Garcia v National Australia Bank Ltd [1998] HCA 48 | 6 August 1998

ON 6 AUGUST 1998, the High Court of Australia delivered Garcia v National Australia Bank Ltd [1998] HCA 48; 6 CCL 81; 194 CLR 395; 155 ALR 614; 72 ALJR 1243 (6 August 1998).

The High Court considered its earlier decisions of Yerkey v Jones [1939] HCA 3; (1939) 63 CLR 649, Commercial Bank of Australia Ltd v Amadio [1983] HCA 14; (1983) 151 CLR 447 as well as the English decision of Barclays Bank Plc v O’Brien [1994] 1 AC 180.

Yerkey v Jones provides a special rule for married women who, regardless of other characteristics, voluntarily guarantee their husband’s loans. There are two limbs: (1) a wife may have a guarantee set aside if the consent was obtained by undue influence, unless she received independent advice (at 649, per Dixon J); and (2) a wife has a prima facie right to have a guarantee set aside if she failed to understand the effect of the guarantee or its significance, unless steps were taken by the lender to inform the wife of such matters (at 683, per Dixon J).

Commercial Bank of Australia Ltd v Amadio is the leading Australian case on unconscionability. Unconscionable dealings are defined as the “unconscientious use of a superior position to the detriment of a party who suffers some special disability or is or is in some special position of disadvantage” (Mason J at 461). Such dealings occur when “one party by reason of some condition or circumstance is placed at a special disadvantage vis-a-vis another and unfair or unconscientous advantage is taken” ((Mason J at 462). In other words, entry into the contract must be caused by taking advantage of a special disability, not mere inequality or impaired judgment.

In Garcia, the High Court rejected the submission that the rule in Yerkey v Jones had been overruled by or subsumed in Amadio. The court at [34] per Gaudron, McHugh, Gummow and Hayne JJ reaffirmed Yerkey v Jones as being a separate rule of unconsciounability (1) applying to married women and not dependant on any presumption of undue influence by the husband over the wife or the husband as acting as agent for the creditor and (2) dependant on “the surety being a volunteer and mistaken about the purport and effect of the transaction, and the creditor being taken to have appreciated that because of the trust and confidence between surety and debtor the surety may well receive from the debtor no sufficient explanation of the transaction’s purport and effect”.


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