Borg v Stamatelopoulos

Case [2022] SASC 61

Supreme Court of South Australia

(Civil)

BORG v STAMATELOPOULOS & ANOR

[2022] SASC 61

Judgment of the Honourable Justice Bampton  

EQUITY - GENERAL PRINCIPLES - UNCONSCIONABILITY, UNCONSCIONABLE DEALINGS AND OTHER FORMS OF EQUITABLE FRAUD - SPECIAL DISABILITY

The applicant, a short-term money lender, claims a monetary judgment against the respondents and possession of real property (“the property”) owned by them (“the claim’).

Whilst the first respondent was in Greece, the second respondent was called upon to return the monies she had been minding.  The second respondent asked a mortgage broker to help her obtain a loan from the applicant.  The applicant agreed to loan the second respondent $100,000 for three months.  The second respondent, who had a five percent interest in the property, proffered the property as security having remembered she was the first respondent’s attorney pursuant to a deed of enduring power of attorney.  The applicant asked the mortgage broker to contact the first respondent in Greece to ensure he was aware his property would be mortgaged to secure the short-term loan. 

Following a telephone call with the first respondent, the mortgage broker reported to the applicant and second respondent the first respondent agreed to the registration of the power of attorney and to enter into the short-term loan using the property as security. 

The second respondent executed in her name, and as attorney for the first respondent, a loan agreement for $120,000, a declaration as to purpose pursuant to s 13(5) of the National Credit Code, a waiver of independent legal advice, and a mortgage over the property.  The monies were advanced by the applicant and disbursed by the second respondent and have not been repaid.

The first respondent denies the claim and the relief sought, alleging the transfer to second respondent of five percent interest in the property was without his consent or knowledge and he did not agree to the use of the power of attorney to loan monies against the property.  The first respondent counterclaims against the applicant, alleging the second respondent did not have his actual or ostensible authority to enter into the loan agreement with the applicant.

Where second respondent consents to judgment in terms of the orders sought by the applicant – where first respondent has claimed contribution from second respondent for payment of any amount ordered to be paid by him to the applicant – whether the loan was procured without the first respondent’s actual or ostensible authority – whether the first respondent was under a special disadvantage – whether the loan was procured by unconscionable conduct.

Held: The loan was procured by unconscionable conduct.

Real Property Act 1886 (SA) Part 17; National Credit Code ss 13(5), 111, 112, 113; Australian Securities and Investments Commission Act 2001 (Cth) ss 2CB, 12CA, 12GM; Corporations Act 2001 (Cth); National Consumer Protection Regulations 2020 (Cth) reg 68; Stamp Duties Act 1923 (SA) s 71CA; Powers of Attorney and Agency Act 1984 (SA) s 7, referred to.

Jones v Dunkel (1959) 101 CLR 298

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Details
AGLC
Borg v Stamatelopoulos [2022] SASC 61
Case
[2022] SASC 61
Decision Date

CaseChat Overview and Summary

In the case of Borg v Stamatelopoulos, Peter Borg initiated proceedings against Joanna Stamatelopoulos and others, alleging that Joanna had acted unconscionably by executing a mortgage over his property to secure a loan without his consent. The matter came before the court, which was required to determine whether Joanna had validly exercised her powers as Peter’s attorney under the Power of Attorney and Agency Act 1984 (SA) and whether the loan agreement and mortgage were valid and enforceable. The court also had to assess if the conduct of Joanna, along with Athena and Frank, amounted to unconscionable dealing under equitable principles.

The court examined the evidence and found that Peter had a disability pension due to an injury he sustained in 2000 and had limited business acumen, which the court recognised as a special disability. Joanna, acting as Peter's attorney, did not exercise her powers with reasonable diligence to protect Peter's interests, as required by statute. The court found that Joanna failed to obtain Peter's informed consent for the loan and mortgage, instead acting for her own benefit. The court concluded that Joanna’s actions amounted to a breach of her fiduciary duties and unconscientious conduct, as she exploited Peter’s special disadvantage.

The court held that the loan agreement and the mortgage were not valid exercises of Joanna’s powers as Peter's attorney. The court emphasised that Joanna did not act with the necessary diligence to protect Peter’s interests and failed to ensure Peter's informed consent to the transactions. The court also found that Joanna, along with Athena and Frank, acted unconscionably by taking unfair advantage of Peter's special disability, thereby depriving him of the ability to make an informed decision. Frank, although not aware of Peter's special disability, was aware of the possibility that unfair advantage might be taken and was thus complicit in the unconscientious conduct.

The court ordered that the loan agreement and mortgage be declared invalid and unenforceable against Peter. The court further directed Frank to take all necessary actions to discharge the mortgage over Peter's property. The court dismissed Frank’s claim against Peter and made no order on Peter's contribution notice against Joanna. The court granted Peter’s counterclaim, declaring that Joanna, Athena, and Frank acted unconscionably, and that the loan agreement and mortgage were procured without Peter’s authority and were set aside as against him.

Orders

Orders of the court

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Background

Background to the litigation

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Evidence

Evidence Before The Court

Detailing Peter’s evidence has been a difficult task because of his broken English, his confused answers and the fact questions asked of him often did proceed in a sequential manner, moving from topic to topic. Added to this, he started giving evidence on 18 March 2019 and was in cross-examination when the matter settled on 27 March 2019. Cross-examination of him resumed on 26 October 2020 following the collapse of the settlement, by which time Peter had instructed new solicitors and counsel.Peter’s evidence Peter separated from Toula aged 65 and on what he described as a “liability pension”. He meant a disability pension. He said he had been on the disability pension since suffering an injury in 2000. Prior to receiving the disability support pension, Peter worked as a refrigeration mechanic. He said he did not have any qualifications “just learning by trade”.[35] He had a business named “A1 Washers” and “later I was under Peter’s Washing Machines”.[36] He explained he sold A1 Washers and was in partnership when he started Peter’s Washing Machines, which operated from a property at 92 Prospect Road. The Prospect Road property was mortgaged to the Commonwealth Bank. He agreed he signed all relevant paperwork to give effect to the mortgage and bought out his partners’ interest in the Prospect Road property. He agreed the business was trading profitably enough to purchase the Prospect Road property and to purchase a function centre and property at Littlehampton. He helped his ex-wife and Joanna afterhours with the running of the function centre. He agreed the function centre business did not do well and he lost the Prospect Road property and the property at Littlehampton through bankruptcy in 1985/86.[35] T131.16.[36] T131.27. During the bankruptcy, Peter’s Washing Machines operated “under the children’s name”. Whilst he was in business, it was his ex-wife who did all the bookwork. I asked him:[37]Q.When you were in business, you would have had lots of documents that you need to sign, tax returns and invoicing clients.A.Yes. I never used to do that.Q.Who did that.A.To bill, to check, to fix ... fridges. My ex-wife, she is the one who was doing all the bookwork in all those years. Then my daughter later, when she finish school, she was helping her mother with all the documents.[37] T170.1-9. Peter said he did not receive any profits after he became bankrupt from Peter’s Washing Machines. He was asked:[38]Q.So you got a wage.A.* There was – how many years later, about three years later I was a little depressed, my shoulders and my back.Q.* So it was shortly after that that you became injured and you claimed your disability pension.A.* Yes. That was through depression when I lost everything[38] T203.19-26 (The asterisk in quoted transcript indicates a question asked or answer given without the assistance of the interpreter).The creation of the power of attorney Peter detailed signing an enduring power of attorney in 2009. He said at the time he was going overseas, and he wanted to ensure his family could look after him or sell his property if something happened to him.Borrowing money to pay Toula

Decision

Reasons for decision

The execution of the declaration as to purpose, the waiver of independent legal advice, the Borg loan agreement and the mortgage by Joanna as attorney for Peter by Joanna was not a valid exercise of the power of attorney and was not authorised by Peter. Joanna acted in breach of s 7 of the Powers of Attorney and Agency Act1984 (SA) in failing to exercise her powers as attorney with reasonable diligence to protect Peter’s interests. She failed to obtain Peter’s informed consent and entered into the Borg loan for her own personal gain and not for the purposes of Peter’s property or personal affairs.[389][389] Tobin v Broadbent (1947) 75 CLR 378 at 401 (Dixon J); Powell v Thompson [1991] 1 NZLR 597 at [25]-[30].Conclusion Athena impudently thought she was the person to speak to Peter. In reporting back to Joanna and Frank, she committed Peter, who had health issues, no prospects of employment, whose only income[390] was the disability support pension, whose only Australian asset was the property (with a value of approximately $420,000 in September 2016[391] and subject to a mortgage in September 2017 of around $193,000[392]) to increasing his liability by $120,000 plus Frank’s high interest to around $313,000 plus interest. Whilst Joanna gave evidence that she would service $120,000 of any refinance she and Peter were able to negotiate, none of the details were discussed with Peter. [390] I note there is some evidence he may have rented or intended to rent the property.[391] Exhibit P21, page 314.[392] Exhibit P21. Frank alleges that as at 8 February 2021, Peter and Joanna owed him $302,794 in respect of the loan of $100,000 and Joanna owed him an additional $60,558.96 in respect of the $20,000 extra she loaned. Peter is exposed to a liability to Frank of $302,794, plus Frank’s interest from 8 February 2021 to date, plus the ANZ loan which in September 2020 had a balance of around $180,000. It is very likely the ANZ loan and the Borg loan exceed the value of the property even in the current property market. Joanna and Athena engaged in conduct which took unfair or unconscientious advantage of the opportunity created by Peter’s special disadvantage in order to enter a transaction to serve Joanna’s ends, thereby depriving Peter “of the ability to make a judgment as to what is in his best interests”.[393] Frank, without actual knowledge of Peter’s special disadvantage, was concerned about Peter’s consent being obtained to the use of the power of attorney to enter into the short-term loan. I am satisfied Frank was aware of the possibility that unfair advantage may be taken of Peter’s special disadvantage and/or “was aware of facts that would raise the possibility in the mind of any reasonable person” that may occur.[394] [393] Kakavas v Crown Melbourne Ltd & Ors (2013) 250 CLR 392 at [6]; The Commercial Bank of Australia Ltd v Amadio & Anor (1982) 151CLR 447 at 462 and 467 (Mason J).[394] Ibid. Joanna’s, Athena’s, and Frank’s conduct in obtaining Peter’s purported consent to the use of the power of attorney and the Borg loan amounted to unconscientious exploitation of Peter’s special disadvantage.

Ratio Decidendi

Legal Principle Established

To borrow Mark and Frank’s flag analogy; there were not one or two red flags, there was a bunting of red flags circling entry into the Borg loan.Declarations and orders In my view, practical justice between the parties requires that Peter be returned to a position where he has the property, subject only to the ANZ loan, free of obligation of possession and forced sale, as he had prior to the unconscionable transactions. Joanna has had the sole benefit of the $120,000 advanced under the Borg loan. She has consented to judgment in terms of the orders sought by Frank in the statement of claim.Frank’s claim1.Frank’s claim against Peter is dismissed.Peter’s contribution notice against Joanna1.I make no order on the contribution notice.Peter’s counterclaim I make the following declarations and orders: 1.Joanna, Athena, and Frank acted unconscionably in equity.2.The loan agreement dated 22 September 2017 was procured without Peter’s actual or ostensible authority.3.The loan agreement dated 22 September 2017, by which Frank agreed to advance the sum of $120,000, is declared invalid and unenforceable and set aside as against Peter.4.The mortgage by Peter and Joanna to Frank dated 22 September 2017 and registered at the Lands Titles Office on 27 September 2017 (registration number 12800287) to secure the sum of $120,000 is declared invalid and unenforceable and set aside as against Peter.5.Frank is to forthwith do all things necessary to cause any security of Peter given under the loan agreement dated 22 September 2017 to be discharged including but not limited to causing registered mortgage number 12800287 insofar as it relates to Peter’s interest in the whole of the land comprised in Certificate of Title Register Book Volume 5235 Folio 525, situated at Sellicks Beach to be discharged.