Commonwealth Development Bank of Aust Ltd v Child

[1999] NSWSC 1295

CITATION:	COMMONWEALTH DEVELOPMENT BANK OF AUST LTD v CHILD [1999] NSWSC 1295
CURRENT JURISDICTION:	Civil
FILE NUMBER(S):	13547/96
HEARING DATE(S):	11/11/98, 16/11/98, 18/11/98, 19/1/98, 20/11/98, 14/12/98
JUDGMENT DATE:	14 December 1998
PARTIES :	Commonwealth Development Bank of Australia Limited (Plaintiff) James David Child (Defendant)
JUDGMENT OF:	Adams J at 1

COUNSEL :	Mr M Walton SC (Plaintiff) Mr C J Leggat (Defendant/Cross-claimant))
SOLICITORS:	Abbott Tout (Plaintiff) Webster O'Halloran & Associates (Defendant/Cross-Claimant))
CATCHWORDS:	Action for possession; mortgage; unconscionability; Contracts Review Act 1980; Trade Practices Act; non est factum; relief granted in part subject to condition
ACTS CITED:	Trade Practices Act Contracts Review Act 1980 Real Property Act
CASES CITED:	Petelin v Cullin (1975) 132 CLR at 359-60 West v AGC (Advances) Limited (1986) 5 NSWLR 610 Beneficial Finance Corp v Karavas (1991) 23 NSWLR 256 National Australia Bank Limited v Sampson (No 2) (reported 9 September 1991, NSWSC, Young J)
DECISION:	See paras 52 & 53

THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISION

ADAMS J

MONDAY 14 DECEMBER 1998

13547/96

COMMONWEALTH DEVELOPMENT BANK

OF AUSTRALIA LIMITED v JAMES DAVID CHILD

JUDGMENT

1    HIS HONOUR: On 21 August 1996 the Commonwealth Development Bank of Australia Limited (CDB) commenced proceedings against James David Child to recover moneys due pursuant to a loan agreement dated 13 March 1985 secured by mortgages registered over properties known as Bennetts and Sneaths situated in the northern part of New South Wales. In addition to judgment for the outstanding debt plus interest the plaintiff sought orders for possession of the mortgaged properties and leave to issue a Writ of Possession in respect of them. By Defence and Cross-Claim filed on 21 November 1996 Mr. Child, in essence, claimed that the agreement between him and the plaintiff was that, to secure the loan ($159,000) he would give the Bank a mortgage over Bennetts and another property called Ewandon which he proposed to purchase with those funds and that Sneaths was on no account to be mortgaged to the Bank in respect of this transaction. Mr Child claimed that, in procuring his signature to the mortgages, CDB had acted negligently in not informing him that Ewandon was not being mortgaged but that Sneaths was, and in failing at all events to inform him that the mortgages secured all moneys owing rather than only the principal sum. Mr Child also claimed that the plaintiff, sometime after the execution of the two mortgages, represented to him that all three properties, Ewandon, Bennetts and Sneaths, were encumbered and were unable to be used to secure further financing which he needed in order to obtain funds to feed his cattle during severe drought. Accordingly, Mr Child cross-claimed for the loss of two hundred head of cattle in 1986 and 1987, other cattle undersold because he was unable to feed them, presumably also relating to those years and more cattle lost by starvation in 1991. Amongst other defences CDB pleaded the Statute of Limitations in respect of the common law claims that arose in 1986 and 1987 and, so far as the 1991 claim was concerned (which was characterised under the common law as negligent misrepresentation and, under the Trade Practices Act as resulting from false or misleading representations) in respect of the claim arising under s82 of the Trade Practices Act, the limitation period expressed in s82(3). The limitations defences were raised late and I granted leave for the cross-defendant to amend its defence to the cross-claim for reasons set out in a separate judgment. In his defence, Mr Child pleaded non est factum so far as the mortgage over Sneaths was concerned and claimed that CBD was estopped “from denying that the security for the purchase of Ewandon provided to the plaintiff was the Bennetts mortgage and a mortgage over Ewandon and that the Sneaths’ property was unencumbered”. Since Ewandon was never mortgaged and the CDB’s action did not seek to enforce any mortgage in respect of Ewandon, this claim is somewhat oddly cast. However, I will return to this problem at a later stage. Mr Child also claimed that he was entitled to rescission of the Sneaths mortgage or otherwise a declaration that is in equity harsh and unconscionable for the CDB to rely upon either the Sneaths mortgage or the Bennetts mortgage in the circumstances. Additionally, Mr Child claimed that the Bank should release both the Sneaths and the Bennetts mortgages in whole or in part under s7 of the Contracts Review Act 1980. 2 Mr Child, who is 65 years old, was born on his parents’ farm at Kangaroo Creek near Grafton and was raised on this property. He had little formal education, having attended a school at Kangaroo Creek in 1945 for about 12 months and then for a further period from 1946 to 1948 he attended primary school. When he left primary school in about June 1948 he did not return to formal schooling. He says, “I sort of learnt to read and write but cannot really read properly and I cannot spell properly, but I can write in a basic manner”. Several letters of his to the Bank have been tendered which indicate a basic grasp of literacy skills which would have been adequate for most ordinary purposes. However, I accept that Mr Child would have the greatest difficulty in reading and understanding any complicated legal document and certainly the agreements for loan and mortgages which he signed. I am less confident that, had he in fact looked at the title particulars in the application for finance and mortgages, he would not have appreciated that they referred to Bennetts and Sneaths. 3 Except for some brief interludes, Mr Child has farmed and raised cattle all his life. In July 1951 he bought a 169.8 hectare property known as Sneaths at Kangaroo Creek, using funds supplied from his own resources, by his brother John and by the Bank of Australasia Limited (as it was then) which took a mortgage over the property. Mr Child said that from about 1968 he had significant personal problems with a neighbour who lived on the property adjoining Sneaths, eventually feeling bound to sell it in February 1968. That same month, Mr Child bought a portion of the Bennetts property, which he financed in part with a mortgage back from the vendor. In 1973, he purchased the second portion of Bennetts using funds obtained from the ANZ Bank (ANZ) also secured by a mortgage. In early 1976 he learnt that his former neighbour had left his property and that Sneaths was for sale. He repurchased it in September 1976, partly from his own funds and partly by borrowing from ANZ, giving a mortgage in return. From 1980 to 1983, a severe drought hit the district, affecting Sneaths, Bennetts and Mr Child’s parents’ property. In 1981 Mr Child sought money for drought assistance and executed a second mortgage to the Rural Bank of New South Wales (as it then was) over Bennetts and Sneaths. He said, however, that he believed that he was merely giving a mortgage over Bennetts, and that ANZ still had its mortgage over Sneaths. A little later, Mr Child says that he sought further funds from ANZ but the bank manager declined assistance and later refused to honour one of his cheques. He says that in December 1982 he arranged some refinancing elsewhere and obtained a cheque which he used to pay out ANZ. Mr Child said that he did not think that he needed to discharge the mortgages because he did not then owe any money and, in effect, they had simply lapsed. 4 Mr Child says that in about early 1984 he approached the then manager of ANZ, Mr Brian Rawle, and informed him that he was considering purchasing another property with a Mr Warren Newcombe and wanted to check that he had paid out the mortgages over Sneaths and Bennetts. Mr Child claims that Mr Rawle told him that there was nothing owing and that all the mortgages had been paid out. Mr Rawle denies that he made the statement attributed to him. He said that at that time it was not true that there was nothing owing by Mr Child to ANZ, nor was it true that his mortgages had been paid out. He says that when he arrived at the South Grafton Branch in May 1983, Mr Child had a number of accounts with ANZ including an overdraft account, a fully-drawn advance and a personal loan, and that during the whole of the time whilst he was manager of the South Grafton branch, Mr Child had facilities with ANZ which remained unpaid. These were all secured by mortgages. A diary note of January 1985 shows debts to ANZ of about $18,000 with Mr Child seeking to borrow a further $9,000 pending cattle sales in June. In February 1985, Mr Child is recorded as having attended at ANZ in response to a request by Mr Rawle. The notes show further extentions of credit from time to time. I consider that it was most unlikely that Mr Rawle would have said that which Mr Child attributes to him and, in this respect, I prefer Mr Rawle as the more reliable witness. Whatever might be the present state of Mr Child’s recollection (and I think that it is likely to be very much affected by wishful thinking) I have no doubt that, at the time, he knew that his mortgages were securing the credit which he had obtained from ANZ. 5 In early 1984, I am inclined to think about March, Mr Newcombe and Mr Child decided to purchase a property called Glencoe, which was for sale at $200,000. Mr Child sought 100% finance from ANZ but was told by Mr Rawle, quite correctly, that the Bank would not provide such finance and suggested that CDB might be able to do so. Mr Child claimed that he asked Mr Rawle how this could be done and was told by him, in effect at least, “We are agents for the Development Bank, all the banks are. We can do all the running around for you and this will save you doing it and we can look after your interests and ensure they don’t put it over you”. 6 Before going further, it is convenient to mention that CDB provided finance for rural purposes where, for example, a borrower who wished to purchase rural property was unable to obtain finance from his or her own bank. Such a refusal was a condition for consideration of a loan application. There was no commercial arrangement or relationship between CDB and the borrower’s bank. So far as ANZ was concerned, it had blank application forms together with a “prospectus”, briefly setting out the charter of CDB, which it passed on to its customers. It was expected that CDB would correspond directly with the customer. 7 Mr Rawle denied saying to Mr Child the words attributed to him in the second sentence of the conversation which I have set out above. Again, the logic of the relationship suggests that Mr Rawle would be most unlikely to undertake any responsibility in respect of the transaction whether on behalf of CDB or on Mr Child’s behalf. Again, I consider that Mr Rawle’s evidence is more likely to be true and even though Mr Child may well, at the present time, be labouring under the misapprehension that Mr Rawle undertook to assist him in connection with his application, his recollection of the conversation is quite wrong. Mr Child was, in fact, interviewed by Mr Hardy, the District Rural Officer of CDB at Lismore. No material financial information seems to have come from ANZ. In the result, finance was approved by CDB in 1984, but Mr Child and Mr Newcombe decided not to go ahead with the purchase. An internal report of Mr Hardy of 10 April 1984 shows that Mr Child had, at that date, outstanding debts to ANZ of $11,500. 8 In late 1984, Mr Child and Mr Newcombe proposed purchasing a property known as Ewandon at Glen Innes. Mr Child says that in January 1985 he spoke to Mr Rawle ANZ to inform him that he was purchasing a portion of Ewandon and Mr Newcombe the remaining portion and seeking finance for his purchase or to introduce him again to the CDB. He claims that Mr Rawle asked him what he was offering and that he replied words to the effect, “Ewandon and Bennetts; no way is Sneaths to be mortgaged.” Mr Child says that Mr Rawle responded that ANZ could not help but said, “We will try the Commonwealth Development Bank again”, restating that ANZ were “agents for the Development Bank” but proposing “ANZ can look after your interests to make sure the other party plays it straight, we can save you a lot of money in solicitor’s fees”. Mr Child claims that he said words to the effect, “That’s OK but on no account is Sneaths to be involved. If something unforeseen happens I have a little bit of country to fall back on”. 9 I interpolate here that part of Mr Child’s case is that he did not understand that a mortgage gave the right to the mortgagee to obtain payment of the debt secured by the mortgage by exercising a power of sale over the mortgaged property if necessary. I do not intend to set out here all the evidence that Mr Child gave about this issue. It is sufficient to say that he was driven to concede, and I have no doubt that it is the fact, that he was well aware at all material times that a mortgage gives to the mortgagee such a power of sale. The state of his knowledge is reflected not only by the terms of his own affidavit but also by the reason that he gave for not mortgaging Sneaths. Mr Rawle accepts that Mr Child informed him that he and Mr Newcombe were looking at purchasing Ewandon although Mr Child told him that the purchase price for his portion was $220,000. He also agrees that Mr Child sought finance from ANZ. However, Mr Rawle says that he told Mr Child that the bank would not consider 100% finance of a purchase and suggested that Mr Child might try CDB. He denied any discussion of security and any statement by Mr Child that he did not wish to mortgage Sneaths. Having carefully considered the objective circumstances as well as the evidence given on this point by Mr Child and Mr Rawle, I have no doubt that Mr Rawle’s account is the more reliable. 10 It is, I think, important to note that at this stage it is clear that Mr Child was represented by Mr Ray Burridge of the firm McGuren & Burridge, solicitors, of Grafton. The application for loan was filled in by Mr Burridge on the instructions of Mr Child and forwarded by him with supporting documents to CDB on 31 January 1985. There is no sign that ANZ was involved in any of this and, indeed, Mr Burridge’s evidenced is to the opposite effect. In his evidence, Mr Child suggested, as I understood him, that Mr Rawle had written some detail or other on the application for loan. However, this is quite mistaken. He had nothing to do with it, with the possible exception of giving the blank form to either Mr Child or to Mr Burridge. Mr Child’s affidavit implies or, at least, suggests that the application form was filled out otherwise than by Mr Burridge, presumably by someone from ANZ or leaves open this possibility. However, it is clear that this is not so. Mr Burridge says that he had a conversation with Mr Child to the effect that Mr Child would offer as security for the loan Bennetts and the property proposed to be purchased namely, Ewandon. These, indeed, are the properties specified in the appropriate column in the application. It is to my mind significant that Mr Burridge does not suggest that Mr Child made the additional point that on no account was Sneaths to be mortgaged. In one sense this seems to be a little odd because, as Mr Child well knew, Sneaths was already mortgaged to ANZ although, no doubt, he still had a substantial equity in it. It may well be that Mr Child had it clear in his own mind that he did not wish to further encumber Sneaths (although I am somewhat sceptical about this) but there was no reason for him to inform Mr Rawle of this fact and he does not assert (and Mr Burridge at all events gives no support) that he told his solicitor. However, the undoubted fact is that the application for loan proposed Bennetts and Ewandon as the relevant security for the loan. Amongst the documents sent by Messrs McGuren & Burridge to CDB was a statement of Mr Child’s assets and liabilities which gives the title references to Bennetts and Sneaths. It is interesting to observe that in his report of 10 April 1984 Mr Hardy, who had spoken to Mr Child only on the telephone, described him as “a real ‘bushie’” and commented, “ANZ say he is honest and vague. I find this to be so during my phone interview”. In February 1985, Mr Hardy commented -

“Applicant is a bachelor and phone discussions have indicated that he is a difficult man to interview possibly because he is a real ‘bushie type’ and may not know. One thing seems sure, he knows how to manipulate his cattle activities to avoid paying tax.”

Mr Hardy’s summary states -

“Applicant is a ‘bushie’ type cattleman, rather vague in discussion but possibly very cunning.”

11    I must say that I found Mr Child disarmingly candid in some respects but in others, I thought, quite calculating. I was not confident of his reliability as a witness but in the end whether the inconsistencies were due to genuine confusion or some other cause, I am unable to say. For the purposes of this case it is unnecessary that I should resolve this puzzlement. I accept that he is a man of limited education and literacy. But I consider that he had a sound, if unsophisticated, grasp of his financial affairs and of his actual relationship with the banks with which he did business. 12    The file of CDB shows valuation reports of “property offered as security” relating to Ewandon, Sneaths and Bennetts. A note on the report relating to Ewandon states: “Subject to subdivision. Not taken as security”. It will be recalled that Mr Child proposed to take only a portion of Ewandon, though by far the larger part, whilst Mr Newcombe was taking the balance. In the result, only $159,000 was required out of a total of $236,900, Mr Child having agreed to amend his request to the lesser sum upon the basis that he could find the balance of $80,000. A note of 5 March 1985 by Mr Thompson of CDB states -

“Security proposed is:-
+ R/3/m by applicant over 648.ha
known as “Bennetts” near Nymboida
valued by RRO (25/2/85) at $172,080

+ R/3/M by applicant over 169 ha
known as “Sneaths” near Kangaroo Creek,
Grafton valued by RRO (25/2/85) at $120,080

$292,160

Less priority of $23,000 (ANZ)
$12,000 (State) $ 35,000

$257,160

Security is considered adequate for a loan of $159,000 to avoid becoming involved with the property under purchase due to the holding being part of a subdivision and title details not yet being available.”

However, there is no document evidencing any communication directly with Mr Child about the change in “proposed” security. The documents are consistent with a unilateral decision by CDB to vary the security, no doubt upon the assumption that Mr Child would become aware of the change when he came to sign the security documents. However, this is speculative. The security documents comprise an application for finance which clearly sets out, amongst other things, the applicable interest rate, the amount of the loan and repayment instalments together with dates of payment and specified the security as follows—

“Security is to be given to the Bank in such form as the Bank may require and is to comprise -
(A) A Registered Mortgage by applicant over property of about 648 hectares hear Nymboida NSW [ie, Bennetts].
(B) A Registered Mortgage by applicant over property of about 169 hectares near Kangaroo Creek, Grafton NSW [ie Sneaths].”

13    There appears on the CDB file a copy of a letter of 13 March 1985 addressed to Mr Child at Kangaroo Creek via Grafton. This was the address indicated in the request for finance, which as I have already mentioned, was completed by Mr Burridge on Mr Child’s instructions. In the circumstances, I consider that it was reasonable for CDB to send the application for finance to Mr Child at the address he specified. So far as receiving letters addressed to him in accordance with his application for loan, Mr Child agreed that from time to time he had received letters from CDB at Kangaroo Creek. That he did so was obviously a matter of luck since he said that there was no mail box by the side of the road and his mail “was thrown out on the road” by way of delivery. He said his father never had a mail box and he agreed that he was “quite happy to have the mail thrown onto the road”, the postman leaving it for him on the side of the road. It is therefore just possible that Mr Child did not receive the letter addressed to him of 13 March 1985. However, it seems to me that, in addressing the letter to him in accordance with his own application for loan, CDB acted reasonably. 14    The letter of 13 March stated, amongst other things, that the loan terms were set out in the copy of the application for finance. However, it did not mention (except indirectly by reference to the application for finance) that Ewandon was no longer to be mortgaged, and that its place was to be taken by Sneaths. The letter asked Mr Child to make an appointment with the manager of ANZ at South Grafton to call and sign the original application for finance together with the security documents. The letter specified that a solicitor’s certificate as to title was to be provided at his cost “ to cover the crown lands portion of the property” to be mortgaged, which must necessarily have been a reference to Sneaths, and stated that the “necessary forms are attached for completion by your solicitor and return to us”. Further references were made to the solicitor as follows -

“To assist your solicitor in preparation of his Certificate we enclose tenure and financial searches carried out by the Bank. Would you please inform your solicitor that we require up-to-date Common Law searches to accompany his certificate; however, the enclosed tenure and financial searches will be acceptable without further updating.
The necessary enquiries usually take some time before completion of the certificate. We emphasise that it is in your interests to deliver the forms to your solicitor promptly and ask him to complete the certificate as soon as possible. Loan funds cannot be released until such time as the certificate is received and accepted by us.”

15    On 20 March 1985 Mr Thompson for CDB’s State Manager, wrote to Messrs McGuren & Burridge enclosing copies of the approval letter (which, I infer, is the letter dated 13 March 1985 addressed to Mr Child to which I have referred) and the application for finance. As I have pointed out, that application for finance specified that the security for the loan was by way of mortgages over Bennetts and Sneaths. Mr Burridge says that he does not recall receiving this letter although I think it fair to infer that probably he did so. Mr Burridge was aware that Ewandon was situated near Glen Innes and that Mr Child was acquiring about 288 hectares. The application for finance specified a property of about 169 hectares near Kangaroo Creek, near Grafton, this description being consistent with the description of Sneaths set out in the statement of assets and liabilities forwarded by Mr Burridge to CDB together with the application for loan. 16    On 15 April 1985 CDB wrote again to Mr Child at Kangaroo Creek via Grafton referring to its letter of 13 March 1985 and repeated its request that he make an appointment with the manager at ANZ South Grafton to call and sign CDB’s security documents. It appears that Mr Child attended at the ANZ in South Grafton on 16 April 1985 and executed all the documents in the presence of a bank officer. 17    On 19 April 1985 Mr Burridge wrote to CDB enclosing a duplicate authority which was signed both by Mr Child and by Mr Burridge authorising CDB to forward the sum of $159,000 to Messrs McGuren & Burridge for the purposes of settlement. In the letter Mr Burridge said -

“We assume you will be taking a Mortgage over the security of the Glen Innes property being purchased by our Client and at this stage we cannot let you have particulars of title, because the plan of subdivision has not been lodged for registration. We will advise you particulars when the plan has been lodged, which we expect to occur shortly.”

18    This is consistent with Mr Burridge either not having received a copy of the 13 March 1985 correspondence or not having noticed the change in the proposed securities. Against this paragraph in the letter in the records of CDB someone has written a manuscript “No”. A note in the records of CDB apparently made in late May 1985 acknowledges receipt of the solicitor’s certificate as to title which was referred to in the approval letter of 13 March 1985. As I have pointed out, that Certificate was required to cover the “crown lands portion of the property” and must necessarily be a reference to Sneaths which, of the properties proposed to be mortgaged, was the only Crown land’s title. The actual certificates have not been tendered before me. Although I think it fair to infer that Mr Burridge indeed signed those certificates and hence was aware of the title particulars of the properties mortgaged, it may well be that he did not appreciate that one of the properties had been changed. Indeed, this appears to be the appropriate inference to draw from his letter of 19 April 1985, part of which has been set out above. Nevertheless, it does seem somewhat strange that, in light of the letter of 19 April, he would have signed a certificate relating to Crown land which, had he considered the matter, he should have realised was not part of the proposed security as he understood it, in respect of which (as he himself said) particulars of title could not be given because the plan of subdivision had not yet been lodged for registration. It also can be inferred from the solicitor’s certificates as to title that even if CDB’s letter had not, for some reason, been received directly by Mr Burridge, Mr Child had received it and had done what the CDB obviously expected him to do, namely pass it on to his solicitor. On 22 May 1985 Mr Burridge wrote to CDB enclosing the solicitor’s certificate as to title and an old system title search. As both Ewandon and Bennetts were Torrens Title land under the Real Property Act the latter can only be a reference to Sneaths. Indeed, on 24 May 1985, Mr Burridge wrote again to CDB, enclosing a copy of a 1939 easement granted by “Sneeth [sic] to The Council of the Clarence River County District...” In the circumstances, I think that CDB was entitled to proceed on the basis that Mr Child’s solicitor and, hence, Mr Child knew of and understood that the properties proposed to be mortgaged differed in respect of one of them from that which had been set out in the original request for finance. However, it would have been prudent for the Bank to have brought specifically to the fore the fact that this change had occurred, on the assumption that this had not been done verbally with Mr Child, an inference which I am, on the evidence, prepared to draw. 19    A difficulty, however, arises in respect of this conclusion as to Mr Burridge’s knowledge, although his letters of 22 and 24 May 1985 on the face of it appear unanswerable, since Mr Burridge was not asked any questions about them and his affidavit does not refer to them; nor was Mr Child cross-examined directly about it. So far as Mr Child is concerned, however, he denies receiving any correspondence or ever knowing about the change in security. I should point out that the documents to which I have made reference were tendered on behalf of Mr Child. 20    I accept that it may be that Mr Burridge did not bring to Mr Child’s attention the change of security. However, having regard to the correspondence, I am of the view that CDB was entitled to conclude that he was aware of the change, arising from their having written to Mr Burridge enclosing the application for finance and receiving from him the certificate as to title and old system search. This material having been tendered by the defendant who also called Mr Burridge I do not consider that there is any procedural unfairness in accepting it on face value and drawing the inferences which I have. In the circumstances, although it is a possible inference that Mr Burridge in fact realised the change of security and obtained instructions from Mr Child to proceed nevertheless, I do not think that this inference should be drawn either as a matter of fairness, neither Mr Child nor Mr Burridge having been questioned to this effect by Mr Walton SC, counsel for CDB nor would the inference to my mind be drawn with sufficient certainty to establish on the balance of probabilities that such a communication occurred. However, these considerations do not apply to prevent the inference, which I consider to be overwhelming, that the Bank took reasonable steps to notify the mortgagor of the identity of the properties to be secured by the mortgages and reasonably supposed that he was so informed or, at least, had no reason to suspect that he was not so informed. It was not unreasonable in the circumstances for CDB to have written to Mr Child at the address specified by him in his request for finance especially since, as it seems, it took the precaution as well of sending a copy of the correspondence to his solicitor. As I have already pointed out, Mr Burridge knew that no title details could be provided in respect of Mr Child’s portion of Ewandon, as at the date of the mortgage they were as yet unknown. 21    Mr Child said in his evidence that he could not remember any discussion with Mr Burridge about the application for loan made to the Development Bank in 1985 and, indeed, insisted that Mr Rawle made the application to CDB. It is clear that this recollection is completely mistaken. I do not accept that Mr Rawle organised this application either with CDB or with Mr Burridge. I consider that Mr Child’s recollection about these events to be so faulty that, unless it is confirmed by objective evidence or accepted by other witnesses, I could not be satisfied of its reliability. 22    Mr Child claims that on the occasion when he came to execute the mortgage and application for finance the documents were simply put in front of him by an officer of ANZ (whom he was unable to identify) and the place where he was to sign pointed out to him. He did not have his spectacles with him and hence would have found reading the documents, had he been minded to do so, difficult if not impossible, quite apart from his possible problems of comprehension. I am prepared to accept Mr Child’s evidence in this respect. He was not specifically invited to take the documents away and consult his solicitor about them but, in the circumstances, CDB might reasonably have supposed that when Mr Child came to execute them he would or could, if he were so minded, have obtained appropriate legal advice from the solicitor whom he had retained for the purposes of the transaction. I think it likely that Mr Child assumed that the documents that he was signing accorded with his original application but I do not accept that he believed that ANZ was, somehow, looking after his interests in the matter or had undertaken any further responsibility than providing him with the application and a venue for execution of the documents. 23    By parity of reasoning I consider that Mr Child did not rely on CDB to look after his interests in any sense. He simply relied upon his assumption that the mortgages concerned only Bennetts and Ewandon since those had been the properties specified in his original application. Of course, Mr Child had no intention of reading the documents or he would have taken his spectacles with him, nor did he request an opportunity to do so or consult his solicitor about them. So far as CDB was concerned, it had armed him, by correspondence directed to him as well as to his solicitor, with all the relevant information including that identifying the property secured by the mortgages although it would have been prudent to have mentioned specifically in the letter the fact that the security had changed. I think that the Bank was entitled to act on the basis that he was fully informed about all material matters at the time that he came to execute the mortgages. A further qualification which might need to be made, however, is that they did not forward the terms of the mortgage itself to either Mr Child or Mr Burridge. However, I do not think that anything turns on this point. 24    So far as non est factum is concerned, I consider that CDB was “innocent” and that Mr Child was either himself careless or negligent or that he was bound by the notice given to his solicitor and hence, in accordance with Petelin v Cullin (1975) 132 CLR at 359-60, the defence is not made out. 25 It is clear from what I have already said that I do not consider that CDB or, insofar as it was acting as an agent ANZ, made any false or misleading representation to Mr Child either negligently or deliberately. I doubt that there is a sufficient basis for concluding that it is unconscionable for CDB, in the circumstances, to enforce its securities in respect of Mr Child’s admitted default. 26 The question, however, which arises under the Contracts Review Act 1980 is a somewhat different one. Before proceeding further to discuss this matter it is important to focus precisely on the circumstances which appear to me to raise the potential for injustice. I accept that Mr Child did not propose to mortgage Sneaths although he was prepared to mortgage Ewandon; he always was prepared to mortgage Bennetts. I also accept that Mr Child was unaware that the security proposed had been varied to substitute Sneaths for Ewandon. I accept that he assumed that the security documents which he was called upon to execute would have been in accordance with the initial proposal. I accept that he was not given the opportunity (although perhaps he might not have taken it) to read the security documents that he executed and, even if he were given that opportunity, I accept that it is unlikely that he would have understood them and may well not have noticed that the specification of the security had changed either in the application for loan or on the mortgage document. 27 Although I consider that CDB acted reasonably in making the change and that it was a reasonable presumption that Mr Child was aware of the change in security, yet it was prepared to act on the basis of the presumption rather than bring the matter specifically to the attention of Mr Child and his solicitor. Furthermore, in failing to send copies of the proposed mortgage either to Mr Child or to Mr Burridge it did not give an opportunity to them, before the occasion of execution, of examining the precise title details of the land covered by the mortgage. Although I do not accept that ANZ was the agent in any general sense in the transaction for CDB, in the circumstances CDB delegated to ANZ (and ANZ accepted) responsibility for ensuring that the documents were properly executed. Having regard to the risks inherent in the circumstances and, in particular, the change of security, when Mr Child attended on his own, that is without his solicitor, which, I think, was envisaged by CDB, to execute the documents of which the mortgages had not been previously seen by him, I think that there was a duty to bring to his attention specifically the identity of the properties proposed to be mortgaged. No doubt ANZ did not do so because its officer was unaware of the change and had not been informed of it by CDB. 28 Mr Child has said that he would not have proceeded with the transaction in that form had he been aware that Sneaths had been substituted for Ewandon. I accept that this is so, although not without some reservations. Had Mr Child not proceeded with the transaction at that stage, it seems to me in light of the history of the matter that the documents would have been redrawn to substitute Ewandon for Sneaths and, in that event, provided appropriate terms relating to the particulars of title or else await completion of the Land Title Office procedures. 29 In the circumstances, considered as a whole, I have a substantial doubt whether it is unconscionable, harsh or oppressive to enforce the security against Sneaths. However, it is “a mistake to think that a contract or one of its terms is only unjust when it is unconscionable, harsh or oppressive”: see West v AGC (Advances) Limited 1986 5 NSWLR 610 per McHugh J at 621. His Honour’s judgment went on to say -

“The Contracts Review Act 1980 is revolutionary legislation whose evident purpose is to overcome the Common Law’s failure to provide a comprehensive doctrinal framework to deal with “unjust” contracts. Very likely its provisions signal the end of much of classical contract theory in New South Wales. Any contract or contractual provision, not excluded from the operation of the Act and which the Court considers is unjust in the circumstances existing at the time when it was made, may be the subject of relief under the Act. Moreover, the provisions of s9(2) do not exhaustively indicate the criteria as to what can be taken into account in determining whether a contract or any of its provisions is unjust. The provisions of s9(2) of the Act are concerned for the most part with matters of procedural injustice. But the Court is entitled to have regard to all the circumstances of the case, subject to s9(4) and the public interest ...”

30    It seems to me, for the reasons that I have given, that CDB’s conduct in failing to bring specifically to the attention of Mr Burridge or Mr Child the change in security in fact deprived Mr Child of an informed choice to enter into the mortgage over Sneaths. Put another way, although CDB assumed reasonably that Mr Child was aware in the change of security, Mr Child also acted under the reasonable assumption that the security was unchanged. I accept that Mr Burridge had not, for some reason or another, appreciated the change in security. 31    In Beneficial Finance Corp v Karavas 1991 23 NSWLR 256 at 277 Meagher JA said -

“There is jurisdiction under the Act to make orders in favour of a party to a contract who proves that at the date of the contract he suffers from a relevant disability even though the other party to the contract is unaware of that disability, although in general it would be unsound to exercise the jurisdiction in those circumstances ...”
The reason for this view is that it is hardly just to deprive an innocent person of valuable property, of which contractual rights are a species. Nevertheless, such a jurisdiction undoubtedly exists. In the present case, for example, it is made quite clear from s9(2)(i) of the Act that relief may be granted if a finding is made that a party to a contract did not understand “the provisions and their effect” of a contract.”

32    Despite the fact that I think CDB on the whole acted reasonably I do not think that it was entirely “innocent” in the circumstances, for the reasons which I think I have sufficiently expressed. 33    I have therefore concluded that the contract is unjust within the meaning of the Contracts Review Act in that it resulted in Sneaths rather than Ewandon being mortgaged. 34    Mr Child mounted, however, a more radical attack on the mortgages. He stated in his affidavit that he was not informed that the mortgages were unlimited nor that if the properties were sold, he would be personally liable. As to this latter aspect, he said that he understood liability to the Bank ended upon the sale of the mortgaged properties. However, in his evidence, Mr Child conceded, in effect, that he was at all material times aware that a borrower must repay the loan plus interest and that a mortgage was an agreement between the Bank and the borrower to this effect and that it secured this obligation by permitting the Bank to sell the mortgaged property in the event of default. 35    Taking Mr Child’s evidence as a whole, I have no doubt that he was also aware that his obligations as a borrower included personal liability for repayment of the whole debt including interest. This conclusion is reinforced by the character of the communications between him and ANZ as demonstrated in Exhibit D. I regret that I formed the view as to this issue that Mr Child was somewhat less than candid. At all events, CDB was entitled, in my judgment, to rely on the fact that Mr Child had retained the services of his own solicitor as establishing that he was informed of his obligations under the application for finance. Mr Child borrowed funds from CDB and utilised them for the purposes specified in his application for loan. His obligation, that is to repay principal and interest within the times specified, was understood by him. 36    In these circumstances, I do not see that the error in respect of the property secured by the mortgage should affect his obligation to pay the debt together with interest as specified. I do not see that this contract was, in any relevant sense, unjust. Subject to the question, therefore, of the extent of the debt and the plaintiff’s evidence of it, I consider that judgment in respect of the money sum should be awarded in favour of the plaintiff. 37    It has been submitted that, because Mr Child was under the misapprehension that all his properties were the subject of securities held by CDB at times when he needed to obtain credit for the purpose of feeding his cattle, the mortgage in respect of Bennetts should not be enforced. An alternative, or possibly a cumulative argument was that the error in respect of one property, namely Sneaths, meant that the entire transaction should be avoided since, had he known that it was a condition of obtaining the facility that Sneaths be mortgaged, Mr Child would not have proceeded with the transaction at all. I have already said that I think it likely, indeed, virtually certain, had the substitution of Sneaths for Ewandon been objected to, the title difficulties relating to the former property would have been overcome and the transaction would have proceeded with Bennetts and Ewandon securing repayment of the loan. I do not, therefore, consider that this second argument has any substance. 38    In respect of the primary argument, Mr Child said that in 1986 and 1987 there was a severe drought which adversely affected his properties and in late 1986 he was unable to feed his cattle, which were dying. Accordingly, he went to ANZ and spoke to the then manager, Mr Wilson, and sought funds for money for feed, seeking about $20,000. He said that Mr Wilson told him that he could not lend him any more than up to $30,000. Mr Child alleged that Mr Wilson mentioned a “deal” with the Development Bank as a result of which no more than $30,000 could be lent since this was ANZ’s remaining equity. In the context it is clear that Mr Wilson intended to convey that ANZ had preference in respect of its mortgages over the CDB mortgages only up to an amount of $30,000. Mr Child alleges that Mr Wilson suggested that he should approach the State Bank, which might be prepared to lend him money for the feed. Mr Child says that when he attended the State Bank at Grafton he was told that that Bank was not providing money for drought relief and suggested, in effect, that he would need to ask ANZ to see whether they could increase their priority by negotiation with the Development Bank. Mr Child inferred from this that CDB “had tied everything up so that I couldn’t get any money”. He inferred, as I understand it, that somehow, without his agreeing to it, Sneaths had become mortgaged in addition to Ewandon so that he had no further security to offer. On the other hand, as I understood the effect of his evidence, had he known that Ewandon was completely unencumbered, he would have offered Ewandon as security for the additional funds which he was seeking. I do not understand how any of the conversations to which he deposes as having occurred with Mr Wilson or with the State Bank implied that he had no property capable of securing further loans. On his own account, he believed that Sneaths was unencumbered yet he did not offer it as security. Furthermore, on 26 May 1985 CDB had notified him that the priority of ANZ had increased to $40,000. On 30 April 1986 ANZ requested CDB to increase its priority in the available security to $50,000, which extension was agreed to. Mr Child said that had he known that Ewandon was unencumbered he would have used it as security and obtained $45,000 which would have been sufficient to keep his cattle going until the drought broke at the end of 1987 and then sold them for the purpose of repaying that loan. But as I have said, accepting that he assumed that Ewandon was encumbered, by parity of reasoning he believed that Sneaths was not encumbered. Mr Child claims that in 1989 or 1990 he attended ANZ in South Grafton to speak to the then manager, Mr Brian Meynell, about some difficulties with his account. During the conversation that ensued, he alleges that Mr Meynell said that the Bank only had $30,000 worth of security, that the Development Bank had the rest and in that respect they had security over Ewandon, Bennetts and Sneaths. Mr Child said that he became extremely angry because it was the first time that this had really been spelt out to him. He said that this was the first time that “I really knew CDB had mortgaged all of my property”. Of course, this was not the fact. 39    Mr Child said that a severe drought started in late 1990 and by the next year circumstances were disastrous since he did not have feed for his cattle. He stated that he did not bother to make any finance application for additional funding as he believed he had no security that he could offer. Mr Meynell’s evidence was, in effect, to deny Mr Child’s allegations. He pointed out that ANZ did not keep a record of CDB’s securities and accordingly he was unaware of the mortgage over Ewandon since ANZ had no mortgage over that property. In October 1989, indeed, the priority in respect of Bennetts had increased from $50,000 to $70,000 but still this was insufficient to secure the then outstanding debt of $77,000. It is difficult, therefore, to accept that Mr Meynell told Mr Child that the bank only had security for $30,000. By February 1990, a temporary facility to $85,000 had been arranged which had increased by May 1991 to $103,000, which was, of course, some $30,000 above the $70,000 limit. Mr Meynell’s diary for 6 July 1992 notes that following service of a notice of demand, as I take it under its mortgage over Bennetts he met with Mr Child. The note records -

“He began to get hostile and demanded I give him all his deeds back immediately. I told him that this would be impossible. He again demanded them and I refused. He became very hostile and said I would hear from his solicitors. I tried to discuss the matter with him in a reasonable manner, however, he refused to give answers to any question and he eventually stormed out of the office saying I would hear from “someone” who would make me hand over his deeds.”

40 It is possible that this is the conversation which has given rise to Mr Child’s account in his affidavit. It will be seen that Mr Child is recorded as seeking “all his deeds”, which he may have meant as a reference to the deeds to Sneaths, Bennetts and Ewandon. He may well have interpreted Mr Meynell’s refusal as somehow amounting to a claim that the properties were all mortgaged. However, I do not consider that I need to analyse this matter closely for the purposes of this judgment. I have no doubt that, for whatever reason, Mr Child’s account of this conversation is unreliable and that, even accepting that for some reason he was under the mistaken impression that all his properties were the subject of mortgages, that impression did not derive or at least reasonably derive from anything said to him by Mr Meynell or, for that matter, any employee of ANZ. Even if an employee of ANZ had made such a suggestion to him, I do not see how that should effect the position of CDB. 41 In Mr Child’s supplementary affidavit, he claims that, whilst at the office of his accountant, Mr Hardy, in June 1991, he was put on the telephone to a person he was told by Mr Hardy was from CDB who said that the bank intended “to sell Ewandon and the other two places, Sneaths and Bennetts”. Mr Child said that this “frightened the hell out of me and I talked him into giving me three months grace”. Mr Hardy was not called by the defendant, perhaps because, as Mr Child deposes, he suffered “a breakdown of some sort” shortly afterwards. In light of my view of the reliability of Mr Child’s memory and of his evidence as a whole, I do not accept that such a conversation occurred, at least in these terms. Mr Child’s evidence as to this conversation was not in the same terms as his affidavit. It had all the hallmarks of recollecting his conclusions from the conversation, rather than its actual terms. Nor do I see how I can accept Mr Child’s recollection as to the identity of the person with whom he spoke. On the face of it, it seems most unlikely that any “big boss” from CDB would threaten to sell up property over which it had no security. 42 In the result, therefore, I am satisfied that there is no proper basis for holding CDB to account for any mistaken supposition (assuming that Mr Child is being reliable as to this matter) that he had no property available to offer as security for the borrowing which he was minded or attempting to obtain. 43 The overwhelming impression that I had of Mr Child is that he wilfully refused to deal with his financial affairs in an ordered or informed way. I accept that he may have had some difficulties arising out of his limited education and literacy. But my judgment of him as he gave evidence was that he was simply uninterested in what others told him about his business or financial affairs and had the approach that when they went awry he blamed them for the situation in which he found himself. That is to say, Mr Child simply refused to take responsibility for his affairs. In essence, they were not complicated. He borrowed money from time to time and he spent it and he was aware that he needed to repay it, but the timetable for that repayment was determined by his own priorities and he declined to accept the reasonableness of the notion that he should adhere to the obligations or undertakings into which he had entered about repayment if it was inconvenient or costly for him to do so. Overall, I found him to be a most unreliable witness although I would not say that I found him positively dishonest. I think that Mr Child had a considerable capacity for believing what he wanted to believe. 44 I have concluded, therefore, that there is no reason to prevent CDB enforcing its rights in respect of Bennetts. So far as Sneaths is concerned, however, the position is somewhat more complicated. It is quite clear that Mr Child’s position at all times was that he was prepared to mortgage Ewandon. In light of this there seemed to me to be three possible modes of relief. The first is simply to enable Mr Child to rescind the mortgage, leaving CBD to its security over Bennetts and its rights as an unsecured creditor in respect of Mr Child’s remaining assets which would, of course, include Sneaths. The second possibility is to permit rescission of the mortgage so far as Sneaths is concerned but require, as a condition of that order, Mr Child to provide security to CBD over Ewandon. Whatever the state of Mr Child’s solvency, I do not see how the substitution, in effect, of this security could adversely affect his other creditors, at least up to the value of Sneaths. The third possibility is to refuse relief altogether upon the basis that Mr Child could at all events use Ewandon to obtain the funds to pay out any excess of debt to CDB following sale of Bennetts. As I see it, there is, in principle, no legal obstacle so far as granting relief under s7 of the Contracts Review Act 1980 is concerned to the imposition of a condition for the grant of relief. The Court is empowered, at all events, under Sched 1(1)(a) to make orders with respect to “the making of any disposition of property”, which includes a mortgage (Sched (4)(9)), under Sched 1(1)(h) to order the creation of a charge on property in favour of any person as well as a general power “to make such orders in connection with the proceedings as may be just in the circumstances”; Sched 1(2) grants a general power to make orders “on such terms and conditions (if any) as the Court thinks fit”. Here, justice requires that the security be varied by substituting Ewandon for Sneaths. If Mr Child wishes to obtain relief from the mortgage over Sneaths he can do so by granting a mortgage over Ewandon. 45 The question, however, has been raised by Mr Child whether, at all events, judgment for the debt should be given upon the basis that there has not been sufficient proof of his liability, citing National Australia Bank Limited v Sampson (No 2) (unreported 9 September 1991, NSWSC, Young J). 46 Clause 14 of the mortgage states -

“A statement in writing made up from the books of the Bank and signed by an authorised officer of the Bank of the amount due or owing of the moneys hereby secured at the date mentioned in such statement shall be prima facie evidence that such amount is so due or owing or secured and of all the other matters therein set forth without it being necessary to produce any books or vouchers to verify the same and without retrospection beyond the preceding half-yearly balance of account in the books of the Bank.”

47 Clause 32 of the Real Property Act mortgage provides, so far as is relevant -

“The expression authorised officer of the Bank shall include every officer of the Bank the title for whose position is or includes the word “Manager” and every “Accountant” of every branch, division and department of the Bank...”

48 The common law mortgage contains a similar provision to Clause 14 of the Real Property Act mortgage. But “authorised officer” is somewhat differently defined in Clause 34 -

“... the expression authorised officer of the Bank shall include the General Manager, Assistant General Manager of the Bank and every Chief Manager, Deputy Chief Manager, Senior Manager and every Manager, Assistant Manager and Accountant of every branch, division and department of the Bank ...”

49    A certificate as to the amount due and owing under both the Real Property Act mortgage and common law mortgage together with a calculation of the accrual rate of interest is Exhibit A to the affidavit of Geoffrey Allan Evans dated 13 November 1998. In his affidavit, Mr Evans deposes that he is “a bank manager in the employ of the Commonwealth Bank of Australia Limited”. He states “I have examined the books and records of the Commonwealth Development Bank (“the Bank”) in relation to the defendant’s facilities with the Bank”. The inevitable inference from the affidavit and the certificate to which it is annexed is that the source of the information in the certificate is the books and records of the Bank concerning the moneys due under the mortgages specified. 50    In his evidence Mr Evans identified the bank statements which provided the basis for his certificate and referred to other information obtained from the books and records of the Bank which was used to adjust downwards the amounts shown in the statements. Some adjustment to Mr Evans’ employment with CDB occurred on 30 June 1996 when all officers of that Bank were “transferred” back to the Commonwealth Bank of Australia, of which CDB was a wholly owned subsidiary. He says that he was always employed by the Commonwealth Bank and had merely been transferred to CDB and back. Mr Evans said, however, that he worked for CDB as a Manager. I am satisfied that he occupied this position at all material times. It seems to me that the effect of Clauses 32 and 34 respectively is that an authorised officer includes persons who possess the specified description of function in the Bank and it is irrelevant whether or not they are actually employed by the Bank. 51    In National Australia Bank Limited v Sampson (infra) a number of points were taken as to the admissibility of a certificate purportedly made under a clause equivalent to Clause 14. Young J discussed a number of shortcomings in the document tendered before him. It was not submitted to me that any of those matters applied in this case. Sampson was relied on only to support the submission that clauses of the type to which I have referred must be strictly construed against the mortgagee. Here, Mr Leggat for the defendant, Mr Child, confined his criticism of the certificate to the contention that Mr Evans was not relevantly authorised. I am of the opinion that there is sufficient evidence to show that Mr Evans was so authorised and that the certificate tendered complies with the relevant provisions in the mortgages. 52 I conclude, therefore, that the plaintiff is entitled to judgment against the defendant for the full amount of principal and interest. I direct the plaintiff to draft Minutes of Order in accordance with this judgment and provide a copy to the defendant’s solicitors in the expectation that the terms of the Orders can be agreed. If agreement cannot be reached, I grant leave to either party to mention the matter before me on one week’s notice. 53 So far as costs are concerned, having regard to the issues raised in the trial, I do not consider that I should make final orders until the parties have had the opportunity to make submissions on the matter. I grant leave to each party to mention the matter on seven days’ notice with a view to having the question of costs determined.

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Last Modified: 06/26/2000