Fato v Fato

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

No. S CI 2011 02188

ANGELINA FATO	Plaintiff
v
ROSA FATO AND CELESTINA FATO	Defendants

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JUDGE:	HABERSBERGER J
WHERE HELD:	MELBOURNE
DATES OF HEARING:	23-25, 29-30 OCTOBER 2012
DATE OF JUDGMENT:	26 MARCH 2013
CASE MAY BE CITED AS:	FATO v FATO
MEDIUM NEUTRAL CITATION:	[2013] VSC 125

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Contract – Agreement by family members to borrow money secured by mortgage over property – Responsibility as between family members for repayment of loan – Property sold – Payments made from net proceeds of sale – Balance of proceeds paid into Court – Entitlement of various parties to funds in Court.

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APPEARANCES:	Counsel	Solicitors
For the Plaintiff	Mr K Boden	Starnet Legal Pty Ltd
For the Defendants	Mr S Marantelli	Rothwell Lawyers Pty Ltd

HIS HONOUR:

Introduction

This proceeding concerns the competing claims by some of the registered proprietors to the proceeds of the sale of a property at 111 Victoria Street, East Brunswick, Victoria (“the Brunswick property”). Pursuant to an order made by Emerton J on 8 March 2011, a total amount of $831,778.27 was paid into Court by three separate payments on 20 and 28 April 2011. It became Account No 74650. Pursuant to an order made by Randall AsJ on 27 October 2011 the sum of $406,000 was paid to the plaintiff, Angelina Fato (“Mrs Fato”), from Account No 74650. This order was made because both sides agreed that, whatever the final outcome, Mrs Fato was entitled to receive at least that amount. Apart from adjustments for interest and tax, the sum available for distribution is therefore $425,778.27.

The Dispute

In March 2002, following the earlier deaths of Mrs Fato’s father and husband, the registered proprietors of the Brunswick property became Mrs Fato and her three daughters, Rosa Fato (“Rosa”), Celestina Lina Fato (“Lina”) and Patrizia Fato (“Patricia” or “Mrs Dattilo”). In the same year Patricia married Antonio Dattilo (“Antonio” or “Mr Dattilo”) who had come to Australia from Italy in 1998. Mrs Fato, who held a one half share of the Brunswick property as a tenant in common with her three daughters, who each held a one sixth share, claimed to be entitled to be paid all of the money remaining in Court. Rosa Fato and Lina Fato, the defendants in this proceeding, claimed that the proceeds of the sale available for distribution should be divided 60% to the plaintiff, 20% to each of them and nothing to Patricia, and that certain moneys should be treated as having already been received by the plaintiff. Patricia did not make a claim to any of the funds available for distribution. She had waived any entitlement.

The disagreement stems from a dispute regarding the liability of Rosa and Lina Fato for a $580,000 loan from the Bendigo Bank that was obtained in July 2003, and a subsequent refinance of that loan with Perpetual Trustees Victoria Ltd (“Perpetual”) in September 2004 for the sum of $744,000. The previously unencumbered Brunswick property had been offered as security for these two loans.

The defendants say that the agreement was that neither they nor their mother were to be personally liable for the amount of $300,000 which they agreed could be borrowed using the Brunswick property as security. The proceeds of the loan were to be paid to Mr and Mrs Dattilo or entities they controlled. The defendants say that it was agreed that Mr Dattilo would repay that loan in no more than twelve months. Furthermore, they say that they only became aware that the loan was more than $300,000, and of the subsequent refinance with Perpetual, in 2008.

Whilst it was common ground between the parties that Mrs Fato was not to be responsible for any of the amount borrowed on the security of the Brunswick property, the plaintiff did not agree that the same applied to the defendants. Mrs Fato said that Rosa, Lina and Patricia borrowed the money from the Bendigo Bank for their own purposes and that each of them was therefore liable. Mr and Mrs Dattilo supported Mrs Fato’s position.

The Factual Background

I commence by setting out in chronological order the key factual events and some of the relevant background facts. At this stage I will not examine the conflicting evidence concerning the key factual events. That will be considered in detail later in these reasons.

Mr and Mrs Dattilo ran a business of importing olive oil from Italy and supplying that product to Coles. Regione Calabria Pty Ltd (“Regione Calabria”), which was incorporated on 20 November 1998, was the corporate vehicle by which that business was undertaken. It obtained the Coles contract in 2001. Mr Dattilo said that food products were also sold to Woolworths nationally. Mr Dattilo was a director of this company between 20 November 1998 and 25 October 1999 and from 6 March 2002 onwards. Mrs Dattilo was a director between 25 October 1999 and 9 April 2003. The sole shareholder of Regione Calabria was Mr Dattilo from 25 January 1999 and Dattilo Holdings Pty Ltd (“Dattilo Holdings”) between 10 December 2002 and 2 March 2011. Dattilo Holdings was incorporated on 12 March 2002. Mr and Mrs Dattilo were the directors and shareholders of that company. Dattilo Holdings was the trustee of the Dattilo Family Trust.

On 31 January 2003, a company Calcorp (Australia) Pty Ltd (“Calcorp”) was incorporated. Initially, Mr Dattilo was the sole director and secretary. The question of who thereafter were the directors and shareholders of Calcorp was a matter of dispute between the parties.

On 18 February 2003, Mrs Fato, her sister Rosina Paladino, Rosa, Patricia and Antonio moved from the Brunswick property where they had all been living to 39 Ruby Street, Balwyn North (“the Ruby Street property”). At this time, Lina was living in Sydney. She had moved there in July 2000 to work for KFC. The Ruby Street property was purchased in the name of Dattilo Holdings.

After the Brunswick property was vacated, it was left empty as it was quite old and dilapidated. A real estate agent advised the family that a lot of work needed to be done on it before it could be rented out.

Around April or May 2003, Dattilo Holdings bought two blocks of land at Randor Street in Campbellfield for about $330,000 or $340,000. Mr Dattilo said that the land was acquired with the intention of building seven warehouses on it.

Around this time, there were discussions within the Fato family about using the Brunswick property as security to raise finance. It was a matter of dispute between the parties as to what was actually agreed to be the amount of the loan, when it had to be repaid and who should be liable for the loan. It is sufficient at this point to note that on 3 June 2003, Mrs Fato and her three daughters apparently signed a Bendigo Bank loan facility application (exhibit 2), which was stated to be for the amount of $580,000. This loan was secured by a mortgage over the Brunswick property.

Nearly all of the loan was paid to Dattilo Holdings. The mortgage repayments on the Bendigo Bank loan were made from bank accounts in the name of Mr and Mrs Dattilo or entities they controlled.

On 8 October 2003, Linfa & Co Pty Ltd (“Linfa & Co”), the trustee of the Lina Fato Family Trust, was incorporated. It was always controlled by Lina Fato.

On 26 November 2003, R.E.D. Corporation Pty Ltd (“R.E.D. Corporation”), a trustee company for Rosa’s family trust, the Redcorp Family Trust, was incorporated. Who controlled that company at various times will be examined later.

In January 2004, Lina Fato returned to Melbourne. She lived with her family in the Ruby Street property until June 2006 when she again moved to Sydney.

In March 2004, a Ferrari was said to have been purchased by Dattilo Holdings. In fact, according to the 2005 financial statement of Dattilo Holdings that company had entered into a hire purchase agreement in respect of the Ferrari.

In May 2004, an AML Mortgage Group (“AML”) application form for the refinancing of the Bendigo Bank loan was apparently signed by the four registered proprietors and forwarded to the financier. An offer of refinancing was made by First Title City West, on behalf of Perpetual, by a letter dated 11 August 2004. The offer was accepted by the four registered proprietors apparently signing documents on 16 August 2004.

On 23 August 2004, Lina Fato applied through AML to refinance her two investment properties.

On 2 September 2004, a loan in the sum of $744,000 was advanced by Perpetual to the four registered proprietors. It was secured against the Brunswick property Of that loan amount, $588,402.53 was used to discharge the Bendigo Bank mortgage. The balance of the funds after deducting other fees and charges was $125,173. On 8 September 2004 and 14 October 2004, the sums of $100,000 and $25,000 respectively were paid into a joint bank account in the name of Mr and Mrs Dattilo.

As has already been noted, Rosa and Lina Fato denied that they were aware of this Perpetual refinance when it occurred.

Purchase orders were tendered which showed that Regione Calabria was supplying vinegar to Woolworths in August 2005. Mrs Dattilo said that “Lina was involved in this one”.

After the purchase of the land in Campbellfield, Dattilo Holdings obtained finance for the construction of seven warehouses on it. However, the warehouses were never completed because the financier appointed receivers over the project on 10 September 2007. Mr Dattilo said that the reason for the failure of the venture was because the builder had costs overrun of $200,000 and he had agreed to absorb those additional costs. On 7 December 2010, a liquidator was appointed to the company.

In about 2008, a complaint was made to the ACCC about a batch of olive oil not matching the specification. Mr Dattilo said that the oil was provided by Calcorp not Regione Calabria. He said that he did not know the details because the complaint was made “just before” he resigned as a director of Calcorp. For whatever reason, it appears that these companies subsequently lost their contracts with the large supermarket chains.

In October 2008, R.E.D. Corporation Pty Ltd, as trustee for the Redcorp Family Trust, obtained a $1,410,000 facility from the National Australia Bank to fund the purchase of the property at 24 Essex Road, Surrey Hills (“the Essex Road property”). In mid-October 2008, Mr and Mrs Dattilo, their children and Mrs Fato moved into the Essex Street property. Rosa Fato had stopped living with them by this time.

In late 2008, a contract of sale was prepared by solicitors acting for Mr Dattilo whereby Mrs Fato and her three daughters were to sell the Brunswick property to a company Dattilo Holdings Group Pty Ltd (“Dattilo Holdings Group”). That company was incorporated on 27 July 2007. The price was stated to be $1,930,000 with a deposit of $482,500. Mr Dattilo said that the $482,500 deposit, which constituted 25% of the total price, represented the increase in the value of the property as a result of him putting development plans in place on the Brunswick property. The balance of $1,447,500 was to be paid on 31 March 2009 or earlier by agreement. The day of sale was said to be 20 November 2008. The contract was signed by Mrs Dattilo and Mrs Fato. Mr Dattilo, the sole director and shareholder, signed for and on behalf of Dattilo Holdings Group. Both Rosa and Lina Fato said that they had no knowledge of this contract. As they did not sign the contract, the purported sale did not materialise.

According to Rosa Fato, sometime in 2008, she opened an envelope sent to the Brunswick property and found an AML statement showing that the loan secured by the property was “$700,000 and something”. She then contacted Lina who spoke to Patricia who said she would need to speak to her husband. Requests for repayment of the loan went unheeded.

A family meeting on 14 October 2009 failed to resolve the differences between Rosa and Lina Fato on the one hand and Antonio and Patricia Dattilo on the other. At that time, Mrs Fato appears to have been on the side of Rosa and Lina as she wanted the loan repaid and the title cleared. This important meeting and a record of the discussions at the meeting will have to be looked at more closely later in these reasons. It is sufficient at this stage to note that the Dattilos say that Antonio was offering to pay his mother-in-law $660,000 for her half share of the Brunswick property.

In November 2009, Sam Consentino obtained a sales appraisal dated 9 November 2009 from Hocking Stuart (CBN) Pty Ltd suggesting a value of $1,850,000 to $2,000,000 for the Brunswick property, and one dated 11 November 2009 from Nicholson Real Estate Pty Ltd suggesting a value of $1,700,000 to $2,000,000. Rosa said that the appraisals were obtained because “the bank was foreclosing on us” and she and Lina wanted to put the property on the market.

By a letter dated 19 November 2009, solicitors acting for Lina wrote to Mr Dattilo demanding that he arrange a discharge of the mortgage/repayment of the loan within 21 days. In that letter, the following points were made:

(a)at Mr Dattilo's request the registered proprietors of the Brunswick property agreed to borrow $300,000 secured by a mortgage in favour of the Bendigo Bank and he received the full benefit of the funds so borrowed;

(b) Mr Dattilo agreed to repay that loan within six months;
(c)numerous requests had been made to Mr Dattilo to repay that loan and discharge the mortgage;
(d)to Lina’s surprise she learnt from Rosa in late 2008 that the loan debt was about $740,000.
(e)in March and October 2009 clear demands were made by Rosa and Lina and their mother that Mr Dattilo repay the Perpetual loan and clear the title.

By letters dated 20 November 2009, solicitors acting for Lina wrote to Patricia and Mrs Fato seeking their support for Lina’s demand that Mr Dattilo repay the Perpetual loan and clear the title to the Brunswick property.

The relationship between Rosa Fato and her new partner, Sam Consentino, on the one hand, and Mr and Mrs Dattilo on the other hand, soured at the end of 2009. According to Mrs Dattilo, this followed a heated argument in November 2009. She said that Rosa and Sam Consentino came for dinner at the Essex Road property. After dinner, Mr Consentino produced valuations and announced that he was taking over the sale of the Brunswick property and accused the Dattilos of ripping off the family. According to Rosa, Sam showed Mrs Dattilo the valuations he had obtained. She rejected the suggestion that the property was worth that much. Between February and August 2010, a number of intervention orders were taken out by Rosa and Sam against Antonio and Patricia and by the Dattilos against Rosa and her partner.

Patricia prepared a written document dated 2 December 2009 which she wanted her sisters to sign as a record of the past history of the dispute. Paragraph 2 stated that each of the parties (Patricia, Rosa and Lina) agreed that each was responsible for a ⅓ share of the Perpetual loan. Paragraph 5 stated that it was a fact that Antonio Dattilo was not a party to that loan and was therefore not liable for any loan repayments. Also, paragraph 4 noted that Mr Dattilo would cease making repayments towards that loan due to the sale of the Brunswick property between Dattilo Holdings Group and the registered proprietors not proceeding. Patricia signed the document, but Rosa and Lina did not.

Lina Fato’s partner, Deborah Murray, commenced making the payments in respect of the Perpetual loan after Mr Dattilo ceased doing so.

In March 2010, the Brunswick property was sold on a 12 month contract for $2 million. The agent’s authority dated 21 January 2010 originally showed a “vendor’s authorised price” of $2.2 million, which was then changed to $2.7 million. Rosa said that she initialled the amendment. She said that $2.7 million sounded “good”. It did not mean that they were going to achieve that price. After the sale, the repayments on the Perpetual loan were made from the $200,000 deposit received from the purchaser.

By a facsimile dated 5 July 2010 signed by her, Rosa Fato instructed the solicitor who acted for the Fatos on the sale, to make a payment of $89,706.09 from the deposit moneys held in trust to G-Star Group Pty Ltd (“G-Star Group”). This company was incorporated on 26 March 2010. It was controlled by Mr Dattilo. The $89,706.09 was said to be the total of the repayments made by Dattilo Holdings Group. Rosa countermanded the instruction the next day.

Prior to settlement of the sale, G-Star Group lodged four caveats over the Brunswick property. The details of these caveats were as follows:

(a)In caveat no AH575776S dated 25 October 2010 and lodged the same day G-Star Group claimed an interest as chargee “Pursuant to a Charge contained in an Agreement in writing dated 05/07/2010 between the Registered Proprietors and the Caveator”;
(b)In caveat no AH594283K dated 4 November 2010 and lodged the same day G-Star Group claimed an interest as chargee “Pursuant to a Charge contained in a [sic] Agreement in writing dated 05 July 2010 between the Registered Proprietors and the Caveator, for an amount of $89,706.09”;
(c)In caveat no AH643931F dated 30 November 2010 and lodged the same day G-Star Group claimed an interest as chargee “Pursuant to a Charge contained in an Agreement in writing dated 16/08/2010 between the Registered Proprietors and the Caveator”; and
(d)In caveat no AH643932D dated 30 November 2010 and lodged the same day G-Star Group claimed an interest as chargee “Pursuant to a Charge contained in an Agreement in writing dated 11/11/2010 between the Registered Proprietor [sic] and the Caveator”.

By an originating motion dated 16 December 2010, G-Star Group commenced proceedings against Rosa and Lina Fato and sought a declaration that the sum of $589,706.09 was secured against the Brunswick property. The first of the above caveats was said to relate to the alleged debt of $500,000. Mr Dattilo said that this amount was owed to him as his 25% share of the price. The second of the above caveats was said to relate to the alleged debt of $89,706.09. On 18 February 2011, Lina Fato and Rosa Fato commenced a proceeding to have the caveats removed. On 8 March 2011, Emerton J ordered that the four caveats be removed.

In late 2010, Rosa and Lina and their brothers, Vince and John, applied to the Victorian Civil and Administrative Tribunal (“VCAT”) for the appointment of an administrator and guardian for their mother. The complaint alleged that:

Our elderly mother is currently residing against her will with our sister Patrizia Dattilo and her husband Antonio Dattilo. She is being unlawfully detained against her will. There is a family dispute regarding property and our mother is being forced by Patrizia and Antonio to become involved and take sides. Her health is rapidly deteriorating and she has been hospitalised. She has also lost complete control of her financial affairs which are being used to support the Dattilos. Mum needs urgent protection.

The application was dismissed. Mrs Fato continued to live with Mr and Mrs Dattilo and their children.

On 15 November 2010, Bluepies Pty Ltd (“Bluepies”), as lender, entered into a loan agreement with Angelina Fato and Patrizia Dattilo, as borrowers. Although Recital A of the loan agreement stated that the lender had agreed at the request of the borrowers to provide a loan facility not exceeding $45,000, the loan schedule referred to a loan amount of $45,000 and a “Further advance” of $17,000. The total of $62,000 was due for repayment on 31 March 2011. The liability of the borrowers was expressed to be joint and several.

On 12 February 2011, Lou Nominees Pty Ltd (“Lou Nominees”), as lender, entered into a loan agreement with Antonio Dattilo, Patrizia Dattilo, Angelina Fato, G-Star Group and R.E.D. Corporation, as borrowers, for the sum of $200,000. But only $166,000 was in fact borrowed. The debt was due for repayment on 31 March 2011. Again, the liability of the borrowers was joint and several. Mr Dattilo signed on behalf of G-Star Group and R.E.D. Corporation.

Under both of these agreements, the loans were secured over the Brunswick property.

Eventually, after some delay, the sale of the Brunswick property settled in April 2011.

Tisher Liner & Co was one of the firms of solicitors which acted for the vendors on the sale of the Brunswick property. On 28 April 2011, it paid into Court from the net proceeds of sale the sum of $783,142.13, being the balance of the money received at settlement, and the sum of $21,107.71, being the balance of the deposit. On 20 April 2011, Soccio & Associates, the solicitors then acting for Mrs Fato, paid into Court the sum of $27,528.43 from an amount of $35,400.81 paid to her by Tisher Liner & Co from the deposit.

The plaintiff commenced this proceeding by a writ filed on 5 May 2011.

The Agreement re the Bendigo Bank Loan

I turn now to the conflicting evidence that was given regarding what was agreed before the Bendigo Bank loan was taken out.

Mrs Fato said that “all the daughters” had asked for the loan because they were starting a business about importing oil and vinegar and “they needed the money”. She said that the three of them were discussing a loan but she was “not really participating”, she was “not so much interested”. Mrs Fato said that she trusted her daughters. When first asked whether there was any discussion about who would repay the loan, Mrs Fato said that “they were always speaking in English so I could not follow sometimes”. When asked a similar question later, she replied that “obviously” the daughters would repay the loan, they “had the business”. Mrs Fato said that all of her daughters said to her that it was all their business, she was not going to be touched by it, so she need not worry about it. She said she knew about the Bendigo Bank loan. But she could not remember what amount was to be borrowed. She said that she was not told that it would be repaid within six to 12 months. Mrs Fato said that the loan was not only taken by Patricia and Antonio but also by Rosa and Lina. When she was asked who was to get the use of the borrowed money, she thought “the company” although she did not know the details. Later she said that “the girls and Antonio they were talking business and that’s where I think the money went”. Mrs Fato said that Rosa and Lina may have asked Antonio when the money would be repaid but she was not aware of it.

In an affidavit sworn on 27 April 2011 and filed in this proceeding, Mrs Fato deposed that her three daughters decided to apply “for a line of credit with the Bendigo Bank for approximately $300,000”. She said that she was aware at that time that “their combined share in the property was worth at least $300,000” so she did not object to them applying for the $300,000. She also deposed that the $300,000 was used for “various business ventures”, the precise details of which she did not know. Finally, Mrs Fato stated that she did not receive “any money out of the $300,000 loan” obtained by her daughters.

Mrs Dattilo said that her husband did not borrow the money. He did not need to borrow money from anyone. He could have gone elsewhere. She said that the reason for the Bendigo Bank loan was that Rosa and Lina were interested in getting “involved” in the Dattilos’ business. She said that they were “impressed” that Antonio had landed such a lucrative contract with Coles. Mrs Dattilo said that her older sisters were “keen to do something for their retirement” and so they “opened Calcorp”. Patricia said that they told their mother that her share would not be affected because she was not involved in the business. They said that they wanted to use their shares and “do something with the money instead of just having it sit there”. She said that the oral agreement was that Rosa and Lina would invest their share of the loan in the business. She then said that Rosa and Lina would in exchange for their investment receive a warehouse each from the development in Campbellfield. Furthermore, Rosa and Lina would be more proactive in the business and help develop it. She said that, under the agreement, Dattilo Holdings would pay the Bendigo Bank loan back. She later said that she thought that Calcorp transferred money to Dattilo Holdings to pay the loan. It was not clear whether this was the Bendigo Bank loan or the Perpetual loan.

Mrs Dattilo said she did not know how the amount of $580,000 was arrived at. She thought that it was all that the bank would offer. However, in her affidavit sworn on 29 April 2011 and filed in this proceeding, Mrs Dattilo deposed that she had read her mother’s affidavit. She said that she confirmed its accuracy and agreed with every paragraph of it. When asked why she was now saying the loan was for $580,000 and not the figure of $300,000 referred to five times in her mother’s affidavit, she said that she might have got the “numbers mixed up”. In re-examination, Mrs Dattilo made the suggestion that her sisters had become confused between the amount of the loan and the purchase price of the Campbellfield land, which was about $300,000.

In response to the suggestion that the loan was to be repaid within 12 months, Mrs Dattilo said that that could not have been the agreement because Dattilo Holdings bought a Ferrari in March 2004 and Rosa and Lina were “ecstatic” about this. There was no suggestion by them that the loan should have been repaid rather than money being spent on the Ferrari.

Mrs Dattilo also said that Rosa and Lina had established their own family trusts for the purpose of transferring the warehouse each of them was going to get into her trust when construction was completed. She said that Rosa and Lina wanted to build a portfolio for themselves and to be involved in the business and create some wealth for their retirement. Mrs Dattilo said that Lina was exploring the option of importing olive oil for KFC stores. She said Lina had a contact, Heather, at head office. She said Lina was also involved in vinegar – “she wanted to do that”.

Mr Dattilo said that Rosa and Lina knew that the Bendigo Bank loan was to be for $580,000. Mr Dattilo said that the taking of the loan was the proposition of his wife, Rosa and Lina. He denied that he needed the money to assist with the settlement of the purchase of the land in Campbellfield. He said that he could have easily raised the $300,000 approximately needed at settlement of the purchase of the Campbellfield land, as Dattilo Holdings, in late 2003 or early 2004, had fixed assets of over $2.5 million and over $1.5 million in stock. He denied that the agreement was that the loan was to be repaid within six to 12 months. He said that he never received a request for repayment at that time. Instead, the loan was refinanced.

Mr Dattilo said that Rosa was involved in the business he was then conducting because they were living in the same house and she wanted to join the business to try to get some earnings. Mr Dattilo gave some rather vague evidence that Rosa had gone overseas with him on business two or three times. He said that after his father-in-law passed away there was a falling out between his brothers-in-law and their mother. He said that around the time that the Ruby Street property was bought, Lina and Rosa expressed interest in being involved in the business. He said that their involvement in the business was achieved through the incorporation of Calcorp on 31 January 2003. Its business included importing and distributing vinegar to Woolworths stores. It was to be the trading company for the new products and Rosa and Lina were to set up their family trusts.

According to the ASIC search of Calcorp, Rosa and Lina Fato were both purportedly appointed directors on 21 April 2003 and ceasing on 20 December 2004. Rosa was purportedly re-appointed a director on 25 February 2008. The search also revealed that Rosa purportedly owned six of 12 issued shares between 6 April 2005 and 18 July 2008. Both Rosa and Lina denied consenting to be appointed directors of Calcorp. Lina said that she never told Mr Dattilo that she wanted to be a director of Calcorp. At the request of Lina, ASIC had removed her name from the records, it apparently being satisfied that she had not consented to being appointed a director. Rosa was making a similar application.

Who else, then, was involved in Calcorp? Mr Dattilo was a director and secretary between 31 January 2003 and 5 March 2003 and a director between 20 December 2004 and 24 February 2008. Mrs Dattilo was the secretary between 5 March 2003 and 29 June 2007 and a director between 20 December 2004 and 29 June 2007. Mr Dattilo was the sole shareholder of the two issued ordinary shares until 18 November 2004. Dattilo Holdings then became the sole shareholder of these two shares until 6 April 2005, but they were not held beneficially. Each of Rosa Fato and Dattilo Holdings Group then became the holder of six ordinary shares, but the latter was not the beneficial owner of its shares. These two ceased to be shareholders on 18 July 2008 when R.E.D. Corporation became the sole shareholder. It did not hold its shares as the beneficial owner. In a facsimile dated 3 June 2004 to the proposed financier, Mr Fink of AML stated:

It should be noted that the Dattilo Family Trust owns 100% of the shares in Calcorp (Australia) Pty Ltd.

Calcorp went into liquidation on 7 December 2010.

Correspondence relating to the purported appointment of Rosa Fato as a director of Calcorp on 25 February 2008 was tendered by Mrs Fato’s counsel late in the hearing. It was very revealing. Banks Group Pty Ltd (“Banks Group”) was at this time the accountant for Rosa. It was possibly still the accountant for Mr Dattilo but this was not clear. By an email sent at 3.39 pm on Tuesday, 18 March 2008, Kylie Halse of Banks Group sent to Mr Dattilo “the form 484 to resign yourself as Director and appoint Rose [sic] as Director for Calcorp (Australia) Pty Ltd”. At 4.11 pm on the same day, Mr Dattilo sent an email back to Ms Halse saying that “The form has been signed and faxed to you. The original is in the mail”. The form 484 was prepared for Rosa to sign as the new director of Calcorp replacing Mr Dattilo as at 25 February 2008. Also included was a company minute accepting Mr Dattilo’s resignation as a director, to be signed by Rosa, a letter of resignation as a director from Mr Dattilo, and a consent to act as a director to be signed by Rosa.

It appears that Banks Group would then have electronically lodged the necessary forms with ASIC. But such documents would not have any signatures on them. Instead, it would seem that the originals of the signed documents would be retained by Banks Group. Neither side sought to have those documents tendered into evidence.

What this exchange of emails shows is that Mr Dattilo received the forms, printed them out and allegedly had Rosa sign them in 32 minutes at the longest. If Rosa was present at the Ruby Street property at the time, this would presumably have been no problem. Whether she understood what she was signing is another matter. But equally it would have been possible for Mr Dattilo to produce a false document purportedly signed by Rosa and send it back to Banks Group without Rosa being any the wiser. Rosa denied any knowledge of this correspondence. She said that she worked on a Tuesday.

There was other evidence relevant to the claim by Mr Dattilo that Calcorp was the vehicle by which Lina and Rosa became actively involved in the business. First, Telstra records showed that between 29 May 2003 and 7 January 2004 a telephone landline was installed at the address in Sydney where Lina was then living. She said five people were boarding there and they all had mobile telephones. As far as she knew there was no landline. Lina said that Mr Dattilo visited this address when he came to Sydney. The service was in the name of Calcorp. It is hard to know what to make of this evidence, other than that Calcorp paid for a telephone which probably both Lina and Antonio used.

Secondly, there was a Calcorp Business Plan document dated 1 July 2005, which was described as being prepared for ANZ Development Capital as a potential investor in the “Dattilo Group”. The Plan described Calcorp’s business as being “managed primarily by Antonio and Patricia Dattilo and Rose [sic] and Lina Fato”. In discussing the personal requirements of the food business it was said that “apart from Antonio and Patricia we also have Rosa Fato and Lina Fato who contribute to the running of the business. This is especially so when Antonio and Patricia are unavailable, eg, overseas, sick, on holiday break or vice versa”. The Calcorp Business Plan described the organisational structure of the food business as follows:

Food Business – Primarily Antonio and Patricia Dattilo act as the key people in the business when dealing with overseas companies, however, Rosa Fato and Lina Fato have been trained so that should Antonio and Patricia be absent from the business, Rosa and Lina are able to take over and run the business just as smoothly. They are, however, consistently involved in the business in such areas as, taking orders and processing them, deliveries and management of warehouse inventory, accounts/office duties and also contribute, and are involved in the development of products. In fact, Lina has contributed ideas in developing a project, which involved the sourcing and supply of vegetable oil to fast food outlets, namely, KFC.

Although the Calcorp Business Plan had the date “01/07/2005” in brackets on the front page, I consider that it must have been prepared earlier in that year. The Implementation Plan towards the end of the document included a timetable of “expected completion dates and milestones”. Most were before 1 July 2005. For example, the first one was “Finance Required/Approved – April 2005”.

Mrs Dattilo said that the Calcorp Business Plan was prepared by “a combination of a few people including my sisters”. She played down any involvement of her husband saying that he did not write well in English. On the other hand, Mr Dattilo said that he was involved in the preparation of this document.

Lina Fato denied having seen this document before this proceeding. She said she had no idea what it was. Rosa said that she had not seen the document before.

I accept the evidence of Lina and Rosa that they were not involved in the preparation of this document. To me, it clearly reads as having been prepared by the Dattilos, in particular Mr Dattilo. Whoever it was prepared by, it clearly gives primacy to the position of Mr and Mrs Dattilo within Calcorp. Moreover, it is not clear to me how Lina and Rosa could have been as heavily involved in the business as the Calcorp Business Plan would suggest.

Thirdly, on 30 March 2009, Rosa apparently signed documents as a director of Calcorp in support of its application to the National Australia Bank for a documentary letter of credit facility of $700,000. She said that she did not remember signing this document but agreed that it was her signature. Rosa said that the only time she dealt with the National Australia Bank was to go and sign for the Essex Road property. As will be seen later with other documents, Rosa appears to me to have been willing to sign documents if asked to do so by Mr or Mrs Dattilo.

None of this extra evidence, in my opinion, establishes that Lina and Rosa became financially involved in the business through Calcorp.

Mr Dattilo said that Rosa and Lina said that they had the possibility of raising capital using their own assets. He said that he did not ask for any specified amount, but Dattilo Holdings had just paid the deposit on two blocks of land in Campbellfield and settlement was due “soon in probably next couple of months”. He said that he proposed that they join together in the new development in Campbellfield that was ”about to settle”. He said that he would be happy ”to give them one warehouse each”.

In terms of their actual involvement in the business, Mr Dattilo said that Rosa was at Campbellfield, from where the operations were conducted, a couple of days a week and Lina was there for “maybe more days”.

Mr Dattilo said that he knew about the signing of the loan because they all lived in the same house and he knew when the loan was discussed and when it was signed. He said that his branch manager at the Bendigo Bank was also the branch manager of all the family members. He said that he remembered her coming to the house one day to discuss “how the loan went”.

According to Lina Fato, the first conversation regarding the potential borrowing against the Brunswick property occurred in early 2003 after she came down from Sydney for a month to help paint the Ruby Street property. She said that this conversation occurred at the Brunswick property when Patricia asked her mother, Rosa and herself if the property could be put up for a loan as Antonio had obtained appraisals of about $700,000 in respect of it. Lina said that she replied that she would not put up the property for $700,000. However, after Patricia had clarified that her husband only wanted to borrow $300,000, she, Rosa and their mother “agreed to help out because he wanted it for business ventures or whatever he was doing for himself”. She said that Patricia said to them that Antonio would repay the loan in “between six to twelve months”. Later she said she could not recall whether it was three to six months or six to twelve months. Lina said that it was agreed that only Antonio would be responsible for repaying the loan. Neither Mrs Fato, Rosa nor herself was to be responsible for making any repayment. She said that they could not pay back the loan but “he was already in business and it was for his purpose”. Lina also said that there was no discussion as to what was to happen if the loan was not repaid within six to twelve months or what was to happen if Mr Dattilo went bankrupt. They trusted him.

Lina also said that Patricia said that the money was needed because Antonio had put a deposit on a block of land in Campbellfield and could they help out because he did not want to lose the deposit. She said that she had “no idea” about the block of land and was not told what it was being bought for. Lina said that the conversation lasted about half an hour.

Lina said that she did not approach or speak to anyone at the Bendigo Bank regarding this loan. She said that the loan documents were signed at the Brunswick property in front of a bank manager, but the bank manager did not mention the figure of $580,000. The bank manager turned the pages and Lina signed. She said that she did not see the figure of $580,000 on the first page. They were all present when she signed.

Lina agreed that she did not make any demand for Mr Dattilo to repay the loan at the end of three, six or twelve months.

Rosa Fato said that discussions about the loan occurred at the Brunswick property when Patricia came to her, her mother and Lina and said that Antonio had purchased some land in Campbellfield and he did not wish to lose the deposit. She said that Patricia asked to have the Brunswick property mortgaged in order to borrow $300,000. Patricia said that the loan would be repaid within three, six or twelve months at the most. Rosa said that Mr Dattilo would be responsible for repaying the loan because they were lending him the money. She said that there were no discussions as to what was to happen if the loan was not repaid by Mr Dattilo. His olive oil business was “booming”. She said that she agreed because “in the family we used to help, we help each other”. She said that she trusted her sister that the loan would be repaid.

Rosa Fato said that she did not recall seeing the $580,000 figure when it was signed at the Brunswick property. She said that she thought that Patricia or Antonio brought the documents to them to be signed. She said that there was “no figure” on the documents and she thought they were loose. She said that she did not see anybody from the Bendigo Bank. She said that it was Patricia and Antonio who told her where to sign. Rosa said they all knew that they were borrowing $300,000.

Both Rosa and Lina denied that there was any agreement that the Bendigo Bank loan was to be taken out so that they could invest in Mr Dattilo’s business ventures in return for a warehouse each and being involved in his activities through the incorporation of Calcorp.

Lina Fato agreed that, between January 2004 and June 2006 when she was in Melbourne, she was involved in Calcorp’s business doing things such as bottling, labelling, packing, and driving the forklift to load the van. She was not paid for doing any of this work, but she did not have an issue with that because everyone helped each other. She said that she was only helping Mr Dattilo to get his orders out. With respect to the incorporation of Linfa & Co and the establishment of the Lina Fato Family Trust, she said that they were for the purpose of setting up a cleaning business.

Rosa Fato also said that on her days off, she was only “helping” out Mr Dattilo fill the bottles with olive oil and packing. She was not remunerated.

In response to the suggestion that she was to get a warehouse from the Campbellfield development, Lina Fato said that she only knew about the warehouse in 2005 and not 2003. She said that that arose in connection with a $100,000 loan she had made to Mr Dattilo, which happened after the Bendigo Bank loan was taken out. She said that she only realised that she had been made a director of Calcorp during another proceeding she brought against Mr Dattilo in respect of the $100,000 loan. Following that, she went to ASIC to have her name taken off ASIC’s records.

Rosa Fato also said that she did not consent to be a director of Calcorp. She also said that there was never an agreement that the money was to be borrowed so that she was to get a warehouse in return. As to the warehouse, she said that Mr Dattilo had said in 2005 or 2006 that he would give her “a warehouse to say thank you for being – doing so much for him when he came to Australia looking after him and everything”.

Exhibit 2 was the Bendigo Bank “Bendigo One Home Loan Facility Application” dated 2 June 2003. The first page, which did not have to be signed by the applicant, was the only page which contained the amount of the loan, namely $580,000. The next page contained the financial details of the four applicants. It showed a net worth of $194,000 and gave modest amounts for the monthly incomes of the daughters. That page was signed by all four applicants purportedly on 3 June 2003. There then followed four pages containing the details of each applicant. Each applicant had signed the page relating to her. The next three pages contained a declaration that the loan was for business or investment purposes, an undertaking that a mortgage would be executed over the offered security and a privacy agreement. Each of these pages was signed by each applicant.

There was, however, a basic problem with this exhibit. It was not the original pages, only photocopies. It was, therefore, not clear to me that the pages constituting the exhibit were in fact arranged together in this way in the original document. This was no pedantic quibble. For example, I pointed out during the hearing that in the top left hand corner of the first page there appeared the header: “R.EF:ALS:LP31:011:RFS03”, whilst the header on the next five pages was: “REF:ALS:LP10:003:RFS00” and there was no header at all on the remaining three pages. It was said that the original documents had been destroyed because they were more than seven years old.

The loan was advanced on 15 July 2003. The proceeds available from the loan amount, after deducting associated charges and fees, was $576,549.46. The sum of $45,000 was paid into the bank account of Dattilo Holdings on 15 July 2003 and the balance ($531,549.46) was paid into the trust account of a firm of solicitors, Soccio and Zito Pty Ltd. On 23 July and 6 August 2003, the sums of $10,000 and $211,622.01 respectively were paid into Dattilo Holdings’ bank account. On 17 July 2003, the sums of $152,463.34 and $139,393.05 were withdrawn from the trust account and used to settle the purchase by Dattilo Holdings of the two lots at Randor Street, Campbellfield from Reghon Pty Ltd.

On 8 August 2003, $200,000 was transferred out of Dattilo Holdings’ account into the joint account of the four borrowers. Between 25 August 2003 and 20 January 2004, a total of $169,000, in six transactions, was transferred from the four borrowers’ account into Dattilo Holdings’ account.

Rosa said that she understood that Antonio was making the repayments on the loan. Both Rosa and Lina said that they became concerned when the loan was not repaid. They said that they had constantly asked for the loan to be repaid. Rosa said that she asked Patricia, who simply said that it would be repaid as soon as her husband got some money from the olive oil business. Rosa said that Mrs Fato had a fit when Dattilo Holdings bought a Ferrari in March 2004 rather than paying off the loan.

As subsequent events may possibly have an impact on the resolution of the conflicting evidence about this loan, in particular on the critical issue of whether Rosa and Lina Fato were to be responsible for repayment of the loan, I will defer for the moment the task of reaching a conclusion on the critical issue.

The Perpetual Refinance

The Perpetual refinance was arranged by Nathan Cooper, an employee of AML. He said that the application forms would have been, as per their general practice, already completed by Maurice Fink, a partner in AML, when Mr Cooper brought them to the Fatos’ residence in Ruby Street to be signed. He said that all of the members of the family, including Rosa Fato and Lina Fato, were present when the AML documents were signed. He did not believe that the documents were signed before they were completed. He said that it was probably Mr Dattilo who approached him regarding the loan. He said that he would dispute any suggestion that Rosa Fato and Lina Fato were not aware, until 2008, of the loan of $744,000 over the Brunswick property.

Part of exhibit 1 was the AML application form. It was sent to Interstar Securities (Australia) Pty Ltd (“Interstar”) by facsimile dated 31 May 2004 signed by Maurice Fink of AML. Included in Part 1 of 2 was an Interstar Loan Summary signed by Mr Fink and dated 31 May 2004. The borrowers were Patrizia Fato, Angelina Fato, Rosa Fato and Lina Celestina Fato. The loan was for a total amount of $744,000. Of that amount, $590,000 was described as being “to refinance a property for investment purposes”, $139,500 was “to provide funds for future investment use” and $14,500 was for “other” purposes. The Brunswick property, with a stated valuation of $930,000, was to be the security for the loan.

I will not refer to the details of the next page, the “Interstar-Income Calculation Worksheet (GST)”, because there was no suggestion that it would have been seen by the borrowers.

Next, there were two pages (both page 1 of a nine page document) containing details of the applicants: Applicants 1 and 2 – Patrizia and Angelina, and Applicants 3 and 4 – Rosa and Lina. The occupations of Patrizia, Rosa and Lina were each stated to be “Director” and each was stated to be employed by Calcorp. Rosa and Lina were stated to have worked there for three years and Patricia for four years. The “gross annual income” was “$500,000” for Patrizia, “$275,000” for Rosa and “$320,000” for Lina. I do not accept that these figures were accurate. The same mobile telephone number was given for Patricia, Rosa and Lina. At the top of each page the figure of $744,000 appeared in the box “Loan Amount”. Neither of these pages was signed by an applicant.

The next page (page 2 of nine pages) was the “Personal Financial Statement” for all four applicants. There were no signatures on this page.

Each of the next two pages (both page 3 of nine pages) was signed by the two appropriate applicants and dated 20 May 2004. The form had provision for information about the proposed security property or properties. The page apparently signed by Patricia and Mrs Fato had a reference to the Brunswick property, with a note “Refer Attached Valuation”. The page apparently signed by Rosa and Lina merely said “See Other Page”. Lina agreed that it was her signature. Rosa said that the signature did not look like her signature. In cross-examination she said that it was faded and looked like “a cut and paste” to her.

Each of the next two pages (both page 4 of nine pages), the Loan Purpose Checklist, was again apparently signed by the two appropriate applicants and dated 20 May 2004. Each contained the breakup of the “Loan Amount Sought” and the total of $744,000. Lina agreed that it was her signature, but her printed name was not done by her. Rosa said that she was not sure whether it was her signature. In cross-examination she said it was faded. Mr Cooper said that he did not know whether these figures would have been there when Rosa and Lina signed, but he did not think they would have been filled in afterwards.

Each of the next two pages (both page 5 of nine pages) was again apparently signed by the two appropriate applicants and dated 20 May 2004. Each was a Declaration of Purpose and was headed:

To: Perpetual Trustees Victoria Ltd
(Credit Provider)

Re: Loan of $744,000 expiring on 15^th October 2033.

Lina agreed that it was her signature. Rosa said that her purported signature was very faint and not clear.

The next four pages (two sets of pages 6 and 7 of nine pages) were Privacy Act Consents, with the handwritten headings of “Applicants 1 + 2” and “Applicants 3 + 4”. Each Consent was apparently signed by the two appropriate applicants and dated 20 May 2004. Lina agreed that it was her signature. Rosa said the same.

There appears to have been no page 8. Each of the last two pages (both page 9 of nine pages) was a “Nomination Regarding Notices and Other Documents”. It had the same heading as that on page 5. Patricia was the person nominated. Each page was apparently signed by the two appropriate applicants and dated 20 May 2004. Lina agreed that it was her signature. Rosa said it was not her signature. In cross-examination she said it did not look like hers and again it was faded.

Then there were two pages headed “Latinum Declaration of Financial Position”. The page relating to Patricia and her mother stated that Patricia was a “Director” although the printed form said she was self-employed. Her net (pre tax) income was said to be $500,000. Similar statements appeared in the page relating to Rosa and Lina. Their occupation had been filled in as “Director” although the printed form described them as self-employed. Rosa’s net (pre tax) income was stated as $275,000 and Lina’s as $320,000. This page had the signatures of Rosa and Lina on it and it was dated 20 May 2004. Rosa said that it appeared to be her signature. But in cross-examination she said that it was faded and it did not look like her “F”.

The remaining pages of Part 1 of 2 of the AML application form were a rate notice for the Brunswick property and the transaction history of the Bendigo Bank loan which was to be paid out by the refinancing.

Part 2 of 2 of the AML application form contained a valuation of the Brunswick property and credit reports on each of the four applicants and Regione Calabria, Dattilo Holdings and Calcorp. Lina said that she had no knowledge of this valuation or of the credit reports on her. Rosa gave similar evidence.

Also part of exhibit 1 was a letter of offer to Patricia of the loan by First Title City West on behalf of Perpetual Trustees Victoria Ltd. This letter was dated 11 August 2004. Included with the letter was a “Borrowers Checklist” and a number of other documents. The Loan Agreement itself was missing from the exhibit, apart from pages 7 and 8 apparently containing the signatures of each of the borrowers. A Joe Merola had witnessed each signature. Lina agreed that it was her signature. So did Rosa. But in cross-examination she was not so sure. She said that it could be her signature. Rosa also said that she knew Joe Merola but did not recall signing anything in front of him. Next, there was an undated mortgage apparently signed by each of the mortgagors with Joe Merola again witnessing each signature. Lina agreed that it was her signature. In cross-examination Rosa said that it looked like her signature. Next, there was a “Borrower’s Acknowledgment” regarding not obtaining legal advice apparently signed by each borrower and dated 16 August 2004. Next, there was an “Applicant’s Financial Summary” apparently signed by each borrower and dated 16 August 2004. Lina said that her signature looked “weird”. Rosa said that it looked like her signature. In large type at the top of this document there appeared “Loan Amount: $730,000”. Next, there was a Direct Debit Request apparently signed by each borrower and dated 16 August 2004. Lina agreed that it was her signature. Rosa said that it looked like hers. It nominated Calcorp’s account as the one to which the monthly instalments were to be debited. Mr Dattilo pointed out that although it said Calcorp, the account number was actually that of the joint account in his and his wife’s name. Next, there was an undated Declaration of Purpose, with the same heading as the Declaration of Purpose referred to above, apparently signed by each borrower. Lina agreed that it was her signature. Rosa said that the signature was too faint to tell. Next, there was an undated and unsigned two page Direction and Authority. Next, there was a Request to Provide Payout Statement apparently signed by each borrower and dated 16 August 2004.[1] Lina agreed that it was her signature. So did Rosa. Next, there was a Discharge Notice apparently signed by each borrower and dated 16 August 2004. Rosa agreed that it was her signature. These last two documents were addressed to the Bendigo Bank. Next, there was an Application Form regarding access to StarCall and StarNet apparently signed by each borrower and dated 16 August 2004. Lina agreed that it was her signature. Rosa agreed that it was her signature. Finally, there was an undated statutory declaration made by Lina Fato before a pharmacist in North Balwyn to the effect that Lina Celestina Fato was the one and the same person as the Celestina Lina Fato as per the certificate of title for the Brunswick property. Lina said that she recalled going to the pharmacy but she did not know what the document was for.
[1]Another copy of the same document appeared after the Discharge Notice.

Another Direct Debit Request was tendered, which nominated an account in the name of Mr and Mrs Dattilo as the one to which the monthly instalments were to be debited. It was apparently signed by each of the borrowers but was undated. Mr Dattilo said that the use of the Dattilos’ account for direct debit was “by agreement”. Each borrower’s signature also apparently appeared on an AML Redraw Requests and Transfers form for the withdrawal of $100,000 into a nominated bank account, being Mr and Mrs Dattilo’s personal account.

Once again, the position with respect to this exhibit was unsatisfactory. The documents forming the exhibit were photocopies not originals. Some pages were missing. Where there was an issue about whether the signatures of Rosa and Lina were genuine, it was desirable, if not essential, to have the original documents tendered into evidence. However, once again it appears that the original documents had been destroyed.

I also note that Mr Joe Merola was not called to give evidence. It could be argued that his role as a witness to the alleged signatures of Rosa and Lina on the August 2004 documents was more important than Mr Cooper’s role with respect to the signing of the May 2004 documents. Counsel frankly conceded that he had not thought about the need to call Mr Merola.

Mrs Fato deposed in her affidavit that she was required to sign Perpetual loan documents, which were prepared by AML, to approve the increase in the loan amount to $730,000. However, in her evidence in chief Mrs Fato said she did not know about a second loan. She was “not really interested”. In cross-examination, she said that she knew nothing about the Perpetual loan taken out in September 2004. She spoke to no one from Perpetual or AML. But then she agreed that she was asked to sign the documents.

Mrs Dattilo said that she recalled Mr Cooper bringing the documents to the Ruby Street property for everyone to sign. Both Rosa and Lina discussed the loan documents with Mr Cooper. Mrs Dattilo also said that the refinance was to increase the amount of the loan as the business, which was doing well then, was growing and extra funds were needed. She assumed that the extra funds went into the business. Mrs Dattilo said that the understanding was that she, Rosa and Lina were ultimately to be responsible for the loan. But she said that the benefit to Rosa and Lina was that Dattilo Holdings would repay the loan. Mrs Dattilo suggested that her sisters were “automatic beneficiaries” of the Dattilo Family Trust but the trust deed was not tendered.

Mrs Dattilo said that at this time “Lina was looking at importing oil to distribute through the KFC stores”. The Dattilos were also starting up the Stefanel clothing line business and “Rosa was going to be more actively involved in that one”. Mrs Dattilo said that both she and Rosa had “more of an interest in fashion”.

Mrs Dattilo said that the figure of $500,000 for her income was correct. She said that they had a company in Italy from which she received distributions. When challenged about the accuracy of the figure she said that “if that’s what I put down that’s what it is”.

Mrs Dattilo said that the extra $125,000 went into their joint account and then was transferred to Dattilo Holdings “as per the agreement with my sisters”.

Mr Dattilo said that the refinance was made at the request of his wife, Rosa and Lina around April or May 2004. At that time the business was expanding as “there were some lines of vinegar” they wanted to import. He also said that “Lina was working on having some oil supplied to KFC in Sydney head office”. Mr Dattilo said that the subject of an increase in the borrowing came up “over coffee or dinner” and the sisters decided to have the property valued. He was present when Mr Cooper came to the Ruby Street property and he saw the four borrowers sign the documents. Mr Dattilo said that the documents were already completed before they were signed. He said that the surplus of over $100,000 from the refinance was “transferred into the business for the acquisition of our food products”. He accepted that the surplus was transferred into the joint account of himself and his wife before being transferred into the business in Calcorp and Dattilo Holdings.

Lina Fato said that she was not aware of this refinance until Rosa Fato told her about it in 2008. She said that she had nothing to do with the refinance of the Brunswick property or with it being valued at $930,000 as stated in the Interstar Loan Summary document. She said that there were a number of errors in the loan documentation such as that she was a director of Calcorp and that she was earning $320,000 a year. Her annual income was about $45,000 at that time. Lina said that if she had known that the documents she was signing related to a loan of $744,000, she would not have signed and neither would her mother or Rosa have signed. Lina said that she could not explain how her signature appeared on the documents when she did not know about the refinancing.

Lina said that she refinanced the loan on her two investment properties about two weeks before this alleged Perpetual refinance by borrowing the sums of $300,000 and $172,000. Her applications for the loans which were both signed by her and dated 23 August 2004 were forwarded by Mr Fink of AML to Interstar on 31 August 2004. Mr Cooper said that he believed he had been involved in this transaction. Some of the handwriting on the documents was his. The rest was Mr Fink’s handwriting. Page 1 of each application which were not signed by Lina gave her occupation as ”Director” and her employer as “Dattilo Family Trust”. Lina said it was not her handwriting on this page. Page 2 of each application contained details of the valuation of the Brunswick property and loan of $730,000 secured against that property. The handwriting was Mr Fink’s. It was not signed by Lina Fato. Pages 3, 4, 5 and 7 of each application which were signed by Lina disclosed nothing to alert her to the Perpetual refinance. The Latinum Declaration of Financial Position, which was signed by Lina and dated 23 August 2004, gave her occupation as “Director” and her net income (pre tax) as $320,000. Lina said that this page was not in her handwriting. This loan product required the applicants to be self-employed. Lina signed the documents before Mr Cooper. She said that much of it was blank at that time.

Lina said that it was possible that the refinance documents for the Brunswick property could have been between the loan documents for the refinance of her two investment properties when she signed them. She said that she could not have signed the Perpetual refinance documents on the Brunswick property separately. She said that the only time she met Mr Cooper was to do with her personal refinancing. She went into his office with Antonio to sign for her loan. She said that the statutory declaration could have been prepared for the purpose of refinance of her investment properties rather than in connection with the refinance of the Brunswick property. The loan documentation for her own refinance also included information about the refinance on the Brunswick property but Lina said that those were not in her handwriting. Lina said that Antonio suggested AML for her refinancing and he introduced her to Mr Cooper. Mr Dattilo said that it was not his idea that Lina refinanced her loan.

Rosa Fato said that she could not recall Mr Cooper coming to their house. But Mr Cooper was certain that he had met Rosa before. Rosa also said that her income was probably $30,000 and not $275,000, as she was working as a casual sales assistant and the income figure stated in the Perpetual loan documents did not reflect her actual income. She said that the nomination of her as a “Director” of Calcorp was incorrect. She said that the only loan document she remembered signing was for the Bendigo Bank loan. She did not recall signing any documents for AML.

Rosa Fato said that she only discovered that the loan was not $300,000 when she found a statement at the Brunswick property in 2008. When asked when in 2008 she found the statement, she said “I don’t know, in the middle of the year”. She said that she contacted Lina, who was then in Sydney, and Lina said that she would speak to Patricia and deal with it. Lina said that she spoke with Mrs Dattilo who said that Lina would “need to ask Antonio”. Rosa said that she was content to let Lina deal with it. But she also said that there were lots of arguments trying to get Mr Dattilo “to pay up the loan”.

After the settlement of the Perpetual refinance, Mr and Mrs Dattilo continued to make the mortgage repayments from their personal account and Dattilo Holdings then reimbursed them. This continued until September or October 2009 when, according to Mr Dattilo, Lina came to their house and disputed the calculation of Mrs Fato’s entitlement on any sale of the Brunswick property. He said that Lina also said that she would take over the mortgage repayments and then sell the house. As previously stated, Deborah Murray, made the repayments. Subsequently, Ms Murray was reimbursed the amount she had paid in respect of the loan, from the deposit money received on the sale of the Brunswick property in March 2010.

The question arising from all of this evidence is whether Rosa Fato and Lina Fato were aware of the Perpetual refinance. I accept that both Lina and Rosa Fato appeared genuinely bewildered as to how their signatures were apparently on many of the documents contained in exhibit 1 when they believed that they had not participated in any refinance and had not known that the debt exceeded $700,000 until sometime in 2008. Nevertheless, I consider that I must find on the balance of probabilities that they did knowingly participate in the refinance of the Bendigo Bank loan in 2004 and that they did sign the documents. Although the state of the evidence about the signatures is not satisfactory, it would be a very bold finding to conclude that the signatures were the result of some fabrication, such as cutting and pasting and then photocopying. Further, whilst I accept that both Lina and Rosa probably did not read the AML and the First Title City West documents carefully, I consider that it would be most unlikely that a person signing all of these documents would not have seen some reference to a Perpetual loan and the figure of $730,000. Moreover, it is hard to know what Lina and Rosa thought they were signing all these documents for, if not for some loan. Finally, there was the evidence of Mr Cooper. I accept that he took the Perpetual refinance loan documents to the Ruby Street property to be signed by Mrs Fato, Rosa Fato, Lina Fato and Mrs Dattilo. These documents were, according to him, probably completed before they were signed. Most of the clearly exaggerated and false information was in Mr Fink’s handwriting. I consider that Mr Fink would have been provided with this information by Mr Dattilo.

I reject the evidence of Lina Fato and Rosa Fato that each of them was not aware of the Perpetual refinance until 2008. It seems to me that in the stress and emotional circumstances of this dispute, Lina and Rosa have convinced themselves that they had no knowledge of, and did not participate in, the refinancing.

In particular, I reject Lina Fato’s explanation that she might have signed the Perpetual refinance documents mistakenly because they were in between the loan documents for the refinance of her two investment properties. The Perpetual loan documents were dated 20 May 2004, and were apparently sent off on 31 May 2004, whereas the date on the loan documents for her own refinance was 23 August 2004. She agreed that that date was written by her. It is, therefore, improbable that the AML loan documents for the Perpetual refinance of the Brunswick property and those for the refinance of her own investment properties were signed on the same occasion. I also reject her suggestion that the statutory declaration, which she accepted she had signed, related to her investment properties and not the Brunswick property. The wording of the statutory declaration made it clear that this suggestion could not be correct.

Further, if Rosa Fato’s evidence that she only found out that the loan had been increased in the refinance with Perpetual “in the middle of 2008” were accepted, I find it difficult to believe that she would still sign loan documents on behalf of R.E.D. Corporation in October 2008 to assist Mr Dattilo with his purchase of the Essex Road property. Even if she said that she was only helping out Mr Dattilo so that he did not lose his deposit, given the serious nature of her discovery about the secret refinancing, there must have been some apprehension on her part about offering any further assistance to Mr Dattilo. On the other hand, if Rosa had gone along with the refinancing she would be more likely to agree once more to assist Mr Dattilo, even if she was concerned about the delay in repaying the loan secured by the Brunswick property.

I also find that Lina and Rosa became aware that the Bendigo Bank loan had been for $580,000 and not $300,000 at this time, if not earlier. I consider that, despite their concerns, Lina and Rosa were prepared to go along with the refinancing because their brother-in-law said he needed the extra funds. He was apparently running a very successful business which had enabled him to purchase a large home, in which Rosa and her mother, and for a time, Lina lived. They were all part of the one family and Lina and Rosa trusted him.

It is important to note, however, that whatever may have been the situation with respect to Lina’s and Rosa’s knowledge of the refinancing, there was no suggestion by anyone that the refinancing altered in any way the original agreement about who was liable to repay the loan from Bendigo Bank, which I have said previously, is really the critical issue in this case.

Other Relevant Topics

Before returning to the task of reaching a conclusion on the critical issue, I will consider eleven other topis which may throw light on the critical issue or have some influence on findings on credit.

First, there were a number of letters purportedly signed by Rosa or Lina on which the plaintiff relied. In a letter dated 18 June 2004 on Calcorp letterhead, and sent from Rosa Fato to Gidagri in Italy, it was stated as follows:

Dear Francesco,
I’ve spoken with Lina and Antonio and we confirm that in relation to the supply of palm oil for the KFC stores, it is satisfactory to have supply of this oil in a liquid form rather than a solid form. All that is left to decide now is whether we need supply in the 5 litre tin or in the 18 litre tin which we shall confirm with you at a later date.
Furthermore, for your information, we are in the process of organising a new bank facility to enable us to continue to develop our line of imported foods, and guarantee continuous supply to our customers. As previously discussed, our current bank’s facility (Bendigo Bank) of $580,000.00 is not meeting our business requirements and consequently we are applying for a new one with another bank that should double this.

Rosa Fato’s signature appeared on this fax as a “Director”. Copies were said to have been sent to Lina and Antonio Dattilo. Gidagri was a company owned by Mr Dattilo’s parents. Francesco was his father. Someone from Gidagri purportedly replied to Antonio by a facsimile dated 23 June 2004.

Rosa said that she knew “nothing” about this document. She said that she did not write it. She agreed that it looked like her signature on the document, but she did not recall signing it. She said that she did not recall seeing the word “Director” on the letter. Rosa said that she did not have any conversation with Lina and Antonio about the supply of oil to KFC and all she knew was that he was interested in supplying oil to KFC. She said that she knew nothing about this topic. She was working as a sales assistant with Brown Sugar at this time.

Mr Dattilo said that he did not type this letter. He also said that the idea of supplying oil to KFC was Lina’s. He said that Lina used to be a friend of someone at KFC.

Then, there was a facsimile from Lina to “Rose [sic] & Patricia” dated 27 July 2004. This facsimile, which was on Calcorp letterhead and had “Refinancing Perpetual Trustee” as its subject, read as follows:

I tried to call but there was no answer. Bendigo Bank called me regarding Brunswick loan because it’s in arrears and I have already told them that we are in the process of re-financing.
Can you get in contact with Nathan and ask him to hurry up with the re-financing with AML. I spoke to Antonio and Nathan told him he can’t do the Letter of Credit until after the re-financing. He can only get up to $750,000 over Brunswick, so I might have to re-finance my properties and get extra money from there for the oil overseas.
Also Antonio is lending me $35,000 next week to pay Dattilo Holdings so we can start moving with the vinegar line.

Lina Fato’s signature appeared on this facsimile. Mrs Dattilo said that she thought she had seen this facsimile before. Mr Dattilo said that he did not type the document.

Lina Fato said that she did not type this document. She said that, although the signature looked like her signature, she knew that she did not sign it and that the document was fabricated. She said that she never knew that the loan over Brunswick was ever in arrears. That is, she denied receiving a call from Bendigo Bank. She said that she did not know what a Letter of Credit was.

A further letter dated 30 November 2004, from Rosa Fato to Gidagri, on Calcorp letterhead, read as follows:

UPDATE
Dear Francesco,
As Antonio has explained to you, the re-financing has finally gone through with Perpetual Trustees for $730,000.00, however, after paying the Bendigo loan, there is not much left over. … Lina has re-financed her properties as well and has paid $100,000.00 to Dattilo Holdings for the work done so far.
A friend from Commonwealth Bank suggested that we use Documentary Collection rather than Letter of Credit. Can you check with your bank if this can be a possibility.
Also, Lina has told us that Heather from KFC Head Office is coming to see us over the coming holidays to discuss the oil for KFC.
As we are planning to come to Italy in February for our Stefanel business, we can discuss together in more detail all of the above face to face.

Rosa’s signature appeared above the words “Rosa Fato Director”. Someone from Gidagri purportedly replied to Antonio and Rosa by a facsimile dated 7 December 2004.

Rosa said that she did not type this letter. She also said that she did not know anything about Documentary Collection or a Letter of Credit. She also said that she had only met Heather from KFC once when she came down to the Rosebud home. She said that she only knew, from Lina, that Heather only did orders for serviettes and straws but had nothing to do with buying oil.

Mr Dattilo said that he discussed the contents of this letter with his wife, Rosa and Lina. He said that he met Heather when she came to Melbourne. He said that Heather brought with her a block of solid oil that they used to have in store at KFC. But he said that he did not have any involvement directly with Heather as Lina was taking care of that contact.

I have grave suspicions about the authenticity of these letters or facsimiles. I seriously doubt whether Rosa would have written either of the two letters said to have been signed by her. The language used in the letters was not the sort of language that I would have expected Rosa to use. Secondly, I doubt that anyone in business would have written these letters, including as it did private financial information not relevant to the point of the communication. I also have serious doubt about the facsimile said to have been signed by Lina. It seems to me that it was most unlikely that Bendigo Bank would have been telephoning Lina in Sydney to advise that the loan was in arrears.

Perhaps the most telling criticism is that these three communications very conveniently showed, if they are genuine, that in 2004 Rosa and Lina knew the Bendigo Bank loan was $580,000 not $300,000, that they knew about the refinancing with Perpetual for $730,000, that they were both involved in Calcorp’s plans for importing oil to sell to KFC and that Lina’s loan of $100,000 was to Dattilo Holdings and not Mr Dattilo personally. In my opinion, the inclusion of this information in the communications is forced and not the way people would normally communicate. I accept the evidence of Rosa and Lina that they did not sign these three documents and that they knew nothing about them.

The second topic is the authenticity of two tax invoices issued by Dattilo Holdings. By a tax invoice dated 18 June 2004, Dattilo Holdings purportedly sold to Linfa & Co a warehouse, unit 1, for the price of $235,000 plus GST. By another tax invoice dated 18 June 2004, Dattilo Holdings purportedly sold to R.E.D. Corporation a warehouse, unit 2, for the same price. Rosa and Lina Fato said that they had never seen these documents before this proceeding.

When asked why there was a price of $235,000 for each unit when Rosa and Lina were each to receive a unit in return for their investment in the business, Mr Dattilo said that the price was the value of the property at that time and that the accountant or solicitor had advised that the transfer should be done in accordance with “a proper contract of sale”. He said that his copies of these contracts were left at the Brunswick property and thrown out by Lina. Mr Dattilo agreed that he prepared these invoices. He said that they were prepared around the time the invoices were issued and denied that they were prepared recently. He said the contracts of sale were drawn up when the subdivision was done, but no transfers took place before the receivers were appointed.

On 9 August 2004, Mr Joe Merola of City Link Real Estate Agency Pty Ltd provided an appraisal to Dattilo Holdings of the units to be developed at Campbellfield. This document was obviously dated after the tax invoices. Mr Merola advised that it was anticipated that the four smaller units, 1 to 4, would sell for between $240,000 to $250,000 and that the three larger units, 5 to 7, would sell for between $340,000 to $350,000. Mr Dattilo said that he discussed these appraisals with his wife and Rosa and Lina. Rosa denied that she had been shown the document before. She pointed out that Mr Merola was a friend of Antonio.

Lina Fato said that in November 2004, she lent $100,000 to Mr Dattilo at his request and she made the loan by way of two bank transfers. It was for his business. She said that it was lent to him personally, but it was subsequently found by the Magistrates’ Court in a proceeding brought by Lina for the outstanding balance of $70,000 that the loan was made to Dattilo Holdings. Lina said that in 2005 Mr Dattilo offered a warehouse from the Campbellfield development as security for this loan and that she signed a contract for that offer although it subsequently lapsed. She said that she never received a copy of the contract from Mr Dattilo. Lina said that Mr Dattilo said that the warehouse could go into her family trust. But Mr Dattilo said that the warehouse was offered much earlier and it was never offered as security for the $100,000 loan from Lina Fato. He said that Lina put the $100,000 into the business.

I consider that the two tax invoices for the sale of the warehouses to be highly suspicious documents. Mr Dattilo’s evidence did not persuade me that these documents were genuine. They strike me as a belated attempt by him to produce evidence in support of his claim that Lina and Rosa were to receive a warehouse each in return for investing their share of the borrowings in the business.

The third topic is the two powers of attorney both dated 24 March 2005, in Italian, under which Rosa Fato and Lina Fato had each appointed Angelina Gigliotto, Antonio’s mother, as her attorney. Rosa and Lina Fato’s signatures appeared on the respective powers of attorney which were both apparently signed in Victoria before a Notary Public. Lina said she had never met the man who, according to the document, witnessed her signature.

Lina Fato denied ever giving Mr Dattilo’s mother a power of attorney as there was no reason to do so, especially to someone older than her. She said that it was a forgery. She said that she did not speak or read Italian. She was not involved in any business with Antonio or his mother. Rosa said that she did not recall signing the power of attorney. She did not read Italian. She agreed that it looked like her signature.

Mr Dattilo said that he saw the power of attorney from Rosa and Lina after they had signed them. He said that the reason for the power of attorney was because his family in Italy was expanding the bottling plant business in Italy and Lina wanted to move to Italy with another person with whom she was then in a relationship, to gain experience “in the business, in the bottling things”. Rosa simply followed Lina.

This is a more difficult issue. On the one hand, I would need convincing evidence to conclude that a document bearing a notary public’s seal was a forgery. On the other hand, I did not hear evidence from the notary about the signing of the two powers. Further, I found the denial by Lina and Rosa that there was no reason for them to be signing powers of attorney in Italian persuasive. In the end, however, I consider that this particular piece of evidence does not assist in reaching a conclusion on the critical issue.

Fourthly, there was the Stefanel clothing line business. Stefanel was an Italian company wanting to open shops in Australia. Stefanel (Retail) Pty Ltd was incorporated on 31 May 2005. Both Mr and Mrs Dattilo were appointed directors. The company went into liquidation on 6 June 2007. At that time, Dattilo Holdings owned 18 shares and R.E.D. Corporation two shares. The Dattilos said that, accordingly, Rosa owned 10% of the company.

Stefanel Pty Ltd (“Stefanel”) was incorporated on 7 June 2007. Mr Dattilo was the sole director from then until 13 March 2010 and again from 12 September 2011. Mrs Dattilo was the sole director in the intervening period. Dattilo Holdings was the sole shareholder until 2 March 2011 when R.E.D. Corporation became the sole shareholder. Nineteen days later, another of Mr Dattilo’s companies, Madge Enterprises Pty Ltd, became the sole shareholder. A liquidator was appointed to Stefanel on 23 July 2012.

Mrs Dattilo said that two stores were set up in Melbourne, but the venture stopped in 2008. Mr Dattilo said that Rosa and Lina were interested in being involved in this line of business, Rosa at the store level given her background in retail and Lina at the warehousing or distribution level based on her KFC management experience. He said that his wife, Rosa and Lina were involved in the management of the Stefanel business, and he was involved at the importation level. Rosa said that a couple of times she was asked to work in the stores on her days off. She said that she went with Mr and Mrs Dattilo to Italy in April or May 2005, but said that she was there to look after their 18 month old son, Ethan, and she was not involved in any of the business dealings there with respect to Stefanel.

Although this is an example of how Mr Dattilo used incorporations, changing directorships and changing shareholdings to further his interests, I do not consider that the limited evidence on this topic assists me to resolve the critical issue.

The fifth topic is the involvement of Rosa Fato and R.E.D. Corporation in the purchase of the Essex Road property for $2.5 million in October 2008. According to the loan documentation for the purchase of this property, Rosa Fato and Calcorp were the guarantors of the loan of $1,410,000. Rosa agreed that she signed the loan documents on behalf of R.E.D. Corporation, but not the guarantee. She said that she was not aware how much she was signing for. It is unclear what the true position was because no signed documents were tendered. Rosa said that she signed the documents to assist Mr Dattilo because he had put up a $200,000 deposit for the purchase of the property and he did not want to lose the deposit. She said that the loan was to be only for one month. Rosa said that Patricia had asked her to sign the loan documents and be quiet and not ask any questions of the bank manager and she did so because she trusted her sister. It does seem extraordinary that Rosa participated in an arrangement allowing her brother-in-law to borrow $1.41 million when, according to her, he was delaying repaying about $740,000 borrowed on the security of the Brunswick property. Perhaps the only thing that this episode shows is just how gullible and easily persuaded Rosa was.

The evidence about R.E.D. Corporation is also a good illustration of how Mr Dattilo manipulated his sisters-in-law. Rosa was a director of this company from the date of its incorporation on 26 November 2003 until 7 July 2010 and the sole shareholder between 7 December 2005 and 2 August 2010. Mr Dattilo was a director and the sole shareholder between 26 November 2003 and 5 December 2005. He was re-appointed a director on 19 November 2009 and again became the sole shareholder on 2 August 2010.

Rosa said that the company:

was meant – was mine to start off with in [sic] first, when it first opened up, and then I think Antonio took over and then he gave it back, and then he took it over and then he gave it back, something like …

Rosa said that she chose the name of the company, the three initials standing for her, her nephew and her niece. She said that Antonio:
did all the paperwork for me to register it. I think he registered under my name. I’m not even sure …

Rosa also said that originally she thought she was the only director but then she found out that “Antonio had his name on it too”. She said that she did not know that originally he owned all the shares in the company. She said that she did not know anything about “opening up” companies:
I left it up to him. I don’t know anything. Like, he said I’ll open up a company for you. I said OK. But how you open up a company or how it worked at that time I do not have any idea.

Rosa said that her family trust was established, at Mr Dattilo’s suggestion “to do things with it like investment”. She said that he did it for her. At that stage she did not know what a family trust was. Rosa denied that setting up R.E.D. Corporation and the family trust was part of going into business with Antonio in one of his ventures. She said that she thought that:

it was just for me to do my own thing one day.

Sixthly, as previously noted, there was a contract dated 20 November 2008 for the sale of the Brunswick property to Dattilo Holdings Group for $1,930,000. Mr Dattilo said that in October or November 2008, it was agreed that Dattilo Holdings Group was to purchase the Brunswick property. He said that a valuation was done on the property and it was worth $1.130 million. He then developed the plan to allow the block to be redeveloped, and it was agreed that the increase in value would be 25% of the purchase price and he would be given a credit for that amount, namely $482,500 and it would be treated as a deposit.

Mrs Dattilo said that it was agreed in early 2008 that Dattilo Holdings Group was going to purchase the Brunswick property. But she said that when the contract was ready to be signed, both Rosa Fato and Lina Fato, for reasons unknown to her, were reluctant to sign. There was a meeting in March 2009 but it did not resolve anything. She said that she could not understand what their problem was. Mrs Dattilo said that Dattilo Holdings Group only started making the payments on the Perpetual loan on the basis that it was going to buy the Brunswick property.

Lina Fato said that she had not seen this contract until this proceeding. She also said that she only heard about Mr Dattilo’s claim to 25% of the purchase price in the hearing. She said that she only asked Mr Dattilo to pay off the loan and there was no discussion about selling the Brunswick property to him.

Rosa Fato said that she knew nothing about the arrangement to sell the Brunswick property to Dattilo Holdings Group for the price of $1,930,000. She only knew that Mr Dattilo was asking for a percentage of the price because he had obtained plans and permits on the property. She had not seen the contract before.

Again, I do not consider that this dispute assists me to resolve the critical issue.

The seventh topic is the meeting on 14 October 2009 between Mr and Mrs Dattilo, Mrs Fato and Lina Fato at the Essex Road property. Rosa was not present. Lina Fato said that she was hassled to come from Sydney and speak with Mr Dattilo and hear his side of the story about him paying back the loan.

Exhibit 17 was two large pages of handwriting and pie charts produced during the meeting. Mrs Dattilo agreed that she wrote most of the document. She said one pie chart was done by Lina. Part of the document stated the following:

$660,000 Brunswick

$120,000 Rosebud

$780,000

Total

Elsewhere, the following was written:
Bank
1.        Payout Challenger     →       loan off
2.        Finance the construct - progress payment
3.        Antonio pays mum, Lina, Rose [sic] upon completion.
Marcocci
1.        Payout Challenger
2.        Finance the construction
3.        Pay mum, Lina & Rose [sic]
then start construction.

“Challenger” was the refinancing I have referred to as the Perpetual loan.

There were also a number of pie charts on the document with various figures against each of the registered proprietors and others. It was not easy to follow or understand what the pie charts represented. This was particularly the case with the largest pie chart which was most confusing.

Lina Fato said that the reference to $660,000 on the Brunswick property was a reference to Mr Dattilo wanting to acquire the property for that amount. She said that the reference to $120,000 was the amount Mr Dattilo owed Mrs Fato from when Mrs Fato had sold her Rosebud property to him years earlier. She also said that the reference to “payout Challenger” was a reference to two options or ways for Mr Dattilo to pay out the Perpetual loan. She said that in both scenarios Mr Dattilo was to pay out the Perpetual loan and then raise the money for the construction through a bank or Mr Marcocci and that would then leave the Brunswick property unencumbered.

Lina said that Mr Dattilo did not say much during this discussion.

Mrs Dattilo said that what she was aiming to do was to come up with various proposals. She denied that the reference to the $120,000 for Rosebud was the amount her mother was to be paid for a property she once owned there. Mrs Dattilo said that her mother “transferred it into Dattilo Holdings” without any payment and she “was going to have use of the property just like it was hers”. Mrs Dattilo said that she put down the amount of $120,000 in an attempt to resolve the dispute.

Mrs Dattilo denied that the figure of $660,000 was what she and her husband were saying the Brunswick property was worth. She said that the calculation leading to that figure had something to do with “the plan”. Mr Dattilo gave evidence that the reason why Mrs Fato was not being offered more was because the Perpetual loan had to be repaid and the sisters’ half share of the property was not enough to pay the mortgage. The proposed payment of $660,000 was about $50,000 or $60,000 short of half of the price put on the property before taking account of the increased value resulting from the development plans. He said that Mrs Fato was prepared to contribute that amount because she was still living with the Dattilos.

I consider that exhibit 17 is a very important document, despite a lot of it being very confusing. In my opinion, the two options or ways forward listed under the headings of “Bank” and “Marcocci” indicate, as Lina stated, that the proposal was that Mr Dattilo would pay out the Perpetual or Challenger loan. That is, both options contemplated that he would pay out the loan and then at some later date, depending on which option was chosen, he would pay Mrs Fato, Lina and Rosa their respective shares of the purchase price. If, as the Dattilos now maintain, Lina and Rosa were liable for one third of the loan, then on the figures being thrown around at the meeting, they would not have been entitled to any share of the purchase price. Therefore, I find that the two options or ways forward, which were written by Mrs Dattilo, support the case made by her sisters.

Eighthly, by an email dated 27 November 2009, Mrs Dattilo wrote to her solicitor about the draft document allegedly setting out the history of the dispute, which was subsequently prepared and dated 2 December 2009. In her email, Mrs Dattilo stated:

I also would like you to make them aware that the debt owing on Brunswick will be MY responsibility to repay, not Antonio …

The defendants submitted that this statement and a similar statement by Mrs Dattilo recorded in the transcript of the hearing at VCAT supported their case. I do not agree. In my opinion, what Mrs Dattilo was saying was that she, not her husband, was responsible to pay her share of the loan. This was consistent with her mother’s claim in this proceeding.

The ninth topic is the instruction by Rosa to her solicitor on 5 July 2010 to pay $89,706.09 to G-Star Group. Rosa said that she signed this document “under duress” because Mr Dattilo would not let her leave to go home unless she signed it. She said that she rang Lina to tell her that Mr Dattilo had made her sign the document, but agreed she did not report the matter to the police. The solicitor was subsequently told not to pay the amount to G-Star Group.

Mr Dattilo agreed that he prepared the letter after Rosa had agreed to sign it. He said that this amount represented the repayments made for the period from 1 July 2008, when an agreement was reached on the purchasing of the Brunswick property, until the date Lina took over the mortgage repayments, which was about October 2009. He said that G-Star was not owed that money, but that it was his direction that the amount be paid to that entity as he needed the money in that account. This amount was never paid to G-Star. Mr Dattilo said that Rosa agreed that he should be reimbursed for his repayments just as Ms Murray had been. He denied that he pressured Rosa to sign.

Whilst this document has only marginal relevance to the determination of the critical issue, it is in my opinion a good illustration of the ability of Mr Dattilo to persuade others, particularly Rosa Fato, to do as he asked. I accept Rosa’s evidence about this episode.

The tenth topic is Mr Dattilo’s conduct in lodging the caveats on the Brunswick property after it had been sold and prior to settlement. Counsel for the defendants submitted that it was a “crucifying” piece of evidence about Mr Dattilo’s character. As he submitted, the three caveats purported to be pursuant to charges created with the agreement of all the registered proprietors. But the fact was that neither Rosa Fato nor Lina Fato granted a charge. Mr Dattilo said that he never meant to claim that the first three charges were signed by his sisters-in-law. I do not accept Mr Dattilo’s denial. He said that they were only signed by his wife and his mother-in-law. He also said that he could not remember which registered proprietor signed the last charge. No such charges were ever produced. Presumably, the alleged agreement in writing dated 5 July 2010 was a reference to Rosa’s instruction to her solicitor dated the same day, but not even that document could be described as a charge. Mr Dattilo’s explanation for commencing the legal proceeding against Rosa and Lina Fato was even more revealing. He said that they had sought to have the caveats removed and that the proceeding was commenced “as a consequence of their actions”. He said that it was his “only legal choice at the time”. The tactic of falsely claiming a caveatable interest in order to strengthen a party’s hand in negotiations is all too common and is rightly to be deplored.[2] I agree with the submission that this episode was very damaging to Mr Dattilo’s credit.
[2]Goldstraw v Goldstraw [2002] VSC 491, [39] (Dodds-Streeton J); Li v Xin [2013} VSC 107, [368] (Habersberger J).

The final topic is the two joint and several loans involving Mrs Fato. In my opinion, they reflect badly on the Dattilos. Mrs Fato said that she knew nothing about the companies, Bluepies and Lou Nominees. She said that she did not need anybody to “give” her money because she had her pension. She denied borrowing money from ether of these companies. Later she said that when she received some money from the sale of the Brunswick property that she “paid their debts” including the debts of Antonio. In re-examination she agreed that she had received loans from the two companies. She said that Mr Marcocci of Lou Nominees “helped me very much”.

Mrs Dattilo said that the Bluepies loan was entered into because her mother and she needed some money. When asked what Mrs Fato needed some money for, Mrs Dattilo referred to “court expenses” and the VCAT application. When asked what the money borrowed from Lou Nominees was used for, Mrs Dattilo replied that “we were inundated with all these disputes that were going on and just general things”.

I consider that these loans were cynical exploitations by the Dattilos of Mrs Fato’s dependence on them. If Mrs Fato truly needed money then she was obviously entitled to borrow it and give the lender a charge over her interest in the Brunswick property. But what was not explained nor justified was why Mrs Fato borrowed money in one instance jointly and severally with Mrs Dattilo and in the second instance jointly and severally with Mr and Mrs Dattilo, G-Star Group and R.E.D. Corporation. No evidence was tendered as to what amounts Mrs Fato received from these loans. For all I know it may have been a very small amount. Yet she was led into signing agreements making her jointly and severally liable for the full amounts lent, to her great detriment.

The Agreement re the Bendigo Bank Loan Revisited

I return, then, to the question of what was agreed about the Bendigo Bank loan in 2003. Three issues arise – how much was agreed to be borrowed, when was the loan to be repaid and who was responsible for repayment of the loan?

On the balance of probabilities I find that the agreement was that the sum of $300,000 would be borrowed by the registered proprietors. That is, I accept the evidence of Lina Fato and Rosa Fato on this point. I am by no means satisfied that exhibit 2 was signed in the form in which it was tendered. I have already indicated my concerns in that regard. But even if it was, the figure of $580,000 only appears on the first page which was not signed by any of the borrowers. It would have been very easy for Lina or Rosa, or for that matter Mrs Fato, to have overlooked that figure as they turned, or were taken, to the page which each of them had to sign.

Further, given Mrs Fato’s five references in her affidavit to the amount of $300,000 and to Mrs Dattilo’s confirmation in her affidavit that her mother’s affidavit was accurate and that she agreed with it, and given the evidence of Lina and Rosa, it is difficult to reach any other conclusion. No satisfactory explanation was given as to how Mrs Fato and Mrs Dattilo could have made such a mistake if the amount to be borrowed had been discussed as being $580,000 rather than $300,000.

I accept that there were contradictions between the evidence of Lina and Rosa about the circumstances of the signing of the Bendigo Bank loan, and that I have made other criticism of their evidence, but on this particular point each of them was firm and believable.

Given my finding that Lina and Rosa were aware of the Perpetual refinance in 2004 for the sum of $774,000, it must also follow that it is likely that they became aware at that time that the amount of the Bendigo Bank loan was $580,000. This is because, if they were aware that the Perpetual loan was for the sum of $774,000, they surely would have queried what amount was outstanding on the earlier loan and how much more was being borrowed and for what purpose.

I note that, in any event, the amount borrowed is not the critical issue. I could have found that Lina and Rosa both knew from the start that the amount of the loan was $580,000 and still find in their favour concerning who was responsible for repayment.

The next issue is what was agreed concerning when the loan was to be repaid. The relationship between Mr Dattilo and his wife’s family is important in this regard. Mr Dattilo had obviously been very successful in business, even though he appears to have been spending money as fast as he made it. He was the only male member of the family, once the split with Mrs Fato’s sons occurred. He understood, and was skilled at, running a business. As the defendants’ counsel put it, Mr Dattilo was “the driving force”. By way of contrast, Lina and Rosa, and Mrs Fato, lacked “business acumen”. Not only was Mr Dattilo’s wife loyal to him, so were the other members of her family. They helped each other out and they trusted each other.

Given this background, it is hardly surprising, in my opinion, that considerable uncertainty surrounds the time for repayment. I believe three, six and twelve months could all have been mentioned. Lina and Rosa would have been told that there was nothing to worry about because the loan would be repaid all in good time, depending on how the business was going. In the circumstances, I am not satisfied that any fixed time for repayment was agreed.

Finally, I come to the critical issue. A number of points should be noted First, I consider that I cannot give any weight to Mrs Fato’s evidence. It is clear that the real discussions between the sisters was in English and that Mrs Fato would not therefore have understood them. Mrs Fato was obviously not keen to borrow against the previously unencumbered Brunswick property. When that idea was floated, regardless of what the arrangement was, it is unsurprising that her three daughters would seek to reassure her that everything would be fine in order to assuage her concerns. Even though Mrs Fato was adamant that it was her daughters who were borrowing the money for their own purposes, it is significant that she mentioned Antonio as one of the persons taking the loan and “the company” as being the recipient of the borrowed money.

Secondly, Mrs Dattilo’s evidence about the terms of the 2003 agreement was very confused. At one stage, according to her, Rosa and Lina were to receive a warehouse each in return for the borrowing from Bendigo Bank. Later, she said that her sisters were “going to buy the two warehouses”. Sometimes, Mrs Dattilo said that the loan was entered into so that Rosa and Lina could invest in the business. At other times, she said that the investment and the warehouses were all part of the same agreement. Another area of confusion was whether Rosa and Lina were investing in Dattilo Holdings or Calcorp or both. Sometimes Mrs Dattilo said that it was agreed that Dattilo Holdings would repay the loan, sometimes it was Calcorp’s responsibility.

Thirdly, the evidence concerning the actual use of the borrowed funds and the proposed benefits purportedly received by Lina and Rosa was also confusing. The two amounts used to settle the purchase of the Campbellfield land totalled $291,856.39. In addition, Dattilo Holdings received at least another $235,622.01 ($45,000 plus $10,000 plus $211,622.01 less $200,000 plus $169,000). Thus, Dattilo Holdings received a total of at least $527,478.40 from the net proceeds of the loan of $576,549.46 ($45,000 and $531,549.46). It is difficult to see how these funds were used to start Calcorp’s new business for Lina and Rosa, as claimed by Mr Dattilo.

Just what Lina and Rosa were to receive, apart from the warehouses, for allegedly investing over $235,000 in Dattilo Holdings was not clear. Neither of them was paid for the work they did in “helping out” in the business and they received no distributions from Dattilo Holdings as trustee of the Dattilo Family Trust. Mr Dattilo said that no distributions had ever been made. That was true for the financial year ended 30 June 2004 because the Family Trust made a loss that year. But in the following year, the following distributions were made - $9,000 to Mr Dattilo, $700 to his son, Ethan, and $21,769 to Regione Calabria. Further, Lina was never a shareholder in Calcorp and Rosa was only a 50% shareholder between 6 April 2005 and 18 July 2008. Why they were not the shareholders from the time of the company’s incorporation in January 2003 or shortly thereafter was never explained.

As far as the warehouses are concerned, I found Mr Dattilo’s evidence to be most unconvincing. I accept Lina’s and Rosa’s evidence that there was no mention of them receiving a warehouse each at the time the Bendigo Bank loan was entered into.

I also accept their evidence that the principal cause for the Bendigo Bank loan was Mr Dattilo’s urgent need to fund the balance of the purchase price of the Campbellfield land. I reject Mr Dattilo’s evidence that the Dattilo Family Trust was able to settle the purchase of the Campbellfield land without the need to raise finance by using the Brunswick property as security. The financial statements of the trust for the 2004 financial year showed a deficiency in trust funds of $77,434 following a loss in that financial year of $77,454. Mr Dattilo’s evidence that his company did not need to raise the extra funds from his family members but could easily have borrowed it was based on the doubtful assertion that the company had fixed assets of over $2.5 million and over $1.5 million in stock. The balance sheet as at 30 June 2004 recorded total assets of $2.43 million, including stock on hand of $120,554. But in addition the company had liabilities of over $2.5 million, which Mr Dattilo simply overlooked when asserting that he had no need to borrow from family members.

Fourthly, it is significant, in my opinion, that the Dattilos accepted responsibility for making the repayments on the Bendigo Bank loan, either personally, or through one or other of their companies. This supported the evidence of Lina and Rosa Fato that they were not responsible for the loans as between the family members. Obviously, Bendigo Bank would look to all four borrowers for repayment. If the Dattilos were responsible for repaying the loan, then regardless of whether there was a twelve month time limit or not, eventually Lina and Rosa would find that their one sixth interest in the Brunswick property was no longer encumbered. The same went for Mrs Fato’s half interest in the property.

Therefore, for all of the foregoing reasons, I find that Rosa Fato and Lina Fato agreed to help out their sister’s husband by using the Brunswick property as security to raise funds on the basis that Mr Dattilo would ultimately be responsible for repayment, so that the Brunswick property would become unencumbered again. No distinction was drawn between Mrs Fato, on the one hand, and Rosa Fato and Lina Fato, on the other hand. Furthermore, there was no agreement that the funds were borrowed by Lina and Rosa in return for a warehouse or for being financially involved in Mr and Mrs Dattilo’s business. As neither Lina nor Rosa have benefitted personally from the loan, I consider that they are in the same position as Mrs Fato when it comes to entitlement to share in the net proceeds of the sale of the Brunswick property, except that Mrs Fato’s interest is three times greater than that of either Lina or Rosa.

The Payments from the Funds in Court

It was common ground between the parties that from the gross proceeds of sale of the Brunswick property, after adjustments, of $2,019,879.42 there had to be deducted the costs of selling the property. They were agreed to total $35,715.13, including the costs of two firms of solicitors acting for the vendors. They were $1,755.60 and $1,100.00 respectively. This meant that the net proceeds of sale came to the figure of $1,984,164.29. Had it not been for the loans from Bendigo Bank and then Perpetual secured over the Brunswick property, Mrs Fato would therefore have received half of the net proceeds or $992,082.14 and Rosa, Lina and Patricia would each have received one-sixth or $330,694.05.

However, the loans were secured over the Brunswick property and the person responsible for repaying those loans, Antonio Dattilo, did not do so after March 2010. It is therefore necessary, in my opinion, to deduct from the figure of $1,984,164.29, all of the monies paid to Perpetual from the net proceeds and the $27,320.71 paid by Ms Murray to Perpetual and reimbursed to her from the net proceeds. These payments total $884,116.63, which leaves a balance of $1,100,047.66. With Patricia’s one sixth share eliminated or waived, this amount of $1,100,047.66 should have been distributed as to 60%, or $660,028.60, to Mrs Fato and as to 20%, or $220,009.53, to each of Rosa and Lina.

However, instead of the funds being distributed in this way, further deductions were made from the net proceeds. The amount of $62,000.00 was paid to Bluepies and the amount of $169,600.80 to Lou Nominees to discharge their respective caveats. In my opinion, these two payments must be treated, for these purposes, as payments to Mrs Fato. She was jointly and severally liable. I do not agree with the submission by the plaintiff’s counsel that, at worst, only half of these amounts should be treated as payments to Mrs Fato. Next, the amount of $35,400.81 was paid to Mrs Fato, but of this amount $27,528.43 was subsequently paid into Court, leaving the payment received by Mrs Fato standing at $7,872.38. Finally, the sum of $1,500 was paid to Mrs Fato’s solicitors from the net proceeds of sale. The plaintiff’s counsel accepted that as this bill was for work performed for Mrs Fato, this amount should also be treated, for these purposes, as a payment to her.

These amounts, together with the sum of $406,000 paid to Mrs Fato from the funds in Court, means that she has received so far a total of $646,973.18 from the net proceeds of sale of the Brunswick property. This amount is to be deducted from her entitlement of $660,028.60, leaving an outstanding balance due to Mrs Fato of $13,055.42.

A payment of $13,349.86 was also paid from the net proceeds to Patricia Dattilo. The reason why this payment was made was not explored as it was not relevant to the outcome of this proceeding. Mrs Dattilo made no claim to be paid any part of the funds in Court. Furthermore, no one sought in this proceeding an order that she repay the $13,349.86.

From the net proceeds of sale of the Brunswick property an amount of $13,946.35 was paid to the solicitors then acting for Rosa and Lina, half of which, it was agreed, should be treated, for these purposes, as a payment to each of them. The amounts of $6,973.17 and $6,973.18[3] are therefore to be deducted from the entitlement of Rosa and Lina, leaving an outstanding balance due to each of them of $213,036.36 and $213,036.35 respectively.
[3]As $13,946.35 is an uneven amount, there has to be a one cent difference between the two amounts. I have arbitrarily allocated it to Lina Fato.

However, after the payment of the $406,000 to Mrs Fato, there only remains the sum of $425,778.27 in Court, ignoring for the moment the interest earned and the tax that has to be paid on those funds. The three outstanding balances total $439,128.13, making a deficiency of $13,349.86. This deficiency results from the payment of that precise amount to Patricia from the net proceeds of sale.

In my opinion, the deficiency of $13,349.86 should be shared rateably. That is, the proportion to be borne by each party is 60% for Mrs Fato and 20% for each of Rosa and Lina. This means a deduction of $8,009.92 for Mrs Fato and $2,669.97 for each of Rosa and Lina. Thus, from the total amount of $425,778.27 paid into Court, the payments should be:

(a)       the sum of $5,045.50 to Mrs Fato;
(b)      the sum of $210,366.39 to Rosa; and
(c)       the sum of $210,366.38 to Lina.

These payments will be increased by an extra amount which will be added by the Senior Master’s (Funds in Court) Office after the final calculation of interest earned and tax paid and payable are taken into account. The parties proceeded on the basis that this amount should be shared as to 60% by Mrs Fato and as to 20% each by Rosa and Lina Fato. But this approach fails to recognise that after the $406,000 was paid to Mrs Fato in October 2011, most of the funds which earned interest thereafter have now been adjudged to be payable to Rosa and Lina. It would not be cost effective to attempt to calculate the interest earned and tax payable from time to time in respect of each party’s total payment from the funds in Court. In these circumstances, I have decided that the fairest and most sensible way to divide up the extra amount, whatever it may turn out to be, is to order that it be shared equally between the plaintiff and each defendant.

Orders

The orders I would propose making concerning the payments to each party are as follows:

1.The following sums be paid from Common Fund No. 1 and debited to Account No. 74650:
(a)       $5,045.50 to the plaintiff;
(b)      $210,366.39 to the first defendant; and
(c)       $210,366.38 to the second defendant.
2.The following sums be paid from Common Fund No. 1 and debited to Account No. 74650:
(a)To the plaintiff, an amount equal to one third of the balance of the said Account, but subject to the retention of a sum sufficient to cover any taxation liability;
(b)To the first defendant, an amount equal to one third of the balance of the said Account, but subject to the retention of a sum sufficient to cover any taxation liability; and
(c)To the second defendant, an amount equal to one third of the balance of the said Account, but subject to the retention of a sum sufficient to cover any taxation liability.

3.Upon payment of the sums equivalent to the balance of the said Account in accordance with paragraph 2, there also be paid to the plaintiff, the first defendant and the second defendant, in equal shares, from Common Fund No. 1 and debited to Account No. 10, an amount equivalent to interest accrued on the balance of Account No. 74650 from 1 June 2012 at the rate last fixed in respect of Common Fund No. 1.

I will hear from the parties on the wording of these proposed orders and on the question of costs.

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[2013] VSC 125

26 MARCH 2013