Schultz v Bank of Queensland Ltd [2014] QSC 305

A wife gave a mortgage and guarantees to secure three different loans by her husband and their family trust, controlled by her husband. The bank sued and the wife argued the wife’s equity principle and alternatively claimed unconscionability (in equity and under section 12CA of the ASIC Act 2001).

The court noted that in order to invoke the wife’s equity principle, the following is required:

  1. the wife must be a volunteer (not benefit from the loan);
  2. the wife must not understand the effect of the document;
  3. the husband must exercise undue influence; 
  4. the creditor must know that she is a wife;
  5. the creditor or some independent third party must have failed to explain the transaction to the wife.

Was the wife a volunteer?

The court refused to find the wife was not a volunteer even though she was a beneficiary of the trust borrowing trust. This was because it was a discretionary trust and she had no equitable interest in the trust’s assets only a right to proper administration of the trust.

However, nor did the court find she was a volunteer. There were other facts that spoke against such a finding. The purpose of the loan was to purchase land at the back of the family home for the enjoyment of the family and the trust was an investment vehicle for the benefit of the family, including the wife and their son.

Additionally, the security property was only solely in her name because she and her husband wished to protect it from his trading creditors.

By assuming the wife was a volunteer the judge avoided having to make a decision in an area of law which is unsettled. He preferred instead to decide the case on principles of law which are less ambigious.

The wife’s understanding

The judge indicated that had the wife misunderstood any of the following elements, then it would satisfy the second requirement of the wife’s equity principle:

  1. whether she could limit her liability under the guarantee;
  2. that her liability was for interest and costs, as well as the loan amount, under the guarantee;
  3. that she might be made bankrupt if the amount payable under the guarantee was not paid; or
  4. that the mortgage over the Cotton Tree unit was not limited to $100,000 or $150,000.

After reviewing the eivdence, the judge conclusded that there was no misunderstanding by the wife of any of these elements. This finding was enough to dispose of the wife’s equity defence. 

The statutory unconscionability defence

The court found no unconscionability noting that the statutory and equitable principles are the same and the wife was not under any special disadvantage that the bank was aware of. 

The bank was granted possession.

Click here to read the full judgment

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