FALINSKI v COMMONWEALTH BANK OF AUSTRALIA SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL MASON P, SHELLER and COLE JJA 2, 5, 10 December 1997, 6 February 1998 [1998] NSWCA 76 Guarantee and Indemnity — contract of guarantee — whether unjust under Contracts Review Act 1980 or otherwise unconscionable — whether guarantee validly terminated Estoppel — estoppel by convention — guarantee Appeal and New Trial — interference with trial Judge's findings of fact — credibility of witnesses In 1990 Mrs Falinski (the appellant) signed a guarantee to secure to the Commonwealth Bank (CBA, the respondent) monies owing or payable to CBA by Nimari Pty Ltd. In 1992 she signed a letter of acknowledgment to CBA acknowledging that CBA had granted or might be granting accommodation to Nimari by its new name, Osborne Computers Australia Pty Ltd, and otherwise permitting Osborne to incur liabilities to CBA against the security of, inter alia, the guarantee. When sued on the guarantee Mrs Falinski relied upon Contracts Review Act 1980 and alleged unconscionable conduct by CBA in order to be relieved from her obligations. A clause of the guarantee enabled the guarantor on written notice to discontinue any further liability under the guarantee. Mrs Falinski claimed that a paragraph inserted by CBA in the letter of acknowledgment at the request of Mrs Falinski amounted to a notice under the clause. CBA claimed, inter alia, that if such a notice had been duly given, Mrs Falinski was estopped from relying on it by the terms of a further letter of acknowledgment she wrote to CBA in 1993. The trial Judge rejected Mrs Falinski's claim for relief under the Act, as well as her claim of general unconscionability. He also rejected her contention that the letter of acknowledgment was a notice within the meaning of the clause of the guarantee, and gave judgment for CBA against Mrs Falinski. Held: (i) The trial Judge was correct in finding that the appellant understood the nature and effect of the guarantee and that CBA had acted within conscience. Therefore, the appellant failed to demonstrate that she was entitled to relief under the Contracts Review Act or that CBA acted unconscionably. (ii) The trial Judge was correct in finding that the letter was not effective as a notice under the clause of the guarantee. (iii) The relationship between the appellant and the respondent was one which recognised the continuation of the guarantee. Therefore the appellant was estopped from denying her liability to CBA in accordance with the terms of the guarantee. Devries v Australian National Railways Commission (1993) 177 CLR 473 at 479; The Commercial Bank of Australia v Amadio (1983) 151 CLR 447 at 474; Thompson v Palmer (1933) 49 CLR 507 at 547; Grundt v The Great Boulder Gold Mines Pty Ltd (1937) 59 CLR 641 at 657-677; Amalgamated Investment & Property Co Ltd (In Liquidation) v Texas Commerce International Bank Ltd [1982] 1 QB 84; Eslea Holdings Ltd v Busts (1986) 6 NSWLR 175 at 189 applied; Dickson v Royal Bank of Canada (1976) 66 DLR (3d) 242 at 257; Preston v J Murray-More (NSW) Pty Ltd (unreported), Court of Appeal, 13 May 1983 referred to. Mason P I agree with Sheller JA. 2 UNREPORTED JUDGMENTS Sheller JA INTRODUCTION In 1990 Jill Irene Falinski (Mrs Falinski) signed a guarantee dated 27 June 1990 to secure to the Commonwealth Bank of Australia (CBA) monies owing or payable to CBA by Nimari Pty Ltd (Nimari). Mrs Falinski said she had no specific recollection of signing the guarantee. However, on 1 April 1992 she signed a letter of acknowledgment to CBA. By the terms of this letter she acknowledged that, against the security of, inter alia, the guarantee, CBA had granted or might be granting accommodation to Nimari by its new name, Osborne Computers Australia Pty Ltd (Osborne), and otherwise permitting Osborne to incur liabilities to CBA not exceeding an aggregate amount at any one time and from time to tune of $6,513,190. Cl2 of the guarantee enabled the guarantor on written notice to discontinue any further liability under the guarantee. CBA sued Mrs Falinski on the guarantee. Mrs Falinski sought to be relieved from her obligations under the guarantee in reliance upon the Contracts Review Act 1980 (the Act) and CBA's alleged unconscionable conduct. In addition, Mrs Falinski alleged that a paragraph inserted by CBA in the letter of acknowledgment of 1 April 1992, at the request of Mrs Falinski, amounted to a notice under cl2. CBA replied that, if such a notice had been duly given, Mrs Falinski was estopped from relying on it by the terms of a further letter of acknowledgment she wrote to CBA on 15 April 1993. PROCEEDINGS CBA brought these proceedings against Mrs Falinski, her husband, Stanley Falinski (Mr Falinski), and three other defendants, Tunmoss Pty Ltd (Tunmoss), John Edward Geary (Mr Geary) and Janet Geary (Mrs Geary), to recover judgment in a monetary sum against Mr and Mrs Falinski and Tunmoss as guarantors. Mrs Falinski filed a further amended defence in which she admitted that she executed the guarantee dated 27 June 1990 but claimed it was void and of no effect or should be so declared, and relied upon what she claimed to be her notice under cl2 of the guarantee. CBA filed a reply to the amended defence saying, inter alia, that by reason of Mrs Falinski's subsequent conduct and in particular by reason of her execution of an acknowledgment dated 15 April 1993; (i) she was estopped from asserting that by the letter of acknowledgment of 1 April 1992 she gave an effective notice to CBA pursuant to cl2 of the guarantee; or, alternatively, (ii) she waived and abandoned any right which she might have obtained by virtue of that letter; or, alternatively, (iii) that the acknowledgment of 15 April 1993 constituted an agreement between Mrs Falinski and CBA, "hereunder in consideration of CBA granting the accommodation therein referred to, Mrs Falinski became bound as and from that date in identical terms to those contained in the guarantee dated 27 June 1990. Mrs Falinski also filed an amended cross-claim seeking relief under the Act and avoidance of the guarantee on the ground that it was procured by the unconscionable conduct of CBA. So far as they remain material, Mrs Falinski gave the following particulars: "(i) JIF [Mrs Falinski] received no independent advice about its teens and was not told by the CBA's agent, [Mr Falinski], that she should take advice; (ii) JIF was not informed that the guarantee jeopardised her interest in the Belrose Property and did not understand the import of the document; URJ FALINSKI v COMMONWEALTH BANK OF AUSTRALIA (Sheller JA) 3 (iii) Had JIF known that the guarantee affected her home she would never have signed it; (iv) JIF was ignorant of the business and financial affairs of Nimari and the risks involved in it, and was not told the reason why Nimari required facilities of $5.06 million; (vii) The guarantee was in respect of a sum in excess of $5 million, which sum was vastly greater than JIF's financial resources; (viii) The CBA was, or ought to have been, aware that JIF did not wish to execute any guarantee and had refused to do so but, nonetheless, pressured her and [Mr Falinski] to procure the execution of the guarantee; (xi) JIF did not understand the effect of the guarantee and did not understand the actual nature and consequence of the transaction; and (xii) The guarantee did not refer to the Belrose Property Mortgage, nor was JIF informed of or aware of the interconnection." The Belrose property was the matrimonial home at 9 Morgan Road, Belrose. THE GUARANTEE The Deed was expressed to have been made on 27 June 1990 between Mrs Falinski, described therein as "Company Director" (the Guarantor), CBA (the Bank) and Nimari (the Debtor). The recital and operative part of the Deed, so far as material, proceeded as follows: *WHEREAS the Bank has granted or agreed to grant to the Debtor at the request of the Guarantor certain advances and accommodation AND for the purpose of securing to the Bank the payment of the moneys hereinafter mentioned the Guarantor has agreed to execute this Guarantee NOW THIS DEED WITNESSES that in consideration of the premises the Guarantor HEREBY GUARANTEES to pay to the Bank on demand such of the moneys hereinafter mentioned which at any time and from time to time are not paid by the Debtor when due to be paid that is to say:- (a) all moneys (including moneys advanced by way of loan for fixed term or provided by way of overdraft) now or hereafter to become owing or payable to the Bank by the Debtor either alone or on joint or partnership account or on any other account whether as principal or surety; also And it is hereby agreed and declared as follows:- 1. Subject to C12 this Guarantee shall be a continuing guarantee and shall not be considered as wholly or partially discharged by the payment at any time hereafter by the Debtor or by the Guarantor of any of the moneys hereby secured or by any settlement of account or by the death or notice of the death of the Guarantor or (if the Guarantor is a Corporation) by the winding up of or by notice of any order decree or resolution for the winding up of the Guarantor or by any other matter or thing and shall be enforceable notwithstanding that any negotiable or other instrument security or contract shall be still in circulation or outstanding. 2. In case the Guarantor shall give to the Bank at the branch of the Bank where the account of the Debtor shall be kept written notice of the desire of the Guarantor to discontinue any further liability under this Guarantee then and immediately after the said notice shall have been so given the liability under this Guarantee of the Guarantor giving such notice shall cease and determine in 4 UNREPORTED JUDGMENTS relation to any liability which shall be incurred after the receipt of such notice except so far as any future liability shall arise out of any letter of credit bill promissory note cheque draft order or other engagement or transaction at that time current or outstanding provided that notwithstanding any such discontinuance by one or more of the Guarantors this Guarantee shall remain a continuing guarantee binding any other Guarantor and provided further that the Bank upon receipt of any: notice of discontinuance as aforesaid and without notice to the Debtor may forthwith discontinue the making and affording of any further advances or accommodation to the Debtor. 7. The Bank may from time to time vary the limit or amount of advances and accommodation to the Debtor or to any other person during the continuance of this Guarantee." Mrs Falinski signed the attestation clause for herself and beside its Common Seal as a Director of Nimari. The Deed also bore the signature of Leon Falinski, Mrs Falinski's father-in-law, as a witness of her signature. LETTER OF ACKNOWLEDGMENT OF I APRIL 1992 Mrs Falinski's letter of 1 April 1992 to the Manager of CBA was as follows: "T hereby acknowledge that the Bank has granted or may be granting from time to time to OSBORNE COMPUTERS AUSTRALIA PTY LTD (the Debtor) accommodation and otherwise permitting the Debtor to incur liabilities to the Bank not exceeding an aggregate amount at any one time and from time to time of $6,513,190 against the security of my mortgage (s)/guarantee (s) to the Bank referred to in the schedule below. I clearly understand that my mortgage (s)/guarantee (s) will also secure the payment to the Bank of interest and any costs charges and expenses with which the Bank shall be at liberty to debit and charge the account of the Debtor or for which I am liable under my mortgage (s)/guarantee (s). I clearly understand that my liability in respect of the guarantee now relates solely to temporary seasonal facilities all of which are due for repayment on or before 31 July 1992, at which date the guarantee shall cease to have any force or effect. Schedule - Guarantee dated 27 June 1990 liabilities under which are secured by mortgage dated 11 August 1986 by Stanley Falinski and Jill Irene Falinski over property at 9 Morgan Road Belrose. - Mortgage dated 4 January 1974 by John Edward Geary, Janet Geary, Stanley Falinski and Jill Irene Falinski over property Unit 1 Block A Avon and Arden Towers, 2 Forsythe Street Glebe, and - Mortgage dated 7 November 1989 by Stanley Falinski and Jill Irene Falinski over property at 7/53 Ronald Avenue Shoal Bay." Mrs Falinski relied upon the third paragraph of this letter, in addition to the form CBA had originally proffered for her signature, as a written notice under cl2 of the guarantee. LETTER OF ACKNOWLEDGMENT OF 15 APRIL 1993 Mrs Falinski's letter of 15 April 1993 to the Manager of CBA was as follows: "T hereby acknowledge that the Bank has granted or may be granting from time to time to OSBORNE COMPUTERS AUSTRALIA PTY LTD ACN 002451 827 (the Debtor) accommodation and otherwise permitting to the Debtor to incur URJ FALINSKI v COMMONWEALTH BANK OF AUSTRALIA (Sheller JA) 5 liabilities to the Bank not exceeding an aggregate amount at any one time and from time to time of $10,858,045 against the security of my mortgage (s)/guarantee (s) to the Bank referred to in the schedule below. I clearly understand that my mortgage (s)/guarantee (s) will also secure the payment to the Bank of interest and any costs charges and expenses with which the Bank shall be at liberty to debit and charge the account of the Debtor or for which I am liable under my mortgage (s)/guarantee (s). I understand that the Debtor is due to reduce its accommodation by $5,000,000 to $5,858,045 by 31 July 1993 and that after such reduction is made my liability in respect of the mortgage (s)/guarantee (s) will also reduce to $5,858,045. I understand that the Bank will notify me promptly, should the Debtor fail to effect the reduction as arranged, provided that such failure by the Bank to do so will not prejudice the right of the bank to recover the full amount of my liability. Schedule Guarantee dated 27/6/90 liabilities under which are secured by: - Mortgage dated 11/8/86 by Stanley Falinski and Jill Irene Falinski over property at 9 Morgan Road Belrose; - Mortgage dated 4/1/74 by John Edward Geary, Janet Geary, Stanley Falinski and Jill Irene Falinski over property Unit 1 Block A, Avon and Arden Towers, 2 Forsythe Street, Glebe; - Mortgage dated 7/11/89 by Stanley Falinski and Jill Irene Falinski over property Unit 7, 53 Ronald Avenue, Shoal Bay." JUDGMENT AT FIRST INSTANCE In June 1997 Rolfe J heard the proceedings. The issues were: ¢ Whether Mrs Falinski was entitled to be relieved from her obligations under the guarantee by operation of the provisions of the Act or on the ground of unconscionability; ¢ Whether the letter of acknowledgment of | April 1992 resulted in the guarantee ceasing to have any force or effect on or after 31 July 1992; and, if so, ¢ Whether the contract of guarantee was revived by the later letter of acknowledgment of 15 April 1993. In a careful judgment Rolfe J set out Mrs Falinski's school and business background. She and Mr Falinski married in January 1970. From some time after their marriage Mr Falinski, who was in the course of building up a substantial fashion agency business with Mr and Mrs Geary, looked after Mrs Falinski's financial affairs which included the running of a retail fashion boutique at Collaroy which she had opened in 1968. They lived first in a home unit at Mosman and then in a house at Balgowlah, both of which they had purchased jointly with the aid of borrowed money. In 1977 they sold Balgowlah and bought a house at Killarney Heights where they lived until 1981 when they bought the five acre property at 9 Morgan Road, Belrose. To do so they borrowed money from CBA and secured the loan by mortgage. In 1987 they replaced the original cottage on the land with a more substantial house where they have since lived. In 1979 or 1980 Mr Falinski bought Mrs Falinski a fashion boutique business at Forest Way Shopping Centre in the name of a company "Big Girls Pty Ltd". Mrs Falinski operated the business of Big Girls Pty Ltd under the name of Georgia Brown together with the Collaroy business. She said that either Mr Falinski or professional advisers attended to the financial affairs of the business. 6 UNREPORTED JUDGMENTS Rolfe J did not accept that Mrs Falinski had little or no business experience. He found that she generally understood the nature of a mortgage as security for the money borrowed to finance the purchase of property and not otherwise. In about 1983 Mr Falinski decided to go into the business of selling computers. In due course he began to work full time on this venture and ceased working with Mr and Mrs Geary. Mrs Falinski formed the view that the new business was very profitable and was expanding. Rolfe J considered this to be a correct analysis. Nimari was acquired as a shelf company and its name was subsequently changed, first to Osborne Computers Australia Pty Ltd, and then to Osborne Computer Corporation Pty Ltd. Mr Falinski told Mrs Falinski that he had purchased the company, that they each had equal shares and that it would be used for the computer business. Mrs Falinski thought she was being made a half owner of the business and from shortly after 1983, when she signed documents relating to its acquisition, she was aware she was appointed a director but that she did not need to be involved in the business in any way at all. Rolfe J said: "Thereafter Mr Falinski presented Mrs Falinski with a further document and asked her to sign it. She asked what she was signing and was told the type of document. When she asked why she was signing as a director or shareholder, as to which precise position she could not remember, Mr Falinski said it did not matter 'what you are just sign it'. Incidents of that type occurred on a number of occasions in ensuing years and Mrs Falinski said she was not given the opportunity of reading what she was signing. She was asked from time to time to sign documents quickly, but she seemed to be unconcerned about this as Mr Falinski handled the financial affairs and it appeared to her he was very cautious and had been handling them competently and successfully. She completely trusted Mr Falinski and believed that she was being asked to sign documents because she was a half owner of Nimari and wanted to do anything she could to help Mr Falinski in what appeared to be a successful endeavour 'upon which he was working very hard'. This attitude must be contrasted with her reaction to signing any documents, which may affect her interest in Belrose.' As time went on, Mr Falinski told Mrs Falinski less about the operation of the business. She never played any part in its day to day management, she did not have access to its financial records and she had no knowledge of its financial position. However, she was aware, by 1990, at least, that Osborne owed some $5 million. She received housekeeping money from Mr Falinski but no direct payment by way of salary or dividend from Osborne. In November 1989 Mr and Mrs Falinski mortgaged a home unit at Shoal Bay, which they owned, to CBA. They had purchased this unit as an investment. Before signing the mortgage, Mr Falinski told Mrs Falinski that CBA required "that we give more security for the business' borrowings. They are giving me a hard time; they want mortgages over the house and the two units." Mrs Falinski replied: "They can have a mortgage over the two units but I refuse to sign a mortgage over my home." Rolfe J said: "This evidence made it apparent that at least from this time Mrs Falinski understood that the Bank was seeking mortgages over real estate owned by Mr Falinski and her to support the indebtedness of Nimari, and, further, that she was prepared to risk certain of those properties but not Belrose. Her evidence was that she was prepared to risk 'the two units' by offering them as security for the indebtedness of Osborne. The statement I have just quoted makes this clear. It URJ FALINSKI v COMMONWEALTH BANK OF AUSTRALIA (Sheller JA) 7 also demonstrates that by 1989 the Bank was demanding further security to support the loans to Osborne. This showed that she had an insight into the financial position of Osborne. The units to which she was making reference were at Glebe and Shoal Bay. The home was Belrose. The Glebe unit had been acquired as an investment with Mr and Mrs Geary in 1974 with money borrowed from the Bank the repayment of which was secured by a mortgage given by Mr and Mrs Falinski and Mr and Mrs Geary to the Bank on 4 January 1974." CBA did not press any claim based on the personal covenants in the mortgages of the Glebe, Belrose or Shoal Bay properties. Its claim against Mrs Falinski was based on the guarantee. Between May | 989 and March | 990 Mrs Falinski learnt that Osborne's indebtedness to CBA exceeded $5 million. Mrs Falinski gave the following evidence in para59 of a statement made on 5 February 1996 and filed in Court: "T recall being shown a form of guarantee during this period. I believe it was the one that accompanied the letter of 1 March 1990. On that occasion a conversation occurred in words to the following effect: SF: [Mr Falinski] 'The Bank is insisting that you sign this document or provide security for Nimari's debts.' JIF: [Mrs Falinski] 'Do I have to sign the document? What does it mean? If I do sign it, does it affect the home because if it does, I will refuse to sign it as I've done before.' SF: 'Yes, if you do sign the document it will mean that the home is security for the business. You have to sign it; otherwise I'll lose my business.' JIF: 'I refuse to sign. Its not fair to ask me to jeopardise my home for anything.' SF persisted in requesting me to sign the document. He became very angry and agitated, which was the first time this had occurred in relation to any request he had made for me to sign a document." Mrs Falinski referred to two guarantees, each dated 27 June 1990, by which she "purported" to guarantee the debts of Nimari and the Gearys. She had no specific recollection of either. Rolfe J said it was doubtful whether the documents were signed on 27 June 1990, which was the day after her father died. The reasonable inference was that they were signed earlier and subsequently dated by a bank officer. His Honour said: "The situation was that Mrs Falinski flatly refused to sign the guarantee of Nimari's debts, which would jeopardise her interest in Belrose, because she was aware at the time that Nimari's indebtedness to the Bank was in the order of $5m. Subsequently, however, she did sign that guarantee and a further guarantee in relation to Gearys. Her evidence was that she signed the latter guarantee because she knew the indebtedness of Gearys was in the order of $20,000 to $30,000 and she believed Belrose would not be jeopardised if Gearys defaulted because she would be able to raise such an amount to discharge the debt. Also she had general control over this business. On the other hand, she knew the significant indebtedness of Nimari and she insisted she was not prepared to sign a guarantee in respect of it because Belrose would be jeopardised in the sense that if the guarantee was called upon she would not be able to discharge the debt without recourse to Belrose. 8 UNREPORTED JUDGMENTS None-the-less she signed the guarantee. She was unable to give any explanation as to the circumstances in which she did. Mr Leon Falinski, whose signature appears as the attesting witness, stated in his witness statement of 20 September 1995, Exhibit 1D3, that he never witnessed the signature of Mrs Falinski on any legal document and that he did not recall being asked to witness her signing a document in 1990 'or before or after that time'. Mr Leon Falinski was not required for cross-examination it being accepted that he is elderly and in ill health. Although Mr Forster said he did not accept the evidence of Mr Leon Falinski it seems to me that unless the evidence is either inherently improbable or contradicted by other compelling evidence which I accept, neither of which has occurred in the present case, the Court should accept the evidence." In her statement Mrs Falinski said: "After the conversation deposed in paraS9.......... [Mr Falinski] on a number of occasions asked me again to sign a guarantee in respect of Nimari's debts. On the last of such occasions he produced two guarantees, one securing the debts of Nimari and one securing the debts of Geary Agencies. He said to me words to the following effect: "At least sign the Geary Agencies guarantee. That may keep the Bank off my back for a while.' I agreed to sign that guarantee. I knew the extent of the debt, and it related to my own business. However, I continued to refuse to sign the Nimari guarantee. Whilst I have no specific recollection of signing either guarantee, I would have signed the Geary Agencies guarantee when presented to me for signature. I may have signed both guarantees on 27 June 1990 not knowing that one of them was the guarantee of Nimari's debts which I had previously refused to sign. On 27 June 1990, I was extremely upset as my father had died very suddenly and unexpectedly of a heart attack the day before." Rolfe J said there were several difficulties with this explanation notwithstanding the distress caused by Mrs Falinski's father's death. "Firstly, as I have said, the inference is open that the guarantees were signed before 27 June 1990. Indeed the fact that one has been signed with a blue biro and one with a black biro tends to indicate that they were signed at different times. Secondly, her persistent refusal to sign the Nimari guarantee makes it inherently improbable that she would have done so unless for some unexplained reason she changed her mind. However, it is not for the Bank to provide that reason. It holds a guarantee admittedly signed by Mrs Falinski. The onus is on her, as Mr White accepted, to establish that there are circumstances which preclude it enforcing the guarantee in accordance with its terms. There was no evidence that the Bank was aware that Mrs Falinski's father died on 26 June 1990: Esanda Finance Corporation Ltd v Viet Nho Tong & Ors (Court of Appeal - 8 May 1997 - as yet unreported)." In 1992 when asked to sign the letter of acknowledgment to CBA Mrs Falinski said that she became aware that the document affected Belrose "although I still had no idea that I had signed a guarantee or any document which imposed a continuing obligation upon me in respect of Osborne's debts". She spoke to David Craik, Osborne's former accountant, who drafted the additional third paragraph which was later incorporated into the letter of acknowledgment of 1 April 1992 which CBA prepared and she signed. The Judge accepted Mr Craik's evidence that after he had drafted the paragraph he gave it in handwritten form to Mrs Falinski for her to take to CBA. There was no evidence as to how the draft was received by CBA or what, if any, negotiations took place or why CBA agreed URJ FALINSKI v COMMONWEALTH BANK OF AUSTRALIA (Sheller JA) 9 that it should be included in the letter of acknowledgment. On 31 July 1992 Osborne was not indebted to CBA for any amount. Accordingly, if the paragraph was effective to terminate Mrs Falinski's liability under the guarantee on 31 July 1992, Mrs Falinski was not liable under it. Although initially there was some issue about whether Mrs Falinski signed the further letter of acknowledgment of 15 April 1993, her counsel accepted that she had and Rolfe J was satisfied on the evidence that she had. Osborne's business was of the high risk nature with the prospect that stock would become obsolete. It acquired its supplies of computer parts from overseas suppliers. CBA acted as the agent for overseas remitting banks which would furnish to CBA commercial documents including documents of title to be furnished to Osborne to enable it to obtain goods imported into Australia. These documents were to be handed over in accordance with the remitting bank's instructions either against payment or the acceptance of a draft. Before May 1995 CBA received a number of documents of title to be handed over against payment but, contrary to the remitting bank's instructions, it released them to Osborne without obtaining payment. Armed with these documents Osborne obtained possession of twenty out of twenty-nine consignments. It paid for the goods in four of these consignments but not for the goods in sixteen of them. Because CBA had acted contrary to the remitting bank's instructions it became liable to pay them the amount it otherwise would have collected from Osborne. On 3 July 1995 CBA debited Osborne's account with the amount it became liable to pay to the remitting banks in respect of sixteen consignments and later allowed credit for goods in the balance of nine consignments which it obtained from Osborne's customs agent and sold. Mrs Falinski complained at first instance that she received no independent advice about the guarantee's terms, was not told by her husband who, she said, was CBA's agent, that she should take advice, was not informed that the guarantee jeopardised her interest in Belrose, did not understand the import of the document and said that had she known the guarantee affected Belrose she would not have signed it. Mrs Falinski said that she signed the guarantee not knowing it was a guarantee of Osborne's debts. She knew that the guarantee, if called upon, would jeopardise her half interest in the matrimonial home at Belrose. Accordingly, she refused to sign such a guarantee since first it was suggested she do so. The date the guarantee bore, 27 June 1990, was the day after her father's sudden and unexpected death. Mr Leon Falinski did not witness Mrs Falinski's signature on the document. As Rolfe J found there was the clearest evidence that Mrs Falinski understood the document was a guarantee and that signing it would mean that Belrose effectively became security for the business of Osborne. This was the reason that initially she refused to sign it. She knew that Osborne's indebtedness to CBA exceeded $5 million and knew that CBA wished to obtain from her a guarantee in relation to Osborne's debts. She gave evidence that CBA never rang her nor put any pressure on her. The letter of 1 March 1990 from CBA to Mrs Falinski, to which was attached the form of guarantee that ultimately she signed, enjoined her to satisfy herself that she understood the full nature and effect of her liabilities to CBA and to obtain appropriate advice, legal or otherwise, if she was at all uncertain of her position. Mrs Falinski offered no explanation except that the date the guarantee bore was the day after her father's death. Rolfe J said: 10 UNREPORTED JUDGMENTS "IT have no doubt that Mrs Falinski appreciated that signing the guarantee would jeopardise Belrose because she was aware of the indebtedness of Nimari to the Bank, which was in the order of $5m. She conceded that. Equally I have no doubt that she understood the legal consequences of signing the guarantee in those circumstances. Why she did so is a matter which remains unexplained. Mr Falinski, who was readily available, was not called......... in the present case, it seems to me that as Mr Leon Falinski said he was not present when Mrs Falinski signed the document the only other person who may have cast any light upon the circumstances in which it was signed was Mr Falinski. This is the more so as Mr White submitted he was the Bank's agent to obtain Mrs Falinski's signature to the guarantee. No reason was suggested as to why he was not called." Rolfe J found that Mrs Falinski "full well understood the nature and effect of the guarantee and did not need, in my opinion, any such explanation." Nor did she need, for like reason, independent advice or to be informed that the guarantee would jeopardise her interest in Belrose. She said she was not pressured by CBA and did not suggest that she was pressured by Mr Falinski to sign the document. Rolfe J said: "I do not accept Mrs Falinski's denial that she was unaware [sic] that she signed the guarantee in respect of Osborne's debts dated 27 June 1990. I have come to that conclusion for the following reasons. Firstly, it is inherently improbable that whatever the circumstances Mrs Falinski would forget how she came to sign the guarantee, which course she had been resisting strenuously for some time. Secondly, she was aware there were two guarantees and she remembered readily enough what led her to sign the one in respect of Gearys debts. Thirdly, on seeing the reference to the guarantee she did not ask the Bank to what it was referring. Her concern about Belrose was obvious. If she was wondering what she had signed, which might jeopardise it, it seems inconceivable to me that she would not enquire of the Bank about such a document. Fourthly, Mrs Falinski impressed me as an intelligent person with some knowledge of business. She clearly knew the import of the guarantee and I simply do not accept that in the circumstances to which I have referred she would not recall signing it. Fifthly, Mrs Falinski's credit was not left undamaged. The initial position she took in her oral evidence about her knowledge of being a director was not only contrary to her witness statement but was subsequently retracted. Her recall was at odds in relevant respects with that of Mr Craik whose evidence I accept. Further, her initial denial of knowledge of the financial position of Osborne was incorrect." His Honour was not satisfied that the guarantee was unjust. Accordingly, he rejected her claim for relief under the Act. His Honour also rejected the claim that there was, in the circumstances of the case, any general unconscionability entitling Mrs Falinski to relief. Finally, Rolfe J rejected Mrs Falinski's contention that the letter of 1 April 1992 was a notice within the meaning of cl2 of the guarantee. Rolfe J made four points about the paragraph in the letter said to be the notice under cl2. First, the words did not give written notice of a desire to discontinue any further liability then and immediately after the notice was given but contemplated that liabilities might accrue from 1 April 1992 until 31 July 1992. Secondly, there was no basis for the assertion that the liability under the guarantee related solely to temporary seasonal facilities. Thirdly, the paragraph was not in terms an expression of desire to discontinue any further liability under the guarantee but rather seemed to comprehend some other agreement between the parties that in the circumstances URJ FALINSKI v COMMONWEALTH BANK OF AUSTRALIA (Sheller JA) 11 set forth, being the temporary seasonal facilities, the guarantee should cease to have any force or effect. Fourthly, the notice concluded that as at 31 July 1992 the guarantee should cease to have any force or effect. Arguably, this meant the guarantee should not be enforceable in respect of existing as well as future liabilities and cl2 did not permit a notice depriving the guarantee of any such force or effect. It provided expressly that it should only cease to operate in respect of future liabilities. The result of Rolfe J's findings was that Mrs Falinski's defences and cross-claim failed. It was not necessary for his Honour to pass upon the merit of CBA's reply and he refrained from doing so. On 30 June and 23 July 1997 Rolfe J gave judgment for CBA against Mrs Falinski, Mr Falinski and Tunmoss, in the sum of $4,855,139.31 and made a number of orders for possession of certain properties including the matrimonial home at 9 Morgan Road, Belrose. His Honour dismissed Mrs Falinski's cross-claim. APPEAL Mrs Falinski has appealed from this decision on grounds that Rolfe J erred in rejecting her claim that she was entitled to relief under the Act, that the guarantee was unconscionable, and that the letter of acknowledgment operated to terminate the guarantee. CBA filed a notice of contention that the decision should be affirmed on the grounds set out in that part of its reply to which I have referred. GROUNDS OF APPEAL The grounds of appeal directed to the rejection of Mrs Falinski's claim for relief under the Act challenged Rolfe J's evidentiary findings in particular respects and went on to claim that Rolfe J, in finding there was no evidence to satisfy him that the guarantee was unjust and that Mrs Falinski had not discharged the onus of establishing that there: were circumstances that precluded CBA from enforcing the guarantee, gave no weight or insufficient weight to matters which included: * that CBA first sought a guarantee of Osborne's debts from Mrs Falinski in May 1989 but did not receive such a guarantee until more than a year later, * that CBA only received a guarantee executed by Mrs Falinski after imposing pressure upon Mr Falinski to procure the execution by her of the guarantee; that the business of Osborne was to the knowledge of CBA high risk, and had expanded very rapidly, with a prospect that stock which was funded by CBA's facility and which comprised the major part of the security held by CBA would become obsolete; * that the execution of the guarantee by Mrs Falinski was thereby improvident; and * that Mrs Falinski did not know that the execution of the guarantee by her was improvident and did not receive any advice about it. The particular findings which it was said should have been made or should not have been made were as follows: * there should have been a finding that Mrs Falinski was unaware that she had signed the guarantee, or did not know that it was a guarantee of Osborne's debts; there should not have been a finding: 12 UNREPORTED JUDGMENTS that she signed the guarantee because she had changed her mind; that she gave no explanation as to the circumstances in which she signed the guarantee; and that the guarantee was not signed on 27 June 1990. The grounds of appeal relating to CBA's alleged unconscionable conduct covered the same ground. Further, Mrs Falinski contended that in the circumstances Rolfe J should have found that she was at a special disadvantage vis - 4 - vis CBA, that CBA had knowledge of that special disadvantage or ought reasonably to have been aware of the possibility that it existed, and that in the circumstances the onus was cast upon CBA to show that the guarantee was fair, just and reasonable, which CBA had failed to discharge. Finally, Mrs Falinski contended that Rolfe J was in error in finding that the letter of 1 April 1992 did not operate to terminate the guarantee and should have held that it was effective to determine the liability of Mrs Falinski for Osborne's debts after 31 July 1992. The oral argument and written submissions filed on Mrs Falinski's behalf tended to refine the challenges made to the evidence and set out in the grounds of appeal. CONTRACTS REVIEW ACT AND UNCONSCIONABILITY If a trial Judge's finding depends to any substantial degree on the credibility of the witness, the finding must stand unless it can be shown that the trial Judge "has failed to use or has palpably misused his advantage" or has acted on evidence which was "inconsistent with facts incontrovertibly established by the evidence" or which was "glaringly improbable"; Devries v Australian National Railways Commission (1993) 177 CLR 473 at 479. Rolfe J heard Mrs Falinski give evidence in the witness box. Clearly his findings were influenced by the impression she made as a witness. Mrs Falinski's evidence was that she was shown the form of guarantee some time after it was received with the letter of 1 March 1990, that her husband told her that the document was to provide security for Nimari's debts and that if she signed it, the matrimonial home would be security for the business. Her reason for refusing to sign at that stage was that it would jeopardise her home. She accepted that between May 1989 and March 1990 she learned that Nimari's indebtedness to CBA exceeded $5 million. Against this background, she left unexplained her reason for signing the guarantee, not only by not giving evidence herself about it, but also by failing to call Mr Falinski who was readily available to give evidence. Rolfe J observed that no reason was suggested as to why he was not called. I would have thought the inference that she changed her mind was not only open but inevitable. The appellant submitted that she was not cross-examined about changing her mind. This submission overlooks that, in the words of Rolfe J: "She chose to leave the circumstances in which she signed the guarantee unexplained." The finding that Mrs Falinski was well aware of the purpose of the guarantee and of her potential financial exposure was also inevitable. Her counsel accepted this but argued that she did not know, nor was she told, of the risks which were inherent in Osborne's business and of the nature of that business, all of which were material to her exposure. In her statement of 5 February 1996 Mrs Falinski said that at no time after 27 June 1990 did she have any involvement in the affairs of Nimari. She was never invited to meetings not did she have any knowledge of its financial affairs. URJ FALINSKI v COMMONWEALTH BANK OF AUSTRALIA (Sheller JA) 13 "Since this case has commenced I have been made aware that between 1990 and 1995 the company's debt to (CBA) increased from about $5 million to over $12 million........ Between 1990 and late 1994, I believed the company was operating very successfully although I had no knowledge specifically of its financial affairs." For the reasons Rolfe J gave, Mrs Falinski's credit was not left undamaged. As Rolfe J observed, in a passage to which I have referred, the business of Osborne was described as being of a high risk nature. It acquired its supplies from overseas suppliers and by various ways borrowed money to do so. There was always the chance that it would not be able to sell the stock and the stock would become obsolete. To the extent that these risks existed in the first half of 1990, Mrs Falinski gave no evidence that she did not know about them or, on the assumption that she did not, that this knowledge would have affected her decision to sign the guarantee. She knew that Osborne had debts of $5 million. The trial Judge's finding that Mrs Falinski was well aware of her potential financial exposure was open to him. A reading of her oral evidence demonstrates no basis upon which this Court could interfere with this finding. This brings me to Mrs Falinski's contention that Rolfe J should have been satisfied on the evidence that CBA had engaged in unconscionable conduct. Where it is shown (i) that a party to a transaction was under a special disability in dealing with the other party with the consequence that there was an absence of any reasonable degree of equality between them and (ii) that disability was sufficiently evident to the stronger party to make it prima facie unfair or unconscientious that the stronger party procure, or accept, the weaker party's assent to the impugned transaction in the circumstances in which the stronger party procured or accepted it, the onus is cast upon the stronger party to show that the transaction was fair, just and reasonable; per Deane J in The Commercial Bank of Australia v Amadio (1983) 151 CLR 447 at 474. Faced with the insuperable obstacle of disturbing Rolfe J's findings of fact in the circumstances where his Honour had heard Mrs Falinski give evidence which, in important respects, damaged her credit, where she proffered no explanation for signing the guarantee and where Mr Falinski was not called to give evidence, her counsel relied upon what was said to be her position of special disadvantage in order to cast upon CBA the onus of establishing that the transaction was fair, just and reasonable. It was claimed on behalf of Mrs Falinski that she was at a special disadvantage by reason of her personal financial position vis - 4 - vis CBA's, her need to maintain her marital relationship and to assist her husband, her belief that the business of Nimari was profitable and the absence of knowledge on her part of the financial circumstances of the business. Mrs Falinski was said to be at a disadvantage because of pressure from her husband to sign the guarantee, and the potential risk involved in guaranteeing the debt of a company the solvency of which depended on the value of stock which could easily become obsolete. Further, it was said, that her entry into the guarantee was not to her advantage and that CBA was put on constructive notice of those circumstances by which she was placed at a special disadvantage. Ex facie, entry into the guarantee was improvident. It was submitted that it was unconscionable for CBA to leave it to Mr Falinski to procure his wife's signature under circumstances where it was not reasonable to assume that her previous failures to meet requests to execute the guarantee were due to inadvertence. Added to this was the contention that the 14 UNREPORTED JUDGMENTS trial Judge should have found that the guarantee was executed on the date it bore, that is to say the day after her father had died suddenly. Rolfe J referred to Mr Craik's evidence about Mrs Falinski's attendance at his office in late March 1992. On that occasion, Mrs Falinski told him that Mr Falinski wanted her to sign the document and was placing "a lot of pressure on" her. However, his Honour said that Mrs Falinski demonstrated she was able to withstand Mr Falinski's requests even when he became angry. He was not satisfied that she signed as a consequence of pressure brought to bear upon her. There was no evidence that CBA was aware of the circumstances in which she signed the guarantee or that her father had passed away on 26 June 1990. Mrs Falinski's claim is met by the findings, which, in my opinion, are beyond challenge, that she understood the document was a guarantee, that CBA never telephoned her nor put any pressure on her to sign the document, that she full well understood the nature and effect of the guarantee and did not need any explanation as to its effect, that she did not suggest in her evidence that she was pressured by Mr Falinski to sign the document, that she understood the guarantee was for the indebtedness of Osborne, which then stood at $5 million, and that if she signed the guarantee, as she did, and returned it to CBA the Belrose property would be put in jeopardy. On 25 May 1989 CBA wrote to Mrs Falinski "Re: Nimari Pty Ltd" enclosing a form of guarantee, the same as that she signed, and stating: "Prior to signing the document/s you should satisfy yourself that you understand the full nature and effect of your liabilities to the Bank and obtain appropriate advice, legal or otherwise, if you are at all uncertain of your position." At that time, Mrs Falinski refused to sign the guarantee. On 1 March 1990 CBA again wrote to Mrs Falinski "Re: Nimari Pty Ltd" enclosing a form of guarantee. The letter was addressed to Mrs Falinski at the matrimonial home at Belrose. The paragraph that I have quoted was repeated in this letter. The form attached was the form which Mrs Falinski ultimately signed. In my opinion, and in the circumstances of the case, CBA was not in conscience required to do more. I agree with Rolfe J that the appellant failed to demonstrate that she was entitled to relief under the Contracts Review Act or that CBA acted unconscionably. NOTICE UNDER Cl2 OF THE GUARANTEE Rolfe J referred to Phillips & O'Donovan, "The Modem Contract of Guarantee", in the 3rd edition of which, at 435, it is said, in my opinion correctly, that if a guarantee provides that it is revocable by notice, the revocation must be clear and explicit and comply strictly with the terms of the clause of revocation. This does not mean that the guarantor is required to use any set form of words; Dickson v Royal Bank of Canada (1976) 66 DLR (3d) 242 at 257. In Preston v J Murray-More (NSW) Pty Ltd (unreported), Court of Appeal, 13 May 1983, the Court held that a purported notice did not comply with a clause in a guarantee, which provided that if the guarantor should give notice in writing to the supplier of its desire to discontinue its liability under the guarantee, then the liability of the guarantor should cease and determine fourteen days after receipt of the notice so far as any liability with respect to moneys whether then due or at any time thereafter becoming due in respect of goods supplied by the supplier to the URJ FALINSKI v COMMONWEALTH BANK OF AUSTRALIA (Sheller JA) 15 principal debtor after the date on which the notice was received, and failed in its object. Hutley JA held that the instrument was not a notice under the terms of the guarantee at all and said: "Tt is in writing but it does not exhibit 'a desire to discontinue liability hereunder' which must mean 'a present desire then operating to discontinue hereunder'. 'Discontinue hereunder' means cease to acquire further liabilities under the guarantee." Cll of the guarantee Mrs Falinski signed provided that, subject to cl2, the guarantee should be a continuing guarantee. C12 indicated both the form the notice should take and the effect of a notice under the clause. The written notice was required to be of the desire of the guarantor to discontinue any further liability under the guarantee. The notice operated then and immediately after it was given. At that point of time, the liability under the guarantee of the guarantor giving the notice ceased and determined in relation to any liabilities which should be incurred after the receipt of the notice, except so far as any future liability should arise out of any of the documents, engagements or transactions referred to, at that time current or outstanding. Upon receipt of the notice of discontinuance and without notice to the debtor, the bank might forthwith discontinue the making and affording of any further advances or accommodation to the debtor. I emphasise that the notice, if in accordance with cl2, determined any further liability of the guarantor under the guarantee, subject to one proviso, and gave CBA the option forthwith not to afford any further accommodation to Nimari. The notice could not operate to determine existing liability. CBA submitted with some force that properly understood and in its context the third paragraph of the letter of 1 April 1992 related only to temporary seasonal facilities due for repayment on or before 31 July 1992. The earlier paragraphs in the letter confirmed the guarantee in respect of the existing as distinct from the temporary facilities. However, that part of the third paragraph which states that as at 31 July 1992 "the guarantee shall cease to have any force or effect" purports to determine all liability including existing liability under the guarantee. In my opinion, neither the letter as a whole, nor the third paragraph standing alone, was effective as a notice under cl2 of the guarantee. The expressed object of para3 was quite different from that contemplated by a cl2 notice. In the first place, para3 acknowledged Mrs Falinski's continuing liability "solely" in respect of temporary seasonal facilities due for repayment before a certain date in the future. In the second place, at that date, it purported to determine all liability existing and future by providing for the guarantee to cease to have any force or effect. Thus it purported to expunge existing liability other than temporary seasonal facilities as from the date of the notice, and all liabilities, including then existing liabilities arising from the temporary seasonal facilities, as from 31 July 1992. This is the antithesis of what a notice properly given under cl2 was intended to effect. The notice the clause contemplated was concerned only with "further liability", that is to say, liability by the debtor incurred after the notice was given and had no effect upon liability incurred before the receipt of such notice. In my opinion, Rolfe J rightly held that the paragraph in the letter of 1 April 1992 was not a notice within the teens of cl2 of the guarantee. The appellant did not rely upon the letter in any other way, despite suggestions from the Court, that by agreeing to its terms, CBA may have been estopped from departing from the arrangement apparently arrived at. Mrs Falinski did not seek to put her case in this way. 16 UNREPORTED JUDGMENTS LETTER OF ACKNOWLEDGMENT OF 14 APRIL 1993 CBA submitted that even if the earlier acknowledgment constituted a notice under cl2 of the guarantee, the letter of 14 April 1993 estopped Mrs Falinski from relying on it. It was submitted that the letter acknowledged and represented a state of affairs concerning the existence and terms of the legal relationship between Mrs Falinski and CBA, namely: (a) Mrs Falinski's guarantee dated 27 June 1990 presently secured repayment of advances made or to be made by CBA to Osborne from time to time up to $10,858,045 as well as interest and costs; and (b) that if Osborne did not reduce its liability to CBA by $5 million to $5,858,045 by 31 July 1993, Mrs Falinski would remain liable under the guarantee for the full amount of Osborne's debt up to the limit of $10,858,045. CBA invoked what Mason CJ in The Commonwealth v Verwayen (1990) 170 CLR 394 at 410 called the one overarching doctrine of estoppel which, his Honour said at 413 "provides that a court of common law or equity may do what is required, but not more, to prevent a person who has relied upon an assumption as to a present, past, or future state of affairs (including a legal state of affairs), which assumption the party estopped has induced him to hold, from suffering detriment in reliance upon the assumption as a result of the denial of its correctness." This unifying doctrine of estoppel found favour in Verwayen with Deane J (440 and 444-5) and Gaudron J (487) but not necessarily with the other four members of the Court. For present purposes it is sufficient for CBA, if estoppel by convention survives as a separate doctrine, to rely on such an estoppel as stated by Dixon J in Thompson v Palmer (1933) 49 CLR 507 at 547 and repeated in Grundt v The Great Boulder Gold Mines Pty Ltd (1937) 59 CLR 641 by Latham CJ at 657 and by Dixon J at 676-7. In Thompson v Palmer at 547 Dixon J said: "Whether a departure by a party from the assumption should be considered unjust and inadmissible depends on the part taken by him in occasioning its adoption by the other party. He may be required to abide by the assumption because it formed the conventional basis upon which the parties entered into contractual or other mutual relations, such as bailment;". In Amalgamated Investment & Property Co Ltd (In Liquidation) v Texas Commerce International Bank Ltd [1982] 1 QB 84 the question was whether Amalgamated gave Texas a binding and effective guarantee or, alternatively, was estopped from denying that it gave such a guarantee. At first instance Robert Goff J said, at 108, that by confirming the bank's erroneous belief that the guarantee was binding and effective, the plaintiffs contributed to the continuance of the bank's error as to the true legal effect or, rather, lack of legal effect of that document and to the bank's failure to take the opportunity of putting matters right. "v.00... I can see no reason why, in principle, a representation that such a non-contractual document has a certain contractual effect should be incapable of giving rise to an estoppel precluding the representor from thereafter going back upon that representation where, as in the present case, it would be unconscionable for him to do so." In the Court of Appeal, Lord Denning MR at 121 referred to the judgments of Latham CJ and Dixon J in Grundt and held that the parties were bound by the "conventional basis" on which they conducted their affairs. Everleigh LJ, at 126, said that estoppel operates so as to prevent a party from denying a representation or an assumed state of facts in relation to the transaction supported by that representation or assumed state of facts. Brandon LJ said that the facts produced a classic example of estoppel by convention and quoted, at 130-131, from URJ FALINSKI v COMMONWEALTH BANK OF AUSTRALIA (Sheller JA) 17 Spencer Bower and Turner, Estoppel by Representation, (1977) 3rd ed, at 157-160, where the authors observed that estoppel by convention is founded "not on a representation of fact made by the representor and believed by a representee, but on an agreed statement of facts the truth of which has been assumed, by the convention of the parties, as the basis of a transaction into which they are about to enter. When the parties have acted in their transaction upon the agreed assumption that a given state of facts is to be accepted between them as true, then as regards that transaction each will be estopped as against the other from questioning the truth of the statement of facts so assumed." In Eslea Holdings Ltd v Butts (1986) 6 NSWLR 175 at 189, Samuels JA, with whom Kirby P agreed, said that he could see no reason in principle or utility why the belief or expectation of the person relying upon the convention should not concern the legal rights of the parties. The thrust of Mrs Falinski's argument was that to the extent that CBA relied upon the assumption of the truth of what the letter of 14 April 1993 said that reliance did not persist, and to the extent that there was a detriment arising from the provision by CBA to Osborne of accommodation that detriment was exhausted when the accommodation was repaid. Counsel referred to later forms of acknowledgment which CBA sent to Mrs Falinski to sign but which she refused to sign. The argument was that the sending of these letters indicated that CBA no longer relied upon what was said in the letter of 14 April 1993 but sought further assurances. Thus on 23 June 1993 CBA wrote to Mrs Falinski saying that approval had been given to increase facilities for Osborne "taking total loans to $12,718,044 subject to your acknowledgment." The letter continued: "As part of the security to support this loan is a guarantee and mortgages from yourself, your formal consent and acknowledgment is required." The guarantee referred to was that of 27 June 1990. Later letters to like effect, though in respect of different amounts, were sent on 17 August, 1993 and 23 May 1994 with a number of follow up letters after those dates. On 30 September 1994 an internal memorandum said that a letter of acknowledgment from Mrs Falinski was never returned. "As excesses have now been cleared and previous [letter of acknowledgment] is for more than amount of current facilities and the likelihood of Mrs Falinski returning outstanding [letter of acknowledgment] is minimal, please confirm that situation is acceptable as is." Leaving all else aside, the terms of these letters make plain that CBA was relying upon the assumed state of affairs acknowledged in the letter of 14 April 1993 that Mrs Falinski's guarantee dated 27 June 1990 secured repayment of advances made or to be made by CBA to Osborne. The fact that moneys advanced to Osborne were from time to time repaid, perhaps in full, does not exhaust the detriment. The detriment was the continuance of the facility against which Osborne remained able to draw. Rolfe J made no findings about reliance or detriment. His Honour noted that there was initially an issue about whether what purported to be Mrs Falinski's signature on the document, was, in fact, her signature. She was neither prepared to admit nor deny that it was. CBA obtained a report from a handwriting expert who stated that, in his opinion, the writer of Mrs Falinski's signature on a number of specimen documents, which undoubtedly contained her signatures, wrote her signature on the letter. This evidence was not challenged and in the circumstances her counsel accepted that on the balance of probabilities she signed the document. Rolfe J said that even if this had not been accepted he would have decided on the evidence that she did. 18 UNREPORTED JUDGMENTS William Foxlee, an officer of CBA, who, in 1992 and 1993, had overall supervision of the accounts of Osborne, did not recall seeing the acknowledgment of | April 1992, but at some time before the request for seasonal facilities being dealt with in April 1993, became aware that the document contained a limitation to the ongoing guarantee of Mrs Falinski. His statement continued: "5. I was concerned to be informed that the document had been amended so as not to reflect the standard form of bank acknowledgment and, to the best of my recollection, I instructed either Gil Baker or Ian Pike or some other officer to ensure that before any further seasonal accommodation was granted to Osborne in 1993 that a legally binding acknowledgment be obtained from Mrs Falinski, not only in relation to the seasonal facilities, but in respect of all Osborne's facilities on a continuing basis. 6. I do not recall seeing the document dated 15 April 1993 (Annexure 'B' to this statement Bundle 335) until shown to me for the purpose of preparing this statement. I assumed that the instructions referred to in paraS hereof had been carried out. 7. If I had been told in April 1993 that Mrs Falinski had not signed or was unwilling to sign an acknowledgment in the form of Annexure 'B' to this affidavit (Bundle 335) or another form acceptable to the Bank and its Legal Department I would not have authorised the extension of temporary seasonal facilities of $5.858 million to Osborne for the 1993 year. Further, I would have placed the existing facility of $5 million in reduction, that is, no further advances would have been made on that account and a schedule for the repayment of the $5 million would have been put in place. 8. I regarded the security of Jill Falinski, and in particular her share of the family home, as extremely important in the overall funding of Osborne not simply for its financial value but for its value to the Bank in ensuring, as best as we were able, that Mr Falinski devoted his best efforts to the success of the company. 9. Although I regarded the Osborne connection as a valuable one to the Bank, equally I regarded the commitment of the directors, mortgagors and guarantors as highly significant and would have viewed Mrs Falinski's failure to sign an acknowledgment in the terms of Annexure 'B' very seriously." Mrs Falinski did not attempt to challenge the application of the principle of estoppel by convention but made submissions under two heads; first, that Mrs Falinski had simply adopted a statement put before her by CBA that CBA had granted accommodation against the security of the guarantee, and that she understood that the guarantee would "also secure" the payment to CBA of interest and any costs, charges and expenses; secondly, that the effect of the document in giving rise to an estoppel against her was exhausted in 1993 when the temporary seasonal accommodation was repaid and the account reduced to nil, and that CBA could not rely on the document once Mrs Falinski failed to sign later acknowledgments. With the second of these submissions I have already dealt. The first submission overlooks the essence of an estoppel by convention as stated in Spencer Bower and Turner and recognised by Brandon LJ in the Texas Bank case at 130-1. The estoppel is founded not on a representation, but on an agreed statement of the relationship between the parties, the truth of which has been assumed, by the convention, as the basis upon which they will thereafter proceed. In the present case, in my opinion, as CBA submitted, that relationship was one which URJ FALINSKI v COMMONWEALTH BANK OF AUSTRALIA (Cole JA) 19 recognised the continuation of the guarantee Mrs Falinski signed in 1990. The effect of the doctrine is that she was estopped from denying that relationship and hence from denying her liability to CBA in accordance with the terms of the guarantee. Accordingly, even if the third paragraph of the letter of 1 April 1992 were a notice in accordance with cl2 of the guarantee, which had the effect of terminating Mrs Falinski's liability under the guarantee, in these proceedings she was estopped from denying a continuing liability under the guarantee after she signed the letter of acknowledgment of 15 April 1993. CONCLUSION The appeal should be dismissed with costs. Cole JA I agree with Sheller JA. Appeal dismissed with costs. Counsel for the appellant: J A Timbs QC/M J Condon Solicitors for the appellant: Lane & Lane Counsel for the respondent: A J Meagher SC/A J Payne Solicitors for the respondent: L E Taylor