Citation: Manfred Schoenhoff & Anor v The Commonwealth Bank of Australia [2003] NSWSC 918
Court: Supreme Court of New South Wales, Equity Division (Commercial List)
Date: 21 October 2003
Judge: Einstein J
Background
The plaintiffs, a husband and wife (referred to here as the guarantors), acted as sureties for the obligations of a work colleague under a margin lending facility agreement the colleague had entered into with the Commonwealth Bank of Australia in September 1998. The colleague approached the first plaintiff at his workplace and sought his assistance as guarantor. The guarantors subsequently signed documentation in connection with that facility during October 1998.
The first plaintiff was a mail clerk with a modest educational background, having emigrated from Germany in 1980. He had some experience in share investment but no formal financial or legal training. He and his wife contended they had not appreciated the full extent of what they were signing and had been misled.
The guarantors brought proceedings in the Supreme Court seeking relief from their obligations under the guarantee. They alleged that they had been induced to sign by fraudulent misrepresentations, that variations to the guarantee had discharged their obligations, and that the colleague had acted as the Bank's agent in procuring their execution of the guarantee documents.
Legal Issues
- Whether the borrower (the colleague) acted as the Bank's agent when approaching the guarantors to execute the guarantee, such that any representations he made could be attributed to the Bank
- Whether the guarantors were induced to enter into the guarantee by fraudulent misrepresentations made on behalf of the Bank
- Whether variations to the guarantee discharged the guarantors' obligations, applying the "obviously unsubstantial alteration" test
- Whether the guarantors were bound by the terms of documents they signed but did not read, including terms printed on reverse sides of pages, applying the rule in L'Estrange v Graucob
- The credibility of the plaintiffs as witnesses, and whether the Bank's failure to call certain witnesses warranted an adverse inference under the rule in Jones v Dunkel
Decision
Einstein J dismissed the plaintiffs' case in its entirety. On the agency question, the court found that the borrower was not acting as the Bank's agent when he approached the guarantors. Accordingly, any representations made by the colleague in procuring the guarantee could not be attributed to the Bank.
On the misrepresentation claims, the court found that no fraudulent misrepresentations had been established as having been made on the Bank's behalf. The credibility of the plaintiffs as witnesses was assessed adversely by Einstein J, and this finding significantly undermined the evidentiary foundation of their claims.
On the contractual construction questions, the court applied the principle in L'Estrange v Graucob that a party who signs a document is bound by its terms, even where they have not read it. The fact that the guarantors did not read the documents, or were unaware of terms printed on reverse pages, did not relieve them of their obligations. Signature operated as a strong objective manifestation of an intention to be bound.
On the variation and discharge argument, the court applied the established test of whether any alteration was "obviously unsubstantial." The court found the guarantors had not been discharged from their obligations by reason of any variation to the guarantee. The Jones v Dunkel argument also failed: the state of the plaintiffs' evidence, following cross-examination, was not such as to cast a particular evidentiary burden on the Bank requiring it to call absent witnesses.
Orders Made
• The tender is rejected.
• The parties are to bring in short minutes of order at which time costs may be the subject of submission.
Key Takeaways
- A borrower who approaches a proposed guarantor on his own initiative does not thereby become an agent of the lender, even where the lending facility is with a major bank; representations made by the borrower in that context are not attributable to the bank.
- Under the rule in L'Estrange v Graucob, a party who signs a contractual document is bound by its terms regardless of whether they read it; this extends to terms printed on reverse sides of pages forming part of the same document.
- Adverse credibility findings against a plaintiff can prove fatal to claims grounded substantially in that plaintiff's own account of events, particularly where the account is contested and unsupported by independent evidence.
- The "obviously unsubstantial alteration" test governs whether a variation to a guarantee discharges the surety; not every variation will have that effect.
- A Jones v Dunkel inference (that uncalled evidence would not have assisted the party who failed to call it) cannot fill evidentiary gaps or transform conjecture into inference; it can only tip scales where sufficient evidence already exists on the point in question.
Legislation and Cases Referenced
Legislation
- Trade Practices Act 1974 (Cth)
Cases
- L'Estrange v F Graucob Ltd [1934] 2 KB 394
- Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549
- Jones v Dunkel (1959) 101 CLR 298
- Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2003] NSWCA 75
- Adler v Australian Securities and Investments Commission [2003] NSWCA 131
- Corumo Holdings Pty Ltd v C Itoh Ltd (1991) 5 ACSR 720
- Film Bars Pty Ltd v Pacific Film Laboratories Pty Ltd (1979) 1 BPR 9251