Unfair Dealing in Commercial Banking: Commercial Bank of Australia Ltd v Amadio Case, Study notes of English Language

Download Unfair Dealing in Commercial Banking: Commercial Bank of Australia Ltd v Amadio Case and more Study notes English Language in PDF only on Docsity! Commercial Bank of Australia Ltd v Amadio and another (1983) 46 ALR 402 Chapter 5 (pages 233-4) Relevant facts Giovanni and Cesira Amadio were an elderly couple who had emigrated to Australia from Italy. The Amadios had a limited grasp of written English and little business experience. The Amadios’ son was the principal shareholder and managing director of a building company. The son asked them to mortgage a block of shops they owned to the Commercial Bank of Australia (‘CBA’) for six months to secure his company’s overdraft. He told them their liability would be limited to $50,000. The Amadios believed the company was profitable. The son’s company was in fact in severe financial difficulty. It’s overdraft with the CBA was overdrawn and the CBA had dishonoured cheques amounting to approximately $45,000. A representative of the CBA took the guarantee and supporting mortgage documentation to the Amadios’ home for immediate signing on 25 March 1977. He did not explain the documents to the Amadios but he did respond to a comment by Mr Amadio that it was only for 6 months by clearly stating that it was unlimited in duration. The Amadios signed the documentation without obtaining independent advice and without reading it. At the time the mortgage was signed, the CBA was well aware that the son’s company was in financial difficulty and that the mortgage included an unlimited guarantee by the Amadios of the company’s existing and future indebtedness. It was also aware that the Amadios had been misinformed about the contents of the mortgage deed, that they had not received independent advice and had not had the opportunity to study the document in detail. The son’s company later went into liquidation and the CBA made a demand under the guarantee in December 1978. The Amadios commenced proceedings to set aside the mortgage and guarantee. The CBA counter-claimed for the amount owing to it by the son’s company. At first instance, the trial judge decided in favour of the CBA and ordered the Amadios to pay $239,000 to the CBA. On appeal, the Full Court of the Supreme Court of South Australia set the mortgage aside on the grounds that the Amadios were entitled to have the transaction nullified pursuant to the equitable principles relating to unconscionable dealing. The CBA appealed to the High Court. Legal issue Were the mortgage and guarantee given by the Amadios unenforceable due to unconscionable conduct by the CBA? Decision On 12 May 1983, a majority of the High Court (Mason, Deane and Wilson JJ; Gibbs CJ and Dawson J dissenting) decided that: • the Amadios were at a special disability in their dealing with the CBA because of their age, lack of business knowledge, limited English language skills and total reliance on their son; and • as the CBA was aware of the Amadios’ disabilities, the CBA was bound to make inquiry as to whether the transaction had been properly explained to the Amadios and it was unfair and unconscientious of the CBA to proceed to procure the guarantee and supporting mortgage from the Amadios without such inquiry. Consequently, the mortgage and guarantee were set aside unconditionally. Chief Justice Gibbs decided that the CBA had made a material misrepresentation by failing to disclose certain matters to the Amadios and consequently the Amadios should not be bound by the mortgage. Justice Deane at 422-3 described the jurisdiction of courts of equity to relieve against unconscionable dealing as follows: The jurisdiction is long established as extending generally to circumstances in which (i) a party to a transaction was under a special disability in dealing with the other party with the consequence that there was an absence of any reasonable degree of equality between them, and (ii) that disability was sufficiently evident to the stronger party to make it prima facie unfair or ‘unconscientious’ that he procure, or accept, the weaker party’s assent to the impugned transaction in the circumstances in which he procured or accepted it. Where such circumstances are shown to have existed, an onus is cast upon the stronger party to show that the transaction was fair, just and reasonable … The equitable principles relating to relief against unconscionable dealing and the principles relating to undue influence are closely related. The two doctrines are, however, distinct. Undue influence, like common law duress, looks to the quality of the consent or assent of the weaker party … Unconscionable dealing looks to the conduct of the stronger party in attempting to enforce, or retain the benefit of, a dealing with a person under a special disability in circumstances where it is not consistent with equity or good conscience that he should do so. The adverse circumstances which may constitute a special disability for the purposes of the principles relating to relief against unconscionable dealing may take a wide variety of forms and are not susceptible to being comprehensively catalogued. In Blomley v Ryan (supra, at 405). Fullagar J listed some examples of such disability: ‘poverty or need of any kind, sickness, age, sex, infirmity of body or mind, drunkenness, illiteracy or lack of education, lack of assistance or explanation where assistance or explanation is necessary’. As Fullagar J remarked, the common characteristic of such adverse circumstances ‘seems to be that they have the effect of placing one party at a serious disadvantage vis-à-vis the other’.