The Special Wives Equity Predicament

The special wives equity has always been somewhat of a predicament in the law of contract, often debated about its relevance in society today. Here, the law regarding special wives equity arises in the context of a very significant case in contract law Garcia v National Australia Bank Ltd (1998) 194 CLR 395. Immediately, we can see that the question hinges on the notion of the consistency of the special wives equity principle, and the fairness and justice of continuing to apply this principle in the 21st century Australia. I will answer this question by addressing a number of key theoretical issues, through which we can see how the notion of special wives equity was developed and came to be an integral part of the law of contract and equity. Before taking up a discussion on the special wives equity in detail, it will be important also to examine its implications for theory and the debatable position it creates.

The status of the High Court of Australia’s decision in Yerkey v Jones has long been in doubt. For many years the decision has been thought to grant special protection in equity to women who guaranteed their husbands debts, preventing the lender from recovering under the guarantee if the husband had procured her consent but the wife did not understand the effect of the guarantee. Several decisions in the New South Wales Court of Appeal subsequently held that [1] Yerkey v Jones was no longer good law. Nevertheless, contrary to this the High Court of Australia recently upheld the principle in Garcia v National Australia Bank [2] .

This question raises the application of the principles in Yerkey v Jones [3] . The facts of the problem are based upon Garcia v NAB and in that case the High Court held that the guarantees given by the wife were unenforceable on the basis of special equity that applies in favour of a wife set out in Yerkey v Jones [4] .

In doing so, Gaudron, McHugh, Gummow and Hayne JJ, in the case of Garcia v National Australia Bank [5] upheld the principle which had been expressed by Dixon J in Yerkey v Jones at 683 in these terms:

“If a married woman’s consent to become a surety for her husband’s debt is procured by the husband and, without understanding its effect in essential respects, she executes an instrument of suretyship which the creditor accepts without dealing directly with her personally, she has a prima facie right to have it set aside” [6] .

Classical Contract Theory and the Consistency of the Wives Special Equity – Will Theory and the Disparities of Economic and other Power

Classical contract theory was centralised around the will theory of contract, which held that a contract represents an expression of the will of the contracting parties e.g. a meeting of the minds, and for that reason should be respected and enforced by the courts [7] . However, there are many criticisms that are associated around this flawed notion. Many feminists argue that in ensuring husbands business borrowing, wives don’t exercise independent judgment which results in disparities in economic and other power [8] .

Kristie Dunn supports this view by emphasising that there is a clear power imbalance with respect to the relationship between the creditor and the guarantor [9] . In this sense, the creditor is in effect relying on the guarantor to accept a risk, and in taking up the risk, the guarantor is deprived by a lack of admittance to information about the transaction and the possible risk linked with it [10] . Furthermore, demands to enter into the transaction are usually procured by the inducement of the debtor, in this case the husband. Therefore, establishing a clear power imbalance between husband and wife.

“This pressure is compounded by the fact that in many third party guarantee situations, particularly those involving married female guarantors, their economic security is bound up with the debtor’s such that any notion of choice as to whether or not to sign becomes illusory” [11] .

Essentially, it can be argued that the consistency of the special wives equity with classical contract theory is undermined in that utilising the wives special equity concept, does not necessarily represent the will of the parties. Moreover, the creditor and the husband are in effect standing in a position of power which reflects the notion that in third party transactions women do not always exercise their own judgment [12] .

Equality in Bargaining Power – Identical Treatment Approach – Kirby J

Courts assume that the parties to a contract were equal in entering the contract. Both parties are to benefit equally from the performance of the contract [13] . You can see some of the feminist theories which have been developed as a consequence of this area of the law in the judgment of Kirby J whereby he stipulated that:

“The stereotyping underlying Yerkey may hold true for some, perhaps even a significant number of wives. But this court should, where possible, refuse to classify unnecessarily and over broadly by gender when more accurate and impartial principles can be stated [14] “.

Essentially, Kirby J expressed concern with gender specific classification preferring gender neutral principles enunciated in Obrien [15] .

Similarly, from a feminist point of view, emphasis is placed on the concept that the qualities of the rule expressed in Yerkey v Jones [16] , discriminates and places inequality amongst men and women [17] . Clare Dalton asserts that the doctrine of contracts rarely utilises the conception of power and fairness, although duress and unconscionability are the exceptions to this rule, in that they shift away from the model case of equal contracting partners [18] . With respect to this, the special wives equity rule is based upon not whether the parties are upon equal footing in contracting but whether or not there has been procurement by the husband [19] .

A supporter of the identical treatment approach might argue that maintaining a special equity applying to wives signifies objectionable sexual stereotypes of women as incapable of making economic decisions or protecting their own interests [20] . Thus Kirby J enunciated in Garcia:

“For this court to accept that principle is to accord legitimacy to a discriminatory rule expressed in terms which are unduly narrow, historically and socially out of date and unfairly discriminatory against those who may be more needful of the protection of a special equity but who do not fit within the category of married women” [21] .

At the heart of Kristie Dunns debate is the ability to identify the strain between gender neutral principles and gender specific principles. In this, ultimately Kristie Dunn identifies the notion of the identical treatment approach and the difference approach in ensuring substantive equality, whilst concluding that the query of how the law should react to the problem of women’s difference without testing the assumption of a sexual difference in accordance with Kirby J’s judgments [22] .

Furthermore, in accordance with the formal equity model “equality means the ignoring of differences between individuals” [23] . Kristie Dunn treats this as an affirmation of the gender neutral or identical treatment approach in that gender specific principles are discriminatory against both men and women, and thus the right to be treated the same should be a fundamental right [24] .

Majority judgment favouring the different treatment approach – wifes equity is substantiated

Callinan J

Define justice and fairness (equality, equity, human rights) broad or narrow approach to the question (can be from inside or outside the law). If you think that the special wives equity does not achieve justice and fairness you may wish to consider what law reform measures should be pursued either through courts or legislation

Justice and fairness is a concept deeply embedded into the law of equity, whereby it is contended that equity aims to ensure that when a plaintiff or defendant is awarded compensation, it is fair and just compensation. Equity is not a punitive jurisdiction and does not seek to punish, merely to achieve justice between the parties. Thus it can be contended that equity is equality and has an interest in fairness or justice despite legal technicalities [25] .

“Its justification was that it corrected, supplemented and amended the Common Law. It softened and modified many of the injustices in Common Law, and provided remedies where at law they were either inadequate or non-existent” [26] .

Discriminatory and Stereotypical views of the Rule

Some theorists explore the notion that a situation involving special wives equity raises some poignant issues, if the woman is presumed to be weak and feeble, then the court will be more inclined to grant relief and save her from losing her home; alternatively, if the court assumed that she is quite capable of looking after her own interests, then she will be bound by the transaction and will lose her home.

Charles Chew emphasises the view that the law in respect of the special wives equity is exclusively restricted to wives, thus there have been suggestions that the rule could be extended to a wider range of relationships of trust and confidence such as those involving husbands as well as wives, de facto relationships and same sex arrangements [27] . Similarly, in the case of Garcia v The National Australia Bank Ltd, Kirby J in his dissenting judgment stipulated that the unique protection provided by the rule discriminates against other relationships, and thus should not be applied.

“Why should this court… endorse a principle expressed to apply specifically to one class of citizens only, namely married women? For several reasons, it should not. It should instead search for, and identify a broader principle which is not confined to one group” [28] .

Essentially, Kirby’s analysis of the rule in effect portrays that he aims to develop a test that is broader than the one outlined in Yerkey v Jones [29] , and ultimately enforces the notion that the concept is unjust or stereotypical to women in the 21st century [30] . Kirby J further expressed the view that the rule cannot apply within the 21st Century with relevance to the case of Warburton v Whitely [31] , where it was stipulated that:

“It is no longer appropriate today to ground such an undiscriminating and absolute rule. It was suggested that the principle was based upon a stereotyped perception of the dependent position of wives in relation to their husbands. It gave no equal protection to husbands in an analogous position of dependence . . . It perpetuated a stereotype which was out of harmony with today’s society, preserved the unequal position of women and conflicted with the development of statute law with which legal and equitable principles should keep in step” [32]

Furthermore, Su-King Hii [33] , asserts that possibly the high court in supporting the rule from Yerkey v Jones [34] in Garcia v National Australia Bank [35] , has possibly signalled an expansion of the rule to cover additional categories of relationship [36] . The High Court in Garcia v National Australia Bank [37] considered although outdueled the concept of extending the rule to husbands and to relationships which are “long term and publicly declared relationships short of marriage between members of the same or opposite sex” [38] .

In my view, if to apply such a rule as the special wives equity, then it should be extended to include other cases in which trust and confidence is placed upon a party to a transaction, as procurement can not only be identified through a husband’s conduct but also a wife, and other relationships not involving marriage. It is my belief that the rule is flawed and it is not fair to apply this principle in the 21st century. This view is expressed in the case of Barclays Bank Plc v O’Brien [39] , where Lord Browne-Wilkinson stipulated that:

“The ‘tenderness shown by the law to married women is not based on the marriage ceremony but reflects the underlying risk of one cohabite exploiting the emotional involvement and trust of the other. Now that unmarried cohabitation, whether heterosexual or homosexual, is widespread in our society, the law should recognise this, legal wives are not the only group which are now exposed to the emotional pressure of cohabitation” [40] .

Accordingly, the fairness and justice in continuing to apply the special wives equity in the 21st century may be regarded as an inadequate concealed principle that corrects inequitable transactions [41] . It is proven by Yerkey v Jones that a marriage is not considered a category of presumptive influence, as “the relationship of husband and wife is not one of influence” [42] . Thus, in effect this approach is not in equality with the principles of unconscionable conduct [43] .

It is my belief that the approach encapsulated in the case of O’brien [44] , should be the only approach in determining unconscionable conduct or procurement by a party. Furthermore, the special wives equity is an out dated rule that places women in a position where they are presumed to be weak. With this respect, it is my view that the rule should not be expanded to include other categories of relationships, instead the rule should not be supported at all or should be overruled.

Possible Reforms to the Rule of Special Wives Equity

In my opinion there is a need for law reform to secure or stipulate a universal treatment of business guarantees. Janine Pascoe [45] espoused some proposals to reform the law in this area. Reference is made to a Report by the Expert Group on Family Financial Vulnerability, entitled “Good Relations, High risks: Financial Transactions between Family and Friends 1996″ [46] . Ultimately, the main goal of this organisation was to respond to concern about the vulnerability of parties who enter into transactions on the basis of emotional ties [47] . Their recommendations included:

“The Trade Practices Act should be amended (or a new Commonwealth Act introduced) to require a financier to give a prospective personal guarantor relevant information which a reasonable guarantor would reasonably require in order to decide whether or not to enter into the guarantee and furthermore, The Trade Practices Act should be amended (or a new Commonwealth Act introduced) to require a financier to take all reasonable steps to advise a potential guarantor directly (rather than through the borrower)” [48] .

Ultimately, the goal of the Expert Group was to effectively outline the problems associated with business guarantees. It is my belief, that these recommendations would provide an alternative relief for guarantors who have been procured namely wives, instead of applying the wives special equity principle to such cases.

Conclusion

In conclusion it should be recognized that the judgments formulated in the case of Garcia v National Australia Bank [49] , are not unanimously accepted. Notwithstanding the recent verification of the special wives equity principle, the High Court is reluctant to extend it to other categories of relationships, which in turn lacks essence. Until further reforms occur, many debatable aspects of the rule will continue. Irrespective of the influence of the majority judgment, the views expressed by Kirby J that the rule should extend to other categories of relationships [50] in my opinion are preferable. In conjunction, the analysis of gender specific principles through the various judgments in Garcia [51] , and literature from feminists identifies the notion that women are incapable of making business decisions, and are socially accepted as being distinct to men [52] , thus it is evident that gendered inequality is embedded within the principle of special wives equity. In order for reform to occur, such principles need to be examined thoroughly and amended accordingly.