Watt v State Bank of New South Wales [2002] FCA 1184

FEDERAL COURT OF AUSTRALIA

Watt v State Bank of New South Wales [2002] FCA 1184 ALLAN JAMES WATT & FAY ELIZABETH WATT v STATE BANK OF NEW SOUTH WALES t/as STATE BANK OF NEW SOUTH WALES A40 of 2002 FINN J 23 SEPTEMBER 2002 CANBERRA

IN THE FEDERAL COURT OF AUSTRALIA

AUSTRALIAN CAPITAL TERRITORY DISTRICT REGISTRY A40 OF 2002

BETWEEN: ALLAN JAMES WATT & FAY ELIZABETH WATT

APPLICANT

AND: STATE BANK OF NEW SOUTH WALES t/as STATE BANK OF NEW SOUTH WALES

RESPONDENT

JUDGE: FINN J

DATE OF ORDER: 23 SEPTEMBER 2002

WHERE MADE: CANBERRA

THE COURT ORDERS THAT: 1. The execution of the judgment given by Justice Gray of the Supreme Court of the Australian Capital Territory dated 2 August 2002 in matter no SC 271 of 1995 be stayed until judgment in the appeal is delivered. 2. Costs in A40 of 2002 be costs in 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

AUSTRALIAN CAPITAL TERRITORY DISTRICT REGISTRY A40 OF 2002

BETWEEN: ALLAN JAMES WATT & FAY ELIZABETH WATT

APPLICANT

AND: STATE BANK OF NEW SOUTH WALES t/as STATE BANK OF NEW SOUTH WALES

RESPONDENT

JUDGE: FINN J

DATE: 23 SEPTEMBER 2002

PLACE: CANBERRA

REASONS FOR JUDGMENT 1 The appellants, Allan James Watt and Fay Elizabeth Watt, have moved under O 52 r 17 of the Federal Court Rules for a stay of the orders made by Gray J of the Supreme Court of the Australian Capital Territory pending the determination of their appeal to this court. The trial judge acknowledged that the consequences of his decision would be catastrophic to the Watts. The circumstances giving rise to his Honour's decision were the regrettably common ones of parents entering into arrangements to guarantee business ventures of their children, in this case, a daughter and son-in-law, and executing a mortgage over their matrimonial home as security for it. In the event the business venture failed, judgment was given against them in the sum of $1,263,020.89 and an order for possession of their home was made in favour of the respondent bank. 2 The factual setting of his Honour's decision need not be outlined at any length. The essence of the argument that is at the forefront of the appeal is founded on the decision of the High Court in Garcia v National Australia Bank Limited (1998) 194 CLR 395. It is that when Mrs Watt signed the relevant documentation giving rise to the personal guarantee and the mortgage, she was relevantly a volunteer surety. This argument works an extension of what is generally understood at the moment as the limit of what I will call the Garcia doctrine. This is not a case of a wife becoming surety for her husband in a transaction in which she derived no economic benefit. Rather it is one in which she and her husband together enter into a transaction in which they provide surety for their daughter and son-in-law but in which she left the matter in substance to her husband. 3 His Honour found that Mrs Watt's circumstances did not fall within Garcia for a variety of reasons which I need not set out here. I need only note that his Honour emphasised in relation to Mrs Watt, first, that Garcia was a case in which a wife acted as surety for her husband and not for a third party and secondly, that her interest in the transaction was the same as her husband's. They were both shareholders in the company established by their daughter and son-in-law to run the venture which they had guaranteed. Both were directors, although Mrs Watt's evidence was that she never attended a board meeting from when she was appointed in 1989 until when she retired in 1994, and neither she nor her husband received any dividends, wages or salaries from the company. 4 The case Mrs Watt wishes to put is that, notwithstanding the supposed community of interest between herself and Mr Watt in respect of the guarantee, the circumstances of her husband being the person on whom she was relying and her daughter and son-in-law being the persons in whose favour the guarantee was given and the absence of economic benefit to her, are sufficient to attract the Garcia doctrine. While I consider its prospects of success in this matter are not strong, the case is an arguable one for Mrs Watt. 5 A like argument is sought to be made in relation to Mr Watt vis-ŕ-vis his daughter and son-in-law. Again for Garcia purposes, I can only say that this argument would seem to me to be an adventurous one. More generally the appellants seek to argue on the appeal grounds similar to those which they argued before the trial judge. These relate first to their contention that the respondent bank failed in its duty to disclose certain of the circumstances material for the sureties to know before they executed the guarantee and, secondly that the bank's claim to enforce the mortgage was in all the circumstances unconscionable. Reliance for the latter proposition was placed upon the decision in Commercial Bank of Australia Limited v Amadio (1983) 151 CLR 447. In relation to both matters the challenges made are essentially to fact findings made by the trial judge and/or to the significance to be attributed to matters which were not known to, or not disclosed to, the Watt's. 6 The principles to be applied in applications of this variety are well known and I need not reiterate them at length on this application: see Henderson v Amadio Pty Ltd (No 3) (1996) 65 FCR 66; Powerflex Services Pty Ltd v Data Access Corporation (1996) 67 FCR 65. What is necessary is that the applicant demonstrate a reason or an appropriate case to warrant a favourable exercise of the discretion to make an order. In the present case as I have indicated Mrs Watt has an arguable though I would not say strong ground of appeal. 7 This proceeding was initiated in 1995. It appears to be only in 2001 that steps were taken to prosecute it. Judgment has only recently been given. It is not a case in which urgency in obtaining relief seems to have been at the forefront of the respondent bank's mind. Nonetheless the bank opposes the motion and has gone on to contend that the ordering of a stay would be futile. The bank disputes that the Garcia arguments proposed by the appellants are likely to succeed. More importantly, though, they say that even if the appeal is successful, the Watts as a condition of the award of relief to them would have to repay to the respondent bank the benefit they derived from the transaction in question. That transaction was a refinancing arrangement under which the respondent discharged an existing indebtedness of about $500,000. That indebtedness has been paid down so that the outstanding amount remains at about $330,000. The bank contends that even if the appeal is successful it would at the minimum be entitled to an order in its favour of a sum in that amount; see Maguire v Makaronis (1996) 188 CLR 449. Notwithstanding this latter matter, I am of the view that this is an appropriate case for the award of a stay. As I have indicated, while I do not consider the appellant's case to be a strong one and this particularly so in relation to Mr Watt there is in my view a sufficiently arguable case for it not to be able to be said that the appeal is a hopeless one. 8 Part of the subject matter of the appeal is of course the Watts' home. Given that the position of the bank is secured at least to the extent of the value of the home, a stay order would in no way prejudice the bank while at the same time it would preserve part of the subject matter of the appeal. As to the Maguire v Makaronis point, what I am in effect being asked to do is to anticipate an order made by the Full Court in the event of a successful appeal. The precise character of the order made in that event is of course one for the court itself. It seems to me that in an interlocutory application of this variety it should be unnecessary to enter upon the evidentiary questions that would need to be considered for the purpose of determining whether the appeal would bring no practical benefit to the appellants in the event that they were successful, the more so because I would be being required to do so in anticipation of orders that have not yet been made. 9 In the circumstances I conclude that the case is an appropriate one in which to stay the orders made by the Supreme Court of the Australian Capital Territory on 2 August 2002. The costs of this motion will be costs in the appeal. I certify that the preceding nine (9) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finn.