CBA v Anna Maria Crowe [2004] NSWSC 330

In 1993, a couple borrowed money from the bank to assist in the purchase of a motor vehicle in the name of the husband. The loan was secured by a mortgage over the wife’s property. The mortgage was an “all monies” mortgage, which secured all monies that were then or which would thereafter become owing by her to the bank.

In 1994, the couple borrowed more money from the bank. This time the company had established a new company, and through the new company applied to the bank for an overdraft facility. To secure payment of the facility, the couple was required to execute a joint and several guarantee of all liabilities of the company. Accordingly, money which became due under the overdraft facility fell within the scope of the “all monies” mortgage. Hence, the overdraft facility was also secured by the mortgage.

In 2000, the company was in default of the loan. The loan was refinanced under a new facility which was secured by new guarantees from the couple. The mortgage executed by the wife in 1993 covered the liabilities of the wife under these new guarantees. Notwithstanding the refinancing, the company was unable to repay the loan and the bank sought possession of the wife’s mortgaged property. The wife claims relief from the transactions which she had entered into under:

(1) the principles stated in Yerkey v Jones (1939) 63 CLR 649;

(2) the principles stated in Commercial Bank of Australia Limited v Amadio (1983) 151 CLR 447 relating to unconscionable transactions; or
(3) the provisions of the Contracts Review Act 1980.

Legal basis for relief

1. The principles in Yerkey v Jones

It was held in Yerkey v Jones, and later affirmed in the High Court case of Garcia v National Australia Bank Limited (1998) 194 CLR 395, that it is unconscionable for a bank to seek enforcement of a mortgage/guarantee in circumstances where:

1. the wife did not understand the purport and effect of the mortgage/guarantee, which she had given;

2. the wife is a volunteer in the sense that the loan from the bank was to her husband and the wife did not receive a real benefit from giving the mortgage/guarantee to secure the loan; and 

3. the bank did not itself take steps to explain the mortgage/guarantee to the wife or find out that a stranger had explained it to her.

If the above factors exist, the mortgage/guarantee is unenforceable as against the wife because of unconscionability.

2. The principles in Amadio

Noting the case of Amadio, James J held that it would be unconscionable for the bank to enforce the guarantee or mortgage signed by the wife if: 

1. The wife has some ‘special disadvantage’, such as a limited understanding of written English which impedes the ability of the wife to judge what is in her best interest;

2. The disability was sufficiently evident to the bank; and 

3. The bank fails to show that notwithstanding these circumstances, the transaction was fair, just and reasonable.

Once again, if the above factors exist, the mortgage or guarantee is unenforceable as against the wife because of unconscionability.

3. Provisions of the Contracts Review Act

Under the provisions of the Contracts Review Act, the Court has the discretion to refuse to enforce a contract, or a provision therein, if the contract or its provision is unjust.

As held in West v AGC (Advances) Ltd [1986] 5 NSWLR 610, a contract will not be unjust unless the contract or one of its provisions is the product of unfair conduct on the part of the lender either in the terms which the lender has imposed or in the means which he has employed to make the contract.

The 1993 transactions

In relation to the mortgage executed in 1993, James J was satisfied from the evidence that the mortgage was adequately explained to the wife by her lawyer. As such, she had an understanding of the purport and effect of the mortgage such that she cannot gain relief pursuant to the Yerkey v Jones principles.

In relation to the claim for relief under the principles in Amadio, James J was not satisfied that the wife had suffered a special disability which impeded her ability to judge whether the giving of the mortgage would be in her best interest. His Honour found that although she was unable to read legal documents for herself with any facility and lacked commercial experience, she was born in Australia and spoke English quite fluently. He held that in any event, her disability would have been cured by the explanation of the mortgage that was given by her lawyer.

So far as the Contracts Review Act is concerned, James J at paragraph 281 held that:

Although some of the matters referred to in subs (2) of s 9 were present, I do not consider that I should find that any contract was unjust within s 9 of the Act.

The 1994 transactions

First, in respect of the relief under the principles of Yerkey v Jones, James J found that the wife was not a volunteer under the transaction. Because she was a shareholder and director of the company with her husband, she received a real benefit from the facility that the bank had set up for the company. She was thus not entitled to relief under the Yerkey v Jones principles.

In relation to whether the bank was unconscionable as per the Amadio case, James J found on the basis of the evidence that the wife had understood that the mortgage she had given in 1993 also secured the facility, which was taken out by the company in 1994. It was clear to James J that the wife’s lawyer had adequately explained the loan documents and guarantee documents to her before she signed them.

However, the wife also claimed that from the case of Elkofairi v Permanent Trustee Co Ltd (2002) 11 BPR 20,841, it is unconscionable for the bank to enforce the mortgage because it knew that the borrower had no means of repayment and had only set up the facility on the basis that they had a mortgage over her property. This argument was supported by a review from a credit administrator within the Bank which expressed the view that the facility should not have been offered to the company. However, his Honour accepted that when the bank decided to give the facility, it had known or ought to have known that the company would be unable to service repayments. The bank had procured the advice of a valuer who had recommended the decision to offer the facility. Accordingly, the wife failed on this basis for relief.

The 2000 transactions

Lastly, it was claimed by the wife that the new guarantees signed in 2000 were not enforceable by virtue of the above principles. However, James J found that by this time, the wife had developed better commercial experience and knowledge of the operation of the instrument such that she understood the transaction and was not under any special disadvantage. Accordingly, she cannot rely on the principles of Yerkey v Jones and Amadio to relieve herself of the liabilities under the new guarantees.

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