was that no burden of proof should have been placed upon it to justify the transaction until two matters had been proved. The first matter was the existence of a special disadvantage. The second matter was some conduct on its part which could be characterised as unconscientious. In this application, so it was put, it had not been shown that New Imperial had taken unconscientious advantage of a situation of special disadvantage (assuming for the purposes of the argument that there was such a situation).
Mr E.W. Gillard QC, senior counsel for the appellant, submitted that the passage from the reasons for judgment of Deane J in Amadio (at p 474) should not be regarded as a "statutory formula". However, Mr Gillard contended that, on its proper construction, the statement of principle required there to be a special disability which was sufficiently evident to the stronger party and an unconscientious taking advantage of that special disadvantage. In essence, the submission was that New Imperial was the passive recipient of the benefit. New Imperial had stated what it required as a condition for the removal of the caveat. There was no obligation on its part to point out to the respondents or to Mr John Krambousanos that there may have been another means of obtaining the removal of the caveat. In any event, had the male respondent sought to lift the caveat by payment only of the amount of the judgment debt, he would have been faced with an immediate demand for payment of the balance owing under the terms of the guarantee.
That the respondents suffered from a special disability, constituted by their lack of knowledge of what the caveat secured and what was needed to have it removed, was not seriously challenged by the appellant. At one point in argument it was submitted that the disability referred to in Amadio could not be made out by reference to the bargain itself, which is to say because the bargain distinctly advantages one party, but not the other. In this connexion, as has earlier been referred to, her Honour did express a view as to the disadvantage wrought by the transaction itself. It was however expressed with reference to whether New Imperial had satisfied the onus, which had shifted to it, of showing that the transaction was "fair just and reasonable" (Deane J, Amadio, 474). It was not expressed as relevant to the two preceding enquiries: namely whether the respondents suffered from a relevant disability with respect to the transaction and, then, whether unfair advantage had been taken of that situation (Amadio, 466, 477). So far as it is necessary to reiterate, it is clear that her Honour's findings, that the respondents laboured under a mistaken belief as to the sum which the caveat secured and a mistaken belief as to the proprietary interest affected by it, establish a "special disability", the essence of which is that they were unable properly to judge the matter for themselves: Amadio, 461, 476-7 (and see also Louth v Diprose, [1992] HCA 61; (1992) 175 CLR 621, 627 Brennan J).
The appellant also complained that the learned trial judge, in reaching her conclusion that the respondents were under a special disability in dealing with New Imperial, had taken into account their limited language skills, and their social and business dependence upon their children (especially Mr John Krambousanos) when those matters were not known to New Imperial. The relevant passage in her Honour's reasons for judgment reads as follows:
"I find that neither the applicants nor Mr John Krambousanos had any proper understanding of the significance of the caveat registered by New Imperial on the title to the applicants' property. They were not aware of what was necessary to remove it. They did not understand the difference between the amount owed by the applicant Mr Krambousanos by reason of the judgment debt, and the amount of any liability that he might have had by reason of ongoing claims for rent under the lease. They did not understand that the caveat reached only to the applicant Mr Krambousanos' undivided moiety interest in the property. In my view, these circumstances, taken together with their limited language skills, and their social and business dependence upon their children, and especially Mr John Krambousanos, placed the applicants under a special disability in dealing with New Imperial. There was, I conclude, an absence of any reasonable degree of equality between them in the sense discussed by Deane J in the Amadio case."
[The matters highlighted are those which the appellant contends were not, on the evidence, known to New Imperial].
The short answer to this particular complaint is, in our view, that the circumstances recited immediately before the matters referred to in the sentence highlighted above were themselves sufficient to place the respondents in a situation of special disability in dealing with New Imperial. And, so far as the appellant's knowledge of their situation was concerned, there was no need, in our opinion, to show that it had any knowledge of the respondents' limited language skills and their social and business dependence upon their children. As we explain elsewhere in these reasons, what was evident to the appellant sufficed to render obtaining the respondents' assent to the securities and taking the benefit of them, unconscientious.
The focus of the appellant's submissions was that it was not open to the Court to infer that unfair or unconscientious advantage had been taken. It was argued that this required that there had been some positive wrongdoing on the part of the appellants. It will be recalled that her Honour had not found the case founded upon alleged misrepresentations to have been made out. By way of comparison with the facts in Amadio, the appellant pointed to the bank's representative there having participated in conduct which had a tendency to mislead the parents who signed the guarantee and mortgage. Therefore, it was submitted, in addition to a party having knowledge of the disability suffered by the other, the Court must find that it exploited, in an unconscientious way, the disadvantage so as to reap the benefit of the transaction. This was so, the submission continued, because what was required was a conclusion by the Court that the conduct was "against good conscience". What is not comprehended by the submission, in our view, is that knowledge itself operates upon the conscience.
Deane J in Amadio (480) explained that the concept underlying the jurisdiction to grant relief is that equity will intervene to prevent the stronger party acting "against equity and good conscience." It appears however from the judgment of his Honour, and that of Mason J, that that does not require a finding of wrongful action antecedent to entry into the relevant agreement. What was spoken of in Amadio was the conclusion, to be drawn from all the circumstances, that it would be against good conscience to take the benefit of the transaction. Some cases, in which equity will be concerned to provide relief, will depend upon the view the Court reaches about one party's conduct in contributing to a mistaken belief, or assumption as to the state of affairs on the part of the other and upon which a later agreement is then founded (see, for example, Legione v Hateley [1983] HCA 11; (1983) 152 CLR 406; Waltons Stores (Interstate) Limited v Maher [1988] HCA 7; (1988) 164 CLR 387 and The Commonwealth v Verwayen (1990) 170 CLR 394). Where however one party operates under a special disability involving a misapprehension as to the true state of affairs it will prima facie be unfair or unconscientious for the party in the stronger position to procure the execution of a security document, or to take the benefits it provides, where it is sufficiently evident to it that the party under the misapprehension as to the true state of affairs, was operating under that disability in entering into it: (Deane J in Amadio, 477; Mason J, 466). Such a conclusion does not require a finding of positive inducement by the action of the stronger party. It will be available where it must have occurred to the mind of a reasonable person that there was some real possibility that the other party's entry into the transaction was due to an inability to make a judgment as to what was in that party's best interests (Mason J, Amadio, 466-7 and see Deane J, 479).
Her Honour found that it was apparent to New Imperial, through Mr Egan and Mr Martin, that Mr and Mrs Krambousanos (snr) were prepared to pay the whole arrears of rent, when a payment of only a few thousand dollars would have secured the desired release of the caveat and in circumstances where the caveat affected only Mr Krambousanos' interest in the house property. It must have occurred to them that this was because of the respondents' failure to appreciate that what New Imperial had required to be paid was not the judgment debt, but much more. That is sufficient to have required New Imperial to show that the transaction was nevertheless fair, just and reasonable before it, or the appellant taking through it with notice, could take its benefits. It did not do so. A difficulty for it, and one which her Honour emphasised, was that the negotiations by Mr Krambousanos (jnr) and his solicitor with Mr Egan, the solicitor for New Imperial, proceeded, as the latter was aware, upon the basis that payment of what was in fact the full debt was necessary for removal of the caveat to be secured without the distinction between that debt and what was due under the caveat being adverted to. So far as Mr Egan was aware, the solicitor Mr Creese had no details of the judgment debt to which the caveat referred. He had asked for details, but Mr Egan had not supplied them. Nothing in the discussions referred to in evidence indicated any understanding on the part of Mr Krambousanos jnr or his solicitor of the true position.
As to the submission, which we have earlier outlined, that had the caveat been discharged by the requisite payment, New Imperial would have made demand of Mr Krambousanos (snr) under the terms of the guarantee, this does not seem to us to affect any conclusion as to whether Mr and Mrs Krambousanos snr were able to exercise a judgment about entry into the transaction, since they could not be said to have been aware of any such possibility. Its relevance lies in connection with the conclusion stated by her Honour, and which is necessary to the grant of relief, that the transaction which Mr and Mrs Krambousanos (snr) did enter into was very much against their interests. If it was inevitable that they would have had to make such a payment upon demand a different view, to that reached, about the giving of security for that sum might have been open. But it is not plain to us that this would have followed, not the least because it was arguable that the amount claimed as arrears of rent payable under the terms of the guarantee by Mr Krambousanos was excessive. Further, such a course would not have required Mrs Krambousanos to provide security over her interest in the property. Nor is it likely that any demand could have been translated into a further caveat in time to block the transaction, the consummation of which was the respondents' aim.
The appellant also sought to place reliance upon what was said to be inferred from the judgment of Wilson J in Amadio (468 and following). It was submitted that what his Honour there described was a conspiracy between the bank and the son and involved acts of dishonesty on the part of the bank. From this, the submission proceeds, one ought infer that some such conduct is seen to be necessary before the transaction, or the benefits under it, can be described as "unconscionable."
Wilson J expressed concurrence with the judgment of Deane J, but went on to add some observations. These concerned the conduct of the bank which, his Honour explained, had acted in concert with the son. The actions of the bank, in connection with the son's account, were described by his Honour as "extraordinary", but this was not by way of establishing a necessary basis for the relief given. Rather his Honour was concerned to correct the finding, made by the trial Judge, that the transaction was an ordinary commercial one. As his Honour's agreement with the reasons of Deane J shows, his Honour was not saying that a conclusion of unconscionability requires any positive wrongful conduct leading to the signing of the documents in question.
Consistent with its submission that it was the mere passive recipient of the benefit of the transaction, New Imperial submitted that it was merely acting in its own commercial interests. So much may be accepted, but it provides no answer to a finding that it was also aware, or is to be taken to have been aware, of the misconceptions the other parties were under. And her Honour's reasoning in this connexion does not, as was submitted, involve an assumption that there is some obligation on the part of the better-informed transacting party to advise the other parties that there was another, and better, way to protect their interests. However, in this case the rather extreme economy of information provided by the representatives of the caveator, while making a demand far beyond what the caveat itself could justify, makes it very hard to regard the situation as one of passive reception of a windfall benefit.
It was further submitted that there could have been no reason to suppose, from Mr Egan's or Mr Martin's point of view, that the respondents were under any misapprehension since they had received independent legal advice. Put more bluntly, the appellant contended that a conclusion that unconscientious advantage had been taken is not open where any such advice is obtained by the weaker party. So stated it is apparent that what is involved is a question of fact, and not any matter of principle. In any event we are not aware of any case that suggests that receipt of any independent advice operates automatically to exculpate a party having knowledge of a relevant disability affecting the other. The question which arises is, given that New Imperial knew that some such advice had been given, whether one may still infer that the respondents' lack of knowledge was sufficiently apparent to it. The short answer is provided by her Honour's findings. Nothing in the appellant's dealings with the solicitor for Mr Krambousanos (jnr) could have suggested knowledge on his part, which may then have been imparted to either Mr Krambousanos (jnr) or his parents. The information given in the letter from the solicitor who provided some advice to Mr and Mrs Krambousanos (snr) suggested that the critical topic had never been touched upon. Against the background of the apparent lack of understanding on the part of Mr Creese and Mr Krambousanos (jnr), as to the difference between the debt the subject of the caveat and the amount required by New Imperial to be paid, it could not reasonably have been inferred that a proper description of what was to be secured by the mortgage had been provided.
On the view we have taken of the case, it is not necessary to deal with the matters raised in the respondents' notice of contention which concerned findings not critical to her Honour's reasoning.
The appeal should be dismissed with costs.
I certify that this and the preceding eighteen pages are a true copy of the reasons for judgment herein of the Court.
Associate
Date: 4 February 1997
Counsel for the appellant: Mr E. W Gillard QC and Mr P L Jackson
Solicitors for the appellant: Griffits and Jackson
Counsel for the respondents: Mr P W Tree and Mr D R Wallace
Solicitors for the respondents: Wallace Wilkinson & Webster
Date of Hearing: 18 November 1996
Place of Hearing: Hobart
Place of Judgment: Brisbane
Date of Judgment: 4 February 1997
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URL: http://www.austlii.edu.au/au/cases/cth/FCA/1997/26.html