Equity
Principles
Reasoning by analogy
Garcia v National Australia Bank Ltd
Majority Judgement
Gaudron, McHugh, Gummow and Hayne JJ
The judges looked at the reasoning applied in Yerkey v Jones. There are two issues
addressed, namely the application of equitable principles and the trust and confidence
between married partners.
Firstly, it was submitted that changes in Australian society since Yerkey v Jones require that
equitable rules move on to meet these changed circumstances. However the rationale of
Yerkey v Jones is not to be found in notions based on the subservience or inferior
economic position of women. Nor is it based on their vulnerability to exploitation
because of their emotional involvement, save to the extent that the case was concerned
with actual undue influence. [Look at Kirby’s judgement] The case of Yerkey was based
on trust and confidence between married partners. [This principle may be applied to
other relationships more common today, but since it was not a question in the present
case the court did not decide it]. [para 19-22]
Even though the decision was based on trust, the court considered that the principles in
Yerkey are simply particular applications of accepted equitable principles which have as
much application today as they did then. [18]
To hold as Yerkey did that in those circumstances the enforcement of the guarantee
would be unconscionable represents no departure from accepted principle. Rather, it
‘conforms to the fundamental principle according to which equity acts, namely that a
party having a legal right shall not be permitted to exercise it in such a way that the
exercise amounts to unconscionable conduct’. [32] Thus there is an underlying principle
that was applied to Yerkey and should be applied to the present case. Rather than being a
specific rule, it is a broader concept that covers a wider range of situations.
The court then stated that to enforce the transaction against a mistake volunteer when
the creditor, the party that seeks to take the benefit of the transaction, has not itself
explained the transaction, and does not know that a third party has done so, would be
unconscionable. [33]
The court then stated that they had characterised the result rather than identify the
reasoning that lead to the description. [34] This seems to be an admission that there was
a flaw to their reasoning. However in the next few paragraphs the court reasons by
analogy. [35-38]
Kirby J
The issues of the case were as follows:
 Does the special rule in Yerkey represent an opinion of Dixon J never endorsed by
the court as a binding rule.
 Whatever the status of the rule, should it now be regarded as obsolete having regard
to changes in society affecting married women, their legal status, the expansion of
the availability of financial credit to them etc.
 Is the rule affected by Amadio or absorbed in the broader doctrines of equity.
On the first issue, Kirby J looks at the other judgements in Yerkey, like the Appeals Court
did, and then says that such analysis cuts away the binding authority of what was said by
Dixon J, leaving it as a judicial statement worthy of the greatest of respect but not
commanding obedience as a matter of binding precedent’. [64] [This I suppose is a lead
up to the second issue.] The reason for this was that none of the other justices in the
court in Yerkey expressly agreed in the opinion of Dixon J. [62]
On the second issue, Kirby J criticises the rule in terms of current community standards.
He says ‘why should this court, in 1998 endorse a principle expressed to apply specifically
to one class of citizens only, namely “married women”. [66] He then said ‘The
classification is at once too narrow and too broad. Too narrow for “[i]t is not based on
and it inhibits a more developed understanding … of the broad features of social
inequality in Australia”. Too broad, for it ignores “the diversity of the experiences of
women in Australia”.’ He then went on to say ‘It is inappropriate to Australian
circumstances tody. It should not now receive the endorsement of this court’. In
essence, Kirby J said it should not be applied to a group whose members have attributed
to them particular needs and vulnerabilities which are certainly not confined to that
group and which may not be present to all members of that group. This seems to be a
criticism by Kirby J on the past values of Dixon J or the court. Kirby J then forwarded
several arguments to support this.
Historical anachronism. The rule in Yerkey is based on older views which were
developed for the benefit of married women prior to the Married Women’s Property
Acts and not for trust and confidence between married partners (p634). This is a
different opinion to the majority judgement. [Hmmm.] Kirby J then says the rule does
not protect people in analogous situations. That is if there is some advantage given, it
shouldn’t be just to married women. De facto and homosexual relationships may be
based on the same feelings of trust and confidence that Yerkey relied on and it would not
be correct to exclude these different relationships on the basis of older values.
Rejecting discriminatory stereotypes. Viewing women as weaker or vulnerable and
forgetting that women are not a uniform group is purporting a stereotype. There are
differences in education and intelligence etc and some women may not be so easily
fooled by their husbands. Kirby J said ‘it is offensive to the status of women today to
suggest that all married women as such are needful of special protection supported by a
legal presumption in their favour’. (at 636) This is another criticism by Kirby J on the
older views or values of Dixon J. However note the majority judgement how they said,
OK we are dealing with married women but other relationships may also be covered
[22].
Marriage is not a suspect category. Men may be a disadvantage[?]. Marriage as a
criterion of vulnerability is irrelevant, there are many other factors that come into play.
Economic arguments. The matrimonial home is often owned by both spouses and is
used as a form of security. It is therefore essential that a law designed to protect the
vulnerable does not render the matrimonial home unacceptable as security to financial
institutions. Thus there is a balance between protection of the vulnerable and the
economically sterilising the home as an asset for loan security. The rule may also be used
unscrupulously to avoid legal financial obligations. Thus there are some economic
consequences which the court should consider. These are policy considerations.
Finally, there is the argument of unacceptable discrimination. ‘when an opportunity is
presented legitimately to refashion an equitable principle so that it is not expressed,
irrelevantly, in discriminatory terms, this court should accept that opportunity’. In
O’Brien a House of Lords case, the vulnerability was found to be applicable to ‘emotional
relationship between cohabitees’. Leaving the decision until later for other relationships
suggests that other relationships ‘are but pale shadows of marriage’.
Kirby then suggests we move from ‘species to genus’ and ‘category to concept’ especially
where the lower levels are discriminatory. This seems to be reasoning on a higher
theoretical level (Horrigan’s stuff).
On the third issue, Kirby J looked at the decision of Amadio and O’Brien. The O’Brien
case gives a similar principle to Yerkey. He viewed this case in terms of operation to be
an extension of the Yerkey principle. However, it is an extension freed from most if not
all, of the disadvantages which are in Yerkey. It is not based on outdated stereotypes.
Nor does it perpetuate a paternalistic approach to women in relation to their financial
dealings. It does, however, recognise the fact that in a substantial proportion of
marriages or analogous relationships it is still the husband (or the principle male partner)
who has the business experience and the wife (or subordinate partner) who is willing to
follow his advice without bringing a truly independent mind to bear on the deal. The
principle has a wider application to situations where there is an emotional dependency
[78].
In paragraph [78] there are two aspects of critical thought (I think). Kirby J seems to be
using feminist theory to help to explain why Yerkey as it is stated is inappropriate to
today’s world. He then states that the rule in O’Brien is not as sexist as the rule in Yerkey.
The second aspect of critical thinking is where Kirby J breaks the rule of Yerkey down
into its elements. He then states that the principle of the law is that of emotional
dependence, not subordinate wives. Looking at the elements of the law, it is possible to
remove the sexist stereotypes that are attached to the original rule.
Justice Kirby then considers the possible economic consequences, but then concludes
that the improvements in terms of the quality of decisions of individual sureties would
outweigh these costs. This balancing of the consequences, seems to be arguments on
policy. [79]
Justice Kirby then concluded ‘ The result to which I have come flows not from the fact
that Mrs Garcia was a married woman in need of special protection … [i]t flows from a
broader doctrine by which equity protects the vulnerable parties in a relationship and
ensures they have full information…