Choice Constructions Pty Ltd v Janceski [No 3] - [2011] WASC 358

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL

CITATION: CHOICE CONSTRUCTIONS PTY LTD -v- JANCESKI [No 3] [2011] WASC 358

CORAM: SIMMONDS J

HEARD: 22-24 SEPTEMBER, 16-20 NOVEMBER 2009, 912 MARCH, 16-18 MARCH, 21-23 JULY, 2627 JULY & 11 AUGUST 2010

DELIVERED : 21 DECEMBER 2011

FILE NO/S: CIV 1500 of 2005

BETWEEN: CHOICE CONSTRUCTIONS PTY LTD
Plaintiff
AND
METODIJA JANCESKI
First Defendant
DOSTA JANCESKI
Second Defendant

Catchwords:

Equity - Unconscionable conduct or dealing - Whether it was unconscionable within the principles in Commercial Bank of Australia v Amadio for the vendor to take the benefit of a replacement mortgage securing vendor finance - Parents mortgaging their home as security for the vendor finance extended to their son acting as trustee for a family trust under which the parents were beneficiaries - Whether special disadvantage - Whether any special disadvantage sufficiently evident to vendor financer to make it prima facie unfair or unconscionable for that part to accept or retain the benefit of the replacement mortgage

Equity - Unconscionable conduct or dealing - Whether the evidence of ages of parents; their linguistic, educational and business background; their trust and reliance on their son; their concern for his condition; and the circumstances of the entry into and the nature of the mortgage was sufficient to show special disadvantage - Relevance of advice from a solicitor/translator not extending to the risk of default by the son

Equity - Unconscionable conduct or dealing - Whether on the evidence of advice from the solicitor/translator and the apparent knowledge of parents the vendor was aware of facts which would raise the possibility of the special disadvantage in the mind of a reasonable person

Equity - Unconscionable conduct or dealing - Whether it was unconscionable for the vendor to take the benefit of the replacement mortgage within the principles of Garcia v National Australia Bank - Relationship of parents and son - Whether the principles extended to such relationship - Whether the principles extended to a case where the other party was at most a partial volunteer - Whether the parents understood purport and effect of transaction - Whether parents volunteers or partial volunteers - Whether vendor had taken steps to find out that a stranger had explained the purport and effect of the mortgage to the parents

Legislation:

Evidence Act 1906 (WA), s 79C
Rules of the Supreme Court 1971 (WA), O 21 r 5

Result:

Judgment for the plaintiff

Category: B

Representation:

Counsel:

Plaintiff:     Mr M N Solomon
First Defendant             :     In person
Second Defendant         :     In person
McKenzie friend           :     Ms E Van der Meulen

Solicitors:

Plaintiff:     B W Duckham & Co
First Defendant             :     In person
Second Defendant         :     In person
McKenzie friend           :     In person

Case(s) referred to in judgment(s):

Australia & New Zealand Banking Group Ltd v Dzienciol [2001] WASC 305
Australian Competition and Consumer Commission v C G Berbatis Holdings Pty Ltd [2003] HCA 18; (2003) 214 CLR 51
Bridgewater v Leahy [1998] HCA 66; (1998) 194 CLR 457
Choice Constructions Pty Ltd v Janceski [2005] WASC 186
Commercial Bank of Australia Ltd v Amadio [1983] HCA 14; (1983) 151 CLR 447
Elkofairi v Permanent Trustee Co Ltd [2002] NSWCA 413
Garcia v National Australia Bank Ltd [1998] HCA 48; (1998) 194 CLR 395
Jones v Dunkel (1959) 101 CLR 298
Kowalczuk v Accom Finance Pty Ltd [2008] NSWCA 343
Louth v Diprose (1992) 175 CLR 621
Permanent Mortgages Pty Ltd v Vandenbergh [2010] WASC 10
Perpetual Trustees Victoria Ltd v Kirkbride [2009] NSWSC 377
Spina v Permanent Custodians Ltd [2009] NSWCA 206

TABLE OF CONTENTS

Introduction
Background: the second mortgage sought to be enforced
Background: real property transactions in which the Janceskis were involved before the purchase of the Janet Street property
Background: the purchase of the Janet Street property and subsequent events
The present proceedings
The issues in the proceedings
Applicable law: unconscionable dealings
Applicable law: Garcia v National Australia Bank
Application: special disadvantage or disability
Application: age
Application: illiteracy or lack of education; unfamiliarity with the language
Application: lack of business knowledge
Application: emotional dependence on Mr Knight
Application: circumstances of the negotiations and how the mortgage came to be signed
Application: the length and complexity of the documentation
Application: the relative bargaining positions of the parties
Application: misrepresentations and pressure applied
Application: the Janceskis' concern for Mr Knight's condition
Application: conclusion on special disadvantage
Application: whether any special disadvantage was sufficiently evident to Choice
Conclusion on unconscionability
Application: Garcia v National Australia Bank
Conclusion and call for orders

SIMMONDS J:

Introduction

These are the reasons for judgment following a trial in an action on a mortgage. The plaintiff seeks to enforce a second mortgage over property of the defendants, principally by way of payment of the secured debt plus interest, possession of the mortgaged property, enforcement expenses under the mortgage facility and costs. The second mortgage sought to be enforced secures on the residence of the defendants in Dianella part of the purchase price of a property in West Perth which had been acquired by the eldest son of the defendants. He had made the acquisition acting as trustee of a trust under which that son and the defendants were the appointors and were among the beneficiaries.
There is no contest that the second mortgage was entered into in 2004, that it replaced an earlier second mortgage, entered into in 2002, over the same property in Dianella between the same parties, and that the amounts calculated are as alleged by the plaintiff in its statement of claim to be due under the second mortgage sought to be enforced. I further understood it not to be in contest that the plaintiff is entitled to orders for the enforcement of the mortgage, subject to the determination of the issues raised by the defendants by way of their defence.
The defence, which was amended on the first day of the trial, is that the second mortgage sought to be enforced was an unconscionable dealing for the particular reasons pleaded in the amended defence, and is unenforceable. There was a further matter of defence, added by the defendants in their closing submissions and addressed by the plaintiff, to which I will refer.
In these reasons, I provide a background to the matters in issue between the parties, before describing the trial, the issues between the parties and my resolution of those issues. The final section of these reasons is my conclusion and call for submissions as to orders.

Background: the second mortgage sought to be enforced

The matters I set out in this section are not in contest.
The defendants (respectively Mr and Mrs Janceski and together Mr and Mrs Janceski, the Janceskis or the defendants) are and have been at all material times the registered proprietors of a residential property on Collingwood Street in Dianella in this state: it is and has been at all material times their residence (the Collingwood Street property). They have two sons, the eldest of whom is Michael Mario Marjan Janceski Knight (Mr Knight).
By contract of sale by offer and acceptance bearing the date 24 August 2002 (the 24 August 2002 agreement to sell) the plaintiff (Choice, or the plaintiff), as trustee of a superannuation fund, agreed to sell, subject to finance, to Mr Knight, as trustee of the Knight Family Trust, Unit 3 in a development on Janet Street, West Perth (the Janet Street unit). The purchase price was $375,000. The finance condition was for a first mortgage to secure the amount of $220,000 in favour of Reliance Finance and Mortgage Services (Reliance), the trading name for Walthamstow Pty Ltd (Walthamstow). There was also provision for mortgages in favour of Choice. The mortgages so provided for were to secure the amount of $175,000 provided for under the 24 August 2002 agreement to sell in the events that happened. The mortgages were to be over three properties. One was a property on Ingleton Lane in Mount Lawley, the registered proprietor of which was Mr Knight (the Ingleton Lane property). The other two were the Collingwood Street property and the Janet Street property.
A first mortgage in favour of Walthamstow over the Janet Street property was registered on 4 September 2002. The mortgage appears to have been executed on 31 May 2002 and shows the mortgagee as Walthamstow and the amount secured as $220,000. I will call the first mortgage over Janet Street so registered Walthamstow's first mortgage over the Janet Street property.
On 20 August 2002, two other mortgages in favour of Walthamstow were executed, by Mr Knight and by the Janceskis, respectively, in each case showing the amount secured as $260,000. This was the amount shown as the advance under a loan agreement dated 20 August 2002 between Walthamstow as lender, Mr Knight as borrower and Mr and Mrs Janceski as guarantors. I will call this the Walthamstow loan agreement with Mr Knight and the Janceskis. The amount to be provided under the Walthamstow loan agreement with Mr Knight and the Janceskis was in addition to the amount of $220,000 provided by Walthamstow to permit the acquisition of the Janet Street property. I will return below to the purposes of this finance under the Walthamstow loan agreement with Mr Knight and the Janceskis. By deeds of guarantee and indemnity dated the same date, 20 August 2002, Mr and Mrs Janceski provided guarantees in respect of the lending facilities granted by Walthamstow to Mr Knight under the Walthamstow loan agreement with Mr Knight and the Janceskis (the Deeds of Guarantee and Indemnity by the Janceskis). It was common ground before me that Mr and Mrs Janceski had no liability to Walthamstow in respect of the $220,000 secured by Walthamstow's first mortgage over Janet Street.
One of the two other mortgages was executed by Mr Knight over the Ingleton Lane property (Walthamstow's mortgage over the Ingleton Lane property). I do not have any evidence as to the registration of that mortgage. The other of those mortgages was executed by Mr and Mrs Janceski over the Collingwood Street property, and this mortgage was registered as a first mortgage on 4 September 2002. I will call the first mortgage over Collingwood Street so executed Walthamstow's first mortgage over the Collingwood Street property.
An instrument granting second mortgages in favour of Choice, showing the amount secured as $175,000, over the Ingleton Lane property and the Janet Street property and bearing the date 3 September 2002, was executed by Mr Knight who as mortgagor was liable to pay the amount secured; this mortgage was registered on 4 September 2002. I call the registered second mortgage over the Janet Street property Choice's second mortgage over the Janet Street property.
An instrument granting a second mortgage in favour of Choice, showing the same amount secured and bearing the same date, 3 September 2002, over the Collingwood Street property was executed by Mr and Mrs Janceski who as mortgagors were liable to pay the amount secured. I call the registered second mortgage Choice's 2002 second mortgage over the Collingwood Street property.
All three second mortgages were registered on 4 September 2002.
Later in 2002 the Ingleton Lane property was sold, and the proceeds were used to pay down the amount due under the Walthamstow loan agreement with Mr Knight and the Janceskis, leaving a balance of about $86,000.
On 15 April 2003 Registrar's Caveat I 449276C was lodged in respect of the Janet Street property showing in the box '… in order to protect the interest' the words 'of the beneficiaries disclosed by Deed of Trust I424434'. It does not appear to be in contest that that Caveat was in respect of the interests of the beneficiaries under the Knight Family Trust: as has been seen, the Janceskis were among the beneficiaries under that trust.
In late November 2003 Walthamstow issued a default notice against Mr and Mrs Janceski and Mr Knight for default in paying the balance under the Walthamstow loan agreement with Mr Knight and the Janceskis.
In May 2004 Mr and Mrs Janceski executed an Equity Direct Loan Agreement with Pepper Finance Corporation Limited to borrow $214,200 to be applied principally to pay out the amount due (including interest) under the Walthamstow loan agreement with Mr Knight and the Janceskis (the Pepper Finance agreement). By the terms of the Pepper Finance agreement, the borrowing was to be secured by a first registered mortgage over the Collingwood Street property.
On 21 July 2004 the funds under the Pepper Finance agreement were made available, from which funds totalling $156,923.12 were collected by Reliance. That sum was applied to pay out the amount due under the Walthamstow loan agreement with Mr Knight and the Janceskis with the balance, $49,948.13, applied to reduce the arrears owed by Mr Knight under Walthamstow's first mortgage over the Janet Street property. On the evidence before me consisting of e-mails from Mr Knight to an officer of Choice of 28 May and 1 July 2004, and a letter dated 15 July 2004 from that officer to Mr Knight and the Janceskis, it would appear that at least part of the remainder of the funds under the Pepper Finance agreement, in the amount of $30,000 or thereabouts, was to be made available to Choice for their agreement to allow Pepper Finance to replace Walthamstow as first mortgagee, and it was common ground that there was such an allocation of such a sum from those proceeds.
On 23 July 2004 a first mortgage in favour of Pepper Finance as mortgagee and executed by Mr and Mrs Janceski as mortgagors, and a second mortgage in favour of Choice as mortgagee and executed by the Janceskis as mortgagors, were registered against the Collingwood Street property. I call this second mortgage, which replaced Choice's 2002 second mortgage over the Collingwood Street property, Choice's 2004 second mortgage over the Collingwood Street property, and the two second mortgages over the Collingwood Street property Choice's second mortgages over the Collingwood Street property. As under Choice's 2002 second mortgage over the Collingwood Street property, Mr and Mrs Jancescki as the mortgagors under Choice's 2004 second mortgage over the Collingwood Street property were liable to pay the amount secured by it.
The present action is to enforce Choice's 2004 second mortgage over the Collingwood Street property.
On 2 December 2004 Walthamstow issued a default notice against Mr Knight calling for payment of the principal and interest due under the Walthamstow's first mortgage over the Janet Street property and extension agreements with respect to it.
On 8 March 2005 Walthamstow gave written notice to Mr Knight of its intention to exercise its power of sale under Walthamstow's first mortgage over the Janet Street property.
On 21 March 2005 Choice issued a default notice against Mr Knight in respect of his indebtedness to Choice, and against Mr and Mrs Janceski in respect of their indebtedness to Choice secured by Choice's 2004 second mortgage over the Collingwood Street property. That default notice called for the payment of the same sum as arrears from Mr Knight and from Mr and Mrs Janceski, failing which the balance of Mr Knight's indebtedness to Choice would become payable and Choice could among other things exercise any or all of its rights under Choice's 2004 second mortgage over the Collingwood Street property.
On 27 April 2005 Choice commenced the present proceedings for enforcement of Choice's 2004 second mortgage over the Collingwood Street property.
In December 2005, following Walthamstow's sale of the Janet Street property as mortgagee the balance of the proceeds of the sale, after payment to Walthamstow and its solicitors, was paid to Choice. That balance was approximately $31,000. It is not in contest that after that payment there remained under the terms of Choice's 2004 second mortgage over the Collingwood Street property a substantial balance for principal plus interest owing, that balance being as at 31 July 2010 the amount of $266,345.69, with daily interest accruing at the rate of $66.99 from 1 September 2010.
I turn now to provide further background on Mr and Mrs Janceski, Choice, the purchase of the Janet Street property and subsequent events.

Background: real property transactions in which the Janceskis were involved before the purchase of the Janet Street property

The following is not in contest, except as indicated.
Mrs Janceski was born on 11 February in 1948 in a small village in Macedonia. She had schooling only to Year 4, in which she was taught Macedonian but not English.
I do not have any corresponding evidence for Mr Janceski, who did not testify at the trial. However, it was not in contest that Mrs Janceski met Mr Janceski in a neighbouring village and that the two married in 1966.
Mr and Mrs Janceski's son Michael (Mr Knight) was born 11 February 1968 and their other son, Kiro, was born on 4 December 1970.
In 1971 the Janceskis and their sons migrated to Australia. After a stay in Melbourne, they moved to Perth.
After an initial period of about 6 months Mrs Janceski began work in a bakery packing bread. Her evidence was that she worked there for about 6 years, although this is not readily to be squared with her evidence as to when she left that job that I will reach.
Mrs Janceski did not have any English initially, and acquired English through watching television and talking with those with whom she worked over the years. She was unable to do any course on English for migrants because she had to care for her family. She particularly had to care for her son Kiro, who was intellectually disabled.
I do not have corresponding evidence for Mr Janceski, save, as I will indicate, that at the times indicated below he was a labourer, that he was working full-time in 1984 and that it appears he received a redundancy payment no later than 1989.
In the early 1970s Mr and Mrs Janceski bought a house on Fitzgerald Street in North Perth, being Lot 4 on Diagram 3956 and being all that land comprised in Certificate of Title Volume 1352 Folio 926 (the Fitzgerald Street property). For that purpose they took out a home loan and mortgage with the ANZ bank. A transfer of the Fitzgerald Street property to the Janceskis and a mortgage over it to the ANZ bank were both registered on 21 June 1973. The transfer shows the consideration as $13,000 and the mortgage appears to show the principal amount secured as $10,000, while both the transfer and the mortgage show Mr Janceski as 'labourer' and Mrs Janceski as 'married woman'.
The Janceskis repaid the loan to the ANZ bank in about three years.
Mrs Janceski's evidence was that when they 'bought' the Fitzgerald Street property she left her job at the bakery and began to work as an office cleaner on St George's Terrace. She had to leave that job when Kiro who also had epilepsy became very ill. This evidence as to when she left her job at the bakery is not readily to be squared with her evidence as to how long she worked at that job, described earlier. The difference is not significant, except to show, as I will indicate as to a number of other contexts, that her evidence as to times and dates may not always be reliable.
Some time later she began to work at Royal Perth Hospital as a night cleaner, a job she had for six years, until in 1984 she had to stop work again to care for Kiro.
At about that time Mr and Mrs Janceski acquired the Collingwood Street property, being Lot 223 on Plan 9063 and all of the land comprised in Certificate of Title Volume 132 Folio 138A. For that purpose they borrowed the larger part of the purchase price from the ANZ bank on mortgage security over the Collingwood Street property. The transfer of the Collingwood Street property to the Janceskis is dated 8 March 1984 and shows the consideration as $59,000. There were two mortgages over the Collingwood Street property in favour of the ANZ bank by the Janceskis, both dated 12 April 1984. One appears to indicate the principal amount secured as $33,000; the other, expressed to be the subject to the first, appears to indicate the principal amount secured as $6,000. The transfer and two mortgages were all registered on 18 April 1984 and all show Mr Janceski as 'labourer' and Mrs Janceski as 'housekeeper'. The Janceskis put towards the purchase both a compensation payout Mrs Janceski had received when she finished work and Mr Janceski's redundancy payment. They kept the Fitzgerald Street property as a rental property.

Mrs Janceski's evidence was that in about 1989 the Janceskis repaid their indebtedness on the purchase to the ANZ bank. However, the evidence from the Certificate of Title (exhibit A p 22) shows a discharge only of the first of the two ANZ mortgages, registered on 4 October 1991. At the same time, it is common ground that the Collingwood Street property, as well as the Fitzgerald Street property, were both unencumbered over the period from about October 1991 to February 1999, when the Janceskis granted the mortgage over the Fitzgerald Street property I will reach.
Mrs Janceski testified that in 1989 the Janceskis gave the Fitzgerald Street property to Mr Knight 'to do with it what he wanted … [w]e didn't have anything to do with it anymore'. This evidence is inconsistent with the evidence as to the mortgaging and sale of the Fitzgerald Street property I will shortly reach, and in view of the nature of the latter evidence and to the extent of the inconsistency I would reject the former evidence.
In 1997, Mr Knight as Trustee executed a Deed of Settlement constituting the Knight Family Trust. By the terms of the trust Mr and Mrs Janceski were among the General Beneficiaries and, jointly with Mr Knight, Guardian and Appointor.
In February 1999 Mr and Mrs Janceski executed a mortgage over the Fitzgerald Street property to secure a borrowing from Walthamstow (Walthamstow's mortgage over the Fitzgerald Street property). Mrs Janceski testified she had no recollection of such a borrowing, although she acknowledged having signed the mortgage document. However, she remembered borrowing the sum of $50,000 from Reliance. The mortgage document, showing the mortgage registered on 26 February 1999, also shows the principal sum secured by a mortgage given to Walthamstow by the Jancesckis over the Fitzgerald Street property to be $100,000. Mrs Janceski could not recall what the $50,000 borrowed was for or what was done with the $50,000, other than that the Janceskis 'needed money for something'. There is no evidence from Mr Knight that he was involved in any such borrowing from Reliance or from Walthamstow or in relation to the proceeds of either in any way. I find from this body of evidence that in February 1999 the Janceskis borrowed $100,000 from Walthamstow and granted it a mortgage over the Fitzgerald Street property to secure the loan.
By loan application dated 12 May 1999 Mr and Mrs Janceski applied to Resi Home Loans, a trading name of Residential Housing Corporation Pty Ltd, for a loan of $144,380 with security offered in the form of a mortgage over the Fitzgerald Street property. The purpose of the loan was stated as 'investment (property) - refinance'. Mrs Janceski testified she had no recollection of the loan application. A Statement of Account from Perpetual Trustees Victoria Ltd 'Account Manager RESI Home Loans' shows as an initial entry for 24 June 1999 a 'Settlement Amount' of '$144,380'. On 28 June 1999 a mortgage over the Fitzgerald Street property by the Janceskis in favour of Perpetual Trustees Victoria (the Perpetual Trustees mortgage over the Fitzgerald Street property) was registered, and on the same day a discharge of Walthamstow's mortgage over the Fitzgerald Street property was registered. There is no evidence from Mr Knight that he was involved in this transaction or its proceeds in any way. I would infer from these matters that the mortgage in favour of Perpetual Trustees Victoria related to the loan obtained from Resi Home Loans, which was used by the Janceskis at least in part to discharge the debt secured by Walthamstow's mortgage over the Fitzgerald Street property.
By transfer of land dated 18 December 2000 and registered 21 December 2000 the Janceskis transferred the Fitzgerald Street property to a third party for a consideration of $210,000. Mrs Janceski's testimony was that 'we sold the North Perth property [the Fitzgerald Street property]'. She further testified that '[w]e took some money for the house' but she could not remember where the money went. At the same time, she testified that '[m]aybe Michael took them [the money] or something. Maybe we used them for the house in Dianella. I do not remember. I don't know'. She also testified that they may have permitted him to take the proceeds to buy a property for himself on Fitzgerald Street, but she also testified 'I'm not sure what we did'. There is no evidence from Mr Knight that he was involved in this sale transaction or its proceeds in any way. There is evidence from the Certificate of Title to the Fitzgerald Street property in evidence before me that on 21 December 2000 a discharge of the Perpetual Trustees mortgage over the Fitzgerald Street property was registered. I would infer on all of the evidence before me that the Janceskis used at least part of the proceeds of the sale to discharge the Perpetual Trustees mortgage over the Fitzgerald Street property.
By a transfer of land executed on 31 January 2002 and registered on 8 February 2002 Mr and Mrs Janceski and Mr Knight, as tenants in common in equal shares, took a transfer of certain lands in the suburb of Westminster. The consideration was shown as $232,000. The lands were two lots with houses on them, on Arkana Road in that suburb, being Lot 342 on Plan 8907, the whole of the land comprised in Certificate of Title Volume 38 Folio 152A; and being Lot 343 on Plan 8907, the whole of the land comprised in Certificate of Title Volume 38 Folio 153A (the Arkana Road properties).
Mrs Janceski's testimony was that she found the Arkana Road properties as available for purchase in a local community newspaper and told her son that if they bought them they could make 'a lot of money'. It was her idea that the Janceskis and Mr Knight buy the Arkana Road properties; that they would be rented out to repay the loan for the purchase, with any additional contributions from the Janceskis' pension income and from Mr Knight's earnings; and that at a later stage they would sell the smaller of the Arkana Road properties and the Collingwood Street property and the Janceskis would move into the larger one with Kiro.
Mrs Janceski's testimony was initially that the Janceskis and Mr Knight obtained the loan for the purchase from Walthamstow. However, her later testimony was first that she could no longer remember from whom they had obtained the loan, and then that they obtained the loan from Liberty Funding Pty Ltd (Liberty). This last testimony is consistent with the evidence in the form of a document 'Investment loan agreement (variable rate) schedule' between Liberty and Mr Knight and the Janceskis bearing the signatures of the last three, dated 17 January 2002 and showing the amount of credit as $470,000, with security to be in form of first mortgages over four properties. Those mortgages were to be over the Arkana Road properties, over the Collingwood Street property and over a property at 107 Ingleton Street in Mt Lawley. This last appears to be the Ingleton Lane property, being Lot 6 on survey strata plan 39276 and the whole of the land comprised in Certificate of Title Volume 2500 Folio 85.
I note that the Certificate of Title for the Ingleton Lane property in evidence before me shows that on 3 December 2001 a mortgage H945898 to Liberty was registered over that property. There is also evidence in the form of a mortgage H945894 to Liberty over the Collingwood Street property, with an attestation sheet dated 30 November 2001 and registered 3 December 2001, indicating the sum secured was $200,000; and evidence in the form of a mortgage I9703M granted by Mr Knight and the Janceskis to Liberty over the Arkana Road properties, with an attestation sheet dated 17 January 2002 and registered 8 February 2002, indicating the sum secured was $470,000. I call the mortgages H945898, H945894 and I9703M respectively Liberty's mortgage over the Ingleton Lane property, Liberty's mortgage over the Collingwood Street property and Liberty's mortgage over the Arkana Road properties.
As will become apparent, the evidence indicates that following enforcement proceedings by Liberty the balance of the borrowing from that company, after the application of the proceeds of the re-sale of the Arkana Road properties, was re-financed by a borrowing from Walthamstow. I find then that Mrs Janceski was mistaken in her initial testimony as to the source of the borrowing for the purchase of the Arkana Road properties.
By writ of summons dated 21 May 2002 Liberty commenced proceedings (CIV 1675 of 2002) against Mr Knight and the Janceskis. Liberty's claim was principally for possession of the Ingleton Lane property pursuant to the terms of Liberty's mortgage over the Ingleton Lane property; possession of the Collingwood Street property pursuant to the terms of Liberty's mortgage over the Collingwood Street property; possession of the Arkana Road properties pursuant to Liberty's mortgage over the Arkana Road properties; and the sum of $482,061.25 calculated to 10 May 2002 plus interest, 'pursuant to the terms of the Mortgage' from and including 10 May 2002. Mrs Janceski's testimony was that she could remember nothing as to a demand by Liberty for the money owed it. However, on the evidence of affidavits of service of the writ of summons on Mr and Mrs Janceski I find that they were both personally so served.
Further, Mrs Janceski acknowledged in her testimony that Mr Knight explained to Mr and Mrs Janceski that because of late payment Liberty was seeking the payment of the money owed it. He told them Liberty had taken them to court. She also testified that (cross-examination, ts 610):
When we went there, we told the judge that the houses were already put for sale and he said it was fine, so after that we didn't have any problems. It was finished.
So you were sued in this court by Liberty for not paying back the loan, weren't you, Mrs Janceski?---We only went to court for one day. It was just for one day and the man from Liberty was there and when we told them that the houses were already put for sale, he said he didn't know, so everything was finished quickly and we never had problems with them again.
In evidence in these proceedings was the transcript of a status conference in CIV 1675 of 2002 on 27 June 2002 at which Mr Knight and the Janceskis were present and at which Mr Knight indicated that it was proposed to sell the Arkana Road properties and pay out about 50% of the amount owing to Liberty, with the balance to be refinanced. Also in evidence in these proceedings was a contract of sale of the Arkana Road properties dated 22 June 2002 showing a purchase price of $270,000 (the agreement to sell the Arkana Road properties of 22 June 2002).
Mrs Janceski's testimony was also that when she became aware that the rental income from the Arkana Road properties was not what had been expected, that Mr Knight was not able to contribute because he had become ill, he had not been working 'for a long time' and that the Janceskis' pensions were insufficient to make up the shortfall, it was decided to sell the Arkana Road properties to repay Liberty. The decision to not to sell the Collingwood Street property was because Mr Knight's name was not on the title to that property while his name as well as the Janceskis' was on the title to the Arkana Road properties; and because the debt owed to Liberty was his as well as the Janceskis'. Mrs Janceski acknowledged she had 'worked that out' and 'made that decision'.
On 20 August 2002 Mr Knight and the Janceskis executed a range of documents in favour of Walthamstow, including the Walthamstow loan agreement with Mr Knight and the Janceskis, for an advance of $260,000. Under these arrangements, Mr Knight was borrower, who would provide a mortgage over the Ingleton Lane property; and the Janceskis were guarantors, who would provide a mortgage over the Collingwood Street property. Among the documents enclosed with a letter dated 14 August 2002 from Steven Alick Masel to Mr Knight and the Janceskis apparently including that range of documents for execution, there is a 'Form 1 Notice'. That document states the purpose of the advance of $260,000 as 'to refinance existing loan and raise further funds for improvements to investment property and for the purchasing of an investment property'. Mr Masel was the Managing Director of Walthamstow, and his unchallenged evidence at the trial was that Walthamstow's first mortgage over Collingwood Street was 'a refinancing arrangement and Reliance Finance took over as first mortgagee from a previous financier'.
By facsimile dated 4 September 2002 from a settlement agency to Mr Masel, he was asked to draw cheques 'for settlement' to Liberty in the amount of $275,524.55, to Choice in the amount of $182,056.25 and a sum for the settlement agency. By a letter dated 5 September 2002 from Mr Masel to Mr Knight, Mr Masel confirmed the disbursement of funds totalling $480,000 from Walthamstow's first mortgage over the Janet Street property (shown as $220,000) and from Walthamstow's mortgage over the Ingleton Lane property and from Walthamstow's first mortgage over the Collingwood Street property (shown as $260,000), including to meet that request from the settlement agency.
On 5 September 2002 a transfer of the Arkana Road properties dated 4 September 2002 to the person shown as purchaser in the agreement to sell the Arkana Road properties of 22 June 2002 was registered. The transfer shows the consideration as $270,000.
On 24 September 2002 Liberty discontinued CIV 1675 of 2002.
I find on the body of evidence I have reviewed as to the satisfaction of the debt owed to Liberty that the advance of $260,000 under the Walthamstow loan agreement with Mr Knight and the Janceskis was made, together with the proceeds of the agreement to sell the Arkana Road properties of 22 June 2002, for the purposes of that satisfaction, among other things, and that Walthamstow's first mortgage over Collingwood Street was security for the obligations of the Janceskis as guarantors under the former agreement.
As I have previously indicated, the obligations under the Walthamstow loan agreement with Mr Knight and the Janceskis were ultimately satisfied as a result principally of the application of the proceeds of the sale of the Ingleton Lane property and of the provision of funds under the Pepper Finance agreement.
I turn now to the background to and events following the purchase of the Janet Street property, a purchase which ultimately resulted in Choice's 2004 second mortgage over the Collingwood Street property.

Background: the purchase of the Janet Street property and subsequent events

The events I describe here began at about the time of Liberty's proceedings against Mr Knight and the Janceskis.
On or about Saturday 18 May or Sunday 19 May 2002 Mr Knight went to a home open for a completed development at 2A Janet Street, West Perth. This development consisted of four three storey townhouse units. One of those units was the Janet Street property. The owner of that development was Choice, as the trustee of the Choice Construction Superannuation Fund (the Fund). Joseph Michael Anthony Nardizzi (Mr Nardizzi) and his wife Yolanda Rita Nardizzi (Mrs Nardizzi) were the principal beneficiaries of the Fund. Mr Nardizzi, who was a qualified registered builder, operated Choice. It was not in contest, and could not be contested, that the knowledge of Mr Nardizzi was the knowledge of Choice. See Austin, RP and Ramsay, IM, Ford's Principles of Corporations Law (14^th ed, 2010) [16.190], [16.200].
Mr Nardizzi also operated Elders Real Estate West Coast Central (Elders), which has since become known as Choice Estates. At the home open Mr Knight expressed to Mr Nardizzi a strong interest in buying the Janet Street property.
By a contract for sale of land by offer and acceptance dated 20 May 2002 with an annexure dated 21 May 2002 Mr Knight as trustee of the Knight Family Trust agreed to buy the Janet Street property for $375,000. The annexure provided for vendor finance from Choice in the amount of $195,000 if Mr Knight used a furniture and chattel allowance of $20,000, and $175,000 if he did not. The annexure also provided for security for the vendor finance to be granted over the Janet Street property, the two Arkana Road properties, the Collingwood Street property and the Ingleton Lane property. Except for the provision for the mortgage over the Arkana Road properties there was no material difference between this contract of sale and the 24 August 2002 agreement to sell. By the latter date, of course, there was the agreement to sell the Arkana Road properties of 22 June 2002, as I have indicated. The 24 August 2002 agreement to sell did not provide for any security over them.
On 4 September 2002, Mr Knight became the registered proprietor of the Janet Street property.
There is evidence that, on 17 January 2004, following the issue of Walthamstow's default notice of later November 2003 in respect of the balance due under the Walthamstow loan agreement with Mr Knight and the Janceskis, there was a meeting at the Collingwood Street property. At this meeting the Janceskis signed a letter of the same date to Elders authorising it and Mr Nardizzi to accept the appointment from Reliance as first mortgagee to sell the Janet Street property. The letter went to say, among other things, that in the presence of Mr Knight Mr Nardizzi had explained 'the implications' of the mortgagee sale of the Janet Street property, and the 'real possibility' of Reliance also exercising its right to sell the Collingwood Street property. Mrs Janceski's testimony was that, while she recognised her signature on the letter, she could not remember the meeting; and she strongly denied that Mr Nardizzi had explained anything to her and Mr Janceski.
On his testimony Mr Knight, beginning about February 2004, began discussions with Mr Nardizzi to have Choice facilitate the refinancing of the debt owing under the Walthamstow loan agreement with Mr Knight and the Janceskis. Choice's initial position was that, in order to discharge its second mortgage over the Collingwood Street property, it should be paid out in full. These negotiations continued until July 2004. As a result of the negotiations Mr Nardizzi accepted there would be a payment which was ultimately $30,000 towards Choice's debt in return for its discharge of Choice's 2002 second mortgage over the Collingwood Street property and its replacement by Choice's 2004 second mortgage over the Collingwood Street property.
Mr Knight's testimony was that during the course of the negotiations Mr Knight told Mr Nardizzi that the Janceskis had not understood and wanted to challenge Choice's second mortgage over the Collingwood Street property, with Mr Knight telling him that the Janceskis' complaint was because Mr Knight had not explained the transaction to them. Mrs Janceski's testimony was that in early 2004 she had learnt from a real estate agent of Choice's second mortgage on the Collingwood Street property. As she had previously been unaware of that mortgage, and considered she had no agreement with Mr Nardizzi, she complained to him. Mr Knight's testimony was also that he understood that a 'problem' with Choice's second mortgage over the Collingwood Street property was a part of the negotiations with Mr Nardizzi, and was a part of why Mr Nardizzi was willing to negotiate.
Following advice Mr Nardizzi received from the solicitors for Choice, by letter dated 5 June 2004 he wrote to Mr Knight and the Janceskis (Mr Nardizzi's letter dated 5 June 2004) enclosing among other documents Choice's 2004 second mortgage over the Collingwood Street property, translator's certificates for the Jancekis and solicitor's certificates for the Jancekis and Mr Knight with instructions to have all of them completed and returned. Mr Nardizzi in his letter also asked them to provide a copy of the deed of the Knight Family Trust and Mr Knight to confirm he had the power under the trust deed to borrow and give security on behalf of the trust. I note that it was not in contest in these proceedings that Mr Knight had such power.

On 9 June 2004, before the negotiations had concluded, Mr Knight and the Janceskis went to the office of a solicitor, Vladimir Veselko Ozich, where they signed Choice's 2004 second mortgage over the Collingwood Street property, among other documents. Mr Ozich's practice included providing independent legal advice for borrowers and mortgagors who had 'had a connection with former Yugoslavia and the regions that the former Yugoslavia comprised', including persons 'of … Macedonian origin'.
Mr Ozich had previously met with the Janceskis on 20 August 2002 when, as to the documents they had signed before him then that included the Walthamstow loan agreement with Mr Knight and the Janceskis, Walthamstow's first mortgage over the Collingwood Street property and the Deed of Guarantee and Indemnity by the Janceskis, he testified (ts 1565):
I can't recall the exact words I used at the time but in accordance with my normal practice I would have gone through each of the documents and summarised what the documents are about.
This evidence is not a clear affirmation that Mr Ozich did in fact provide the explanations in question. However, that he did follow the 'normal practice' he testified to derives support from the contemporaneous solicitor's certificates dated 20 August 2002 he executed, one for each of Mr and Mrs Janceski, stating that he had advised the 'guarantor' of the 'legal nature and effect of the documents before any were signed'. Mr Ozich identified these documents which were in evidence before me, and I consider I can accept them as evidence of the truth of their contents under Evidence Act 1906 (WA) s 79C(2a).
Mr Ozich's testimony was that his explanations had been in Serbo-Croatian. Mr Ozich's testimony was also that he believed the Janceskis understood his explanations.
Mrs Janceski in her testimony accepted that she and Mr Janceski had seen Mr Ozich and signed those documents before him then but she could not remember if he had explained them to her.
Mr Ozich's evidence including that he believed that the Janceskis understood his explanations was not challenged in cross-examination except in the respect I will shortly reach.
I consider Mr Ozich, on the basis of the clear and consistent way in which he gave his evidence, to be a truthful witness. However, I will return below to a challenge in cross-examination that the defendant made to the soundness of his belief that the Janceskis understood his explanations, on the basis of the language, Croatian or Serbo-Croatian, which he used to provide his explanations. I will indicate I do not consider that challenge made out.
I find on the evidence of Mr Ozich and the documents I have referred to that in August 2002 Mr Ozich provided the explanations he testified he would have provided to the Janceskis pursuant to his normal practice, and that he believed then that the Janceskis had understood them.
It may be noted there is no evidence the Janceskis met with Mr Ozich concerning, or signed before him, Choice's 2002 second mortgage over the Collingwood Street property. Nor is there any evidence that the Janceskis received any other independent advice concerning it before they executed it. There is evidence from Mr Nardizzi that he met with the Janceskis in late May 2002 in which he told them that Mr Knight's purchase of the Janet Street property would involve the placement of second mortgages over a number of properties, including the Collingwood Street property; on 30 August 2002 in which he left the Janceskis with a draft of the mortgage for them to read and tell him if changes were needed; and on 3 September 2002 when he gave the Janceskis Choice's 2002 second mortgage over the Collingwood Street property telling them to check it and if it was correct to sign it and have it witnessed. Mrs Janceski's testimony was that she did not know she had signed a mortgage to Choice. In any event, there is no evidence that Mr Nardizzi or any one else explained to the Janceskis or either of them the nature of the 'mortgage' that Choice sought over the Collingwood Street property.
As will be seen, the matter of what documentation from Choice Mrs Janceski understood or could reasonably be seen to have understood she was signing in September 2002 is a matter of considerable significance in this case.
Mr Ozich's testimony was that at the meeting with Mr Knight and the Janceskis on 9 June 2004 he explained the nature of a mortgage to the Janceskis and that they were being asked to execute a second mortgage. He provided his explanations in Serbo-Croatian. He executed both printed solicitor's certificates and printed translator's certificates for each of the Janceskis in respect of Choice's 2004 second mortgage over the Collingwood Street property. He also executed a further handwritten document, as I will indicate.
Mrs Janceski's testimony was that Mr Ozich had provided no explanation of what they were signing, which as indicated included Choice's 2004 second mortgage over the Collingwood Street property. She also testified that it was 'very hard' for her to understand Croatian, which was the language which, in her final testimony on the matter, she said Mr Ozich 'mainly' used at the meeting. The matter of what Mr Ozich said to the Janceskis and what Mrs Janceski understood or could reasonably be seen to have understood at the time of the signing in June 2004 is also a matter of considerable significance in this case and I consider further evidence in relation to this below.
Mrs Janceski also testified that when, in early 2004, she complained to Mr Nardizzi after she discovered Choice's 2002 second mortgage over Collingwood Street he threatened to put her and Mr Janceski on the street. Subsequently he rang her repeatedly. She further testified she went to the meeting with Mr Ozich of 9 June 2004 as it was 'the only way to stop' Mr Nardizzi.
Mr Knight's evidence was also that Mr Nardizzi 'constantly made phone calls to us and also personal visits demanding the mortgage be signed or paid out'. The 'personal visits' included personal visits to his parents, although Mrs Janceski testified there was no pressuring of her and her husband by personal visits.
Mr Nardizzi's evidence was that it was only after the Janceskis signed Choice's 2004 second mortgage over Collingwood Street that he made 'unsuccessful and repeated attempts to contact [Mr Knight] by telephone'. He believed his calls were more constant in the latter half of 2004 when he was frustrated at the failure of the Janceskis to pay and it seemed he was unable to contact Mr Knight by telephone.
I will return to this contest below.
I turn now to the present proceedings.

The present proceedings

As I have previously indicated Choice commenced the present proceedings on 27 April 2005. It did so by writ with statement of claim.
On 3 June 2005 the defendants filed a defence, which on 16 June 2005 was amended pursuant to Rules of the Supreme Court 1971 (WA) O 21 r 5(1) (the Amended Defence of June 2005).
On 7 June 2005 Choice applied for summary judgment.
On 17 August 2005 Master Newnes (as his Honour then was) dismissed Choice's claim for summary judgment, for the reasons published as Choice Constructions Pty Ltd v Janceski [2005] WASC 186 (Choice, Newnes M).
On 22 September 2009 the trial commenced. Choice was represented by counsel with instructing solicitors in attendance. The Janceskis represented themselves. On that day for the reasons given then I granted leave for the defendants to rely on a defence in place of the Amended Defence of June 2005. That defence was subsequently filed as Amended Defence dated 28 July 2009 (Amended Defence of July 2009).
Of the two defendants, only Mrs Janceski appeared to take an active part in the trial. Mr Janceski was present for many of the early days of what proved to be a lengthy trial, but did not appear to take an active part. Mr Knight also sat in on much of the trial, in circumstances I will return to. Mrs Janceski was assisted by the services of a number of sworn interpreters.
I also permitted Mrs Janceski to have seated beside her, and to speak for her from time to time, a friend. This friend appears to me to have been of considerable assistance to her, and was of considerable assistance to the court. I confirm the court's gratitude for the friend's assistance.
The trial ran to 21 days of hearing, with some significant breaks between days, although one day was very short without any taking of evidence. There was also one day of oral closing submissions following receipt of written closing submissions. At the hearing of oral closing submissions I also allowed the parties to submit marked-up copies of their written submissions to supply references and other matters which they signalled a wish to provide. In the event both parties took up that opportunity.
As will become apparent the sole issues for the trial were those raised by the defence of unconscionability and a related matter. Accordingly, I permitted the defendants to adduce evidence first. They indicated a wish to call only one witness, Mrs Janceski. She gave evidence over 15 days, although her giving of evidence did not occupy more than one-half of all but one of those days.
During the trial, and before the closing of the defendants' case, the defendants indicated a wish to call Mr Knight. With the consent of the plaintiff I gave leave to the defendants to call him, and he gave evidence over two days.
For the plaintiff, the witnesses called were Mr and Mrs Nardizzi, with the former giving evidence over three days; Mr Ozich; and Mr Masel.
On 11 August 2011, at the time of the presentation of oral closing submissions, the defendants applied for leave to put in the witness statement of Mr Janceski dated 21 May 2009 which had been filed in accordance with the trial orders I made on 21 July 2009. As Mr Janceski had not given evidence at the trial, the trial orders required the leave of the court to put in his witness statement.
The defendants' submission to me was that given the medical condition of Mr Janceski that had developed over the trial and been made known to the plaintiff, it had not been thought appropriate to call him as a witness.
For the reasons I gave extemporaneously at the hearing, having principally to do with the way in which the matter of calling of other witnesses had been discussed extensively with the defendants at the beginning of the trial, and the way in which the trial had as a consequence been conducted, I did not grant the leave required.
I turn now to the issues in the proceedings.

The issues in the proceedings

I have previously indicated that there is no contest that Choice's 2004 second mortgage over the Collingwood Street property was duly executed or that the amounts calculated in the statement of claim as due under that mortgage are correctly so calculated.
The issues before me concern whether or not Choice's 2004 second mortgage over the Collingwood Street property is unenforceable as an unconscionable dealing.
The defendants' pleading as to the bases on which they say Choice's 2004 second mortgage over the Collingwood Street property is an unconscionable dealing has undergone significant change over the course of the proceedings.
In the Amended Defence of June 2005 the defendants pleaded that Choice's 2004 second mortgage over the Collingwood Street property was 'unconscionable' as:
•the defendants understood 'little English', having been born in a non-English speaking country and having received very little formal education;
•the plaintiff had known this but 'had not encouraged' them to seek 'independent legal advice' when Choice's 2002 second mortgage over the Collingwood Street property was executed;
•the plaintiff had them seek independent legal advice only when Choice's 2004 second mortgage over the Collingwood Street property was 're-registered', at a time when the defendants were 'under pressure' from Walthamstow to pay out Walthamstow's first mortgage over the Collingwood Street property and when the plaintiff had 'taken unfair advantage of [its] own superior bargaining power, or of the position of disadvantage' in which the defendants were placed;
•the defendants had 'no choice' but to execute the replacement mortgage as, if they did not, Walthamstow as first mortgagee would have 'foreclosed' on the defendants;
•the plaintiff knew that Mr Knight's purchase of the Janet Street property was made 'without any monetary deposit' and that Mr Knight was not in a position to be able to complete the purchase of that property without the defendants providing a mortgage over their own property as security; and
•the plaintiff did not inform the defendants they were bound to pay 'all interest and penalties due' in addition to the 'full amount of the guarantee (Mortgage)' with a 'similar guarantee (Mortgage)' for the 'same debt and identical terms and conditions' also registered on the Janet Street property, an apparent reference to Choice's second mortgage over the Janet Street property.
The Amended Defence of June 2005 was the form of the defence in place at the time of Choice, Newnes M.
In the Amended Defence of July 2009 the defendants plead that 'the guarantee (Mortgage) was unconscionable and therefore unenforceable - see Commercial Bank of Australia Limited v Amadio (1983) 151 CLR 447' and was also unconscionable because:
(a)The Defendants were at a 'special disadvantage' in dealing with Choice Constructions.
(b)The Defendants 'special disadvantage' affected their ability to make a judgement as to their own best interests.
(c)Consequently, there was an absence of any reasonable degree of equality between the parties; and
(d)Choice had knowledge of their 'special disadvantage' or the disabling condition was sufficiently evident to make it prima facie unfair or unconscientious that Choice procure or accept their consent to the impugned transaction.
The defendants plead that the 'special disadvantage' was
due to the following relevant factors:
(a)age;
(b)illiteracy or lack of education;
(c)unfamiliarity with the language;
(d)lack of business knowledge;
(e)emotional dependence (on their son Michael)
(f)the circumstances of the negotiations and how the mortgage came to be signed;
(g)the length and complexity of the documentation;
(h)the relative bargaining positions of the parties; and
(i)misrepresentations made and pressure applied (especially the threats and harassing phone calls by Mr Nardizzi).
Additionally the Defendants were faced with the problem of their son (Michael) suffering from severe depression thus placing additional stress and emotional concern upon the Defendants and as such giving rise to a further special disadvantage.
The defendants further plead that Choice had knowledge of the 'special disadvantage', and the following matters are referred to:
(a)It is clear from an email sent by Mr Nardizzi to Choice's solicitors that he was aware of the Defendants lack of English proficiency and commercial knowledge. Mr Nardizzi specifically states that the Defendants are not financial and that they may not understand the document in English.
(b)The Defendants believe that Mr Nardizzi was also aware of the Defendants emotional dependence on their son (Michael), as he states in his email to Choice's solicitors that the Defendants trusted and relied on their son (Michael).
The defendants also plead that
the transaction was not fair, just and reasonable due to the fact that;
(a)Mr Ozich did not provide advice adequately or at all and further that the Solicitor's and Translator's Certificates are defective; and
(b)Mr Nardizzi's conduct, including the harassing phone calls and threats, do not make the transaction fair, just and reasonable.
It will be seen that there are a number of differences between the two Defences.
The principal difference as this emerged at the trial was a reliance in the Amended Defence of July 2009 on the defendants' pleaded lack of understanding of the documentation from Choice they were asked to sign in 2004 which has no equivalent in the Amended Defence of June 2005. In particular, the former Defence unlike the latter pleads lack of adequate advice and defective certificates from Mr Ozich where there is no such pleading in the latter. There is no indication I could find in Choice, Newnes M that the defendants then relied on any lack of understanding of Choice's 2004 second mortgage over the Collingwood Street property.
Both Defences appear not to have been settled by a legal professional, although the second at least appears to have been prepared after consultation with a source of legal advice. In particular, in the Amended Defence of July 2009 there is the evidence pleaded of the 'email sent by Mr Nardizzi to Choice's solicitors', together with the reference to Commercial Bank of Australia Ltd v Amadio [1983] HCA 14; (1983) 151 CLR 447. However, the plaintiff did not take objection to any feature of the Amended Defence of July 2009, including the matter of evidence referred to.
As will be seen, that e-mail assumed considerable significance in the case of the defendants.
I turn now to the applicable law.

Applicable law: unconscionable dealings

I did not understand there to be any contest as to the following statement of the law of unconscionable dealing. It is from Permanent Mortgages Pty Ltd v Vandenbergh [2010] WASC 10 [219] ‑ [236] (Murphy J), making reference to Commercial Bank of Australia v Amadio; Australian Competition and Consumer Commission v C G Berbatis Holdings Pty Ltd [2003] HCA 18; (2003) 214 CLR 51; Australia & New Zealand Banking Group Ltd v Dzienciol [2001] WASC 305; Bridgewater v Leahy [1998] HCA 66; (1998) 194 CLR 457; and Louth v Diprose (1992) 175 CLR 621, among other authorities. I set out Permanent Mortgages [219] ‑ [236] in full:
Equity's jurisdiction to set aside a transaction for unconscionable dealing is invoked where one party to the transaction is under a special disadvantage or disability in dealing with the other party, and that special disadvantage or disability was sufficiently evident to the other party to make it prima facie unfair or unconscionable for that other party to accept or retain the benefit of the transaction: Commercial Bank of Australia v Amadio; Louth v Diprose (1992) 175 CLR 621, 637.
The underlying equitable principle may be invoked 'whenever one party by reason of some condition or circumstance' is placed at a special disadvantage of which unfair and unconscientious advantage is taken by the other party: Commercial Bank of Australia v Amadio (462).
The special disadvantage will be sufficiently evident to the other party if the other party knows facts which would raise the possibility of the special disadvantage in the mind of a reasonable person: Commercial Bank of Australia v Amadio (467 - 468, 479).
Where such circumstances are shown to exist, the onus is on the other party to establish that the transaction was fair, just and reasonable: Commercial Bank of Australia v Amadio (474).
The special disadvantage need not have been created by the party taking the benefit of the transaction: Louth v Diprose (629).
The special disadvantage alleged must be one 'which seriously affects the ability of the innocent party to make a judgment as to his own best interests'; mere difference in bargaining power is insufficient: Commercial Bank of Australia v Amadio (462). The 'essence of such weakness is that the party is unable to judge for himself': Blomley v Ryan (1956) 99 CLR 362, 392; or 'to conserve his own interests': Blomley v Ryan (415); ACCC v C G Berbatis Holdings [12], [46], [55].
In this regard care must be taken not to 'eviscerate unconscionability of its meaning': NZI Capital Corporation v Fulton [1998] FCA 667 Black CJ & Lehane J, quoting Mason CJ in Stern v McArthur [1988] HCA 51; (1988) 165 CLR 489, 503.
In ACCC v C G Berbatis Holdings, Gleeson CJ [14] said:
Unconscientious exploitation of another's inability, or diminished ability, to conserve his or her own interests is not to be confused with taking advantage of a superior bargaining position. There may be cases where both elements are involved, but, in such cases, it is the first, not the second, element that is of legal consequence ...
In ACCC v C G Berbatis Holdings, Gummow & Hayne JJ [56] also said that even a person in a 'greatly inferior bargaining position' may nevertheless not lack capacity to make a judgment about that person's own best interests.
In all cases, the court's equitable jurisdiction is to be exercised according to recognised principles, and the courts are not armed with a general power to set aside transactions which in the eyes of the judges appear unfair, harsh or unconscionable: Louth v Diprose (654) (Toohey J, although in dissent in the result). See also the observations of Sir Anthony Mason in 'The Impact of Equitable Doctrine on the Law of Contract', (1998) 27 Anglo-American Law Review 1, 12 cited by Debelle & Wicks JJ in Micarone v Perpetual Trustees Australia Ltd [1999] SASC 265; (1999) 75 SASR 1 [648]:
There is a strong objection to simply equating the concept to what is unreasonable and unfair. The object of the doctrine is not to protect people from the consequences of their own mistakes. Because our contract law, unlike that of the United States, does not impose a general obligation of good faith and fair dealing, it is preferable to think of unconscionable conduct in terms of that which shocks the conscience, something which is harsh or oppressive in that it involves taking advantage of another's special disability or disadvantage. So understood, the concept is not one which is open-ended, to be applied according to the subjective whim of the Judge, though like other standards, such as that of 'the reasonable person', borderline applications will require an element of value judgment.
In Bridgewater v Leahy [76], Gaudron, Gummow & Kirby JJ referred with approval to the Privy Council's observations in Hart v O'Connor [1985] AC 1000, in which unconscionable conduct was described as:
[V]ictimisation, which can consist either of the active extortion of a benefit or the passive acceptance of a benefit in unconscionable circumstances.
In The Bell Group Ltd (in liq) v Westpac Banking Corporation [No 9] [2008] WASC 239; (2008) 225 FLR 1 [4924], Owen J said that it is not enough for there to be unequal bargaining power - the conduct of the stronger party has to be exploitative or oppressive.
Whilst the categories of disability are not closed, the requisite special disadvantage often involves poverty, need, sickness, age, infirmity of body or mind, sex, drunkenness, illiteracy, lack of education and lack of assistance or explanation when assistance or explanation is necessary: Blomley v Ryan (405, 415); lack of or limited comprehension of the English language: Commercial Bank of Australia v Amadio; impaired intelligence: Wilton v Farnworth (1948) 76 CLR 646; or infatuation with or emotional dependence upon another person: Louth v Diprose.
Absence of independent legal advice may in a given case be a circumstance of factual importance in determining whether a special disability exists: Bridgewater v Leahy [41].
Physical frailty and enfeeblement, with diminished knowledge by the party in question of that party's property and affairs generally, are not necessary elements of a special disadvantage: Bridgewater v Leahy [116].
Advanced age
Advanced age of itself does not constitute a special disadvantage but may, in combination with other factors, contribute to the condition of being under a special disadvantage: Australia & New Zealand Banking Group Ltd v Dzienciol [2001] WASC 305 [289] - [290].
An elderly disponor, with limited education and of reclusive habits, with a strong emotional attachment to and dependence on the disponee, has been held to be under a special disadvantage: Bridgewater v Leahy [114] - [118], [120], [127].
It is, however, by no means inevitable that elderly parents, who guarantee and mortgage their home to secure the debts of their childrens' business, will, simply by dint of that fact, be found to have suffered a special disadvantage. For example in Davey v Challenger Managed Investments Ltd [2003] NSWCA 172 the elderly widowed pensioners guaranteed the debts of their childrens' company and mortgaged their homes to secure the borrowing. They had no capacity to repay the debt from their own incomes and, as the business was a new venture, the children, who needed to borrow capital, were in a similar position. The children also guaranteed the loan but had little chance of repaying the debt if their company failed. The widowed pensioners, who had received the benefit of independent legal advice, failed to set aside the guarantees and mortgages on the basis of unconscionable dealing or under the Contracts Review Act. Handley JA (Hodgson JA & Grove J agreeing), said [21], [23] - [24], [26]:
Independent legal advice was desirable, if not necessary, in this case to ensure that the appellants, who were volunteers, understood the transactions and their implications, and, with an appropriate understanding, executed the security documents freely and voluntarily. They received such advice before they executed the documents.
…
The children should probably never have asked the appellants to hazard their homes in this business venture, but misrepresentation or undue influence on their part have never been alleged. The age and status of the appellants as pensioners did not deprive them of the legal capacity to do what they did. If the business had been successful the children would have been launched on a business career and the mortgages would have been discharged.
The Court has no way of knowing how many business ventures financed by parents in this way are successful for the benefit of the community and all concerned. Courts only ever see the cases where the business has failed and the mortgages are enforced. The Court might be doing a disservice to the community if it treated age and pensioner status as disabling parents from helping their children in this way. The law has not taken that step, and under ordinary principles the appellants have no proper claim for relief.
…
If there was any unfairness the lender was not responsible for it, and had no notice, actual or constructive, of that unfairness [219] ‑ [236]. (emphasis added)

As stated in Permanent Mortgages [222] (see also [219] ('prima facie unfair'), [350] and [351]), the onus of proof in relation to unconscionable dealing shifts is as described in Amadio (474), which is as follows:
The jurisdiction is long established as extending generally to circumstances in which (i) a party to a transaction was under a special disability in dealing with the other party with the consequence that there was an absence of any reasonable degree of equality between them, and (ii) that disability was sufficiently evident to the stronger party to make it prima facie unfair or 'unconscientious' that he procure, or accept, the weaker party's assent to the impugned transaction in the circumstances in which he procured or accepted it. Where such circumstances are shown to have existed, an onus is cast upon the stronger party to show that the transaction was fair, just and reasonable: 'the burthen of shewing the fairness of the transaction is thrown on the person who seeks to obtain the benefit of the contract' (see per Lord Hatherley, O'Rorke v Bolingbroke [(1877) 2 App Cas], 823; Fry v Lane (1888) 40 Ch D 312, 322; Blomley v Ryan (1956) 99 CLR 362, 428 - [429]).
The defendants' case as I understood it was that they had discharged their onus of proof as described in Amadio.
The plaintiff's case was that the defendants had not discharged their onus of proof in the circumstances of this case, particularly what was not shown to have been the characteristics of the Janceskis in 2002 and 2004 and what was not known or sufficiently evident to Choice through Mr Nardizzi in 2002 and 2004. The plaintiff did not undertake to show that Choice's 2004 second mortgage over the Collingwood Street property was 'fair, just and reasonable'. However, the plaintiff's case included that the Janceskis had not been shown to have received inadequate consideration for their execution of it. In particular, the evidence in the form of the terms of the Knight Family Trust showed that they were not volunteers in relation to the purchase of the Janet Street property. Thus, the following aspect of the law of unconscionable dealing, from Permanent Mortgages [245], was unavailable to the Janceskis:
Inadequacy of consideration can be important either as supporting an inference that a special disadvantage existed, or as to tending to show that unfair use was made of the occasion: Blomley v Ryan (405 - 406); ANZ v Dzienciol [293]; Meagher, Heydon & Leeming, Equity: Doctrines & Remedies [16-020] and the cases there cited.

Applicable law: Garcia v National Australia Bank

The defendants in their closing submissions also made reference to the setting aside of Choice's 2004 second mortgage over the Collingwood Street property on 'Garcia' principles. I took this to be a reference to the principles in Garcia v National Australia Bank Ltd [1998] HCA 48; (1998) 194 CLR 395. I consider the following, from Permanent Mortgages [189] ‑ [190] to be a sufficient statement of those principles for my purposes:
Beside cases involving actual undue influence, referred to in the section above, it is unconscionable for a financier to enforce against a married woman a guarantee given to secure her husband's debts in circumstances where:
(a)the surety did not understand the purport and effect of the transaction;
(b)the transaction was voluntary in the sense that the surety obtained no gain from the contract the performance of which was guaranteed;
(c)the lender, with notice that the surety was then the wife of the debtor, is taken to have understood that, as a wife, the surety may repose trust and confidence in her husband in matters of business and therefore to have understood that the husband may not fully and accurately explain the purpose and effect of the transaction to his wife; and
(d)the lender did not itself take steps to explain the transaction to the wife or find out that a stranger had explained it to her. See Garcia v National Australia Bank [31], [40].
As to the second element, where the transaction is not on its face for the benefit of the wife (such as where she is a surety for another's debts), the onus will lie on the party seeking to enforce the security that the wife was not, relevantly, a volunteer: State Bank of New South Wales v Chia [2000] NSWSC 552; (2000) 50 NSWLR 587, 601; Warburton v Whiteley (1989) 5 BPR 11,628, 11,634 (McHugh JA); Elkofairi v Permanent Trustee Co Ltd [2002] NSWCA 413; (2003) 11 BPR 20,841 [46] [189] ‑ [190].
That combination of circumstances makes it unconscionable for the creditor to enforce the transaction: Garcia v National Australia Bank (408) (Gaudron, McHugh, Gummow and Hayne JJ).
I accept for the purposes of this aspect of the defendants' case that Choice's 2004 second mortgage over the Collingwood Street property is to be approached as in substance a guarantee by the Janceskis of a debt incurred by Mr Knight as trustee of the Knight Family Trust.
As in Permanent Mortgages the application of those principles to this case would depend upon the 'extension' of those principles to aged parents guaranteeing a debt incurred by their son, if I concluded that the Janceskis were 'aged parents' within that description. I consider whether or not the Janceskis were 'aged' below. On the assumption they were 'aged parents', there is a difficult question of law represented by the question whether or not the principles of Garcia v National Australia Bank extend to such a relationship: see Permanent Mortgages [191] ‑ [197], [205] and [354]. As will become apparent it is not necessary for me to arrive at a final conclusion on that matter.
I turn then to apply the law, and I organise the analysis as follows.
I begin by considering whether or not the defendants have discharged their burden of proof to show that they were under a special disadvantage or disability in dealing with Choice in relation to Choice's 2004 second mortgage over the Collingwood Street property. It is convenient I organise this consideration by reference to the relevant factors which the defendants pleaded which were also, as I understood the way they conducted their case, the factors they relied upon.
Then I turn to consider whether or not the defendants have discharged their burden of proof to show that any special disadvantage or disability I consider might have been made out was sufficiently evident to Choice, to make it prima facie unfair or unconscionable for Choice to accept or retain the benefit of Choice's 2004 second mortgage over the Collingwood Street property.
I then consider the application to this case of the principles in Garcia v National Australia Bank.

Application: special disadvantage or disability

I understood the defendants' case to rest on the combination of the 'relevant factors' listed in the Amended Defence of July 2009 as sources of their 'special disadvantage'. This left open the possibility that one or more of the factors might not be shown to have existed at the relevant time, but yet a 'special disadvantage' had been shown, by reference to the remaining factor or factors shown to have existed.
I note that I have no evidence from Mr Janceski, as I have explained. However, I do have evidence from Mrs Janceski as to him, at least as to some of the factors.
There is a particular question arising as to the relevance of the answer to the question whether or not Choice's 2002 second mortgage over the Collingwood Street property was an unconscionable transaction. The defendants' case appears to have included that it was relevant, as one of the 'circumstances of the negotiations [for Choice's 2004 second mortgage over the Collingwood Street property] and how [it] came to be signed' (the Amended Defence of July 2009 [3](f)).
The plaintiff addressed this issue on the basis that if the defendants had not shown Choice's 2002 second mortgage over the Collingwood Street property as unconscionable that was the end of the defendants' claim. I disagree that would necessarily be the case. It seems to me that even if the defendants failed to show Choice's 2002 second mortgage over the Collingwood Street property was an unconscionable transaction, they might yet succeed in showing Choice's 2004 second mortgage over the Collingwood Street property was an unconscionable transaction, as where there was evidence relevant in that regard for the latter of a kind missing for the former. I consider that matter below.
The plaintiff also addressed this issue on the basis that even if the defendants had shown Choice's 2002 second mortgage over the Collingwood Street property was an unconscionable transaction, the defendants' claim still failed. This would be on the basis that Choice's 2004 second mortgage over the Collingwood Street property represented a mortgage on 'more favourable terms' than the mortgage it replaced, as a part of a transaction for the refinancing of Walthamstow's first mortgage over the Collingwood Street property, both procured by the defendants through Mr Knight by relying on the threat to challenge Choice's 2002 second mortgage over the Collingwood Street property on Amadio grounds. The plaintiff's case does not indicate in what respect or respects the terms were 'more favourable'. It appears that at the least, the latest date for repayment of the vendor finance was extended. However, I consider that if the defendants are able to make out their case of unconscionability, this would extend to any agreement in respect of their 'Amadio' claim in relation to Choice's 2002 second mortgage over the Collingwood Street property. I have so concluded because the agreement would be one forming part of Choice's 2004 second mortgage over the Collingwood Street property.
At the same time, I consider the matter raised by the plaintiff to be of significance to whether or not the matter of Choice's 2002 second mortgage being an unconscionable dealing is capable of adding anything of significance to any special disadvantage which the Janceskis were subject to in respect of Choice's 2004 second mortgage over the Collingwood Street property. I return to that matter below.
I turn now to consider each of the relevant factors relied upon in the Amended Defence of July 2009.

Application: age

As Permanent Mortgages [235] and [236], above, indicates, advanced age does not of itself represent 'special disadvantage'; but advanced age, in combination with other factors, such as limited or lack of education and strong emotional attachment to and dependence on the person who is to benefit under the transaction, may show special disadvantage. I reach those other factors below. For now, I focus on the factor of age.
Mrs Janceski was 54 years old at the time of execution of Choice's 2002 second mortgage over the Collingwood Street property, and 56 years old at the corresponding time for Choice's 2004 second mortgage over the Collingwood Street property. This compares with the ages of the Dzienciols at the time they signed the two mortgages challenged in Dzienciol of 74 and 75 and 67 and 68 respectively; and the age of Mr York at the time he entered into the transaction challenged in Bridgewater of about 84 years old.
There is no suggestion that Mrs Janceski was suffering from an age related disability that seriously affected her ability to make a judgment as to her own best interests, such as dementia or age related physical fragility. Indeed there is no substantial reliance on Mrs Janceski's age in the submissions for the defendants, save in relation to the following evidence of Mr Ozich, in connection with his experience of the ability of persons with a Macedonian linguistic background (as the Janceskis had) to understand Croatian or Serbo‑Croatian (the language Mr Ozich used with them at the meeting of 9 October 2004, and indeed as I have indicated at the meeting of 20 August 2002).
That evidence was the following (cross-examination, ts 1576):
What do you say to the suggestion that people who speak Macedonian wouldn't have understood your Serbo-Croatian?---Well, I totally disagree with that because at that stage I'd been in practice well over 30 years, almost 35. In that time I've had many, many hundreds of Macedonian clients, probably 1000. Aside from a number which I could probably count on one hand, and they relate mainly to elderly women from isolated areas who haven't had any education, I was able to make myself understood with almost all the Macedonian clients I've had.
It may be noted that no objection was taken to the question on the basis that it concerned a matter of linguistic expertise for which it was not shown Mr Ozich was qualified to express an opinion. In any event, it seems to me this evidence went to what Mr Ozich's experience had been of making himself understood to his clients who had a Macedonian background. In addition, I have indicated that I accepted Mr Ozich's evidence that he believed the Janceskis had understood his explanations of the documents they had signed at the meeting of 20 August 2002. While I have noted Mrs Janceski's evidence that she found it 'very hard' to understand Croatian, this evidence in my view taken at its highest falls short of establishing she could not understand that language.
To the extent the cross-examination for the defendants was a challenge to the reasonableness of Mr Ozich's belief that the Janceskis had understood explanations he gave at the meeting of 20 August 2002, based on the language of the explanation, I consider that challenge was not made out.
However, for the defendants, it appears to have been put that Mrs Janceski fell into the category Mr Ozich described, of 'elderly women from isolated areas who haven't had any education'. At the same time, it was not in contest that Mr Ozich did not put Mrs Janceski in that category. Indeed, it is not apparent to me that Mrs Janceski could be classified as 'elderly' at the relevant times, or that I had evidence before me that the village in which she had been born and raised was an 'isolated' one.
Further, on the authorities referred to in Permanent Mortgages [235] and [236] other factors than her age are relevant, including in a case like this one her experience of life outside the area of her village. I reach that experience below.
In any event there is no direct evidence as to the age of Mr Janceski at the times referred to. At most I might infer from his marriage to Mrs Janceski, and the evidence that she and Mr Janceski had pension income in January 2002 when the Arkana Road properties were purchased, that he was about the same age as she. In any event there is no evidence on the basis of which I consider I can treat him in respect of his age any differently from her.
I do not consider that the ages of Mrs Janceski and Mr Janceski had on the evidence before me a significant contribution to make to any special disadvantage to which they were subject.
I turn to the next two relevant factors as pleaded and relied upon.

Application: illiteracy or lack of education; unfamiliarity with the language

In my view, these two pleaded factors are best dealt with together, as they shade into one another. For the defendants it was not suggested they should be dealt with separately.
As Permanent Trustees [231] indicates, special disadvantage often involves illiteracy, lack of education and lack of or limited comprehension of the English language, which I accept is written or spoken English. I accept that any of these factors without the others may be significant.
The evidence does not in my view show that Mrs Janceski was illiterate in the sense of having no capacity to understand spoken or written English. Further, it was not in contest that Mrs Janceski at all material times understood simple and plain conversations in English of an everyday nature.
In my view, at most the evidence shows that her capacity at all material times was limited.
Further, for the reasons I will explain, I find that Mrs Janceski had the capacity, notwithstanding her lack of formal education in English, to understand in English, spoken or written, if with some difficulty, the terms of significance to her in relation to Choice's 2002 second mortgage over the Collingwood Street property and its replacement in 2004.
There was no evidence of any kind led as to the literacy, education or understanding of the language of Mr Janceski.
There is the unchallenged evidence of Mrs Janceski that she had only primary school education, and that in Macedonian, while written Macedonian uses the Cyrillic alphabet. I consider that I can take judicial notice of the fact that that alphabet is very different from the alphabet used for written English.
There is also the testimony of Mrs Janceski that 'I do not understand English' (ts 429) and 'I cannot read to you in English' (ts 255).
However, the former testimony was in the context of questioning concerning a passage in a letter quoted in her witness statement (exhibit C). That letter was one to the court dated 17 August 2005 which she and Mr Janceski had signed and the contents of which concerned their response to the plaintiff's summary judgment claim (the Janceskis' letter to the court of August 2005). She was able to recognise that the passage quoted was the same as the one appearing in that letter (ts 428). I do not consider that Mrs Janceski was indicating she could not understand written or spoken English, but rather that she did not readily understand the language, at least in some contexts. Further, her evidence taken as a whole indicated she could understand both spoken and written English to a significant extent at least.
Thus, I note that her testimony 'I cannot read to you in English' was given in the context of the request she read out aloud her witness statement (exhibit C). This witness statement was prepared by Freehills when that law firm had been acting for her. The exchange with her immediately after her testimony concerning reading to the court in English was the following:
All right. Can I then ask how you were able to know what was in this document. Has this document ever been translated into Macedonian for you?---No, because Freehill ask me, I tell them and I know what I tell them.
Have you ever tried to read this document after Freehills prepared it?---I was looking at it. I know some bits, but like properly it's not really, but I can, you know, read something but it's - can't say the word it's properly or the things, but I know it's all there.
What I would like to suggest is this, that we have Mrs Janceski attempt to read out what is in the document. The fact that it may be a little difficult for her we'll allow for.
Mrs Janceski, we'll allow you to read it out slowly, and if there is anything that you do not understand you should indicate that so that there can be an interpretation into your language, into Macedonian, of what is in that paragraph?---So you want me to read out it English or
Read that in English, and I will assume that when you read something in English you understand what you have said as being what you had told Freehills?---Okay.
Otherwise she will stop and say something like, 'I need that interpreted into Macedonian for me'?---Yes.
Mrs Janceski read the witness statement out aloud, occasionally indicating a difficulty with understanding particular words, such as 'initially' (ts 260) and 'adjacent' (ts 306), and occasionally indicating, by stumbling, difficulty with reading words out loud (see ts 262 for an example with 'wanted'; and ts 425).
In her cross-examination it emerged that she did not 'understand all of it' (ts 468), and indeed that she appeared to testify that she equated 'understanding' with the ability to read the witness statement out aloud (see ts 466), notwithstanding repeated attempts to have her appreciate the difference between the two, a difference which she had apparently recognised (see ts 260, 262 ‑ 263, 377).
However, it was evident she did understand much of her witness statement, including matters having to do with aspects of the Janceskis' loan arrangements with Reliance. This in my view is clearly indicated by the following cross-examination concerning whether she understood par 259 of her witness statement (exhibit C).

On 17 May 2012 the plaintiff filed an affidavit of Mr Nardizzi entitled 'Affidavit of [Mr Nardizzi] in Support of Orders for Special Costs and Other Orders Sworn 17 May 2012' (the Nardizzi affidavit of 17 May 2012).
Also on 17 May 2012 the plaintiff filed a document entitled 'Plaintiff's Supplementary Submissions Filed Pursuant to [my orders of 30 April 2012]' (the plaintiff's supplementary submissions).
On 22 May 2012 my associate communicated with the parties by e-mail to the plaintiff's solicitor and to the defendants care of Michael indicating that, if the parties did not file a memorandum of consent orders extending the relevant times under my orders of 30 April 2012 or seek a hearing, I would treat those times as extended appropriately and make my determination on the papers filed. My associate's e‑mail allowed for a response by 4 pm 25 May 2012. No further filings were made by either party by that date and time.
Accordingly, this determination is made on the papers comprising the Nardizzi affidavit of 16 January 2012; the Nardizzi affidavit of 25 January 2012; the plaintiff's Minute; the plaintiff's submissions; the defendant's submissions; the plaintiff's supplementary submissions; and the Nardizzi affidavit of 17 May 2012.
I note there is no affidavit material for the defendants.
I turn to consider the issues as framed by the parties' submissions.

The defendants' position on liability

The defendants' submissions state that they 'do not admit to liability of any kind to the plaintiff'. The defendants' submissions refer in this respect to the defendants' inability to secure legal representation during the trial.
In my view these are matters that were for the defendants to raise in any appeal against Choice Constructions [No 3]. They do not go to the orders to be made on the plaintiff's application. This is except insofar as the defendants' submissions in this respect may be taken as a call on the plaintiff to make its case for the orders it seeks. I so take the defendants' submissions.

Principal and interest

The defendants' submissions include the claim that they have no liability for interest or (as will be seen) costs, charges, damages and expenses in connection with or incidental to Choice's 2004 second mortgage. I return below to those costs, charges, damages and expenses.
My concern here is in relation to the plaintiff's Minute, orders 1 and 2.
Order 1 covers principal. As to principal, the defendants' submissions take no position other than that which I associated with their position as to liability.
Order 2 concerns interest, the defendants' submissions as to which I have referred to.
I turn to consider whether or not the plaintiff has made its case for those orders.
Choice's 2004 second mortgage is annexure 'JN-2' to the Nardizzi affidavit of 16 January 2012. There was no contest at trial that this mortgage was duly executed and the defendants were in default under its terms.
Those terms include (cl 5) that the defendants are to pay to the plaintiff on demand the 'Money Secured', provided that, if the defendants punctually pay interest (as provided for in cl 6) and the 'Principal Sum', in the manner on the dates stated in the Schedule, the plaintiff would make no demand.
The 'Money Secured' is defined (in cl 3.1(8)(a)) to include the 'Principal Sum', which in turn is defined (in cl 3.1(12) read with Schedule, Item 4) as $152,822.51 and is further described (in Schedule Item 5, 'Date of Advance of the Principal Sum') as '[a]lready advanced'. I took this as a reference to the advance of the vendor's credit under Choice's 2002 second mortgage which Choice's 2004 second mortgage replaced. The amount referred to is that specified in the plaintiff's Minute order 1. By the provisions of the Schedule, and subject to the payment on demand of an indemnity to which I will return below, the Principal Sum was repayable at any time prior to 3 September 2006 (Schedule, Item 6).
The 'Money Secured' is also defined (in cl 3.1(8)(c)) to include 'interest', while the defendants are required (by cl 6) to pay interest on demand at the 'Prescribed Rate specified in the Schedule' on the 'Money Secured' or on so much as from time to time is owed by the defendants from the Date of Advance of the Principal Sum. I describe the Prescribed Rate, which are in fact two rates, below. Interest (by Schedule, Item 7) is payable three monthly in advance. If (by cl 6.1) the defendants pay interest punctually and have not committed any breach of any representation, covenant, agreement, condition or stipulation on the part of the defendants in Choice's 2004 second mortgage or any collateral security then interest is payable at the 'Reduced Rate' specified in the Schedule (Schedule, Item 3).
On the uncontradicted evidence in the Nardizzi affidavit of 16 January 2012 and the Nardizzi affidavit of 25 January 2012 the only payments made under or for the purposes of Choice's 2004 second mortgage were of $30,974.35, from proceeds of the sale of the Janet Street property. Those payments (the payments) were of the amounts of $29,853.15 and $1,121.20 on 3 January 2006 and 28 February 2006, respectively. There is no contest that the payments were properly applied by the plaintiff towards the amounts due and payable for interest on the Principal Sum under Choice's 2004 second mortgage, as indicated in the Nardizzi affidavit of 16 January 2012 and the Nardizzi affidavit of 25 January 2012. There can be no contest that in the events described in this paragraph of my reasons the rate of interest applicable to the Principal Sum (and to the other moneys making up the Money Secured) was simple interest, at the Prescribed Rate. The Prescribed Rate was 13% for the period 4 September 2002 to 3 September 2004, both dates inclusive, and thereafter 16% (Schedule, Item 3).
It follows in my view that the plaintiff is entitled to an order in terms of the plaintiff's Minute, order 1; and, to the extent the amount of interest the plaintiff's Minute, order 2 is correctly calculated, including crediting of the payments, the plaintiff is also entitled to an order in terms of that other order.
I have examined the table of calculations and statement of credit in the annexure 'JN‑4' to the Nardizzi affidavit of 16 January 2012, and updated the calculations to 23 January 2012 on the basis, as stated in the Nardizzi affidavit of 25 January 2012, that no payments were made after the last date to which the earlier affidavit related. I find that the calculations and crediting have been done so as to produce a figure for interest on the Principal Sum no higher than the amount due and payable under Choice's 2004 second mortgage. I note in passing that Choice's 2004 second mortgage appears to have interest accrue for the day of 4 September 2002, which is not included in the calculation.
I further note that there is provision in Choice's 2004 second mortgage (cl 22.2) which in my view has the effect that security does not merge in the judgment following Choice Constructions [No 3].
It follows, in my view, that the plaintiff is entitled to orders in terms of both orders 1 and 2 in the plaintiff's Minute.
I turn now to orders 3 and 4 in the plaintiff's minute.

Enforcement and other costs and interest

I begin by noting, as I have previously, that the defendants' submissions assert that the plaintiff is not entitled to claim 'any and all costs, charges, damages and expenses which the plaintiff incurs or becomes liable for in connection with or incidental to [Choice's 2004 second mortgage]'. The defendants' submissions put this submission on the basis that Choice's 2004 second mortgage cl 3.1(8)(f) 'clearly gives this right only to the defendants (Mortgagors)'.
Choice's 2004 second mortgage cl 3.1(8)(f) defines as part of the Money Secured the following (emphasis added):
all costs charges damages and expenses which the Mortgagor incurs or becomes liable for in connection with or incidental to this Mortgage.
In my view 'Mortgagor' in cl 3.1(8)(f) is clearly an error. It would make no sense to include as part of the Money Secured such items that the Mortgagor incurred or became liable for. This may be seen most clearly from the opening words of Choice's 2004 second mortgage cl 5.1, which are:
To pay to the Mortgagee on demand the Money Secured or such part thereof as shall be specified in the demand …
It is clear to me that 'Mortgagor' in cl 3.1(8)(f) is a clerical error and should be read as corrected to 'Mortgagee'. No order for rectification of Choice's 2004 second mortgage is required or appropriate. See Carter on Contract LexisNexis Butterworths, as at 29 May 2012 [22-380] at n7; and Fitzgerald v Masters (1956) 95 CLR 420, 426 ‑ 427 (Dixon CJ and Fullagar J).
I next note that the plaintiff's supplementary submissions state that the plaintiff seeks orders for payment of 'enforcement costs … incurred on a solicitor/own client basis'. The plaintiff's supplementary submissions identify those costs as appearing both in the Nardizzi affidavit of 16 January 2012 and the Nardizzi affidavit of 17 May 2012. The latter affidavit in [2] states that it details and annexes copies of tax invoices referred to in the Nardizzi affidavit of 16 January 2012 and that 'all of such expenses related to [Choice's 2004 second mortgage], the enforcement of the mortgage, proceedings and implementing the judgment'. Further, that affidavit states that 'all such tax invoices have been paid in full'.
It would appear from the dates of the earliest invoices annexed to the Nardizzi affidavit of 17 May 2012, in October 2003, February 2004 and July 2004, that the amounts they refer to cannot be costs of enforcing Choice's 2004 second mortgage, while it is not apparent from the invoices for October 2003 and February 2004 how they are within Choice's 2004 second mortgage cl 3.1(8)(f) as costs 'in connection with or incidental to [Choice's 2004 second mortgage]' (emphasis supplied). The plaintiff's Minute, orders 3 and 4, relate only to enforcement costs of Choice's 2004 second mortgage. As will appear, however, the plaintiff appears no longer to seek orders in those terms.
The plaintiff's supplementary submissions also note my costs order of 21 December 2011 and appear to accept that such order is for costs on a party and party basis. I do not consider that it could be successfully contended that my costs order of 21 December 2011 could be construed otherwise. See Bank of Western Australia Ltd v Ponga (Unreported, WASC, Library No 980697, 2 December 1998) 6 (Sanderson M), referred to with approval in Rumball v Mortimore [2000] WASC 126 [13] (Owen J).
My costs order of 21 December 2011 may be contrasted with the Special Condition (2), headed 'Indemnity', in Item 10 of the Schedule to Choice's 2004 second mortgage. The plaintiff's supplementary submissions refer me to that provision, which reads in part as follows:
Except in the case of fraud, wilful misconduct or gross negligence by the Mortgagee, each of the Mortgagor and the Borrower must on demand indemnify the Mortgagee against any loss cost or expenses (including legal fees, costs and disbursements (on a solicitor/own client basis)) which the Mortgagee may sustain or incur as a consequence of:
(a)any sum payable by the Mortgagor and the Borrower as the case may be under this Mortgage or any Collateral Security not being paid when due; or
(b)the occurrence of any default or potential default.
I also note Choice's 2004 second mortgage cl 17.1(1) and (3), to the latter of which the plaintiff's supplementary submissions call my attention: those sub‑clauses read as follows:
17Costs
17.1That the Mortgagor shall upon demand (which may be made at any time notwithstanding anything herein contained or implied to the contrary) pay:
(1)All costs and valuation fees incurred by the Mortgagee in connection with this Mortgage including, and without limiting, the costs (as between solicitor and client) of instructions for and preparation stamping registration and discharge hereof; and
(2)…
(3)Any costs incurred by the Mortgagee in the exercise or attempted exercise of the Mortgagee's remedies powers or rights hereunder; …
I have previously set out the terms of Choice's 2004 second mortgage cl 3.1(8)(f).
On the authorities the language of costs liability in a mortgage in the form of 'solicitor/own client' and 'all costs' should be construed as meaning costs on an indemnity basis. See on the language of 'solicitor/own client' (emphasis supplied) Gomba Holdings (UK) Ltd v Minories Finance Ltd (No 2) [1993] Ch 171, 187 (Scott LJ for the court of Sir Stephen Brown P, Stocker and Scott LJJ); and on the language 'all costs' see Bank of Baroda v Panessar [1987] Ch 335, 355 (Walton J), quoted in Gomba 192. I consider the latter construction would extend to 'any costs' in cl 17.1(3). While there is authority that there is a difference between costs on an indemnity basis and costs on a 'solicitor/client' basis that authority also notes the difference in this jurisdiction is not great. See Rumball (2000) [33]. I consider that 'all costs' in cl 17.1(1) should be given the meaning I have described notwithstanding the use in the same sub‑clause of 'solicitor and client' costs and to give the meaning of indemnity costs to those latter costs. This would align with the language in Special Condition (2) quoted and with the language of 'all costs' in cl 3.1(8)(f).
On these conclusions as to the construction of Choice's 2004 second mortgage Special Condition (2), cl 3.1(8)(f) and cl 17.1(1) and (3), does my costs order of 21 December 2011 displace the entitlement of the plaintiff to costs, charges and expenses under those provisions so construed?
I should immediately note that any such displacement could only be so far as costs of and incidental to the proceedings in the plaintiff's action are concerned, and not for other costs, such as those in Choice's 2004 second mortgage cl 17.1(1). See Rumball (2000) [31]. I note that only cl 17.1(3) and Special Condition (2) appear to be limited to the first kind of costs. Indeed the costs included in the three earliest invoices in the Nardizzi affidavit of 17 May 2012 previously referred to (those of October 2003, February 2004 and July 2004) as they appear on their face cannot be other than costs which are not costs of or incidental to the plaintiff's action for the purposes of Choice's 2004 second mortgage.
However, I note that in the hearing at which my order as to costs of 21 December 2011 was made no reference was made to the plaintiff's costs entitlements under Choice's 2004 second mortgage; my order as to costs of 21 December 2011 on its face makes no reference to such entitlements; and I did not adjudicate on whether or not the plaintiff should be deprived of those costs pursuant to such entitlements. In those circumstances, the plaintiff is not precluded from seeking orders to recover those entitlements. See Rumball (2000) [27] ‑ [30], citing other authorities.
Further, while an order for one party to pay another its costs of or incidental to proceedings in this court is always discretionary (see Supreme Court Act 1935 (WA) s 37 and Gomba 194 on the corresponding English provision), such an order does not affect contractual or equitable rights of a mortgagee to retain its costs out of the mortgaged property or the proceeds of its sale (Gomba 192).
The plaintiff's supplementary submissions in fact state that a 'further and suitable further costs order' in the following terms could be made:
The Defendants indemnify the Plaintiff in respect to all costs and disbursements incurred on a solicitor/own client basis together with interest at the rate of 16% per annum from the date each item is incurred.
I took this 'further and further suitable costs order' to be a statement by the plaintiff it no longer presses for an order in terms of the plaintiff's Minute orders 3 and 4. Rather, it seeks an order for all costs including costs other than those of or incidental to the plaintiff's action, and interest on the costs sought, all as made payable by Choice's 2004 second mortgage. Further the costs order the plaintiff seeks is of an indemnity kind. That is to say I take this order to be for 'all costs and disbursements incurred' in accordance with the plaintiff's contractual entitlements.
Orders of an indemnity kind, when they are made in the exercise of the discretion under Supreme Court Act s 37, are of course subject to an exception. That is, in that context at least that is what 'indemnity costs' means. The costs so ordered are except in so far as they are of an unreasonable amount or have been unreasonably incurred. See Civil Procedure Western Australia LexisNexis Butterworths [66.1.16.1] as at 30 May 2012. This of course means that the burden of showing the exception applies is on the party resisting the claim to costs.
On the authority of Gomba (see 186 read with cl 2 of the mortgage in that case, which is set out at 179) the exception referred to should be seen as applicable to the costs provisions in Choice's 2004 second mortgage I have referred to, Special Condition (2), cl 3.1(8)(f) and cl 17.1(1) and (3). This is a matter of the 'true construction' of the clauses (Gomba 186), and applies to the plaintiff's entitlement to costs whether they are of or incidental to the plaintiff's action or otherwise.
True it is that the final orders made in Rumball [36], also a mortgage enforcement action, were in the following terms, which did not include on their face any qualification:
The plaintiffs are entitled to a declaration that the defendant is liable to pay non-litigation costs arising from the defendant's default to the plaintiffs. Consequently, I order that:
1.The defendant pay to the plaintiffs, from the substitute security fund, the plaintiffs' non-litigation costs incurred as a result of the defendant's default.
2.The non-litigation costs incurred as a result of the defendant's default be taxed if not agreed, and that they include the costs to the plaintiffs of the preparation and taxation of the bill (if necessary).
3.The balance of moneys held in the substitute security fund be paid out to the defendant.
However, I do not consider Owen J in Rumball meant by that order that the mortgagor was to pay to the mortgagees there 'any non-litigation costs incurred as a result of the defendant's default', whether or not it could be shown that they were unreasonably incurred or unreasonable in amount. The matter appears not to have been addressed in submissions to his Honour. And it would be inconsistent with the ordinary meaning of an order for indemnity costs in this court which appears from his Honour's judgment to be the measure of the mortgagor's costs liability: see Rumball (2000) [33] ‑ [35].
I consider then that the order the plaintiff now seeks as to costs, understood as I have indicated and modified to reflect that understanding, is one which I should make. To the extent the order goes to costs of or incidental to the plaintiff's action, it is an exercise of the court's discretion as to costs which reflects the contractual right of the plaintiff, as ordinarily the exercise of the court's discretion in such a case should do. See Rayner v Australia and New Zealand Banking Group Ltd [2003] WASCA 264 [25] (Murray and Parker JJ), referring with approval (see [26]) to Gomba 193 ‑ 194.
I also consider that the costs order I should make should be further modified to provide for the costs of and incidental to the plaintiff's action to be taxed if they are not agreed. This appears to be the standard costs order in mortgage enforcement actions, including for non‑litigious costs of and incidental to the action, and allows for the defendants to have the costs of and incidental to the plaintiff's action, which I understand to be the bulk if not all of the costs sought, to be reviewed by a taxing officer of the court. However, that taxation should be at the cost of the defendants, as provided for by order 2 from Rumball (2000) [36].

Finally, the order I should make should substitute for my costs order of 21 December 2011, which accordingly should be vacated.
I turn now to the costs of finalising judgment.

Costs of finalising judgment

The plaintiff's Minute, order 5, set out above, would have the defendants pay such costs.
As indicated in the previous reasons, the plaintiff has largely been successful in persuading me to make further orders of the kinds, if not always in the terms, it seeks. Although there were difficulties with the provision of some of the relevant papers to the first defendant as I have indicated earlier, I consider the plaintiff made efforts in good faith and for the most part reasonably to meet the requirements in my programming orders of 18 January 2012 to provide her with them. For that reason I do not consider that those difficulties were such as to deny the plaintiff all or a part of its costs of finalising judgment.
I note the order for costs of the plaintiff's application I made on 18 January 2012 (my order of 18 January 2012 as to the costs of plaintiff's application), which was as follows:
1.The plaintiff is to have its costs of the application, fixed in the amount of $2,800.
I consider that my order of 18 January 2012 as to the costs of the plaintiff's application is one fixing the costs of the application for particular judgment as at the hearing that day, as an exercise of the costs discretion in Supreme Court Act s 37 but without regard to the plaintiff's contractual rights in Choice's 2004 second mortgage. Although the matter of those rights was addressed in that application, no argument was addressed to me as to their implications for the order I should make as to the costs of the application, I made no reference to those rights and I did not adjudicate upon them. This, on the authority of Rumball (2000) [27] ‑ [30] and authorities there cited, means I am not prevented from making an order for the costs of finalising the particulars of judgment, including costs of the kind the subject of my order of 18 January 2012 as to the costs of the plaintiff's application, to reflect those rights. Those rights in my view would extend to such costs. Further, the order I should make in the exercise of my costs discretion should ordinarily reflect those rights.
However, the plaintiff's Minute order 5 does not on its face appear to seek to have the order for the plaintiff's costs of finalising particulars of judgment reflect its contractual rights. On Ponga 6 approved in Rumball (2000) [13] the plaintiff's Minute order 5 is limited to party and party costs. At the same time, I consider the 'further and further suitable costs orders' the plaintiff now seeks, and a modified version of which I would make, would extend to such costs.
I will hear from the parties as to what order, if any, I should make with respect to the costs of finalising particulars of judgment.

Conclusion and orders

For the foregoing reasons I would make, from the plaintiff's Minute, orders 1 and 2; I would make a modified form of the 'further and further suitable costs orders' in the plaintiff's supplementary submissions; and I will hear from the parties as to the order to make, if any, with respect to the costs of finalising the particulars of judgment.