Baira v RHG Mortgage Corporation Limited
[2012] NSWCA 387
•03 December 2012
Court of Appeal
New South Wales
Case Title: Baira v RHG Mortgage Corporation Limited Medium Neutral Citation: [2012] NSWCA 387 Hearing Date(s): 11 April 2012 Decision Date: 03 December 2012 Before: Bathurst CJ at [1];
Basten JA at [207];
Tobias AJA at [367]Decision: A With respect to the proceedings brought by RHG Mortgage Corporation Ltd against Rosa Baira, being matter 2008/285539 in the Common Law Division:
(1) Set aside orders 1-8; and orders 13, 17 and 18, to the extent that they order that Rosa Baira pay costs, being orders made in the Common Law Division on 17 June 2011.
(2) Order that there be a retrial of the claim by RHG Mortgage Corporation Ltd against Rosa Baira and of the first cross-claim (brought by Rosa Baira).
(3) Order the first, second and third respondents to pay the costs of the first appellant (Rosa Baira) in this Court.
B With respect to the proceedings brought by RHG Mortgage Corporation Ltd against Rosario Ianni and Domenica Ianni being matter 2008/284857 in the Common Law Division:
(1) Set aside orders 1-8; and orders 13, 17 and 18 to the extent that they order that Rosario and Domenica Ianni pay costs, being orders made in the Common Law Division on 17 June 2011.
(2) Order that there be a retrial of the claim by RHG Mortgage Corporation Ltd against Rosario and Domenica Ianni and of the first cross-claim (brought by Rosario and Domenica Ianni).
(3) Order that the first, second and third respondents pay the costs of the second and third appellants (Rosario and Domenica Ianni) in this Court.
[Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.]
Catchwords: APPEAL - civil - credibility - trial judge rejected evidence of plaintiffs - plaintiffs sought to challenge credibility findings on appeal - whether findings contrary to compelling inferences or glaringly improbable - whether trial judge failed to use or palpably misused his advantage in hearing the relevant witnesses - whether distinction between challenge to credibility and challenge to inferences from facts admitted or found - discussion of Fox v Percy [2003] HCA 22; 214 CLR 118; Devries v Australian National Railways Commission [1993] HCA 78; 177 CLR 472; Abalos Australian Postal Commission [1990] HCA 97; 171 CLR 167
CONTRACT - capacity - mental disability - borrower alleged incapacity at the time of contract formation - whether trial judge considered allegations - whether retrial should be ordered
CONTRACT - harsh or unjust - third-party guarantors became primary borrowers under loan restructuring - borrowers denied meeting with mortgage broker - whether borrowers aware of change of status - whether borrowers obtained benefit as members of family engaged in loan restructuring - Australian Securities and Investments Commission Act 2001 (Cth), ss 12CA and 12CB; Trade Practices Act 1974 (Cth), s 51AC; Contracts Review Act 1980 (NSW)Legislation Cited: Australian Securities and Investments Commission Act 2001 (Cth), ss 12CA, 12CB
Contracts Review Act 1980 (NSW), ss 7, 9
Trade Practices Act 1974 (Cth), s 51ACCases Cited: Abalos v Australian Postal Commission [1990] HCA 97; 171 CLR 167
Brunskill v Sovereign Marine and General Insurance Co Limited [1985] HCA 61; 59 ALJR 842; 62 ALR 53
Commercial Bank of Australia v Amadio [1983] HCA 14; 151 CLR 447
Coulton v Holcombe [1986] HCA 33; 162 CLR 1
Davey v Challenger Managed Investments Ltd [2003] NSWCA 172
Davis v Veigel [2011] NSWCA 170
Devries v Australian National Railways Commission [1993] HCA 78; 177 CLR 472
Fox v Percy [2003] HCA 22; 214 CLR 118
Kowalczuk v Accom Finance Pty Ltd [2008] NSWCA 343; 77 NSWLR 205
McCartney & Ors v Orica Investments Pty Ltd & Ors [2011] NSWCA 337
Perpetual Trustee Company Ltd v Khoshaba [2006] NSWCA 41; 14 BPR 26,639
Pettitt v Dunkley [1971] 1 NSWLR 376
RHG Mortgage Corp Ltd v Baira; RHG Mortgage Corp Ltd v Ianni [2011] NSWSC 520
RHG Mortgage Corporation Ltd v Rosa (aka Rosa Fioavanti) Baira; RHG Mortgage Corporation Ltd v Rosario Ianni [2011] NSWSC 580
Shimokawa v Lewis [2009] NSWCA 266
State Rail Authority (NSW) v Earthline Constructions Pty Limited (in liq) [1999] HCA 3; 160 ALR 588
Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389; 15 BPR 29,699
Warren v Coombes (1979) 142 CLR 531
Xu v Jinhong Design & Constructions Pty Ltd [2011] NSWCA 277Category: Principal judgment Parties: Rosa Baira (First Appellant)
Rosario Ianni (Second Appellant)
Domenica Ianni (Third Appellant)
RHG Mortgage Corporation Limited (First Respondent)
Australian Business & Mortgage Finance Solutions Pty Ltd (Second Respondent)
Peter Famularo (Third Respondent)
Sandra Ianni (Fourth Respondent)Representation - Counsel: Counsel:
Mr G C Lindsay SC/Mr P G Bolster (First Appellant)
Mr B Coles QC/Mr P Newton (First Respondent)
Third and Fourth respondents self-represented- Solicitors: Solicitors:
Frank Legal (Appellants)
Kemp Strang (First Respondent)
Second and Third Respondents Self represented
Downeys Lawyers (Fourth Respondent)File Number(s): CA 2008/284857 Decision Under Appeal - Court / Tribunal: Supreme Court - Before: Grove AJ - Citation: [2011] NSWSC 520; [2011] NSWSC 580 - Court File Number(s): SC: 2008/285539 and 2008/284857
HEADNOTE
[This headnote is not to be read as part of the judgment]
Joe and Sandra Ianni (Mr and Mrs Ianni junior) owned residential properties in Castle Hill, Milsons Point and Pyrmont. They also operated a number of businesses through Jencon Australia Pty Ltd (Jencon). St George Bank held mortgages over all three residential properties, to secure borrowings by Joe, Sandra and Jencon.
Sandra's mother, Rosa Baira, owned a residential property in Marrickville. Joe's parents, Rosario and Domenica Ianni (Mr and Mrs Ianni senior), owned a residential property in Drummoyne. To assist Mr and Mrs Ianni junior and Jencon, Mrs Baira and Mr and Mrs Ianni senior had provided third party guarantees to St George Bank, secured by mortgages over their respective properties.
In 2005, Mrs Baira and Mr and Mrs Ianni senior granted RHG Mortgage Corporation Ltd (RHG) mortgages over their respective properties, as principal borrowers. Peter Famularo, the principal of Australian Business & Mortgage Finance Solutions Pty Ltd, prepared their RHG loan applications. The moneys advanced under the RHG loans were applied to secure the release of the St George Bank mortgages over the Pyrmont, Marrickville and Drummoyne properties. The Pyrmont property was then used as security to finance the purchase by Mr and Mrs Ianni junior of a property in Dural. Mr Famularo prepared their loan application.
As a consequence of default in the payment of the loans secured by their mortgages, RHG commenced proceedings against Mrs Baira and Mr and Mrs Ianni senior seeking orders for possession of their respective properties. In their defences, Mrs Baira and Mr and Mrs Ianni senior pleaded that the contracts were unjust pursuant to s 7 of the Contracts Review Act 1980 (NSW), and that RHG knew or ought to have known that the documents were executed under the influence of Mr Ianni junior. Among a number of cross-claims, Mrs Baira and Mr and Mrs Ianni senior cross-claimed against Mr Famularo.
Mrs Baira and Mr and Mrs Ianni senior alleged that they had never met Mr Famularo. There was also an issue as to the provenance of a sham contract of sale for the Dural property, in which the details for Mr and Mrs Ianni junior as purchasers had been replaced with those of Mr and Mrs Ianni senior. Similarly, questions arose in relation to a "Snapshot of Account" for the mortgage account that Mr and Mrs Ianni junior held with St George Bank, which appeared to suggest that Mr and Mrs Ianni senior were the account holders. Finally, there was evidence that Mrs Ianni senior had been incapable of managing her affairs.
On 3 June 2011 Grove AJ found in favour of RHG. In particular, he disbelieved the evidence of Mrs Baira and Mr and Mrs Ianni senior that they had not met with Mr Famularo. His Honour made orders for possession of the Marrickville and Drummoyne properties and dismissed the cross-claims against Mr Famularo.
Mrs Baira and Mr and Mrs Ianni senior appealed to this Court. The issues for determination on appeal were whether:
(i) this Court should interfere with the trial judge's credit findings;
(ii) if so, whether Mr and Mrs Ianni senior's appeal should be allowed, and
(iii) Mrs Baira's appeal should be allowed.The Court held, allowing the appeals:
In relation to (i)
(per Bathurst CJ)1. Findings of a trial judge based on credit can only be overturned if the appellate court is satisfied that the findings are glaringly improbable or contrary to compelling inferences, or if it can be shown that the judge has palpably misused his advantage or acted on facts which were inconsistent with the evidence or glaringly improbable: [173]
Fox v Percy [2003] HCA 22; 214 CLR 118; Devries v Australian National Railways Commission [1993] HCA 78; 177 CLR 472; Abalos v Australian Postal Commission [1990] HCA 47; 171 CLR 167 referred to.
2. If it can be shown that in reaching his conclusion the primary judge failed to deal in a satisfactory way with substantial evidence necessary to be dealt with before the relevant finding could be made, an appellate court on a rehearing is entitled to order a retrial: [175]
Fox v Percy [2003] HCA 22; 214 CLR 118; State Rail Authority (NSW) v Earthline Constructions Pty Ltd (in liq) [1999] HCA 3; 160 ALR 588 applied.
3. Before reaching his conclusion on credit, the primary judge should have considered that the sham contract demonstrated that Mr Famularo was aware that Mr and Mrs Ianni senior's loan was obtained to facilitate the purchase of the Dural property, and that he knew that Mr and Mrs Ianni senior were not purchasing that property. Mr Famularo's denial of knowledge of these matters was glaringly improbable: [178]-[180]
4. The submission of the snapshot of account to RHG incorrectly suggested that it was Mr and Mrs Ianni senior's debt that was being refinanced and that $500,000 was to be used to purchase a property. The document demonstrated the improvident nature of the transaction, as the exposure of Mr and Mrs Ianni senior was increased and they changed from guarantors to principal borrowers: [184]
(per Basten JA)
5. The trial judge did not address a number of critical factors, including the implausibility of Mr and Mrs Ianni senior's RHG application and information that was missing from Mr Famularo's notes. While the trial judge was not required to explain every aspect of conflicting evidence, even on a critical issue, a failure to advert to a significant number of material issues and, without explanation, to reach conclusions which are apparently inconsistent with objectively determined circumstances, requires that the Court intervene with respect to Mr and Mrs Ianni senior's claim against Mr Famularo: [272]-[286]
6. The trial judge's reasoning for rejecting the evidence of Mrs Baira and accepting Mr Famularo's evidence that he met her were unsatisfactory. It was undertaken prior to the necessary analysis of Mr Famularo's evidence, and was made without adequate findings as to whether Mrs Baira had provided false information in support of her loan application. Further, Mr Famularo's file note of the meeting was inherently implausible: [315]-[317], [321], [328]-[329]
(per Tobias AJA, dissenting)
7. In a case like the present where the issue is essentially one of credit, as opposed to where the appellate court is invited to draw inferences from facts admitted or found by the trial judge, the question is whether, in his or her credit findings, the trial judge has failed to use or palpably misused his or her advantage in hearing the relevant witnesses: [494]-[507]
Devries v Australian National Railways Commission [1993] HCA 78; 177 CLR 472; Abalos v Australian Postal Commission [1990] HCA 97; 171 CLR 167; Brunskill v Sovereign Marine and General Insurance Co Ltd [1985] HCA 61; 59 ALJR 842; Shimokawa v Lewis [2009] NSWCA 266; Davis v Veigel [2011] NSWCA 170; Xu v Jinhong Design & Constructions Pty Ltd [2011] NSWCA 277; McCartney v Orica Investments Pty Ltd [2011] NSWCA 337 discussed; Fox v Percy [2003] HCA 22; 214 CLR 118; Warren v Coombes [1979] HCA 9; 142 CLR 531 distinguished.
8. As it was never suggested to Mr Famularo that he was party to the creation of the sham contract document, it is not glaringly improbable or contrary to compelling inferences that he did not appreciate that it related to the Dural property: [554]
9. The inference cannot be drawn that, as Mr Famularo provided the sham contract to RHG, his credit was destroyed. There was no direct evidence as to his purpose in providing the document to RHG. There was also other evidence, such as the file notes, which supported the credibility of Mr Famularo on the issue of whether he met with the appellants: [554]-[555]
In relation to (ii)
(per Bathurst CJ)10. There were some matters which supported the conclusion of the trial judge independent of the assessment of the credit of Mr Ianni senior and Mr Famularo. However, those matters do not overcome the difficulties in approach of the trial judge. The orders of the primary judge in the Ianni proceedings should be set aside and a new trial of the proceedings and Mr and Mrs Ianni senior's cross claim should be ordered: [189]-[196]
(per Basten JA)
11. The trial judge did not consider Mrs Ianni senior's claims under the Contracts Review Act 1980 (NSW), or those based on unconscionability. The judgment in respect of her claim should be set aside on this ground: [244]
12. The orders for possession in relation to Mr and Mrs Ianni senior's property should be set aside because RHG had information indicating that the application was either flawed or fraudulent, and because RHG overrode its own lending guidelines: [290]-[303]
(per Tobias AJA, dissenting)
13. It was open to the trial judge to find that Mr and Mrs Ianni senior were aware that they would be principal borrowers and not merely guarantors in relation to the loan from RHG: [544]-[545]
14. The argument that Mr Famularo provided the Snapshot of Account to RHG to demonstrate Mr Ianni senior's ability to meet loan repayments must be rejected as not being the subject of any cross-examination of Mr Famularo to that effect: [553]
15. It was open to the trial judge to find that all of the transactions were part of consensual family arrangements and that the reality was that the documents that were signed were for the benefit of the general family prosperity: [546]-[547]
In relation to (iii)
(per Bathurst CJ)16. Dealt with in isolation from the Ianni proceedings, the primary judge's findings in relation to Mrs Baira's claim were not glaringly improbable or contrary to compelling inferences and did not demonstrate that his Honour had misused his advantage in seeing and observing the witnesses in question. However, as the cases of Mr and Mrs Ianni senior and Mrs Baira were heard together and the evidence in one was evidence in the other, it was incumbent on the primary judge to consider the Ianni transaction in evaluating the credit of Mr Famularo both in respect of that transaction and the transaction concerning Mrs Baira. His Honour failed to do this: [201]-[205]
(per Basten JA)
17. The orders for possession in relation to Mrs Baira's property should be set aside because of the material respects in which the findings regarding unconscionability and unjustness were affected by the impugned findings in relation to the meeting with Mr Famularo. In addition, the trial judge did not give adequate consideration to Mrs Baira's change from guarantor to primary debtor. The trial judge did not sufficiently consider whether RHG knew, or ought to have known, that Mrs Baira did not have the capacity to make the payments: [365]
(per Tobias AJA, dissenting)
18. It was open to the trial judge to find that Mr Famularo's notes of the meeting with Mrs Baira were genuine. At trial, it was not contended that they were fabricated by Mr Famularo, and he was not cross-examined to that effect. Their detailed content suggests that they are authentic: [422]
19. It was open to the trial judge to find that Mrs Baira was aware that she would be a principal borrower and not merely guarantor in relation to the loan from RHG: [544]-[545]
20. It was open to the trial judge to find that all of the transactions were part of consensual family arrangements and the reality was that the documents that were signed were for the benefit of the general family prosperity: [546]-[547]
JUDGMENT
BATHURST CJ: I have had the benefit of reading in draft form the judgments of Basten JA and Tobias AJA in these matters.
I have reached the same conclusion as Basten JA. These are my reasons for doing so.
Background to the proceedings
(a) Mrs Rosa Baira
The appellant, Rosa Baira ("Mrs Baira"), entered into a loan agreement dated 28 February 2006, pursuant to which the first respondent to each appeal, RHG Mortgage Corporation ("RHG"), then called RAMS Mortgage Corporation Limited (RAMS), advanced the sum of $650,000. At the time of entering into the loan agreement, described as a "RAMS Self-Employed Pre-Pack Home Loan", Mrs Baira executed an authority for the funds to be used to pay out an existing mortgage to St George Bank Limited. The disbursement authority contained the following remark:
"Please call Peter Famularo on xxxx xxx xxx or xxxx-xxxx should you have any queries in relation to this matter. Note this loan to be Fully drawn to pay St George Bank. The loan is associated with Joe and Sandra Ianni and must settle simultaneously."
Mrs Baira was the registered proprietor of property xx xxxx Road, Marrickville ("the Marrickville property"). As part of the transaction an existing mortgage over that property to St George Bank Limited ("St George") was discharged and RHG took a registered mortgage over it. The St George loan which was discharged was granted to that bank as part of ongoing assistance provided by Mrs Baira to her daughter, Ms Sandra Ianni, the fourth respondent in the proceedings, and her husband, Mr Joe Ianni. Tobias AJA has set out in detail the history of such assistance in pars [381]-[395] and [399]-[400] of his judgment and for present purposes the nature of the assistance given and the evidence surrounding it may be summarised as follows:
(a) In 1992 Mr Joe and Ms Sandra Ianni obtained a loan from Advance Bank Limited (which subsequently merged with St George) in the sum of $155,000 to assist with the purchase and fit-out of a coffee shop known as Café Galleria. Pursuant to the loan offer, Mrs Baira was to enter into a personal guarantee and give a mortgage over the Marrickville property to secure the advance. Mrs Baira accepted the loan offer and on 26 May 1992 executed an all monies guarantee in respect thereof. Her signature on each of the guarantee and mortgage was witnessed by a Mr Ross, a Marrickville solicitor. Mr Ross, in acting for Mrs Baira, prepared a deed between her and Joe and Sandra Ianni, which gave her substantial control over the conduct of the business the subject of the loan.
Early in her cross-examination Mrs Baira acknowledged that she was prepared to assist Joe and Sandra Ianni and mortgage her property on the basis her liability was $155,000. She said she understood what a guarantee was, saying:
"A guarantee is, I help my children, which I did for whatever amount and you have to pay it off. If they fail to pay, I will have to pay."
And:
"If I haven't got the money, of course they take the house and they going to sell the house for me to pay."
In relation to the 1992 guarantee she said she was not prepared to pay much because "I didn't have that much money. And plus I think they only required 100 or 150 [thousand], and that's what I was prepared for and that's that [sic] I did." She acknowledged she knew she was signing the facility offer as a guarantor and that she was aware that her home was at risk. She denied that she was ever aware that the amount of her liability subsequently increased. She acknowledged she had a lot of help from Mr Graham Ross, her solicitor at the time, and he explained to her the nature of a mortgage and a guarantee.
(b) In June 1994 a further advance for $112,000 was made for the purpose of the refurbishment of the Café Galleria. The advance was approved by a letter from Advance Bank addressed to Joe and Sandra Ianni dated 24 June 1994. The letter enclosed a term sheet and general conditions and contained a request that the documents be signed by both Joe and Sandra Ianni and Mrs Baira as guarantor. They were so signed. The first page of the term sheet stated the loan amount to be $112,000. Notwithstanding this Mrs Baira insisted that she continued to believe that the limit of her guarantee was $155,000. The trial judge rejected this evidence.
In cross-examination Mrs Baira denied any knowledge of the increase in the facility, although she acknowledged she signed the letter of offer of increase. It was put to her and she agreed that she knew that from 1992 to 2006 Joe and Sandra Ianni were borrowing more and more money, but she denied that she appreciated that that increased her exposure or that the reason she entered into the RHG loan in 2006 was that she needed to get out.
(c) In 1998 Jencon Australia Pty Limited ("Jencon"), a company controlled by Joe and Sandra Ianni, made an application to St George for an advance of $450,000. The funding was sought to fit out a café which became known as Fiorianis and to restructure existing liabilities. A loan of $400,000 and an overdraft facility of $30,000 were approved conditional upon Joe and Sandra Ianni and Mrs Baira executing guarantees, Mrs Baira's liability being limited to the proceeds of sale of the Marrickville property. Mrs Baira executed the guarantee and her signature was witnessed by Mr Ross. On 11 September 1998 Mr Ross signed a certificate stating "I advised the guarantor before any of the documents were signed".
Mrs Baira in cross-examination denied any knowledge of the advance. She acknowledged she might have signed the offer document but said she trusted her daughter completely and she signed without reading it. She said she probably would have been capable of reading it but she did not do so.
Mrs Baira also said that she was not aware that the guarantee at that time was limited to the proceeds of sale of the Marrickville property. She said she did not remember seeing the letter of offer which contained this provision. She denied having any recollection of seeing Mr Ross at that time.
It is not clear from the material whether or not the Advance Bank loan was repaid or the 1992 guarantee discharged. However, no subsequent guarantee ever appears to have been executed by Mrs Baira guaranteeing the obligations of Joe and Sandra Ianni, as distinct from Jencon to St George.
(d) In May 2000 St George agreed to increase the Jencon overdraft facility from $30,000 to $100,000. Mrs Baira signed a declaration that she had received independent legal advice concerning the loan and security documents surrounding the increase in the overdraft facility. The declaration was witnessed by an accountant, Mr Lo Surdo. No independent certificate of advice was provided.
Mrs Baira denied any knowledge of this transaction or signing a declaration before Mr Lo Surdo. She said she had never met Mr Lo Surdo. She said she might have signed the document because she had complete trust in her daughter and son-in-law.
(e) On 20 June 2002 Mrs Baira signed a declaration to the effect that she was the third party mortgagor and guarantor named in certain loan documents and security documents between Jencon Australia Pty Limited and St George and that she had received independent legal advice regarding the loan and security documents. It is not clear from the evidence before the primary judge what was the cause of that declaration being signed. The declaration was witnessed by Mr Lo Surdo.
Mrs Baira again denied signing this declaration before Mr Lo Surdo. She stated: "But this is not my signature. And I did not go to see Mr Lo Surdo and I never met him and don't know who he is".
She was taken to another part of the document where her signature appeared, sworn on 30th June 2002 and witnessed by Mr Lo Surdo. She acknowledged that looked like her signature but said she did not sign it in front of Mr Lo Surdo. She said that if she signed it she signed it at her house in front of her daughter and sent it back. She reiterated that she had never met Mr Lo Surdo.
(f) Towards the end of 2002 St George offered to increase the Jencon facilities to a total limit of $963,000. Mrs Baira signed a copy of the letter of offer. On an unspecified date, Sandra and Joe Ianni and Mrs Baira signed an acknowledgement that they had obtained legal advice in relation to their exposure under that facility offer. The acknowledgement in its original form included the words "we have obtained independent financial and legal advice". The words "independent financial and" were deleted from the signed form.
Mrs Baira denied she knew anything about this loan, although she acknowledged she signed the letter of offer. She maintained she believed her guarantee was limited to the initial $155,000.
(g) In November 2003 the Jencon overdraft facility was increased from $230,000 to $270,000 on a temporary basis up to 31 December 2003. Mrs Baira signed an acknowledgement in respect of that increase to the following effect:
"We have been given the opportunity to obtain independent financial and legal advice in relation to our exposure as a result of the facility being amended but do not consider this necessary."
The acknowledgement was also signed by Mr Joe and Ms Sandra Ianni. Mr Lo Surdo witnessed Mrs Baira's signature.
Mrs Baira agreed her signature appeared on the acknowledgement but said that she had no recollection of signing it. She said she did not read the document.
(h) On 2 September 2004 St George offered to increase the total facility limit to $1,059,000. On 11 November 2004 Mrs Baira signed an acknowledgement that a Mr Calvitto, solicitor, had given advice to her and her co-sureties, Mr Joe and Ms Sandra Ianni.
Mrs Baira said she did not read the acknowledgement. However, she acknowledged she was taken to see Mr Calvitto by her son-in-law and daughter. Her evidence of the discussion she had with him was to the following effect:
"My daughter coming to me and she ask me that the bank, they were doing something at the shop, I don't recall what, and the bank want to notified me to the change. They never ask me they borrow money from the house. I was never told they borrow more money. When I went to see Mr Calvitto - excuse me a second - my daughter and my son-in-law took me there. My son-in-law and Mr Calvitto, they had a discussion between them two about business. Mr Calvitto ask my son-in-law, 'Well, I believe Mr Ianni you have a shop in Darling Harbour' and he said 'Yes'. He goes, 'How many years you been there?' And my son-in-law answer, I don't know how many years. He goes, 'When are you intend to cash it?' The conversation, it was mostly between my son-in-law and Mr Calvitto. Then he says, after they finished talking, Mr Calvitto ask my son-in-law, my daughter, to leave the room and he took me to a small office. On the way he says to me, 'Why did you do it?' And I said, 'What do you mean?' He says, 'Why did you sign? Is anyone force you to do it?' And I said, 'No, the contrary'. I said, 'I been a guarantor', I said, 'from the first time for the sum of $155,000'. I said, 'Through the years they have been doing good'. No-one ever notified me that I was in danger. He look at me and he says, 'If that's the case, sign here'. I did not know what I was signing."
She stated, however, that Mr Calvitto did not read or explain the document to her. She said:
"Mr Calvitto did not explain. He was more interested if he could do other things for me but the loan, it was brief. He only wanted to know if someone make me do it. I couldn't understand the question. I said, 'What do you mean?' 'I then make you sign', he said. My answer was no.
...
He said 'You aware that if they fail to pay you have to pay' and I said 'Yes'. I said, 'But I have no reason to believe that they can't pay'. So he had the opportunity, because I did express myself. So he replaced it in this case 'sign here', I put a sign - a few signatures and that was the end."
In later cross-examination she expanded on these answers giving this evidence:
"Q: And at that time he said to you that 'you understand if they don't pay you'll have to pay'?
A. ... At the time he said [Mr Calvitto] to me, 'Why did you do it?' That's was his exact words. I didn't understood him and I said, 'What do you mean?' He said, 'do you know if they fail to pay you will have to pay' and my answer to him was 'Yes, I do'.
...
But I said 'No-One gave me an indication that I have to be worried'. I said, 'They doing well; they have so many properties. Why they need mine?' Because mine compared to the one that they had, it is nothing."
The evidence is significant. Mrs Baira acknowledged that Mr Calvitto told her that if Joe and Sandra Ianni failed to pay she would have to and her response was she had no reason to believe they could not pay. It is difficult to accept that in those circumstances Mr Calvitto did not tell her the full extent of her liability.
Mr Calvitto in his evidence said he explained the legal nature and significance of the documents to Mrs Baira. He said he dictated a file note after the conference. He said he discussed the total exposure of $2.1 million in the presence of Mrs Baira and Mr Joe and Ms Sandra Ianni.
Mr Calvitto said he was concerned to make sure that Mrs Baira had not been forced into the guarantee but denied saying "Did he [Joe] force you to sign it" and "Did Joe pressure you to sign the guarantee".
Mr Calvitto said he did not recall speaking alone with Mrs Baira. He was cross-examined as to the explanation he gave and gave evidence to the following effect:
"Q. You asked her, 'Are you aware that if he doesn't pay you'll be responsible'?
A. Yeah; probably said something else too.Q. You didn't read any documents to her, did you?
A. I read some documents to her, some parts of the documents.Q. What did you explain to her then, sir?
A. That this seemed to be that the business was borrowing another $300,000, that there seemed to be all of these properties exposed, which seemed to be a total of, on their value at the time, a couple of million, and knowing what happens when businesses go wrong they go really wrong, that she was going to lose her house if things went really wrong.Q. That's not true, can I suggest to you, sir?
A. That's what I said, that she will lose her house if things go wrong.Q. Your file note records nothing of the kind, does it, sir?
A. I said to her she will lose her house, because I could see how big this exposure was and then, of course, you haven't asked me yet, but I volunteered to them 'Have you been to a financial advisor? Do you have a plan?' And I used the phrase a five-year plan or a 10-year plan or a 15-year plan, and they were a bit shocked when I said it.Q. Sir, can I suggest to you, with the greatest respect, that if you had told Mrs Baira that she risked losing her house that you would have recorded it in this certificate?
A. I said to her that she would lose her house."Mrs Baira denied that Mr Calvitto told her that she should see a financial adviser or that she signed a mortgage before him.
The primary judge found Mr Calvitto to be an independent and honest witness.
(i) In May 2005 a further offer extending the facility was made. A copy of that offer of extension was signed by Mrs Baira on 18 May 2005. The offer contained the comment:
"We recommend that you get legal and financial advice before entering into this facility agreement."
Mr Baira acknowledged that the signature on the letter of offer appeared to be hers but denied any recollection of signing the document and said that if she did sign it she did not read it.
(j) On 15 August 2005 St George offered to increase the Jencon facility to a total of $1,177,488. A copy of the letter of offer was signed by Mrs Baira on 15 September 2005. The letter of offer contained a recommendation in similar terms to the May offer.
Mr Baira again acknowledged that her signature appeared on the letter of offer but denied any recollection of signing it or of the transaction envisaged in the offer.
(k) On 30 September 2005 St George offered to substantially restructure the Jencon facility. The offer involved a reduction of the limit of the facility to $536,000, described in the letter of offer as an overall reduction of $624,000. As part of that arrangement the bank agreed to discharge a mortgage it held over the property Unit xx/xx xxxx Street, Pyrmont. The offer contained the following condition:
"The Banks panel solicitors are to obtain certificates of independent legal financial advice for Rosa Baira covering her liability under this Facility Agreement amendment. These certificates are to outline that the Guarantor Rosa Baira has been advised of the increased liability assumed by her in relation to the release of the proposed security below and that Rosa Baira agrees with the release of the security as detailed below."
The firm Egisto Solicitors provided the following certificate on 12 October 2005:
"We confirm that Ms Rosa Baira attended our office on 12 October 2005, when we explained to her the nature of her proposed guarantee and the increased liability which she will assume by her [sic] in relation to the release of the proposed securities mentioned in the facility offer.
Having had the nature of a guarantee explained to her and the possible consequences of a default by the bank's customers, she confirmed to the writer that she understood the nature of her guarantee.
She also confirmed that she was familiar with the business of the borrower, she had confidence in its success and that she was content to execute the guarantee.
The conference was conducted in the absence of the borrower or any other person."
Mrs Baira denied she knew anything about this transaction although she again acknowledged she signed the letter of offer. She said that the certificate was a lie.
A Mr Forster of Egisto solicitors gave evidence to the following effect:
"Well, she introduced herself, obviously, and I said, 'Well, you've come in connection with this guarantee?' 'Yes.' And I said, 'You realise what a guarantee is, don't you?' And she said, 'Yes; and I'm in a hurry.' She's always in a hurry. And I said, 'Well, it means if the borrower doesn't pay, you have to pay. You are accepting a responsibility for the debt.' She said, 'Yes, I'm aware of that.' And she made some remark to the effect that she does this often. I then said, 'You are aware, of course, of the amount that you're guaranteeing?' 'Yes, I am.' And then she emphasised again that she was in a hurry, she doesn't have much time, and she said, 'Les knows all about this.' And I said, 'Well, you understand - is there anything you want to talk about in this guarantee? Is there anything you feel the need to discuss?' And she said, 'No, I've just got to get back to the restaurant."
In cross-examination Mr Forster described the person he saw as a slim young woman who could have been in her forties. When it was put to him that Mrs Baira was in her sixties and that she was not slim, he attributed this to a bad memory.
Mr Forster acknowledged that he did not give Mrs Baira any advice on the release of the securities and the effect that would have on the guarantee.
I have set out these matters in some detail because the assistance that had been provided by Mrs Baira in the past to her daughter and son-in-law and the rejection of her evidence surrounding the circumstances of those transactions was a significant factor in the conclusion of the trial judge that her evidence should be rejected. In rejecting Mrs Baira's evidence, the trial judge found that her denial of ever meeting the third respondent (Mr Famularo) and her assertion of lack of knowledge of the loan application to RHG and of the nature of the commitment she entered into with that company should not be accepted.
The loan agreement entered into by Mrs Baira which is the subject of these proceedings was arranged by the second respondent Australian Business and Mortgage Finance Solutions Pty Ltd (ABMFS) and its principal Mr Famularo. Mr Famularo, in an affidavit sworn on 11 November 2009, deposed that he had a meeting with Mrs Baira on 2 December 2005, of which he took notes and from which he prepared the application for a loan. The notes are produced in full in the judgment of Tobias AJA. However, it should be noted that the notes are headed "Meeting Baira re SGB re finance". According to his evidence, that meeting followed a meeting he held with Mr Joseph and Ms Sandra Ianni on 1 December 2005. Mr Famularo also produced his diary for 2 December 2005, which made reference to an appointment "Baira R. SGB re finance".
In his affidavit Mr Famularo stated that during the meeting a discussion (in Italian) to the following effect took place:
"Mrs Baira: I have been guarantor for my son-in-law Joe Ianni and Sandra Ianni since about 1995 for various loans from St George. They have a business and sometimes they need to borrow money. I think they owe about $3 million at the moment.
Mr Famularo: What are the amounts of these other loans that you have guaranteed?
Mrs Baira: I cannot recall the exact amounts. Joe and Sandra manage the finances. I do know that the St George mortgage secured at least $1,300,000. St George bank had registered a mortgage over my home for the full sale value of the property and I want to reduce the liability on my home that's why we need to refinance my share of the liability.
Mr Famularo: I wouldn't think that St George Bank would be agreeable to refinancing and releasing the Marrickville property for only $650,000 given your property is security for other company loans and Ianni loans for which you are jointly liable for.
Mrs Baira: Don't worry. Joe and I will negotiate with St George Bank so that the Marrickville property is released for only $650,000."
And:
"Mr Famularo: Are you working at the moment or have you retired?
Mrs Baira: Yes I am working even though I am 62. I work for Joe and Sandra in the Darling Harbour business. It's an Italian Restaurant called Fioriani. I consult on the menu. I have worked there for a long time and helped my children purchase the business in the early 1990's. I have another son who also works there.
Mr Famularo: So it is a family business?
Mrs Baira: Yes. My son is not successful in business and so he works for the family business. He also has a medical condition and has found it hard to find employment. That's why I feel I need to assist Joe and Sandra with financing the family business. At the end of the day, I work for my children and I want to help them wherever I can. Everything I have including my home will one day be theirs.
Mr Famularo: Will you be able to manage paying the loan yourself?
Mrs Baira: Yes, it would be fine. My income ranges from $140,000 - $150,000 per year. I have never had a problem repaying the loans I have had with St George previously. I am always paying them on time ... you will see from the statements that I have never had difficulties managing my loans.
Mr Famularo: We will need to obtain statements from you for the purpose of confirming this.
Mrs Baira: No problem, I will get them for you. Once the loan amount is reduced, the repayments would be even easier given the lower interest rate.
Mr Famularo: Do you own any other real estate besides your Marrickville home?
Mrs Baira: No. The Marrickville property is the only property I have. I also own a car, furniture and have some savings with Westpac.
Mr Famularo: How much is the car, furniture and savings worth?
Mrs Baira: The car is worth about $15,000 and I have about $5000 held with Westpac which is my savings. The furniture is worth about $50,000."
And:
"Mr Famularo: You should obtain legal and financial advice regarding your RAMS loan obligation to ensure you understand the ramifications of entering into a loan.
Mrs Baira: I would prefer not to obtain legal or financial advice again due to the cost and because the loans already existed for many years.
Mr Famularo: You should obtain the advice again regardless.
Mrs Baira: I can have Mr. Angelo LoSurdo confirm that I have previously received advice as Mr. LoSurdo himself has signed statutory declarations for me."
Mrs Baira denied that any of those conversations took place.
If Mr Famularo's evidence (which is reflected in his notes) is to be accepted, it would indicate a number of matters:
(a) Mrs Baira was aware that the then current liability to St George was over $1.3 million.
(b) She would be involved in negotiations with St George to release her property for $650,000.
(c) She had an income of approximately $145,000 per year and would have no problem meeting her obligations under the loan and she had met her obligations to St George up to that time.
(d) She had made a conscious decision not to obtain legal advice.
The evidence would thus demonstrate that Mrs Baira was aware of the nature of the transaction she was entering into, gave information to Mr Famularo to enable him to complete the application and expressly declined the suggestion to get independent financial and legal advice.
As I indicated Mr Famularo took notes of the meeting. The trial judge found that these notes were entirely consistent with Mr Famularo's account of the meeting. However, with respect to the primary judge, this is not entirely correct. At the very least there were matters of significance in the notes which were not referred to in his account of the conversation which he said occurred. In particular:
(a) Mr Famularo's account of the conversation makes no reference to Joe and Sandra Ianni expanding into childcare and the overseas property investments and that Mrs Baira was not comfortable with that. There is no suggestion anywhere in the evidence that Joe and Sandra Ianni were diversifying in this manner.
(b) There is no reference in the conversation deposed to that Mrs Baira did not want her new husband to know of the refinancing as he had his own children and was not business minded.
(c) More significantly, there is no mention in Mr Famularo's account of the conversation deposed to that Joe and Sandra Ianni paid cash to Mrs Baira and that tax returns were not available due to it being a cash business. This is something that could well cast doubt on the veracity of the information being supplied or at least the security of Mrs Baira's income, coupled with her potential liability for unpaid tax. No reference is made to these matters in the account of the conversation deposed.
Mr Famularo was cross-examined on this issue. He said that Mrs Baira told him that the money came from her own business and some from payments from Jencon. He said he did not understand that the whole of the $150,000 was received from Joe and Sandra Ianni. It was put to him that Mrs Baira never referred to the $140,000 to $150,000 and he denied it.
(d) The statement in the notes to leave the loans if RAMS (RHG) could not refinance is inconsistent with the statement said to have been made by Mrs Baira in the conversation, "Don't worry Joe and I will negotiate with St George Bank so the Marrickville property is released for $650,000".
(e) There was no reference in the conversation deposed to that Mrs Baira said she would speak to either Deborah Brown of Phillips Fox or Mr Lo Surdo of Five Dock to obtain legal or financial advice or that it was in her interests that the business continued smoothly. Although the note does refer to a comment by Mrs Baira that independent advice would add to the cost of the transaction, what is said in the note under this heading to some extent is inconsistent with what Mr Famularo deposed Mrs Baira told him, namely "I would prefer not to obtain legal or financial advice again due to the cost and because the loans already existed for many years".
Importantly, there is nothing in the conversation or the notes to suggest any reason why the liability of Mrs Baira changed from one of guarantor to that of a principal debtor. This was disadvantageous to Mrs Baira. Her liability up to the time of the transaction was as guarantor but limited to the proceeds of sale of the Marrickville property. Although subsequent to the transaction the liability at least in relation to the principal sum was limited to $650,000 (approximately 79 percent of the estimate of the value of the property) this was at the cost of the loss of the right to subrogation and contribution from co-guarantors. Further, it should be noted that the statement by Mrs Baira that she never had any problem repaying the loans she had with St George previously ignores the fact that her only previous liability to St George was a guarantee, which had never been called on.
There was some, albeit limited cross-examination of Mr Famularo on these issues. It was suggested to him that the proposal to split the loans emanated from Joe and Sandra Ianni and he denied this. He acknowledged that they had told him that Mrs Baira had guaranteed the St George debt. However, he said it was Mrs Baira who suggested that the loans be split.
In cross-examination Mr Famularo was asked why Mrs Baira was nominated as principal borrower rather than a guarantor. He said it was because she requested this change as she needed to move her property away from St George. He stated he regarded this as being for her benefit as she was better off as a mortgagor for a loan of $650,000 compared with a liability under a guarantee of $1.3 million.
Mr Famularo was also challenged about the statement in his affidavit to the effect that Mrs Baira should see a solicitor. He affirmed he gave this advice and said Mrs Baira said did not want to see any more solicitors because she had seen a string of solicitors and that she had seen a solicitor a week or two before. This is somewhat different to what was recorded in his note and his account of the conversation in his affidavit.
Mr Famularo stated that on approximately 9 December 2005 he mailed the completed loan application form to Mrs Baira at her home. The letter so far as relevant was in the following terms:
"I refer to the above matter and our meeting of Friday 2nd December in which we discussed the refinance of your St George Bank loan (which you advise is in the names of Joe and Sandra Ianni) and is presently secured over your property in Marrickville to St George Bank.
We have now prepared the attached loan application in accordance with information provided by you. You should peruse the RAMS Application and if correct, then sign where indicated and return same to us at the earliest possible in order that we may lodge the Rams application. Please advise us immediately if there are any changes to be made."
A copy of the letter was tendered. Mrs Baira denied she received it.
The loan application stated that Mrs Baira was self employed at Fiorianis, in the service industry. It requested a 30 year loan of $650,000 with an interest only period of five years. It estimated the value of the Marrickville property at $850,000 although another part of the application contained an estimate of $900,000. It also stated that there was an existing liability to St George Bank in the sum of $1,246,480. The application contained two comments by Mr Famularo, the first to the following effect:
"This property is held as security by St George Bank for the attached loan. The loan is now being split. Please see application in the name of Joe and Sandra Ianni which will also be used to repay the St George Bank at the same time."
The loan application stated Mrs Baira's income for the last financial year was $145,000 and for the preceding financial year $140,000. A signature purporting to be that of Mrs Baira appears on the loan application together with a declaration to the following effect:
"I declare that the credit to be provided to me by RAMS Mortgage Corporation Limited and/or RAMS Mortgage Securities Pty Ltd is to be applied wholly or predominantly for business or investment purposes (or for both purposes)."
Mr Famularo gave evidence that on 19 January 2006 he had a conversation with Mr Lo Surdo whom he described as "the Accountant for Joe and Sandra Ianni and formally the defendant (Mrs Baira)". Mr Famularo asserted that he stated to Mr Lo Surdo that he understood he had previously given advice to Rosa Baira on the ramifications of entering into a loan and asked whether he had witnessed Mrs Baira signing a statutory declaration that confirmed she had received independent advice. Mr Famularo said that Mr Lo Surdo responded as follows:
"Angelo: Yes. I have given advice to Rosa and have also provided financial information to St George previously to facilitate the establishment and ongoing review of the various Baira, Ianni, Jencon loans. I understand Baira wants to reduce the liability on her home and that St George have a mortgage over her property for the entirety of the value of the Marrickville property."
And
"Angelo: Yes I did. I recall she signed it [the statutory declaration] prior to her drawing down a further $1,300,000 facility from St George. I recall her saying that she received independent legal advice with regards to loans she had secured to St George Bank for Joe and Sandra Ianni and Jencon Australia."
Mr Famularo produced no note of this conversation. Mr Lo Surdo was not called to give evidence.
Mr Famularo was cross-examined on the reason for speaking with Mr Lo Surdo. He said he was seeking to clarify whether Mrs Baira had indeed gone to see some solicitors. He said he did so because he was concerned that the RAMS loan was a third party loan. He said he had advised RAMS of this fact.
Mr Famularo acknowledged that he had a similar conversation with Mr Lo Surdo concerning Mr Rosario and Mrs Domenica Ianni and that he received exactly the same response, namely, "I've also provided financial information to St George to facilitate the establishment and on-going review of the Ianni and Jencon loans".
Ultimately it was put to Mr Famularo that the meeting of 2 December 2005 never occurred and he denied it.
Mrs Baira denied she saw Mr Famularo, asserting that she had never met him. She denied that she gave him the information on the loan application, saying in relation to the estimate of income contained in it that she was "a pensioner, a partial pensioner". She denied she received the letter of 9 December 2005.
Mrs Baira did acknowledge she signed the loan application. She said it was brought to her by her daughter and she signed it without reading it. She pointed out that she did not have the capacity to make the loan repayments set out in the document. She denied that she wanted to enter the loan because it was necessary to separate the liability she had to St George from the liability she shared with Joe and Sandra Ianni and Jencon. She said she did not know she was asking for a loan but believed that she remained a guarantor. She said the loan application documents were only in her home for half an hour and Sandra Ianni pointed to where she should sign and then took the documents away.
The submissions made by Mrs Baira at trial
The submissions made on behalf of Mrs Baira at the trial of the proceedings concentrated primarily on her claim for relief under the Contracts Review Act 1980. She submitted that various aspects of her loan application were false and that it had not been suggested otherwise in her cross-examination. In that regard three matters were identified. The details of her banking (ie. that she banked with Westpac Banking Corporation), her car ownership and her statement of income.
In addition, Baira submitted that RHG was on notice of a number of facts on receiving her loan application:
·That the file was "unusual" as it was paying out a loan for which Baira was not the account holder, but for which she previously provided security as third party guarantor, despite which RHG recorded "no third party mortgage issues in the final approval";
·That Mrs Baira had not submitted any documentation to support her ability to repay the loan or her alleged income of $145,000 p.a;
·That the mortgage payments were to be deducted from an account in Joe and Sandra Ianni's names;
·That no solicitor was nominated for Mrs Baira in the application forms (note that Mrs Baira signed a form stating she did not want or need legal advice);
·That the agent through which the loan was sought was also acting for Joe and Sandra Ianni, arguably creating a conflict of interest;
·That it was Sandra Ianni, who stood to gain from the loan, who had witnessed Mrs Baira's signature on the mortgage;
·That the loan occurred in a context where Mr Rosario and Mrs Domenica Ianni had also mortgaged their home to RHG to allow Joe and Sandra to reduce their indebtedness to St George. That application had proceeded as though Rosario and Domenica were principal borrowers with St George;
·That the postal address provided by Joe and Sandra in their contemporaneous loan application listed their postal address as the property that was to have been purchased by Rosario and Domenica Ianni with their RHG loan;
·That Joe and Sandra Ianni were not guarantors or co borrowers in relation to Baira's RHG loan, despite having been liable for the full amount to St George which was to be discharged by Baira's loan;
·That Baira was assuming principal liability through the loan, to discharge a loan for which she had previously only been a guarantor. This was emphasised by counsel for Mrs Baira in oral submissions.
In this context it was submitted on behalf of Mrs Baira that these matters should have alerted RHG to this being an unusual transaction and that failure to contact Mrs Baira directly in these circumstances to ensure her informed consent, or to ensure she had received independent legal advice, gave rise to relevant injustice in "the circumstances relating to the contract at the time it was made"(see Contracts Review Act 1980 s 9(1)).
Baira also alleged that RHG's lending guidelines were deficient in a number of ways, specifically as to:
·How an application for a 30 year loan on behalf of a 60 year old woman ought to be assessed "in terms of her advancing years";
·The failure to give any "meaningful regard to serviceability" of Baira's loan (in contrast to the extensive consideration given to the contemporaneous loan application by Joe and Sandra Ianni, as evidenced in the status tracking documents). It was submitted that the Baira loan was simply considered as part of Joe and Sandra's loan;
·How to deal with the possible conflict in the Baira loan, where the same broker was also applying for a loan on behalf of Sandra and Joe Ianni, both loans having the purpose of paying out Sandra and Joe's liability;
·The failure to require income tax returns;
·How to address the changed position at the time of settlement, by which time St George was releasing its security for $797,600.00, of which Baira was contributing $640,870.50, significantly changing the 50/50 split in responsibility envisaged by the original loan applications to RHG. It was submitted that RHG had no information suggesting Mrs Baira consented to this change to the loan.
These matters were said to raise the question of the public interest under s 9(1) of the Contracts Review Act as well as unfairness in all the circumstances of the case.
Similar matters were relied on in relation to Mrs Baira's claim based on unconscionability.
It is unnecessary for present purposes to set out the whole of RHG's submissions in response. However, RHG did submit that if Mrs Baira procured the loan by knowingly supplying false information, this precluded relief under the Contracts Review Act.
The submissions made by Mrs Baira that she neither participated in the making of the loan application, nor provided the information contained therein, depended directly upon the acceptance of her evidence, in preference to that of Mr Famularo, as to whether the meeting and conversation of 2 December 2005 deposed to by Mr Famularo took place. If Mrs Baira was to be believed as to her knowledge of the loan application, then it could well be concluded that the loan was unjust within the meaning of s 9 of the Contracts Review Act or was entered into in circumstances which rendered it unconscionable. Whether that would lead to the relief sought against RHG would depend on the acceptance or otherwise of the submissions made by Mrs Baira as to the conduct of RHG: see Tonto Home Loans Australia Pty Limited v Tavares [2011] NSWCA 389 at [264]-[272].
On the other hand, if Mr Famularo's version of his discussions with Mrs Baira is accepted, it would follow that the material contained in the loan application on which RHG relied, whether false or otherwise, was supplied by Mrs Baira. Whilst it would not necessarily follow that relief would inevitably be refused, having regard to the criticisms of RHG's conduct, which stands independently of the rejection of Mrs Baira's evidence and the fact that on any view this was an improvident loan, it does provide a powerful reason why relief should be refused.
The reasoning of the primary judge
Early in his reasons the primary judge noted that Mrs Baira repeatedly contended that her understanding was that she had guaranteed $155,000 and no more. He stated that he had concluded her testimony generally was uncreditworthy and her assertion that she had never met Mr Famularo was quite incredible.
The primary judge then reviewed the transactions to which I have referred above, by which Mrs Baira provided assistance to Joe and Sandra Ianni and to Jencon. In relation to the initial transaction he concluded that the entry by Mrs Baira into the deed of 1 May 1992 (see par [4](a) above) was inconsistent with her claim that she was simply signing documents presented to her by her daughter, being ignorant of their content.
In relation to the June 1994 transaction, his Honour noted that the figure of the amount advanced was in prominent display.
In relation to the transaction in August 1998 (see par [4](c) above) the primary judge noted that contrary to Mrs Baira's claim that she simply signed documents for the bank as presented to her by her daughter, the deed was signed and witnessed by Mr Ross, who gave a certificate stating he advised the guarantor before any of the documents were signed.
So far as the May 2000 transaction was concerned (see par [4](d) above) his Honour noted that the document which Mrs Baira claimed not to have seen was relatively concise and in his view it was difficult to believe that she would have asked her neighbour to witness it if, as she claimed, she had no appreciation of its significance.
In relation to the documents witnessed by Mr Lo Surdo, his Honour noted that the unstated implication of Mrs Baira's evidence that she had never met him must be that he was consciously claiming to witness a signature when he had not done so. He stated (at [41]):
"This allegation by Baira puts Mr Lo Surdo into the long line of people, mostly professionals, who for no apparent advantage to themselves, were alleged by her to be prepared to act deceptively in relation to her obligations. I do not accept Baira's evidence."
In relation to 2 September 2004 transaction (see par [4](h) above) the primary judge referred to the file note of Mr Calvitto to the effect that he had no doubt that Mrs Baira knew exactly what she was doing. The primary judge stated that he agreed with that conclusion. He also noted that Mr Calvitto's statement of account given to Mrs Baira after the consultation referred to advice given regarding the renewal with St George Bank, with securities including her own Marrickville property, with a total exposure of $2.1 million and with current servicing at about $20,000 per month. The primary judge concluded that this was an emphatic method of ensuring that Mrs Baira was appraised of exactly what was involved.
In relation to the increase in the St George facility to $1,177,488 in 2005 (see par [4](j) above) his Honour noted that the total limit appeared on the first page of the letter of offer in bold type and that even a casual glance at that figure would catch the eye.
So far as the reduction in the St George facility offered on 30 September 2005 (see par [4](k) above), the primary judge referred to the evidence of Mr Forster confirming that he had explained the transaction to Mrs Baira. The primary judge referred to the fact that the description Mr Forster gave of the person seen by him did not match Mrs Baira. He attributed this to Mr Forster's "somewhat muddled memory and descriptive powers". The primary judge stated, however, that there was no muddle in the precise report of the consultation made to the bank on the day it occurred and rejected the contention that some sort of substitution had taken place.
The primary judge then turned to the conflicting evidence of Mrs Baira and Mr Famularo as to the meeting which took place on 2 December 2005. The primary judge described Mrs Baira's denial that that meeting took place as "a falsity and I would assess it as a brazen attempt to avoid the consequences of her own actions". In that regard he referred to the fact that Mr Famularo's diary had a co-ordinate entry for the appointment but he stated, more significantly, there were "pages of handwritten notes of the meeting which are entirely consistent with his version of the meeting". He stated that if there was no such meeting, it implied that Mr Famularo had invented the content and that no allegation of fraud of any kind appeared in the pleadings. He pointed to the fact that the notes contained personal details about Mrs Baira, including her driver's licence, Medicare and passport numbers, together with expiry details.
The primary judge found that no credible proposition was advanced as to why Famularo would act dishonestly in brokering these loans. In that context he found there was no defect in the terms of execution of the loan and mortgage documentation.
It should be noted that the primary judge reached this conclusion without any evaluation of the cross-examination of Mr Famularo and without making reference to the matters to which I have referred in pars [11] and [12] above. Equally it must be emphasised that his Honour did not base his adverse conclusions on the credibility of Mrs Baira solely on his rejection of her evidence that the 2 December 2005 meeting did not take place. This is apparent from par [60] of his judgment which provided as follows:
"[60] For a particular reason to which I now turn, I find Baira's testimony is unworthy of credit. That particularity is not to set aside the adverse effect on Baira's credit of the contradiction between her behaviour and her execution of documentation against her unlikely proposition that for years and years she signed many documents in blithesome ignorance of what she was doing."
The primary judge then proceeded to deal with the claim under the Contracts Review Act 1980.
The primary judge concluded that Baira had "serially signed loan and facility agreements over years culminating in the documents which are central to the claim". He found that she had had appropriate advice tendered to her, that she was capable of acting astutely in her own interests and that she would not have signed documentation without knowing what she was signing. The primary judge found that Mrs Baira had received advice from solicitors in previous transactions, knew the implication of her involvement in the financial structure and was aware that the security given by her extended beyond the $155,000 guarantee she had initially executed many years previously. The primary judge also found that no term of the loan or the mortgage was intrinsically unjust. He found that RHG did not apply any pressure on her to enter into the loan and did not engage in any discreditable tactics. In that context he noted that the documentation presented by the lender included a warning to seek legal and financial advice. The primary judge found there was no unusual difference in inequality of bargaining power and that it was relevant that Mrs Baira had previously entered into other significant commitments with St George Bank. He found that whether Mrs Baira was "unreasonably handicapped in complying with the terms" of the loan depended on whether she had told Mr Famularo the truth about her income and whether she was content to rely on cash flow from Joe and Sandra Ianni. At least by implication his Honour concluded that she was content to do so. The trial judge further found that the RHG loan was beneficial to Mrs Baira because it reduced her liability as compared with the guarantee she had provided on the St George facilities.
In this context the primary judge concluded that, to the extent Mrs Baira relied on the Contracts Review Act in resisting RHG's claim, the defence failed.
So far as the claim based on unconscionability was concerned the primary judge concluded that based on the "facts" conveyed by Mrs Baira to Mr Famularo and eventually passed on to the lender, there was no reason that RHG should have appreciated that Baira was in a position of "special disadvantage". The primary judge also found there was no other factor that should have alerted RHG to Baira being in a position of special disadvantage. This appears to be the only consideration by the primary judge of this defence.
In dealing with the cross-claims brought by Mrs Baira against Mr Famularo and his company, AMBFS, the primary judge made it clear that he accepted Mr Famularo as a witness of truth. In this context he made the following comments:
"[92] In short, the claims against AMBFS and Famularo must fail if his evidence is believed. I have accepted it. Nothing will be served by chronicling the various misrepresentations asserted in the pleading to have been made by Famularo whom I find made no such misrepresentations. I accept his evidence that his function as a broker was to find a potentially willing lender and to assemble and forward the documentation required by that lender. He was not, as between himself and the would-be borrower, an investigator of the truth of the information conveyed to him by that would-be borrower.
[93] At the risk of repetition, in so far as it was pleaded that Famularo (and AMBFS) acted on the instructions of Joe and Sandra in putting forward the loan application by Baira, I reject that contention. That contention basically requires acceptance of Baira's testimony that she had never met Famularo which contention I reject."
Before dealing with Mrs Baira's appeal, it is convenient to deal with the background to, and the claim made by, Mr Rosario Ianni and Mrs Domenica Ianni, the second and third appellants and the primary judge's findings in respect of the claims brought by RHG against them.
(b) Mr Rosario and Ms Domenica Ianni ("the Iannis")
The Iannis first provided financial assistance to Joe and Sandra Ianni in 2000 when they guaranteed an advance of $550,000 from St George, a loan made to enable Joe and Sandra Ianni to purchase an investment property, Unit xx/xx xxxx Street, Pyrmont. The guarantee was secured by a mortgage over the Ianni property, xx xxxx Street, Drummoyne ("the Drummoyne property"). The Iannis' signature on the offer of loan was witnessed by a Mr Gialamas. The Iannis also signed a declaration stating they had received independent legal advice regarding the loan and security documents and after receiving that advice had freely and voluntarily signed the mortgage over the Drummoyne property, the deed of guarantee and an acknowledgement. Mr Rosario Ianni's signature on each of the declaration, the mortgage and the deed of guarantee was witnessed by a solicitor, Mr Egisto, whilst Mrs Domenica Ianni's signature on the same documents was witnessed by another solicitor, a Mr Previte. The guarantee was limited to the market value of the Drummoyne property. It should be noted that in contrast to Mrs Baira, the Ianni guarantee did not guarantee the liability of Jencon but only the liabilities of Joe and Sandra Ianni to St George.
Mr Ianni said that he believed that he and his wife were guaranteeing a loan to Joe Ianni in the sum of $100,000 but denied that he understood the guarantee extended to the value of the Thompson Street property or that he and his wife had granted a mortgage to secure their obligations under the guarantee.
In cross-examination on this loan Mr Ianni reiterated that he was asked to guarantee a loan of $100,000. He said he was asked to do so by his son and a man from the bank. He acknowledged he saw Mr Egisto but said he only saw him for ten minutes. He said papers were put in front of him to sign. He said he had to go and move his car because it was in a no standing place and he left his wife to sign her papers. He said no one explained anything to him. Subsequently he said Mr Egisto explained a few little things but it was always because of $100,000. He said if he knew the guarantee was not limited to $100,000 he would not have signed it.
Mr Ianni said he knew from his dealings with the Commonwealth Bank, which had advanced him funds to purchase his home, that the significance of a mortgage was that if he did not pay the bank would sell the house and take the money from the proceeds. He denied, however, that he knew he was executing a mortgage when he gave the guarantee in 2000. He stated that if this had been indicated to him by Mr Egisto he would not have signed the document.
Subsequently in his cross-examination he acknowledged he gave the title deeds to his son to give to St George Bank but insisted it was only in respect of the $100,000.
Mr Egisto gave evidence. He said that he was "pretty sure" that he had explained the legal effect and significance of the mortgage and guarantee to the Iannis, otherwise he would not have signed and initialled the document. He said he would not have allowed Mr Ianni to sign the documents if he was unsure that he understood them. Mr Egisto acknowledged that he had no independent recollection of the transaction but stated that having regard to his usual practice he would have explained the document to Mr Ianni. The primary judge stated that he preferred the evidence of Mr Egisto to that of Mr Ianni.
Mr Previte gave evidence stating that in accordance with his usual practice he would have explained the effect of the St George documents to Mrs Ianni.
Prior to dealing with the loan to RHG the subject of these proceedings, it is necessary to say something about the background to the loan application. As Tobias AJA has pointed out (at [458]), on 19 August 2005 Joe and Sandra Ianni entered into a contract to purchase a property, xx xxxx Avenue, Dural, (the Dural property) for the sum of $2,223,500. Mr Famularo was aware of this as he had completed a loan application for the National Australia Bank on behalf of Joe and Sandra Ianni seeking an advance of $3,500,000, $2,400,000 thereof to complete the purchase, $490,000 to repay St George and a line of credit of $610,000.
The loan application made by the Iannis to RHG, which was forwarded to that company by Mr Famularo, contained a copy of a first page of a contract for the same property also dated 19 August 2005 but showing the Iannis as purchasers (their names being inserted by hand) and the purchase price (also handwritten) as $500,000. The page of the contract in question contained a handwritten note "not security".
I referred earlier to the restructure of the Jencon facilities on 30 September 2005 (see par [4](k) above). Around the same time Joe and Sandra Ianni sought a discharge of the St George mortgage over the Drummoyne property owned by the Iannis. By letter dated 29 September the bank agreed to discharge the mortgage in consideration of the payment of $484,927 with accrued interest. Although little seems to have been made of it in the proceedings it is of significance that the Ianni guarantees were able to be released for significantly less than the amounts subsequently borrowed from RHG.
There was also forwarded to RHG with the loan application a document on St George letterhead described as a "Snapshot of Account", which purported to be a statement of the indebtedness of the Iannis under an executive housing loan. The amount said to be outstanding was $486,035.16. The "Snapshot of Account" was addressed to the Iannis at their Drummoyne address. It detailed loan repayments from 21 October 2004 until 22 August 2005. A similar document was produced addressed to Mr Joe and Ms Sandra Ianni at their Pyrmont address showing identical payments but noting that the payees in respect of each of the payments were Joe and Sandra Ianni.
In this context it must be remembered that the loan application made by the Iannis to RHG stated that the purpose of the loan was to purchase a property for $500,000 and to refinance an existing loan of $490,000. A compelling inference which arises is that the documents were supplied to RHG as evidence verifying the purpose of the loan.
The evidence of Mr Famularo was that he had a conversation with Joe Ianni who introduced himself as the brother of Anthony Ianni, stating he (Joe Ianni) wished to refinance loans he had with St George bank secured over the Drummoyne property. Mr Famularo said he arranged an appointment on 14 September 2005 and said he would like to meet the Iannis personally to discuss the loan arrangement and that he would require them to complete a loan application.
There are a number of matters to note about this conversation. First, on 30 August 2005 Mr Famularo had completed a loan application on behalf of Mr Joe and Ms Sandra Ianni in respect of the Dural property. There would seem very little reason in those circumstances for Mr Joe Ianni to introduce himself in the manner suggested.
Second, there seemed little reason for Mr Famularo to ask to speak to the Iannis when he did not know the nature of what was proposed.
Third, in the conversation deposed to by Mr Famularo, Joe Ianni referred to the fact that his loans were secured over his parents' property. There was no suggestion that what was being refinanced was a loan to the Iannis.
Mr Famularo stated that he met the Iannis on 14 September 2005. He identified the meeting by reference to a diary entry on 14 September 2005 which stated "Ianni deal". In an affidavit sworn by him in the proceedings he deposed to the following conversations:
"Rosario: I have a number of loans which both my wife and I have secured for Joe and Sandra Ianni including a loan for $486,000. We may have also given guarantees for a company by the name of Jencon Australia Pty Ltd but I know that these loans are all secured over my Drummoyne property. These loans had been in existence for many years.
Peter: What are the amounts of these other loans that you have guaranteed?
Rosario: I cannot recall the exact amounts guaranteed. Joe and Sandra manage the finances. I simply want to reduce the liability on my home that's why we need to refinance my share of the liability. I also wanted to borrow funds to assist with the purchase of another property if possible. This will allow me and my wife to live closer to our son Joe."
And:
"Peter: Are you both working at the moment or have you retired?
Rosario: I am working. I work for Joe and Sandra in the Darling Harbour business. It's an Italian Restaurant called Fioriani. Both Domenica and I are silent investors in the business. I have worked there for a long time and helped my children purchase the business in the early 1990's. I have another three sons who also work there.
Domenica: That is right. We have worked there for a long time and helped Joe and Sandra purchase the business in the early 1990's as well as helped them purchase a property in Pyrmont in 2000.
Peter: So the Restaurant is a family business.
Rosario: It is. Our three other sons are also employed at the Restaurant. This business supports our children and their families. If I can help my children and their families I will and have previously offered my home to St George Bank as security to help them get ahead in life.
Peter: Are you confident that you can repay the loan should RAMS approve your application and lend you the money?
Rosario: Yes, it would be fine. Our income ranges from $85,000-$95,000 per year. I have never had a problem repaying the loans I have had with St George since the 1990's and have always made the payments in a timely manner. You can see for yourself that we have always had the ability to repay our loans.
Peter: We will need to obtain bank statements from you for the purpose of confirming this.
Rosario: No problem, I have them with me.
Peter: Do you own any other real estate besides your Drummoyne home?
Rosario: No. The Drummoyne property is the only property we have.
Peter: Do you have other assets?
Rosario: Well, I have substantial cash reserves.
Peter: What is the approximate value of the cash reserves?
Rosario: I cannot recall the current value but over $100,000.00."
And:
"Peter: You should obtain legal and financial advice in relation to the proposed RAMS loan.
Rosario: We have previously obtained legal or financial advice on a number of occasions with regards to our St George Bank loan obligations and would prefer not to have to obtain it again.
Peter: You should obtain the advice again regardless.
Rosario: I can have Mr. Angelo LoSurdo confirm that we have previously received advice with respect to our St George Bank loans."
Mr Famularo stated that he took notes of the meeting. A typescript to the note is set out in par [446] of the judgment of Tobias AJA. It should be noted the notes were dated 14/9/09 not 2005. The notes commenced as follows:
"14/9/09
9 AM - Ianni ROSARIO) xx xxxx ST
- Ianni DOMENICA) DRUMMOYNE
- Joe IANNI - Son"Mr Famularo also produced what he said was an extract from his diary for September 2005. By contrast to Mrs Baira's case, the actual diary entry was not produced. The diary entry records an entry on a date stated to be 14:
"9 Ianni deal refinance / SGB"
Under that there is a notation which is illegible. However, Mr Famularo acknowledged that the diary entry did not say that he (Mr Famularo) had a meeting with the Iannis.
Following the meeting Mr Famularo said he completed a loan application on behalf of the Iannis. The loan application named the applicants as the Iannis. It stated they were self-employed and investors in Fiorianis. It named Mr Lo Surdo as their accountant, something which did not appear in the file note. Ms Ianni's income was stated as $85,000 and Mrs Ianni's at $90,000 broadly consistent with what appeared in Mr Famularo's note. As I have indicated the purpose of the loan was said to be $500,000 to purchase a property and $490,000 for refinancing. The amount of the loan requested was $1 million. Ultimately approval was given to a loan for $910,000. The stated purpose in the loan approval being $490,000 for refinancing and $420,000 for "equity release".
As Tobias AJA has pointed out (at [483]) Mr Famularo was supplied with a water rate notice which indicated that the Iannis were receiving a pensioner rebate. This was hardly consistent with the statement of income disclosed in the loan application. The water rate notice was not sent to RHG although the Council rate notice which did not contain the same indication was. In cross-examination Mr Famularo stated he did not observe the pensioner rebate recorded on the water rate notice.
As part of the transaction the Iannis signed three documents relating to the granting of the loan. The first of these was a document headed "Borrowers Acknowledgement (no legal or financial advice obtained by borrower)". That document contained an acknowledgement by the Iannis that RAMS (RHG) had recommended they obtain legal and financial advice, that they had decided not to do so and that they acknowledged there were significant risks in not obtaining such advice. The acknowledgement also stated that the Ianni had read and understood the document provided by RAMS.
Somewhat inconsistently, each of the Iannis also signed a document stating that they had received independent legal advice relating to the loan and the security documents. The declarations were witnessed by a solicitor, Mr Wennerbom, who was, at that time, a lawyer from Lands Legal. Mr Wennerbom gave evidence that by reference to a timesheet he saw the Iannis for 54 minutes on 11 October 2005. He stated that he explained the mortgage documents.
In addition, the Iannis each signed a statutory declaration stating that they had borrowed $910,000 and could repay that amount without hardship. The declaration was witnessed by Mr Wennerbom.
In cross-examination Mr Wennerbom stated he did not send a letter confirming the explanation although he agreed it would have been prudent to do so. He said he explained the documents by way of an overview and then explained each individual document and had a "signing ceremony". He was cross-examined as to the apparent inconsistency between the two documents to which I have referred and said the acknowledgement was signed because he did not provide financial advice. Mr Wennerbom said that he had done liquor licensing work for Joe Ianni in the past but he had never met Mr Famularo before this occasion. He said the meeting had taken place in English.
It was put to Mr Wennerbom that he simply indicated to the Iannis where they should sign the documents. He denied this.
The primary judge described Mr Wennerbom as a firm and credible witness stating it was plain he was independent of Joe and Sandra Ianni. He described the cross-examination as involving forensic excursions which did not affect his view.
One difficulty with Mr Wennerbom's evidence was that at no stage did he give evidence as to what he told the Iannis during the course of the conversation in which he gave the explanation.
Mr Rosario Ianni denied meeting Mr Famularo or providing the information in the loan application. In an affidavit sworn on 23 February 2010 he stated that he was an aged pensioner whose only assets apart from his home were term deposits of $24,000 and $30,000 and a small parcel of shares in IAG Limited. I have set out his evidence concerning the 2000 guarantees earlier in this judgment. In relation to the RHG loan, he said that Mr Joe Ianni told him he had found another bank, RAMS, that would make a loan at cheaper interest and asked him to sign a guarantee. He said he was taken to a solicitor to sign documents for the loan. He said that the documents were not explained to him, the meeting lasting about ten minutes. In that affidavit he also said that Mrs Ianni could neither read nor write English but understood a little and spoke even less.
In an affidavit sworn on 13 October 2009, Mr Ianni also stated that neither he nor his wife ever had a loan account with St George Bank as appeared on the Snapshot of Account document. He stated that the loan application was incorrect in the following respects:
"As at September 2006:
·I was working as a self-employed investor;
·I had not operated a business for 15 years;
·I did not operate a shop at 197 Harbourside Darling Harbour;
·I was not working in the Restaurant / Food Industry with a taxable income of $85,000.00 per annum.
·Although he had previously done tax returns for me, Angelo Losurdo did not at the time do any accounting work or tax work for neither [sic] myself nor my wife;
·I had not instructed Phillips Fox Lawyers in relation to an application for loan or the purchase of any property and no one at Phillips Fox at the time was acting on my behalf;
·I was not intending to purchase a property and had no reason to apply for a loan of $500,000 to purchase a property;
·I did not want to borrow $1 million.
·I had no intention of providing my property at Drummoyne as security for any loan from RAMS home loans.
·I did not have a share in a business at darling Harbour;
·I did not owe $426035.00 to St George Bank."
Mr Ianni denied that it was explained to him that the documents that he and his wife were signing contained an acknowledgement that they were borrowing $910,000, that they were mortgaging their property to secure that amount and that RHG had advised they should seek legal and financial advice but they had declined to do so.
In cross-examination Mr Ianni repeated his denial that he and his wife met with Mr Famularo on 14 September 2005. He said he got information from his son that interest rates were low and that Joe Ianni asked him to go and see a solicitor. He stated that all he knew was that he was signing something about the $100,000 to get a lower interest rate and to change banks. He said he did not see the figure of $910,000 on the document he was asked to sign. He stated there was no point in him borrowing money because he was living on the money that he had. He said he would not be borrowing that kind of money. He was cross-examined on the declaration he signed on 11 October 2005 and acknowledged that he could read a figure of $910,000 which appeared on it, but said it was not explained to him at the time and as he had made no application for a loan there was no reason for him to look at it.
He stated that the day he signed the document before Mr Wennerbom his car was parked in a place where it could not stay for very long. He stated that he quickly went upstairs to the solicitor's office and signed the document. It was pointed out to him that this was the same explanation he gave in relation to the execution of the 2000 documents but he insisted that that was what occurred. He denied that Mr Wennerbom explained to him that he was borrowing $910,000.
Mr Ianni prevaricated somewhat on the question of whether his signature appeared on some of the documents in issue but ultimately seemed to concede that he did sign the documents in question.
Mr Ianni was cross-examined on his ability to understand English. It was put to him that at the time he swore an affidavit of 16 October 2008 it was read to him in English by his solicitor, a Mr Niles, and he did not need the aid of an interpreter. He stated he signed the affidavit after it was interpreted to him. Mr Niles was called to give evidence. He said that he read each paragraph of the affidavit in question to Mr Ianni in English who stated he understood them. He said that on reflection he did not read or explain each document attached to the affidavit to Mr Ianni. However, he said that he explained the gist of each document. It should be noted that in relation to two of the other affidavits sworn by Mr Ianni, Mr Niles had an interpreter present when the affidavits were sworn.
It should be noted that although it was put to Mr Ianni that he met Mr Famularo on 14 September 2005 the following matters were not suggested to him.
(a) That he supplied the information in the loan application to Mr Famularo.
(b) That the information in the loan application, particularly in relation to his statement of income and the reason for the loan, namely to purchase a property, were in fact correct.
(c) That the statement of assets and liabilities and income contained in his affidavits were false.
(d) That he supplied the sham contract and Snapshot of Account to Mr Famularo.
I have summarised the evidence in chief of Mr Famularo above. In cross-examination he acknowledged he completed a late application to the National Australia Bank to enable Joe and Sandra Ianni to purchase the Dural property. He acknowledged that it was more likely than not that the first page of the contract was supplied to the National Australia Bank in connection with Joe and Sandra Ianni's loan application. He acknowledged that the contract for purchase was due to settle on 14 October 2005 and the reason the RHG loan was required to be settled on that day was because it was the date of settlement of the Dural purchase of Joe and Sandra Ianni.
Mr Famularo was cross-examined on the Snapshot of Account document, first by counsel for Mr and Mrs Ianni. He stated that he obtained the document from Mr Ianni but acknowledged that the bundle of documents presented to the Court only contained a snapshot in the name of Mr Joe and Ms Sandra Ianni. It was put to him and he denied, that he knew that the account was in the name of Joe and Sandra Ianni. He then acknowledged that he had been advised of that fact on 30 August and said that on 14 September he could not confirm the identity of the accountholder. Subsequently he stated that the practice of St George was to supply to each of the borrower and the guarantor a snapshot of the account.
Counsel for the Iannis also cross-examined Mr Famularo on the sham contract that indicated the Iannis were purchasing the Dural property. He acknowledged it was sent to RHG and at the time he knew that Joe and Sandra Ianni were purchasing a property at the same address. He said he attached the contract of sale because he was familiar with RHG's requirements. He denied that on 14 September 2005 he was aware that the Iannis were not purchasing the Dural property.
So far as the statement of income of the Iannis contained in the loan documents was concerned, Mr Famularo said that he asked for verification and was told that that was not available. He denied that that was untrue.
It was put to Mr Famularo and he denied, that he did not speak to the Iannis but only to Mr Joe Ianni. He also denied that the Iannis gave him no instructions, that he completed the application knowing they were not purchasing the property at Dural and that he knew that the St George account to be paid out was in the name of Joe and Sandra Ianni. He also denied that he knew or had no regard to whether it was true that the Iannis were self-employed. He denied his diary note was a fabrication. He acknowledged, however, that he knew that any capacity of the Iannis to repay was dependent on Mr Joe Iannis' ability to run what was described as the family business.
Mr Famularo also denied that he did not tell the Iannis that they should obtain financial advice. He also rejected the proposition that he never met with Mr Lo Surdo.
Counsel for Mrs Baira also cross-examined Mr Famularo on the sham contract. The cross-examination was to the following effect:
"Q. If you would have a look at that copy of exhibit C1 ... Exhibit C1, for the record, is Joe and Sandra's purchase and the other document, which is already in evidence, at page 380, is something else, isn't it?
A. Yes, it is.Q. That's not a purchase at all, is it?
A. I don't know.Q. It is a sham document, isn't it, sir?
A. I don't know.Q. See, you knew, sir, because you had arranged for the National Australia Bank to fund Joe and Sandra Ianni's purchase of x xxxx; you knew that the document at page 380 was a sham?
A. I did not.GEORGE: Again, I would say there is no allegation of fraud in the first cross-claim by Mrs Baira.
BOLSTER: No, there isn't.
GEORGE: The rules require there to be, in cases of fraud specifically, particulars of any allegation made. I will take your Honour to them.
HIS HONOUR: Yes. What are you alleging please, Mr Bolster?
BOLSTER: I want to know, sir - perhaps if I could put it this way.
Q. You had both contracts at the time you made the application in the Ianni matter, correct, sir?
A Yes.Q And you would have the court find that you were careful in the documents that you provide to RAMS in this case?
A. Yes.Q. And that you were careful in respect of ensuring that a document that went forward in support of an application for finance was true and correct?
A Sir, how can I confirm that?Q. Sir, you proceeded with an application to the NAB for the purchase of x xxx xxx, correct?
A. Yes.Q. And at the same time proceeded with an application for finance for exactly the same property on behalf of Mr and Mrs Ianni. Correct?
A. I did not check the details, the specific details, on that contract.Q. So your explanation is that you did not check the two contracts?
A. I didn't compare them, that's correct.Q. So you were not careful, can I suggest, in what you put forward to RAMS in support of the supposed loan for Mr and Mrs Ianni?
A. That's incorrect. I don't compare different customers files between them.Q. Well, sir, this was the Ianni's refinance, wasn't it?
A. That document was included in the Ianni refinance, yes.Q. And there were two loans that formed the part of the Ianni refinance?
A. There were two loans, yes.Q. And the NAB loan required security over the Pyrmont property. Correct?
A. That is correct.Q. And the effect of the RAMS loan was to release that very security. Correct?
A. Sorry, the effect of the RAMS loan?Q. To Mr and Mrs Ianni was to release Pyrmont?
A. I don't know what effect that - that loan would have had because the facility was cross-collateralised over two properties, that being Drummoyne and Pyrmont. Those arrangements they needed to discuss with their own solicitor. I didn't know the arrangements prior to the RAMS refinance.Q. What was being offered as security for the Iannis to the NAB was Pyrmont and the new property at Dural?
A. Yes, on the basis that that loan was to be paid out as well.Q. Pyrmont had to be released by St George?
A. Yes, on the basis that the $486,000 loan, or whatever it was, was repaid.Q. This was one refinance, wasn't it?
A. No. They had independent solicitors acting for them.Q. But you, sir, put forward to RAMS the purchase of that property, xxxx xxxx, Dural, as a basis for the loan to the Iannis?
GEORGE: Your Honour, no such allegation is pleaded, and I take your Honour to 15(5) which is a separate requirement, UCPR 15(5), and I can't find anywhere in my friend's cross-claim that this is one of the particulars of negligence that he relied upon, and 15(5) requires the cross-claimant to set out what those particulars are."
In cross-examination by counsel for Mrs Baira, Mr Famularo affirmed that he did not give particular attention to the water rate notice.
An affidavit of Mrs Ianni was read. She said she was unable to write and read English, although she could write her name in English and understand a little. She stated that in the five years prior to swearing her affidavit (12 November 2008) she had been totally dependent on her husband to do the housework and take care of her.
Mrs Ianni was unable to be cross-examined. Very little weight can be placed on her evidence in those circumstances.
Mrs Ianni's general practitioner gave evidence by affidavit sworn 8 September 2010. He deposed that Mrs Ianni "had very little comprehension due to her mental health" and that between the years 2000 and 2010 he had seen a rapid deterioration in Mrs Ianni's health and that she was no longer able to manage her affairs.
(c) Mr Joe and Ms Sandra Ianni
For completion it is necessary to refer to the evidence of Joe and Sandra Ianni.
In his affidavit evidence, Mr Joe Ianni stated that he was introduced to Mr Famularo by his brother, Anthony Ianni. He stated that he told Mr Famularo that he had found a property at Dural that he wanted to purchase and that the purchase price was $2,223,500. He stated that he told Mr Famularo that he required $1.1 million from St George Bank. He said that Mr Famularo enquired whether he had any other security, to which he responded that he had a unit at Pyrmont worth about $1 million, a liquor licence worth about $800,000 and that his parents had provided a guarantee to St George for $100,000. He said that in early August Mr Famularo telephoned him and said he had a loan in two parts, the first part being with NAB and the second with RHG, for a full amount of $3.3 million. He said that thereafter he saw Mr Rosario Ianni and asked him to guarantee the RHG loan in an amount of $100,000.
Mr Joe Ianni said that he attended on Mr Famularo to sign various documents for RHG but he could not recall precisely what they were. He said Mr Famularo told him he was arranging for his parents to see a solicitor to sign the guarantee documents. Mr Joe Ianni said he was subsequently told by Mr Famularo that the solicitor was Mr Wennerbom and that he should arrange to take his parents to see him. He said he took his parents to see Mr Wennerbom, that the discussion which took place occurred in English and that Mr Wennerbom did not explain the documents but simply pointed to a spot on the page and said "sign here".
In relation to the loan to Mrs Baira, Mr Joe Ianni said that he telephoned Mr Famularo and said St George was giving him a hard time and he wanted to refinance all his facilities. He said he needed about $1 million. He said that subsequently Mr Famularo informed him that he had a loan approved from RAMS. He said Mr Famularo told him that there would be two loans, one for $650,000 and one for $480,000 and that his mother would need to guarantee the loan up to $150,000. He said that on the next day Mr Famularo came to his home, where some documents were signed and that Mr Famularo also gave some documents to Sandra Ianni and told her that Mrs Baira would need to sign them.
Mr Joe Ianni denied that either Mr and Mrs Ianni or Mrs Baira worked at Fiorianis or received any salary or other remuneration from either Jencon or Jencon Australia Pty Limited.
Mr Joe Ianni was called to give evidence by counsel for Ms Sandra Ianni. In cross-examination he denied any knowledge of the sham contract or the Snapshot of Account document. In relation to the statement of taxable income in the loan application signed by Mr and Mrs Ianni, he was asked these questions and gave these answers:
"Q. You say that given that you say that neither your father or your mother had any involvement in the business or worked in the business?
A. No, they did not.Q. Are you able to explain to the court how this taxable income of $90,000 ended up in this application?
A. I don't know how it ended up in here."
It is true, as Baira submitted, that it was not suggested to Rosario that one of the purposes of his and Domenica's loan application was to purchase a property near to their son, Joe, or that he permitted Famularo to make that assertion on his behalf. There was little purpose in any such questioning given that Rosario's case was that he had never met with Famularo.
However, Famularo had given evidence that Rosario had informed him that he wished to purchase a property so that he and his wife would be close to Joe and he denied (at Black 1/378W) that as at 14 October he knew that there was to be no purchase by Rosario and Domenica of a property at Dural. It was not until 18 months later that he found out that no such property was purchased. It was then suggested to him that he knew that the NAB loan was to purchase the Dural property and that Rosario and Domenica were not purchasing any property at Dural, a proposition that he said was false. In other words, his evidence both in his affidavit and in cross-examination was that first, he knew that Joe and Sandra were purchasing a property at Dural; secondly, that he had been informed by Rosario that he wanted to purchase a property so that he could be near to his son Joe; and, thirdly, that he proposed to purchase such a property for $500,000.
In these circumstances, the sham contract document would have been supportive of each of these propositions were it not for the particular address of the property the subject of the contract. However Famularo's evidence was that he did not look at the document in detail and at Black 1/395 in the passage of his evidence that I have recorded at [460] above, he swore that he did not check its specific details and did not compare it with that contained in the file of a different customer, namely, Joe and Sandra. In my opinion this was a rational and not glaringly improbable explanation and one which it was open to the primary judge to accept as he apparently did. Although his Honour made no specific finding in this regard, his general acceptance of Famularo as a reliable and credible witness would indicate that he inferentially accepted his explanation as to why he did not appreciate, as he said he did not, that the sham contract document related to the same property at Dural as that which was to be purchased by Joe and Sandra pursuant to a loan from NAB.
Famularo's evidence, as I have indicated, was that he simply did not appreciate what was the content of the sham contract document. The details as to the property being purchased are not easily identified (Blue 4/1361J) as the photocopy in evidence is presumably the same as that which Famularo had in his possession and is not easy to read. In my view it was a matter for the primary judge whether he accepted that explanation. It was open to him to do so given that the document was one among a large number that accompanied the application to RAMS.
In respect to the Snapshot of Account statements it was suggested in submissions by Baira that they were forwarded by Famularo to RHG in order to represent to RHG that first, the relevant loan account was in the name of Domenica and Rosario and, secondly, that it demonstrated that they had a track record in meeting their financial commitments and that this would have influenced RHG in approving their loan. No evidence was identified that suggested directly or indirectly, that this was Famularo's purpose in providing the statements to RHG.
Grounds 2 & 5: Mr Forster's certificate
This principal error in relation to the question of Famularo's credit was compounded, so it was submitted, by an apparent misunderstanding of the significance of the certificate given by Egisto Solicitors, being Mr Forster, in his letter to SGB of 12 October 2005 confirming that Baira attended their office on that date when the nature of the then proposed guarantee and increased liability was explained to her.
It was submitted that the certificate did not address the core reason why that advice was required, namely, SGB's proposal to the detriment of Baira that the securities to which she might otherwise have had recourse would be released. Mr Forster accepted that he did not advise on the release of securities.
It was submitted that the primary judge proceeded upon an assumption that Baira had appropriate advice tendered to her (presumably by Mr Forster) when she entered into the contractual arrangement with RHG in circumstances in which she gave her fully informed consent to those arrangements without appreciating that first, she did not receive legal and financial advice in relation to those transactions and, secondly, Famularo never explained to her the terms upon which Joe and Sandra proposed to borrow monies from RHG. However, in my view, these submissions do not go to the issue of Famularo's credit. Although in the first cross-claim of each appellant against, amongst others, Famularo, it was submitted that he had a duty of care to the appellants, it was not a duty Famularo considered that he was under. That proposition is also not relevant to the issue of his credit.
His Honour accepted the evidence of Mr Forster that he gave advice to Baira in accordance with the letter of 12 October. But even if he had not, that fact could in no way reflect upon his Honour's acceptance of Famularo as a credible witness particularly with respect to the primary issue in the case, namely, whether there was a meeting between the appellants and Famularo on 14 September 2005 and 2 December 2005. The meeting of Baira with Mr Forster (assuming it was held) occurred after 2 December 2005 and although it may have had some relevance to RHG's approval of the Baira loan, it was not a matter which concerned Famularo although his file notes of the meeting recorded a recommendation that she obtain independent legal advice. Findings, had they been made, that Mr Forster had not given proper advice may have entitled Baira to relief against the solicitor but there was no cross-claim to that effect. In my view the submissions do not address the real issue agitated on the appeal.
Ground 6: The evidence of Dr Cameron
Ground 6 of the Grounds of Appeal relates to the evidence of Dr Cameron, Domenica's general practitioner since 1993, and to which his Honour made no reference. Dr Cameron was not required for cross-examination. It was submitted that in view of his unchallenged evidence, it was not open to his Honour to conclude that Domenica was capable of understanding the nature and impact of the RHG loan at the time it was made. Dr Cameron's evidence, however, was that Domenica was totally reliant upon Rosario to attend to all her personal needs. She was no doubt also dependent upon him in relation to their commercial activities such as they were. Famularo's evidence was that Domenica was a different person when he saw her in 2005 than when he saw her in 2011. In September 2005 Domenica was 67 years of age. In paragraph 7 of Dr Cameron's affidavit he expressed the opinion that Domenica had very little comprehension due to her mental health and that Rosario communicated with her with difficulty in Italian repeating often two or three times in order to get a response from her to Dr Cameron's questions. It is apparent that he was speaking as at the time he swore his affidavit in September 2010. At paragraph 8 he opined that between the years 2002 and 2010 he had seen a rapid deterioration in Domenica's health and she was now no longer able to look after herself and was incapable of managing her affairs.
In my opinion Dr Cameron in his evidence was, generally speaking, expressing an opinion as at September 2010. Although he said that there had been a rapid deterioration in Domenica's health between 2002 and 2010 he did not express an opinion as to the extent of her ability to comprehend the loan application as at 2005. At Black 1/383G-Y it was put to Famularo that he recognised that Domenica and Rosario probably did not understand what was happening to them to which he responded "A little". However, he was conversing with them in Italian so any issues relating to their knowledge of English did not then arise. It was not suggested to Famularo that to his observation, Domenica did not understand at all the discussion that was proceeding in Italian between himself and her husband. In my view Ground 5 of the Grounds of Appeal should be rejected. I note that the issue to which it related was not addressed by senior counsel for Baira in his oral argument on behalf of the appellants or in Domenica and Rosario's written submissions filed on 10 May 2012.
Ground 1: The primary judge failed to address the appellants' case at trial
In their written submissions in the Orange book Baira finally turned to Ground 1 of the Grounds of Appeal which alleged that the primary judge failed to address the appellants' cases at trial. These submissions were generally directed at RHG it being suggested that it was indifferent as to whether the income information in the loan application was truthful and that they failed to act with prudence. It was submitted that RHG was aware of a number of factors which, so it was submitted, would have indicated unusual features of the loans that were being sought.
It is not clear whether these submissions were intended to support a defence to RHG's claim or whether they were intended to support the first cross-claims of Baira on the one hand, and Rosario and Domenica on the other against RHG, the second respondent and Famularo. Criticisms were made of RHG and in particular the fact that no loan officer was called in respect of either loan. It was again submitted that the primary judge did not deal in any effective way with the factors to which reference has been made and which related, in particular, to the fact that the appellants were now borrowers rather than guarantors and that as principal borrowers they had no recourse in the event of default on the loans against Joe and Sandra or their properties. I respond to this submission at [545] below.
It was submitted that the appellants had strong cases to advance in that they had no ability to protect their own interests in circumstances where their respective properties were being deployed by Joe and Sandra without any appreciation of what Joe, Sandra and Famularo were in truth doing with them. The primary judge rejected their cases based primarily, so it was submitted, on his acceptance of Famularo's file notes and his erroneous acceptance of his credit. This is not an entirely fair submission as his Honour, for reasons that he set out and which related to other than his acceptance of Famularo's credit, did not regard Baira or Rosario as credible witnesses.
It was then submitted that it being resolved to accept Famularo's evidence as both credible and reliable and having characterised that of Baira and Rosario as lacking credit, his Honour regarded himself as relieved of any obligation to examine the facts of the case in detail. He thus closed his eyes to the case the appellants sought to make. In my opinion this submission is without substance.
In any event, Ground 1 in my view seems to be more directed to the cross-claims but in oral argument senior counsel for Baira made it clear that it was not necessary for the Court to consider those claims. No doubt, this concession was made because his primary submission was that his Honour's acceptance of the evidence of Famularo should be set aside and a new trial ordered in which the issues of credit would be determined afresh as would the cross-claims. In this respect the observations of the plurality in Fox v Percy at [45] as to the wisdom or lack of it of new trials when issues of credit are involved should be borne in mind.
The appellants' submissions should be rejected
It was submitted both with respect to Domenica and Rosario as well as Baira that each had become principal borrowers when prior thereto they had only been guarantors. The legal effect of this was that should there be default in the repayment of the loans by either of them, then they would be liable to repay the amounts then owing and would have no recourse either to Joe or Sandra on the one hand or to any of Joe and Sandra's properties on the other, which had originally been secured with respect to their indebtedness to SGB.
The difficulty with this contention, which was not the subject of oral argument, is that first, it does not directly impact on the issue of Famularo's credibility and, secondly, his Honour in effect rejected the submission upon the basis that each of the appellants were fully aware of what they were doing and, in particular, that they were principal borrowers and not guarantors. In my view this was a finding which was open to him.
It was submitted that his Honour failed to appreciate the fraudulent character of the loan applications as they were for the commercial benefit of Joe and Sandra rather than for the benefit of the appellants. It was further contended that his Honour failed to appreciate the commercial disadvantages the effect of Joe and Sandra's activities and those of Famularo had on each of the appellants. Again this submission should be rejected. It is true that there were benefits and disbenefits in the transactions that took place. The primary judge at [132] stated that although he did not find that the appellants had an identifiable proprietorial interest in Joe and Sandra's businesses, all of the transactions were part of consensual family arrangements and the reality was that the documents that were signed were for the benefit of the general family prosperity.
In my view this was a finding that was open to his Honour in the circumstances given the nature of the businesses conducted by Joe and Sandra and the fact that at the relevant time, they appeared to be doing well and producing substantial cash funds. Although his Honour made no finding that the appellants were receiving cash payments from the profits of the business, he did find, and the evidence clearly established, that they were very profitable. As RHG submitted, they thus had the capacity to supply considerable funding to members of the family as was reflected in Famularo's file notes. Furthermore, it was not in contest that Joe and Sandra accepted responsibility for the payments required under the loans made by RHG to the appellants. It was common ground that Joe and Sandra met the repayments under the two loans until such time as their businesses ceased to operate when there was default.
It should be observed that in oral argument Baira did not attack, at least frontally, the authenticity of Famularo's file notes. The nature and detail of their contents tells against the validity of any such submission, had it been made. Nor did those parts of the appellants' submissions at trial, both written and oral and which I have chronicled at [436] and [444] above, challenge the genuineness of those notes.
However, Baira's written submissions asserted that the fact that she, Domenica and Rosario were steadfast in their denials of ever having met or instructed Famularo should be regarded as highly corroborative of their evidence and their credibility. His Honour took a different view based, it was asserted, solely upon the existence of what was submitted to be self-serving file notes produced by Famularo that were suggestive of meetings with the appellants. It was submitted that the existence of the notes were, ultimately, proof of nothing other than that Famularo had prepared them and that he did so occurred in circumstances destructive of his credit, namely, first, he permitted the sham contract document to go forward to RHG; secondly, he had been provided with a water rate notice that showed that Domenica and Rosario were pensioners and, thirdly, he had taken no steps to verify any of the information that went forward, particularly relating to the appellants' income and asset position. I have responded to those assertions at [442], [478] - [487] above and which it is unnecessary to repeat.
It was submitted that his Honour did not address the fact that an internal record of RHG described the Baira loan as "unusual" but commercially acceptable because of an explanation which Famularo had allegedly given but which he denied having given in the terms asserted. It is unnecessary to detail this issue. It does not advance the issue of Famularo's credit.
It was then submitted that once the deficiencies in the primary judge's reasons are taken into account his Honour's findings on credit and his findings generally "are obviously unreliable". In my view this submission cannot be sustained.
Although at trial it was submitted that the sham contract document and Snapshot of Account statements were "significant", that significance was confined to the proposition that Famularo knew they were false. His cross-examination on those documents bears that out.
Again, in oral argument on the appeal it was only contended that Famularo knew the sham contract document was false, it being submitted that his explanation for not being aware of that fact should not be accepted. It was also submitted that Famularo knew the Snapshot of Accounts statements to be false and that he provided them to Baira to demonstrate Rosario's track record in meeting his loan repayments. Once the latter argument is rejected as not being the subject of any cross-examination of Famularo to that effect, one is left with the submission that he should not have been believed when he said he did not appreciate the inconsistency between the sham contract document and the front page of the authentic contract.
As it was never suggested to Famularo that he was party to the creation of the sham contract document, it is not glaringly improbable or contrary to compelling inferences that he did not appreciate that it related to the Dural property. As I have observed, the only inference the primary judge was asked to draw from the document was that first, it was false and, secondly, Famularo knew it was false and, thirdly, as he provided a false document to RAMS, his credibility was destroyed.
In my view, only the first of these inferences is capable of being drawn. Even if the second could be drawn (which would require the rejection of Famularo's testimony with respect to the document as untrue), the third inference cannot be drawn. This is because there was no direct evidence as to his purpose in providing the document to RAMS. I have suggested one at [527] above which, if true, is innocent. There was, in any event, other evidence, such as the file notes, which supported the credibility of Famularo on the core issue in the case: did he meet with Domenica and Rosario on 14 September 2005 and with Baira on 2 December 2005? If he did then it followed that the appellants' credit was undermined.
Baira submitted in oral argument that his Honour's findings on credit were flawed in the sense that he did take into account and said he did not understand "matters of central significance", this being a reference to, relevantly, the sham contract document. But why it was of central significance was never explained unless it was that Famularo knew the document was a fabrication of the front page of the authentic contract. But the cross-examination of Famularo with respect to the document was confined to his knowledge of its falsity. At Appeal tpt 28, it was conceded, properly, that "there were a number of points that could have been pressed" but were not. It is too late to press them now. Therein lies the weakness of Baira's submission that the sham contract document was a matter of "central significance".
Finally, it must be remembered that the sham contract document and Snapshot of Account statements related only to the loan application of Domenica and Rosario. They played no part in that of Baira. This notwithstanding, the latter relied on them to support her own case that there was no meeting. It was a boots strap argument without merit. If anything, Baira's case is extremely weak once Famularo's file notes are accepted as genuine. If that meeting occurred, it is a reasonable inference that the meeting with Domenica and Rosario also occurred. In these circumstances the sham contract issue ceases to have any material influence on his Honour's assessment of Famularo's credit.
Conclusion
In the foregoing circumstances, in my opinion the appellants have not demonstrated that his Honour has failed to use or has palpably misused his advantage in hearing Famularo give his evidence at some length; nor have they demonstrated that his Honour's reasons did not support his credit finding with respect to Famularo or that he had failed to take account of a consideration (the sham contract document) that was truly material to the evaluation of his credibility.
In my opinion it follows that the various challenges made by the appellants to his Honour's credibility findings cannot be sustained. In particular, the primary issue between the parties relating to whether or not the appellants met with Famularo was one which his Honour was entitled to resolve in favour of such meetings taking place in circumstances where there were extensive file notes which were not demonstrated to have been created fraudulently. I would therefore reject each of the grounds of appeal. Accordingly, the order which I would propose is that the appeals be dismissed with costs.
**********
24
1
3