New South Wales Supreme Court CITATION : Manfred Schoenhoff & Anor v The Commonwealth Bank of Australia [2003] NSWSC 918 HEARING DATE(S) : 13/10/03, 14/10/03 JUDGMENT DATE : 21 October 2003 JURISDICTION: Equity Division Commercial List JUDGMENT OF : Einstein J DECISION : Plaintiffs' case to be dismissed CATCHWORDS : BANKING - Margin Lending Facility - borrower obtains a guarantor - whether borrower is an agent of the Bank in obtaining surety - shares - cash advances - GUARANTEE - variation of guarantee - "obviously unsubstantial" alteration test - whether guarantor prejudiced - grounds for discharge - CONTRACT - construction - objective manifestation of assent - ascertaining the intention of the parties - rule in L'Estrange v Graucob - operation of the rule - failure to read documents signed - significance of signed documents - signature as a strong indication of intention to be bound - bound by material printed on both sides of pages - MISREPRESENTATIONS - whether guarantors induced into entering into guarantee by fraudulent misrepresentations - whether any misrepresentations were made on behalf of the Bank - EVIDENCE - adverse findings as to credibility of witness - the rule in Jones v Dunkel LEGISLATION CITED : Trade Practices Act 1974 Adler v Australian Securities and Investments Commission [2003] NSWCA 131 Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549 Corumo Holdings Pty Ltd v C Itoh Ltd (1991) 5 ACSR 720 CASES CITED : Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1 BPR 9251 Jones v Dunkel (1959) 101 CLR 298. L'Estrange v F Graucob Ltd [1934] 2 KB 394 Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2003] NSWCA 75 Manfred Schoenhoff (First Plaintiff) PARTIES : Evelyn Schoenhoff (Second Plaintiff) The Commonwealth Bank of Australia (Defendant) FILE NUMBER(S) : SC 50193/00 COUNSEL : Mr N Perram (Plaintiffs) Mr M T McCulloch, Mr A J Abadee (Defendant SOLICITORS : Aitken McLachlan & Thorpe (Plaintiffs) LE Taylor (Defendant) IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST Einstein J Tuesday 21 October 2003 50193/00 Manfred Schoenhoff & Anor v The Commonwealth Bank of Australia JUDGMENT The Proceedings 1 The plaintiffs, Mr and Mrs Schoenhoff seek relief in respect of an agreement entered into between 14 October 1998 and 18 October 1998 ["the agreement"] by which they acted as sureties for the obligations of Mr Karl Mansfield to the Commonwealth Bank of Australia. Those obligations arose under a Margin Lending Facility agreement ["the principal agreement"] entered into in between the Bank and Mr Mansfield in September 1998. 2 Some important questions arise concerning the particular pages of a particular document which were in fact signed by Mr and Mrs Schoenhoff. Agreed chronology 3 Pursuant to pre-trial directions the parties produced an agreed chronology. The chronology is appended to this Judgment as Appendix A and it may be noted that the plaintiffs' entries in the chronology are included in the standard font whereas the defendant's entries are included in italicised font. Background and evidence 4 The convenient course is to immediately address the evidence given on affidavit [noting the rulings as to the limited basis upon which certain evidence was admitted]. Mr Schoenhoff 5 Mr Schoenhoff initially gave evidence in these proceedings by affidavit dated 26 February 2003. Early life and emigration to Australia 6 Mr Schoenhoff gave evidence about his early life, education and his emigration to Australia in the following terms: "I lost my parents at about the age of 4 and I was raised in an orphanage in a small rural village in Germany called Ribbelsbuttel. I attended the local village school and I completed what in those days was the school certificate at the age of 14 (year 8 of school). In April 1959, I secured an apprenticeship in a local bakery for three years, having worked casually in baking and cooking for a couple of years before that. I completed my apprenticeship and obtained a trade certificate as a baker. After I obtained my trade certificate, I worked as a baker employed by various baking businesses around the local area… I continued to work as a baker for two or three years after I obtained my trade certificate, and I was then called up to give National Service in the Army, which I carried out for 18 months…. After I was discharged from the Army at the conclusion of my National Service, I returned to baking. I continued to work as a baker for another two or three years, but then I developed an allergy to flour, and was no longer able to work as a baker. I obtained a job as a record clerk with a large insurance company in Cologne. To the best of my recollection, I commenced working for the insurance company in 1971. My duties essentially consisted of file maintenance. It was my job to ensure that letters and other correspondence were filed in the correct files, and that files were stored correctly. There were a number of people doing this job and I reported to a supervisor. I continued to carry out this job until I left Germany to emigrate to Australia in October 1980…. Initial years in Australia I arrived in Sydney in October 1980 under a visa issued at the time as an emigrant. I had studied English in Cologne and my English on arrival in Australia was passable. Initially, I lived in a boarding house in Lewisham, where I remained for about six months… I obtained a job with Prudential Life at Chatswood as a microfilm record clerk. I commenced this job in November 1980. My job consisted of transferring written records to microfilm, and ensuring that the microfilm records were appropriately marked and filed. In 1981, I found a house in Burwood at 8 Carilla Street, where I still reside. I had saved some money in Germany from my years with the insurance company in Cologne, and I bought the house in my name for which I paid, to the best of my recollection, approximately $83,000.00. To the best of my recollection, I borrowed $25,000.00 from the Commonwealth Bank, and I paid this off in three or four years. In July 1981, I married. My wife, Evelyn Schoenhoff, and I have two children. The first child, Richard, was born in 1982, and the second child, Edward, was born in 1984. Both children have now finished school. The eldest child is working in real estate and Edward is studying at Tafe and working at night as a supermarket stacker. Both my children are still living at home with my wife and I." Employment at Jardine Lloyd Thompson 7 Mr Schoenhoff gave evidence that he was retrenched by Prudential in 1991. In 1992, he gained part time employment at Jardine Lloyd Thompson, an insurance broking firm as a mail clerk. In this role Mr Schoenhoff is responsible for mail distribution, out going mail, and running errands such as carrying out the banking and organising courier services. Mr Schoenhoff is still in the employ of Jardine Lloyd Thompson as their mail clerk. Investments – shares and real property 8 Following his retrenchment from Prudential in 1991, Mr Schoenhoff gave evidence that he invested his retrenchment payout of approximately $70,000.00 in the float of the Commonwealth Bank. Mr Schoenhoff then gave the following evidence: "The float was successful and the shares increased in value. I received dividends. I still hold those shares which have increased in number to 5,345. Following my experience with the Commonwealth Bank, I became interested in the stock market. I have never obtained any financial or accounting advice in relation to my investments, but rely on my own reading and common sense. I have bought three other parcels of shares namely National Australia Bank, Qantas and Telstra, which are involved in this matter. Currently, my portfolio of those four parcels of shares is valued at around $, subject to the matters which I will speak about below. I have other parcels of shares which are not subject to the Defendant's claim." 9 Evidence was also given about the investment unit purchased by Mr and Mrs Schoenhoff in 1994. The unit at Carlingford bought in their joint names for $285,000.00 is the subject of a mortgage from St George Bank. They borrowed 80% of the purchase price, the other 20% coming from their savings. According to the evidence of Mr Schoenhoff this mortgage and the mortgage in relation to the family home at Burwood are the only mortgages he has signed in his life. Meeting Karl Mansfield 10 Mr Schoenhoff gave detailed evidence about his association with Mr Mansfield. In 1997, Mr Scheonhoff met Mr Mansfield, who was employed as an insurance broker at Jardine Lloyd Thompson. The two men had desks on the same floor of the open plan office. They became friendly, and Mr Scheonhoff discussed his investments with Mr Mansfield from time to time. Request from Mr Mansfield 11 Mr Schoenhoff then gave the following evidence about a request from Mr Mansfield: "In about October 1998, Karl approached me while I was sitting at my desk working and spoke to me to the following effect: Karl: "Manfred would you be able to put up your shares as security for a couple of months, no longer than that, so I can borrow some money and get into the share market." Me: "That's okay if it's for a short period and there is no cost to me." Karl: "I can only borrow up to 70% against the value of your shares so don't worry there will be no come back to you." Me: "Okay." Karl: "Can you put up some shares straight away?" Me: "Yes, I've got some Wattyl shares." Karl: "How many have you got?" Me: "Around 8,000 roughly." Karl: "Okay that'll be great."" [Allowed as evidence of the contents of the conversation, s 136 limiting order made] Forms signed by the Schoenhoffs 12 Mr Schoenhoff gave evidence that approximately two days later, the following interchange took place between himself and Mr Mansfield: "Karl approached me again while I was sitting at my desk working. He handed me two forms. One was entitled "Application Form", and the other was entitled "Risk Disclosure". He spoke to me to the following effect: Karl: "Manfred, can you fill in this form (referring to the application form), straight away, and sign both of them. The Bank wants them." [Allowed as evidence of the contents of the conversation, s 136 limiting order made] He stood there next to my desk while I immediately filled out the application form and the risk disclosure form. This took place on 14 October 1998. I signed the risk disclosure form and handed it to Karl. I took the application to the office of Steve Lovel who was an insurance broker on the same floor, and I signed it in his presence and he witnessed it. I then handed that form to Karl. At the time I signed the application form and risk disclosure form, I did not read them, nor did I know who "the Bank" was. It did not occur to me to ask Karl from which Bank he was borrowing the money. To the best of my recollection, I completed these forms "in a hurry". At the same time as Karl handed me the application form and risk disclosure form, he also handed me a conversion request form which had not been completed. At the time he handed it to me, he spoke to me to the following effect: Karl: "Can you fill this out for the Wattyl shares." Me: "I'll have to get Evelyn to sign it because she owns half the Wattyl shares." I completed the form and took it home, and asked Evelyn to sign it and she did so. I also signed it and I handed it back to Karl." 13 On or about 16 October 1998, Mr Mansfield came back to Mr Schoenhoff with the application form and the risk disclosure form and said words to the effect: Karl: "Manfred, the Bank says you must get your wife to sign the application form and the risk disclosure form. There is also another form which you have to sign. Here it is." [Allowed as evidence of the contents of the conversation, s 136 limiting order made] 14 The other form being referred to was a form entitled "Independent Legal Advice". Mr Schoenhoff gave evidence about this form in the following terms: "I signed this form while Karl was standing there next to my desk and I handed it back to him. A copy is exhibited to me and marked " D ". I noticed it said that I did not wish to receive legal advice. I did not understand this form had any significance because I did not think that I needed legal advice for my dealings with Karl at that time. " 15 In relation to the application form and the risk disclosure form, Mr Schoenhoff gave evidence that he took them home and asked his wife to sign them, which she did in his presence, without asking what it was or why he was asking her to sign it. The application form was signed in the presence of Edina Solomon, Mrs Schoenhoff's niece. 16 Mr Scheonhoff returned the application form and the risk disclosure form to Mr Mansfield on 16 or 17 October 1998. He does not recall having any discussion with Mr Mansfield at this time about Mr Mansfield's trading activities. 17 The documents discovered by the Bank indicate that Mr and Mrs Schoenhoff signed a sponsorship agreement. Mr Schoenhoff gave evidence that: "I have no recollection of signing this document. I did not keep a copy. I did not get any advice on this document before I signed it. The handwritten date is not in the handwriting of my wife or I." "Margin Lending Facilities" document 18 A few days after the Schoenhoffs signed the conversion request form for the Wattyl shares, Mr Mansfield handed Mr Schoenhoff a document entitled "Margin Lending Facilities", and said "Manfred, the Bank has asked me to hand you this document." [Allowed as evidence of the contents of the conversation, s 136 limiting order made] 19 Mr Schoenhoff then gave evidence about this interchange to the following effect: "He did not give me any other explanation and although I did try and look at it, I found it complicated. It did not occur to me to obtain any advice about it. I was aware that I had already entered into the transaction and given my word that I would support Karl. I also noticed that some pages of the document were missing, which had the same page number as the application form, risk disclosure and independent legal advice forms, and I realised that these pages were part of that document, although I did not receive that document when we signed single the forms. A copy of the document I received entitled "Margin Lending Facilities" is exhibited to me and marked " E ". I did not receive this document before my wife and I signed the documents referred to above. I did not show the document to my wife." Further requests from Mr Mansfield 20 Mr Schoenhoff gave evidence that just before 23 November 1998, Mr Mansfield approached him at work and gave him a form entitled "conversion request form". According to Mr Schoenhoff's affidavit, the following conversation then took place: "Karl: "Can you pledge some more shares. I'm going well and you'll get your shares back don't worry." Me: "Okay, we have some shares in CBA" Karl: "How many shares do you have?" Me: "5,600 roughly." Karl: "That will do. I'm happy with that."" [Allowed as evidence of the contents of the conversation, s 136 limiting order made] 21 Mr Schoenhoff's evidence then continued: "I then completed the form as far as I could, signed it, and took it home and asked Evelyn to sign it, and she did so. I handed the completed conversion request form and the holding statement for the share parcel identified in the form, to Karl the next day. A copy of the conversion request form is exhibited to me and marked " F ". Although I pledged 5,602 shares, I am now entitled to only 5,345 shares, the difference representing shares which were converted to cash under the Bank's share buyback scheme." 22 In relation to his understanding of the borrowing capabilities of Mr Mansfield against the value of the shares, Mr Scheonhoff gave the following evidence: "When I handed him the conversion request form for both the Wattyl and the CBA shares, I assumed that Karl would be able to borrow from the Bank 70% of the value of the shares at that time…. At that time, the value of the CBA shares that my wife and I pledged by virtue of the conversion request form was approximately $76,750.00, so I believed that Karl would not be able to borrow more than $53,700.00 approximately in respect of that parcel. I did not know that Karl had a credit limit of $200,000.00 under a separate facility, I did not know that our shares were part of a "package" of shares so that our shares were at risk up to their full value whether or not our shares pledged rose or fell, depending on how much Karl borrowed and what other security he provided to the Bank and its value." 23 On about 18 December 1998, the Wattyl shares were returned to the Schoenhoffs. Qantas shares 24 On 9 March 1999, at the request of Mr Mansfield, the Schoenhoffs pledged 5,016 shares in Qantas, by signing another conversion request form. A copy of that form was exhibited to Mr Schoenhoff's affidavit and marked "G". According to the evidence of Mr Schoenhoff these shares were returned to their portfolio towards the end of April 1999, involving a period of approximately six weeks. NAB shares 25 On 21 April 1999, Mr Mansfield approached Mr Schoenhoff requesting more assistance. Mr Schoenhoff gave evidence that a conversation to the following effect took place: "Karl: "I want to buy some more shares and I need to borrow some more money. Can you put up some more shares for me. I'm doing so well I want to keep going. You have nothing to worry about. Can you put up your NAB shares?"" [Allowed as evidence of the contents of the conversation, s 136 limiting order made] 26 Mr Mansfield handed him a conversion request form in respect of the NAB shares, which Mr Schoenhoff signed and handed back to Mr Mansfield. The shares were in Mr Schoenhoff's name alone so he did not require his wife to sign the form. Mr Schoenhoff gave the following evidence about that parcel of shares: "At this time, the value of those shares was approximately $186,000.00, and I believed that Karl would be able to borrow no more than $130,000.00 against this parcel of shares…Although I pledged 7,727 shares, I am now entitled to 7,893 shares by virtue of shares being allocated to my parcel under a dividend reinvestment scheme. I did not understand when I pledged the shares that dividends which were paid in the form of shares under a dividend reinvestment scheme would be held by the Bank as additional security." Repledging of Qantas shares 27 Mr Schoenhoff gave evidence about the events of July 1999 in the following terms: "In July 1999, Karl again approached me at work, and spoke to me to the effect that he was doing well and wished to borrow more money to buy more shares. He asked me to pledge additional shares and handed to me another conversion request form." [Allowed as evidence of the contents of the conversation, s 136 limiting order made] 28 Mr Schoenhoff subsequently completed the form, repledging the shares held by he and his wife in Qantas. He took the form home and his wife also signed the form. He then returned it to Mr Mansfield on 12 or 13 July 1999. He then continued: "The value of those shares at the time was approximately $11,500.00, so that I believed Karl would be able to borrow up to $8,000.00 approximately against the value of these shares. [Subj/136] We pledged 5,108 shares, but an allotment of new issue of security took place on 11 December 2001 and my wife and I became entitled to an additional parcel of 975 shares, bringing the total number of shares to 6,083 which are pledged. I did not realise that the issue of new shares by allotment by any of the companies the shares of which we pledged would be held by the Bank as additional security…." The period until September 2001 29 Mr Schoenhoff gave the following evidence: "All in all, I had pledged shares which had not been returned to the value of approximately $270,000.00, and I therefore understood Karl could borrow approximately $190,000.00 against these shares. Again, I have a general recollection that from time to time, Karl had made comments to me to the effect that he was trading well and making money. [Allowed as evidence of the contents of the conversation, s 136 limiting order made] It did not occur to me to ask for the shares back because I understood he still needed them to support his borrowings but I was confident that I would receive them back in time, as I had done with the Wattyl shares and the first pledge of Qantas shares. Between July 1999 and September 2001, I was quite happy about the situation with Karl. I continued to receive dividends on the shares, and the shares were increasing in value. I was aware that there was a risk in relation to approximately $190,000.00 of the value of the shares, [but I was also confident that Karl was doing well, because he told me so, and the stock market was performing well which made it likely that Karl in fact was doing well.] [Allowed as evidence of the contents of the conversation, s 136 limiting order made] During the year 2000, my wife and I had pledged additional parcels of shares in the National Australia Bank at Karl's request, and these additional parcels were returned to us." Letters from Colonial State Bank 30 A letter dated 4 September 2001 was sent to Mr Schoenhoff from Colonial State Bank of New South Wales Limited ("Colonial"). Mr Schoenhoff gave the following evidence about his reaction to receiving the letter and his subsequent conversation with Mr Mansfield about it: "I read the letter and was shocked to realise that the amount of the loan had increased way beyond the sum of $190,000.00, which I thought was the limit of my risk. At that time, I did not understand how that could have happened. At that time, I did not understand parts of the letter, in particular, the expression "margin call loan security ratio". I assumed, without understanding how it had happened, that somehow or other Karl had borrowed against the increased value of the shares I had pledged. I took the letter to work and I approached Karl and I showed him the letter. We had a discussion to the following effect: Me: "Karl what is going on. What have you done. The loan balance is $340,000.00. How did that happen?" Karl: "I am paying the interest payments so there is no need for you to worry. While I am paying the interest, which I will keep doing, nothing will happen to your shares." Me: "Karl I want my shares back." Karl: "I can't do anything about that now because I don't have any other security to give to the Bank." Me: "What about the shares you have been buying and selling?" Karl: "They've lost value dramatically and there is not enough there to pay off the loan." Me: "Karl I must have them back. You will have to go and see your family and friends and do something. I never agreed to this. You have to get me my shares back as soon as possible." Karl: "Okay. Manfred, you are going to have to put up some more shares, or the Bank will sell some shares. That's what a margin call is. The Bank won't allow the loan to exceed 76% of the value of the shares" Me: "I thought you said 70%." Karl: "Well it's 76%." Me: "What amount of shares do I need to put up. I have 1,000 Telstra shares." Karl: "That should be enough. I will prepare a letter to send to the Bank." [Allowed as evidence of the contents of the conversation, s 136 limiting order made] Karl then prepared a letter which he handed to me and I signed it. A copy is exhibited to me and marked " K "." 31 Mr Schoenhoff gave evidence that he was "quite distressed" at this time, and felt that he did not have a choice but to provide more shares to Mr Mansfield. 32 Mr Mansfield is said to have again approached Mr Schoenhoff on 11 September 2001. According to the affidavit of Mr Schoenhoff, a conversation to the following effect took place: "Karl: "Manfred, if you want to protect your shares, you will have to hand over more security. The Bank is calling up part of the loan because the security doesn't cover it and I don't have the money. If you don't do something, the Bank will sell your shares and there is nothing I can do about it. The only thing you can do is to provide more shares now, to give me more time to talk to my family and friends so I can get you your shares back. It's up to you what you do."" 33 Following this conversation, Mr Schoenhoff again felt he had "no choice" but to provide more shares. The following shares were pledged by the Schoenhoffs: · 12 September 2001 – 2,400 ANZ shares · 21 September 2001 – a further 600 shares in ANZ 34 These shares were subsequently returned to the Schoenhoffs in two parcels on 18 and 31 October 2001. 35 Mrs Schoenhoff received a similar letter from Colonial to that sent to her husband, dated 18 September 2001. September 2001 to May 2002 36 Mr Schoenhoff gave evidence in his affidavit that he continued to see Mr Mansfield at work. When they did converse, Mr Schoenhoff would ask him how he was going finding alternative security. According to Mr Schoenhoff, Mr Mansfield would reply to the following effect: "Karl: "I'm still looking. I have got a couple of leads I'm following and I am confident I will pull something off soon. Don't worry, I will make sure your shares are safe. In the meantime, I am paying all the interest so you don't need to worry. You will get your shares back."" 37 Mr Schoenhoff gave evidence that he was comforted by these statements, and that he believed that Mr Mansfield would fix the problem. Mr Mansfield leaves Australia 38 Mr Schoenhoff gave evidence in his affidavit that in about May 2002, Mr Mansfield said words to the following effect: "Karl: "Manfred by the way, I just want to let you know that I'm resigning and I am going to London. I have got a job promotion there. I have made arrangements through my Bank to transfer funds from my London Bank to my Sydney Bank so I can continue to pay the interest on the share debt, and don't worry, I'll keep paying the interest and everything will be alright. I will earn a lot more money in London and I will be able to start paying off some the principal because the English pound as you know is much stronger than the Aussie dollar."" [Allowed as evidence of the contents of the conversation, s 136 limiting order made] 39 According to Mr Schoenhoff, Mr Mansfield left the employ of Jardine Lloyd Thompson in May 2002. Mr Schoenhoff has not seen him since. Conversations with the Bank 40 On or about 11 and 12 September 2002, Mr Schoenhoff had a number of telephone conversation with employees of the Bank. One such conversation was recorded by the Bank [see exhibit M to the affidavit of Mr Schoenhoff]. 41 Mr Schoenhoff also gave evidence that: "Apart from the two loans to buy the family home and our investment unit, I have never borrowed money, or lent money. Apart from supporting Karl, I have never guaranteed any loans. I now understand the principles of margin lending, but I did not do so until after September 2001." Mrs Evelyn Schoenhoff 42 Mrs Schoenhoff swore an affidavit dated 26 February 2003. Large portions of this affidavit were not pressed. 43 Mrs Schoenhoff is 58 year old and was born in December 1944 in the Philippines. Signing documents 44 Mrs Schoenhoff gave evidence about her role in signing various documents associated with the financial affairs of herself and her husband. Her evidence was as follows: "From time to time, Manfred would ask me to sign documents in relation to the share trading activities he was carrying out. I always did so. I never asked him what it was for or why he was asking me to sign it, but I would simply do it because I trust him absolutely. Usually, I did not even bother to read the document, but just signed it where he told me that it needed to be signed. I knew that he was buying and selling a lot of the shares in our joint names, and I understood it was for this reason that it was necessary for me to sign some forms. Documents Signed My solicitor has shown me the following documents, which are annexed to this statement as follows: " A " Conversion Request form in respect of shares in Wattyl Limited dated 15 October 1998. " B " Application form. " C " Risk Disclosure form. " D " Independent Legal Advice form. All those documents contain my signature. I have no recollection whatsoever of signing the Conversion Request form for the Wattyl shares, the Application form or the Independent Legal Advice form. I have some recollection of signing the Risk Disclosure form, because I remember that Manfred particularly wanted me to sign it one morning, because he spoke to me to the following effect: Manfred: "The bank wants this document today." [Allowed as evidence of the contents of the conversation, s 136 limiting order made] I had intended to sign the document that evening, but Manfred brought it to me and asked me to sign it straight away, so he could take it to work." Letter of 18 September 2001 45 Mrs Schoenhoff then gave evidence about the letter addressed to her from Colonial dated 18 September 2001. This evidence was put in the context of the practice of opening and dealing with mail in the household of the plaintiffs. Her evidence was as follows: "I am aware that the Bank wrote to me by letter dated 18 September 2001. To the best of my knowledge, I read this letter for the first time in my solicitor's office while preparing this statement. The system that Manfred and I use in relation to mail, is that whoever is first home opens all of the mail, whether it is addressed to me or to Manfred. If I am home first, I simply open all of the letters, and then leave the letters in a pile for Manfred to look at. I do no read them. They are usually either accounts, or matters relating to his share trading. When Manfred comes home, he likes to do his administration straight away, while I busy myself with household matters. While it is very possible that I opened this letter from the Bank, I did not read it at the time, and simply handed it to Manfred to deal with." Reliability of evidence given by Mr Schoenhoff 46 The evidence given by Mr Schoenhoff is critical to the plaintiffs' case. I formed a clear view that this evidence was not reliable. In many ways the effect of this finding is that important parameters of the cases of both plaintiffs are not made out. 47 There were a number of reasons for finding that Mr Schoenhoff's evidence was not reliable. It was clear that his recollection was very vague as to most of the material events upon which he was cross-examined. An important consideration concerns the very detailed affidavit which he made on 26 February 2003 and the fact that the affidavit was shown to be incorrect in a number of places. Additionally during the course of his cross-examination Mr Schoenhoff often contradicted himself. I formed the clear impression that where he was able to do so, his evidence was tailored to assist his case. Cash Advance – 14 August 1998 48 The matter begins with his failure in his affidavit to give any evidence at all in relation to a cash advance which he gave to Mr Mansfield on 14 August 1998. A careful reading of paragraphs 17 and following of his affidavit makes plain that the affidavit was intended to properly summarise the commercial dealings between Mr Schoenhoff and Mr Mansfield. Mr Schoenhoff deposes to his having met Mr Mansfield in about 1997 and to having become friendly with Mr Mansfield and having spoken to him about Mr Schoenhoff's investments from time to time. Paragraph 18 then simply launches into the evidence of the October 1998 approach without a word having been said as to the earlier $40,000 cash advance which had not been repaid by that point in time. The only evidence in relation to this matter was first given when Mr Schoenhoff was called in chief. One may add to this the fact that in paragraph 50 of the affidavit Mr Schoenhoff deposed that apart from the two loans to buy the family home and their investment unit he had never borrowed money or lent money. He then conceded under cross-examination that this was simply incorrect in that he had failed to refer to the August 1998 loan to Mr Mansfield [Transcript 42.32, 43.50]. 49 Another early indication of the difficulty posed by his cross-examination was the following answer given in chief [Transcript 37.42]: "Q. If Mr Mansfield had told you that your shares could be tied up for much longer than just a couple of months, would you have signed the guarantee? A. Reluctantly." 50 This is an answer giving real room for concern in terms of the reliability of the evidence given by Mr Schoenhoff with such vigour when asserting that if Mr Mansfield had told him before execution of the guarantee documentation that his shares were being pledged for their full value and not just to 70 percent of their value he would not have signed the guarantee. Likewise it gives real room for concern in terms of the reliability of the evidence given by him to the effect that if Mr Mansfield had told him that he had received a margin call, he would not have signed the guarantee nor asked his wife to sign the guarantee. 51 Later in giving further evidence in chief, he gave evidence which seems to be inconsistent with the "reluctantly" answer referred to above. This was where he was asked and answered as follows: "PERRAM: Q. If Mr Mansfield had told you that your shares could be tied up for much more than a couple of months, what would you have told your wife in relation to whether she should sign the guarantee or not? A. I would have recommended that we don't sign." [Transcript 38] Belief as to whether or not Mr Mansfield had obtained finance from a bank 52 A further and significant piece of evidence given under cross-examination was as follows: "Q. You believed, didn't you, that at the time Mr Mansfield spoke to you, as you set out in your affidavit, he had not yet obtained finance from a bank. Is that correct? A. I can't recall this." [Transcript 59.33] 53 This is for very obvious reasons a particularly important piece of evidence, given the central basis of the plaintiffs' case. It further seems to contradict or is at least inconsistent with his evidence [Transcript 37] that he would not have signed the guarantee if Mr Mansfield had told him: · that he had already purchased $136,000 worth of shares; · that he had borrowed money to do so; and · that the shares which he was being asked to put up work to secure borrowings he had already made. Other inconsistencies concerning the $40,000 54 Then there were the inconsistencies concerning the August 1998 $40,000 loan. First the question put to Mr Schoenhoff was whether it was correct to say that the loan to Mr Mansfield of $40,000 was to enable him to buy shares. The answer [Transcript 48.2] was that Mr Mansfield gave Mr Schoenhoff the impression that he would but was not specific. But later under cross-examination [Transcript 51.45] Mr Schoenhoff accepted that Mr Mansfield had asked him for this $40,000 loan without specifying what he wanted to use it for and that he had agreed to give him that loan. 55 A further problem concerns the evidence given by Mr Schoenhoff on the subject of whether Mr Mansfield had made no repayments in relation to the earlier $40,000 loan by the time he was approached in October 1998 to sign the subject application forms and ancillary documents. He could not recall and then agreed that it was possible that no such repayments had been made by October 1998. He was asked: "Q. Well, that is the sort of thing you would expect to be able to remember, wouldn't you agree, Mr Schoenhoff? A. It is wiped out of my memory, I couldn't remember." [Transcript 49.1] Motivation in signing the application form documents 56 The truth is that it is extremely difficult to understand from the evidence given by Mr Schoenhoff what exactly was his motivation in signing or having his wife sign the application form documents. His evidence was that he simply entered into the subject transaction to help somebody else, just a work colleague and not a good friend [Transcript 96.45]. The whole of the evidence in relation to the dealings between Mr Schoenhoff and Mr Mansfield have an air of unreality about them and leave a considerable number of questions simply floating in the air. The Court is left with the impression that it has not been given the full picture by any means. There are simply too many matters which do not add up. 57 Returning to the detail, Mr Schoenhoff gave the following evidence: "Q. …Do you say insofar as you were concerned, if he borrowed money from the bank - A. Yes. Q. - using your shares as security, he could do with that money whatever he wished? A. Now I get you. It was particularly done for shares, yes. That is what I understood. Q. You say particularly done for shares, but you accepted, didn't you, that he - (withdrawn) - you understood, didn't you, that just as you had decided to invest in shares with the money you had borrowed from the St George Bank - A. Yes. Q. - he could use the money he had borrowed from the State Bank in any way he saw fit, including buying shares? A. No, I assumed, and I was led to believe, that if I put up the security for him, that he can only buy shares controlled by the bank." [Transcript 45.7] Inability to remember 58 There were very many occasions during the cross-examination when Mr Schoenhoff simply could not remember. He said that he did not have any records as to whether or not Mr Mansfield might have repaid $1000 prior to October 1998 [Transcript 49]. Later he gave the following evidence: "Q. Well, when you say you haven't got any more paperwork, did you ever have any paperwork about it? A. We had - on the back of an envelope we wrote down how much he repaid me, 510 and 610, and perhaps this was on pay days sort of thing, fortnightly. Q. And what happened to the envelope? A. That's - since it's been cleared, that was rubbish, gone. HIS HONOUR: Q. Was it one envelope? A. It was just one piece of paper, envelope, yes. McCULLOCH: Q. And was it an envelope that you kept in your drawer at work? A. That's right, yes." [Transcript 93] 59 He was asked under cross-examination what financial arrangement he had had with his bank in terms of loan facilities or savings facilities as at August 1998. He thought he had two accounts but could not recall what they were although one of them could have been a savings account. [Transcript 50] 60 His later evidence included: "Q. And as at August of 1998 did Mr Mansfield tell you what shares he intended to invest in with the $40,000 you were loaning him? A. No, he didn't tell me. Q. Did you ask him? A. From what I can recall, when I ask him, "What you want to buy with this", I think he mentioned shares. That's the reason why I put the shares on the cheque butt, but he didn't elaborate. Q. But when you asked him what he wanted to buy with it, was that at the time you were writing the cheque so that you could fill in the cheque butt? A. Sort of, yes. Q. So he had asked you, had he, for a loan without specifying what he wanted to use it for and you had agreed to give him that loan, is that correct? A. That's correct, yes." [Transcript 51] 61 He was also cross-examined in relation to an application to the St George Bank for an increase in facilities from $260,000 up to $750,000. That application was dated 17 November 2001 Exhibit PX II at 546A. In the comments section entitled "Notes" [at 546J the handwritten detail includes "Applicant wants to increase existing P/I loan from $260,000 to $750,000 and to purchase another investment properties (sic)". Mr Schoenhoff gave the following evidence: "Q. And you told the bank, I want to suggest to you, that the reason for borrowing those funds, the additional moneys to take it up to $750,000, was to purchase another investment property? A. It was the bank officer's suggestion which wasn't binding to me because it was up to my discretion how I used the increased facilities from then on… McCULLOCH: Q. Was the effect of your last answer that you went to the bank seeking some money for investment purposes and the bank officer suggested that you say they were for investment properties but you could use it however you want. Is that what you're telling his Honour? A. That's correct." [Transcript 55.53- 56,13] 62 It became clear during the course of the cross-examination that over a period of time Mr Schoenhoff had held daily meetings with a particular circle or group of friends who were interested in investing in shares. Hence and to accommodate such meetings, his work conditions permitted him to commence at noon each day. His evidence was that he had not discussed those meetings with Mr Mansfield and had never recommended a particular share to Mr Mansfield out of principle. [Transcript 58]. 63 His evidence [Transcript 58] included: "Q. Well, we may be slightly at cross-purposes. I will ask another question. When Mr Mansfield came to you, according to your affidavit, whilst you were sitting at work, and asked you if you would be able to put your shares up as security, you exercised your own judgment about whether you should do that or not. Correct? A. Yes…. Q. You knew that when Mr Mansfield asked you to fill in forms that they were forms that came from a bank. Correct? A. From a bank, yes. Q. And you knew that when Mr Mansfield was giving you the forms he was doing no more than passing them to you and it was up to you to decide whether or not you should sign them. Correct? A. Yes. Q. And you knew that Mr Mansfield was acting just for himself, not for anyone else? A. I believe so." Independent Legal Advice form 64 Under cross-examination Mr Schoenhoff gave evidence that he had not read this document before he signed it [Transcript 74.17]. Yet he has sworn in his affidavit that he had noticed that the document said that he did not wish to receive legal advice. Later [Transcript 75.40] his evidence was that he had not read the document. Application form 65 In relation to the application form, his evidence was that he had not noticed anything on the reverse side of the page and not looked at the reverse side. I do not accept that this evidence can be regarded as reliable in terms of not noticing the print on the reverse side. This then raises another significant question because the reverse side of the application form gives the "Loan Details" in terms of the credit limit applied for as $200,000 and also includes provision for a "Gearing Facility". The $200,000 figure has been written into the relevant box but there was no evidence as to when that figure was placed in that position on the document. Of course it seems clear Mr Schoenhoff had the original of the application form page 35 because he signed it. He must have had the reverse side of it and it is difficult to accept that he did not look at the reverse side. Indeed the whole of the evidence of his not having read the papers which he did sign or was given, has an air of unreality about it. Generally 66 Mr Schoenhoff gave the following evidence: "Q. And you knew in signing these various documents that you were entering into a legally binding arrangement with the bank for whom you were signing it? A. To very little extent, yes. Not to the full extent. Q. What do you mean not to the full extent? A. I was unconscious of the full impact that it could have at that time." [Transcript 78] 67 Mr Schoenhoff's evidence in relation to the Independent Legal Advice document that he had not read before he signed it is likewise rejected. [Transcript 74] 68 Mrs Schoenhoff's evidence is dealt with below. Dealing with the case 69 The threshold questions concern two factual matters: · have the plaintiffs proven on the balance of probabilities that the representations which are alleged were made by Mr Mansfield to Mr Schoenhoff; and · have the plaintiffs proven on the balance of probabilities which documents were shown to them and which documents they signed. 70 It is convenient to first examine the nature of the exercise posed by the second of these matters and to do so initially in terms of identification of the appropriate principles. 71 A number of propositions relevant to the questions which here arise are to be found in the reasons for judgment delivered by Bryson J in the recent decision of the Court of Appeal in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2003] NSWCA 75. Sheller JA agreed with these reasons for judgment insofar as they dealt with the parties' intention and the remarks that the signing of the credit document and the return of it was objectively a strong indication of an intention by the company to be bound by everything on both sides of the document. The propositions identified by Bryson J are as follows: · when a contract is formed by a series of communications and by behaviour of parties in relation to those communications, it is a question of fact what parts of those communications were intended by the parties to be terms of the contract [111]; · where the Court has the task of examining a series of communications and acts, some of which are on paper and signed but some of which are acts of parties dealing with the written material, the identification of the parties' intentions about which parts of their acts and communications were to be contractual conditions may not be simple at all [111]; · a finding of fact about what the parties intentions were with respect to one document in the series, or to something written in that document, is not dictated by the terms of the document, or by the fact that the party signed it. [111]; · the fact that a particular document in the series was signed is an important indication favouring a finding that the parties signing it intended to be bound by it; but does not preclude paying regard to what the document says, how the parties treated it, and the facts and events which led to it being signed; and a whole view of the evidence may lead to a finding that the parties did not intend that the document and any promises or obligations in it should be part of their contract [111]; · it is for the tribunal of fact to consider the whole body of material and to come to a finding about the parties' intentions [111]; and · the proposition laid down in L'Estrange v F Graucob Ltd [1934] 2 KB 394 that "in an ordinary case, where an action is brought on a written agreement which is signed by the defendant, the agreement is proved by proving his signature, and, in the absence of fraud, it is wholly immaterial that he has not read the agreement and does not know its contents" must be considered in context. Their Lordships did not address whether or not one document, signed or undersigned, was intended by the parties to be included in the agreement which they reached-this being a question of fact which must be decided before attempting to apply any such principle. "In deciding the question of fact, the fact that the party has signed a document which purports to be part of a contractual arrangement, even though evidence shows that he signed it in the course of negotiation before the point of achieving finality, is a powerful indication of intention to be bound by it at the later point of achieving finality; it is a powerful indication because of well-known cultural practices about the use of one's signature as a token of assent." [101] 72 In Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1 BPR 9251 McClelland J made plain that a contract is made "by the mutual communication between the parties of their respective assents to being bound by identifiable terms otherwise capable of having contractual force, the mutual communication typically taking the form of offer and acceptance". As his Honour (citing Williston on Contract, 3rd ed, Vol 1 paragraph 21) points out, one is not concerned with the subjective thing known as meeting of the minds, but the objective thing, the manifestation of mutual assents which is essential to the making of a contract. [at page 9254] 73 Clearly enough when, as here, the question is as to precisely what are the terms of the contract, the signature of one only of them to a document presented to it cannot necessarily and by itself determine the question. Likewise, although many of the above principles go to the question of objective intent to be bound at all, the passages quoted inform the nature of the exercise here under consideration. Dealing with the first question - the representations 74 There is absolutely no doubt but that the plaintiffs have failed in my view to prove on the balance of probabilities that the representations alleged to have been made by Mr Mansfield were so made. The evidence given by Mr Schoenberg in this regard cannot be regarded as reliable. Dealing with the second question - what parts of the communications were intended to be terms of the contract? 75 The convenient course is to commence with an examination of the documents which were signed. The evidence as to the signing of the documents 76 There are some complexities in unravelling precisely which of the application form documents were signed and by whom and when and what were the copies taken and by whom and when and of which particular documents were copies taken. 77 The easiest course in order to follow the position seems to be to commence by referring to the original documents which went into evidence. These comprise the Margin Lending Facilities booklet which as originally produced comprised a booklet the front cover of which is not paginated, the reverse side of the front cover of which is paginated as page 2, and the closing inside cover page is paginated as page 51. The back cover is not paginated. The booklet can be examined [Exhibit D2] albeit that the exhibit does not include what is referred to within it as a Margin Amending Facility Application Booklet intended to be removed [see page 31 which gives instructions in this regard]. 78 The next relevant exhibit is Exhibit D1 which has been removed, it would appear, from Exhibit D2. Exhibit D1 comprises pages 33-48. These pages have an irregular left-hand side edge apparently having been cut down that edge in a reasonably rough and ready fashion. It would be difficult for anyone given one or more of these pages not to immediately notice the irregularity. The evidence appears to disclose the following about each of these pages which have been completed: · Page 35 - this page is to give the "Guarantor(s) Details". It is completed with the details of both Mr Schoenhoff and by Mrs Schoenhoff. Mr Schoenhoff gave evidence that after signing page 40 which is referred to below, he copied page 35 at the same time as copying other pages [see annexure "A" to his affidavit]. It is important to note in relation to page 35 that the reverse side of the same page paginated as 36 gives Loan Details and the handwritten insertion into the relevant box provided for " Credit Limit Applied For " is "$ 200,000 ". Immediately thereunder the following appears: *"(if charges are capitalised to the loan account, you must ensure the credit limit is sufficient and that the loan is not placed into a margin call by capitalising such charges" [my emphasis] There is a reference to the right of this section to the charging of a company registration fee or alternatively to the charging of stamp duty to the loan account. · Page 40 - this is the execution page. It has been signed by both Mr and Mrs Schoenhoff although she signed it at home and after he had signed it at work. He had copied the page after he only had signed [see annexure A to his affidavit]. There does not seem to be evidence that he copied the page after his wife had signed it and it is to be noted that a copy of the page as signed by both he and his wife appears in Exhibit PX at page 377. · Page 41 - this is the "Risk Disclosure" page and it is signed by both Mr Schoenhoff [apparently on 14 October 1998] and by Mrs Schoenhoff [apparently on 16 October 1998] and is witnessed on 19 October 1998. It appears again Mr Schoenhoff copied it after he only had signed the page [see annexure A to his affidavit]. · Page 47 - this is the "Independent Legal Advice" page. It was signed by Mr Schoenhoff on 15 October 1998 following which he apparently photocopied the document [see annexure A to his affidavit] . It was later signed by Mrs Schoenhoff on 18 October 1998 [exhibit PX page 384] but not then photocopied by Mr Schoenhoff. The reverse side of page 47 which is paginated as 48 is headed "Adviser's Quick Checklist" and refers in various places to "the borrower" and in terms of the "Credit Limit" asks questions about whether the credit limit is large enough for interest to be capitalised to the Loan and as to whether the margin call loan-to-security ratio allows the interest/stamp duty/company registration fee to be capitalised. 79 The fact that both parties signed the risk disclosure document is an important indication looked at objectively. The words "Risk Disclosure" are emphasised and appear in large font. The very first sentence of the document clearly draws attention to the importance that the statement be read and signed by each person providing security for a borrowing under Margin Lending Facilities. The paragraph numbered 1 commences by referring to use of a margin lending product and the second paragraph is actually headed "Margin Calls". The "Guarantee Obligations" paragraph is clear. Importantly and very close to the place provided for the signatures, there is a reference in large font to "a gearing product". The fact that this document was signed as part of the several documents is a significant indicator favouring a finding that in signing the document Mr Schoenhoff intended to be bound by the terms of whatever were the obligations of Mr Mansfield being guaranteed. 80 But the very same finding may be made by reference to the signing by Mr Schoenhoff of the "Independent Legal Advice" form which appears in large font and is self-explanatory. 81 The same finding may be made by reference to the signing by him of the Application Form. In particular the Court's finding is that on the balance of probabilities Mr Schoenhoff would have seen the reverse side of page 35 which importantly refers to "Gearing Facility" on more than one occasion. Whether the handwritten $200,000 figure was included at the time he signed is not clear but the evidence permits an inference that this figure was so included. In any event the matter is by no means determinant of the proceedings. 82 The above findings treat with what actually happened. But the Court is of course engaged in the task of ascertaining the objective manifestation of mutual assents. This is not a difficult task when one simply focuses upon the documents which both Mr and Mrs Schoenhoff actually signed. The objective manifestation of assent fairly taken from the materials which Mr Schoenhoff signed is quite simply an assent to guaranteeing whatever were the obligations of Mr Mansfield under the subject Margin Lending Facility borrowing transaction. Evidence given by Mrs Schoenhoff 83 Returning to the precise evidence of Mrs Schoenhoff, it is quite clear that she chose not to read the documents because she made an assumption that she and her husband were borrowing funds without making any inquiry of her husband at all about whether that assumption was correct or not. Her very clear evidence was that she signed the documents without caring what liabilities, if any, she was letting herself in for. I turn in this regard to her evidence. 84 Mrs Schoenhoff was cross-examined in respect of various aspects relating to the guarantee and her role in signing forms. Specific areas on which she was cross-examined include: · her business dealings, including her experience with signing legal documents; · her knowledge about the cash loan of $40,000 to Mr Mansfield in August 1998; · her recollection of signing documents including the conversion form, the risk disclosure form and the independent legal advice form in October 1998 in relation to the Wattyl share; and · her evidence as to whether she had ever seen a complete and entire Margin Lending Facility booklet before being shown one in the witness box. General recollection of signing documents 85 Mrs Schoenhoff was cross-examined about the evidence given in her affidavit that she only remembers signing some of the documents upon which her signature appears. She gave the following evidence in this respect: "Q. You have sworn in your affidavit that your signature appeared on a number of documents and you have some recollection of signing some but no recollection of signing others, is that correct? A. Yes, that's correct. Q. And in relation to the conversion form in respect of the Wattyl shares, that is one of the documents you say you can't remember signing? A. I can't remember that. That is too much. Q. Do you remember on how many occasions you signed documents in relation to this guarantee? A. No, I can't remember that. Q. Are you able to say whether it was one occasion or more than one occasion? A. I would say more than one occasion. Q. And do you say that, that is more than one occasion, because you are aware the documents bear different dates, as opposed to you being able to recall signing it on different occasions? A. That would be probably true." [Transcript 105] Her business dealings 86 Mrs Schoenhoff was cross-examined about her business dealings through a company of which she was a director. Questions were put to her about her understanding of the legal significance of documents she signed as director and her practice of reading and understanding such documents. The following evidence was given: "Q. And was it your practice to read documents before you signed them? A. They were all prepared by the solicitor and we signed them. Q. But may we take it that before you signed documents in relation to your business, for example, you were aware that in signing them you were on some occasions entering into legal relations with other people? A. Yes. Q. And so the documents you were signing had significance? A. Yes. Q. And did you make it your business to understand what was in the document before you signed them? A. It was prepared by the solicitors so I thought - so I understand he is doing the right thing for me, so I sign it. Q. And in relation to those documents that the solicitor prepared, did the solicitor provide you with an explanation of what the document meant before you signed it? A. Briefly. Q. Yes, sufficient for you to be comfortable to sign the documents, is that correct? A. Yes, mainly because there was lots of us. Q. I am sorry? A. There were other people, so if they sign, I sign too." [Transcript 106] Knowledge of cash loan to Mr Mansfield 87 Mrs Schoenhoff gave evidence that she was "not at all" aware that her husband had loaned money to Mr Mansfield in August 1998. [Transcript 106.55 – 107.1] Recollection of the look of the documents signed in October 1998 88 Mrs Schoenhoff gave evidence that the documents she remembered signing in October 1998 were white A4 single sheet pages, which did not appear in booklet form. [Transcript 107.7 - 107.13; 107.40] 89 In respect of the shape of the documents, the following questions were put to Mrs Schoenhoff: "Q. And did you notice anything unusual about the shape of the sheets? A. I didn't take notice of that. Q. I take it if the sheets appeared as though they had been torn or cut out of a booklet and one of the sides was irregular, that would be something that you would be able to recall? A. I didn't take notice of that. Q. Do you agree though that if the documents which you signed had been torn out of a book or had been cut so that one side was irregular, that is something you would expect to be able to recall? A. Yes. Q. And you don't have any recollection, do you, of the documents which you signed having one side which was irregular, having been torn or cut irregularly out of another document? A. I didn't really take notice of those things at that time." [Transcript 107.15 – 107.36] Complete Margin Lending Facility booklet 90 During cross-examination, Mrs Schoenhoff was shown a complete "Margin Lending Facility" booklet from Colonial (which became Exhibit D3). The following questions were then put to the witness: "Q. Now, I show you this document. Have you seen a document such as the one I have shown you before? A. Not really, only - Q. When you say - I am sorry, did you want to say something? A. No. Q. You said "not really". Does that mean that you may have seen it but you now can't recall seeing it? A. I might, but I don't think I have." [Transcript 107.56 – 108.4] Printing on reverse side of the forms 91 Mrs Schoenhoff gave the following evidence about her awareness of material printed on the reverse side of the forms she signed: "McCULLOCH: Q. Now, in relation to the document you signed, with the exception of the conversion request form, are you able to say whether there was printed material on both sides of the page or only on one side of the page? A. Only one side. Q. Are you quite sure about that? A. Yes, because that's when I sign. Q. Did you turn the document over at any stage to see if there was anything on the other side? A. No. Q. And how are you able to say therefore that there was nothing printed on the other side? A. I didn't look at the other side." [Transcript 108.49 – 109.6] Exhibit D1 – the Margin Lending Facility Application Booklet 92 Mrs Schoenhoff was asked various questions about Exhibit D1, described as the "Colonial State Bank Margin Lending Facility Application Booklet", which has been filled out and signed in various places by the Schoenhoffs. 93 Mrs Schoenhoff was asked under cross-examination whether she had seen the front page of Exhibit D1, page 33 of the booklet. She replied "No, I haven't seen this before." [Transcript 109.16] 94 She was then asked to leaf through the document before being asked about certain pages. She was asked specifically about pages 35 and 40 entitled "Application Form", page 41 "Risk Disclosure" and page 47 "Independent Legal Advice". 95 The evidence given in respect of these pages is treated with below. Risk Disclosure – page 41 96 Mrs Schoenhoff was asked which pages she recalled seeing at about the time the documents were signed in October 1998. She identified page 41. [Transcript 109.37 - 109.41] She was then asked: "Q. And are you able to recall any of the other pages? A. My signature appears on them but I can't remember." [Transcript 109.47 – 109.48] 97 Mrs Schoenhoff agreed that both the date (16 October 1998) and the signature were in her handwriting. [Transcript 109.50 – 109.54] The following questions were then put to her about her understanding of the basis for signing the form: "Q. Before you placed the signature and date on that page, did you observe that the page is headed "Risk disclosure"? A. Yes. Q. You knew, I take it, before signing this document that your husband had agreed, on your behalf and on his behalf, to provide a guarantee to support some borrowings, as you understood it, by Mr Mansfield? A. Never. Q. When you say "never", when you signed this document, what did you think you were signing? A. By dint of the first part there, that is saying "borrowing", that is what I thought, we were borrowing money for ourselves." [Transcript 109.56 – 110.12] 98 Mrs Schoenhoff then gave evidence that her husband had asked her to sign the document, without telling her he had agreed to provide some security for some borrowings by Mr Mansfield. [Transcript 110.41 – 110.47] Further, she gave evidence that she had never heard of Mr Mansfield at this time. [Transcript 110.50 – 110.58] 99 In relation to whether she read the form before signing it, Mrs Schoenhoff conceded: "Q. When you signed this document you accepted, didn't you, that you would be bound by such terms as were contained in the document that you were signing? A. Yes. Q. And you made a deliberate decision not to read the document, is that correct? A. Not deliberate but, yes, I didn't read it. Q. Well, you had the choice of reading it or not, didn't you? A. Yes, choice. Q. And you chose not to read it, didn't you? A. I didn't have the time. Q. You chose not to read it because you made an assumption that you were borrowing money, that is you and your husband, without having made any inquiry of your husband about whether your assumption was correct or not, that is so, isn't it? A. That's true too, yes." [Transcript 111.11 – 111.32] 100 Mrs Schoenhoff was then asked whether she read the following words on page 41 before signing the document: "I/We, the undersigned, acknowledge that I/we have read and understood this statement about the risks associated with Colonial State Bank Margin Lending products and that I/we signed this statement prior to signing the Application Form." 101 She replied that she had not read them. The following evidence was then given: "Q. You understood though, didn't you, from documents which you had signed in the past, that the signature which you were placing on the document was a statement by you to the person who was to receive the document of particular matters? A. I signed this paper on request of my husband. Q. Thank you. And you did so without caring what liabilities, if any, you were letting yourself in for, is that so? A. That's true." [Transcript 111.42 – 111.52] Independent Legal Advice – page 47 102 Mrs Schoenhoff gave evidence that she did not read page 47, entitled "Independent Legal Advice" before signing it. [Transcript 112.1 – 112.2] 103 However, the following concessions were made by Mrs Schoenhoff under cross-examination: "Q. You don't tell his Honour, do you, that you didn't notice those words "Independent legal advice" before you signed the document? A. I noticed it was on there but my husband had signed it, so I signed that on his request. Q. And did you read any portion of this document before you signed it? A. No. Q. And may we take it that, again, you did so without caring what, if any, obligations or statements you were making by signing the document? A. You could be right, yes. Q. Well, I am right, aren't I? Well, you shrug your shoulders. A. Well, I didn't read it, no, I didn't. Q. And by signing it you accepted to be bound by such statements as were contained in the document? A. Yes." [Transcript 112.12 – 112.33] Application Form – page 35 104 In respect of the handwriting on the application form relating to Guarantor's details, Mrs Schoenhoff gave evidence that the handwriting under the heading "Guarantor 1" relating to Mr Schoenhoff, was in his handwriting and that the handwriting and arrows under the heading "Guarantor 2" relating to her, was neither her's nor her husband's handwriting. [Transcript 112-113] Application Form – page 40 105 Mrs Schoenhoff was finally directed to page 40 of the booklet, the page in the Application Form requiring signatures executing the document. 106 On this page, there is some handwriting in the "Signature" box in the section relating to "Borrower 1". Mrs Schoenhoff gave evidence that that handwriting was not on the page before she signed it. [Transcript 113.46 – 113.48] 107 When asked about the presence of her signature in the column relating to "Guarantor 2", Mrs Schoenhoff gave the following evidence: "Q. Well, when you signed this document in the right hand column, that is page 40, you noticed, didn't you, that you were signing it as guarantor 2? A. As a guarantor to a loan which I thought we were borrowing. Q. And in accordance with the evidence you've given earlier, that belief of yours, that is that you and your husband were borrowing the money, was one which you didn't check with him at all before signing the document? A. That's true." [Transcript 113.50 – 114.2] 108 She also gave evidence that she cannot recall seeing any printed material on the reverse side of page 40, that is, page 39. [Transcript 114.16 – 114.23] 109 In the result and even though it is extraordinarily difficult for the Court to determine whether only the documents comprising pages 41, 47, 35, and 40 as well as Exhibit PX II page 366 were shown to Mrs Schoenhoff or whether other pages of the Application Booklet were also seen by her or shown to her, the fact is that even if she only saw the pages identified immediately above, the execution of those pages is a powerful indication that she intended to be bound by whatever was the transaction involved. And here again one must not lose sight of the fact that the Court is concerned with the objective manifestation of mutual assents. By further execution of these pages she objectively manifested her assent to be so bound. 110 Ultimately the proceedings may be determined upon the assumption that the only documents which Mr Schoenhoff gave evidence had been given to him by Mr Mansfield, were the documents which were signed. Even this approach to the evidence which accepts the plaintiffs' claims to a certain extent, is by no means clear. There were so many difficulties with the reliability of the evidence given by Mr Schoenhoff that I am not at all sure that it is proper to accept his evidence that only those documents were so provided to him. Mr Schoenhoff is not shown to have been anything remotely like meticulous in relation to his keeping of records. But having given the matter careful consideration it seems to me appropriate to determine the case by finding that upon the balance of probabilities, only the pages to which he referred were furnished to him by Mr Mansfield. 111 To the extent that his evidence was that he took copies of the documents to be found as annexure "A" to his affidavit, there is no explanation as to why he would not have photocopied the reverse side of page 35. On my findings the task of photocopying page 35 and of handling this page on the balance of probabilities is likely to have drawn the reverse side of the page to his attention. Indeed on my findings the same applies to the photocopying of page 47 in terms of the likelihood that the reverse side of the page came to his attention. He did of course photocopy the Risk Disclosure [page 41] and this is an important indication that he understood the significance of the terms. 112 The convenient course is to append as Appendix "B" to this judgment, the whole of the Margin Lending Facilities Booklet, in particular for the reason that the Terms and Conditions section has been the subject of close analysis during argument. The plaintiffs' submissions 113 The plaintiffs relied upon detailed written submissions in relation to the issues. It is unnecessary to repeat the whole of those submissions, many of which had real substance. Certain of them fall away by reason of the findings in terms of the plaintiffs not having discharged on the balance of probabilities the burden of proving the misrepresentations. They did however include many useful cross-references to the evidence. The submissions, with certain annotations by the Court, were as follows: · Mr Schoenhoff knew that when asked to become involved as a surety, it was up to him to exercise his own judgment whether he should become involved and believed that Mr Mansfield was acting for himself and nobody else (Transcript 58.30 – 44). He also understood that whilst Mr Mansfield was supplying him with Bank forms, the latter was doing no more than passing them on to him and that it was up to him as to whether he should sign them (Transcript 59.9). He also properly acknowledged that he understood that Mr Mansfield was not a Bank employee (Transcript 59.15). · It was astonishing that Mr Schoenhoff would make the August 1998 unsecured and undocumented $40,000 advance without any time provision for repayment, to Mr Mansfield, someone whom he described as a mere work colleague and not even a good friend (Transcript 97.10). · As previously asserted, Mr Schoenhoff did not level with the Court as to the real nature of his relationship with Mr Mansfield: people do not continually pledge shares, as Mr Schoenhoff did, just to "help somebody else" (Transcript 97.12). · It follows from this extraordinary, and insufficiently explained relationship, that when Mr Mansfield asked Mr Schoenhoff to put up security in October 1998, Mr Schoenhoff did not rely upon any representations made to him by Mr Mansfield as to the purposes or uses of the security: he was simply prepared to accede to Mr Mansfield's request. This was because the relationship was essentially such that Mr Schoenhoff would do what Mr Mansfield requested of him as regards financial matters. It did not really matter to Mr Schoenhoff that his and/or his wife's (jointly owned) shares were exposed, even though he understood that they were at risk (Transcript 89.21), just as he was content to pledge additional shares at a time when he did not know that Mr Mansfield might get around to repaying the $40,000 advance (Transcript 93.38 – 95.17). Mr Schoenhoff said himself he was content with how his involvement was proceeding until September 2001 (Affidavit of Mr Schoenhoff, para 41). He was content to do so since the stock market was performing well and he assumed, or possibly even gambled, that it would continue to perform well. · In the circumstances, Mr Schoenhoff's evidence that he was only willing to provide his security within the limits defined in the conversation with Mr Mansfield in October 1998 should be rejected. He did not rely upon any representation by Mr Mansfield as to the limits to be placed on Mr Schoenhoff's provision of security: so long as the stock market was performing satisfactorily, Mr Schoenhoff saw little risk. · If all this appears strange, it is worth recalling that the plaintiffs had accumulated significant wealth and could afford to take risks with their securities. Apart from their home and investment unit, they had a substantial share portfolio; so much so that in December 2000, when the plaintiffs applied for finance with St George Bank, they represented to the Bank that the share portfolio was valued at $910,000 (PX II/446). That they had substantial wealth, and could afford to gamble on their securities, is not only demonstrated by the volume of their share trades (PX II/420 – 426), but also by the vast amounts of money they occasionally transferred across from their accounts. For example, on 5 March 2002, they directed their broker, Andrew West to transfer proceeds in the sum of $59,587.50 from extensive share trading from their account with that firm, numbered 121984, into their St George account number 117 971 118 (PX II/426.5, 507.10 & 565.5). Those funds were duly deposited on 8 March 2002. · In short, if the risks to the plaintiffs appeared considerable then the plaintiffs were certainly in a financial position to meet those risks. · Of course, there is nothing to indicate Mrs Schoenhoff's reliance upon anything said to her by Mr Mansfield. The high point of her evidence was her husband asking her to sign the Risk Disclosure document (Affidavit of Mrs Schoenhoff, para 17). This was broadly consistent with Mr Schoenhoff's evidence that he simply asked her to sign the forms and they had no discussion about it (Affidavit of Mr Schoenhoff, para 24). Let it be assumed that Mrs Schoenhoff asked Mr Schoenhoff to be her agent to manage her financial interests and Mr Mansfield induced Mr Schoenhoff to enter the guarantee with the defendant. Even on that analysis, the better view seems to be that Mrs Schoenhoff would have to authorise Mr Schoenhoff to bring her into privity with the defendant: Bowstead on Agency (15th ed, Art 79, p 314). This analysis does not, however, apply, since she entered the contract of surety with the defendant herself. · Because of the inconsistencies in his evidence, Mr Schoenhoff should not be believed when he said he did not read the independent legal advice form. Rather, it should be found that he noticed the form and signed below the statement that he agreed not to obtain independent legal advice. In that event, he may be taken to have indicated his assent to the Bank the statement he signed on independent legal advice form: that he had been recommended to obtain independent legal advice but, exercising his own judgment and personal autonomy, he chose not to receive it. [I interpolate to make such a finding] The significance of that [as the Court further accepts] was the representation it conveyed to the Bank that Mr Schoenhoff neither requested, nor required an explanation from an independent party that might, conceivably, further have alerted him to the risks he was taking (he had already been generally warned of the nature of the risks in the risk disclosure form that he signed). It is difficult to speculate what course Mr Schoenhoff might then have taken. · Mrs Schoenhoff [as I accept] adopted a policy of wilful blindness when it came to signing documents. On her case, she would simply do what she was asked by her husband, with no evidence of any accompanying explanation. This was not, however, always the case: when she signed other financial documentation, albeit documentation prepared by others, she understood the significance of her entry into legal relationships (PX II/447-448 and her evidence in cross examination). She had been a director of two private companies (PX II/388) and was a professional nurse. With the abandonment of the unconscionability claim, it could not be asserted that she suffered some special disability in reading, or understanding English, or even the general information contained in the forms she signed. · In these circumstance, even if, contrary to what the defendant has submitted, she may somehow be taken to have relied upon a representation by Mr Mansfield, her unthinking and unreasoned refusal to read the forms she signed amounted to conduct which severed any causal connection between such representation and her loss. · The guarantors did not accept only certain terms offered by the Bank. The proper analysis is that in making the guarantee, they were making a promise to the creditor: Weaver & Craigie, The Law Relating to Banker and Customer in Australia (Vol 2) [23.40]. Put in conventional contract law analysis, it was the Schoenhoffs who were offering to provide a guarantee; which offer was accepted by the creditor: O'Donovan & Phillips, The Modern Contract of Guarantee (1996) pp 38 – 39. · So what were the terms that the guarantors were offering?... There was a range of matters that would reasonably have suggested to the defendant that the offer of guarantee made by the plaintiffs was based in circumstances where the plaintiffs were aware that there were other documents apart from the forms actually signed by the plaintiffs that constituted the agreement, being the Terms and Conditions. · First, there was the content of the forms themselves. The Schoenhoffs signed the 'glossy' forms from the Margin Loan Facility Application Booklet (Exhibit D1, PX II/370-385), one of the pages (the Application Form) contained the 'Business Purpose Declaration' on the reverse side (PX II/376.10) which stated: "You declare that the credit to be provided to you by Colonial State Bank under the Terms and Conditions is to be applied wholly or predominantly for business or investment purposes (or for both purposes)" (emphasis supplied). · The Risk Disclosure Statement (PX II/378, 2nd column point 9) contained the statement that "We strongly recommend that you seek independent legal, financial and taxation advice with respect to: · The complete terms of the product and its suitability to you ……… · Your obligations under the legal documentation" (emphasis supplied) · The plaintiffs signed a statement (PX II/384.3) under the rectangular shape section on the document that contained a heading (inter alia) "Guarantor", to the effect that in spite of a recommendation, they had decided against obtaining independent legal advice. · As a result of the above, by recourse to the documents alone, the plaintiffs had reasonably led the creditor to believe that: (a) they had each 'applied', or offered, to act as 'Guarantor' for Mr Mansfield (PX II/372.1); (b) they understood that they were acting as guarantors for a facility whose initial credit limit was $200,000 (PX II/373.1); (c) they understood that credit would be provided to Mr Mansfield under "Terms and Conditions" (PX II/376.10) (d) they had received a recommendation that they should obtain independent legal, financial and taxation advice as to the complete terms of the margin lending product and their obligations under the legal documentation (PX II/378); and (e) they had decided against obtaining independent legal advice (PX II/384.3). · As to point (c) above, there were no other written "Terms and Conditions" apart from those contained in PX II/240 – 261. It is therefore nonsense for Mr Schoenhoff to maintain that he knew that he was entering a legally binding arrangement with the Bank "to a little extent, but not the full extent" (Transcript 78.54 – 79.3). The plaintiffs' first argument - agency 114 The plaintiffs' first argument was that Mr Mansfield is shown to have been the Bank's agent for the purpose of making the allegedly fraudulent misrepresentations. Plainly enough this argument falls away in light of the above finding that on the balance of probabilities the plaintiffs have not established the making of these misrepresentations. The plaintiffs' second argument - discharge by reason of increases in the loan facility 115 It is plain that on three occasions Mr Mansfield and the Bank increased the size of the facility. On the first occasion, from $200,000 to $275,000; on the second from $275,000 to $325,000 in January 2001; and on the third, to $340,000 in June 2001. 116 The provisions of the Risk Disclosure document include the following: "Guarantee Obligations When a person guarantees the obligations of a borrower we may (if there is a default) call on the guarantor (either instead of the borrower or as well as the borrower) to pay amounts that are owing. Thus the giving of a guarantee involves risks, including the risk of losing any property that had been given as security for the loan. A guarantor is also exposed to the actions of a borrower who may increase or reduce a guarantor's risks (such as by borrowing more) without reference to the guarantor. The guarantor may not terminate its obligation to us prior to the borrower repaying all the moneys owing." 117 The proposition for which the plaintiffs contend is that use of the words which appear in the second paragraph: "such as by borrowing more", contemplate the situation where borrowings are extended under an existing facility. The proposition is that the extension of the facility to a higher amount does not necessarily mean that more is borrowed for the reason that such further amounts may not be drawn down. 118 It seems to me unnecessary to deal with this submission for the reason that on the evidence, Mr and Mrs Schoenhoff are bound by the whole of the "Terms and Conditions" to be found in the whole of the Margin Lending Facilities booklet Exhibit D2. 119 Relevantly that booklet includes the following provision in Part IV entitled "Guarantee and Indemnity Provisions": "Our rights are protected 20.1 Rights given to us under the transaction documents and the Guarantor's liabilities under them are not affected by any act or omission by us or the Nominee or by anything else that might otherwise affect them under law relating to guarantees and indemnities, including: (a) the fact that we vary or replace the Borrower's obligations under this agreement, such as by increasing the credit limit or extending the term; or (b) the fact that we give the Borrower a concession, such as more time to pay; or (c) the fact that the Borrower opens another account with us; or (d) the fact that we release, lose the benefit of or do not obtain any security; or (e) the fact that we do not register any security which could be registered; or (f) the fact that we release any person who has guaranteed the Borrower's obligations under the transaction documents ; or (g) the fact that the obligations of any person who guarantees the Borrower's obligations under the transaction documents may not be enforceable; or (h) the fact that any person who was intended to guarantee the Borrower's obligations under the transaction documents does not do so or does not do so effectively; or (i) the fact that rights in connection with the Borrower's obligation under the transaction documents are assigned; or (j) the death (or the receipt by us of notice of the death), mental or physical disability or insolvency of any person including the Guarantor or the Borrower." 120 The plaintiffs conceded that clause 20.1 (a) provided a full answer to the second argument and this is clearly the case. The plaintiffs' further argument - discharge by reason of cash advances 121 During the hearing of the proceedings the plaintiffs limited their case under this head to the cash advance of $30,000 which the evidence reveals was made to Mr Mansfield in May 1999. This advance was recorded as a loan advance in the margin loan statement. There is clearly no dispute but that Mr Mansfield applied the $30,000 advanced to the joint account of the plaintiffs: Exhibit P 2. The amount was in fact paid by direct debit from one account into the St George Bank account. 122 The question arises as to what is the effect of the making of this advance. The plaintiffs' submission was that under the provisions of the Bank's facility agreement with Mr Mansfield there was no provision for the making of such loan advances. The proposition was that under clause 7.2(a) [which is part of the 'Mortgage Provisions' to be found in the "Terms and Conditions"], the Bank could waive the right to take security over any securities acquired but that nowhere in the facility is there any authority to engage in lending for purposes unrelated to the purchase of securities. The argument was that in the making of this advance, any guarantee was discharged since it amounted to an unsecured loan to Mr Mansfield and increased the security burden on Mr and Mrs Schoenhoff. 123 Clause 7.2 provided as follows: "7.2 For the purpose of securing to us payment of the amount owing , you and the Guarantor: (a) mortgage to us all the present security , unless we give you a notice telling you that we do not require part of the present security to be mortgaged to us (you and the Guarantor agree that we may change our minds about this in the future); and (b) mortgage to us the new rights existing at the date of this agreement which relate to the present security over which we have a mortgage; and (c) agree to mortgage to us all of the future security , from the time you or the Guarantor deposit it with us under clause 7.3 or we deposit with you and the Guarantor a list referring to it; and (d) agree to mortgage to us (when you or the Guarantor acquire them) the new rights which arise after the date of the mortgage which relate to secured property ." 124 It is also relevant to note the terms of clause 17.3 of the Terms and Conditions: "Indemnity 17.3 The Guarantor indemnifies us and the Nominee against, and therefore must pay us and the Nominee on demand for, loss or costs we and the Nominee suffer or incur if: (a) the Borrower does not, is not obliged to, or is unable to, perform the Borrower's obligations in accordance with the transaction documents; or (b) the Guarantor is not obliged to perform the Borrower's obligations as anticipated in clauses 17.1 and 17.2; or (c) we or the Nominee are obliged, or we or the Nominee agree, to pay an amount to a trustee in bankruptcy or a liquidator (or a bankrupt person or an insolvent company) in connection with a payment by the Guarantor or the Borrower." 125 The plaintiffs' submissions in relation to discharge of a guarantee by variations included the following: "The High Court said in Ankar Pty Ltd v. National Westminster Finance (Aust) Ltd (1987) 162 CLR 549 at 559: "According to the English cases, the principle applies so as to discharge the surety when conduct on the part of the creditor has the effect of altering the surety's rights, unless the alteration is unsubstantial and not prejudicial to the surety . The rule does not permit the courts to inquire into the effect of the alteration. The consequence is that, to hold the surety to its bargain, the creditor must show that the nature of the alteration can be beneficial to the surety only or that by its nature it cannot in any circumstance increase the surety's risk.…" [emphasis added by the Court] The facility was of its nature a highly special one which involved the advance of monies for the purpose of the purchase of securities. It was not a general unsecured loan to Mr Mansfield. It was in fact a secured loan for the purchase of securities. By extending the loan advances there can be no question but that the Schoenhoffs were prejudiced. The amount of money owing was increased and hence their exposure. Further, there was no possibility of the Bank taking security over any shares so the burden which the Schoenhoffs' security bore was potentially increased. The reasoning in Ankar Pty Ltd v. National Westminster Finance (Aust) Ltd (1987) 162 CLR 549 at 559…requires that the guarantee be discharged. In this situation the Bank is unable to fall back on the indemnity contained in clause 17.3… It is unable to do so because clause 17.3 is subject to an implied term that the nature of the agreement to which the indemnity will apply will not be altered: see O'Donovan and Phillips The Modern Contract of Guarantee (1996) 3rd Edition LBC at p.304. It may be conceded that increases in borrowing amounts and facility limits do not alter the nature of the agreement. However, the making of these advances transformed the agreement between the Bank and Mr Mansfield from a margin lending facility into an unsecured personal loan." 126 The defendants in response to this argument submitted that this was an example of what has been referred to as an "obviously unsubstantial" alteration to the principal contract or one which was clearly for the benefit of the guarantors. I note that O'Donovan and Phillips 'The Modern Contract of Guarantee', 3rd ed, LBC Information Services, 1996, include [at page 866] in their index, reference to "variation of contract" under the heading "waiver". The section dealing with discharge by a creditor agreeing with the principal to vary the principal contract commences at page 339. There is then a treatment at page 342 of examples of variations discharging the guarantor. The following commentary is then to be found at pages 343-345: " (iv) "Obviously unsubstantial" and "beneficial" variations Whilst there are numerous instances of alterations to the principal contract discharging the guarantor, it is difficult to find in the cases many examples of alterations which are either "obviously unsubstantial" or clearly for the benefit of the guarantor. Changes made to the principal contract which do not affect the meaning of the agreement or which are made to clarify, or to correct minor errors in, the terms of the agreement come within the former category. Even though the non-prejudicial effect of the alteration must be apparent without a detailed inquiry as to its effects, some evaluative judgment as to whether a variation is "obviously unsubstantial" is necessarily required. There may be differing conclusions. In Corumo Holdings Pty Ltd v C Itoh Ltd (1991) 5 ACSR 720 at 752, Meagher JA held that a variation increasing the amount of the principal's potential liability could prejudice the guarantor, despite the fact that the principal's liability prior to the variation was already in excess of the guarantor's maximum limit of liability pursuant to the guarantee. The additional indebtedness meant that it was more likely that a demand would be made upon the guarantor and that the value of the guarantor's right of indemnity would be depreciated. Kirby P (as he then was), however, was of the view, in the context of the commercial setting and the particular provisions of the guarantee, that the variation had prevented the guarantee being called upon at an earlier stage and might even be regarded as being for the benefit of the guarantor. Other examples of "obviously unsubstantial" variations include an alteration to the principal contract permitting the creditor to realise securities given by the principal and to hold the proceeds of such realisation in a nominated bank account and, in the context of fidelity guarantees, minor alterations in the period of notice required to terminate the employment or a change in the salary payable. Another possible illustration is an agreement between the creditor and the principal to allow the creditor to assign the interest in the principal transaction even though such an assignment is contrary to the original terms of the principal contract. Arguably, such a variation would be regarded as immaterial because it is a mater of no concern to the guarantor to whom the guaranteed obligation is owed. Instances of alterations which are clearly for the benefit of the guarantor include an agreement between the principal and the creditor for a reduction in the amount of the principal's debt or in the interest rate. This will be to the advantage of the guarantor because the guarantor's liability will be correspondingly reduced. Oddly, the South Australia Law Reform Committee took the view in this situation that, despite the agreement to reduce the amount of the principal's liability, the surety will remain liable for the amount due under the contract as originally agreed. There is, however, no authority for this proposition and it is clear that the guarantor would only remain fully liable if a provision in the guarantee itself expressly stated this to be the case. Another example of an alteration which is clearly beneficial to the guarantor is a variation in the existing agreement by which the creditor takes an additional security from the principal. This is to the advantage of the guarantor because the guarantor is entitled to be subrogated to this additional security on satisfying the obligation under the guarantee." 127 In my view the subject $30,000 advance was clearly for the benefit of the guarantors so that, if variation to the principal contract there be, there was no discharge of the guarantee. The matter may be viewed as an obviously unsubstantial alteration to the principal contract. 128 Mr Perram proceeded to deal with the very close question as to whether or not, and if so how, it could be said that by reason of the $30,000 being paid to Mr and Mrs Schoenhoff, they could be said to have suffered no prejudice. His propositions were as follows: · three property rights which were involved; · at the moment before the $30,000 transfer took place, there existed the following: First of all, Mr Schoenhoff had a chose in action which was worth $30,000. The bank held cash which was worth $30,000. Mr Mansfield gave a direction in relation to that cash. At the very same moment, Mr and Mrs Schoenhoff's exposure to the guarantee was at a particular level, say at X dollars. At the moment of the transfer Mr Schoenhoff forewent his chose in action, which was worth $30,000, and it was replaced by in fact $30,000. At the same time the Schoenhoff's exposure on the guarantee, increased to X plus $30,000; · if one compares the asset position of the share of the Schoenhoffs immediately prior to the transaction, they had exposure of X dollars and [he had] an asset worth $30,000. If one looks at the transaction immediately after that has happened, they have an exposure of X plus $30,000 and [he has] an asset of $30,000; · their exposure after the transaction has increased by $30,000. 129 There are three answers to this submission. The first is that the Court is in a position to infer from the whole of the evidence that the subject chose in action was worth considerably less than $30,000 [and quite possibly nil] at the material time. The whole of the evidence including the evidence of Mr Mansfield's Bank balances with the ANZ at May 1999 [Exhibit PX I page 10] suggests that Mr Mansfield likely had no assets at the material time. 130 The second answer is that the issue is not to be decided in terms otherwise than whether or not the subject variation was obviously unsubstantial. The Court's holding is that the variation, if variation it be, was obviously unsubstantial in the whole of the circumstances which obtained at the material time. Any variation was not prejudicial to the plaintiffs for the same reason. 131 The third answer concerns the onus of proof in terms of the so-called 'unsubstantial issue'. The plaintiffs have not discharged the primary onus of proving that the variation was not unsubstantial. 132 Finally it is appropriate to refer to the submission that what is seen to have occurred is that the Bank altered the fundamental nature of the agreement from being a margin lending facility which, pursuant to clause 1, contemplated the advance of money for the purpose of purchasing securities, to a different form of security which of its nature, covered simply the making of advances to debtors unsecured by any form of security over shares or securities. The submission was particularly put in relation to clause 20.1. The proposition was that this clause did not allow or in any way forgive such a fundamental alteration of the facility. The submission was that no clause within clause 20 has the effect of permitting such a fundamental alteration. 133 The submission fails by dint of the finding that the subject variation was obviously unsubstantial and non-prejudicial in the whole of the circumstances which obtained at the material time. Evidentiary matters 134 During address Mr Perram sought to tender an affidavit which had been made and filed by Mr Johnston on behalf of the Bank. The application was for a direction that the affidavit be admitted on the basis that it not be evidence of the contents, but evidence that the deponent was capable of giving evidence as to those fact. The application was opposed, the Bank submitting that no such section 136 limiting order was appropriate and further that there was simply no issue because the Bank, so far as a Jones v Dunkel inference issue was concerned, conceded that Mr Johnston is an employee of the Bank and remains fit and well. A ruling in relation to the tender was reserved. The tender is rejected. Had the plaintiffs wished to have the evidence of Mr Johnston before the Court they should have called him. The concession removes any otherwise possibility of a need to tender the affidavit to make the Jones v Dunkel submission and the actual content of the affidavit could never have been referred to in that regard. Jones v Dunkel 135 A number of submissions were advanced by the plaintiffs during the hearing seeking to rely upon the rule in Jones v Dunkel (1959) 101 CLR 298. Generally the submissions were put in terms of the Bank's failure to call persons who had been employed by the Bank at the material time and who could have given evidence from the Bank's side of the record as to the manner in which Mr Mansfield had applied for the facility and as to the manner in which the Bank received particular documents and the like. 136 It is important to recall the principles laid down in Jones v Dunkel: · "The unexplained failure by a party to give evidence, to call witnesses, or tender documents… may - not must - in appropriate circumstances lead to an inference that the uncalled evidence would not have assisted that party's case. The appropriate circumstances exist where it was within the power of the party to tender the evidence which was not tendered." (JD Heydon, Cross on Evidence, 6th ed, Butterworths, Sydney, 2000 at [1215]) · "…This instance of a Jones v Dunkel inference (Jones v Dunkel (1959) 101 CLR 298), also available where there is unexplained failure by the party to call a witness or tender documentary evidence, can entitle the judge or jury more readily to accept the evidence of the opposite party which might have been contradicted, or more readily to draw any inference fairly available from the evidence called by the other party. A Jones v Dunkel inference cannot fill gaps in the evidence, or convert conjecture and suspicion into inference, but unless it is to be empty of content the inference if drawn may weigh the scales, however slightly, in favour of the opposing party." (Adler v Australian Securities and Investments Commission [2003] NSWCA 131 at [649] per Giles JA, Mason P and Beazley JA agreeing) 137 The plaintiffs have not established any particular matter which required to be contradicted. The defendant's forensic tactics is a matter for it. The Court is not required to speculate as to why the defendant may have elected not to call such witnesses. The state of the evidence at the end of the plaintiffs case was simply not such as to cast a particular evidentiary burden upon the defendant which required to be discharged by the calling of absent witnesses. Quite possibly the defendant, following the cross-examination of the plaintiffs, set its sails by reference to its perception as to the lack of reliability of that evidence. 138 In any event the totality of the evidence which the reasons disclose is accepted as reliable, results in the conclusion that the plaintiffs case received no assistance from an inference that the uncalled evidence could not have assisted the Bank's case. Short minutes of order 139 The parties are to bring in short minutes of order at which time costs may be the subject of submission. I certify that paragraphs 1 -139 are a true copy of the reasons for judgment herein of the Hon. Justice Einstein given on 21 October 2003 ___________________ Susan Piggott Associate 21 October 2003 Last Modified: 10/28/2003 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.