Commonwealth Bank of Australia v Shahen Serobian

[2009] NSWSC 302

CITATION:	Commonwealth Bank of Australia v Shahen Serobian [2009] NSWSC 302
HEARING DATE(S):	2,3,4,5,9,10,11,12,16,17 & 18 March 2009
JUDGMENT DATE :	24 April 2009
JUDGMENT OF:	Hammerschlag J
DECISION:	Judgment for the plaintiff against the first defendant and the second defendant, jointly and severally, for $8,007,806.85 and cross-claims dismissed. A warrant for possession of the Manly property may be issued forthwith. The first defendant and second defendant are to pay the plaintiff’s costs including the costs of the cross claims.
CATCHWORDS:	BANKER AND CUSTOMER – contract – plaintiff bank sues for repayment of two loans made to the defendant customers – held bank entitled to the repayment of the two loans - MORTGAGES - mortgages and charges generally – form and execution – whether a mortgage is void or voidable due to witnessing by an officer of a bank where the bank was a party to the mortgage – held that the officer of the bank was not a party to the mortgage, and that witnessing by the bank officer was not an action taken on behalf of the bank – held that the mortgage is valid - TRADE AND COMMERCE - Trade Practices Act 1974 (Cth) and related legislation - consumer protection – defendants claimed bank loans should be set aside or varied as the bank had engaged in misleading or deceptive conduct or conduct likely to mislead or deceive under s 52 – defendants disputed personal liability in relation to a loan of $2 million, claiming that the bank represented to them that in respect of this loan it would have no recourse to their personal assets, but only those of their company – defendants claimed that the bank represented to them that properties owned by them personally were not being provided as security for any of their debts or any of the debts of their company – defendants claimed that the bank represented that a fixed interest rate of 5.6%pa would apply to a $4.8 million loan, when the actual rate was higher – held that the bank did not make any such representations and that no breach of s 52 occurred - GUARANTEE AND INDEMNITY - the contract of guarantee - parties and capacity – whether guarantee executed by the defendants for the debts of their company should be set aside under s 7(1) of the Contracts Review Act 1980 (NSW) for being unjust – the first defendant claimed that the guarantee was unjust as he could not read, write or understand English, that he did not have legal advice, and that there was an inequality of bargaining power – the second defendant claimed that the guarantee was unjust as at the time the contract was entered into she was suffering from ill health, that she did not have legal advise and that there was an inequality of bargaining power – held that in respect of both the first and second defendant the guarantees were not in any was unjust in the circumstances in which they were entered into nor was there any basis upon which it could be held to be just to deprive the bank of its contractual rights under the guarantees.
LEGISLATION CITED:	Contracts Review Act 1980 (NSW) Trade Practices Act 1974 (Cth) Conveyancing Act 1919 (NSW)
CASES CITED:	Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 Taco Co of Australia Inc v Taco Bell Pty Ltd (1982) 2 TPR 48 Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109 Beneficial Finance Corporation Ltd v Karavas (1991) 23 NSWLR 256 Pasternacki and Solka-Pasternacki (as Executors of the Estate of the Late Mary Nagy) v Correy [2000] NSWCA 333 St George Bank Ltd v Trimarchi [2004] NSWCA 120 Perpetual Trustee Company Limited v Khoshaba [2006] NSWCA 41 West v AGC (Advances) Ltd (1986) 5 NSWLR 610 SH Lock (Australia) Ltd v Kennedy (1988) 12 NSWLR 482 The Bank of Victoria v M’Michael (1882) 8 VLR(L) 11 Hickey v Powershift Tractors Pty Ltd (1998) NSW ConvR 55-889 Arnold v State Bank of South Australia & Ors (1992) 38 FCR 484 Briginshaw v Briginshaw (1938) 60 CLR 336 Helton v Allen (1940) 63 CLR 691 Rejfek v McElroy (1965) 112 CLR 517 Watson v Foxman (2000) 49 NSWLR 315
PARTIES:	Commonwealth Bank of Australia (Plaintiff/Cross-Defendant) Shahen Serobian (First Defendant/First Cross-Claimant) Christine Serobian (Second Defendant/Second Cross-Claimant)
FILE NUMBER(S):	SC 50219/2007
COUNSEL:	P.A. Dowdy (Plaintiff/Cross-Defendant) A. Dlakic - Solicitor (Defendants/Cross-Claimaints)
SOLICITORS:	Henry Davis York (Plaintiff/Cross-Defendant) Johnston Vaughan (Defendants/Cross-Claimants)

- 12 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LIST

HAMMERSCHLAG J

24 APRIL 2009

50219/2007 COMMONWEALTH BANK OF AUSTRALIA -v- SHAHEN SEROBIAN & 1 OR

JUDGMENT

INTRODUCTION

1 HIS HONOUR: The plaintiff bank (“the Bank”) sues the first defendant Mr Shahen Serobian (“Mr Serobian”) and the second defendant Mrs Christine Serobian (“Mrs Serobian”) for $8,007,806.85 being the balance of monies lent and advanced to them and secured by a mortgage dated 13 December 2004 over their property situated at 1/30A Addison Road, Manly in the State of New South Wales (“the Manly property”).

2 The Bank seeks a warrant for possession of the Manly property.

3 Mr Serobian and Mrs Serobian (together “the Serobians”) cross claim for orders that guarantees which they executed in favour of the Bank for the debts of two companies, Schypsl Pty Ltd (“Schypsl”) and Refnok Pty Ltd (“Refnok”), be set aside under s 7(1) of the Contracts Review Act 1980 (NSW) on the grounds that the contracts were unjust at the time they were entered into or under s 87 of the Trade Practices Act 1974 (Cth) on the grounds that they were procured by conduct on the part of the Bank that was misleading or deceptive or likely to mislead or deceive in contravention of s 52 of that Act.

FACTUAL BACKGROUND

Introduction

4 Mr Serobian was born in Iran. He left Iran for Armenia at the age of 12. He underwent military training in that country from 1974 to 1976 and was stationed in Siberia. Apart from Armenian, he speaks Iranian Farsi and he understands Russian. In 1978, when 24, he came to live in this country. For approximately two years he worked near Ryde for an American company as a factory worker doing pump assembly work.

5 Mrs Serobian was born in Iran of Armenian background. She arrived in Australia in about 1979. She too speaks Farsi.

6 The Serobians married in 1982. They lived in Penrith.

7 They have two children, Patrick and Yvette. Patrick was born in 1987 in Australia. He completed his HSC at North Sydney College. After that he attended Crows Nest TAFE College and studied real estate for two years.

8 In about 1992, Mrs Serobian began working as a child minder on behalf of Home Based Care, an organisation supervised by the Government of New South Wales.

9 In about 1994, in partnership, the Serobians opened a childcare centre in Penrith. They opened another centre in 1996.

10 In about 2001 they sold the care centres and moved to the Manly property.

11 According to Mrs Serobian, her children set up and ran a child care centre at Magarra Place, Seaforth.

12 In about 2001, Mrs Serobian attended a real estate course at TAFE College. In 2002 she established a real estate agency specialising in the sale of child care centres. That business was conducted through Refnok under the name Yerevan Real Estate. The Serobians are the shareholders and directors of Refnok. Mr Serobian is the secretary.

13 Schypsl was incorporated on 21 June 2002. The Serobians have at all material times been its shareholders and directors. Mr Serobian is its secretary.

14 Mrs Serobian says that in about 2005 there were three child care centres which had been set up by the children and which were being run by them. These centres were at Narrabeen, Hornsby and Seaforth.

15 At about this time, Patrick decided to expand their business by developing child care centres.

16 By then, Mrs Serobian had had more than 15 years experience in operating child care centres.

17 Schypsl held licences to operate child care centres. It ran centres at Narrabeen, Balgowlah and Seaforth.

18 Schypsl acquired properties at 1B Magarra Place Seaforth, 3-5 Grandview Street Parramatta and 3/22-26 Addison Road Manly.

19 In addition to its child care centre business, Schypsl also carried on a renovation business under the stewardship of Mr Serobian.

20 The Serobians themselves acquired investment properties including one at 102 Taylor Road, Cranebrook (“Cranebrook”) and another at 62 Oakland Avenue, The Entrance (“The Entrance”).

21 The Serobians borrowed monies from St George Bank (“St George”) which, amongst others, had enabled them to purchase the Manly property. Schypsl also borrowed money from St George.

22 By the end of 2004, the debt to St George was of the order of $9,300,000 of which the Serobians personally and Schypsl each had borrowed roughly half. Their personal debt related, it seems, predominately to the acquisition of the Manly property.

23 The Serobians had given personal guarantees and mortgages (including over Cranebrook and the Manly property) to St George.

24 The Serobians had also borrowed about $460,000 from an organisation called Yes Home Loans, secured by a mortgage over The Entrance.

Introduction of the Bank

25 In early May 2004 the Serobians approached St George with a request for overdraft accommodation for Schypsl. St George declined the request. This led to the Serobians and Schypsl seeking to refinance.

26 To facilitate the refinancing, the Serobians employed finance brokers. One of these was a Mr Jim Bosch who spoke Farsi. Mr Bosch’s organisation was known as United Mortgage Pty Ltd.

27 Two other brokers, AAA Capital Management and Amadaeus Mortgage Management (“Amadaeus”) also became involved, although the evidence did not reveal precisely how this happened. It seems that a Mr Kiem Dinh, who worked for Amadaeus, had some contacts at the Bank’s Hurstville branch. He may have been introduced to the Serobians by Mr Bosch.

28 On 27 August 2004 Mr Dinh made telephone contact with Susan Bell, a relationship manager at the Bank’s corporate banking centre at Hurstville. On behalf of the Serobians he sent her a fax seeking to refinance “$4.7M and additional investment $2.0M” and offering the Manly property, Cranebrook and The Entrance as security. The fax gave estimated values for the Manly property of $8,500,000, for Cranebrook of $1,150,000 and for The Entrance of $750,000. Amongst others, the fax stated:

“The borrowers are husband and wife currently staying in their own home, wishing to borrow $6,700,000 (LVR:70%): (1) to refinance existing mortgage of $4,700,000 with St. George and (2) to obtain an additional loan of $2,000,000 for future investment – buying investment properties.”

29 On 30 August 2004 Mr Dinh faxed to Susan Bell financial information, including tax returns of the Serobians, Schypsl and Refnok for 2002 and 2003.

30 On 10 September 2004 Susan Bell had a telephone conversation with Mr Dinh in which she requested 2002 tax returns. These were apparently provided on 17 September 2004 under cover of a fax from Mr Dinh. Included in the material was a Detailed Statement of Finance Performance for the year ended 30 June 2004 for “Schypsl Pty Ltd Trading As Shahen’s Renovations”. It showed a trading profit for 2004 of $1,186,363.

31 On 11 October 2004 the Serobians signed a formal finance broking agreement with Amadaeus authorising it, on their behalf, to use its best endeavours to find finance. Mrs Serobian, in her hand, made various amendments to the terms of this agreement. She wrote in the following:

“Note: This Agreement is only valid until 30 Oct 04 for Amadaeus obtaining Finance.”

Various other provisions were struck out by her.

32 The Serobians also signed a letter (handwritten by Mrs Serobian) addressed to Amadaeus agreeing to pay a fee of $124,300 which was to include the fees of AAA Capital Management, Jim Bosch and Amadaeus. Amongst others the letter stated: “We require unconditional finance by 20/10/04”.

33 On 13 October 2004 Mr Dinh made further contact with Susan Bell and Carol White (a risk executive with the Bank). He sent a copy of the mandate, which the Serobians had given Amadaeus, to the Bank under cover of a fax of that date.

34 Mr Serobian recalls his wife telling him that the Commonwealth Bank would help them refinance and loan them funds to develop “our child care centres”. He says he left all decisions about the development of child care centres in the Manly area to Mrs Serobian and Patrick. He would offer his opinion about gardening design and renovation but left all business decisions to them.

35 He recalls Mrs Serobian telling him that the Bank was prepared to loan them more money than St George with lesser interest payable.

36 Refnok and Schypsl had offices at 6 Belgrave Street, Manly (“the Manly office”).

37 On 14 October 2004 a meeting took place at the Manly office at which were present the Serobians, Susan Bell, Carol White, and Mr Dinh. Susan Bell says she had with her an “indicative letter” of 30 September 2004 which was discussed at the meeting. On 19 October 2004 she created a diary note which she says records the substance of what was discussed. The note recorded that:

“Clients are seeking approval of finance as previously submitted to assist with the refinance of St George facilities and to provide a line of credit of $2M to assist with the purchase of potential child care centre sites and fit out.”

38 Her note went on to recommend approval for loans of $4.8 M and $2 M to the Serobians, and a loan of $4.5 M to Schypsl.

39 The 30 September 2004 letter referred to the security to be provided for the proposed facilities, which included the Manly property, Cranebrook and The Entrance.

40 Susan Bell says that at this meeting she did most of the talking for the Bank and Mrs Serobian generally spoke for the Serobians.

41 She says that Mr Serobian spoke English and that on a couple of occasions she directed questions to him about Refnok which he answered intelligibly in the English language.

42 By letter dated 18 October 2004 Mrs Serobian sent to the bank “…copies of the valuations for the properties which will be used as security”. The document in evidence had no valuations attached. Susan Bell’s belief is that they included valuations from Clisdells (a firm of valuers) obtained by St George for Cranebrook and The Entrance dated 25 June 2003 and 12 September respectively.

The October 2004 Meeting

43 On or about 22 October 2004 (probably 25 October), a meeting took place at the Manly office. Present were the Serobians, Patrick, Kerry Small, Susan Bell, Richard (Rick) Withers and probably Mr Dinh. Kerry Small was then a risk executive with the Bank, and Rick Withers was a manager, corporate interest rates. I shall refer to this meeting as “the October meeting”.

44 Mrs Serobian did most of the talking on behalf of the Serobians and Schypsl except with respect to discussion on interest rates, in respect of which Patrick may have taken the lead role. The Bank officers and Mrs Serobian sat at a table and Mr Serobian sat at a separate table. Patrick may not have sat at the table but was within earshot. According to Mrs Serobian, her husband was at the meeting for a short time only.

45 According to Mrs Serobian, a broker was present. She makes no mention of Rick Withers being present. In her affidavit sworn 20 March 2008 she says a conversation to the following effect took place:

SUSAN: How are you today?
CHRISTINE: I am not well at all. I’m finding it really hard to cope at the moment.
SUSAN: In addition to your refinance amount we will provide the Company with an additional $2,000,000.00 in order to maintain costs throughout the growth phase. This will give you peace of mind due to your health.
CHRISTINE: That’s fine, we are happy to work with you but the major thing for us is that we keep all of the company dealings separate to the personal assets.
KERRY: That’s fine, there is sufficient equity in the house at Manly so we will put your personal loans under that one property as a housing loan that would mean you would get The Entrance and Cranebrook titles back, if you are happy with that, Sue will organise the paperwork and bring it out.
SUSAN: Everything has been organised for the refinance amount and the Company would also have the additional $2,000,000.00 that we discussed last time, all that is left to do is sign these documents so that the bank can organise settlement.
CHRISTINE: Have you made sure that the personal security is kept separate from the Company? (I recall Patrick telling me to ask this question).
SUSAN: All of the Company’s borrowings will be kept separate to the personal assets as last discussed.
CHRISTINE: Thank you. Just making sure as I am very sick and I can’t handle anything to go wrong.

46 In her affidavit of 31 July 2008 she says that she recalls a conversation with Susan Bell at the October meeting to the following effect:

SUSAN: As well as offering you $2,000,000.00 line of credit we will also offer you a fixed interest rate for 5 years at 5.6% for your $4,800,000.00 home loan instead of 6.8% which you are paying to St. George Bank at the moment.
PATRICK: We will benefit from this interest rate and we will be better off.
SUSAN: On settlement we will collect the titles for The Entrance and Cranebrook properties so you don’t need to attend settlement. We will then drop off the titles to you straight after settlement.

47 This version of events is disputed by each of the Bank officers who were there.

48 Patrick also gave evidence about the October meeting.

49 His version (in his affidavit sworn 10 April 2008) was that a discussion to the following effect took place:

SUSAN: Thank you for giving us the opportunity to meet how are you?
CHRISTINE: I am not well and finding it hard to cope at the moment that is why I was willing to meet with you and see what it is you have to offer.
PATRICK: As you have been informed, Christine’s condition is not well at all therefore I have been taking control of the businesses. Nevertheless the business has continued to grow and we intend to continue improving the company, if the Commonwealth Bank can assist in any way whatsoever, we are willing to consider it.
SUSAN: We understand your position and can see that the company has continued its success on that basis we are willing to offer the total refinance of all the facilities and an additional line of credit of an amount of $2,000,000.00 in order to maintain costs throughout the growth phase. Christine this will give you peace of mind due to your health.
CHRISTINE: That is fine, we are happy to work with the Commonwealth Bank but as I am not well and actively involved, the major thing for us is that you keep all of the company borrowings and dealings separate from the personal assets.
PATRICK: We would also like to see the release of the titles for the Taylor Road and Oakland Avenue properties, as we don’t believe it is necessary to have that additional equity.
KERRY: That is fine, there is sufficient equity in the family home at Manly. We will structure the personal loans as a housing loan secured against that property. You will get back the titles for the properties at The Entrance and Cranebrook. If you are happy with that we will finalise our paperwork and Sue can bring out the paperwork for signing.”

50 Patrick says he recalls being satisfied that Cranebrook and The Entrance would be returned. He says that after the Bank officers left, his father asked him in Armenian whether the Bank would be returning the titles for the two properties and that he replied yes, and the $2 M would be secured against “the company”.

51 In his affidavit sworn 31 July 2008 Patrick says he recalls either Kerry Small or Susan Bell informing his mother and the broker that the Bank would provide a fixed rate of 5.6% for a home loan of $4.8 M over his parents’ home at 1/30A Addison Road, Manly.

52 Mr Serobian says he understood (apparently from what Mrs Serobian had told him) that the Bank would loan them money and return the titles for Cranebrook and The Entrance. He says he only vaguely recalls the October meeting. He only recalls the Bank officers and broker greeting him and he says he heard his wife explain to them that he could not speak English and that was why he was sitting at a separate table. He also says he recalls his wife explaining to Susan Bell and Kerry Small that she was very sick and he recalls his wife being visibly not well. He says he did not have any further discussion with his wife because she was so unwell and that he only understood that the Bank “would loan us the money my wife Christine had requested”.

53 Susan Bell says that she took with her to the October meeting two Letters of Approval, one addressed to the Serobians personally and the other addressed to the directors of Schypsl.

54 She says she handed the Letters of Approval to Mrs Serobian, explained the contents and read and pointed out to her the amounts of the facilities offered and directed her attention to a Terms and Conditions booklet which was attached to the originals and given to them.

55 She denies that any conversation along the lines deposed to by Mrs Serobian and Patrick took place. She denies that Mrs Serobian said any words to the effect that she was sick or unwell. She denies that she said any words to the effect that Schypsl would be provided with an additional $2 M to maintain costs throughout the growth phase.

56 She denies that she was informed that Mr Serobian did not understand English. She says that none of her interactions with Mr Serobian caused her to consider that he may need the assistance of an interpreter or that he did not understand the effect of any documents he subsequently signed. She formed the opinion that he understood what was being said in the meetings she attended.

57 She denies that Kerry Small said words to the effect that Mrs Serobian would get the Entrance and Cranebrook titles back.

58 The Letter of Approval which she says was addressed to the Serobians personally offered facilities as follows:

“We are pleased to inform you that the Bank has approved the following facilities totalling $6,800,000.00 . Our approval is provided for the reason and on the terms outlined in the enclosed Acceptance Document and Terms Schedule.
Total facility summary
Amount
BetterBusiness Bill Facility – Variable Rate $4,800,000.00
BetterBusiness Bill Facility – Variable Rate $2,000,000.00
Total facility limit $6,800,000.00
Note: The BetterBusiness Bill Facility (Fixed Rate or Variable Rate) referred to in this Approval Letter and in the enclosed Terms Schedule and Fees and Charges Schedule means the Fixed Rate Bill Facility or Bill Facility (as the case may be) as defined in the enclosed Usual Terms and Conditions.
Particulars of the approved new facilities are set out in the attached Acceptance Document.”

59 The Schedules which she says were handed over were in evidence.

60 I shall call the facilities offered in this Letter of Approval “the $4.8 M facility” and “the $2 M facility” respectively.

61 The Letter of Approval included a document entitled “Acceptance Document” which made provision for the two addressees to sign acceptance.

62 Item 9 of the Terms Schedule for the $4.8 M facility was entitled “Bill Rate” and was as follows:

“ Item 9 Bill Rate
Will be determined on the day of, or the working day preceding each drawdown
Indicative yield rate for 90 day bills
with a face value of $4,800,000.00 is presently 5.66%pa.”

63 Item 14 included the following:

“The drawdown of Line of Credit facility of $2,000,000 to be strictly controlled by the Bank and subject to provision of a synopsis of property being purchased by the Borrower, detailing intentions with the use of property & estimated income to be derived.”

64 A Security Schedule described the security to be given. It included:

“ • A First Registered Mortgage by Shahen Serobian and Christine Serobian over a residential property situated at 30A Addison Road Manly NSW.
• A First Registered Mortgage by Shahen Serobian and Christine Serobian over a residential property situated at 102 Taylor Road Cranebrook NSW.
• A First Registered Mortgage by Shahen Serobian and Christine Serobian over a residential property situated at 62 Oakland Avenue The Entrance.”

65 The Terms Schedule for the $2 M facility contained the following Item 9:

“Item 9 Bill Rate
Will be determined on the day of, or the working day preceding each drawdown
Indicative yield rate for 90 day bills
with a face value of $2,000,000.00 is presently 5.66%pa.”

66 According to Susan Bell, when Mrs Serobian was referred to Item 14, she said words to the following effect:

“I am not happy with that condition as the $2 million might be used for child care centres or other investment opportunities. I want this changed.”

67 Susan Bell says that Kerry Small then said:

“Well I’ll take it back to the Bank and see whether anything can be changed there. You are still going to need to tell us what you need the funds for though.”

68 Susan Bell says that she then read out and went through the Security Schedules relating to both the $4.8 M facility and the $2 M facility, pointing out and naming each security individually. She says that she then proceeded to explain the Fees and Charges Schedule and referred the Serobians to the information sheet for them to read themselves.

69 The Letter of Approval addressed to Schypsl which she says was handed over offered a facility as follows:

“We are pleased to inform you that the Bank has approved the following facility totalling $4,500,000.00 . Our approval is provided for the reason and on the terms outlined in the enclosed Acceptance Document and Terms Schedule.
Total facility summary
Amount
BetterBusiness Bill Facility – Variable Rate $4,500,000.00
Total facility limit $4,500,000.00
Note: The BetterBusiness Bill Facility (Fixed Rate or Variable Rate) referred to in this Approval Letter and in the enclosed Terms Schedule and Fees and Charges Schedule means the Fixed Rate Bill Facility or Bill Facility (as the case may be) as defined in the enclosed Usual Terms and Conditions.
Particulars of the approved new facility are set out in the attached Acceptance Document.”

70 I shall refer to this facility as “the $4.5 M facility”.

71 The letter also included an Acceptance Document with provision for directors of Schypsl to sign.

72 Item 14 of the Terms Schedule relating to the $4.5 M facility contained the following:

“The valuation of the Security Properties at 1B Maggarra Place Seaforth; 3-5 Grandview Street Parramatta and 3/22-26 Addison Road Manly must be equal to or more than $2,500,000.00; 1,450,000.00 and $3,900,000.00 respectively. The valuations must be undertaken on the basis of instructions given by the Bank to a valuer approved by the Bank and the valuations must be acceptable to the Bank.”

73 Susan Bell says that she went through the same exercise with the letter offering the $4.5 M facility. She says that she directed Mrs Serobian to the Acceptance Document and read out the contents of Items 1 to 14 of the Terms Schedule, and then went through each of the bullet points in the Security Schedule and the fees and charges.

74 She says that at the conclusion of the meeting she said words to the following effect:

“As you are not happy with the condition concerning the line of credit facility of $2 million I will not ask you to sign these letters today. We will get back to you.”

75 Susan Bell says that the discussion then turned to interest rates and this was conducted by Rick Withers on behalf of the Bank. She says that Rick Withers gave to Mrs Serobian and Patrick an interest strategy paper, and a lengthy discussion about interest rates took place.

76 Susan Bell denies that either her or Kerry Small said the Bank would give a fixed rate of 5.6% for a home loan of $4.8 M over the Manly property.

77 Kerry Small also gave evidence about the October meeting. She could not recall whether Rick Withers attended the meeting or whether a broker was present. She provided a description of the Manly office. She says that the meeting was conducted primarily by Mrs Serobian and that Patrick was present but was not involved in the discussions. She says that the Serobians would occasionally discuss points between themselves in English.

78 According to Kerry Small, Susan Bell handed over two Approval Letters to Mrs Serobian and retained in her own hand the Bank’s office copies. She says that Susan Bell proceeded to go through each of the pages, appearing to her, to summarise their contents. She says that Susan Bell went through the Security Schedule naming certain properties, which she cannot now specifically recall.

79 She recalled that the Serobians expressed some concerns about the conditions which gave the Bank control over the drawdown procedure in respect of the $2 M facility.

80 She says that Mrs Serobian said to her words to the effect that she was not happy with the wording and asked her to amend it so they could draw funds as and when necessary to assist with investment opportunities.

81 She says that she responded as follows, “I am prepared to vary the terms slightly. I will not draft the change to this clause here, but will amend it when I return to my office and send the amendment to you”.

82 Kerry Small denies that there was any discussion about keeping Schypsl separate from personal assets and she denies that a release of the titles over Cranebrook and The Entrance was discussed.

83 She denies that Mrs Serobian or Patrick said words to the effect that “she would like to see the release of those titles”.

84 Kerry Small denies that Mrs Serobian made any statement about suffering from any ill health. She says that Mrs Serobian did not appear to be visibly unwell.

85 She says that the Serobians occasionally discussed points in English. She denies that she was told that Mr Serobian did not sit at the table with them because he did not speak English.

86 She denies that Susan Bell said words to the effect that the Bank would provide “the Company” with an additional $2 M in order to maintain costs throughout the growth phase or that Susan Bell said that this would give Mrs Serobian peace of mind due to her health.

87 She denies that either her or Susan Bell confirmed an interest rate for the facilities.

88 Rick Withers also gave evidence of the October meeting.

89 He says he had prepared a Terms Sheet to present to the Serobians dealing with various issues with respect to the management of interest rates that applied to their facilities.

90 He says that after introductions, Susan Bell and Kerry Small proceeded to discuss various proposed facilities and the security that was to be provided. He was not directly involved in that part of the meeting and does not recall the substance of what was said.

91 He says that after that discussion he discussed interest rates and presented copies of the Terms Sheet. He says that he spoke to the Terms Sheet.

92 He says that Patrick was the main speaker on the part of the Serobians and that Mrs Serobian was also involved. He says Mrs Serobian said that Patrick would be helping them with this aspect of the refinance, as he was studying finance at university and understood these matters.

93 He says that Mr Serobian did not have much input but appeared to be paying attention and would nod in agreement with things that were said by either him or Patrick.

94 He says that after his explanation Mrs Serobian indicated that she favoured having a fixed rate bill facility. He says that he later spoke to Mrs Serobian on at least one other occasion discussing interest rates, risk management and the options for the Serobians. Mrs Serobian indicated to him that she would like to fix the interest rate in respect of the two bill facilities for five years.

Events leading up to 13 December 2004

95 On 2 November 2004, Kerry Small prepared a letter to the Serobians, bearing that date, in the following terms:

“As per our discussion, the Bank has agreed to vary the wording of the clause in relation to the drawdown of the Line of Credit facility.
I have enclosed revised pages 6 & 8 (in duplicate), to replace existing pages 6 & 8 in the original letters of offer.
Please replace these pages in your letters of offer and return accepted documents to this office in due course.”

96 The revised page 8 of the Approval Letters, said to be enclosed, altered Item 14 of the Schedule with respect to the drawdown of the $2 M facility, to read as follows:

“The drawdown of Line of Credit facility of $2,000,000 to be strictly controlled by the Bank and funds to be utilised for purchase of an income producing business asset. The Borrower is to provide an estimate of income to be generated, by the asset under purchase at each drawdown.”

97 Kerry Small says she faxed this letter to the Serobians together with the enclosures.

98 On 19 November 2004, Susan Bell received documents by way of a 26 page fax from Mr Bosch’s company. Mrs Serobian accepted that the documents transmitted were given to the broker for transmission to the Bank. The fax included signed Acceptance Documents for each of the facilities, and a letter from Clisdells addressed to Mr Bosch to the effect that valuations carried out by Clisdells in respect of Cranebrook and The Entrance could be used by the Bank for mortgage purposes.

99 The version of the fax in evidence was incomplete.

100 Susan Bell says that, either as part of the fax or shortly thereafter, she received valuations from Mrs Serobian for the various security properties including Cranebrook and The Entrance. Copies of Clisdells’ valuations for Cranebrook and The Entrance, reflecting an inspection and valuation date of 22 November 2004 were in evidence.

101 Susan Bell says that she wrote on the cover page of the received fax the various properties to be given to the Bank as security, as identified in the schedules to the Approval Letters, and the amount of the valuation received for each property.

102 At the time, The Entrance was mortgaged to Yes Home Loans.

103 At Susan Bell’s request, a discharge authority signed by the Serobians on 25 November 2004 in respect of The Entrance was received from Yes Home Loans. It stated that the mortgage was to be discharged, “To refinance to another bank/mortgage manager due to better products and/or rates”. The document stated:

“Please discharge the mortgage you have over my/our property at: 62 Oakland Av The Entrance.
Please hand all deeds and documents connected with this property to Commonwealth Bank of Australia.”

104 On 1 December 2004 Susan Bell wrote a memorandum to Kerry Small referring to bank valuations having been received, including a valuation of $1,300,000 in respect of Cranebrook and one of $800,000 in respect of The Entrance. The Bank’s valuation for all the security properties totalled $16,730,000. It attributed Support On Normal Lending Margins (“SONLM”) to these properties of $ 13,086,000.

105 On 10 December 2004 Susan Bell sent a memorandum to Kerry Small informing her that because The Entrance had been valued on the basis of development potential, total support would be reduced to $12,846,000. This was because a ‘development potential’ valuation entailed higher risk which had the effect of reducing the Bank’s valuation.

106 In early December 2004 Susan Bell prepared a number of documents. They included letters dated 9 December 2004 to the Serobians personally and to the Serobians as directors of Schypsl respectively, referring to the Approval Letters of 22 October 2004 and requesting, amongst others, certificates of currency relating to insurance over the various properties including the Manly property, Cranebrook and The Entrance.

107 Susan Bell also prepared two letters dated 13 December 2004, one to the Serobians personally and the other to them as directors of Schypsl. The letter to the Serobians was in the following terms.

“ Please sign below to acknowledge the following:
Interest Rate of 5.97%pa fixed for 5 years plus a Line Fee of 0.90%pa (giving an all up rate of 6.87%pa) for a face value amount of $4,800,000 has today been forward locked to commence on 10 January 2005.

Should this contract fail to commence on the agreed date or is terminated the customer agrees to re-imburse the Bank any penalties or fees associated with the amendment or termination of this contract.
The client also agrees to execute the necessary documents to the Banks satisfaction and meet all approval conditions specified in Schedule dated 13th December 2004.”

108 The letter to the Serobians as directors of Schypsl was in the following terms:

“ Please sign below to acknowledge the following:
Interest Rate of 5.97%pa fixed for 5 years plus a Line Fee of 0.90%pa (giving an all up rate of 6.87%pa) for a face value amount of $4,500,000 has today been forward locked to commence on 10 January 2005.
Should this contract fail to commence on the agreed date or is terminated the customer agrees to re-imburse the Bank any penalties or fees associated with the amendment or termination of this contract.
The client also agrees to execute the necessary documents to the Banks satisfaction and meet all approval conditions specified in Schedule dated 13th December 2004.”

109 Patrick says he would regularly notice that his mother was not well and he would regularly ask her questions. He says he said to her:

“When they call, make sure that the $2,000,000 they’re going to lend to the company is not secured by the personal assets in any way, the existing company borrowings also need to be kept separate”.

110 He says early in December 2004 he asked his mother about the $2 M facility and she said that she had double-checked with Susan Bell who had said that the personal assets “will be kept separate”.

The 13 December 2004 meeting

111 On 13 December 2004 Susan Bell met the Serobians and Patrick at the Manly office.

112 Susan Bell says that she placed each of the letters she had prepared on a table with the documents relevant to each letter under it, and said to the Serobians that the documents could either be signed then or if they preferred they could take them away and get legal advice.

113 She says that Mrs Serobian replied that they were happy to sign then because they wanted to settle as soon as possible.

114 She says that she then took each of the documents attached to the letters dated 2 December 2004 and 9 December 2004, described it, and asked the Serobians to sign at a particular place. She then signed each document as witness.

115 There is no issue that documents executed at the 13 December 2004 meeting included:

a mortgages by the Serobians in favour of the bank over The Entrance, Cranebrook and the Manly property;

b mortgages by Schypsl in favour of the bank over 3-5 Grandview Street, Parramatta and 3/22 – 26 Addison Road, Manly;

c guarantees by Mr Serobian and Mrs Serobian for the debts of Schypsl and Refnok;

d guarantees by Schypsl and Refnok for the debts of the Serobians;

e declarations by Schypsl (signed by the Serobians as directors) and Refnok (signed by Mrs Serobian as director) that the companies were not controlled by public companies;

f shareholders’ resolutions by Schypsl and Refnok (each certified by Mr Serobian as secretary) resolving to enter into the transactions;

g declarations of solvency by Schypsl and Refnok (signed by the Serobians as directors); and

h acceptance of the letters dated 13 December 2004 to the Serobians and Schypsl respectively fixing the interest rates.

116 It is not in issue that Mr Serobian signed the declarations for Schypsl as a director, and the certified resolutions for Refnok and Schypsl as secretary of each company.

117 The mortgage over the Manly property was in statutory form and was witnessed. The signatures of the Serobians were witnessed by Susan Bell beneath the following certification:

“I certify that the Mortgagor, with whom I am personally acquainted or as to whose identity I am otherwise satisfied, signed this mortgage in my presence:
…………………………

Signature of Witness

(Witness should be an adult who is not a party to the mortgage).”

118 Susan Bell says that after the Serobians had signed the interest rate letters she told them she would update the Terms Schedules to reflect the fixed interest rates that they had agreed to and that she would fax them a copy for them to sign to confirm their acceptance.

119 She says the meeting ended with Mrs Serobian asking when settlement would occur and that she replied that it could occur as soon as all the conditions of the letters were met, being provision of the loan contracts from Yes Home Loans and St George and certificates of currency of insurance for the security properties.

120 Patrick’s affidavit evidence was that his mother informed him on 13 December 2004 that the paperwork had been signed. He did not otherwise deal with the meeting.

121 Mrs Serobian says that the mortgage documents did not have the addresses of the companies inserted and that Susan Bell did not explain what properties were being secured. She says that she had told Susan Bell the $2 M facility was to be loaned to Schypsl as a line of credit.

122 She said that she told Susan Bell that she was so exhausted that she was having difficulty standing up, and that Susan Bell said:

“It’s a (sic) very late for settlement this week and you must sign now to have the settlement on time.”

123 She says that Mr Serobian was not sitting at the table with her and Susan Bell but located to the rear of the premises and that she told Susan Bell that he did not read or write English, which was why he was not joining them around the table. She says that when it came time for signing, she gestured to her husband for him to come and sign with her.

124 Mr Serobian’s affidavit evidence was that he recalled a short meeting when a lady from the Bank came to the Manly office, pointed to a document and in English said “please sign here”. He says that he only understood he was being requested to sign documents so that they could change financiers from St George to the Bank. He says he recalls being happy that they were now customers of the Bank because they had expanded their business and could buy some other properties. He says he did not understand what security was being given to the Bank for the loan. He says he is certain that no one explained the mortgage documentation to him. He says that he was never told that the $2 M facility had any personal consequences for him or Mrs Serobian and understood that this would be a loan to their company only. He says at no time was he advised to obtain independent legal or financial advice in relation to the documents nor was their effect explained to him.

125 Patrick says he never sighted any conditions for the $2 M facility and was never shown any of the documents regarding it.

Events leading up to settlement

126 On 16 December 2004 Mrs Serobian sent a fax consisting of 16 pages to Susan Bell.

127 The fax cover sheet, which is a letterhead of Yerevan Realty, contained in Mrs Serobian’s handwriting, the following:

“Dear Sue,

Hi! This is the documents you requested.
Solicitors informed me that they have given payout figures.
Regards,

Christine Serobian”

128 The fax imprints (both headers and footers) show that the fax was sent and received on 17 December 2004. The document which was page 3/16 is on a Schypsl letterhead, is dated 16 December 2004, and states as follows:

“Dear Susan Bell,
The following break up of the funds used on the childcare centers are below, out of the 4 centres Seaforth is complete and some of the works on the remaining centers have commenced although there are still further costs involved.
$264,000 was spent on Seaforth Pre-school
$120,000 on Parramatta Pre-school
$220,000 on Balgowlah Pre-school
$123,000 on Leichardt (sic) Pre-school
Schypsl Pty Ltd’s total expenditure up to date has been $727,000. The remaining costs in order to finish the remaining centers will be supplied once they are ready.”

129 The faxed documents included certificates of insurance for Cranebrook and The Entrance issued by NRMA Insurance, stated to be valid from 16 December 2004. They also included an Acceptance Document for the $4.5 M facility signed by the Serobians as directors of Schypsl and dated 16 December 2004, and an Acceptance Document signed by the Serobians in respect of the $4.8 M facility and the $2 M facility also dated 16 December 2004.

130 Page 4/16 of the fax was missing from the document in evidence. Susan Bell says it could not be located.

131 Mrs Serobian’s oral evidence was that the document on Schypsl letterhead was not hers, but she proffered no explanation as to who other than herself may have brought it into existence. It was put to Susan Bell (presumably on instructions – for which there did not appear to be any discernible basis) that this document had been prepared “by someone at the Bank and not Christine Serobian”. Susan Bell’s response was,

“I’m sorry, but it is part of her fax, so I can’t put her fax header on my documents”.

132 Mrs Serobian’s oral evidence was that the Acceptance Documents signed by her and Mr Serobian for the $4.5 M facility were not part of the fax and “had been altered by the Bank by somebody I am not sure…”. Her evidence was that the Acceptance Documents signed had been in a different form.

133 Susan Bell says that she subsequently received signed versions of the Acceptance Documents which she had earlier faxed to Mrs Serobian and which had been attached to Mrs Serobian’s fax of 16 December 2004. She did not know whether the complete versions of the Acceptance Documents were returned, and has only been able to find the executed pages on the Bank file.

134 Mr Serobian says about the Acceptance Document he signed, that he vaguely recalls being asked by Mrs Serobian to sign a document that had arrived from the Bank on or about 16 December 2004. He says Mrs Serobian did not read it to him and that after he had signed it and it had been sent, he asked her whether she had read it and she said she had not.

135 Susan Bell says that once there had been agreement to fix the interest rates, it was necessary to update the Terms Schedules for the various facilities to reflect the fixing of the interest rates. She says that she had a conversation with Mrs Serobian in which she said she would be sending through the Acceptance Documents with a fixed rate and that she asked Mrs Serobian to execute them and return the originals through the mail.

136 Mrs Serobian’s version of this conversation is that Susan Bell said:

“We have forgotten to bring to you the letter of offer at our meeting earlier this week, I am faxing it to you”.

137 On 16 December 2004 St George informed the Bank of the amount required on settlement, including the amount to be paid to Yes Home Loans.

138 According to Susan Bell she calculated the amount needed at settlement. Her calculation showed that there would be a shortfall at settlement on the drawing of the two fixed rate bill facilities of approximately $713,441.

139 She says she called Mrs Serobian and told her they had received payout figures from St George and Yes Home Loans and that there would be a shortfall of approximately $713,000. She says that after some discussion Mrs Serobian said the shortfall should be drawn from the $2 M facility.

140 Mrs Serobian’s evidence was that a conversation to the following effect took place:

SUSAN: There is a short fall of $727,000.00 and we are going to take out this sum from the $2,000,000.00.
CHRISTINE: But that $2,000,000.00 is for business purposes and we need it for establishing new businesses, I really need that $2,000,000.00 because of my health right now and that was one of the major reasons we changed to the Commonwealth Bank and paid for all extra expenses for the changeover.
SUSAN: There is no time and settlement cannot take place unless we use that $727,000.00 from the Schypsl line of credit.
CHRISTINE: If we don’t settle St George are not going to be very happy with us. You have to fix up your problem you can’t take the $727,000.00 from the $2,000.000.00.

141 Mrs Serobian says that she did not have an option other than to agree and says:

“I recall telling Susan when she told me that 62 Oakland Avenue, The Entrance, and 102 Taylor Road, Cranebrook was part of the security, that this was a mistake and it should be taken out. I recall that she agreed.”

142 Susan Bell denies Mrs Serobian’s version. She says she was not aware before preparation of her affidavit in these proceedings of any suggestion by the Serobians that the titles for Cranebrook or The Entrance were to be returned on settlement, or at any other time.

143 Mrs Serobian says she was extremely surprised and angry and that the following further words were said:

CHRISTINE: This was not a condition of the loan and we had come to Commonwealth Bank because of the line of credit and interest rate.
SUSAN: It is already past that stage and I cannot do anything about it.

144 Susan Bell denies Mrs Serobian’s version.

Settlement

145 Settlement of the refinancing took place on 20 December 2004. A total of $9,952,099.27 was paid over by the Bank, including $9,362,492.01 to St George, $460,819.75 to discharge the mortgage of Yes Home Loans over The Entrance, and $124,300 to Amadaeus for the brokers’ fees.

146 The personal account of the Serobians was debited with $4,780,171.15 and $690,523.92 and Schypsl’s account was debited with $4,481,404.20 (making up the total of $9,952,099.27).

147 On 22 December 2004 Mrs Serobian sent a fax to Susan Bell. The fax cover sheet was a Yerevan Realty letterhead and Mrs Serobian wrote the following on it:

“Dear Sue,

Hi! Please organise this today as we are going away tomorrow.
Regards,
Christine.”

148 Attached to the fax was a handwritten letter, signed by the Serobians, in the following terms:

“Dear Sue,
I spoke to you this morning could you please forward $120000 from the Line of credit for the part of work for Balgowlah and Parramatter (sic),
Please forward $60000 to Mes. Moussa 762233 – 5002224 who is a builder today.
We require a bank cheque for Aiman Yousif $12000.
The remainder $48000 to Schypsl so we can draw cheques as required for works at the centre.
Thank you for your efforts. have a Merry Christmas and a Happy New Year.
Best Regards
Christine Serobian
& Shahen Serobin (sic)
* I will organise to pick up the 2 cheques this afternoon & drop off the originals.”

149 The evidence did not reveal what the “originals” were.

150 Mrs Serobian says that on 22 December 2004, in addition, she sent to the Bank a typed letter reading:

“Dear Susan
As discussed please forward the titles for 102 Taylor Road, Cranebrook and 62 Oakland Ave, The Entrance to our office as we did not receive them at settlement.”

151 The Bank disputes that any such letter was either sent or received.

The 16 February 2005 facility

152 In January 2005 Schypsl applied for an additional facility of $150,000 which the Bank’s internal records show was “to meet working capital expenses associated with the building renovation business and for initial set up costs associated with new child care centres”.

153 This facility was approved in a letter dated 24 January 2005 from the Bank to Mr Serobian as a director of Schypsl.

154 On 16 February 2005 the Serobians signed an Acceptance Document on behalf of Schypsl accepting the increased overdraft facility.

155 Also on 16 February 2005 the Serobians each signed a Consent and Acknowledgement to Extension of Guarantee reflecting the overdraft increase, which stated:

“I (the person referred to as “you” in Schedule 2) acknowledge that, by signing below:-

• my maximum liability under my Guarantee will be as described in Schedule 3; and
• the securities set out in Schedule 1 and 2 will secure all my liabilities to the Bank under my Guarantee.”

156 These were provided under cover of letters to the Serobians each dated 14 February 2005.

157 Schedule 2 referred to the mortgages over the Manly property, Cranebrook and The Entrance.

158 According to Mrs Serobian these documents were signed at a meeting with Susan Bell at the Manly office. Susan Bell says that she must have phoned Mrs Serobian to arrange a meeting to have the documents signed.

159 Mrs Serobian says that when these documents were signed a conversation between her and Susan Bell to the following effect took place:

SUSAN: These documents are for the $150,000.00 overdraft. I just need you and Shahen to sign them so that I can get back in time to have the overdraft in place tomorrow.
CHRISTINE: So there isn’t any changes in there and it’s all going to be in the company’s name?
SUSAN: Yes, I have put it under the Company so Shahen and you won’t be personally liable.

160 Susan Bell denies that any conversation to this effect took place.

Release of 3-5 Grandview Street, Parramatta

161 In February 2005 the Serobians on behalf of Schypsl sought release from the Bank’s security of 3-5 Grandview Street, Parramatta.

162 In a letter dated 22 February 2005 the Bank agreed to this. The Serobians signed acceptance of this at the foot of the letter both on behalf of Schypsl and as guarantors and mortgagors consenting to the variation. In respect of this transaction Schypsl and the Serobians had the assistance of a solicitor, Mr Parker, of LG Parker & Co.

Drawdowns of the $2 M facility

163 On about 10 March 2005 Mrs Serobian requested a drawdown of $150,000 to settle on a child care centre in Narrabeen.

164 On 13 May 2005 in a handwritten letter the Serobians requested a $150,000 advance “for completing the Leichhardt centre and finishing the Narrabeen backyard and equipment”.

165 The Leichhardt centre had in fact burnt down on 28 February 2005.

The Ermington property facilities

166 In about 2003, Chad Molenaar became an employee of the Bank as a personal financial advisor. In about April 2006 he moved to corporate banking at the Bank’s Hurstville business banking centre as a relationship executive.

167 He had had social contact with the Serobians because his then fiancé, a fashion designer, had met Yvette Serobian and carried out some design consultancy work for her in connection with a proposed fashion business venture.

168 He called Mrs Serobian to advise her that he was the new relationship manager, and visited the Manly office on 12 May 2006. He had lunch with Patrick sometime later.

169 At about this time the Serobians were contemplating the acquisition of a property at 4 Massie Street Ermington (“the Ermington property”) which they planned to open and operate as a childcare centre. They were (on behalf of Schypsl) seeking finance to buy this property.

170 Mr Serobian says his wife suggested that the Ermington property would be a good investment for their company and although he had concerns about how much they were borrowing, Mrs Serobian told him it was a good investment and he was satisfied with his decision.

171 In addition, they had established a further child care centre at Hornsby which was expected to operate later in the year and they were (on behalf of Schypsl) seeking a rental guarantee.

172 On 9 June 2006, Chad Molenaar sent an email to Schypsl requesting information about Refnok and Schypsl.

173 In a Letter of Approval dated 16 June 2006, addressed to the Serobians as directors of Schypsl, the Bank informed them that it had approved a variation to the facilities by way of a Contingent Liability Bank Guarantee for $46,750 and a BetterBusiness Bill Facility of $800,000, thus increasing the facilities of Schypsl by $846,750 (in addition to the $4.5 M facility and the $150,000 overdraft facility), bringing its facilities to a total of $5,496,750.

174 The letter included a Terms Schedule and a Securities Schedule reciting the required securities which included a reference to guarantees by the Serobians limited to $5,496,750 supported by mortgages over the Manly property, Cranebrook and The Entrance.

175 The Serobians signed an Acceptance Document in respect of these additional facilities on 11 July 2006, according to Chad Molenaar, at the Manly office and in his presence. He says he presented Mrs Serobian with the entire Letter of Approval including the Terms Schedule and Security Schedule. He says he summarised the contents of the letter and read to them in summary form the substance of the Acceptance Document.

176 Chad Molenaar says that he made an urgent request at the Bank for preparation of the necessary documents to implement these facilities. He says that he attended the Manly office again on 13 July 2006 where he met the Serobians, in order to have them sign.

177 He says that the documents to be signed were a letter dated 13 July 2006 to Mr Serobian attaching a Consent and Acknowledgement to Extension of Guarantee, a similar letter and consent for Mrs Serobian and a mortgage by Schypsl over the Ermington property.

178 He says that he handed to the Serobians a Bank booklet entitled “What it means to be a guarantor” and that then he said words to the following effect:

“As you know, each of you have already given a guarantee of the debts of Schypsl to the Bank, but because of the purchase of Ermington and the Hornsby rental guarantee, there is an increase in Schypsl’s facilities. You need to agree that your guarantee will cover these increases. These here are forms of consent and acknowledgment which acknowledge that your maximum liability under your guarantees will be $5,496,750 plus enforcement expenses. I assume you understand what I am saying and what you are doing and you do it of your own free will but do you understand what I am saying and what you are doing? I am very happy, if you want to go through this booklet which sets out the full nature and effect of your liabilities under your guarantees.”

179 In evidence was a Consent and Acknowledgement to Extension of Guarantee prepared for and signed by Mrs Serobian bearing the date 13 July 2006. It is apparent on the face of the document that Mr Serobian had (incorrectly) first signed it. His signature has been scratched out. Chad Molenaar has signed as a witness. The document has a handwritten date of 13 July 2006.

180 Also in evidence were a Consent and Acknowledgement to Extension of Guarantee signed by Mr Serobian and a mortgage signed by the Serobians as directors of Schypsl both with the date 13 July 2006.

181 Also in evidence was a typed diary note of Chad Molenaar in the following terms:

“ Diary Note
Subject Schypsl, Refnok and Serobian (C&S)
Mortgage and covering letter together with booklet “What it means to be a Guarantor” were handed to Christine and Shahen Serobian (also as Directors for REFNOK) as third party mortgagor.
The following questions were asked:
1. Are you signing the Guarantee of your own free will?
Answer: Yes
2. Do you understand what giving a Guarantee involves?
Answer: Yes
Both Christine abd (sic) Shahen were clearly advised not to sign the document until they understood the full nature and effect of their liabilities.
They advised they wished to sign the documents immediately not withstanding such explanation. I made the request again for them to keep the documents and read through overnight but were told it was not necessary.
…Signed……………………………
Chad Molenaar
Relationship Executive
Dated: 13th July, 06”

182 The Serobians have an entirely different version of these events.

423 The significant areas of dispute about this meeting are:

a whether Mrs Serobian told Susan Bell that she was ill;

b whether Mrs Serobian told the Bank officers that Mr Serobian would sit at a separate table because he did not read or write English;

c whether Susan Bell offered the Serobians the opportunity to sign documents then or take them away and get legal advice, which the Serobians declined;

d whether Susan Bell was pressing execution of the documents because settlement was imminent or whether Mrs Serobian wished to sign then because they wanted to settle as soon as possible; and

e whether Susan Bell described each of the documents which were attached to the letters dated 2 December 2004 and 9 December 2004.

424 As to Mrs Serobian’s state of health, once again there was no medical evidence. She was attending to the Serobians and Schypsl’s affairs in a manner which did not indicate any impairment.

425 I have dealt with the assertions of Mr Serobian’s language shortcomings.

426 For the reasons which I have set out above and for the additional reasons which appear below, I do not accept Mrs Serobian as a truthful witness.

427 On the other hand Susan Bell was unshaken in cross-examination and her evidence accords with objective contemporaneous material. I accept her evidence including that she offered the Serobians the opportunity to take the documents away or obtain legal advice.

428 I accept that Susan Bell described the documents which were to be signed and that it must have been clear to Mrs Serobian that personal guarantees and mortgages over Cranebrook and The Entrance were being given.

429 For this additional reason I do not accept the evidence of Mrs Serobian that she did not appreciate that she and her husband were granting security over Cranebrook or The Entrance, that it was not her intention that either her or her husband grant securities over those properties or that she or Mr Serobian (to the extent that he relied on her) did not understand that they were giving personal guarantees for Schypsl’s obligations.

430 I do not accept her evidence that the Bank was pressing for early settlement. There was no logical reason why the Bank would press the Serobians because of St George. On the other hand there was every good reason why Mrs Serobian would have wanted early settlement. St George had requested the Serobians to refinance and the Bank was offering what Mrs Serobian considered were advantageous terms. The amendments made by her to the brokers’ agreements also indicate urgency on her part.

431 Mrs Serobian’s evidence that the document on Schypsl letterhead dated 16 December 2004 (which was clearly sent by her to the Bank as part of her 17 December 2004 fax) was not hers but was created by the Bank, was fantastic.

432 So too was her evidence that the acceptance documents signed by her and Mr Serobian for the $4.5 M facility were not part of the fax but had been altered by the Bank.

433 I also do not accept Mrs Serobian’s evidence concerning the conversation which she says took place on 17 December 2004, nor do I accept her evidence that she was surprised and angry that the shortfall on settlement was to come out of the $2 M line of credit. Mrs Serobian’s handwritten fax of 22 December 2004 is inconsistent with her asserted state of mind.

434 I have already dealt with the assertion that she sent a further document on 22 December 2004.

The 16 February 2005 facility

435 I do not accept Mrs Serobian’s evidence that Susan Bell said words to the effect that this facility would be put under the company so Mr Serobian and her would not be personally liable.

436 At the time this facility was entered into the Serobians each signed a Consent and Acknowledgement to Extension of Guarantee, behaviour which is entirely inimical to the assertion of what Susan Bell said.

The Ermington property facilities

437 The significant contest between the parties with regard to the Ermington property facilities concern the events on 13 July 2006, in particular the dispute about whether Chad Molenaar saw Mr Serobian alone (as Mr Serobian says) and procured his signature on a Consent and Acknowledgement to Extension of Guarantee or whether (as Chad Molenaar says) he met them both, gave them a booklet and offered an explanation (which they declined).

438 I had reservations about Chad Molenaar as a witness. He disclosed an arrogant unwillingness to respond to questions properly put in cross-examination. It was clear that he had a relationship with the Serobians and was driven by an over eagerness to do business, factors which appeared to have induced him, in order to please them, to cut corners. By way of example, he recommended drawdown of $500,000 in December 2006 notwithstanding having considered that the Bank had not received satisfactory documentation or the consents from landlords.

439 Nevertheless, I prefer his evidence to that of the Serobians. It better accords with objective contemporaneous material including the fact that the Ermington mortgage bearing the date 13 July 2006 was signed by both Serobians and they do not give an explanation as to how they came to sign that document with that date.

440 Also, although they ultimately did not press it, the Serobians having sworn to the fact that Mr Serobian signed the Consent and Acknowledgement to Extension of Guarantee bearing the date 13 July 2006 in Chad Molenaar’s presence, foreshadowed a contention and sought to read affidavits to the effect that that document was not signed by Mr Serobian at all and that the signature on it was a forgery. On the first day of hearing a “proper report” (presumably that of a handwriting expert) was foreshadowed within a week but did not materialise.

441 In coming to the conclusion that I should accept the evidence of Chad Molenaar, I have not attributed any weight to his diary note dated 13 July 2006. Although there was nothing to found a finding that the document was brought into existence at some other time (a proposition which was put) Chad Molenaar did not create any such diary note in respect of the facilities which were signed on 5 September 2006.

442 In my view it was plain to Mrs Serobian and to Mr Serobian (in so far as he either understood himself or relied on Mrs Serobian) that they were executing instruments on that day (13 July 2006) which extended their personal liability as guarantors.

443 Mrs Serobian gave some evidence under cross examination that her understanding of being a guarantor was that she was liable as a director to ensure that Schypsl met its obligations, but not personally. The cross examination did not extend to eliciting from her what her understanding was as to her obligations if Schypsl could not meet its obligations. But the terms of the guarantees which were signed are clear, there is no basis for a finding that the Bank was responsible for her imperfect understanding (even if she had it – a matter about which I am far from convinced in any event) and the consent and acknowledgement documents which she signed made clear reference to her personal liability.

The September 2006 facilities

444 I prefer the evidence of Chad Molenaar, Mark Hill and Kerry Small as to what occurred at the 5 September 2006 meeting.

445 Mark Hill was mistaken in his evidence that Mrs Serobian initialled the changes to the Letter of Approval and accepted his error.

446 At this meeting Mrs Serobian negotiated a change to the proposed facilities which is reflected in the contemporaneous written material.

447 Mrs Serobian’s assertion that Kerry Small said that her and her husband would not be held liable for anything as the $1.6 M facility would be “under the Company” is contradicted by the documents that were executed.

448 It is inherently improbable having regard to what occurred at this meeting that it took the 5-10 minutes that Mrs Serobians says, or the 10 or so minutes Mr Serobian says it took.

Dealings up to the 21 May 2007 meeting including the temporary excess of $500,000

449 I prefer the evidence of Chad Molenaar, Mark Hill and Paul Tannock to that of Mrs Serobian and Patrick with regard to the parties’ dealings after the September 2006 facilities. Mark Hill and Paul Tannock were unshaken in cross examination.

450 There is no objective contemporaneous material which supports the assertion by Mrs Serobian and Patrick that there was ever under consideration a facility of $750,000.

451 It is also intrinsically improbable that Mark Hill told Mrs Serobian that she should consider her request to be approved.

452 Although I consider that it might be thought to have been true to form for Chad Molenaar to have told Mrs Serobian not to worry about the three months repayment condition of the temporary excess facility, his letter of 5 April 2007 clearly stipulated that it was a 90 day facility to be cleared through the sale of the Hornsby centre. This condition was further specified in his letter to Schypsl dated 10 April 2007.

453 Insofar as the evidence of Mrs Serobian and Patrick dealing with the 21 May 2007 meeting suggests that the alleged $750,000 facility was discussed, that Karen Carter telephoned Patrick Phibbs who approved the facility on the phone and said that Paul Tannock would bring out documents to sign, or that Karen Carter had said that paperwork was being finalised, I prefer the evidence of Paul Tannock and Karen Carter that this did not occur.

454 There is no evidence or internal record of any application for such a facility or consideration of it by the Bank, which occurred with respect to all the other facilities.

455 I accept as intrinsically probable Karen Carter’s evidence that she would not have said that paperwork was being finalised given that no application for a facility had been made.

The June 2007 meetings

456 I prefer the evidence of Derrick Lewis to that of Mrs Serobian and Patrick as to the meeting on 11 June 2007. Chad Molenaar’s letter of 5 April 2007 had made it clear that the temporary excess was for 90 days and was to be cleared through the sale of Hornsby, and the Letter of Approval dated 10 April 2007 was equally clear. Clearly the Bank was anticipating the sale of Hornsby.

457 In the past Mrs Serobian had not hesitated from taking issue with conditions she did not accept and it is far more likely, in my view, that the condition that the Bank imposed was in the context of it having been informed that Hornsby was to be sold.

458 According to both Mrs Serobian and Patrick at the meeting on 20 June 2007 the Bank demanded repayment within one week. I prefer the evidence of Karen Carter that this did not occur. It is inconsistent with Sarah Hall’s contemporaneous note and her subsequent letter dated 2 July 2007.

459 It is fair to say that whilst the letter concerning the $15 M facility was on a fair reading not a letter of approval, it did convey a positive disposition on the part of the Bank, and Mrs Serobian and Patrick had some justification for frustration at the Bank not having its own letter on file. Also it is perhaps somewhat remarkable that the “former Relationship Executive” referred to in Sarah Hall’s letter of 21 June 2007 (Chad Molenaar) had apparently verbally confirmed that “no such letter was issued by the Bank” (an additional reason for having had reservations about Chad Molenaar’s testimony).

460 In my view the Serobians were also justifiably irritated by the lack of continuity within the Bank with respect to the officers who were dealing with their account and what might have appeared to them as a change in the Bank’s earlier flexible attitude to the making available of significant sums of money. However, these matters have no role to play in the resolution of the ultimate issues between the parties in these proceedings.

461 Karen Carter’s evidence was that during her telephone connection with the meeting she made notes on her copy of the letter from Paul Tannock incorrectly dated 8 June 2006.

462 Before Karen Carter had given evidence and no doubt on instructions (but without any foundation) it was sought to be put to Paul Tannock that the letter was created for the purposes of these proceedings after December 2007 (when the proceedings commenced) but dated 2006. After some discussion Mr Dlakic properly did not proceed with this line.

463 From what I have said above it will be apparent that where the Bank’s witnesses have given evidence that documents were gone through and explanations given, I accept that evidence, and I reject the evidence of the Serobians’ to the contrary.

Conclusion

464 It follows from what has been said above that the Bank is entitled to recover from the Serobians personally both the $4.8 M facility at the interest rate agreed as well as the $2 M facility and that the Serobians have failed to make out their claims with respect to Cranebrook and The Entrance.

THE SEROBIANS’ GUARANTEES

465 As appears above the Serobians have not established any representation by the Bank that Schypsl’s facilities were being kept separate and the Serobians were not guaranteeing it. There is also no room for a finding that the Bank did not disclose that the Serobians were giving guarantees. Over a long period of time, documents inconsistent with the asserted representations were proffered by the Bank and executed by the Serobians.

466 So far as the Contracts Review Act is concerned the only matter relied on by Mrs Serobian was that the Bank was advised that she was very ill and she was not able to make decisions as a result of her medical impairment. A submission was made with respect to inequality of bargaining position which appeared to be restricted to Mr Serobian.

467 As appears above, Mrs Serobian has failed to establish either that there was any impairment as a consequence of illness or that the Bank was informed of her ill health. Over an extended period of time she signed various consents and acknowledgements confirming and extending her guarantee liabilities and there was no suggestion that she was sick when the last one of these was signed on 18 September 2006.

468 There was no suggestion that, even had she been impaired, the contractual arrangements between the parties would have been any different.

469 Mrs Serobian was at the helm of a significant commercial enterprise and dealt with the Bank in a competent and unimpaired fashion. Far from there being any inequality in bargaining position she negotiated amendments to the conditions of the facilities.

470 She successfully used the bargaining tool that the Serobians might move their accounts to the NAB to obtain an advantageous commercial outcome with respect to the September 2005 facilities.

471 The contents and tone of her letter to the Bank, dated 2 June 2007, regarding the golf course development reflect an aggressively demanding posture, leaving no room for the conclusion that she was a disadvantaged negotiator.

472 I accept the evidence of the Bank officers that the opportunity of legal assistance was offered but declined by Mrs Serobian. There was no suggestion that legal assistance was not available to her. There was evidence that solicitors were utilised on occasion. My assessment of Mrs Serobian is that she was sufficiently confident and competent with respect to her dealings with the Bank so as to consider that legal assistance was not required. There was no evidence of her having utilised legal assistance with respect to the proposed $100 M golf course development.

473 The commercial purpose and effect of her guarantee was to enable her personally (together with her husband) and Schypsl of which they were the only shareholders to refinance significant amounts of borrowings from St George and Yes Home Loans and to obtain the $2 M facility which was to be used in their commercial enterprise.

474 I do not consider that her guarantee was in any way unjust in the circumstances in which it was entered into.

475 Moreover there is no basis upon which it would be just to deprive the Bank of the benefit of its valuable rights where the borrowers have utilised the greater part of the monies borrowed for their own purposes in discharging (and refinancing) prior mortgages and the balance in aid of their own commercial enterprise. The Manly property was acquired with funds borrowed from St George and refinanced from the funds borrowed from the Bank.

476 Mrs Serobian’s claim for relief under the Contracts Review Act fails.

477 The following were the matters relied on by Mr Serobian in support of his claim for relief under the Contracts Review Act:

a at the October meeting Mrs Serobian brought to the attention of the Bank that he could not read or write English;

b at no stage did Mr Serobian receive independent legal advice;

c at no stage did Mr Serobian receive “translation advice” regarding the mortgage and guarantees;

d at no stage did Mr Serobian receive any financial advice concerning the documents executed by him;

e at no stage did Mr Serobian sign a Guarantor’s Declaration that he read and understood the relevant documents and understood the implications of what he was doing or in writing confirm that he did not require legal advice; and

f there was an inequality of bargaining position.

478 I have already found that the Serobians have failed to establish that at the October meeting it was brought to the attention of the Bank that Mr Serobian could not read or write English. On 13 December 2004 he signed various documents in English in his capacity as director or secretary of companies, conduct inimical to the suggestion that he could not read or write English and certainly inimical to the suggestion that the Bank knew it.

479 However, even assuming that his English was limited to the extent that he would not, without assistance, have understood the meaning and effect of the words in documents which he signed, he did have such assistance from Mrs Serobian, and where appropriate from Patrick as well.

480 His guarantee and the subsequent acknowledgments were all executed for the benefit of a commercial enterprise in which he either directly or through the vehicle of Schypsl had a significant interest.

481 I have accepted the evidence of Susan Bell that the Serobians were offered the opportunity at the 13 December 2004 meeting of obtaining legal advice which they declined.

482 I have accepted the evidence of Chad Molenaar that on 15 July 2006 he offered an explanation of the full nature and effect of the Serobians’ liabilities under the guarantees which offer was declined.

483 There is in my view nothing which could be fairly described as putting the Bank on notice that Mr Serobian was under any disadvantage, particularly with the presence of Mrs Serobian, a financially astute and experienced person, who was acting in both their interests. Because of this there was no relevant or operative inequality of bargaining position.

484 As with Mrs Serobian, there is no basis upon which it would be just to deprive the Bank of the benefit of its valuable rights against Mr Serobian where the greater part of the monies borrowed were used to discharge and refinance prior mortgages and the balance in aid of a commercial enterprise in which he had a significant interest.

485 Mr Serobian’s claim for relief under the Contracts Review Act likewise fails.

FINAL RESULT

486 There will be judgment for the plaintiff against the first defendant and the second defendant, jointly and severally, in the amount of $8,007,806.85. Short minutes are to be brought in which may reflect any adjustment to be made to this figure up to date.

487 A warrant for possession of the Manly property may be issued forthwith.

488 The cross claims are dismissed.

489 The first defendant and second defendant are to pay the plaintiff’s costs of the proceedings including the costs of the cross claims.

490 The exhibits are to be returned.

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