BUS201: Legal issues in commercial Bank of Australia Limited’s appeal against the Amadio’s (151 CLR 447;1983) It refers to whether the respondent: Contract and Agency Law Report, NUS, Singapore

Legal Issue(s) (what are the legal issues):

Legal issues in commercial Bank of Australia Limited’s appeal against the Amadio’s (151 CLR 447;1983) It refers to whether the respondent has special disabilities and shortcomings (illiteracy and age issues), whether the appellant and Vincenzo Amadio confer to the respondent the context   and constraints of the contract (concealing the facts), and whether the appellant informs the respondent of the actual amount of compensation to be borne.

Relevant Rule(s) (list statutes and cases):

The term “unconscionable” in section 51AA of the Trade Practices Act is a variation of the traditional doctrine of unconscionable, which refers to particularly unfavorable and unconscionable bargaining. Special disadvantage helps to protect individuals who are disabled by age, infirmity, mental illness, or other characteristics when seeking to make a judgment in their best interests. Contracts entered under such duress are referred to as breaches of procedural irrationality (ANU 1998).

In this case, there was an express misrepresentation that induced the respondent to enter the surety. But the false statements were made not by the bank’s managers, but by Vincenzo Amadio, the respondent’s son. It is evident that the rights of the principal creditor are not affected by the misrepresentation of the debtor to the guarantor unless the creditor knows or consents to the misrepresentation: see Stone v. Compton [1838] Eng R 998; (1838)5 Bing NC 142, pp. 156-157 [18381 Eng R 998; (132 ER 1059, p. 1065) and Spencer V. Chandley [1842J Eng R 666; (1842) 4 Man & G 414(134 ER 169)

The reason why the creditor is obliged to disclose to the intending guarantor anything in his dealings with the debtor that the guarantor does not expect to exist is that failure to disclose in such circumstances would constitute a statement implying that the thing does not exist: see Lee v. Ones [1864] Eng R 23; (1864) 17 CB NS 482, at PP 503-504, 506 (144 ER 194, at PP 202-203,204); London General Omnibus Co. LTD v. Holloway (1912)2 KB 72, at PP 77, 79, 87-88; Union Bank of Australia Ltd. V. Puddy I1949J Vic LawR p. 45; (1949) VLR 242, p. 247.

Court’s Application (reasoning):

The court ruled that the Amadio’s were not liable for the appeal, and the appeal was dismissed. Each of the judges in this case had their own specific reasons for their decision:

Chief Justice Gibbs began by pointing out that a bond contract is not a super trust, meaning the utmost good faith, in which one party is obligated to disclose all material facts to the other. The bank’s failure to disclose these facts amounted to a misrepresentation, albeit unintentional, of a significant part of the transaction between the bank and the company, and the mortgage memorandum, including, of course, the guarantees contained therein, was not binding on the defendants.

Judges Mason, Wilson and Deane agreed that the defendants were entitled to relief on the grounds that the bank had acted unconscionable in inducing the defendants to enforce the mortgage guarantee. And Mr Justice Wilson added that, given the particular circumstances of the bank’s relationship with Vincenzo, the bank manager had an obligation to ensure his parents knew what they were doing, or to advise them to seek independent advice and give them the opportunity to do so. He was not entitled to assume that Vincenzo would already have informed them adequately.

Judge Dawson found that the appellant banks were not guilty of any non-disclosure that amounted to a breach of duty, did not make any false statements to the defendants, or engaged in any unconscionable transactions.

Conclusion (outcome):

In this case Justices Mason, Wilson and Deane found that the Amadio’s were at a special disadvantage to the bank, and that it was unreasonable to hold them liable. Only Judge Dawson dissented, finding that the bank did not misrepresent itself. Eventually Chief Justice Gibbs declared that the bank had made false claims and dismissed them.