WIFES SPECIAL EQUITY IN THE 21st CENTURY Copyright 2013 Nigel Lo1 International Magis Society Publications

Introduction It was February 2006 and Peter Young, Chief Justice in Equity delivered his judgement in the Supreme Court of New South Wales refusing to allow the cross claim by Mrs Sunita Narayan the defendant in Chandran v Narayan2 who sought to avoid incurring her husbands multi million debt. Mrs Narayan argued that she was not liable for her husbands debt and sought to have the deed providing security over joint properties set aside. Mrs Narayan argued that she had not fully understood the signing of the deed at the time it had happened. Young CJ rejected the argument based on the facts that clearly and convincingly showed that not only was Mrs Narayan present at the meeting in Singapore where her husband Alick signed the deed, she had taken the trouble to fly from Australia to be present at the meeting. This case is just one example of how the wifes special equity as derived from Yerkey v Jones3, continues to be brought into equity disputes till this very day and will continue to apply in the years to come. This essay introduces the fundamentals of the wifes special equity and argues

1 Nigel Lo is the founder of the International Magis Society. He was the first Malaysian to receive the Long Tan Australian Defence Force Leadership Award by the Australian Department of Defence for his contributions to youth leadership development. He also served as a State District Chairman of the Malaysian Red Cross in 2008.

2 Chandran v Narayan (2006) NSWSC 104.

3 Yerkey v Jones (1939) 63 CLR 649.

that a different armour of protection afforded to a spouse must continue to exist in the 21st century.

The Beginning The operation of the wifes special equity can be seen where a wife does not understand the nature and effect of the guarantee she is induced to sign whereupon the transaction may be set aside. If the transaction is tainted by the actual undue influence of the husband then the transaction will be set aside if it is proven that the creditor knew there was a marriage, unless the creditor can prove the wife received independent legal advice. However even if actual undue influence is absent, the second element of the special wives equity is that if the wife did not appreciate the surety transactions effect, then the transaction will be set aside unless the creditor took steps to inform the wife and reasonably believed she understood the transaction. In both the first and second elements of the special wives equity actual or constructive notice of any undue influence or relationship of influence is irrelevant4, only knowledge of the existence of a marriage is necessary.

It is important to remember that women are entangled in this web due to a personal relationship that exists without appreciation of the legal relationship created.5

4 Andrew Phang and Hans Tjio, From Mythical Equities to Substantive Doctrines Yerkey in the Shadow of Notice and Unconscionability (1999) 14 Journal of Contract Law 72, 75.

5 Anthony Duggan, 'Till Debt Us DO Part: A Note on NAB v Garcia (1997) 19 Sydney Law Review 220.

In the landmark decision of Yerkey v Jones, the defendant Mrs Jones sought equitable relief, claiming that she did not understand the nature of the transaction although the solicitor explained to her in some detail. Equitable relief was granted in her favour. Dixon J examined a number of cases on the position of wives as guarantors for their husbands debt such as Shears & Sons Ltd v Jones6, Turnbull & Co v Duval7 and Chaplin & Co Ltd v Brammall8 and allowed the appeal.

The equitable principle was originally developed as a way of ameliorating the harshness of the common law, which prevented women from dealing with a property in their own names.9

Although for the present, the law in respect to this field of special equity has been restricted to wives10, there have been suggestions that this principle could also extend to a wider range of relationships of trust and confidence. Such relationships include de facto relationship and

6 Shears & Sons Ltd v Jones (1922) 128 LT 218

7 Turnbull & Co v Duval (1902) AC 429

8 Chaplin & Co Ltd v Brammall (1908) 1 KB 233.

9 Lee Aitkin, Equity, Third Party Guarantees and Wife as Guarantors: Recent English Developments (1992) 3 Journal of Banking and Finance 260, 264.

10 Garcia v National Australia Bank (1988) 155 ALR 614.

same-sex arrangements; parents and grandparents in respect to their financial transactions with children in the family and close friends.11

The wifes special equity has always been a doctrine unique to Australia. Courts in other countries such as England12 have rejected Yerkeys principle that provides wives and spouses with more liberal protection than the doctrine of undue influence. Even in Australia, this principle has often been distinguished13 and in some cases reluctantly applied14.

The Resurrection of the Yerkey Principle by Garcia v National Australia Bank In 1979, Jean Balharry Garcia and her then husband, Fabio Garcia, executed a mortgage over their jointly owned matrimonial home in favour of National Australia Bank. Between 1979 and 1987, Jean Garcia also signed several guarantees. These documents were signed to secure a loan that was made to Fabio Garcia for use in his company, Citizens Gold Bullion Exchange Pty Limited. The couple separated in 1988, and in the following year, Fabio Garcia's company wound up. In 1990, Jean Garcia commenced proceedings in the Supreme Court of New South Wales seeking declarations that the various documents were of no force

11 Expert Group on Family Financial Vulnerability, Good Relations, High Risks: Financial Transactions Within Families and Between Friends (Report, 1996), 10.

12 Barclays Bank plc v OBrien (1994) 1 AC 180.

13 Commonwealth Bank v McGlynn (1995) ANZ Conv R 81.

14 ANZ Bank v McGee (1994) ASC 56-278.

or effect, and void. The trial judge applied the rule in Yerkey v Jones and granted a declaration that none of the guarantees which the appellant had given bound her.15

On appeal, the New South Wales Court of Appeal held that the rule in Yerkey v Jones should no longer be applied as it had been overruled by Commercial Bank of Australia Ltd v Amadio.16The appellant was granted leave to appeal to the High Court of Australia. By a majority five to one (Kirby J dissenting), the High Court resurrected the Yerkey principle and refused to follow the decision made by Lord Browne-Wilkinson in Barclays Bank plc v OBrien (1994).17 Their Honours felt that the perceived progression of women in Australian society since 1939 did not actually mean that Australian women are no longer in need of protection. As noted in their judgment: 'there are still a significant number of women in Australia in relationships which are, for many and varied reasons, marked by disparities of economic and other power between the parties.18

Their Honours concluded that Mrs Garcia knew the nature of the transaction she was signing but was unaware of its consequences and did not understand her obligations under the guarantee were secured by the mortgage which she had given over her home. They further
15 Ibid 8

16 Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447.

17 Ibid 9.

18 Garcia v National Australia Bank (1998) 155 ALR 614, 619.

found that the bank took no steps to explain the transaction to her and did not reasonably believe that independent legal advice had been given to her.

Kirby Js decision in Garcia. Justice Michael Kirby in his dissenting judgement agreed with the outcome of the majority; however, for a range of reasons, refused to uphold the old Yerkey principle, introducing instead an approach based on the O 'Brien decision.

Kirby J agreed with the reasoning of the House of Lords in O'Brien where it was noted that most matrimonial homes are now owned jointly. This represents a vital source of security. Hence, the 'desirability of protecting vulnerable persons from loss of their assets, particularly their homes, must therefore be balanced against the undesirability of economically sterilising those assets.19

Kirby J stressed the fact that the respective roles of husband and wife in family life have changed dramatically and to obtain a true and accurate assessment of individual circumstances a full investigation of the facts is essential.

19 Garcia v National Australia Bank (1998) 155 ALR 614, 637.

Kirby J also rejected the Yerkey principle on the basis that the Australian legal system has moved away from irrelevant discrimination on the basis of sex and matrimonial status.20

Applying his reformulated O'Brien principle to the facts, Kirby J agreed with the conclusion of the majority and held that the bank could not enforce the guarantee against Mrs Garcia.

Policy Considerations Prior to the Garcia decision, the Yerkey principle was subject to an increasing amount of criticism for its failure to recognise the modern status of women and its paternal approach to the issue of undue influence within spousal guarantee.21 Of particular significance were the actual and perceived societal changes affecting married women since 1939.22

(i) Protecting the needs of women from stereotypes.

Modern considerations in this regard included: the need to avoid discriminatory stereotyping in the application of equitable relief and the development of equitable doctrine23; recognition that the display of legal tenderness towards a wife in a marriage relationship is not,
20 Ibid, 639.

21 Belinda Fehlberg, 'The Husband, the Bank, the Wife and her Signature - The Sequel' (1996) 59 Modern Law Review 675.

22 Ibid.

23 Samantha Hepburn, The Yerkey Principle and Relationships of Trust and Confidence: Garcia v National Australia Bank Ltd (1997) 4 Deakin Law Review 99, 110.

necessarily, an accurate response to modern domestic relations as the concept of the 'ignorant, subservient' wife is outmoded and offensive.24 However let us not forget that women can also be subjected to equal exploitation in many cases. The degree of the exploitation and neglect varies from one case to another.25 For instance, in the case of Teachers Health Investments Pty Ltd v Wynne26, the husband used the threat of divorce to persuade his wife to act as guarantor. The court held that the wife was deemed to be highly vulnerable and her will had been overborne. This can be contrasted with Garcia, in which the degree of exploitation was arguably low.

Under the United Nations Convention on the Elimination of All Forms of Discrimination against Women, state parties agree to take all appropriate measures to modify social and cultural patterns of conduct that are based on stereotyped roles for men and women.27

24 Stephen Cretney, 'The Little Woman and the Big Bad Bank', (1992) 108 Law Quarterly Review 534.

25 Tim Wright, The Special Wives' Equity and the Struggle for Women's Equality [2006] 31(2) Alternative Law Journal 66.

26 Teachers Health Investments Pty Ltd v Wynne (1997) ANZ Conv R 40.

27 Opened for signature 18 December 1979, 1249 UNTS 13 (entered into force 3 September 1981) art 5(a).

Kirby J in Garcia argued that the Yerkey principle, by singling out married women, rests on a stereotype of wives to which [the High] Court should give no endorsement28

(ii) Womens equality in the 21st Century.

The Australian people have long accepted the idea that women have an equal role to play in society. Equal does not necessarily mean same. That is, women can be equal to men without imitating their behaviour and mode of thinking.29 On that basis, there is no justification that for the purpose of surety law women should be given special protection.30 Although there is a need for some kind of special equity, it must not establish wives as the only category of people needful of protection.31

(iii) The inability to hide under Amadios umbrella.

One way to resolve these policy considerations, advocated by the earlier decision of the New South Wales Supreme Court in National Australia Bank v Garcia' is to abandon the Yerkey principle altogether and simply place the matter under the broad umbrella of
28 Garcia v National Australia Bank (1998) HCA 48; (1998) 155 ALR 614, 635.

29 Elizabeth Stone, Infants, Lunatics and Married Women: Equitable Protection; Garcia v National Australia Bank Ltd (1999) 62(4) Modern Law Review 604, 606.

30 Clement Shum, Protection of Married Women as Guarantors (1996) 14 Australian Bar Review 229, 231.

31 Ibid 10.

unconscientious dealing as espoused in Commonwealth Bank v Amadio. This suggestion has now, however, been categorically rejected by the High Court majority in Garcia.

The majority in Garcia made it clear that the Amadio principle is not concerned with undue influence. While it is true to say that enforcement of both Amadio and Yerkey transactions would be unconscionable, they do not involve the same type of unconscionability. Their Honours felt that Amadio type cases used reasoning which depended upon an analysis of whether the conduct was unconscionable, but Yerkey cases considered whether the enforcement of the surety transaction by the lender would be unconscionable.32

Why we need to reform the Wifes Special Equity In Yerkey Dixon J. expressly found that marriage was not a category of presumptive undue influence, as the relation of husband to wife is not one of influence. This finding remains undisturbed by Garcia.33 It is in this doctrinal separation from undue influence that the faults of the special wives equity begin to emerge.

The special wives equity is poorly disguised as a principle that corrects inequitable transactions, when in reality it is simply a principle that imposes a result with no real regard to the conduct of the parties.34
32 Garcia v National Australia Bank (1998) 155 ALR 614, 624.

33 Ibid 3.

34 George Williams, Equitable Principles for the Protection of Vulnerable Guarantors: Is the Principle in Yerkey v. Jones Still Needed? (1994) 8 Journal of Contract Law 67, 79-80.

Although marriage was not found to be a category of presumptive undue influence, the effect of the doctrine seems to be that all married women are subject to the special wives equity because they trust their husbands with economic management.35

The doctrine is argued to have no proper basis upon any broad concept of unconscionable conduct by the stronger party.36 If the special wives equity aims to claim its basis upon some form of unconscionable conduct by the guarantor, then logically it would need to claim some wrong-doing by that party.37

This shows that although the wifes special equity is vital to advancing the progress of protecting spouses, there is a need for reform in order for the law to be good in this era.38 Conclusion: Post Garcia.

35 Andrew Skyes, Unfair results and unfair doctrines: Structuring the application of the equitable doctrines of undue influence and unconscionable dealing (2006) Deakin University.

36 Ibid.

37 Gino Dal Pont, The Varying Shades of Unconscionable Conduct Same Term, Different Meaning (2000) 19 Australian Bar Review 135, 147.

38 David Capper, 'Undue Influence and Unconscionability: A Rationalisation' (1998) 114 Law Quarterly Review 479.

Despite the questionable validity of the special equity rule, the High Court has given its approval in Garcia. This will mean that the special equity rule will remain as good law in Australia for some time to come.39

However, womens equality remains an elusive goal. The Yerkey principle has, depending on ones interpretation of equality, both assisted and inhibited the struggle to achieve that goal. Some scholars have argued that the special wives equity, by acknowledging that women are different from men and may exhibit greater vulnerability to exploitation, has furthered womens equality. Others have seen equality as being achieved only when women are treated the same as men: the differential treatment of wives leads not to equality but to the perpetuation of stereotypes that are demeaning of women.40

In addition, as the role of women in society has changed, so too has the effect of the special wives equity on womens struggle for equality. In 1939, it might have been helpful. Today, it seems far more a hindrance. The High Court should, at first opportunity, establish a more principled equitable doctrine that is appropriate to the 21st century.

39 Charles Chew, Rethinking the Special Equity Rule for Wives: Post Garcia, Quo Vadis, Where to From Here? (2007) Bond Law Review: Vol 19: Iss 1, Article 3.

40 Ibid 21.

REFERENCES Primary Sources Chandran v Narayan (2006) NSWSC 104.

Yerkey v Jones (1939) 63 CLR 649.

Shears & Sons Ltd v Jones (1922) 128 LT 218.

Turnbull & Co v Duval (1902) AC 429.

Chaplin & Co Ltd v Brammall (1908) 1 KB 233.

Garcia v National Australia Bank (1988) 155 ALR 614.

Barclays Bank plc v OBrien (1994) 1 AC 180.

Commonwealth Bank v McGlynn (1995) ANZ Conv R 81.

ANZ Bank v McGee (1994) ASC 56-278.

Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447.

Teachers Health Investments Pty Ltd v Wynne (1997) ANZ Conv R 40.

Secondary Sources Andrew Phang and Hans Tjio, From Mythical Equities to Substantive Doctrines Yerkey in the Shadow of Notice and Unconscionability (1999) 14 Journal of Contract Law 72, 75.

Anthony Duggan, 'Till Debt Us DO Part: A Note on NAB v Garcia (1997) 19 Sydney Law Review 220.

Lee Aitkin, Equity, Third Party Guarantees and Wife as Guarantors: Recent English Developments (1992) 3 Journal of Banking and Finance 260, 264.

Expert Group on Family Financial Vulnerability, Good Relations, High Risks: Financial Transactions Within Families and Between Friends (Report, 1996), 10.

Belinda Fehlberg, 'The Husband, the Bank, the Wife and her Signature - The Sequel' (1996) 59 Modern Law Review 675.

Samantha Hepburn, The Yerkey Principle and Relationships of Trust and Confidence: Garcia v National Australia Bank Ltd (1997) 4 Deakin Law Review 99, 110.

Stephen Cretney, 'The Little Woman and the Big Bad Bank', (1992) 108 Law Quarterly Review 534.

Tim Wright, The Special Wives' Equity and the Struggle for Women's Equality [2006] 31(2) Alternative Law Journal 66.

United Nations Convention on the Elimination of All Forms of Discrimination against Women. Opened for signature 18 December 1979, 1249 UNTS 13 (entered into force 3 September 1981) art 5(a).

Elizabeth Stone, Infants, Lunatics and Married Women: Equitable Protection; Garcia v National Australia Bank Ltd (1999) 62(4) Modern Law Review 604, 606.

Clement Shum, Protection of Married Women as Guarantors (1996) 14 Australian Bar Review 229, 231.

George Williams, Equitable Principles for the Protection of Vulnerable Guarantors: Is the Principle in Yerkey v. Jones Still Needed? (1994) 8 Journal of Contract Law 67, 79-80.

Andrew Skyes, Unfair results and unfair doctrines: Structuring the application of the equitable doctrines of undue influence and unconscionable dealing (2006) Deakin University.

Gino Dal Pont, The Varying Shades of Unconscionable Conduct Same Term, Different Meaning (2000) 19 Australian Bar Review 135, 147.

David Capper, 'Undue Influence and Unconscionability: A Rationalisation' (1998) 114 Law Quarterly Review 479.

Charles Chew, Rethinking the Special Equity Rule for Wives: Post Garcia, Quo Vadis, Where to From Here? (2007) Bond Law Review: Vol 19: Iss 1, Article 3.