Citibank v Nicholson; Pirrotta v Citibank No. Scgrg-93-2261, Scgrg-94-1928 Judgment No. S6428

CITIBANK SAVINGS LTD v NICHOLSON and ORS

and
PIRROTTA and ANOR v CITIBANK SAVINGS LTD and ORS

Perry J

These two actions, which were tried together, arise out of a transaction which took place in November 1991 when Citibank Savings Ltd ("Citibank") agreed to lend $260,000 to SSAI Agencies Pty Ltd ("SSAI"). As security, SSAI gave a fixed and floating charge over all of its assets. Additionally, repayment of the loan was guaranteed by seven people: Angelo and Connie Passaniti and their daughter Patricia Tina Passaniti (known as Tina), Sheila and William Nicholson ("the Nicholsons"), and Pasquale and Filomena Pirrotta ("the Pirrottas").

Further security was provided by three first mortgages, namely, a mortgage by Tina Passaniti over her house property at 7 Jarman Avenue, Salisbury East, a mortgage by the Nicholsons over their house property at 6 Earlsfield Avenue, Salisbury East, and a mortgage by the Pirrottas over their house property, to which was attached a delicatessen, at 70A Marlborough Street, Henley Beach.

SSAI defaulted on the repayments due pursuant to the loan agreement.

In November 1993, following the issue of notices of sale, Citibank issued the proceedings against the Nicholsons. It sought an order for possession of their house property in aid of its sale. The Nicholsons defended the proceedings, at the same time raising a counterclaim against Citibank and third party claims against three other parties. They seek declarations that they are not bound by the mortgage or by the guarantee. The third parties joined by the Nicholsons are Connie Passaniti, Olson & Co and Melissa Ballantyne.

Olson & Co were a firm of solicitors practising at Port Adelaide. Melissa Ballantyne was employed by that firm. They were engaged to explain the documentation, more particularly the effect of the guarantee, to the parties before it was executed, and to give a certificate accordingly.

In the third party proceedings, the Nicholsons asserted that they were misled by Connie Passaniti as to the essential terms of the transaction; that she was guilty of undue influence; and that Melissa Ballantyne, as agent of Olson & Co and in the course of her employment by that firm, failed properly to explain it to them and advise them as to its effect.

The other proceedings were instituted by the Pirrottas in November 1994. In their proceedings, the Pirrottas joined five defendants, namely, Citibank, Patricia and Connie Passaniti, Olson & Co and Melissa Ballantyne. They claim that in one way or another, all of the defendants either misled them as to the nature of the transaction or failed adequately to explain it to them; that the guarantee and mortgage are not binding on them; and that Citibank are not entitled to have possession of their land the subject of the mortgage, or to sell it.

Various cross claims have been made in that action.

I will set out in greater detail the nature of the claims and cross claims in both actions later in these reasons.

The trial extended over some fifteen sitting days. Much oral and documentary evidence was tendered.

During the early stages of the trial, counsel asked that it be confined to certain discrete issues, and that the remaining issues be left to be tried later, if they were not otherwise resolved. I agreed to that course, but only on the footing that an order be made pursuant to Supreme Court Rules R 75.

By consent I made such an order, essentially confining the issues for trial at that stage to the enforceability of the mortgages and the guarantee, and the question of liability on the various contribution proceedings.

Oral evidence was given by all the individual parties to the proceedings, that is to say, each of the Pirrottas, each of the Nicholsons, Connie and Tina Passaniti and Melissa Ballantyne. As well, evidence was given by Angelo Passaniti, Connie Passaniti’s husband, a Mr Stanley (Stan) Solomon, who was employed as a bookkeeper by SSAI, and by Ms Anna Ziliotto who was a secretary employed by Olson & Co at the relevant time.

I should say something as to my findings as to credit.

As to Pasquale Pirrotta, his spoken English was broken and rudimentary. His understanding of conversational English was similarly limited. Except for a few words, he could not read or write English.

While I treat him as an essentially honest witness, I think that he tended to over-dramatise the limitations on his understanding of the transaction. His evidence was coloured, as was that of his wife Filomena, by concern over the possible loss of their house property.

But he understood the essential character of both a mortgage and a guarantee. Since migrating to Australia he had entered into many mortgages. He knew what a certificate of title to property was, and that when he entered into a mortgage he handed over the title, which was given back when it was paid off. Throughout his evidence, I thought that either consciously or unconsciously he was endeavouring to distance himself from admitting to knowledge of anything other than the essential elements of what he understood that he and his wife were entering into. However, as will be seen, I accept his evidence and that of Filomena Pirrotta that they were misled by what Connie Passaniti had to say to them about the transaction.

Filomena Pirrotta was essentially honest, but a very simple minded woman with little command of English. I think her understanding of the transaction was more limited than that of her husband. Notwithstanding that, she understood its essential terms, subject only to matters upon which she was misled by Connie Passaniti. Her evidence was coloured by histrionics and over-dramatisation. But at the end of the day I reached the view that this was an expression of concern over the possible consequences of Citibank succeeding in the proceedings, rather than an expression of an intention to mislead.

As to Tina Passaniti, although I accept that she had virtually no idea of the responsibilities of being a director of SSAI, I am satisfied that she had a much greater understanding than she was prepared to admit, both as to the general nature of the transaction and as to the documents which she was signing. The suggestion in her evidence that she lacked any understanding whatsoever of the documents which she signed was unconvincing, indeed, unbelievable, and I do not accept it. Neither do I accept her evidence insofar as she pretended that she knew, and still knows, very little about the running of the company. I prefer the description of her involvement given by the witness Mr Solomon.

I reject the evidence of Connie Passaniti except in matters where it is inherently likely to be true, or is supported by other credible evidence. She had a surprisingly good memory for matters which it suited her to assent to, but pretended a complete lack of recollection of important matters which might have reflected poorly upon her. I reject absolutely her suggestion that she was completely ignorant of the terms of the loan negotiated with Citibank and her denial that she was effectively running the company. Her responses to anything of importance were devious and guarded. As will be seen, I find that she misled both her parents and the Nicholsons as to important aspects of the transaction. She was manipulative and calculating, and prepared to stop at virtually nothing in order to raise funds to carry on the business. She was equally ready to turn her back on it when it failed to prove as profitable as she might have hoped.

Connie Passaniti’s husband Angelo Passaniti has very little command of the English language. He exhibited an extraordinarily casual attitude to the signing of the various documents, which he did with absolutely no inquiry and very little understanding of what he was about. This is a reflection of his implicit trust in Connie Passaniti. He relied completely on her and did not take the trouble to inform himself of what he was doing at any stage, apart from taking in the small amounts of information which she was willing to give to him. He was basically an honest witness, but could throw very little light on the central issues in the case in view of his failure to concern himself with any matters of detail.

I accept the witness Stan Solomon as a witness of credit. I accept the truth of his evidence except as to one or two matters in which he might have been mistaken. I accept his evidence as to the extent of Connie and Tina Passaniti’s involvement in the company, which gives the lie to much of the evidence given by Connie and Tina Passaniti.

Mr Solomon was a self-taught bookkeeper. However, I think that his accounting expertise was limited, which is one reason why the company documents read so poorly.

The evidence of both of the Nicholsons was coloured by their obvious concern at the consequences if they should fail to succeed in setting aside the mortgage and guarantee. I accept that Mrs Nicholson had no relevant business experience before becoming involved with SSAI, but I am not prepared to accept her evidence at face value as to what she purported to be her extraordinarily inadequate understanding either of the affairs of the company generally or as to the essential terms of the transaction.

Mr Nicholson, like Angelo Passaniti, was disposed to leave most matters concerning the business to his wife. His evidence as to the central issues in the case is, therefore, of limited value.

As to Ms Ballantyne, I accept her as a witness of truth. However, her recollection was affected by the passage of time, and she was prone, perhaps subconsciously, to reconstruct. While she endeavoured to give her evidence conscientiously, it must, therefore, be approached with a degree of circumspection.

It is convenient at this stage to set out the factual background insofar as it is relevant to the resolution of the issues directed for trial at this stage. The narrative account which follows may be taken to be findings of fact which I have reached, on the footing that I have rejected evidence and argument inconsistent with those findings.

The factual background

Pasquale Pirrotta was born in Italy. He migrated to Australia in 1950 at the age of 25 years. At the time of the transaction in question, he was 66 years of age.

As a child, Mr Pirrotta had very little schooling. From childhood he had worked in his father’s market garden, except for two years doing pick and shovel work just before he migrated. In Australia he worked as a labourer and as an unskilled worker in factories.

In 1952 he married Filomena, who had migrated to Australia from Italy in the same year. She had previously been married to Pasquale Pirrotta’s brother, Vincenzo, who was killed in the Second World War.

When Filomena migrated she was accompanied by her daughter by Vincenzo, Concetta (known as Connie).

At the time of the transaction in question, Filomena was aged 67 years and Connie almost 49 years.

The Pirrottas bought land at 70A Marlborough Street, Henley Beach, on which they built a house and a delicatessen. Connie, and later Pasquale’s own children by Filomena, worked from time to time in the shop.

Connie married Angelo Passaniti. They took over the operation of a snack bar in the city with which her step-father and mother had also been associated. Their daughter Tina was born in 1963. At the relevant time in 1991, Tina was almost 28 years of age.

In about the mid-70s, Connie became involved in direct selling. She worked for a company known as Touch of Elegance, which promoted sales by holding parties in women’s homes.

Subsequently she set up a similar business of her own known as Tara Nova. That involved the sale through party plans of glass ware and dinner ware. That business commenced in about 1977 or 1978.

It was at that stage that Connie first made an approach through her mother and step-father for financial assistance to help set up the business. She obtained a loan from the National Bank. Although the evidence is not entirely clear, it seems likely to have been an advance of the order of $20,000. Her mother and step-father gave a mortgage over their property at Henley Beach as security for repayment.

Not long after, Connie Passaniti fell ill. The business collapsed. Her family, including the Pirrottas, helped pay off what was due to the bank.

At this time, in about 1980, Connie became bankrupt. She has since been discharged from bankruptcy.

In the late 1980s, through a religious group with which she became involved, Sai Baba, she met the Nicholsons. With them and with two other members of the group, Mr Soman and Mr Sharma, she set up another direct selling business, known as Tiara Exclusives. Again, this involved parties in homes.

Initially, the business sold glass ware imported from the USA. The business commenced in 1989 or 1990. It operated from business premises comprising a warehouse and an office at Maxwell Road, Para Hills. Tina became involved with that business. She helped to organise the team of saleswomen. Her mother managed the business.

Before long, Connie Passaniti approached her mother and step-father for further financial assistance. This time she persuaded her parents to apply to the Salisbury branch of the State Bank for a loan. Ostensibly this was to be a personal loan to the Pirrottas. The application for the loan states that the Pirrottas sought $20,000 for an "overseas holiday" and $10,000 for "improvements to house and shop". Neither of those statements was true. I am satisfied that it was Connie Passaniti’s idea to mislead the bank in order to induce the bank to make the loan. Again, the Pirrottas gave a mortgage over their Henley Beach property to secure repayment. They thought the amount of the loan was only $20,000. At all events, the loan moneys were given to Connie Passaniti and applied by her in the business. Monthly repayments on what, from the bank’s point of view was a personal loan to the Pirrottas, were made by the business.

Although the business of Tiara Exclusives was initially conducted by the individuals to whom I have referred, as from about July 1990 the company SSAI was incorporated and took over the business. Again, the evidence is not entirely clear as to who held the shares in the company, but it seems likely that Messrs Soma and Sharma and the Nicholsons held shares, and later Tina.

Whether because of her bankruptcy or for some other reason, it does not appear that Connie Passaniti held any shares or any formal office in the company. Notwithstanding that, the evidence makes it clear that she managed its operations.

Early in 1991, Messrs Soman and Sharma ceased their involvement. Mr Solomon began working part-time in the business. He mainly looked after the accounts, but assumed some other duties in the office as well. Although it does not appear that he was formally appointed secretary to the company, I have no doubt that at the relevant time he was acting de facto as secretary.

Tina Passaniti was appointed managing director. It is clear from the evidence that she did not have the faintest idea what obligations that entailed. Her mother continued to be the mainspring of the business and directed its operations.

The company decided to introduce a new line of merchandise, namely, jewellery, which, once again, was to be imported from the United States. The company needed more capital to finance the purchase of the necessary stock. It needed another $30,000 to $40,000. The State Bank was not prepared to lend more money. By then, about $100,000 was owing to the State Bank on the company’s overdraft.

SSAI engaged Lakes Management Services, finance brokers, to assist in finding a lender willing to pay out State Bank and advance further capital. The company dealt with Mr Paul Harris, who appears to have been the principal behind Lakes Management.

In an effort to provide more attractive security to a lender, the company devised the idea of securing a sufficiently large advance to pay off the existing mortgages over the house properties owned by the Pirrottas, Tina Passaniti and the Nicholsons, and to substitute fresh mortgages in favour of the new lender to secure repayment of its loan to the company. I have no doubt that it was Connie Passaniti who devised this scheme. It was part and parcel of it that in the case of Tina Passaniti and the Nicholsons, their personal liabilities with respect to the mortgages which they had raised to finance the purchase of their house properties would be taken over by a company liability. They would no longer be personally liable for monthly repayments on their home mortgages, but the company would assume responsibility for repayment of what was ostensibly a company loan, but which in reality, at least in part, represented a re-financing of their personal home loans.

Of course, it was part of the scheme that the Pirrottas mortgage would also be taken over. But that represented no advantage to the Pirrottas, as the company was already paying off the mortgage over their property, which from the start secured moneys advanced to SSAI.

It was left primarily to Mr Solomon to liaise with Mr Harris and furnish the information required by the latter to support the loan application. To say the least, that information, as recorded in the documents tendered during the course of the trial, is grossly inaccurate. It gave an inflated picture of the financial position of each of the proposed guarantors, and was misleading to any proposal lender who might rely upon it.

None of the witnesses was prepared to acknowledge that they were responsible for any of the inaccurate information which was furnished. Equally clearly, except perhaps for the Pirrottas, they must have been aware of the inaccuracies, as they signed many of the documents in which it was conveyed.

Be that as it may, Mr Harris was able to interest Citibank in making the loan. By letter dated 10 October 1991 addressed to the directors of SSAI, Citibank confirmed the terms upon which it was prepared to grant what it described as a Credit Line Facility.

In the letter SSAI is identified as the borrower. As for the amount of the advance, the letter states:

"Maximum Credit Line available $260,000 (up to which you expect to operate). This is subject to review by Citibank Savings as provided in the Citibank Mortgage Power (Credit Line) Facility standard terms and conditions (see copy attached.)"

Subject to compliance with the terms of the loan, there was no set period for its repayment. Repayments were to be as to interest only on a monthly basis. The "special conditions" set out in the letter included a requirement that the seven proposed guarantors "obtain an independent solicitor’s Certificate of Advice prior to settlement".

SSAI was required to notify its acceptance of the terms and conditions set out in the letter of 10 October 1991 by endorsing its approval at the foot of a copy of the letter, which was to be returned to Citibank. In fact, SSAI executed its approval under seal. The date of the affixing of the seal is shown as 21 October 1991. The seal was affixed in the presence of Tina Passaniti, who described herself as director, and Mr Solomon who described himself as secretary.

The acceptance was in the following terms:

"All the terms and conditions contained in and referred to in the above letter of Approval/Agreement, including those in the annexure and the standard terms and conditions of Citibank Mortgage Power (Credit Line) Facility attached (which are all hereby acknowledged as received) are understood and hereby accepted and the borrower covenant(s) agree(s) to be bound by each and all of them."

Citibank instructed its solicitors Kelly & Co to prepare the necessary documentation. I will deal in greater detail later with the terms of the documents which were prepared. But they included the deed of guarantee and indemnity, the deed of charge, and acknowledgments to be signed by each of the mortgagors of their receipt of what is described as the "security documents". Importantly, those acknowledgments included a certificate to be executed by the independently instructed legal practitioner certifying that a full explanation of the documents had been given.

The documents prepared by Kelly & Co were sent out by them to the Maxwell Road premises of SSAI under cover of a letter from Kelly & Co dated 23 October 1991 addressed to the secretary of SSAI. The text of the letter reads:

"Re: Mortgage facility $260,000 - Citibank Savings Ltd

Please find attached Security Documents for your examination prior to execution. We have enclosed copies of the documents for you to retain for your records. Please arrange for the return of the Acknowledgment attached thereto. It is a requirement of Citibank Savings Ltd that all guarantors seek independent legal advice prior to executing the documents. Kelly & Co is unable to offer any legal advice as to the contents of the documents or the internal procedures of our client, Citibank Savings Ltd."

I am satisfied that the letter from Kelly & Co with its enclosures was received by the company on or about the date of the letter. I reject arguments put forward at the trial attempting to throw doubt on that conclusion.

The circumstances of execution of the guarantees

After receipt of the documents, arrangements were made for a solicitor to attend at the premises of the company for the purposes of presiding over their execution. The arrangements to that end were made either by Tina or Connie Passaniti. After trying first for another solicitor, they phoned Olsons, solicitors, as a result of which arrangements were made for Melissa Ballantyne of that firm to attend.

Her belief was that Tina Passaniti had spoken to Ian Olson, the principal of the firm, and that on 7 November 1991 he spoke to her to arrange her attendance at the premises of the company on 8 November 1991. On the morning of 8 November 1991 she received the documents. She read them and made a short note of the essential elements of the transaction, at least as she saw them.

Subsequently she attended at SSAI’s premises at Para Hills. She was met by Tina Passaniti. All seven guarantors were present, as well as Mr Solomon. She put the documents on the latter’s desk in what was designated as the office area, which was a fairly open space.

The recollections of the various parties as to what then transpired differed greatly. None of the witnesses could agree as to what time of day it was, how long Ms Ballantyne was present, and what she had to say. They were all equally vague as to what they said was their understanding of the transaction.

I think it likely that Ms Ballantyne attended late morning, towards lunch time. Given the number of documents to be signed, it is unlikely that she was there for less than half an hour. But I doubt that she was there for much longer than that. Some of the evidence suggests that she appeared to be in a hurry. I suspect that the truth is that Connie and Tina Passaniti, in particular, were aware of the limited understanding of the others as to the true nature of the transaction and were not keen to have the solicitor give any extended explanation of it.

Ms Ballantyne was there at the insistence of Citibank, not because the parties to the transaction saw the need to have her there, or had otherwise sought any advice about the transaction. I think that their disinterest in what she had to say to them goes a long way towards explaining why their recollection as to what she had to say is so fragmentary.

I am satisfied that Mr and Mrs Pirrotta were there because Connie had spoken to her mother asking for help in raising a further $30,000. Mrs Pirrotta spoke to Pasquale Pirrotta who agreed with his wife that they would help. They came expecting to sign documentation re-mortgaging their house. What they thought to be the existing debt of $20,000 (which was really $30,000) due to State Bank, would be paid off and a new loan of $50,000 made against the security of their house property. Neither of the Pirrottas had read the guarantee or mortgage document before that day. In any event, they could not read English. Neither was there any attempt to explain the documents to them before that day. They relied simply on Connie’s word that they were guaranteeing a loan of an additional $30,000 over and above what was then due.

I am satisfied that Connie misled them as to the nature of the transaction. I am satisfied that they were not told before that day, or at any other relevant time, that the loan was for a total of $260,000 and that they would be guaranteeing repayment of an amount of that order against the security of their house and shop property.

The situation, however, was different with respect to the Nicholsons. In the first place, they must have been well aware that the personal mortgage over their home was to be discharged from part of the funds to be lent to the company, which would thereafter be responsible for periodical repayments. The amount then due on their personal home mortgage, which was in favour of NatWest Australia Bank, was approximately $36,000. Mrs Nicholson was aware that SSAI owed about $100,000 on its overdraft with State Bank. Her evidence was in part:

"HIS HONOUR
Q. "You said earlier on, in answer to me, that you’d done your own arithmetic as to how much was going to be lent.

A. Yes

Q. What figure did that give you.

A. I was thinking of 150,000.

Q. How did you arrive at that.

A. When Mrs Passaniti told me they would be paying our mortgage off, I knew the 100,000 was needed for the letter of credit, then I was thinking of 35,000 that would have paid off my home. Then she said there was a small amount that would boost the business a bit. I just arrived at 150,000.

Q. You knew that Tina’s mortgage was being paid off too.

A. No, I didn’t. I thought they owned their own home, and Mrs Pirrotta. I was never told."

That passage of evidence indicates that she well knew that there was substantially more being lent than the amount necessary to pay off the mortgage over the home which she and her husband owned.

In fact, I think it went further than that. Although she endeavoured to create the impression during the course of giving her evidence that Connie Passaniti kept her in the dark about the financial aspects of the business and that she was confined to a menial role of packing goods in the warehouse, I accept the evidence of Mr Solomon as to what he did when he received the letter of offer dated 10 October 1991 from Citbank. He said in evidence that he had received the letter of offer, and remembered drawing the letter to the attention of Connie Passaniti and Sheila Nicholson. He showed them the letter. He went on to say:

"Q. Were you satisfied and understood the terms on which the loan had been approved from your dealings with them.

A. I did."

Later he said that Tina Passaniti gave him the impression that she understood the terms of the transaction.

It would be surprising if it were otherwise. All of the guarantors had given personal statements as to their respective financial positions. The interest of the Nicholsons and of Tina Passaniti in the transaction would have been heightened by reason of the fact that their personal home mortgages were to be taken over. I think it stretching credulity to suggest that Mrs Nicholson did not know that Tina’s mortgage was to be re-financed, and that Tina and Connie Passaniti and Sheila Nicholson did not make it their business to acquaint themselves with the fact that credit was being offered to the extent of $260,000 or thereabouts.

Mr Nicholson stands on a different footing. He is a carpenter. He never played any part in SSAI’s business. At one stage in his evidence he said that he understood that SSAI was going to borrow about $140,000 or $150,000.

However, I accept the evidence of Mr and Mrs Nicholson in one respect, that is, that neither of them believed that they could be called upon to pay under the guarantee more than the amount for which their house property had previously been mortgaged. Mrs Nicholson thought that it could have been about $35,000, whereas Mr Nicholson thought it to have been about $40,000.

It is not unnatural for lay persons, in the absence of an adequate explanation of the legal effect of a guarantee, to think that when a guarantee is given jointly by a number of guarantors, that they will only be responsible, in the event of a default, for a pro rata proportion of the debt.

Returning to the events of 8 November 1991, I have no doubt, despite the denial by some of the witnesses that any explanation whatsoever was given, that in fact Ms Ballantyne did give an explanation of sorts. In her evidence Mrs Nicholson put it this way:

"Q. Do you recall Ms Ballantyne saying anything.

A. She did speak. She spoke for a short while. I had the feeling she was reading from something, it was a lot of legal talk which I just took to be explaining about the mortgages for the loan. ...... There was a lot of legal phrases and things like that which just leaves me dead anyway. I knew that we were going to have to sign the mortgage because I knew there was a loan there. It was just the basic things I understood but the rest of it, no."

Mr Nicholson said in evidence:

"Ms Ballantyne sat down..... She read something from a document, from a piece of paper .... ‘we are gathered here today’ type thing, you know, to sign these documents. ..."

He went on to say that he did not recall what words Ms Ballantyne used or any description of the documents they were to sign. Mr Solomon said:

"There was some discussion before the documents were signed. I seem to recall some nodding of heads."

Ms Ballantyne admitted at the time she gave evidence that she had no specific recollection of what she might have said at the meeting. However, she said in evidence that she told those assembled that they had an "individual liability as well as a group liability under the guarantee to pay the amount of $260,000". She went on to say:

"..... my recollection is what I would have said .... is that each of those persons could seek a contribution from the other (sic) with respect to the amount of $260,000. ...........

(As to the guarantee documents) I would have said in terms of the repayment that the guarantors had to make punctual payment if the company failed to make payment to the bank. I simply said that if there was any loss suffered by the bank then the guarantors would have to pay or make up that loss in some way."

Her evidence was that after she had given her explanation, she said, "Do you understand the advice" or words to the effect. She said there was a "... general response, people either said yes or nodded. No-one asked any questions". She denied being in a hurry that day.

After Ms Ballantyne had said her piece, the guarantors then executed the documents in turn.

As to Mr and Mrs Pirrotta, Tina came forward with them and pointed to where they were to sign. Neither she nor her mother gave any explanation in Italian to either of them as to the effect of the documents.

One of the documents which they signed was headed "Acknowledgment by Mortgagor". That document included six questions. They are as follows:

Have you received copies of the documents described under the heading "Security Documents" below?

Have you been given an opportunity to read those Security Documents?

Have the Security Documents been fully explained to you by your Solicitor?

Do you understand the effects of the Security Documents and the consequences to you if the Borrower defaults on his/her/its obligations to Citibank?

In particular, do you understand that if the Borrower fails to pay all of the moneys due by the Borrower to Citibank, then Citibank will be entitled to sell your property to recover the moneys due to it?

Was this acknowledgment read and signed by you BEFORE you signed the Security Documents?"

As to that document, Tina put crosses against each of the six questions and explained to her father how to write "Yes" against each of them, which he proceeded to do before signing and dating the document. Mrs Pirrotta signed the same document.

A similar acknowledgment was signed by the other mortgagors.

As to question 1, none of the mortgagors in fact received copies of the documents described under the heading "Security Documents". Those documents included a "Memorandum of Common Provisions" which was intended to be read together with the short form of mortgage to identify its terms.

As to question 2, while it is true that the documents had been at the premises of SSAI for a week or two before 8 November 1991, and while that meant that those in and about the premises had an opportunity to peruse them, I am satisfied that none of the parties had in fact read them.

That observation is not intended to detract from my finding that the letter of offer from Citibank dated 10 October 1991 was read by Connie and Tina Passaniti and Mrs Nicholson, or at least explained to them by Mr Solomon.

As to question 3, I am satisfied that the explanation given by Ms Ballantyne was, to say the least, perfunctory and deficient in a number of important respects which I will come to.

As to question 4, I am satisfied that none of the parties had an adequate understanding of the effect of the documents or of the consequences of default.

As to question 5, I am satisfied that all of the mortgagors understood that in the event of a default, Citibank might sell their properties and apply the proceeds towards the default. However, I am satisfied that neither the Pirrottas nor the Nicholsons had a complete understanding of the working out of that process. That was because the Pirrottas thought that the advance was limited to $50,000. In the case of the Nicholsons, their understanding was conditioned by the belief that they would only ever be up for their "share".

As to question 6, I am satisfied that the Pirrottas did not read the acknowledgment, as neither of them could read English. Some of the others might have skimmed the acknowledgment, but I doubt that any of them read it, and none of them understood its full purport.

The same form, that is the document headed "Acknowledgment by Mortgagor", included a certificate signed by Ms Ballantyne. That was in the following terms:

"CERTIFICATE BY INDEPENDENT SOLICITOR

Before the Security Documents were executed by the Mortgagor I explained the contents, nature and effect of them to the Mortgagor. In particular I explained and advised on the consequences of default under the relevant Security Documents, including Citibank’s right to sell the property constituting the security. The Mortgagor appeared to be aware of and to understand the terms, nature and effect of the Security Documents and his/her/its/their obligations under them. I have made a complete diary note of the advice and explanation given to the Mortgagor.

Where the Mortgagor is a company, this certificate is given in relation to the directors of that company.

I am a Legal Practitioner instructed and employed independently of Citibank and the Borrower.

DATED the 8th day of November 1991

(signed) M. Ballantyne
  Legal Practitioner
  Name: Melissa Ballantyne
  Firm Name: Olson &Co
  Address: 285 St Vincent Street
Port Adelaide SA 5015"

Despite her execution of that certificate, as I have indicated, the advice given by Ms Ballantyne was perfunctory and did not bring home to the guarantors an adequate understanding of the full extent of their obligations.

To some extent, their failure to appreciate what Ms Ballantyne had to say was the fault of the guarantors. They were disinterested in her advice. As I have already explained, she was there only because Citibank insisted on it, not because the guarantors sought her advice. And each of the guarantors had their own understanding of the transaction and were not troubled to hear what a lawyer, speaking in what they regarded as lawyer’s language, had to say about it.

Furthermore, in the case of Mr Nicholson, he had limited time off from work and wanted to get back to work. In the case of the Pirrottas, they were anxious about picking up their grandchildren from school. I am satisfied that both Connie and Tina Passaniti were anxious that the formalities be got through quickly and before the inadequacies of what they had previously explained to the others, and in particular to the Pirrottas, as to the nature of the transaction, became apparent.

Ms Ballantyne had been admitted to practise for about four years at the time of this transaction. She said in evidence, "I honestly didn’t feel there was a conflict of interest between the parties". She said that prior to November 1991 she had "advised in relation to about half a dozen guarantees". She had read and kept for future reference an article which appeared in the Law Society Bulletin for September 1991 which discussed the obligations of a solicitor advising a guarantor. I will have more to say about that article later.

Part of Ms Ballantyne’s evidence was as follows (I have, to a degree, summarised it):

"I assumed the elderly couple (the Pirrottas) were born in Italy. I remember that their English was faltering but understandable. I had a recollection that Tina said she would assist her family at the outset when I arrived at the premises, including reading the documents. In view of that I didn’t see the need to get an interpreter. ....... I didn’t, as suggested ........ in the Law Society article ask the question whether or not it was prudent for the surety to sign. I didn’t do so because I thought they were all part of the company and that it was a family matter. Had I realised that the Pirrottas had no relevant connection with the company, I would have advised them on the prudence of becoming a surety. ........ I was content to assume from the documents that there was no need to do that. Neither did I think there was any possibility of any undue or unconscionable dealing. ...... No-one appeared to be under any pressure. Everyone appeared to sign willingly. ...... I relied on the fact that most people know what a bank loan is. ........ I did not ask them individually what they understood about the transaction. ....... I thought that the upper limit was $260,000 was (sic) the extent of their liability."

Although it is true that some of the documentation provided to Citibank before their approval of the loan contained the misleading suggestion that the Pirrottas were directors (misinformation which I am satisfied was supplied by Connie Passaniti), the age of the Pirrottas and their inadequate grasp of English should have singled them out for separate attention by Ms Ballantyne. She should have perceived that the circumstances of their involvement warranted separate questioning of them, particularly in view of the fact that their daughter Connie and grand daughter Tina patently were assuming a dominant role in the proceedings. Even though she thought that they were directors, the possibility that the Pirrottas might have been induced to be party to the transaction on the basis of inadequate information about it, or otherwise been put under some pressure to become involved, should have been recognised and dealt with appropriately.

At the very least, she should have drawn the Pirrottas aside and spoken to them out of the hearing of the other parties. She should have attempted, even though Mr Pirrotta’s ability to speak English was obviously limited, to have elicited his and Mrs Pirrotta’s understanding of the transaction and of the obligations which it entailed. If Mr Pirrotta’s inadequate command of English had raised any doubt as to the efficacy of any such exercise, she should have insisted upon an independent interpreter being present so that she could satisfy herself as to those matters.

Not only did she fail to take any such steps, but, with respect to all of those who signed the mortgages, she took the short form of proof. That is the form of proof appropriate where the person signing is well known to the witness before whom he or she is appearing. Ms Ballantyne had not met any of the mortgagors before that day, and her reliance upon Tina’s introduction of them to identify them for the purposes of the short form of proof of execution of the mortgages was irregular, to say the least.

That circumstance, of course, does not directly assist the Pirrottas and the Nicholsons in their endeavours to avoid their obligations under the guarantee and the mortgages. But it is indicative of lack of experience on the part of Ms Ballantyne, and a failure on her part to appreciate the nature and extent of the obligations cast upon her with respect to the transaction in question.

There are, however, two important matters other than the inadequacy of her dealing with the Pirrottas, as to which Ms Ballantyne failed to answer to what was required of her. They are the question of the upper limit of the financial risk being incurred by the guarantors, and the related questions of their obligations to indemnify and their rights of contribution inter se. I will deal with those matters separately.

The limit of the risk

As to this aspect of the matter, the Pirrottas, the Nicholsons and Ms Ballantyne all had a different understanding, all equally erroneous.

As to the Pirrottas, I have explained how it was that Connie Passaniti deliberately misinformed them as to the extent of the additional advance being sought from the bank. Mr and Mrs Pirrotta’s understanding was that what they believed (wrongly) to be an existing commitment on their part of $20,000, would be increased by a further advance of $30,000, to $50,000.

As to the Nicholsons, although, as I have said, at least Mrs Nicholson knew that the total advanced by Citibank was of the order of $260,000, she had a firmly fixed idea in her mind, shared by her husband, that they were at risk only for a pro rata proportion as between them and the other guarantors, which they fixed at $40,000.

Ms Ballantyne’s own understanding was that Citibank was advancing a total of $260,000, and that that represented the extent of the risk being incurred by the guarantors.

In fact the deed of guarantee and indemnity provided that the guarantors unconditionally and irrevocably guaranteed due and punctual payment by SSAI of what was defined as the "secured money" to Citibank. It further provided that the guarantors "unconditionally and irrevocably" indemnified Citibank against any loss that Citibank might suffer if any of the "secured money" was not recoverable from SSAI or from the guarantors by reason of a number of events, including a lack of capacity affecting SSAI, or any other circumstance. The indemnity constituted the guarantors as principal debtors to pay any loss to Citibank on demand.

What is critical for present purposes is the definition to be found in the deed of guarantee and indemnity of the "secured money". That is defined as follows: (clause 1.1)

"Secured Money" means:

(a) all amounts which the Debtor either alone or jointly with any other person now or in the future is or becomes actually or contingently liable to pay to the Financier under or in connection with the Agreement, and

(b) all other amounts which the Debtor either alone or jointly with any other person now or in the future is or becomes actually or contingently liable to pay to the Financier under or on any agreement, security or negotiable or other instrument or as a result of any matter or thing."

With respect to sub-paragraph (a) of that definition, the Agreement is separately defined to mean the agreement constituted by the acceptance of Citibank’s letter offering the loan, dated 10 October 1991. While that letter spoke only of a credit line limit of $260,000, sub-paragraph (b) of the definition of secured money extended the application of the guarantee and indemnity to any other amounts on any account whatever for which SSAI might become liable, either "actually or contingently" to pay to Citibank.

In other words, the document was what it is commonly described as an "all moneys" guarantee. It was not subject to any monetary limit. At any time, the obligations under the deed of guarantee and indemnity could have exceeded $260,000 substantially.

Ms Ballantyne’s evidence was that, not only did she fail to appreciate that fact, and failed to give advice accordingly, but that she was not familiar with the concept of an all moneys guarantee.

Even allowing for the credit given for the amount realised upon the sale of Tina Passaniti’s house property, there is presently due and payable to Citibank an amount in excess of $260,000.

Furthermore, each of the mortgages, which were in similar terms, obliged the mortgagors to pay to Citibank "... each and all sums of money for which the mortgagor may now or hereafter be indebted or liable to Citibank and/or any associated company of Citibank (whether such indebtedness or liability be present or future, actual or contingent, fixed or fluctuating, liquidated or unliquidated) on any present or future account or for any reason or ground whatsoever", including but not limited to the loan evidenced by the acceptance of the letter of 10 October 1991.

The moneys secured by the mortgage were further defined to include moneys payable under:

"... any present or future agreement of any nature (including without limiting the generality of the foregoing) any credit agreement loan agreement supply agreement leasing agreement sale agreement hire purchase agreement guarantee and/or pursuant to or in connection with any obligation or liability incurred by Citibank and/or any associated company of Citibank on behalf of or on account of or at the request of the Mortgagor and/or in relation to any bill of exchange promissory note or negotiable instrument and/or otherwise than by agreement".

The floating charge over the assets of SSAI given by the company in favour of Citibank, was similarly unlimited in terms of the money amount the repayment of which it secured, except that it took priority over other charges for the purposes of s282 of the Corporations Law to the extent of the specified amount of $1 million defined as "prospective liability".

Nature of the obligation under the guarantee and indemnity and rights of contribution

As I have indicated, I am satisfied that Ms Ballantyne informed the guarantors that the liability of each guarantor could amount to as much as the $260,000, which she mistakenly assumed to be the maximum liability of SSAI to Citibank. For the reasons which I have given, the Pirrottas did not understand what she explained as to that, and the Nicholsons were not interested, did not pay attention and, for that reason, it went over their heads.

But what needed emphasis and explanation in simple language, which the guarantors could not fail to understand, was that each one individually could be made liable to pay the whole amount, whatever the amount due might be, at any time, and that there was no obligation upon Citibank, in the event of default by SSAI, to exercise its rights against all of the guarantors, as opposed to one or other of them.

Furthermore, what needed careful explanation was that if Citibank chose to exercise its rights under the guarantee and indemnity against one only of the guarantors, while there would in equity be a right to claim contribution from the other guarantors, if an individual guarantor had paid more than his or her fair share of the principal debt, the full exercise of the right of contribution depended upon the co-guarantors remaining solvent. If any of them became insolvent, the contribution of the co-sureties would be "increased proportionately to meet the common debt".

So that a proper explanation of the risk being incurred by each of the guarantors should have included a clear indication of the right of Citibank, where there was a default, to exact payment in full from any guarantor of the total amount due by SSAI at the time, and that the individual guarantor would then be left with rights of contribution. In exercising any right of contribution, any guarantor would be exposed to the risk of insolvency of any of the other guarantors. Insolvency of any guarantor would have the effect of increasing any ultimate pro rata adjustment between the remaining guarantors.

Such matters must be emphasised by any solicitors giving advice to intending guarantors, as they are matters which are not commonly set out in the documents evidencing the guarantee, and are not matters commonly understood by lay persons. They are matters which, if properly explained, might well have an effect upon their willingness to enter into a guarantee.

The misconception entertained by the Nicholsons, namely that they would only ever be liable to pay their fair proportion of the moneys being guaranteed, is an expression of a popular misconception entertained by co-guarantors, and is illustrative of the need to give advice in the terms which I have indicated.

To return to the events of 8 November 1991, after the documents had been executed, Ms Ballantyne left them with SSAI.

Copies were not (contrary to the indication in the acknowledgments which were signed by the parties) given or left with the various parties. I find this puzzling. The letter from Kelly & Co dated 23 October 1991 addressed to SSAI enclosing the documents starts off:

"Please find attached Security Documents for your examination prior to execution. ...... We have enclosed copies of the documents for you to retain for your records. ....."

In the first place, I am satisfied that none of the guarantors examined the documents before execution. This is despite the fact that Tina and Connie Passaniti and Mrs Nicholson were in more or less daily attendance at the company’s premises.

As to copies, the letter from Kelly & Co does not indicate how many copies were enclosed. The author of the letter, who presumably was the draftsman of the documents, would have realised that the form of acknowledgment included an acknowledgment of the receipt of copies of the documents by each of the mortgagors and guarantors. In those circumstances, one would have expected Kelly & Co to send out sufficient copies for that purpose. This would have meant a very considerable stack of documents, in all. Strangely, there was no evidence to suggest that there were so many documents as that, provided by Kelly & Co. No-one from Kelly & Co was called to throw any light on the matter.

But I do not know that at the end of the day it matters much. Two of the seven guarantors could not read English anyway. I doubt that those who could read English, if given copies, would have taken the trouble to read them.

An undated fax from Kelly & Co to Citibank confirmed that the documents had been returned to Kelly & Co and that they had been "executed correctly". They suggested settlement on 11 November 1991.

Another fax dated 21 November 1991 to Citibank from Kelly & Co confirmed that the matter had "settled satisfactorily". By letter of the same date, that is, 21 November 1991, Citibank advised SSAI that the transaction had been settled on that day and that the funds had been disbursed as follows:

Kelly & Co        2,207.40
NatWest Australia Bank      35,932.16
State Bank of SA        135,142.81
Commonwealth Bank of Australia        56,801.87
SSAI Agencies Pty Ltd        29,915.76
                  -------------
                  $260,000.00
                  ========

The amount paid to Kelly & Co was, no doubt, for their fees. The payment to NatWest related to that company’s mortgage over Mr and Mrs Nicholson’s house property. The payment to State Bank was the amount needed to discharge the balance of SSAI’s overdraft with that bank. The amount paid to the Commonwealth Bank was the amount necessary to discharge the mortgage over Tina Passaniti’s house property.

In the result, SSAI received approximately $30,000 which was enough for another container load of goods from the United States.

Olson & Co sent a bill to Tina Passaniti for $500. It appears from a note on her file dated 7 November 1991 that that was the amount which had been quoted when the appointment to attend on 8 November 1991 had been arranged.

The bill was not paid. A summons was issued for its collection out of the Local Court of Port Adelaide on 30 January 1992. Later it appears that an arrangement was struck with Tina Passaniti to pay off the account at the rate of $100 per fortnight.

The enforceability of the guarantee and indemnity and of the mortgages

In order to deal with this aspect of the matter, it is necessary to have regard to the issues raised on the one hand by the Pirrottas and on the other by the Nicholsons.

In their statement of claim, Mr and Mrs Pirrotta advance various attacks upon the enforceability of the security documents.

In the first place, they assert that by providing either Tina Passaniti or Connie Passaniti, or both of them, with the documentation to be executed by the various parties, Citibank must be taken to have appointed either or both of them as agents of Citibank. They then assert that Citibank is, by reason of that agency, saddled with responsibility for various fraudulent or reckless misrepresentations made by either or both Tina and Connie Passaniti.

Mr and Mrs Pirrotta assert further that Citibank should have been put on inquiry as to the circumstances in which they were induced to enter into the transaction, and that Citibank was under a duty to disclose any unusual feature of the transaction, such as that part of the advance was to pay out existing mortgages given by Tina Passaniti and the Nicholsons over their house properties. They further assert that Citibank, by the agency of Tina Passaniti or Connie Passaniti, or both of them, was guilty of undue influence and unconscionable conduct.

They further raise a plea of non est factum.

In their counterclaim to the possession summons, the Nicholsons raise a similar plea to that raised by the Pirrottas but limited to Connie Passaniti, by asserting that she was the agent of Citibank. They go on to seek orders relieving them from the obligations imposed by the mortgage and guarantee on the grounds of undue influence, misrepresentation and misleading and deceptive conduct under the Trade Practices Act 1974 (Cth) on the part of Connie Passaniti, as agent of Citibank, and on the further ground that Citibank was guilty of unconscionable conduct in seeking to rely on the mortgage and guarantee. Separately they plead that they executed the mortgage and guarantee while labouring under a unilateral mistake of fact.

The pleas of non est factum may be disposed of shortly.

The circumstances in which the defence is available were summarised in Petelin v Cullen in the joint judgment of Barwick CJ, McTiernan, Gibbs, Stephen, Mason JJ as follows:

"The class of persons who can avail themselves of the defence is limited. It is available to those who are unable to read owing to blindness or illiteracy and who must rely on others for advice as to what they are signing; it is also available to those who through no fault of their own are unable to have any understanding of the purport of a particular document. To make out the defence a defendant must show that he signed the document in the belief that it was radically different from what it was in fact and that, at least as against innocent persons, his failure to read and understand it was not due to carelessness on his part. Finally, it is accepted that there is a heavy onus on a defendant who seeks to establish the defence."

It is clear from the evidence given by both Mrs Pirrotta and Mr Pirrotta that although their understanding of the precise legal nature of the obligations being assumed by them was imperfect, they did not lack a basic understanding of the nature of both the mortgage and of the guarantee. The fact that they were misled by Connie Passaniti as to the amount for which they were at risk, does not go to establishing the defence.

The Nicholsons unquestionably understood the essential nature of the documents they were signing. What misconceptions they harboured as to the precise terms as to some aspects of the legal effect of the transaction was either their own fault or a result of the inadequate advice given by Ms Ballantyne.

The pleas of non est factum fail.

The other pleas raised by the parties give rise to the necessity to examine the general question of the duties of a lender in circumstances such as those which existed in this case, as well as the related question of the consequence of the fact that the guarantors were in receipt of independent legal advice, albeit inadequate advice.

One starts with the proposition that it has never been the law that, ordinarily, one party to a contract owes a duty to ensure that the other party understands the nature and effect of the contract and of the obligations which it gives rise to. That proposition holds good as much for a contract of guarantee as for any other contract.

Furthermore, a contract of guarantee is not uberrimae fidei.

In a particular case, however, those general propositions will yield to the law relating to non est factum, undue influence and unconscionability in equity. Furthermore, there may also be situations in which the lender owes fiduciary duties to the guarantor.

In cases involving attempts to set aside guarantees, the question whether or not the debtor was in any relevant sense the agent of the lender is commonly raised. This is because it will often be the debtor rather than the lender who is said to have brought undue influence to bear, or been guilty of some form of misrepresentation leading to the execution of the guarantee.

In that respect, there is a difference between the situation of the Nicholsons on the one hand and of the Pirrottas on the other.

As for the Nicholsons, as I have indicated, I am satisfied that Mrs Nicholson was aware of the full extent of the loan and the essential features of the transaction. The Nicholsons had a misapprehension as to the extent to which they might be called on as co-guarantors, but that was not engendered by any misrepresentation or improper conduct on the part of either Tina or Connie Passaniti.

Mrs Nicholson was a director of SSAI, and the loan transaction was very much to her benefit, both by reason of her holding that office and having regard to the fact that the personal mortgage entered into by her and her husband over their house property was to be taken over.

It is certainly the case that Connie Passaniti gave vague assurances to all of the proposed guarantors, apart from herself, that there was no risk to them, that the business was doing well and that there was ample security in the stock hold by the company, and in assets owned by her husband to ensure repayment without calling on the guarantors. But if Mrs Nicholson was taken in by such bland assurances, she has herself to blame. She was a co-director of the company and had every opportunity to acquaint herself intimately with its financial position and the risk which she was assuming.

As for Mr Nicholson, it appears from his evidence that he was prepared blindly to enter into any transaction to do with his wife’s business, if she asked him to. Furthermore, there is no evidence of any relevant dealings between Connie (or for that matter Tina) Passaniti amounting to a misrepresentation or which could be construed as operating as any sort of coercion upon him to enter into the guarantee and mortgage.

It follows then that the answer to the question whether or not Tina or Connie Passaniti were in some way to be regarded as agents of Citibank could not advance the claim for relief sought by Mr and Mrs Nicholson.

The situation is, however, different with respect to Mr and Mrs Pirrotta. In the first place, they were not directors of SSAI (although they were misrepresented as such to Citibank) and did not stand to gain any benefit from the proposed transaction. They were both elderly. Neither had received much formal education. Neither of them could read English, and particularly in the case of Mrs Pirrotta, their ability to speak English was limited. They trusted Connie Passaniti. There was a history of the Pirrottas lending assistance to Connie in her business ventures, to the extent of risking their own assets.

Furthermore, as I have indicated, I am satisfied that Connie Passaniti took advantage of her ability to influence her stepfather and her mother, and misled both of them by failing to disclose the full extent of the advance to be made by Citibank, and by giving them the impression that the re-financing to be provided by Citibank would not increase the existing debt beyond $50,000.

The question then is whether or not the circumstances were such that the misrepresentations made by Connie Passaniti to her mother and step-father and, the use which she made of her position to influence them against their interests, operate so as to entitle the Pirrottas to avoid the liability otherwise attaching to them vis a vis Citibank.

There is a long line of cases in which the court has held that where a creditor entrusts the debtor with security or guarantee documents with a view to the debtor procuring the execution of them, the court will construe the situation as giving rise to a species of agency, so as to hold the creditor responsible for any misrepresentation or undue influence brought to bear by the debtor towards the third party. See, for example, Chaplin and Co Ltd v Brammall, Turnbull & Co v Duval, Barclays Bank plc v Kennedy, Burke v State Bank of New South Wales Ltd, Avon Finance Co Ltd v Bridger, Coldunell Ltd v Gallon, Bank of Baroda v Shah, Cairncross v Paterson, and Contractors Bonding Ltd v Snee.

Many of the cases involved a situation where a husband had been entrusted with guarantee documents by a creditor who leaves it to the husband to procure the signature of his wife. But the principle is not confined to husband and wife cases.

I have used the expression "species of agency", as the cases make it clear that the test for determining whether a creditor is affected by the actions of a person to whom it has entrusted the documents for execution differs from the test for determining the existence of agency in the ordinary sense.

In Barclays Bank plc v Kennedy (supra), the matter was put in this way by Purchas LJ:

"Again, the concentration on actual or ostensible authority being ‘given to the husband to act on behalf of the Bank’ may not be a reliable way of applying the test now well established by authority, albeit since this judgment was delivered, that the real question is whether the Bank were content to leave it to the husband to obtain the wife’s signature upon the charge."

As it was put succinctly by Lord Lindley in Turnbull & Co v Duvall:

"They left everything to Duvall and must abide the consequences."

Many of the authorities were discussed by King CJ in Challenge Bank Ltd v Pandya and Ors. In that case, one out of twelve guarantors was held to have induced the remaining guarantors to execute a guarantee by fraudulent misrepresentations. The eleven victims of the fraud were released from liability under the guarantee on the footing that the lender had entrusted the author of the fraudulent misrepresentations with the documents and left it to him to see to their execution by the others, even though the lender was unaware that the false misrepresentations had been made.

After discussing some of the cases King CJ formulated the rule in the following terms:

"The Court will not enforce a guarantee at the suit of a creditor if it can be shown that the creditor entrusted the task of obtaining the alleged debtor’s signature to the relevant document to someone who, as the creditor knew or ought to have known, was in a position to influence the debtor or had a motive for or interest in ensuring the execution of the document, and who procured the signature of the debtor by means of undue influence or by means of fraudulent misrepresentation."

With respect to King CJ, that formulation expresses the rule in rather more absolute terms than most of the authorities would support. But even accepting the formulation of the rule as propounded by King CJ, there is an important distinction between that case and this case. The documentation as initially prepared by Challenge Bank provided for certificates of independent advice to be given to the guarantors by a solicitor or an accountant. Following discussion with the fraudulent guarantor, the requirement for such a certificate was deleted.

Where independent advice is given to the guarantor, there is little room for the application of the principle.

In Kingsnorth Trust Ltd v Bell (supra), Dillon LJ after referring to Turnbull & Co v Duvall (supra) and Chaplin & Co Ltd v Brammall (supra) said:

"If a creditor, or potential creditor, of a husband desires to obtain, by way of security for the husband’s indebtedness a guarantee from his wife or a charge on property of his wife and if the creditor entrusts to the husband himself the task of obtaining the execution of the relevant document by the wife, then the creditor can be in no better position than the husband himself, and the creditor cannot enforce the guarantee or the security against the wife if it is established that the execution of the document by the wife was procured by undue influence by the husband and the wife had no independent advice." (emphasis added)

In Contractors Bonding Ltd v Snee, Richardson J regarded the existence of independent advice as going to the question whether agency was established in the relevant sense. He said:

"The question of independent advice may be relevant in determining whether agency has been established and as a means of rebutting the presumption of agency."

It should be made clear that in circumstances such as this the law does not go so far as to oblige the lender to ensure that independent advice is given. The most one can make of the authorities is that, in the absence of independent advice, the lender may find that the guarantee is not enforceable, particularly in situations where it has entrusted the creditor with the task of seeing to the execution of the documents.

In this case, the stipulation by Citibank that it would not make the loan unless independent advice was given, and the fact that such advice was given, albeit inadequately, was sufficient to take the case out of the line of authority which holds the lender liable for misrepresentations or other improper pressure brought to bear by a debtor to whom the lender has entrusted the documents for execution.

The advice eventually given by Ms Ballantyne was, as I have indicated, deficient. As will be seen, I find that she was in breach of her duty to give competent advice. Does this affect the position of Citibank? I think not.

Bank of Baroda v Shah and Anor concerned the enforceability of a charge made in favour of the bank, which was executed as a result of improper influence brought to bear by solicitors acting for the borrower. In that case, Dillon LJ observed:

"They (the bank) were entitled to assume that Shah & Burke (the solicitors) would act honestly and would give proper advice to the defendants, if Shah & Burke were, as they represented, acting for the defendants ......"

Massey v Midland Bank plc concerned a charge which the defendant was persuaded by her lover to give to a bank over her house as security for an overdraft granted to a business venture in which her lover was involved. He arranged for his solicitors to advise the defendant. The bank sent the charge to them. On receiving confirmation that he had explained the nature of the charge to the defendant, the bank made the advance. Steyn LJ (with whose judgment Neill LJ and Peter Gibson LJ agreed) observed:

"In the present case the bank required Miss Massey to be independently advised. The bank had been put in touch with a reputable firm of solicitors to whom it sent the charge. When the solicitors returned the duly executed charge to the bank they confirmed that they had explained the document to Miss Massey. ...... The bank did not know what happened between Mr Jones (the solicitor) and Miss Massey (the guarantor), or how the interview was conducted. And it was under no duty to inquire. But the bank had every reason to believe (as was the case on the judge’s findings) that Miss Massey had received independent advice. Relying on observations of Dillon LJ in Bank of Baroda v Shah, the judge observed that the bank was entitled to assume that the solicitors would act honestly and give proper advice to Miss Massey. I agree. How far the solicitor’s advice went was essentially a matter for Miss Massey and Mr Jones. The law does not generally require the creditor to stipulate the nature and extent of the advice."

To the same effect is the decision of the Court of Appeal in Banco Exterior Internacional v Mann and Ors,

I should mention that there are some cases where, short of the creditor being constituted an agent of the lender, in the special sense in which that word is used in this context, the lender nonetheless is precluded in equity from enforcing the security where it has "actual or constructive notice" that the execution of the security document was entered into as a result of undue influence or other legal wrong.

But in the first place, I am unable to find that Citibank had actual or, for that matter, constructive notice of any pressure being applied to any of the guarantors, or of any misrepresentations being made to them. Furthermore, it is entitled to rely on its insistence that independent legal advice be given to displace the possibility that any such equity could arise and be enforced against it.

I make those findings despite the suggestion by Mr Frayne for the Pirrottas that his argument in that respect gained some weight by reference to the fact that Citibank did not make such inquiries as might have established that, contrary to information which it had been given, the Pirrottas were not directors of SSAI. I find it a strange proposition, to say the least, that where guarantors, or persons acting on their behalf, have given misleading information to a proposed lender in support of a loan application, any supposed failure by the lender to ascertain the true position can support an argument based on constructive notice. What inquiries a lender makes to verify information given in support of a loan application is entirely its concern. It may choose to make no independent inquiry.

The fact of the matter is that there was nothing in the information known or which ought to have been apparent to Citibank which put it on notice of any particular state of vulnerability of any of the proposed guarantors which they were not entitled to assume would be adequately addressed by their insistence that independent legal advice be given.

At one stage, Mr Frayne of counsel for Mr and Mrs Pirrotta suggested that Citibank owed a duty to see that Mr and Mrs Pirrotta received advice from a lawyer who was independent of the lawyer who might have advised the other guarantors.

In the first place, it is wrong to speak of the lender ever being under a duty to ensure that a guarantor has independent advice. As I have explained, all that the law recognises is that the absence of independent advice may sometimes give rise to a situation in which a lender may not be able to enforce a guarantee by reason of undue influence, misrepresentation or the like.

In the second place, the suggestion that the Pirrottas should have been advised by someone other than the person engaged to advise the other guarantors is a counsel of perfection which would place an undue burden on those associated with commercial transactions of this kind. Where would the logical application of such an argument lead? Is it to be suggested that out of the guarantors, each spouse should have been advised by a separate adviser? The answer is that the experienced solicitor, discharging his or her duty conscientiously and competently, would have perceived the peculiar circumstances of the Pirrottas as opposed to the other guarantors, and would have drawn them aside to advise them separately from the others. That would have been enough. The same applies to any other apparent conflict between proposed guarantors, if any had been perceived by the solicitor concerned.

As to the unilateral mistakes by both the Pirrottas and the Nicholsons, this cannot avail them, as they were not caused or contributed to by any conduct on the part of Citibank. Furthermore, there was no awareness on the part of Citibank of the kind necessary to found relief in equity on the basis of unilateral mistake. See Taylor v Johnson per Mason ACJ, Murphy and Deane JJ:

"... a party who has entered into a written contract under a serious mistake about its contents in relation to a fundamental term will be entitled in equity to an order rescinding the contract if the other party is aware that circumstances exist which indicate that the first party is entering the contract under some serious mistake or misapprehension about either the content or subject matter of that term and deliberately sets out to ensure that the first party does not become aware of the existence of his mistake or misapprehension."

The suggestion that it is "unfair or unconscionable for Citibank" to enforce the guarantee and the mortgages may be shortly disposed of. Equitable intervention on the ground of unconscionability is confined to cases where the party seeking to enforce a bargain takes unfair advantage of "his own superior bargaining power, or the position of disadvantage in which the other party was placed". There is nothing to suggest that Citibank in any way sought to take advantage of any perceived position of advantage which they might be thought to have occupied. They were at pains to ensure that independent advice was given to the guarantors, and did not make the advance on the loan until they had an assurance that such advice had been given. In doing so, they followed what might be described as best banking practice. No more could reasonably be expected of them than that.

During the course of his submissions, Mr Frayne for the Pirrottas submitted that absent strict proof that Mr Solomon had formally been appointed company secretary, the loan was irrecoverable by Citibank, given that Mr Solomon purported to sign the acceptance of the loan offer document as secretary (co-signing with Tina Passaniti as director). There is nothing in that contention. The loan moneys became repayable in accordance with the terms of the loan once they were advanced. The company received the benefit of the loan and must answer to its obligation to repay it. Its receipt of the loan moneys operated as an acceptance in law of the terms set out in the letter constituting the offer of the loan. The company unquestionably affirmed the loan on those terms when it gave the floating charge to Citibank and commenced repayments.

In this case, in all the circumstances, I am not satisfied that there is any reason to relieve the guarantors of their obligations under the guarantees, or for that matter, under the mortgages. Although Citibank entrusted the documents to SSAI, it made it a condition of the loan agreement that the proposed guarantors be separately advised by a legal practitioner. It did not lend the moneys until it had a certificate executed by Ms Ballantyne confirming that the separate advice had been given and that the documents had otherwise been regularly executed.

It follows that Mr and Mrs Nicholson are not in a position to resist the application by Citibank for possession of their premises in aid of sale. For the reasons given, the action of Mr and Mrs Pirrotta against Citibank must likewise be dismissed.

The liability of Ms Ballantyne and Olson Co

I have already indicated several respects in which Ms Ballantyne’s discharge of her role fell short of what was required of her. In particular, I have drawn attention to her failure properly to explain the general obligations under the guarantee, including the working out of the rights of contribution as between the co-guarantors, and her failure to explain that the guarantee was an all moneys guarantee, and that the guarantee and the mortgage related to all indebtedness as between SSAI and Citibank, unlimited as to amount. I have no doubt that neither the Pirrottas nor the Nicholsons would have entered into the guarantee if those matters had properly been explained.

There was the further failure on her part to draw aside the Pirrottas, and either with or without the aid of an interpreter, address their peculiar position. She should have ensured that, notwithstanding the limitations upon their ability to comprehend the nature of the transaction, they were well aware of the essential elements of it and were free of any pressures which might have been brought to bear by Tina or Connie Passaniti. The mere fact that she (and Citibank) were led to believe that the Pirrottas were directors did not operate to negative her duty to take those steps.

In dealing with the liability of Ms Ballantyne and Olson & Co, it is necessary to have regard to the general scope of the liability of a solicitor charged with the responsibility of giving independent advice to parties entering into a guarantee or other security for another’s debt.

During the course of the hearing, counsel referred to the decision of the Full Court in McNamara and Ors v Commonwealth Trading Bank of Australia. That case concerned s44 of the Consumer Transactions Act 1972-1980, which provides that where a guarantor enters into an agreement of the type specified in that section, the agreement shall be void unless it is executed by the guarantor in the presence of a legal practitioner instructed and employed independently of the credit provider or mortgagee. During the course of his judgment, King CJ (with whose remarks on this aspect of the matter Cox J agreed), observed:

"... the protection of the prospective surety, which the legislature sought to achieve by the section, can only be achieved if the legal practitioner performs his duty to his client by advising him fully and competently. The section requires that the practitioner certify ‘that he is satisfied that the guarantor understands the true purport and effect of the agreement’. This demands a careful explanation to the guarantor of the terms of the document and its legal effect. Although it is sufficient for the validity of the guarantee that it be executed by the guarantor in the presence of the legal practitioner and that the legal practitioner certify as required by the section, the duty of a solicitor to a client who consults him for advice prior to signing a guarantee extends much further. The solicitor should raise with the client questions relating to the prudence of entering into the guarantee and should ascertain whether the client wishes to be advised as to such questions. The client may, of course, indicate that he does not wish advice as to those matters and that he is prepared to rely upon his own judgment. But unless the client so instructs the solicitor, the instructions from the client should be regarded as extending to advice on all matters relating to the guarantee, including the wisdom of entering into it from a practical point of view. The state of the financial affairs of the principal debtor should be discussed as well as the extent of the assets of the client. A client whose assets are few and who will be putting the whole of his assets, perhaps including his home, at risk obviously needs careful and perhaps quite forthright advice. The need is even greater where, as so often is the case, the affairs of the principal debtor are precarious. Solicitors undertaking to advise clients in relation to guarantees would do well to study the cases as to the type of independent advice which is required to rebut a presumption of undue influence. They should remember, among other things, that there is a potential conflict of interest between the principal debtor and the prospective surety. Frequently the debtor who desires to be guaranteed is a near relative and the prospective surety is under considerable emotional pressure. It is essential that the solicitor act and be understood to act solely for the prospective surety. The section requires that the solicitor be ‘instructed and employed independently of the credit provider’. Sound professional practice requires also that the solicitor be and be seen to be free to advise the prospective surety unencumbered by any ties to the principal debtor. The solicitor, moreover, should be at pains to ensure that his client’s decision is as free of the influence of the debtor as he can arrange. I was disturbed to read in the present case that the principal debtor, a son, was present in the office of the solicitor when he was advising the appellants as to Ex.P.1. Sound professional practice requires that the debtor should not be present when the solicitor is advising the client and receiving his instructions."

Those remarks are, in a general sense, equally apposite where a legal practitioner is engaged to give independent advice to guarantors and where the Consumer Transactions Act is not of application.

I have already referred to the Law Society article intended to assist members of the profession in their awareness of their obligations in such circumstances, an article which Ms Ballantyne had read and which counsel referred to as some sort of touchstone.

In my opinion, and with respect to its author, the article pitches the obligations too high; it fails to deal with some aspects of the advice which should be given; and it misapplies McNamara’s case.

In the course of the article, the learned author states:

"The majority of the Full Court in McNamara’s case considered that it was not only necessary for the practitioner to review the document clause by clause and give a detailed explanation of its legal effect ..... The legal effect of each clause of the document should be explained to the person to ensure that the nature of the provisions in it are properly understood."

With respect to the author of that article, there is nothing in the judgments in McNamara’s case to lend support to the proposition that it is necessary to go through the document clause by clause. Indeed, it would be very misleading to the ordinary lay person, let alone persons with the background of Mr and Mrs Pirrotta, to be saddled with a lengthy explanation by a legal practitioner of every clause of the security documents. Such a process would be apt to overload the attention span of most listeners, flood them with unnecessary detail and distract attention from the major features of the transaction.

Furthermore, it is rare for the text of the guarantee to say anything about rights of contribution, let alone the manner in which rights of contribution may work themselves out in particular cases.

A solicitor in the position of giving independent advice to intending guarantors should concentrate on giving a clear account in summary of the salient features of the transaction in terms likely to be understood by a lay person unversed in legal matters. The advice should emphasise the ability of the creditor on default to enforce payment of the whole of the debt against any individual guarantor, and the fact that the creditor may pursue any individual guarantor to the exclusion of any others, leaving any final adjustment between the guarantors to be worked out by reference to equitable principles of contribution, which principles should likewise be carefully explained. The advice should cover the situation where one or more of the co-guarantors becomes insolvent.

As for advice as to the prudence of entering into the transaction and as to the financial aspects of it, that would generally not be an important matter to deal with where the guarantors are all directors of the company which is the borrower. A solicitor is entitled to assume that the directors are familiar with the financial position of the company and of their own financial positions. Furthermore, it is not incumbent upon a solicitor to attempt to give financial advice, as opposed to suggesting that such advice might be obtained from an accountant or other suitably qualified person.

But nothing which I have said with respect to McNamara’s case and the Law Society article based upon it detracts from the specific findings which I have made as to the failure in this case by Ms Ballantyne to answer to her responsibilities, having regard to the situation in which she was placed.

It has been conceded by Mrs Simpson, counsel for Ms Ballantyne, that the latter owed a duty of care to the guarantors. It does not matter whether that is regarded as a duty of care arising in contract or in tort. The fact that the account was sent only to Ms Passaniti is nothing to the point.

In my opinion, Ms Ballantyne and, vicariously, Olson & Co as her employers, are liable in damages to the Pirrottas and the Nicholsons for Ms Ballantyne’s breach of the duty of care which she owed in giving advice.

The effect of deregistration of SSAI

As to this aspect of the matter, the following statement of facts was agreed between counsel:

SSAI was incorporated in South Australia on 22 May 1990.

SSAI failed to file any Annual Returns for the 1991 and 1992 financial years, which caused SSAI to be entered into the Information Integrity Program maintained by the Australian Securities Commission (‘ASC’) where companies fail to file Annual Returns.

On 8 February 1993 the ASC (pursuant to Section 572) notified SSAI that it had reasonable cause to believe that SSAI was not carrying on business or was not in operation. (Copy letter attached.

The ASC received no response to the letter of 8 February 1993. The outstanding Annual Returns were not filed.

On 24 March 1993 ASC notified SSAI that the registration of the company would be cancelled and the company dissolved unless cause was shown to the contrary within three months. Copy letter attached.

No response was received from SSAI or any person.

SSAI was deregistered and dissolved pursuant to Section 574 of the Corporations Law on 13 August 1993.

No officer or person associated with SSAI sought its dissolution pursuant to Section 573."

That statement of agreed facts was tendered by counsel after I had raised with them, the matter not having been pleaded, the fact that the deregistration of SSAI might arguably affect the ability of Citibank to recover against the guarantors.

The only direct authority on the point appears to be an early case of In re FitzGeorge ex parte Robson. In that case, a director of a limited company gave to Robson, the holder of a debenture, a written guarantee securing repayment by the company of the loan. The guarantee provided that the director would ensure the regular repayment of interest repayable under the debenture.

Before the loan was repaid, two events supervened: the company, following its liquidation, was dissolved under the relevant provisions of the Companies Act 1862 (UK), and the director became bankrupt.

The trustee in the director’s bankruptcy rejected the proof of debt of the creditor on the ground that the director was no longer subject to any liability under his guarantee, the principal debtor (the company) having ceased to exist.

The judgment, delivered by Bigham J, is short. It reads:

"I think in this case that the debtor is entitled to prove for the value of the guarantee that the debtor has given. It is said that, because the principal debt is gone, therefore the liability under the guarantee to pay the interest on the debenture is also gone. I do not agree with that view. The principal debt is gone no doubt, but not by any act of the creditor. It is gone by operation of law. The principal debt will never be repaid, but in my opinion the obligation of the debtor to pay the interest under his guarantee remains. There must be a declaration that the creditor is entitled to prove for the estimated value of his security, and if necessary there must be a reference to the registrar to ascertain the amount."

With respect to the decision in that case, I have serious doubts as to whether it is good law. As a matter of principle, I am unable to see that in the case of a bare guarantee, its obligations survive a situation where the debtor has ceased to exist and the principal debt has necessarily, for that reason, ceased to be payable.

But in the present case, the contract is not a simple contract of guarantee, but is a deed of guarantee and indemnity. Clause 4 provides:

"INDEMNITY

The Guarantor unconditionally and irrevocably indemnifies the Financier against any loss the Financier may suffer if any of the Secured Money are not recoverable from the Debtor or the Guarantor by the Financier because:-

(a) of a lack of capacity affecting the Debtor;

(b) any act matter or thing done or omitted to be done in respect of or relating to the Secured Money is improper void, voidable, illegal or subsequently avoided;

(d) of any other circumstance;

and the Guarantor shall as principal debtor pay the loss to the Financier on demand."

The words in sub-paragraph (d) "of any other circumstance" are applicable to the circumstance arising by reason of the dissolution of SSAI consequent upon its deregistration. Furthermore, the words "the guarantor shall as principal debtor pay the loss to the financier on demand" constitute the guarantors principal debtors to whom Citibank can look for repayment as though they were primarily liable for the repayment of the loan.

A separate provision in the deed of guarantee and indemnity, namely a clause headed "6. Liability Not Affected" sets out a number of circumstances in which it is expressly agreed that the liability of the guarantor and the rights of Citibank will not be affected by the happening of various events.

It is unnecessary to address the question whether that clause is of application having regard to the view which I have reached as to the extent of the indemnity given by clause 4.

Conclusions

For the reasons which I have given, the attacks on the enforceability of the guarantee and mortgages fail.

Olson & Co and Melissa Ballantyne are, however, liable to Mr and Mrs Nicholson and Mr and Mrs Pirrotta for the loss and damage suffered by them in consequence of their entry into the guarantee and the mortgages.

At this stage, any relief must be confined to the relief relating to the issues which have been ordered to be tried ahead of any other issues. Those issues are the validity and enforceability of the mortgage and the deed of guarantee in each of the actions, and the liability of Olson & Co and Ms Ballantyne on the contribution proceedings issued by Citibank against them in the action brought by Mr and Mrs Pirrotta, and the liability in the action brought by Citibank against Mr and Mrs Nicholson, of the persons against whom third party claims have been brought by both Citibank and the Nicholsons. Relevantly, those third parties are Olson & Co and Melissa Ballantyne, and (in the case of the third party proceedings issued by the Nicholsons) Connie Passaniti.

I have already indicated my view as to the validity and enforceability of the mortgages and the guarantee.

As to the other issues ordered to be tried at this stage, in the action brought by the Pirrottas, an issue falling for my determination is the liability of the defendants Olson & Co and Ms Ballantyne to the plaintiffs. For the reasons which I have given, those defendants are liable to Mr and Mrs Pirrotta for the damages flowing from their negligent advice which resulted in the Pirrottas entering into the guarantee and mortgage.

As to the liability of Olson & Co and Ms Ballantyne on the contribution proceedings issued by Citibank against them, which is the only other issue ordered to be tried at this stage in the proceedings instituted by the Pirrottas, given my findings as to the enforceability of the guarantee and mortgage, there should be no order on the contribution proceedings.

For the sake of completeness, and to ensure that it is not overlooked, I mention that on 5 January 1995 the plaintiffs Mr and Mrs Pirrotta recovered against the defendant Connie Passaniti damages in default of appearance, to be assessed.

In the other action, that is, the action by Citibank against the Nicholsons for possession of the mortgaged premises in aid of sale, there must be an order for possession in favour of Citibank.

In that action, there were various third party and cross claims.

Citibank claims by way of a third party notice directed to Olson & Co and Ms Ballantyne to be indemnified against the claim said to be "the plaintiffs’ claims" but which I read to mean the counterclaim by the Nicholsons against Citibank.

Given that the Nicholsons’ counterclaim against Citibank must be dismissed, the third party proceedings must likewise be dismissed.

As for the Nicholsons’ third party claim against Connie Passaniti, this was the subject of a default judgment entered on 9 May 1997 for damages to be assessed.

The Nicholsons’ third party claim against Olson & Co and Ms Ballantyne gives rise to a procedural difficulty. Paragraph 22 of the counterclaim and third party claim states:

"As a consequence of the breach of duty of Ballantyne the defendants have a right to be indemnified by Ballantyne & Olson & Co against the plaintiffs’ claim."

In the prayer for relief in the Nicholsons’ counterclaim and third party claim, the Nicholsons’ claim, in the alternative to declarations that they are not bound by the terms of the Citibank mortgage and the guarantee:

"... an order that each of the third parties (that is, Connie Passaniti, Olson & Co and Melissa Ballantyne) indemnify and keep indemnified the defendants (the Nicholsons) for (sic) the plaintiffs’ claim and the costs of the action."

Given that Citibank’s claim against the Nicholsons is for possession of the mortgaged premises in aid of their sale, it is difficult to see how any sort of "indemnity" could be ordered against the third parties.

I do not know what consequences the default judgment given against Connie Passaniti has in that respect, but that is not one of the issues falling for my determination at this stage.

So that in the context of the third party claim by the Nicholsons against Olson & Co and Ms Ballantyne, "indemnity" is a virtually meaningless concept. But clearly, should the Nicholsons be dispossessed by Citibank, the economic consequences would be recoverable by way of damages against both Olson & Co and Ms Ballantyne.

Likewise, Olson & Co and Ms Ballantyne are liable to pay in damages to the Nicholsons with respect to the Nicholsons’ liability under the guarantee.

But a question arises as to the terms upon which any relief should be given to Mr and Mrs Nicholson. This question arises having regard to the fact that the mortgage to Citibank secured an advance which in part repaid the amount due on the pre-existing mortgage by the Nicholsons to National Australia Bank.

On the evidence of the Nicholsons, the willingness of SSAI to pay out their existing mortgage and to assume responsibility for repayment of so much of the loan to the company as related to that, was a reflection of the fact that Mrs Nicholson was working for SSAI without any wages being paid to her. However, any amount which might fairly be brought into account by reference to the work done by Mrs Nicholson for the company after it had paid out the house mortgage attaching to the house property owned by her and her husband could not be quantified on the evidence given on the issues so far brought to trial.

It is clear, however, that some adjustment needs to be made. That is an adjustment which will have to be made in the context of the assessment of damages against Olson & Co and Ms Ballantyne.

There is at this stage no monetary claim in these proceedings by the Nicholsons against Olson &Co and Ms Ballantyne, only a claim for "indemnity", which as I have indicated, is meaningless.

I should not, however, allow the procedural difficulties to prevent the Court from giving such relief as is necessary to adjudicate fully on the real issues between the parties. It may be that I should allow appropriate amendments to the third party proceedings to be made, even at this late stage, to ensure that all matters in dispute are disposed of without the necessity for other proceedings to be instituted between the parties.

In summary:

In the action brought by the Pirrottas (1928 of 1994):

(a) The claims against Citibank seeking orders avoiding the guarantee and mortgage, and for an injunction against them, are dismissed.

(b) The claim against Connie Passaniti has merged in the default judgment for damages to be assessed dated 5 January 1995.

(c) The claim against Olson & Co and Melissa Ballantyne succeeds, and upon that claim the plaintiffs are to recover damages to be assessed.

(d) As to the claim against Patricia Passaniti, I will hear counsel as to what, if any, relief is sought.

In the action brought by Citibank against the Nicholsons (2261 of 1993):

(a) Citibank is entitled to an order for possession of the premises in question in aid of their sale, on such terms as to the timing of the exercise of the right to possession or otherwise as may be further ordered.

(b) The Nicholsons’ counterclaim against Citibank is dismissed.

(c) The third party claim against Olson & Co and Ms Ballantyne for an indemnity against Citibank’s claim is liable to be dismissed while advanced in that form, but I will hear counsel as to the possibility of appropriate amendments being effected to preserve the Nicholsons’ right to damages against Olson & Co and Ms Ballantyne.

(d) The third party claim against Connie Passaniti has merged in the default judgment for damages to be assessed dated 9 May 1997.

Given the procedural complications, I have published these reasons to counsel ahead of their delivery.

I will hear counsel as to the form of the order necessary to give effect to these reasons insofar as they deal with the issues ordered for trial at this stage, and as to what future course should be followed in order to resolve any outstanding issues between the parties.

I will also hear counsel as to the costs of the proceedings so far.

[1997] SASC 6428

12 November 1997