Protecting women who provide security for a husband’s, partner’s or child’s debts. The value and limits of an economic perspective

Megan Richardson* Senior Lecturer in Law, University of Melbourne

1. INTRODUCTION

In recent cases English, Australian, and New Zealand courts have been called on to deal with apparently similar fact situations of a woman entering into a mortgage, guarantee or joint loan contract with respect to a husband’s, partner’s or child’s business debts, placing her home at risk. Yet the results and reasoning in the cases appear to be markedly different. The question is whether the apparent differences can be resolved to yield a coherent policy approach. It will be argued, drawing on an economic-feminist perspective that the cases can be resolved in terms of the courts’ preparedness to acknowledge only limited categories of behaviour and circumstances, when measured against the paradigm of the ‘rational economic man’, as displacing the assumption that contracting increases welfare. Beyond those categories, it may be appropriate in feminist terms for further protection to be conferred by way of legislation. But, without more substantial empirical evidence that surety and joint loan contracts fail to benefit women, the economic argument is that legislation which limits their ability to contract may work against rather than in favour of their interests.

2. THECASES

A starting point for any discussion of undue influence law in the United Kingdom is the House of Lords decision in Barclays Bunk PIC v O’Brien.’ The facts of the case are well-known.2 Briefly, it concerned a bank calling up the security

* I am grateful to Belinda Fehlberg, Gillian Hadfield, Jenny Morgan, Mark Sneddon, Richard Sutton, Michael Trebilcock and Douglas White QC for helpful comments, information and advice. 1. Barclays Bank Plc v O’Brien [1994] 1 AC 180. 2. See for instance, Fehlberg ‘The Husband, the Bank, the Wife and her Signature’, (1994) 57 Modern Law Review 467; Berg ‘ Wives Guarantees - Constructive Knowledge and Undue Influence’ [ 19941 Lloyds Maritime and Commercial Law Quarterly 34; Lehane, ‘Undue Influence, Misrepresentation and Third Parties’ (1994) 1 lOLaw Quarterly Review 167; Battersby, ‘Equitable Fraud Committed by Third Parties’ (1995) 15 Legal Studies 35; Oldham ‘ “Neither a Borrower nor a Lender Be’ -the Life of O’Brien’ (1995) 7 Child and Family Law Quarterly 104; Mee ‘Undue Influence, Misrepresentation and the Doctrine of Notice’ (1995) 54 Cambridge Law Journal 536.

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under a surety transaction entered into by Mr and Mrs O’Brien in order that further advances could be made to a company in which Mr O’Brien was interested under a loan facility which had fallen into arrears. The document Mrs O’Brien had signed stated that she had received a copy of the guarantee already signed by her husband, that the liability was secured by a mortgage over the matrimonial home, and that the bank had advised her to obtain independent legal advice before signing (which was untrue). The evidence indicated that Mrs O’Brien had been reluctant to agree to the mortgage and had only done so after her husband misrepresented to her that liability would be limited to f60,000 and would last for three weeks. Although undue influence was alleged at the lower court level, the claim was rejected on the basis that Mrs O’Brien was a competent woman who had worked as a secretary and took care of the household accounts when her husband was overseas. She did not fit the ‘now rather outmoded pattern of the down-trodden, uneducated wife, subservient to her husband and his wishes and unable to understand financial matters or to take practical business-like decision^'.^ The pressure exerted on her to agree was also ‘not particularly unusual nor sufficient ... to overset and bear down [her] will’.4 The argument was not pursued in the House of Lords which held that the bank had constructive notice of the husband’s misrepresentation as a result of the application of the principles governing undue influence.

In a methodical analysis, Lord Browne-Wilkinson stated that, although wives are entitled to no special protection when they stand surety for their husband’s debts: there is a likelihood that wives who stand surety for their husband’s debts may have been subjected to undue influence by their husbands.6 The undue influence may be actual or presumed, the presumption raised, not as a matter of law, but because of a relationship of trust and confidence such that the wife relies in all financial matters on the husband, partner or child and simply ‘does what he suggests’.’ A creditor has constructive notice of undue influence’ because the contract is on its face not to the financial advantage of the surety and the substantial risk in contracts of that kind is that in procuring the wife’s agreement the husband ‘has committed a legal or equitable wrong that entitles the wife to have the transaction set aside’.’ For the future, the constructive notice can be overcome if the creditor insists that the wife attends a private meeting with a representative of the creditor at which ‘she is told of the extent of her liability as surety, warned of the risk she is running and urged to take independent legal advice’ - or, at least, that equivalent steps are taken in the case of a past transaction.l0 However, where there are further facts which put the creditor on notice that undue influence is ‘not only possible but probable’, to be safe, the

3. BarclaysBank Plc v O’Brien [1993] QB 109 per Scott U at 117. 4. Ibid at 142. 5. Barclays Bank plc v O’Brien above n 1 at 195 rejecting the Australian High Court authority of Yerkey vJones (1939) 63 CLR 649 which held that a special equity arises in relation to a third party creditor if the contract is the result of ‘improper or unfair dealing’ on the part of the husband: ibid at 683484 per Dixon J. 6. Ibid at 189-191, 196 (including in the reference to ‘husband’s’ debts, the debts of a company in which he has a direct financial interest: ibid at 199). 7. Ibid at 189-190. 8. See ibid at 195: ‘The doctrine of notice lies at the heart of equity’. 9. Ibid at 195-196. 10. Ibid at 196-197.

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creditor must insist that the surety is separately advised.” The same reasoning applies to unmarried cohabitees and parents who.trust their children in financial matters, who enter into surety contracts for the benefit of their partner or child.’*

CIBC Mortgages PIC v Pift13 represents a variation on O’Brien in that Mrs Pitt signed a joint loan contract together with her husband rather than standing surety for his debts. Like Mrs O’Brien, Mrs Pitt was not advised as to the terms and/or significance of the contract. Moreover, at the lower court level it was held that she had been subjected to undue influence because, not only was she a woman with no business experience who was dependent on her husband in financial matters, but there was evidence that it was only under a sustained course of pressure from her husband that Mrs Pitt agreed to the tran~acti0n.I~ However, in this case the finance company was not aware of the purpose of the loan which was to raise money to finance a speculative course of share purchasing on the stock market. Mr Pitt misrepresented to the finance company that the loan was for the purchase of a holiday home and the documents were set out and signed on that basis by Mr and Mrs Pitt. The House of Lords, again in a judgment of Lord Browne-Wilkinson, held that there was no basis for imputing notice to a third party creditor.” Actual undue influence may be established without proof of manifest disadvantage, notwithstanding earlier authorities to the contrary.I6 However, the principles as to constructive notice set out in Barcluys Bank Plc v O’Brien with respect to surety contracts do not extend to the case of a joint loan which on its face is to the financial advantage of both parties,” although there may be constructive notice if the creditor is aware that ‘the purposes of the loan are to pay the husband’s debts or otherwise for his, as distinct from their joint, purposes’ .I8

O’Brien and Piff indicate that the House of Lords was prepared to give some credence to the problems of women who stand surety for their husbands debts, Lord Browne-Wilkinson in O’Brien acknowledging that as a matter of practice ‘in a substantial proportion of marriages it is still the husband who has the business experience and the wife who is willing to follow his advice without bringing a truly independent mind and will to bear on financial decision^'.'^ While rejecting the argument that women should have special protection on the basis that this would render ‘the wealth currently tied up in the matrimonial home ... economically sterile’ and would reduce the flow of loan capital to business enterprises,*O the House of Lords was prepared to treat women who rely in 11. Ibid at 197. 12. Ibid at 198 citing by way of example Avon Finance Co Ltd v Bridger [ 19851 2 All ER 281 (a case in which a son persuaded his elderly parents by way of a misrepresentation to stand surety for his debts). 13. CIBC Mortgages Plc v Pitt [ 19941 1 AC 200. 14. Ibid at 205. 15. Ibid at 207-208. 16. Ibid at 209, overruling the Court of Appeal in Bank of Credit and Commerce InternationalSA vA6oody [1990] 1 QB 923 holding that manifest disadvantage must be proved for actual undue influence (although leaving open whether manifest disadvantage must be shown in other cases, as held in National Westminster BankPlc vMorgan [1985] AC 686). 17. Ibid at 210-211. 18. Ibid citing the Court of Appeal judgment of Gibson LI. 19. Ibid at 188. 20. Ibid.

Protecting women who provide security etc for debts 371

financial matters on a husband, cohabitee or child as presumptively subject to undue influence. Moreover, the fact that a woman agreed to stand surety for a husband’s, cohabitee’s or child’s debts was treated as raising constructive notice for a creditor, although this might be overcome by the steps of holding a separate interview and recommending independent advice.2’ The significance of the distinction in O’Brien and Pi# between a surety contract and a joint loan contract may, however, be questioned- that is that a surety transaction is not, on its face, to the financial advantage of the surety whereas a joint loan contract is for the borrower. In O’Brien Mrs O’Brien’s interests may have been different from her husband’s, perhaps placing a higher priority on keeping the home, but it cannot be assumed that she had no interest in a loan made to a company whose business supported the family income. In Piff, on the other hand, the facts demonstrate that, even in the case of a joint loan contract, the woman may be only nominally a borrower with no real role in dealing with the money. The more important distinction between O’Brien and Piff may simply be that in Piff , given that the loan was ostensibly for the purchase of a holiday home rather than for Mr Pitt’s share purchases, there was nothing to indicate to the finance company that the loan was being obtained for his as opposed to their joint purposes.22

Important questions left open after O’Brien and Pirr are, first, to what extent courts would be prepared to impose standards as to independent advice, both in terms of independence and adequacy of the advice and, second, how they would deal with the situation of a woman who, after receiving independent advice which is negative, is still prepared to enter into a surety or joint loan contract. As to the first, there is no indication in the judgments as to whether and in what circum- stances the creditor would be responsible for advice which failed to overcome any undue influence, although clearly this was the purpose of the advice. As to the second, it is not clear whether a failure to accept negative advice would be taken as indicating the ongoing presence of undue influence or simply an independent and informed decision to enter into a highly risky contract. However, it appears that the House of Lords would be prepared to set aside the contract in some cases of a failure to accept negative advice. In O’Brien the potential for undue influence in the case of some women was acknowledged to exist, not only because of the trust and confidence they place in their husband, cohabitee or child in respect of financial matters, but because ‘the sexual and emotional ties between the parties provide a ready weapon for undue influence: a wife’s true wishes can easily be overborne because of her fear of destroying or damaging the wider relationship between her and her husband if she opposes his wishes’.u The reasoning implies that, if the response of a woman is to reject negative advice, that may, together with other circumstances, be taken as being ‘further facts’

21. The aim being to ‘ hold the balance fairly between the vulnerability of the woman and the ‘ practical problems of fmancial institutions asked to accept a ... surety obligation’: ibid at 197. 22. See also Goode Durrunt v Biddulph [1994] 2 FLR 551 where the fact that a joint loan contract ostensibly for the purposes of the family business was ‘manifestly dis- advantageous’ to the wife (taking into account her minimal interest in the company for which the loan facility was obtained, the substantial security she was offering by way of her share in the matrimonial home, and the husband’s dominant role as the instigator in seeking and obtaining the loan from the bank), was treated as a basis for applying the 0 ’Brien standards. 23. Above n 1 at 190-191.

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which put the creditor on notice that undue influence is probable rather than merely possible. In such circumstances the creditor’s obligation may be not to enter into the contract.

The post-O’Brien cases may be seen as attempts by later English courts to resolve to some degree the first question of the standards expected of advice, and responsibility for meeting those standards. Massey v Midland Bank PP4 is an example. It concerned a business woman who granted a mortgage over her house to secure an overdraft facility in favour of a company owned by her boyfriend who was not even a cohabitee although he had fathered two children by her. She was interviewed by a bank officer, but in the presence of Mr Potts, and was instructed to obtain independent legal advice before the bank would agree to the charge. Nevertheless, the solicitor was appointed by Mr Potts. The solicitor was satisfied that Miss Massey understood the charge and gave it ‘willingly’,2s but was unaware that Mr Potts had misrepresented the financial position of his company and that an earlier charge in favour of Lloyds Bank (in respect of another business venture of Mr Potts) would be redeemed. The Court of Appeal treated the case as subject to the principles set out in Barclays Bank PIC v O’Brien on the basis that Miss Massey had been in a ‘stable sexual and emotional relationship’ with her boyfriend and had children by him.26 However, Steyn LI also said that the ‘guidance’ offered by the House of Lords ‘should not be mechanically applied’, even as to future cases. If the objective of independent advice is apparently realised, the fact that there was not a separate interview between the creditor’s representative and the surety is not fatal to the creditor’s case.” The creditor is also not obliged to stipulate the nature and extent of independent advice. It can be assumed that the solicitor would act honestly and give proper advice. It is also for the solicitor to discuss with the woman what further advice (presumably including financial advice in this case) she ought to obtain.28

In Banco Exterior Internacional v Mann29 there was even more clearly an issue as to the independence of the legal advice. The bank had merely required that the nature of the charge being entered into by the wife in favour of her husband’s business, secured over the matrimonial home, should be explained to her by her solicitor. The husband appointed the family solicitor who met with Mrs Mann in the husband’s presence and explained the nature and effect of the declaration, certifying that he had done so, even though in the interview Mrs Mann said that she felt she had ‘little or no choice’ but to sign the document.M Although it had been held at first instance that ‘a presumption of undue influence of Mr Mann over Mrs Mann in relation to the declaration arose and had not been rebutted’:’ the Court of Appeal held that the creditor was relieved of any constructive notice. The essence of O’Brien was that ‘the creditor should take reasonable steps to ensure in so far as he can that the undue influence of the husband is counteracted by ensuring that the wife is aware of the consequences

24. Massey v Midland Bankplc [ 19951 1 All ER 929. 25. Ibid at 935 per Steyn W. 26. Ibid at 933. 27. Ibid at 934. 28. Ibid at 934-935. 29. Banco Exterior Internacional v Mann [ 19951 1 All ER 936. 30. b i d at 946 per Morritt W. 31. Ibid at 940.

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of her entering into the proposed transaction for the benefit of the husband’.32 It is for the solicitor to consider whether ‘he is able to do so without any conflicting duty or intere~t’.’~ The creditor may also assume that the solicitor would make clear the extent of the obligations being incurred and that there is no obligation to sign if the wife did not wish to undertake the risk.%

The post-O’Brien cases can be seen as offering only limited protection as against creditors to women who stand surety or otherwise provide security with respect to their husband’s or partner’s debts but, on the other hand, expand the scope of protection vis-B-vis those who take it upon themselves to provide independent advice. The O’Brien standards were treated as merely offering guidance as to best practice rather than imposing absolute obligations, the courts taking the view that, if applied rigidly, the standards may impose costly and unnecessary constraints with respect to lending. Post-Mussey and Munn, there are now at least two ways in which a creditor can avoid constructive notice of undue influence. That is, first, explaining the nature and extent of the obligation in a separate interview and urging that independent legal advice be obtained (the O’Brien guidelines), or, second, simply requiring that independent legal advice be obtained before entering into the contract. The second option does not allow the choice of whether or not to obtain the advice and, provided the advice given is sufficiently independent (in the sense of not involving any conflicting duty or interest) and adequate (including recommending or requiring further financial advice, where necessary), should equally ensure that the woman understands the nature and extent of the obligation and undertakes it willingly. The fact that a solicitor may not have provided independent and adequate advice was treated as a matter between the solicitor and the client ~oncerned,3~Steyn W suggesting in Mussey that also to require the bank to monitor the advice would be to fail ‘to strike a fair balance between the need to protect wives (and others in a like position) whose judgmental capacity was impaired and the need to avoid unnecessary impediments to using the matrimonial home as security’.%

A similar approach in policy terms can be seen in the Australian and New Zealand cases, even though the reasoning is quite different and greater reliance is placed on the unconscionability doctrine than the doctrine of undue influence?’

32. Ibid at 943-944 with reference to the Bank of Bar& v Shah [1988] 3 All ER 24 holding that there is no obligation of a creditor to ensure that the surety received entirely independent advice, for it was entitled to assume (in the absence of clear indications to the contrary) ‘ that the solicitor who did advise was honest and competent’. 33. b i d at 944. Note that Hobhouse J dissented on this issue, commenting that the bank’s approach in this case (in requiring her solicitor to provide the advice) ‘ left open precisely the position that materialised’: ibid at 948. 34. Ibid at 944 per Morritt W. 35. Note the apparently conflicting result in TSB Bunk plc v Cumfield [ 19951 1 All ER 951 where the fact that a creditor had required independent advice but it was not given was treated as fiiing the creditor with notice of the undue influence, notwithstanding that ‘ It has not been suggested that the plaintiff was, at the material time, aware of the failure of the solicitors to fulfil their duties’: ibid at 954. The Court of Appeal referred to Mmsey, which postdated the trial court’s fmding of constructive notice, but said ‘ However the point has not been taken in this court and I say no more about it’: ibid. 36. Ibid at 934 (emphasis added). 37. For a general discussion of the Australian and New Zealand law see, for instance, Chen Wishart UnconrcionableBargains (Butterworths, 1989); Richardson ‘Contract Law

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A leading Australian case is Akim v NationalAustralia Bank.” The case involved a guarantee contract entered into by Mrs Akins, secured over the matrimonial home (in her name for business reasons) for the benefit of a loan facility to her husband’s company. At the time the security was called up the mamage had ended, with allegations of physical abuse. Mrs Akins claimed that her husband had mis- represented the financial position of the company, but the case centred around her second claim of unconscionability in relation to the bank. The New South Wales Court of Appeal held that the unconscionability doctrine is sufficient to protect the interests of wives who stand surety for a husband’s debts.39 Consistent with the Australian authorities, a ‘special disability’ must be established,@ although broadly defined to include ‘poverty or need of any kind, sickness, age, sex, infirmity of body or mind, drunkenness, illiteracy or lack of education, lack of assistance or explanation where assistance or explanation is needed’ which places one party at a serious disadvantage?’ A creditor may have constructive notice of a wife’s special disability in cases where she enters into a guarantee contract with respect to her husband’s debts if it‘takes no steps to ensure that the wife understands the responsibility and liability that she is undertaking, or that she is independently advised’>* However, a creditor need not necessarily suggest or require that independent advice be obtained. It may in some cases be sufficient that the creditor takes other steps to ensure that the wife understands the responsibility and liability that she is ~ndertaking4~ - as in this case where the bank officers had explained the terms of the contract to Mrs Akins in a separate interview.44 This, coupled with the fact that there was little evidence according to the court of a special disability since Mrs Akins, although a housewife at the time of the guarantee with no involvement in her husband’s business, was a competent woman who had pre- viously worked as a nurse and appeared to understand and enter into the contract as a matter of course, resulted in a finding of no uncon~cionability.~~

Gough v Commonwealth Bank ofAustralia,- a case decided under the New South Wales Contracts Review Act 1980, concerned a woman who, unlike Mrs

and Distributive Justice Revisited’ (1990) 10 Legal Studies 258; and Law Commission, Unfair Contracts (Preliminary Paper No 11, 1990); Duggan ‘Trade Practices Act 1974 (Cth), Section 52A and the Law of Unjust Contracts’ (1991) 13 Sydney Law Review 138; Otto ‘Equity’s Conscience and Women’s Inequality’ (1992) 18 Melbourne University Law Review 808; Sneddon, ‘ Unfair Conduct in Taking Guarantees and the Role of Independent Advice’ (1992) University ofNew South Law Journal 302; and Richardson ‘The Utilitarian-Economic Model of Contractual Obligation: Unconscionability at the Frontier’ (1995) 20 Melbourne University Law Review 481. 38. Akins v National Australia Bank (1994) 34 NSWLR 155. 39. Ibid at 171 p e r Clarke JA treating the earlier Australian High Court authority of Yer&ey vJones above n 5 as superseded. See also National Australia Bank v Garcia (1996) ASC 56-354 and Teachers Health Pty Ltd v Wynne (1996) ASC 56-356. 40. See Commercial Bank of Australia v Amadio (1983) 15 1 CLR 447. 41. Commercial Bank ofAustralia v Amadio per Deane J at 474; Blomley v Ryan (1956) 99 CLR 362 per Fullagar J at 405. 42. Akins v NationalAustralia Bank above n 38 per Clarke JA at 171-172. 43. Ibid at 173. 44. Ibid (rejecting the argument that the presence of children at the interview had distracted Mrs Akins). 45. Ibid at 171. See similarly the recent case of NationalAustralia Bank v Garcia above n 39. 46. Gough v Commonwealth Bank ofAustralia (1994) ASC 56-270.

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Akins, was not an educated professional but someone with limited education and, by her own account,‘almost no understanding of matters of business’ in which she was entirely dependent on her husband. Nevertheless there were other factors in this case which led the court to conclude there was no basis for imputing constructive knowledge to the bank of any disability she may have suffered. In particular, Mrs Gough was a 50% shareholder and ostensibly an employee in the company in respect of which the joint loan was obtained as well as a director. She was advised, although in the presence of her husband, by a bank officer as to the extent of her liability under the mortgage including that default would lead to the sale of her home. The Court of Appeal held that, although the terms of the Contracts Review Act allow a surety or loan contract to be set aside without reference to knowledge of the creditor, a court should be reluctant to do so if there is no basis even for constructive kn~wledge.~’ If there is clear evidence of a special disability, the bank’s duty may be to require independent legal advice.48 In other cases it may be sufficient that the terms and significance of the contract are explained by a bank officer - as in Gough where, to all intents and purposes, Mrs Gough had an active and informed role in the company.@

Finally, in the New Zealand case of Contractors Bonding Ltd v Snee5’ constructive notice was again the central issue. Even though Mrs Snee was dependent on her eldest son in business matters and subject to his undue influence in providing a mortgage over her house as security for a loan to his company,51 and also suffered from a special disability for the purposes of the uncon- scionability doctrine, due to her mental incompetence and advanced state of a lc~hol i sm,~~ there was held to be no basis for constructive knowledge on the part of the finance company which never dealt with her personally and merely sent the documents to the company on the assumption that its lawyers would provide her with independent and adequate advice.53 Although her own lawyer ultimately received the documents and advised her not to execute the mortgage, Mrs Snee insisted on signing, saying that she had‘absolute faith’ in her son, and the lawyer merely certified that he had provided the necessary advice. The Court of Appeal held that was sufficient from the creditor’s point of view who had no

47. Ibid at 58,855 per Mahoney JA. 48. Ibid at 58,854. 49. Ibid at 58,849. Kirby P dissented on the basis that Mrs Gough’s evidence that she went along with the decisions made by her husband and signed blank tax forms provided by the accountant indicating her status as a company employee, should be accepted - and that there was sufficient evidence available to the bank to indicate that the business was essentially her husband’s and that because she lived with him ‘she was necessarily susceptible to his requests’: ibid at 58,841. 50. Contractors Bonding Ltd v Snee [ 19921 2 NZLR 157. 51. b i d at 166 per Richardson J. 52. Ibid at 174. 53. See similarly the Court of Appeal in Tilialo v Contractors Bonding Ltd (1994) CA 50/3, unreported, where the fact that the company’s solicitor may have provided false assurances as to the effectiveness of a guarantee signed by the ex-wife of a husband who was managing director and part owner of the company for which the loan was obtained was held not to affect the finance company. The court also distinguished O’Brien on the basis that the transaction was on its face for the purposes of a company in which the appellant was a fifty percent shareholder and a director and moreover ‘to all appearances she was an independent woman engaged in a business with her former husband for a considerable time after the marriage had ended’.

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knowledge of the negative advice or Mrs Snee’s response to the advice -which, in any event, was based on limited information about the company which at the time the guarantee was entered into appeared financially viable, the default caused by the subsequent conduct of an errant employee.

The Australian and New Zealand courts implicitly rejected the O’Brien position that a woman may be presumptively subject to undue influence on the basis that she relies in all business matters on her husband, partner or child.” Rather they insisted that a special disability or undue influence must be, at least nominally, proved (even if in Snee this was relatively easy once the relationship between the mother and son was established). In Akins, Clarke JA in the New South Wales Court of Appeal expressed the view that a more protective approach towards women‘fails to pay regard to the advance in the status and education of women, the increasing role of women (including wives) in business and com- mercial affairs and the variety of personal relationships today’.ss The court also appeared to attach no overwhelming significance to the fact that a wife may be standing surety for her husband’s debts, from the point of view of establishing constructive notice, Clarke JA commenting that the business may benefit the family in a‘substantial’ In Snee, Richardson J also thought that a surety may be seen as benefiting from her ability to help her husband or son.‘There is nothing unusual in that’.s7 Further, the cases suggest that any constructive notice raised by the nature of the transaction and relationship between the parties may be overcome by the provision of competent and adequate advice, even if only provided by the borrower’s solicitor (as was intended in Snee) or by the bank or finance company (as in Akins and Gough). Nevertheless, as in O’Brien, the Australian and New Zealand courts saw themselves striking an appropriate balance between ‘the efficient carrying out of transactions of every day occ- urrence for the commercial institutions involved, and the legitimate protection of other parties from being unduly pressurised into executing the doc~ments ’ .~~

Ultimately, the courts’ attempt to balance interests provides the basis for reconciling the cases in policy terms. In Gough the court’s view was that the bank had no basis for constructive knowledge of any special disability because, not only was the transaction a joint loan rather than surety contract but the wife was apparently an equal and voluntary participant in the transaction. The case is therefore closest to Pitt, on its face. Snee was a case where the court could legitimately conclude that there was nothing to suggest to the finance company that the mother had entered into the contract under her son’s undue influence. From its point of view, the advice given to her was independent (even if it was assumed this could be provided through the borrower’s solicitors, it being treated as their responsibility to ensure there was no conflict of interest) and adequate (there being no record of her response to the advice given by her solicitor). The

54. Cf the New South Wales Supreme Court decision of Santow J in Burke vState Bank ofNew South Wales (1994) 37 NSWLR 53 following O’Brien with little reference to the Court of Appeal decision in Akins (handed down only two months earlier). 55. Contractors Bonding Ltd v Snee above n 50 at 168 per Richardson J, although with particular reference to Yerk-ey v Jones which was subsequently superseded by Barclays Bankplc v O’Brien: see above n 5. 56. Ibid at 174. 57. Contractors Bonding Ltd v Snee above, n 50 at 166. 58. bid.

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case is closest to Munn in terms of its facts. Finally, in Akins, the fact that the wife had a professional background and appeared educated and competent appeared to be at odds with the notion that she ‘relied’ on her husband in any sense of her conduct being beyond her contr01.5~ Like Mrs O’Brien she did not fit the pattern of the ‘down-trodden, uneducated wife, subservient to her husband and his wishes and unable to understand financial matters or to take practical business-like decisions’.60 Her decision to leave business decisions to her husband could be viewed as a rational choice to delegate responsibility to someone with a successful history in business affairs, rather than evidence of any disability or undue influence. In the circumstances, for the bank to provide a separate interview in which the terms and significance of the guarantee were explained and apparently understood and freely accepted can be regarded as sufficient in terms of the O’Brien objectives to satisfy its obligations. Also to urge or require independent advice in a case such as Akins would therefore simply have the effect of imposing unnecessary and costly constraints on lending.

Interestingly, Snee takes furthest the questions left unanswered in O’Brien and Pit? regarding the standards for advice and result if negative advice is rejected. In the Court of Appeal, Richardson J pointed to the fact that, in formulating his advice, the solicitor ‘did not have any or any adequate information as to the assets, liabilities and profitability of Marco Polo and the commercial value of any other guarantees which had been or might have been given to Contractors Bonding’ - suggesting that financial advice would be needed if the advice was to be considered adequate in cases of doubt as to the financial viability of the company or concern being guaranteed.6I Further, the comment that Mrs Snee ‘insisted on signing, no doubt for the reason ... that she had absolute faith in Mr Savage’:* suggests that, in order to overcome the undue influence, the advice would have had to be persuasive and compelling rather than merely informative. The con- clusion is consistent with the reasoning based on O’Brien that a woman who agrees to stand surety in the face of negative independent advice may still suffer from undue influence because of ‘the sexual and emotional ties between the parties’,63 in which case, if the creditor has the requisite knowledge, it should not enter into the contract.

3. ECONOMIC POLICIES

The following propositions may be derived from the above analysis of the cases: First, the starting point is that contracting is a practice which can generally

be assumed to be beneficial to the parties since otherwise they would not enter

59. Mrs Akins’ mistake may have been that she mounted her own defence in the case in a competent and articulate manner: see above n 38 at 157-159. It may also be noted that, although Mrs Akins might have had a potential argument as to physical abuse by her husband, this was not raised by her in her claim as to unconscionability vis-a-vis the bank. 60. See Barclays Bank PIC v O’Brien above n 3 and accompanying text. 61. Above n 50 at 166. See also, on this issue, the recent case of Teachers Health Pty Ltd v Wynne above, n 39. 62. bid. 63. See above n 23 and accompanying text.

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into a contract. In particular, the practice of lending for business purposes supported by a mortgage, guarantee or joint loan, using the family home as security, can generally be assumed to be beneficial not only for banks and finance companies but also for individuals who need capital in order to establish and maintain their business and their families who may rely on the business for the family income. As Lord Browne-Wilkinson said in O’Brien to take a different position would render ‘the wealth currently tied up in the matrimonial home ... economically sterile’, and would reduce the flow of loan capital to business enterprises.& Second, however, exceptions may be made to the practice where it can be assumed that a contract or class of contracts is not in the interests of at least one party - for instance, where a woman agrees to a surety or joint loan contract in respect of a husband’s, partner’s or child’s debts, placing her home at serious risk. Nevertheless, consistent with the view that contracting is a practice, exceptions may only be made where they would not unduly undermine the practice.

Third, the exceptions must themselves be defined in terms which are capable of being known and predicted by third parties. The categories of undue influence and unconscionability reduce to two circumstances. The first is where the terms and/or significance of the contract are not fully understood and are not capable of being understood in the circumstances of the contract - for instance a woman who does not understand that a surety or joint loan contract in respect of her husband’s, partner’s or child’s debts places her home at risk, or who does not appreciate the severity of the risk, where this is due to her lack of aptitude, experience or judgmental ability, or her reliance in business matters on her husband, partner or child. The second is where the terms and significance of the contract are understood or could be understood but a party does not exercise independent judgment as to the likely impact of the contract in terms of his or her preferences, or does not act on a judgment, and is incapable of doing otherwise in the circumstances of the contract -for instance a woman who feels compelled to enter into a surety or joint loan contract for her husband’s, partner’s or child’s purposes, placing her home at risk, because of her emotional and dependent relationship with the husband, partner or child. Knowledge or constructive knowledge - the probability of knowledge being obtained by further inquiries which, in themselves, would not be overly costly or intrusive - are the key to attributing responsibility to third parties such as a bank or finance company. The fact that a woman is, to the third party’s knowledge, entering into a surety or joint loan contract in respect of her husband’s, partner’s or child’s debts may in itself be a basis for constructive knowledge, in the absence of other evidence available to the third party indicating her competence and independence.

Fourth, independent or other advice may provide a means for overcoming the circumstances set out in proposition 3. However the advice serves a different function in both cases. In the case where the terms and/or significance of the contract are not or may not be understood, the role of advice is to ensure that the party understands the terms and/or significance of the contract, including its financial significance if there is doubt as to her understanding of the risks involved in a business supported by a surety orjoint loan contract. Even the third party may be able adequately to provide this advice - and if the third party is a bank or finance company it may indeed be in the best position to provide any

64. Barclays Bankplc v O’Brien above n 1 at above n 20.

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financial advice (although independent advice may also serve the same function). In the case where independent judgment is not being or may not be exercised or acted on, the role of advice, which to be safe must be independent advice (at least in the sense of being sufficiently impartial to avoid conflicting interests), is to persuade the party that her preferences are sufficiently important to be taken into account. It may be that no advice can effectively perform the second function adequately, in which case even negative independent advice may not necessarily prevent this basis for undue influence or unconscionability being invoked.

The first and second propositions are consistent with an economic model of contract law which is based on the premise that contracts in general increase welfare. The starting point for the analysis is that, by establishing a practice of contracts, participants are provided with a range of options for enhancing their welfare which would not exist without the practice.@ Further, without contract law there may be nothing to prevent one party, having raised expectations in another, refusing performance - leading to a breakdown in the trust and con- fidence which is central to any co-ordinated planning for the future.& There may be cases where a particular contract cannot be assumed to be for the benefit of all parties. However, this does not, in itself, provide a basis for exceptions to the binding force of a contract since the impact on the practice of permitting open-ended and therefore unpredictable exceptions is too important to permit considerations of welfare to be taken on a case-by-case basis. An economic judgment is made that the benefit of maintaining the practice outweighs the cost of allowing individual contracts which reduce at least one party’s welfare to be enforced. Nevertheless, this reasoning does not preclude exceptions whose scope and application can be known and predicted by those who participate in the practice. In these cases the practice is not undermined by the exceptions,6’which may actually serve to enhance the welfare promoting function of the practice.

A difficulty is identifying in clear and predictable terms the exceptions to deal with parties who enter into contracts which are not in their own interests and which cannot be explained in terms of, for instance, duress, misrepresentation or non-disclosure, where external constraints exist which limit the possibility of choices which promote a party’s welfare. The particular difficulty in assessing ‘irrationality’, where the focus is a party’s internal decision-making processes, is avoiding judgments which involve second-guessing the party’s preferences. A central tenet of traditional economic analysis is that preferences cannot be judged except perhaps in the most extreme and clear cut cases of, for instance, minors and mental incompetents who are incapable of forming stable and coherent preferences.68 Beyond such cases, it is argued that to attempt to judge preferences could only lead to uncertainty which would undermine the practice of contracts.69 Therefore, any judgments as to a party’s rationality must, apart from the limited categories of incapacity, be limited to considerations of the extent to which he or she may have been unable to judge the effectiveness of

65. Kronman and Posner The Economics ofContractLaw (1979) 2; Trebilcock The Limits of Freedom ofContmct (Harvard University Press, 1993) p 16. 66. See Richardson ‘The Utilitarian-Economic Model of Contractual Obligation: Unconscionability at the Frontier’ above n 37. 67. Ibid at 490491. 68. See, for instance, Trebilcock above n 65 at 151. 69. See Trebilcock above n 64 at 163.

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the contract as a means to furthering her or his preferences, which are taken as given. If this basis for judging rationality is accepted (and some economic analysts would not even go this far),” there may be exceptions made to the practice of contracts on the basis of irrationality provided that their scope and application can be known and predicted by those who participate. If the excep- tions are made and applied on a broad category basis then the terms of the category must be clear and predictable. If the exceptions operate at a more individual level, requiring analysis of the particular party’s conduct and circum- stances, then knowledge or constructive knowledge of the irrationality may be an explicit requirement in order to ensure that the exceptions operate in a clear and predictable manner.

On the above reasoning, the third proposition is also consistent with economic analysis, being essentially concerned with problems of irrationality which render a party incapable of judging the effectiveness of the contract in furthering his or her preferences or in exercising or acting on an independent judgment, rather than with the party’s preferences, as such. Moreover, the circumstances identified can be relatively certain and predictable in their operation when supplemented - as they are - with an explicit requirement of actual or constructive knowledge for the other party. The first identifies the category of ‘information processing disability’ which the Canadian law and economics scholar, Michael Trebilcock, has argued should be a basis for relief from a contractual obligation in his recent book TheLimits ofFreedom of Contract.” According to Trebilcock, the category covers cases where contracting parties, while theoretically sharing access to the relevant body of information about the contract subject-matter, have ‘sharply differential capacities to evaluate the implications of that information for their respective welfare’.R Although not specifically identified by Trebilcock in these terms, it clearly extends to the case where a woman’s reliance in business matters on a husband, partner or child is the cause of her disability. The second identifies a further category which may be termed ‘information utilisation disability’. The category extends the first category and applies on the basis that a party does not exercise or act on an independent judgment as to how his or her preferences will be affected by the contract and is not capable of doing An example is a woman whose disability arises out of an emotionally dependent relationship with her husband, partner or child whose interests are furthered by the contract. The term ‘disability’ is appropriate because the categories are limited to parties who had little or no control in the circumstances of the contract. In economic terms, there is no justification for extending them to parties who are capable of judging the effectiveness of the contract in terms of their preferences and acting on those preferences, but choose not to, whether because they delegate responsibility to

70. See, for instance, Posner Economic Analysis ofLaw (4th edn Little Brown & Co, 1992) p 116; Epstein ‘Unconscionability: A Critical Reappraisal’ (1975) 18 Journaf of Law and Economics 293. 71. Trebilcock above n 65 at 118,152 and see also Trebilcock ‘An Economic Approach to the Doctrine of Unconscionability’, Reiter and Swan (eds), Studies in Contract Law (Butterworths, 1980) p 379. 72. Trebilcockabove n 65 at 118 and see also Eisenberg ‘The Bargain Principle and Its Limits’ (1982) 95 Harvard Law Review 741. 73. See generally Richardson ‘The Utilitarian-Economic Model of Contractual Obli- gation: Unconscionability at the Frontier’ above n 37 at 494.

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another (ie a rational decision) or are careless (in which case they could have avoided the problem more cheaply than any third party).

Finally, the fourth proposition recognises that it may be efficient for parties who initially suffer from an information processing or utilisation disability to enter into contracts, if they have independent or other advice which is adequate to overcome their irrationality. But there are also limits to the effective function of advice. In particular, providing further explanation as to the terms and/or significance of the contract may not be adequate if the problem is an inability to exercise or act on independent judgment. In those cases the advice may need to take on a more persuasive character and must be independent of any interests of other parties to the transaction. There is also a question whether agreement to a contract in the face of negative independent advice should be assumed to represent a rational choice in the light of the decision-maker’s preferences to help her husband, partner or child, or may still be treated as evidence of irrationality on the basis that independent judgment is not being exercised or acted on. The economic answer which Trebilcock, for instance, provides is that, once appropriate advice is given that should be s~fficient.’~ The possibility that the woman’s preference is simply to help her husband, partner or child should not be questioned and the likelihood is that this is the case if negative advice is rejected. Yet, based on the cases, the answer would seem to be the opposite: that courts may still, in some circumstances, treat the contract as resulting from undue influence or unconscionable conduct. It is only by re- examining the economic analysis in the light of a more explicitly feminist perspective that an answer can be developed consistent with the approach indicated by the courts.

4. ECONOMIC ANALYSIS A N D THE ROLE OF WOMEN

Economic analysis assumes that women are to be treated no differently from men when it comes to assessing the binding force of their contracts. However, the cases indicate that in practice, because of their role in the family and their relationship with their husband, partner and/or children, women may find themselves subject to strong pressures to treat their individual preferences as unimportant or subsidiary to a broader preference of maintaining the family relationships. In the face of such pressures, a woman may feel her only choice is to submit to her husband’s, partner’s or child’s authority. Alternatively, if she acknowledges any preferences, these may simply be to help her husband, partner or child for the sake of maintaining the broader family relationship. Feminists such as Virginia Held have pointed out that the difficulty is that the standard of rationality adopted in economic analysis - that of the ‘rational economic man’, a self-interested individual without emotional connections to those he deals with in a contracting environment - may not be appropriate to the experiences of many women.7s This is particularly the case for women who are also wives, partners

74. See Trebilcock above n 71 at 408. 75. Held Feminist Morality: Transforming Culture, Society and Politics (University of Chicago Press, 1993) pp 194-195 and see also Hadfield ‘The Dilemma of Choice: A Feminist Perspective on The Limits of Freedom of Contract’, (1995) 33 Osgoode Hall Law Journal 337 at 338.

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or mothers with strong emotional bonds to a husband, partner or child who needs or desires financial - and to some extent perhaps moral and emotional -support by way of a mortgage, guarantee or joint loan contract, placing the woman’s home at risk. The conclusion for a feminist may be that, if a contract is entered into by a woman in such circumstances, rather than representing a self-interested and independent choice designed to promote her welfare, it merely represents another expression of the already existing imbalance of economic, social and political power within the family.76

For an economic analyst who acknowledges the insights that feminism offers, it is difficult to think of a choice made in circumstances where a woman’s interests are not being furthered as ‘rational’ in terms of the economic paradigm of rationality. This is not to deny that altruism may be rational where a choice is freely the result of love and affection, since then the altruist’s interests may be promoted by their actions. As Richard Posner has pointed out, ‘self-interest should not be confused with selfishness; the happiness (or for that matter the misery) of other people may be a part of one’s satisfaction^'.^^ The delegation of decision-making power may also be rational if made on the grounds of expediency, the agent in economic terms providing a vehicle for promoting the principal’s interests.78 But a choice cannot be treated as ‘rational’ in an economic sense where this is the only possible outcome in the context of a relationship of subservience and dependence. An analogy may be drawn with the choices made by a slave in the context of a relationship of slavery. John Stuart Mill argued in On Liberty that, even in the case of voluntary slavery, ‘[tlhe principle of freedom cannot require that [the slave] ... should be free not to be free’.mAlthough Mill saw a strong connection between liberty and welfare, he acknowledged that if freedom is abdicated in entering a relationship of slavery any choices made as a slave, being themselves unfree, cannot be assumed to promote the agent’s welfare.9’he same reasoning applies to women who abdicate their freedom to decide independently in their own interests in favour of a relationship with a husband, partner or child in which their interests are treated as unimportant or subsidiary to the broader family interests?’ A choice made in the context of such a relationship is not a free choice and nor can it be assumed to be a rational choice in the economic sense of promoting her welfare, judged independently from that

76. See West ‘Submission, Choice and Ethics: A Rejoinder to Judge Posner’ (1986) 99 Harvard Law Review 1451 at 1455; Hadfield above n 75. 77. Posner above n 70 at 4. 78. See, for instance, Easterbrook and Fixhel, The Economic Structure of Corporate Law (Harvard University Press, 1991) p 11. 79. Mill ‘On Liberty’ (1859), in Gray (ed), On Liberty and Other Essays (Oxford University Press, 1991) p 114. 80. Cf Trebilcock above n 65 at 162, arguing that Mill’s views on slavery are inconsistent with his liberal perspective, leading to ‘slippery slope’ arguments against his liberty principle. But the argument Mill makes is not that a person should be prohibited from entering into a slavery contract but that the slave should not subsequently be held to the slavery: ibid at 114. 81. See Mill ‘The Subjection of Women’ in Gray (ed), On Liberty and Other Essays above n 79, pp 506507.

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of her husband, partner or child.82Moreover, for the law to fail to acknowledge this can only serve to perpetuate relationships of power and control within the family to the detriment of women (in particular, those who suffer under such relationships).= In signalling an alternative approach to surety and joint loan contracts entered into by women for the purposes of a husband, partner or child, the courts have not rejected an economic approach to contracts but have accepted that their responsibility is to help promote a better society rather than merely accepting the worst features of the society we live in at the moment.@

The particular economic justification for holding a woman to a surety or joint loan contract for the purposes of a husband, partner or child are the interests of third parties who have no basis for actual or constructive knowledge of the woman’s inability to look after her own interests. Nevertheless, provided the dependent and subservient nature of a relationship between a woman and her husband, partner or child is apparent to those who deal with her - for instance, because she is prepared to sign a contract regardless of the advice she receives, and indicates that she feels compelled to do so, or that her only preference in any circumstances is to help her husband, partner or child - and provided their obligations are clearly to convey this information to third parties, there is a basis for at least constructive knowledge. Therefore, there may be justifications for questioning even a woman’s preferences which can be accommodated within a more radical economic analysis which acknowledges the insights which fem- inism offers. Perhaps, in terms of formal economic categories of irrationality, the appropriate classification here is one of incapacity on the basis that the woman’s ability to form coherent preferences is in question.85 But the cases have shown that it may be doctrinally simpler to accommodate such cases under undue influence and unconscionability doctrines since the issue initially arises as one of information processing or utilisation disability. On the other hand, even such qualifications, aimed at facilitating third party

knowledge, to the ability of women to free themselves from relationships of subservience and dependence may be considered too strict for many feminists.% Certainly, it may be seen as demeaning and even inappropriate for a woman to

82. See similarly for a feminist position, West in ‘Taking Preferences Seriously’ (1990) 64 TuluneLaw Review 659,675 but cf Trebilcock above n 65 at 160 arguing that to assess such preferences is inherently ‘patronising and authoritarian’. However this argument does not respond to the point that a woman’s preferences may themselves be viewed as not free because of the particular family or social context in which they are exercised. The question then is which paternalism is worse, that of an interested party (for instance, a husband, partner or child) or that of a disinterested third party (the court). 83. See Mill above n 81 at 507 ‘laws and institutions require to be adapted, not to good men, but to bad’. 84. See similarly, for a feminist perspective on the role of the courts (and legislature) in promoting a better society, West above n 76 at 1455-1456. 85. See Trebilcock above n 65 at n 68 (although himself limiting the category of ‘cognitive incapacity’ to minors and mental incompetents and treating endogenous and ‘bad’ preferences as beyond the scope of economic analysis). 86. See, for instance, Held above n 75 at 280 and West n 74 at 675-676, arguing for a reduced scope for the binding force of contracts with respect to women, and further Radin ‘Market Inalienability’ (1987) 100 HatvurdLaw Review 1849.

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have to be classified as ‘irrational’ according to what is, after all, a male gendered standard, and to be required to go to court before generally male judges who may be highly sceptical of her story in an attempt to free herself from a contra~t.~’ The analysis of the cases also shows that a woman may face great difficulties in proving unconscionability or undue influence, given the hurdle of establishing constructive knowledge on the part of a third party who seeks to enforce the contract and the lack of a general obligation on the part of creditors to monitor the independence and adequacy of advice. Perhaps, given that women who enter into surety or loan contracts in respect of their husband’s, partner’s or child’s debts have been identified as particularly vulnerable, in practice, to undue influence or unconscionability, the appropriate response would be to adopt a broader category of contract basis for protecting their interests.@Such a category, if sufficiently clearly defined to identify its limits, need not undermine the practice of contracts. In economic terms it may be defensible regardless of whether the purpose of the exception is to promote economic efficiency or some broader notion of equality. Nevertheless, once the focus moves to the broader level of the category of contract, the question also becomes whether a limitation to women entering into such contracts can be justified. Given that cases of undue influence and unconscionability involving surety and joint loan contracts entered into for the benefit of family members (in a loose sense) have extended also, on occasion, to male parents, partners and parents who are vulnerable to the wishes of those they deeply care about,s9 the appropriate basis for intervention may simply be the category or type of contract, without reference to the category of person, if sufficiently identifiable to provide a clear and predictable basis for exception from the practice of contracts without a separate safeguard of actual or constructive knowledge.

However, before such a step is taken, an economic analyst may legitimately argue that there needs to be more empirical information obtained about the extent to which surety and joint loan contracts impair the interests of those who enter into them - which, in itself, requires some basis for assessing what their interests might be if the inquiry is not limited to the categories of information processing and utilisation disability discussed above. It is questionable whether there is any basis for making such an empirical judgment at this stage.gOThe fraction of cases

87. The New South Wales Court of Appeal’s response to Mrs Akin and Mrs Gough may be seen by a feminist as an example of a preference for the (male) bank officer’s version of the story over the woman’s story. See also, with respect to the earlier cases o f A W y supra note 16 (whose legal rulings are now superseded by Pitt) and Amadio above n 40, Otto above n 37 at 816 and 822. 88. As has been suggested by some feminists regarding the abandonment by Australian courts of the Yerkey vJones ‘special equity’ in favour of wife-sureties: see, for instance, Fehlberg ‘Surety Wives and Australian Law: Akins v NationalAustralia Bank‘ (1996) 11 in Banking and Finance Law Review 423 (although see below nn 94-96 for other recommendations). 89. Familiar examples are Lloyds Bank v Bundy [ 19751 QB 326 (a father guaranteeing his son’s business debts);Avon Finance Co Ltd vBridger (referred to in O’Brien at above n 12); Commercial Bank ofAustralia Ltd v Amadio above n 40 (parents guaranteeing their son’s business debts). 90. For instance, two surveys carried out in England and Australia, respectively, involved sample interview groups of less than 50 (in the fust case predominantly those who had

Protecting women who provide security etc for debts 385

that get to court are only a tiny subset of those entered into. They also represent a period of a great surge of largely unregulated business activity followed by the stack market crash and the failure of many businesses. It is difficult to assess fully how representative such cases are for the 1990’s when as a result of O’Brien and other cases, lending practices are more cautious and those who enter into surety contracts are regularly advised to obtain independent legal advice?’ In turn, the advice provided by solicitors is likely to become increasingly rigorous due to concerns about the possibility of negligence liability for advisers.% Without a more comprehensive and rigorous study of the benefits and losses arising from current lending practices, the economic justification for stringent legislative controls, for instance prohibiting surety and joint loan contracts using the home as security, must be q ~ e s t i o n e d . ~ ~ The message of 0 ’Brien and the other cases is that such restrictions would have the effect of rendering the wealth tied up in the home ‘economically sterile’, excluding those who could benefit from the practice of contracts - including not only those whose business depends on the support of banks and other financial institutions, but family members who depend on the business for their personal welfare. To the extent that a significant and continuing problem can be identified with further empirical research, a more modest solution may be to require the O’Brien standards to be applied for every surety or joint loan transaction for business purposes in which the surety’s or

suffered problems in relation to surety contracts in the pre-O’Brien period): see Fehlberg Securities and Guarantees: Another Perspective on Money and Marriage (unpublished DPhil thesis, Wolfson College, Oxford, 1995); Singh For Love Not Money: Women, Information and the Family Business (Consumer Advocacy and Financial Counselling Association of Victoria, 1995). The second study also contained results of a questionnaire based s w e y of 160 women engaged in a family business which indicated that seven out of ten women were ‘completely’ satisfied, and two out of ten were ‘somewhat’ satisfied with the information they had (even though one in three women did not ‘actively and persistently’ seek or receive detailed information when signing documents which have legal and/or financial implications). Although very useful in indicating the risks of surety contracts and attitudes of women, the surveys do not purport to provide comprehensive evidence as to the costs versus benefits of surety and joint loan contracts as a general practice. 91. As indicated by English and Australian Banking Codes: see Good Banking - Code of Banking Practice (2nd edn, 1994), paragraph 14; Australian Bankers’ Association, Code ofBanhg Practice (1994), paragraph 17; New Zealand Bankers’ Association Draft Code of Banking Practice (Discussion Document, October 1995, paragraph 9.4). 92. In Australia, where solicitor liability has became a recognised risk following Amadio above n 40, the Victorian Solicitors Liability Committee, LearningfiomAmadio (1995), specifies standards for legal advice given to prospective sureties: see Richardson, ‘ The Utilitarian-Economic Model of Contractual Obligation: Unconscionability at the Frontier’ above n 37 at 499 and further Sneddon ‘Lenders and Independent Solicitors’ Certificates for Guarantors and Borrowers: Risk Minimisation or Loss Sharing’ (1996) %Australian Business Law Review 5. 93. Note that the Fehlberg survey which included 22 surety spouses (20 women and 2 men) indicated that although the large majority of those surveyed suffered problems in relation to their contracts, often feeling inadequately advised, informed and free in undertaking their commitments, most (13/22) would still prefer to maintain their flemiility to enter into surety arrangements in preference to legislative constraints: Fehlberg above n 90 at 382.

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borrower’s home is used as security.94 Alternatively, the answer may be to require independent legal and fmancial advice with an obligation for creditors to monitor the advice and the response given to it.% A practical step may also be to provide a broad educational programme highlighting the risks and traps of security provision through surety and joint loan contracts, funded by banks and other creditor institutions.% But, in the end, the question remains whether the benefits of providing some increased protection to sureties and borrowers is worth the increased and possibly prohibitive costs of lending.

6. CONCLUSION

It has been argued that women who enter into surety or joint loan contracts for the benefit of a husband, partner or child may need protection under undue influence or unconscionability doctrines in order to ensure that their interests are conserved. An economic perspective on contract law permits the possibility of exceptions being made to the binding force of contracts when these can be identified in clear and predictable terms. Unconscionability and undue influence doctrines can satisfy these requirements once the scope and application of these doctrines is addressed in a principled way. The recent cases may be drawn on to suggest principles which, to some extent, serve the interests of women without undermining the practice of contracts. Beyond that, in the absence of more substantial empirical evidence that surety and joint loan contracts, fail to benefit women and others who enter into them, legislative controls that restrict or effectively limit their ability to enter into such contracts may ultimately do more harm than good.

94. See Fehlberg above n 88 at 436437 with respect to surety contracts (although, query in the light of the discussion in this article whether the standards should extend more broadly to joint loan contracts with an equivalent purpose). 95. Cf the recommendations of the Australian Law Reform Commission with respect to guarantee contracts: see ALRC, Equality Before the Law: Women’s Equality (1994) Report No 69, Recommendation 13.4 and 13.5 (suggesting that the bank should monitor by way of a separate interview in which the terms and significance of the guarantee are again explained and the bank satisfies itself ‘on reasonable grounds’ that the guarantor understands and freely consents - although query whether the duplication of functions would be efficient). Fehlberg endorses the recommendations: above n 90 at 384. %. See Fehlberg above n 90 at 385 (again only with respect to surety contracts), leaving it open as to whether the programme should be funded through banks or from some other source. On the basis that costs of lending should be internalised to those who stand to benefit, the economic answer would be that banks and other institutional creditors should provide the programme.