Extending the Garcia Principle


The equitable maxim ‘equity is equality’ is one of the touchstones of the equity jurisdiction. It is an inherently discretionary jurisdiction unlike the common law and is therefore seen as a far wider forum for judicial creativity, almost inevitably going against the notion of ‘equality’ in the true sense of the word. Such judicial creativity has been credited and criticised, in the former with the establishment of doctrines such as undue influence and in the latter, the maintenance of the special equity of the type established in Yerkey v Jones (“Yerkey”).[1]

The special equity was initially incorporated into the equitable jurisdiction as a precautionary measure to defend wives from the equitable fraud which could be occasioned by their husbands and/or third party creditors where the wife acts as surety or guarantor for her husband’s debts. The principle has rarely come before the Courts since Yerkey, that is until Garcia v National Australia Bank Ltd (“Garcia”), [2] where the High Court upheld the special equity.

From a layman perspective, the special equity seems absurd in that it is ‘at once too broad and too narrow’.[3] Further critics demand it be extended to incorporate other relationships, placing emphasis on the potential for exploitation rather than the status of wives.[4] The rule has enormous potential to dramatically affect such factors including, inter alia, lending rules for credit institutions; overlap and confusion between pre-established doctrines of undue influence and unconscionability; and gender equality.

Accordingly, in order to ascertain whether or not this principle should be extended, the special equity must be examined in light of current societal values, the rights which it seeks to uphold and the various judgments pertaining to same.


There is a strong interplay between the special equity and the doctrine of equitable fraud, which now encompasses both undue influence and unconscionable conduct. Undue influence requires that the freewill of a party to a transaction be overborne by the other transacting party exerting influence; thus the imperative element of this principle is the lack of freewill.[5] Undue influence can be either actual, i.e. proof that one party was privy to a transaction without the exercise of free will; or presumed, i.e. where an antecedent relationship exists between the parties and as a result of that relationship undue influence has come into existence.[6] Such relationships include parent and child; religious figure and disciple; fiancé and fiancée; etc.,[7] of which the former are those with whom the benefit has been conferred at the expense of the latter.[8] Given that undue influence is a type of equitable fraud, the special equity aims to protect wrongful conduct of this type, whether it is actual or presumed.


Marriage is not a special antecedent relationship nor is it a ‘suspect category’ for the purposes of undue influence.[9] Due to the trust and confidence inherent within the marital relationship it has been held that it is not strange or suspicious that one party to the marriage would simply gift property to the other as a volunteer,[10] as enunciated by Latham CJ in Yerkey:-

‘The reason for excluding the relation of husband and wife from the category to which the presumption applies is to be found in the consideration that there is nothing unusual or strange in a wife from motives of affection or even of prudence conferring a large proprietary or pecuniary benefit upon her husband.’[11]

Trust and confidence is not a feature isolated to the marital relationship. It is also present in relationships such as parent and child, de-facto relationships and same-sex relationships – however these relationships do not give rise to a special equity

The narrow scope of the special equity therefore offers anticipatory protection to wives in the context of third party dealings irrespective of other relationships which exude trust and confidence. It therefore seems inappropriate for the majority of Garcia to note that 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’,[12] where this is clearly the underlying justification for this principle.



In Commercial Bank of Australia Ltd v Amadio and Anor,[13] the High Court held that an Italian couple suffered ‘special disadvantages’ in the context of acting as guarantors for their son’s mortgage. The Amadios exhibited limited English and business skills and were of significantly advanced age. Under unconscionability, the stronger party must be aware of the ‘special disability’ and exploit same for their own benefit. Notice is therefore central to this doctrine. Factual similarities between Amadio and Yerkey spurred widespread belief that the principles expounded by the High Court in Amadio overruled or subsumed the decision of Yerkey: ‘Once the principles of… Amadio were applied to the facts of the case [the case being Akins v National Australia Bank][14] there should be no room for resort to the special rule in Yerkey v Jones’.[15] However this belief was later disproved.[16]

In any event, it must not be forgotten that were it not for the potential of undue influence or even unconscionable conduct, the special equity would likely not exist.


The special equity derived from Yerkey can be summarised as follows:-

‘…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.’[17]

The principle encompasses two limbs: the first is where the guarantee was given by the wife as a result of actual undue influence by the husband, whereupon the wife obtains a prima facie right to have that transaction set aside unless the bank can demonstrate that she obtained independent legal advice. The latter is where the wife misunderstood the purport and effect of the guarantee which she gave, upon which she will acquire the same prima facie right unless the creditor took all reasonable steps to inform her of the particulars of the transaction and, additionally, the creditor reasonably believed that she knew what she was engaged in.[18] The reasonableness aspect, if proven to have succeeded, will discharge the creditor of its duties to separately inform the wife.

Thus the special equity necessitates a number of qualifications. Firstly that the husband procures the wife’s consent to act as a surety to the transaction; and the wife lacks understanding as to the purport and effect of the transaction but nevertheless signs the document. On the question of ‘understanding’, the High Court held that regardless of whether there was impropriety or not, the fact that the wife was misinformed implies that the husband was, at the very least, negligent in failing to adequately disclose the particulars of the transaction, as summarised by Cussen J in Bank of Victoria v Mueller:-

‘…if he does not take care to fully explain the transaction, he may find himself defeated by proof that the wife did not fully understand it’.[19]

This unnecessarily broad principle renders irrelevant whether any wrongful conduct (including, inter alia, misrepresentations, undue influence and/or negligence) has been occasioned by the husband or the creditor. The special equity will nevertheless exist even if the wife is silent in her enquiries. This demonstrates a rare instance of the law allowing a wife to sleep on her rights, which serves to diminish the equitable maxim that ‘equity assists those with clean hands’. This idleness has been criticised as it operates to place a larger burden on creditors while simultaneously encouraging wives’ ignorance.

The special equity also requires that the wife be a volunteer to the transaction for which she is acting as a guarantor. Her prima facie right will be set aside if she receives any benefit from the transaction.[20] As noted by the majority in Garcia, ‘The second kind of case identified in  Yerkey v Jones [the second limb] is not one which depends upon any presumption of undue influence by the husband over the wife… Rather it depends upon the surety being a volunteer and mistaken about the purport and effect of the transaction, and the creditor being taken to have appreciated that because of the trust and confidence between surety and debtor the surety may well receive from the debtor no sufficient explanation of the transaction’s purport and effect.’[21] Given its ordinary meaning, this statement seems highlight that relational status is second to the surety being a volunteer. Indeed, this statement makes no allusions to the fact that the surety must be a wife. Evidently, the contradictory nature of this statement has been interpreted to uphold a discriminatory principle, namely, through prefacing the special equity as for the protection of wives as opposed to their ‘subservience and inferiority’[22] – ignoring the fact that the two often come hand-in-hand.


Almost sixty years after Yerkey, a majority of the High Court in Garcia, upheld the special equity despite its seemingly archaic origins. [23] The case concerned a wife who guaranteed the debts of her husband without fully understanding that it could result in the loss of the matrimonial home. While it was held that there was no actual undue influence, it was clear that the husband exerted emotional pressure on the wife, evidenced in that he ‘consistently pointed out what a fool she was in commercial matters whereas he was an expert’.[24] In evidence it was submitted and subsequently found that she had guaranteed the debts in order to preserve the marriage for the future of herself and their two children.[25]

Dixon J in Yerkey held that the success of the special equity ‘…must depend on the circumstances, as, for example… the intelligence and business understanding of the woman’. [26] The trial judge noted that the wife ‘presented herself as a capable and presentable professional’. Based on her ‘professionalism’ and having previously established a physiotherapy practice,[27] one would assume that she would not be entitled to the special equity. However contrary to Dixon J’s statement, the majority found in her favour. Thus a wife’s intelligence and/or business understanding is not a ground for rebutting the special equity.

Additionally, arguably wary of impending criticism, the High Court provided a warning to Courts lower in the jurisdictional hierarchy, noting that:-

‘It should be emphasised that it is for this court alone to determine whether one of its previous decisions is to be departed from or overruled’.[28]


The majority failed to further enunciate or expand the special equity by way of obiter saying:-

‘It may be that the principles applied in Yerkey v Jones will find application to other relationships more common now than was the case in 1939 – to long term and publicly declared relationships short of marriage between members of the same or of opposite sex – but that is not a question that falls for decision in this case’.[29]

In so making this statement the High Court majority fell short of its greater duties to clarify and better articulate the law in line with modern societal values. Whilst it failed to endorse expansion, it did not preclude its potential, thus remaining silent. Due to the restrictive operation of the special equity, part of the reason for its silence on the issue could be the Court’s reluctance to open the floodgates to other relationships and circumstances which may fall within this category should it be extended. Additionally, it may be the case that lending practices for credit providers would need to be reconsidered. In other words, the Court may have been of the opinion that its expansion would cause more problems than it could solve.

Reluctance to open floodgates to judicial interpretation is not a sound reason to prevent otherwise eligible classes of persons or indeed persons in general from receipt of an equitable judgment to which they may be entitled. It will be a brave Judge who will extend the relationship categories pertaining to the special equity.[30]



Kirby J, in dissent of the majority finding in Garcia, stated that the High Court should instead ‘search for, and identify, a broader principle which is not confined to one group whose members have attributed to them particular needs and vulnerabilities which are certainly not confined to that group and which, in many cases, will not be present in members of that group. The classification is at once too narrow and too broad’. [31]

Central to Kirby J’s dissent was the desire to abolish a doctrine which upholds historical anachronism and discriminatory stereotypes.[32] Social changes have seen the perception of women shift dramatically in order to accommodate an “equal playing field”. As Kirby rightly suggests, it would be counterintuitive to retain this archaic principle and still seek to uphold equality before the law: ‘Whatever may have been the position in Australian society of 1939, 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’.[33] In so affording this special protection to a class of persons otherwise legally capable save for their relationship status and gender, the High Court has endorsed emotional pressure as an automatic influence as opposed to emotional dependence of the type in Louth v Diprose (although this was under the banner of unconscionable conduct).[34] Further still, this principle fails to address the problems faced by men and women alike in vulnerable and dependant relationships outside the context of marriage.[35]

In 2008, Kirby revisited his dissent and the majority judgment in Garcia in his speech at Queensland University of Technology to illustrate his point with respect to ‘Hostility to Invention and Expansion’.[36] He specifically pointed to the fact that the majority were ‘reluctant to adapt or re-state’ the special equity given that the question of its extension did not require judicial interpretation.[37] In Kirby’s view, the majority in Garcia washed their hands of the potential to expand on the rule and more cogently articulate its principles.[38] In so finding, he relied upon the Australian Law Reform Commission (“ALRC”) Report under the need for a contemporary approach to gender equality, namely that ‘the approach… must also be capable of addressing the diversity of women’s experiences… to particular experiences of inequality, including the experiences of women who are from indigenous or non-English speaking backgrounds, women who have a disability or who live in isolated areas or who are elderly’.[39] This appears to infer a need for a more discretionary application of the special equity which has been denied to all persons outside the context of marriage. It further seems to articulate the potential for expansion with respect to aged women including mothers. Ideally, this would be extended to both aged parents.

Indeed, as the High Court has only been inclined to endorse the special equity with respect to the marital relationship, one must seriously consider whether in the future other relationships will in fact come up for judgment given the apparent precedent against extension.



 The Australian social and cultural landscape has changed significantly in the past 70 years, now favouring a gender equality approach to policy implementation as conceded in Garcia: ‘Australian society, and particularly the role of women in that society, has changed in the last six decades’.[40] However it nonetheless failed to give adequate consideration to persons outside the scope of wives.

There have been significant relational revolutions since 1939, including a more general acceptance of homosexuality, legal recognition and extended rights for de-facto partners; and increased availability (and indeed frequency) of separation and divorce.[41] These normalities in 2012 would have been shameful in 1939 – the reverse is also true – to think of the restrictive social covenants of society in 1939 and to see the application of same today without taking into account the diverse cultural and societal landscape in which we live seems absurd.

As Kirby J expounded, there is a ‘very significant number of Australians who now live in relationships of potential dependence and vulnerability outside marriage’.[42] The rulings in Garcia and Yerkey are silent on these relationships thereby affixing all but wives with the general doctrines of undue influence and unconscionability, which, unlike the special equity, will not generate a prima facie right against third parties. Thus the rule in its current form is indicative of positive discrimination based on gender and relationship status.

Positive discrimination can be necessary, particularly for the vulnerable and disadvantaged. Consider, for instance, positive discrimination favouring Indigenous Australians. There is a significant difference between positive discrimination for Indigenous Australians and wives: The former connotes an entire race and culture who have suffered immense hardship as a result of being displaced from their homes and having suffered at the hands of negative discrimination for so long. Additionally, Indigenous Australians are grossly underrepresented in universities and professional organisations.[43] The latter, on the other hand, is a class of persons with no common characteristic – save for the fact that they are wives. Otherwise, their relationships are all unique with no continuation in culture or negative discrimination. Thus the two classes of positive discrimination can be distinguished, the former being necessary to equalise the experiences of Indigenous Australians.

In order to streamline the special equity with the values and norms of modern Australian culture, it must be extended to incorporate de-facto relationships, same-sex relationships and relationships of aged parent and child and any other relationship of trust and confidence having regard to the individual circumstances of the matter. Essentially, if this doctrine truly seeks to uphold protection of surety’s in relationships of trust and confidence, then the rule must necessarily be extended.


The case law since Garcia demonstrates minimal desire to depart from prior authority. According to one submission to the ALRC, over the last 8 years since the report, 18 cases had come before the Courts in which women had guaranteed the debts of others – mostly their husbands.[44] No such submissions were received where husbands guaranteed the debts of their wives.[45] However it is unclear the extent to which persons guarantee the debts of their significant others, children, parents, etc. In this context, the special equity equalises the bargaining power of a wife when dealing with third parties.[46]

In any event, it remains an archaic and anachronistic principle in that it provides for only one class of persons. Indeed, this view was shared by Rogers J in European Asian of Australia v Kurland,[47] where His Honour noted that:-

‘…in the year 1985 it seems anachronistic to be told that a female and a wife is, by itself, a sufficient qualification to enrol in the class of persons suffering a special disadvantage. However, counsel… submitted that the iron grip of precedent requires me to submit such a finding. Were this to be correct, it would affix a badge of shame to this branch of the law… that being a female spouse should place a person shoulder to shoulder with the sick, the ignorant and the impaired is not to be tolerated’.[48]

In State Bank of New South Wales Ltd v Layoun,[49] the special equity was subtly extended to aged parents and siblings acting as guarantors of the debtor. However His Honour abstained from elaborating on the fact that this was, in essence, an extension of Garcia and Yerkey. In so doing, he relied upon the judgment in Garcia that the surety must be a volunteer.[50]

In Siglin v Choules, on appeal, the Full Court of the Supreme Court of Western Australia, and in particular Scott J, acknowledged that the Courts have not substantially considered the special equity outside the context of husband wife and third party creditor, yet noted ‘That is not, however, to exclude the possibility that the law may extend to cover situations of the type presently under consideration. The mortgage by an elderly mother of her property in order to raise money for a child might well come within that category’.[51] At first instance, the Master held that the Garcia principle could ‘equally apply to an elderly mother and her son’.[52] In any event, this was obiter and the claim was unable to succeed on a number of factors, including that the parent was not a surety.


United Kingdom authority stems from the judgment of Lord Browne-Wilkinson in Barclays Bank plc v O’Brien,[53] where his Lordship departed from the decision of Dixon J in Yerkey and instead favoured an approach which centred around the creditor’s actual or constructive notice that there was potential for influence in the relationship. Lord Browne-Wilkinson went one step further and held that ‘the same principles are applicable to all other cases where there is an emotional relationship between cohabitees…  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.’[54]

He relied upon the authority of the House of Lords in Avon Finance Co Ltd v Bridger,[55] where it was held that the parents of a son who had acquired their suretyship through deception were entitled to have the charge set aside. This case formed the basis for the UK extension of the special equity to relationships outside the context of marriage.

Although these judgments in conjunction make for good persuasive precedent, the High Court failed to utilise them in Garcia, with the Court of Appeal’s Sheller JA holding that the rationale expounded by Lord Browne-Wilkinson in Barclays Bank was difficult to accept.[56] This uncertainty was reiterated by Sir Anthony Mason prior to Garcia’s judgment.[57]


In Watt v State Bank of New South Wales, the Supreme Court of the Australian Capitol Territory were called upon to decide whether or not the special equity is applicable to a husband and wife who guaranteed debts of their daughter and son-in-law. Although the Court ultimately failed to extend the special equity, it did make a number of remarks in obiter indicating that future lenience may be possible.

The Court contended that the vulnerability of parents stems from their love of their children and their desire to assist them and encourage them in any way possible.[58] It is, of course, different to the love between a husband and a wife, but nevertheless reposes trust and confidence of an almost equal level.

The parents relied upon the principles in Yerkey and Garcia because the wife was hesitant to act as guarantor however she signed the documents under her husband’s influence. The Court held that while that may be true, there could be no inference drawn that a child may not completely disclose the purport and effect of the transaction to his or her parents.[59] In other words, the Court confirmed the High Court’s judgments that it is usual for a wife to defer business and financial matters to her husband.

Most importantly, the case was distinguished from Yerkey in that the appellants failed to read the documents before signing them as opposed to failing to understand the documents prior to signing them.[60] Again this can be contrasted with Yerkey where a wife will retain the prima facie right to have the guarantee set aside even where she failed to enquire as to the particulars of the transaction in question.

In any event, the Court was not prepared to extend this principle as the grounds upon which the appellants sought to rely were not substantiated by sufficient evidence.[61]

In Permanent Mortgagees Pty Ltd v Vandenbergh,[62] The Supreme Court of Western Australia was not prepared to extend the special equity to an aged mother who guaranteed the debts of her son. After consideration of a number of binding and persuasive precedents, His Honour, perhaps taking heed of the High Court’s warning in Garcia, found that there was insufficient binding precedent to allow the special equity’s expansion to relationships of aged parent and child even though Western Australian precedent from Siglin subtley permitted same.[63]


The case law is divided on the issue of expansion. Through an analysis of the above cases, there are three main findings: that the special equity must be upheld in its present form but not extended; the special equity must be upheld despite its archaic implications for modern society; and that the special equity must be upheld although it should be extended. Regardless of these contrasting opinions, the High Court’s authority in Garcia remains the ultimate binding precedent and must be upheld.

Since the adoption of the special equity there have been significant social and cultural changes throughout Australia. A number of these changes have centred around gender equality and anti-discrimination. Through conservative judgments and retention of the special equity, the High Court has stifled society’s struggle towards true gender and relational equality. Although the marital relationship clearly confers upon marital partners more rights than a relationship of de-facto status, if the special equity is not ‘based on the subservience of women’,[64] then there is theoretically nothing to prevent its extension beyond this context.

In any event, the High Court’s disapproval of the reasoning Barclays Bank gave rise to an implication that the rule in Garciais not to be extended. Indeed, this explains the plethora of conservative judgments after 1998. In any event, there is no doubt that this principle will one day be extended to include all relationships of trust and confidence so long as the surety be a volunteer and at risk of exploitation due to their emotional dependence upon the other party to the relationship. Only when this principle is extended will there truly be ‘equality before the law’.

[1] (1939) 63 CLR 649.

[2] (1998) 155 ALR 614.

[3] Garcia v National Australia Bank Ltd (1998) 155 ALR 614 at 634 per Kirby J.

[4] Ibid at 636.

[5] Johnson v Butress (1936) 56 CLR 113.

[6] Ibid at 119.

[7] (1939) 63 CLR 649 at 675.

[8] Lexisnexis, Halsbury’s Laws of Australia, vol 15 (at 20 May 2008) 185 Equity, ‘Relationships Giving Rise to Influence’ [185-975].

[9] Yerkey v Jones (1939) 63 CLR 649 at 675.

[10] Ibid.

[11] (1939) 63 CLR 649 at 674.

[12] (1998) 155 ALR 614 at 615.

[13] (1983) 151 CLR 447.

[14] (1994) 34 NSWLR 155 at 172-173.

[15] Garcia v National Australia Bank Ltd (1996) 39 NSWLR 577 at 598.

[16] Garcia v National Australia Bank Ltd (1998) 155 ALR 614 at 622.

[17] (1939) 63 CLR 649 at 683.

[18] Samantha Hepburn, ‘The Yerkey Principle and Relationships of Trust and Confidence: Garcia v National Australia Bank’, (1997-2000) 4 Deakin Law Review 99 at 100.

[19] Bank of Victoria Ltd v Mueller [1925] VLR 642, per Cussen J.

[20] Yerkey v Jones (1939) 63 CLR 649.

[21] Garcia v National Australia Bank Ltd (1998) 155 ALR 614 at 623.

[22] Ibid at 615.

[23] (1998) 155 ALR 614.

[24] (1998) 155 ALR 614 at 618.

[25] Ibid at 628.

[26] Yerkey v Jones (1939) 63 CLR 649 at 686.

[27] Garcia v National Australia Bank Ltd (1998) 155 ALR 614 at 617.

[28] (1998) 155 ALR 614 at 619.

[29] Ibid.

[30] T. Cockburn, ‘Garcia – A Softly Softly Approach’ (2000) 4 Flinders Journal of Law Reform 251, 278.

[31] Garcia v National Australia Bank Ltd (1998) 155 ALR 614 at 633-634.

[32] Ibid.

[33] Garcia v National Australia Bank (1998) 155 ALR 614 at 636.

[34] (1992) 175 CLR 621.

[35] Garcia v National Australia Bank (1998) 155 ALR 614 at 636.

[36] The Hon Michael Kirby AC CMG, ‘Equity’s Australian Isolationism’(Speech delivered at Queensland University of Technology, 19 November 2008).

[37] Ibid.

[38] The Hon Michael Kirby AC CMG, ‘Equity’s Australian Isolationism’ above n 37.

[39] Australian Law Reform Commission, Equality Before the Law: Women’s Equality, Report No 69 Part 2 (1994) [13.11].

[40] Garcia v National Australia Bank (1998) 155 ALR 614 at 619.

[41] Barclays Bank plc v O’Brien [1994] 1 AC 180 per Lord Browne-Wilkinson.

[42] Ibid at 636.

[43] Indigenous Higher Education Advisory Council, Submission to the Review of Australian Higher Education, 31 July 2008, 5.

[44] Australian Law Reform Commission, Equality Before the Law: Women’s Equality, above n 40.

[45] Ibid.

[46] Tim Wright, ‘The Special Wives’ Equity and the Struggle for Women’s Equality’ (2006) 31 (2) Alternative Law Journal 66.

[47] (1985) 8 NSWLR 192.

[48] European Asian of Australia Ltd v Kurland (1985) 8 NSWLR 192 at 200.

[49] [2001] NSWSC 198.

[50] Garcia v National Australia Bank Ltd (1998) 155 ALR 614 at 623.

[51] Siglin v Choules [2002] WASC at [54] per Scott J.

[52] Ibid at [34].

[53] [1994] 1 AC 180.

[54] Ibid at 198.

[55] [1985] 2 All ER 281.

[56] (1996) 39 NSWLR 577 at 594-597.

[57] Mason, ‘The Impact of Equitable Doctrine on the Law of Contract’ (1998) 27 Anglo-American Law Review 1 at 15.

[58] Watt v State Bank of New South Wales Ltd [2003] ACTCA 7 at [22] per Higgins CJ and Crispin P

[59] Ibid at [24].

[60] Watt v State Bank of New South Wales Ltd [2003] ACTCA 7 at [30] per Higgins CJ and Crispin P.

[61] Ibid at [35].

[62] [2010] WASC 10.

[63] Ibid at 191.

[64] Garcia v National Australia Bank Ltd (1998) 155 ALR 614 at 615.

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