CATCEWORDS CONTRACT OF GUARANTEE - executed over bank account of building company ~ guarantors being principals of company and their parents and parents-in-law - application to set aside guarantee and a supporting mortgage - claim by bank for all monies due under guarantee - claims by co-guarantors against each other for contribution in the event of liability - whether certain representations made by the bank ~- whether such representations were misleading or deceptive ~- whether bank guilty of unconscionable dealing when entering guarantee. Trade Practices Act 1974 s.52(1), 87(2){(a) Blomley v. Ryan (1956) 99 C.L.R. 362. Commercial Bank of Australia Ltd v. Amadio (1983) 151 C.L.R. 447 Hamilton v. Watson (1845) 12 cl. & F. 109 Jones v. Acfold Investments Pty Ltd (1985) 59 A.L.R. 447 Rhone-Poulenc Agrochimie S.A. v. U.I.M. Chemical Services Pty Ltd (1986) 68 A.L.R. 77. Steinberg v. Commissioner of Taxation (1975) 134 C.L.R. 640. SALVATORE NOBILE & FRANCESCA NOBILE v. THE NATIONAL AUSTRALIA BANK LIMITED QLD. G22 OF 1986 Jackson J llth May 1987 Sydney o PRINCIPA| ' REGISTAY IN THE FEDERAL COURT OF AUSTRALIA ) QUEENSLAND DISTRICT REGISTRY ) GENERAL DIVISION BETWEEN AND AND AND AND AND AND AND AND AND ) No. OLD. G22 of 1986 SALVATORE NOBILE and FRANCESCA NOBILE Applicants THE NATIONAL AUSTRALIA BANK Respondent THE NATIONAL AUSTRALIA BANK LIMITED Cross Claimant SALVATORE NOBILE and FRANCESCA NOBILE Cross Respondents DOMENICO MARTELLI Pirst Third Party CATENA MARTELLI Second Third Party DOMENICO MARTELLI and CATENA MARTELLI Cross Claimants THE NATIONAL AUSTRALIA BANK LIMITED First Cross Respondents SALVATORE NOBILE and FRANCESCA NOBILE Second Cross Respondents THE NATIONAL AUSTRALIA BANK LIMITED Cross Claimant DOMENICO MARTELLI and CATENA MARTELLI Cross Respondents CORAM: PLACE: DATE: 10. NOTE: JACKSON J Sydney lith May 1987 MINUTES OF ORDER The applicants' claim against the respondent for a declaration that the contract of guarantee (Exhibit 3) was rescinded by them on or about 19th March 1986 is refused. The contract of guarantee Exhibit 3 (insofar as it applied to the applicants herein) and the bill of mortgage Exhibit 4 are declared to be void and to have been void ab initio. It is ordered that the respondent do all things necessary to effect the discharge of the bill of mortgage, Exhibit 4. The respondent's cross-claim against the applicants is dismissed. The applicants' claim against the third parties for contribution as co-sureties is dismissed, with no order as to costs. It is declared that the contract of guarantee Exhibit 3 (insofar as it applies to the third parties) ought to be set aside, as from the time of its execution and it is ordered that such contract of guarantee (insofar as it applied to the third parties) be so set aside. The respondent's cross-claim against the third parties is dismissed. The third parties' cross-claim against the applicants for contribution as co-sureties is dismissed with no order as to costs. It is ordered that the respondent pay to the applicants their costs including reserved costs of and incidental to these proceedings (including their costs of the proceedings for contribution against the third parties) to be taxed. It is ordered that the respondent pay to the third parties their costs of and incidental to the proceedings (including the costs of the proceedings for contribution against the applicants) to be taxed. Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA ) BETWEEN AND AND AND AND AND AND AND AND AND AND oo ry QUEENSLAND DISTRICT REGISTRY ) GENERAL DIVISION ) No. OLD. G22 of 1986 SALVATORE NOBILE and FRANCESCA NOBILE Applicants THE NATIONAL AUSTRALIA BANK LIMITED Respondent THE NATIONAL AUSTRALIA BANK LIMITED Cross Claimant SALVATORE NOBILE and FRANCESCA NOBILE Cross Respondents DOMENICO MARTELLI First Third Party CATENA MARTELLI Second Third Party DOMENICO MARTELLI and CATENA MARTELLI Cross Claimants THE NATIONAL AUSTRALIA BANK LIMITED First Cross Respondents SALVATORE NOBILE and FRANCESCA NOBILE Second Cross Respondents THE NATIONAL AUSTRALIA BANK LIMITED Cross Claimant DOMENICO MARTELLI and CATENA MARTELLI Cross Respondents i os CORAM: JACKSON Jd PLACE: Sydney DATE: lith May 1987 REASONS FOR JUDGMENT These proceedings relate to an instrument of guarantee bearing date 26 October 1984 and given by six persons in favour of the respondent bank. The debts guaranteed are those of Suesha Nominees Pty Ltd ("Suesha Nominees"), a company which went into voluntary liquidation on 30 September 1985. Two of the guarantors, Carlo Robert Martelli and his wife Pierina Graziella Nobile Martelli were the directors of and shareholders in Suesha Nominees. The other guarantors were Salvatore Nobile and Francesca Nobile (who are Pierina Martelli's parents) and Domenico Martelli and Catena Martelli (who are Carlo Martelli's parents). The Nobiles are the applicants in the proceedings and the elder Martellis are the third parties. Carlo and Pierina Martelli were made bankrupt on their own petitions in September 1985. By notices served on 4th July, 6th August and llth September 1985 the respondent had called on the applicants to pay the amount due under the guarantee and on 12th March 1986 had gaven notice to the applicants that it proposed to exercise its power of sale pursuant to a Bill of Mortgage executed 26th October 1984 which the applicants had given in favour of the respondent to support the guarantee. The guarantee in question was one under which the guarantors were jointly and severally liable to the respondent in respect of "the moneys hereby secured", the liability of the guarantors, however, being limited by cl.3(i) to a total of $250,000.00 plus certain sums for interest and charges and other expenses. 3. It is agreed by the parties that as at the date of delivering judgment in these proceedings the amount due under the guarantee is $420,238.69. In these proceedings, which were instituted on 26th March 1986, the applicants claim to be relieved of the obligations to which the guarantee and mortgage subject them. The applicants' case against the respondent is put ona number of bases. First it is said that at the time of execution of the guarantee by the applicants the manager of the respondent's Zillmere branch, Mr Douglas William Bannerman, represented to them that the extent of their liability under the guarantee was $80,000.00 limited to a period of three to four months whereas, as I have said earlier, the liability under the guarantee was in fact for a much larger sum and was unlimited temporally. It is said that these representations were made fraudulently, that they were made in order to induce the applicants to enter into the guarantee, and that they did have that effect. It is then said that in consequence the applicants acquired a right to rescind the guarantee, which right they exercised by their solicitors' letter dated 19th March 1986. I should note that it was not attempted to prove damages and and it is accepted that, for the purposes of that cause of action, it is unnecessary to determine whether the representations, if made, were made fraudulently. The parties accept that the determination of the issue to which I have just referred depends in the end on whether I accept the applicants' evidence that the representation as to the $80,000.00 limitation was made, Bannerman denying that there was such a representation and giving evidence that he had indicated the true nature of the transaction to the applicants. The second basis on which it is sought to set aside the guarantee is that it is alleged that there was a further representation by Bannerman that Suesha Nominees "was then trading satisfactorily", the representation being made prior to the execution of the guarantee and mortgage. I am asked, if I find that there was such a representation, and that it induced the entry of the applicants into the guarantee, to exercise the powers 4. conferred by s.87(2){a) of the Trade Practices Act 1974 to declare the guarantee and bill of mortgage void ab initio. I might observe in passing that it was accepted by the respondent, plainly correctly, that if the guarantee were set aside on any of the bases relied on by the applicants it would follow that the bill of mortgage should also be set aside. Thirdly, it is contended that the relative positions of the respondent and the applicants were such that the respondent's conduct in the circumstances was unconscionable, and that again the guarantee should be set aside on that basis. The respondent disputes these claims and has cross-claimed for all the monies due under the guarantee. In response the applicants issued a third party notice to the third parties, seeking contribution in the event that the applicants are liable to the respondent, The third parties have cross-claimed against the applicants and the respondent. The cross-claim against the applicants seeks contribution from them if the third parties are liable to the respondent on the guarantee. The cross-claim against the respondent again seeks to have it declared that the guarantee has been rescinded or should be declared to be void ab initio ona number of bases. In this regard it is again alleged that the conduct of the respondent was unconscionable, this time in relation to the execution of the guarantee by the third parties. Secondly it is alleged that there was a failure by the respondent to disclose £acts which, as creditor obtaining a guarantee, it was obliged to disclose. Thirdly, it is alleged that the respondent engaged in conduct which was a contravention of s.52(1) because it knew or ought to have been aware that the third parties were entering into the guarantee on the basis that Carlo Martelli had told them that the guarantee was in connection with a loan of some $80,000.00. Finally it is contended that the conduct of the respondent in the respects particularized in support of the bases earlier adverted to also constituted a contravention of s.52(1). 5. I should add for completeness, that although the evidence in the proceedings between the applicants and the respondent was heard before the evidence in the proceedings between the third parties and the respondent, it was agreed that the evidence in each proceeding, insofar as it might be relevant to the issues or to credit, should be treated as evidence in the other proceeding. It is convenient to commence by reference to the events which led to the proposal to execute the guarantee in question. Suesha Nominees had been acquired by Carlo Martelli in July 1981 and thereafter operated as a building company. At material times the company was trustee for the Martelli family trust, and traded under the name "Martelli Enterprises". Suesha Nominees first became a customer of the respondent at its zillmere branch in December 1982 and at that time Carlo Martelli discussed the establishment of the account with Bannerman, and an overdraft limit of $30,000.00 was arranged. During 1983 the balance of the account fluctuated above and below the limit so fixed, but there were substantial periods when the limit was exceeded. I might say that on 13th December 1982 the third parties had executed guarantees of Suesha Nominees' liability to the respondent, the guarantors' liability thereunder being expressed to be limited to $6,000.00 plus certain interest, charges and expenses. A further guarantee limited to $30,000.00 plus interest, charges and expenses was given by them on 4th February 1983. The guarantee for $30,000.00 was executed in the presence of and witnessed by Bannerman. As I have said during 1983 the overdraft of Suesha Nominees fluctuated. During that year Carlo Martelli was also carrying on business with a another man as M & K Enterprises. It is not entirely clear whether M & K Enterprises was in fact a company but in any event on 27th October 1986 the third parties, in the presence of Bannerman, executed a guarantee in favour of the respondent in respect of the obligations of "M & K Enterprises Pty Limited", the guarantee being limited to a total of $60,000.00 plus certain interest, charges and expenses. 6. In March 1984 the account of Suesha Nominees was just within the limit and it was in that month that a Mr Gavan Ginn commenced employment with Suesha Nominees as a financial manager. Ginn spoke to Bannerman on 28th March 1984 and Bannerman noted inter alia that:- "He has recently taken position of business Manager with Martelli ~ something badly needed. ... Stated that Carlo Martelli had good potential, but was a builder, not a businessman. With his guidance was sure position would be greatly improved. Financial statements were some way off as many statements were missing & Acct was having difficulty following Martelli's records. Bid The optimism apparent in the interview proved to be misplaced. On 8th April Bannerman noted that:- "Ginn requested debt be allowed to go to $50,000 for short term to allow 0/S accounts to be paid to avoid possible legal action as they had been O/S for some time. Arranged execution of fresh G'tee by Martelli Snr to cover & agreed." A guarantee for $50,000.00 was in fact executed by the third parties on that day in the presence of Ginn as witness and, on that day they also executed a guarantee for $40,000.00 of the obligations of M & K Enterprises Pty Limited to the respondent. Again Ginn witnessed the execution of it. Suesha Nominees' overdraft at the close of business on that day was $43,556.26. By the end of the month it had risen to $59,633.24 and by the end of May it had reached $90,677.09. It had grown further by 10th June to $106,916.44 when a meeting took place between Ginn and Bannerman. Bannerman's note of the meeting was that Ginn told him that:- " ... They have had discussion with Deposit & Invest Co. re finance on up to 18 houses to be erected by Martelli. Initially they would be looked after by D & I however on last 6 houses would be required to reach lock-up stage before D & I paid out 6 x $25000. Estimated maximum of 2 mths to this stage, by which time they would be clear of debt or at least within their limit. In view of short terms involved & 7. following production of cash flow to end of Oct. agreed to assist to $150,000 on execution of fresh G'tee by parents" In fact a fresh guarantee to the limit of $150,000.00 was executed by the third parties on llth June 1984, their execution of it being witnessed by Ginn. Bannerman was not present at the execution of any of the guarantees witnessed by Ginn. At the end of June the overdraft had risen to $140,790.51 and by 10th July was $167,655.87, rising to $179,804.15 on the next day. On the latter day Bannerman was told by Ginn, as he noted:- "Four houses completed to lock up stage & funds from D & I due on them shortly following inspection & approval. Wet weather has delayed levelling of blocks for other two & because of red soil, delay could be up to 3 weeks from first anticipated time for completion first week in August. Asked that they endeavour to curtail expenditure as far as possible." The bank statements show that two cheques, each for $5,000.00, were dishonoured by the respondent on that day. The overdraft continued to increase during July and by 3lst July had reached $203,563.16, peaking at $204,689.81 the next day. Some deposits began to be made, however, and by 22nd August the overdraft had reduced to $145,663.36. On that day Ginn telephoned Bannerman to say, as Bannerman recorded, that:- ",.. all should be well by 4/9, as by that time they will have received approx $108,000 in various draws on houses built under contract/specs plus $50,000 from D & I." On 4th September a deposit of $91,167.00 was made and deposits of $550.00, $123.00, $21,154.00 and $13,011.20 were made on 6th, 7th, 12th and 13th September respectively. 8. In the meantime Bannerman''s conduct in permitting the overdraft to increase as it had was the subject of some adverse comment by the respondent's Regional Lending Manager, a Mr werda, who on 24th August send a Memorandum to Bannerman stating:- "We expect Branch Manager to request permission of the appropriate approving authority before the Bank provides excesses to the level granted. One prerequisite of such approval would be the execution of a Guarantee to cover the excesses on a Category "A" or "B" basis." Bannerman's authority, it may be noted, was limited to approving an overdraft limit of $30,000.00. On 4th September an application for a commercial bill facility in an amount of $70,000.00 was forwarded by Bannerman, and it was approved by Werda on 10th September. The proceeds of the sale of the bill of exchange were $66,490.75, which sum was paid into the account on 21st September reducing the overdraft to $101,484.63. Bannerman commenced holidays on 8th September and during his absence, indeed on the first working day thereafter, the relieving manager Mr Hayes, who was normally the accountant at the branch, dishonoured three of the company's cheques for amounts totalling nearly $20,000.00. He said that he did so because they were not in a list of cheques which Ginn had shown to him for approval earlier, but since he asserted that the meeting with Ginn had been while he was relieving manager, I find this hard to accept. In the end it seems not to matter. Shortly after Hayes became relieving manager, Mr Perrem, a Regional Manager, visited the Zillmere Branch on his regular visit. He then discussed with Hayes the "Irregular Accounts Lists", on which Suesha Nominees appeared. That list 9. showed that as at 13th September the overdraft was $144,688, that the overdraft limit was $30,000 and that there was "Commercial Bill $70,000". Perrem noted on the list the instruction "Continue to control under $150,000 all up. Report 15/10/84." After the proceeds of the sale of the bill of exchange were paid into the company's account, some further deposits were made. On 24th September a deposit of $41,436.20 was made and that deposit, together with deposits of $53,650.80, $260.00 and $19,804.33, kept the overdraft below $80,000 until 8th October. Thereafter, however, the overdraft rushed upwards being $97,940.90 on the 12th, $137,905.73 on the 19th and $151,833.98 on the 26th. Those figures leave out of account, of course, the liability to indemnify the respondent on maturity of the bill of exchange. On 28th September, while Hayes was relieving manager, he had a discussion with Ginn in which Ginn told him chat "draws" on loans should being in $65,000.00 by 5th October (reducing the then overdraft to $5,000.00) and that "suppliers" and "wages" would be about $80,000.00. Hayes told Ginn that the maximum debt which could be permitted was $85,000.00 by way of overdfaft, together with the $70,000.00 to become due on the bill of exchange. He noted that "Gavin (Finance Mgr) knows that the a/c is not to pass as shown". As I have said, however, the account went well beyond those arrangements and at some point Hayes obtained, orally, approval from the Regional Lending Manager to allow the total to increase from $150,000.00 to $190,000.00. The increase was permitted because Ginn and his wife were prepared to give a guarantee for $40,000.00, the guarantee being supported by a deposit of $40,000.00 by the Ginns. The guarantee was executed by the Ginns on 15th October. Why the Ginns would adopt this course is not entirely clear but it may be that, as Bannerman mentioned in the application for the bill facility, Ginn intended to buy an interest in the business. 10. Bannerman returned from holidays in mid October, probably on the 15th. He gave evidence, which I accept, that on his return from leave Carlo Martelli and Ginn came to see him, and asked that the overall limit be increased to $250,000.00, stating that the Nobiles were prepared to assist and offering security over land at Caboolture. Bannerman, as I find, arranged for Hayes to contact the respondent's Caboolture branch to value the applicants' land at Caboolture, and a valuation was done on 16th October. The respondent received the certificates of title for the two blocks of land, and proceeded to prepare the guarantee and bill of mortgage presently in issue. Bannerman's evidence was then that an appointment was made fo the execution of these documents, that being for the morning of 26th October. He gave evidence that the Nobiles arrived first with Carlo Martelli and Ginn, that after seating had been arranged he asked them if it was correct that they had agreed "to give assistance to Carlo and Pierina through their company by acting as guarantors and providing a security". He said that they agreed, it being Mr Nobile who said "yes". He said that he then proceeded to take a statement o assets and liabilities from the Nobiles, which Mr Nobile signed. Bannerman said that he placed the guarantee in front of the applicant. so that it was facing them and proceeded to explain to them the typewritten entries which appear on the front page of it. Those entries are relevantly as follows:- ll. "Item 2 SULCSHA NOMINEES PTY LIMITED as Trustee for THE MARTELLI FAMILY TRUST Trading as MARTELLI ENTERPRISES ("the customer") Address .. 1 Lemke Road, TAIGUM ...cesscceee Item 3 Salvatore NOBILE and Francesca NOBILE of 16 Garozzo Street BOONDALL Carlo Roberto MARTELLI and Pierina Grazella Nobile MARTELLI of Lot 13 Bottlebrush Court KALLANGUR and Domenico MARTELLI and Catena MARTELLI of Handford Road, TAIGUM. ("the guarantor") Item 4 $250,000 (Two hundred and fifty thousand dollars) ("the basic liability") Item 5 Trust Deed dated Twenty-ninth day of May 1981 Name of Trust The Martelli Family Trust Trustee Suesha Nominees Pty Limited Settlor Vincenzo Martelli " In explaining those entries he told them, he said, that the guarantee was "in favour of Suesha Nominees Pty Limited as Trustee for Martelli Family Trust trading as Martelli Enterprises", that they were entering into the guarantee with the four Martellis, that the basic liability was $250,000.00 and that they were "jointly and individually liable for that amount". He said that the applicants then signed the guarantee as did Carlo Martelli. He said that he told the applicants that if they were themselves to make applications for a loan, the amount of their liability under the guarantee would have to be taken into account. The bill of mortgage was then signed, Bannerman saying that it was a normal bank form of mortgage, no doubt similar to that which the applicants had seen with their own bank. He said that at the conclusion of the meeting he asked the applicants whether they understood the documentation which they had executed and whether they had any questions. He said that they did not respond in any way which indicated that they did not understand. Bannerman said that the applicants then left and the third parties, who had been waiting outside, came into his office. Unlike the applicants, he had known the third parties before, because they were customers of the Zillimere branch of the respondent. He had spoken to Mr Martelli senior on odd occasions if he had seen him in 12. the banking chamber and there had been two earlier occasions in the past when Mr Martelli senior had discussed with him parttcular transactions in which the respondent's assistance was sought. Bannerman's evidence in relation to the execution of the guarantee in question was that after the third parties entered his office he asked them whether, as he had been told, they were agreeable to the execution of a guarantee for the increased amount, and Mr Martelli indicated that that was so. He said that he then showed them the guarantee and read out to them, and explained the effect of the typewritten parts in terms similar to those which he had used to the applicants for a similar purpose. The third parties executed the guarantee and at some point Bannerman asked them if they realised the intent of the document, and understood what he had explained to them, and Mr Martelli said "Yes". Mrs Martelli said nothing. To this point Pierina Martelli had not executed the guarantee and Bannerman's evidence was that she attended later the same day for that purpose. Pierina Martelli's evidence was that she had executed the document some days later, in the banking chamber and in the presence of Hayes, whom she knew. Hayes, however, had himself gone on holidays by this time and I do not accept her evidence on this point. I am satisfied that she signed the document in the presence of Bannerman on the 26th. The evidence of the applicants and the third parties, and Carlo Martelli, as to the circumstances in which the guarantee was executed is quite at odds with that of Bannerman. The applicant Salvatore Nobile was born in Sicily on 19th April 1933. He migrated to Australia at the age of 20 and worked as a cane cutter for two years before buying a fruit farm in the Stanthorpe area. The farm was not successful and he came to Brisbane and worked as a plant operator with Brisbane City Council for 8 1/2 years. He and 13. his wife then operated a market garden and shop in Sandgate Road and continue to do so. Both applicants agree that the guarantee and bill of mortgage were signed by them on 26th October 1984, the date which the instruments bear and the male applicant's evidence was that at some time prior to that date - it is unnecessary to seek to identify precisely when ~- Carlo Martelli came to the applicants' house one night and asked if he could be guaranteed for $80,000.00. He told the male applicant that he had a lot of houses built but that they were slow selling and asked for some help for a period. What was discussed, the male applicant said, was whether the guarantee could be supported by a mortgage over land. The applicants, as I have mentioned, owned two blocks of land at Caboolture, Lots 3 and 4 in Tomlinson Road. There was a house on Lot 3. Lot 4 was vacant land. There had been mortgages over the land which had been paid out although they were not formally discharged. According to Mr Nobile, he told Carlo that he would discuss the proposal with his wife and a few days later, having done so, told him that he would guarantee him to the extent of $80,000.00 and that Lot 3 would be made available to the Bank to support the guarantee. He says that he arranged for release of the deeds from his bank (Westpac) and that Pierina collect them and take them to the respondent. About a week later Carlo came one evening and said that the next day they were to go to the bank "to sign the document". He said that when he arrived at the bank manager's office Carlo was already inside. After the introductions Bannerman asked whether the applicants were happy to guarantee Carlo for $80,000.00, a sum which was specifically mentioned. He says that Bannerman said that the $80,000.00 guarantee was to be given to help Carlo out with his business and that it was to be for a period of 3 to 4 months. Bannerman said that the business was going well. In the course of the discussion which took place Bannerman took a statement from Nobile of the family assets and he did not tell him anything about the fact that the guarantee was for $250,000.00 and not $80,000.00. In due course the applicants, according to Mr Nobile, then signed the guarantee. 14. Mr Nobile did not, he says, have his glasses with him on the occasion and was not able to read the guarantee and mortgage. The female applicant was also born in Sicily and she came to Australia when she was 22. She had worked in Australia on the farm and in factories. Her education has beem minimal. She can read English, but with difficulty. She said in evidence that before going to the respondent bank at Zilimere for the signing of the guarantee that she had been told by her husband that the guarantee was to be for $80,000.00 to help Carlo but she did not recall there being any length of time mentioned for the operation of the guarantee. She had been told about the $80,000.00 by her husband a couple of weeks before or perhaps one month before the date on which the guarantee was signed. When they went to the bank the manager said they were there to sign the paper for $80,000.00 and that it was to be "for 3 or 4 months" although at another point she said it was for 2 or 3 months. He asked questions about the property which the Nobiles had and in due course they signed the guarantee. The manager told them, according to her, that the "building game" - meaning, as I find, Carlo's business - was "going OK". Mrs Nobile denied that she read the guarantee and said that she too did not have her glasses with her at the time and did not have her glasses because she had been called on to go there quite suddenly and did not have her handbag which had her glasses in it. Carlo Martelli gave evidence that a few days before the signing of the guarantee he had spoken to Mr Bannerman by telephone to check with him the terms of an agreement that had been reached between Ginn and Bannerman about the Nobiles executing the guarantee. He said that in that conversation he had asked Bannerman how the loan for $80,000.00 was being done and that Bannerman told him it would be done as a fully drawn advance, which would involve an account being opened by the Nobiles at the bank which would then be fully drawn to the extent of $80,000.00, with that sum credited to the account of Suesha Nominees Pty Ltd. He said that he told Bannerman that the loan was only for 2 to 3 months and that Bannerman 15. acknowledged that that was the position. He said that on the day when he went with his in-laws to execute the guarantee he arrived before his parents-in-law and that Bannerman opened his door and called him over and said "I want your parents to sign this thing as well". Carlo Martelli said that he "blew up" and said that no one had told him that his parents had to sign anything. The manager, according to Carlo Martelli, said that he had told Ginn that they had to sign. He said that when the Nobiles arrived they were brought into the manager's office and his mother-in-law said to the manager "We want to know everything". He said that Bannerman said the company had an overdraft of $157,000.00 and that the bank would be extending the overdraft to $250,000.00 and that Carlo Martelli had asked "What about the $70,000.00 commercial bill?" and that Bannerman had said that that was separate and had nothing to do with the overdraft. He said that Bannerman then, with the document in front of him, said "This is a guarantee for $80,000.00" and that Mr Nabile had asked him for confirmation that their liability was for $80,000.00 and had received it. He said he then asked the Nobiles to sign the documents which they did. Mr Domenico Martelli was 57 years of age in October 1984. He had been born in Sicily and migrated to Australia in 1952. After arriving in Australia he worked for a short period in a timber yard and then as a cane cutter and ina tyre repair shop. Later he worked for Nanda Macaroni for 17 years and now operates a fruit and vegetable stall on his property. He speaks English, though with a relatively heavy accent, reads newspapers in English but is not very proficient in writing in English. I am satisfied that he does understand most English spoken to him and that in the witness box he exaggerated to some degree his difficulties in understanding English. Mr Martelli's evidence in relation to the guarantee presently in question was that one afternoon in late 1984 Carlo Martelli had come to see him and had said that the bank Manager wanted him to sign a document enabling him to borrow 16. $80,000.00 to be used for building a property at Caboolture. He said that he asked Carlo why the manager wanted him to sign and that Carlo had told him he didn't know. He said that he told Carlo that he didn't want to go but that Carlo reiterated that the bank manager wanted him to go. He said that after a couple of days he went down, by himself, to the bank and asked for the manager. He was taken into Bannerman's office and Bannerman said "Mr Martelli, please you sign here" pointing to a page of paper. Mr Martelli says that he signed the paper and then left. Mrs Martelli's evidence was that she had been taken to the Zillmere Branch of the respondent by Carlo and that when Carlo parked the car he encountered a friend of his, with whom he engaged in conversation. Mrs Martelli did not wait until that conversation was concluded but went into the bank where she was met by Bannerman who led her into his office and then produced a document, indicating a place where she was to sign and saving "Sian here". According to Mrs Martelli she did just that and then left the bank, meeting Carlo outside who was still talking to his friend. Although Mrs Martelli speaks and understands some English, she gave her evidence through an interpreter and I am satisfied that her comprehension of other than simple English spoken to her is not good. I accept that she does not read or write in English. It is necessary then to make some findings as to the events which in fact occurred. In this regard I am hampered by the fact that I am unable to regard the recollection of any of the witnesses as being entirely satisfactory. Turning first to the allegations by the applicants, I do not accept the evidence of the applicants and Carlo Martelli that Bannerman told them that the guarantee was for $80,000.00 and was to be for a period of 3-4 months. I think that the figure of $80,000.00 was mentioned in discussion on that occasion, either as being the amount which the applicants 17. thought was to be the amount of the guarantee or as being about the amount by which there was a need for an increase, or perhaps as being roughly the amount of the potential exposure of the applicants to liability, if each of the three families who were to be parties to the guarantee had to pay in the end one third of a liability of $250,000.00. It is pure speculation, however, to attempt to work out what was said about the $80,000.00 on that occasion. It suffices to say that I am satisfied that the representation relied on was not made. I should say in reaching this conclusion I found both Mr and Mrs Nobile to be unreliable witnesses, Mrs Nobile in particular being prepared to pay scant regard to the truth. I found their evidence that they had not taken their glasses to the bank quite unconvincing and I did not believe them on this point. I would also find it extraordinary that Bannerman would tell them the guarantee was for $80,000.00 when on its face it showed that it was for $250,000.00, a matter which could have been seen by anyone. Bannerman was not to know that, if it be the fact, they would come without their glasses. I also found it impossible to believe that, intending to make only one deed available to the bank for the purposes of the mortgage, the applicants were prepared to let the bank have mortgages over both, or to allow the bank to retain both deeds. This was a matter never satisfactorily explained by the evidence. Generally speaking and subject to the observation I have made earlier as to the $80,000.00, I accept Bannerman's evidence of the events which took place at the time of the execution by the applicants of the guarantee. I do not, however, accept his evidence that Ginn was present. I regard the authenticity of his diary note recording Ginn's presence as doubtful, in the sense that I am not satisfied that the diary note was made at the time when he said it was. Ginn was available at court to give evidence and I think that I am entitled to regard the respondent's failure to call him to do so as indicating that his evidence would not have assisted it. 18. It follows from what I said that the applicants claim to have been entitled to rescind for misrepresentation under the general law fails. I turn then to consider the second basis on which the applicants rely, namely the representation by Bannerman that Suesha Nominees was then trading satisfactorily. There is no doubt that such a representation was made. Mr Nobile said Bannerman told him the business was "going well", Mrs Nobile says he said it was "going OK" and Bannerman himself agreed that he said that "the business appeared to be operating quite satisfactorily". Mrs Nobilé, whose evidence on this point I accept, gave evidence that she entered into the transaction because of the representation in question. Mr Nobile did not give such evidence but, as the Full Court said in Jones v. Acfold Investments Pty Ltd (1985) 59 A.L.R. 613 at 623-624:- "Holmes v Jones and Smith v Chadwick were both cases where the causes of action relied upon were the tort of deceit, but a similar onus lies upon a claimant who alleges that he has suffered damage as a result of misleading conduct in breach of s 52 of the Trade Practices Act. As those cases make clear, if a representation is provided which is of such a nature as to be likely to induce a representee to act upon it, the inference may be drawn, if the representee does act, that he has acted in reliance on the representation. But since the inference is one of fact it may be rebutted by other evidence which is inconsistent with the infererence: see Holmes v Jones, supra, at p 1707, per O'Connor J." The next question is whether the content of the representation by Bannerman was misleading or deceptive. [It was put in argument on behalf of the respondent that Bannerman was intending to convey not that the business was trading satisfactorily but that in his opinion the company was trading satisfactorily. Cases, of which this is one, are frequent where a statement involves both the representation that the stated fact is true and that the maker of the statement 19. believes it to be true. In my opinion the statement made by Bannerman was one by which he meant to convey, and did convey, that the business was trading satisfactorily and that he believed that to be the case. It is manifest in my view that the business was not then trading satisfactorily. I accept that, as Mr Douglas Q.C. put it, one should not too readily assume that a business is not trading satisfactorily simply because it has a large overdraft, but so much depends on the particular circumstances. Here the company's business was building and selling houses. It was building them, but it was not selling them. Its borrowings had increased dramatically from around $30,000.00 in mid-March to about $220,000.00 on 26th October, including the liability on the bill of exchange, and there was no relief in sight. In these circumstances I regard the statement as in fact untrue, and I so find. In the result I am satisfied that, it not being in issue that the respondent is relevantly a "corporation", or that its conduct took place "in trade or commerce", that the applicants have established that there was a contravention of $.52(1). It is impossible to say that the applicants would have entered into the guarantee and mortgage if Bannerman had not said that the business was trading satisfactorily and accordingly I would exercise the power conferred to s.87(2)(a) to declare the guarantee and bill of mortgage void ab initio. Having taken that view it is unnecessary in one sense to deal with the other ground on which the applicants rely. I think that I should do so, however, because the ground on which I have just found on this favour was added by amendment during the trial, and if the applicants were entitled to succeed in a ground originally pleaded their position as to costs is stronger. 20. It is clear, of course, as Commercial Bank of Australia Ltd v. Amadio (1983) 151 C.L.R. 447 shows, that a creditor may be held to have engaged in unconscionable conduct in procuring a surety's entry into a guarantee, with the result that the guarantee may be ordered to be set aside. For the doctrine to apply in such a case it must appear first that the surety was under a "special disability" in dealing with the creditor with the consequence that there was an absence of any real degree of equality between them. See Commercial Bank of Australia Ltd v. Amadio (supra) at 474, per Deane J.. As the judgments in that case, (and in Blomley v. Ryan (1956) 99 C.L.R. 362) show the term "special" used in relation to the "disability" is not intended to limit the classes of disability to which the principle may apply, but rather to emphasize that some circumstance different from the norm has had the result that one party is "at a serious disadvantage vis-a-vis the other" (Blomley v. Ryan supra, at 405 per Fullagar J.). I am satisfied that the applicants were at a serious disadvantage vis-a-vis the respondent. The respondent, to use the words of Deane J. on the same issue in Commercial Bank of Australia Ltd v. Amadio supra at 476, is a major national financial institution. It was in fact aware of a great deal of information concerning the state of the business of Suesha Nominees. It was conscious of the dramatic increase which had occurred in its overdraft during the 1984, of the cheques which had been dishonoured, and of the fact that the predictions made to it as to the reduction or discharge of the overdraft had proven incorrect. It knew too that when the liability on the bill of exchange was taken into account, the company's liabilities to the respondent would be in excess of $220,000.00, so that the additional overdraft accommodation available by reason of execution of the guarantee was relatively slight. 21. The applicants, in my view, were in a considerably weaker position. I accept their evidence that at the time when they went to the bank, they believed (because Martelli had told Mr Nobile, who had passed it on to Mrs Nobile) that the guarantee was to be for $80,000.00. I accept also that until they went to the respondent's premises on that day they did not know that the guarantee was to be for $250,000.00. They had little knowledge of the affairs of Suesha Nominees and they had not received any independent advice. It was known to Bannerman that the applicants came to execute the guarantee and mortgages because Carlo Martelli had arranged for them to do so, and it must have been obvious to Bannerman that the male applicants' command of English, though adequate, was not good. It must also have been obvious that they had come with a wrong view of their intented liability. I am satisfied that the applicants were the weaker parties to the transaction vis-a-vis the respondent and that that weakness - i.e. "the party is unable to judge for himself" (Commercial Bank of Australia Ltd v, Amadio (supra) at 476-477 - constituted a "special disability" of the applicants for the purposes of the application of the principle. It will be noted that in arriving at that view I have not taken into account the statement, which I have found to be incorrect, by Bannerman that Suesha Nominees was trading satisfactorily. It is not entirely clear whether that fact goes to the existence of the "special disability" or to the question whether unfair advantage has been taken of the special disadvantage, or perhaps to whether relief should be granted, and if so on what terms. If it should be taken into account on the question of special disability, the making of it reinforces the view at which I have arrived on that question. The next question, as Deane J. put it in Commercial Bank of Australia Ltd v. Amadio (supra) at 477:- 22. " ... is whether the special disability ... 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." It is clear, in my view, that this test 1s satisfied. All that the respondent knew was that Carlo Martelli had told it that the applicants were prepared to give the additional guarantee acquired, a guarantee for additional accommodation most of which had already, as a practical matter, been granted. The applicants had arrived believing they were to sign a guarantee for $80,000.00, a view from which they had to be disabused. There was no reason to suppose that the applicants had had any independent advice and there was no suggestion by Bannerman that they should. If one takes into account the misrepresentation by Bannerman the requirement is clearly satisfied. Even if one does not it is clear in my view that the requirement is yet satisfied. The position which then obtains is that:- ",.. the onus is cast upon the bank to show that the transaction was "in point of fact fair, just and reasonable" (Fry v. Lane)" (Commercial Bank of Australia Ltd v. Amadio (supra at 479 per Deane J.). It is clear from the discussion by Deane J. at 480 that the issue is not confined to the terms of the transaction but to the conduct leading to the making. No more need be said on this issue, in my view, than to say that the applicants entry into the guarantee was provided in part by the representation as to the state of the business of Suesha Nominees. In these circumstances the respondent has not satisfied the onus resting on it on this issue. The applicants are entitled to have the guarantee insofar as it applies to them, set aside unconditionally. 23. I turn then to consider the claim of the third parties to be relieved from the obligations under the Guarantee. As I have said earlier I accept the evidence of Bannerman, in preference to that of the third parties and Carlo Martelli, in relation to the time at which the guarantee was executed by them. I found that the third parties were both unreliable witnesses, but the matter is complicated by the fact that I am not at all satisfied that Bannerman''s evidence of the events taking place at the execution of the guarantee by them is other than a reconstruction. In particular I am not satisfied that he explained the contents of the typewritten parts of the guarantee in a manner similar to that which he used in relation to the applicants. Doing the best I can, I think then Bannerman assumed that the third parties knew what they were there to sign, and simply invited them to sign the document, which they did. It follows from the finding which I have just made that the third parties' reliance upon s.52 of the Trade Practices Act is misplaced. Mere silence, in the absence of a duty to speak, does not amount to conduct which is misleading or deceptive or likely to be so. (Rhone-Poulenc Agrochimie S.A. v. U.I.M. Chemical Services Pty Ltd (1986) 68 A.L.R. 77). The case in relation to s.52 thus merges with the argument that there was a duty to disclose under the general law, the duty being based on the principle in Hamilton v. Watson (1845) 12 cl. & F. 109 at 119 [8 E.R. 1339 at 1343-1344] that a creditor taking a guarantee is obliged to inform the surety of anything not naturally to be expected". See the discussion of the cases by Gibbs C.J. in Commercial Bank of Australia Ltd v. Amadio (supra) at 455-457, and by Mason J. at 463 and by Deane J. at 485-486. In my view the two aspects here urged to attract the principle do not. The first is that the account was already substantially overdrawn, a matter which the passages to which I have just referred show is by itself insufficient to attract the principle. The second is that part of the indebtedness was that due on maturity of the discounted bill of exchange. I also find no difficulty in taking the view that that fact need not have been disclosed. 24. Providing finance by bank-accepted bills of exchange has long been a well-recognized means of making funds available to the customers of banks, although the popularity of the method has waxed and waned, and no significant reason was advanced why the fact that part of the money which might become payable to the respondent was in respect of honouring commercial bills of exchange, rather than say cheques. I turn then to the remaining question, namely whether the conduct of the respondent leading to the execution of the guarantee was unconscientious. Whilst the personal circumstances of the third parties are rather similar to those of the applicants, there is a feature relied on by the respondent which is said to make the case of the third parties very different from that of the applicants. That feature is that the third parties had already given a number of guarantees in favour of the respondent in respect of the indebtedness of Suesha Nominees and of M & K Investments. The third parties had also given guarantees in favour of a number of suppliers to Suesha Nominees. Although some of the guaranteed were executed in the presence of Ginn, I did not believe the third parties in their denials of knowledge of, or of the effect of, these documents. I am entitled to infer, it seems to me, that the contrary is the fact (Steinberg v. Commissioner of Taxation (1975) 134 C.L.R. 640) and that in fact they knew that what they were doing was executing guarantees on which they might be called to pay if their son's businesses did not pay. TI am not at all satisfied, however, that the knowledge that the guarantees to which I have referred were in force militates against the notion that the third parties were in a position of "weakness" in the relevant sense vis-a-vis the respondent. Rather I think that it emphasises the relative strength of the respondent, as against the third parties. If they did then not sign what the respondents wanted them to, in order to get further accommodation, their liability on the existing 25. obligations might be called up. I am satisfied in these circumstances that there was a special disability of the requisite kind in the third parties. I am satisfied also that that must have been obvious to the respondent by Bannerman, who knew that the execution of the guarantee covering a liability of $150,000.00 had been witnessed by Ginn and could have no idea of the third parties' knowledge of the true situation. He must have known that this knowledge would derive from Carlo Martelli or from Ginn. Further I am satisfied that the circumstances in which the third parties were to execute a guarantee for a sum which if they were called upon to pay the whole or most of it, would take up all their assets, and which was to provide security for the respondent for advances and obligations which largely were already made or incurred, called out for the parties to be given the opportunity to take separate advice on the matter. I am not satisfied that the third parties would have entered into the transaction if they had had such separate advice. It was not suggested that if I were of this view, I should not set aside the guarantee as against the third parties unconditionally, and I shall do so. In the light of the views which I have expressed, the claims for contributions fail, as do the respondent's claims under the guarantee. The orders which I shall make are as follows:- 1. The applicants' claim against the respondent for a declaration that the contract of guarantee (Exhibit 3) was rescinded by them on or about 19th March 1986 is refused. 10. 26. I declare the contract of guarantee, Exhibit 3, (insofar as it applied to the applicants herein) and the bill of mortgage, Exhibit 4, to be void and to have been void ab initio. I order that the respondent do ali things necessary to effect the discharge of the bill of mortgage, Exhibit 4. The respondent's cross-claim against the applicants is dismissed. The applicants' claim against the third parties for contribution as co-sureties is dismissed, with no order as to costs. I declare that the contract of guarantee Exhibit 3 (insofar as it applies to the third parties) ought to be set aside, as from the time of its execution and T order that such contract of guarantee (insofar as it applied to the third parties) be so set aside. The respondent's cross-claim against the third parties is dismissed. The third parties' cross-claim against the applicants for contribution as co-sureties is dismissed with no order as to costs. I order that the respondent pay to the applicants their costs including reserved costs of and incidental to these proceedings (including their costs of the proceedings for contribution against the third parties) to be taxed. I order that the respondent pay to the third parties their costs of an incidental to these proceedings (including the costs of the proceedings for contribution against the applicants) to be taxed. I certify this and the 25 preceding pages to be a true copy of the Reasons for Judgment of his Honour Mr Justice Jackson. associate: Wika Harsco Date: llth May 1987 Counsel for the Applicants: Solicitors for the Applicants: Counsel for the Respondents: Solicitors for the Respondents: Dates of hearing: Counsel for the Third Party: Solicitors for the Third Party: 27. R.S. O'Regan, Q.C. and D.A. Reid Gabriel Ruddy & Garrett R.R. Douglas, Q.C. and S.M. Kieffel Cannon and Peterson 14th, 15th, 22nd, 23rd, 24th, 27th, 28th, 29th, 30th April 1987. G. Brandis Seymour Nulty & Co.