BUS101: Business Law - Mr and Mrs Amadio - Judgment Of Justice Gibbs - Justice Deane - Assessment Answer

Business Law Assignment

Assignment Task

1 State three causes of action (ie, legal issues) which Mr and Mrs Amadio raised inchallenging the mortgage guarantee they had signed?

2 In reversing the decision of the trial judge, what three conclusions did the appeal court come to after its examination of the facts?

Answer the following from the judgment of Justice Gibbs

3 Is a bank always required to inform an intending guarantor about the state of theaccount of the customer which is to be guaranteed? If not, in what circumstances would a bank be required to inform a potential guarantor about this?

4 What were two facts in this case which persuaded Justice Gibbs that the bank should have made such a disclosure?

5 What was the ratio for Justice Gibbs’s decision of the case in favour of Mr and Mrs Amadio (i.e., what was the legal issue or issues (not just facts) this judge identified to decide the case)?

6 What was the ratio for his decision?

7How was it different from the ratio adopted by Justice Gibbs?

8 Justice Mason identified three ways in which the bank on the one hand and Mr and Mrs Amadio on the other hand were positions of “gross inequality of bargaining power.” What were three of those ways?Justice Mason and Justice Deane both explained the legal difference between unconscionable conduct (unconscionability) and undue influence.

9 In your own words, what is the difference which the two judges explained betweenthese two legal issues?

10 What was the ratio for Justice Deane's decision in favour of Mr and Mrs Amadio?

11 What was the general test (ie, the proper circumstance) in which a bank would be liable to a guarantor who has been induced to give a guarantee as a result of some misrepresentation about the guarantee?

Question One

The Amadio’s made claims that the guarantee made was not enforceable by the bank as a result of three major grounds:

• The guarantee was an unconscionable deal
• The bank procured the guarantee using undue influence
• The bank misrepresented facts which was its responsibility to disclose to them

Question Two

The three conclusions which the appeal court made in reversion of the trial judge’s decision include:

• The transaction undertaken by the bank was unconscionable in nature
• The Bank of Australia had the obligation of revealing and disclosing to the Amadio’s of the real position of Vincenzo’s company accounts
• The Bank of Australia was liable for the misrepresentations made by Vincenzo in illustrating his company as successful and stable

Question Three

According to Justice Gibbs, the guarantee contract is not one of utmost good faith whereby one party has a obligation to disclose all the material facts to the other. Rather he argues that a bank in taking a guarantee is only bound to disclose to the guarantor anything which may have taken place between the principal debtor and bank which is not naturally expected as illustrated inLloyds Bank Ltd v Harrison. Justice Gibbs provides that disclosure should only be made where there are some unusual elements in the case with regards to the account to be gave a guarantee by the guarantor.

Question Four

There two issues which Justice Gibbs argued made the bank be required to make disclosures to the Amadios:

• There were special arrangements above those of a normal account between the bank and Vincenzo. There was an arrangement between the bank and the Vincenzo whereby instead of the company getting an immediate overdraft limit of $270,000, the limit was to be reduced to $220,000 within one week and to $180,000 in two weeks. There was no way the Amadios would have known this special arrangement between the bank and their son.
• Secondly, the bank not only knew about the insolvency of the company but also actively participated in creating an illusion of success whereby it not only dishonoured the company’s cheques but also helped in showing the company as a success. Mr. Virgo had attended a party given by Vincenzo which Mr. Amadio also attended which means that despite the bank known that Vincenzo was not solvent, they still did not disclose to the parents.

Question Five

Justice Gibbs ruled in favour of Mr. Amadio based on the fact that the bank failed to disclose to the Amadios the above two unusual features of the account that the son’s company was not solvent and that they had existing relationships and terms with the son. The bank as such misrepresented materials elements of transaction between the company and itself. Based on this, Judge Gibbs concluded that the guarantee is not binding to the Amadios.

Question Six

According to Justice Mason, the knowledge which was held by Mr Virgo was also the knowledge of the bank. Justice Mason ruled that the Amadio’s suffered a special disadvantage when compared to the banks on the facts existing on the accounts of the company and as such unconscionable for the bank to rely on the guarantee. The bank had higher bargaining power when entering into the contract of guarantee as they were aware that Vincenzo was likely to default given his unsteady business position and that he was likely to default.

Question Seven

While Justice Mason relied on whether or not the bank conducted an unconscionable dealing whereby the bank had higher bargaining power and ha the Amadios at a special disadvantage, Justice Gibbs based his ruling in favour of the Amadios based on misrepresentation through non-disclosure by the bank.

Question Eight

Justice Mason identified the following three ways as gross inequality of bargaining power between the Amadios and the bank:

• The Amadios did not have adequate understanding of English in understanding the terms of the papers that they signed sealing the guarantee contract. The bank knew that the guarantee was at a disadvantage to the Amadios given the financial situation their son was in and knew that the guarantee would increase their security on the overdrafts that Vincenzo was making. The bank was aware that the Amadios did not have an understanding of the papers they were signing due to their limited understanding of English and business thus putting them at a special disadvantage.
• The Amadios were advised by their son Vincenzo and this was not independent advice. The bank through Mr Virgo did not provide any advice on the liability arising from the guarantee. Mr Virgo did not provide any advice on the Amadios that under the guarantee contract they were about to sign, there was not limit to their liability. The Amadios believed that their liability to the bank was only limited to the $50,000. The Amadios were as such greatly disadvantaged as they had unlimited liability on the overdraft that the son had made and was about to make given the guarantee.
• The bank was aware of Amadios ‘son Vincenzo fianancial situation and knew that the Amadios were not aware of these facts. As such, they were greatly disadvantaged as they would not have made such a guarantee knowing the precarious situation their son was in.

Question Nine

Justice Mason and Justice Deane explained the difference between unconscionability and undue influence:

• Unconscionable conduct involves an innocent party acting independently and voluntarily is taken advantage of by another party which have a higher bargaining power
• Undue influence involves the will of an innocent party is influenced to the advantage of the influencing party.

Question Ten

Justice Deane decides in favour of the Amadios based on the fact that the Amadios needed advice on the nature and implications of the transactions they were entering into. This advice should have been given by the bank with regards to the state of the customer’s account and the unusual features of the account. This would have likely resulted to the couple not entering into the guarantee contract and as such there is a special disadvantage for the couple to the bank.

Question Eleven

According to Justice Dawson, the general test which would have made the bank liable was non disclosure which would arise from breach of duty on its parts as illustrated in paragraph 15. He argued that the fact that the bank required a guarantee on the accounts of the client indicated that the customer had insufficient resources and this should have been obvious to the Amadios.