Legal Issues
The case of Commercial Bank of Australia Ltd v Amadio (Commercial Bank of Australia Ltd v Amadio, [1983]) is a classic case of a contract entered into by undesirable and objectionable means. The facts of this case are rather simple. This is a case which was made by way of appeal from a decision of the Supreme Court of South Australia to the High Court of Australia. The respondents in this case appealed to the court against the decision of the Commercial Bank of Australia to execute a mortgage deed made against a property owned by the respondents, and thereby sell such property in order to realize the bank’s debt. However, the respondents had challenged such purported action on the bank on the grounds of the mortgage deed being unconscionable. The property in the first place was mortgaged because the son of the respondents who was in fact in dire need of money in order to pay off his own debts and also to salvage his company. The Commercial Bank of Australia which was financing Vincenzo Amadio’s company now insisted for a guarantee from him to allow him to take fresh loans in order to pay off his previous credit. It was then that Vincenzo Amadio approached his parents so that they may agree to allow their property to be used as a guarantee for the loan to be availed of by Vincenzo Amadio. Since the request came from their son, Vincenzo Amadio’s parents, Mr. and Mrs. Amadio, did not think much and agreed to allow their son to sue their property as guarantee.
The causes of action in this case are also several. First of all, the Bank does have a right against the respondents to press for the execution of the mortgage deed. The deed was proper and thus, legally it could be executed. However, the main plea raised by the respondents against the execution of the deed was that the deed was unconscionable. Such plea was based on several considerations, some of which are worth considering. First of all, by the time the deed was executed the respondents, Mr. and Mrs. Amadio, had aged well into their seventies. Although they had lived for over three decades in Australia, yet their English speaking skills were not that developed. On top of that, the purported deed that they had signed was signed upon the instance of their son. Their son, to be fair and honest had fallen on hard times on bad times financially and had started defaulting on many of his repayments. But he had maintained an external appearance of still being well to do and financially sound and solvent. Keeping all such factors in mind the respondents ha d signed the deed. In addition the above facts, Mr. and Mrs. Amadio were informed that the mortgage deed was valued at $ 50,000 and for 6 months only.
At this juncture, questions may arise regarding the role of the bank which had demanded the mortgage deed as a security. We may ask, why did the bank not object when it came to know that the mortgage deed was not in the name of Vincenzo Amadio, but in the name of his parents Mr. and Mrs. Amadio. Also, why did the bank not disclose the full facts and circumstances of the mortgage deed to the respondents when it came to know of their involvement in the issue? It was such questions as these that formed the basis of the plea by the respondents against the execution of the mortgage deed.
Causes of Action
While preferring this appeal the Commercial Bank of Australia dwelled extensively on the question of nature of a contract of guarantee. Its main argument was that a contract of guarantee was not an uberrimae fidei, thus even if the bank had not disclosed the full terms and conditions of the agreement, the agreement could not be held to be vitiated simply on such grounds alone (W. B. S.-L., 1937). To buttress this argument, the decision in the case of Hamilton v. Watson (Hamilton v. Watson, [1845]) was mentioned, where the court had specifically dealt with the issue of duty of disclosure in case of a contract of guarantee. In that case, Lord Campbell had spelt out that a creditor is not duty bound to make any disclosure until and unless any question is clearly and explicitly put to him by the surety. But, in this case the situation was not that simple, the agreement was definitely in the name of Mr. and Mrs. Amadio, but the actual beneficiary of such agreement was Vincenzo Amadio and he had full knowledge of the terms and conditions of the said agreement, in fact he was rather instrumental in getting the mortgage deed signed by his parents and he himself withheld important information from them and misrepresented them into believing the mortgage deed was valued at only $ 50,000 and was for 6 months only. But then again, since the other party of the mortgage deed was the bank, it may be asked, was it not necessary for the bank to bring into the notice of Mr. and Mrs. Amadio the actual state of things.
It is pertinent to mention herein that there was a reason why the bank went into such length for Vincenzo Amadio. First of all, Vincenzo Amadio was an important customer of the bank and got much extra business for the bank. Secondly, the company owned by Vincenzo Amadio had entered into a joint venture for the building of houses with another company by the name of General Credits Ltd which was a subsidiary of the Commercial Bank of Australia.
Another judgment which was referred to in this case was that of Union Bank of Australia v Puddy (Union Bank of Australia v Puddy, [1922]). In that case it was laid down that in such cases where a person has to stand in as guarantee for another person, it is expected that the person acting as a guarantor would have an idea that the person, for who the guarantee is being given, is in financial difficulties, especially if such guarantee is to bank, then such person is in difficulty with reference to that bank itself. Thus, in such cases an overt disclosure by the bank or the creditor is not needed. Having said that, the respondents challenged the action of the Bank, inter alia, on the grounds of the transaction being unconscionable and there being a factual misrepresentation. However, such arguments were rejected by the primary judge on the grounds that there was the purported transaction was of such a nature that it was likely to have arisen in the usual course of the business of the bank and therefore, there were no special circumstances here that warranted disclosure, and therefore the agreement held (Nottage, 2010).
Points of Appeal and Precedents Applied
Conclusion
That particular judgment was then appealed against in the full court on the same grounds, particularly on the ground of the bank having failed in its duty of disclosure to Mr. and Mrs. Amadio. It was against this judgment that the bank appealed against in the High Court of Australia (Duggan, 1986). But the High Court had a different take on the matter altogether. The High Court studied at length the facts and circumstances of the case and based its decision on such detailed study. For starters, Vincenzo Amadio was a blue-eyed customer of the bank and from the facts of the case; it was evident that he was treated too leniently by the bank, bordering on partisan behavior. Such conclusion was further compounded by the fact that the bank had a close nexus with Vincenzo Amadio. For example, several cheques of V. Amadio Builders Pty. Ltd, the company owned by Vincenzo Amadio were dishonoured, but others were not. The bank itself was instrumental in such optional dishonor of cheques.
Secondly, the arrangement of the mortgage was part of a much wider scheme to help Vincenzo tide over the crisis because right after the mortgage it was decided that V. Amadio Builders Pty. Ltd would thereafter enjoy an enhanced overdraft ceiling of $ 270,000, however, immediately a week thereafter the limit would then come down to $ 220,000. After a further period of one week, the limit would then be further brought down to $ 180, 000. Such a drastic reduction in overdraft limit and that too at so short a period of time was rather unusual. This, the High Court held, could not be reasonably be expected to have been known by the respondents (Echeverry Botero, 2015).
The overall facts, coupled with the external factors such as the opulent lifestyle that Vincenzo Amadio maintained was more than enough to convince the parents of Mr. Vincenzo Amadio that there was nothing in the agreement that might be said to be untoward or detrimental towards them, coupled with the fact that Mr and Mrs Amadio were rather weak in English, particularly written English. Based on the overall considerations of such facts, the court held that the agreement was indeed unconscionable and the bank too had abdicated its responsibility of being above boards to the respondents. Thereby the court finally held the whole agreement to be liable to be struck down on such grounds and thus, the appeal was dismissed. In the humble opinion of this researcher, the court did serve justice here because although the bank had a strong legal right, but the moral right of the respondents was indeed stronger in conviction than in facts (Baird, McCann and Avgoustinos, 2016).
References
Baird, A., McCann, P. and Avgoustinos, C., 2016. Contract and consumer law. 1st ed. Strawberry Hills, N.S.W.: Better Teams Publications.
Commercial Bank of Australia Ltd v Amadio [1983] CLR 151 (High Court of Australia), p.17.
Duggan, A., 1986. Consumer Credit Rate Disclosure in the United Kingdom and Australia: A Functional and Comparative Appraisal. International and Comparative Law Quarterly, 35(01), pp.87-105.
Echeverry Botero, D., 2015. Contract Interpretation Law in Australia: It Is a Maze, Not a Straight Way. IUSTA, 2(41).
Hamilton v. Watson [1845] ER 8 (109), p.12.
Nottage, L., 2010. Consumer law reform in Australia: Contemporary and Comparative Constructive Criticism. QUT Law Review, 9(2).
Union Bank of Australia v Puddy [1922] AC 1 (High Court of Australia), p.240.
W. B. S.-L., 1937. Contract—Misrepresentation—Rescission—Representation by Vendor True when Made—Circumstances Changed Before Contract Signed—Continued Representation—Vendor Held Bound to Disclose Change of Circumstances, whether Contract Uberrimae Fidei or Not. The Cambridge Law Journal, 6(02), p.243.
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