Garcia and unconscionability principle applied to guarantor of company

Bank of Western Australia Ltd v Abdul [2012] VSC 222 – Justice Croft

The Bank of Western Australia Ltd (Bankwest) sought to enforce a loan with the defendants Naseem Abdul (the first defendant) and Theresa Abdul (the second defendant) and as guarantors of loans that were advanced by Bankwest to four companies BNA, Raheem, Shamrock and Torkar.  The first defendant was the director of the four companies.  The second defendant was the director of Shamrock. Bankwest claimed that the defendants were jointly and severally liable for facilities to the four companies and personally which as at 31 March 2010 totaled $18,897,136.45.

His Honour Justice Croft considered the following questions:

(1)        the construction of a certificate provision under Bankwest’s securities which provided that the certificate was “sufficient evidence” of the amount of the debt as opposed to “conclusive evidence”. On considering the proper construction of the certificate provision His Honour found that the certificates were sufficient evidence of the amount payable by the defendants. The accuracy of the certificate could be challenged by the defendants with the onus to prove that the certificate was wrong being born by the defendants.[1]

(2)        whether Bankwest directed the exercise of the powers of the receivers and managers thereby displacing the agency relationship between the receivers and managers and the companies or otherwise rendering Bankwest liable for the conduct of the receivers and managers. His Honour stated it was necessary for the defendants to establish that Bankwest directed, interfered with or instructed the receivers and managers to displace the agency relationship. It was proper and desirable for communication between the receivers and managers and the secured debtor and the degree of that communication depends on the complexity of the receivership.  In this case there was no evidence of Bankwest directing the receivers and managers.[2]

(3)        is the second defendant Mrs. Abdul absolved from liability to Bankwest with respect to the facility granted by Bankwest to Mr. and Mrs. Abdul and the guarantees for the companies’ facilities due to principles enunciated in Garcia[3].  Further in relation to the guarantees based on unconscionability and the principles enunciated in Amadio[4].  His Honour considered those defences on the basis of (i) Mrs. Abdul’s understanding of the transaction – His Honour found that Mrs Abdul did not know what the documents she was signing were and even if she did know that she did not understand their nature and effect; (ii) volunteer – His Honour stated that Bankwest must show that Mrs Abdul obtained a direct and immediate gain from the credit facilities extended to the companies[5] which was more than incidental benefit which had accrued generally to the family[6]. He found that Bankwest had not established that Mrs Abdul had any real involvement in the management of the companies or that she received any direct and immediate gain from the provision of the credit. The fact that cash flow from the businesses was used to meet interest payments on the family home was no more than incidental benefit; (iii) Bankwest’s knowledge – it knew that the first and second defendants were married; (iv) Bankwest’s failure to explain. His Honour found that Mrs. Abdul had a good defence to Bankwest’s claim based on principles enunciated in Garcia and unconscionability.


[1] His Honour considered such cases as Dobbs v National Bank of Australasia Ltd (1935) 53 CLR 643 at 651-2; Papua and New Guinea Development Bank v Manton [1982] VR 1000 at 1007 per Beach J; Permanent Trustee Company Ltd v Gulf Import and Export Co [2008] VSC 162 at [85] per Hansen J.

[2] His Honour considered the judgment of Justice Einstein State Bank of New South Wales Ltd v Chia (2000) 50 NSWLR 587 at [868] to [870] and [881] to [886];

[3] Garcia v National Australia Bank Limited (1998) 194 CLR 395 at 408 – 409 (confirming the principle in Yerkey v Jones (1939) 63 CLR 649)

[4] Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447

[5]Agripay Pty Ltd v Byrne [2011] QCA 85 at [11]

[6] State Bank of New South Wales Ltd v Chia (2000) 50 NSWLR 587 at [169]

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