Kerry Jane Fraser v Kirsty Power
[2000] NSWSC 257
•6 April 2000
Reported Decision: [2001] Aust Contract R 90-127
New South Wales
Supreme Court
CITATION: KERRY JANE FRASER v KIRSTY POWER and ORS. [2000] NSWSC 257 CURRENT JURISDICTION: EQUITY FILE NUMBER(S): SC 1334/1997 HEARING DATE(S): 22, 23 and 24 February 2000 JUDGMENT DATE: 6 April 2000 PARTIES :
KERRY JANE FRASER v KIRSTY POWER and ORS.JUDGMENT OF: Simos J
COUNSEL : I.M. Wales, SC (Plaintiff - Cross-Defendant)
G.K. Burton (First and Second Defendant - Cross-Claimants)SOLICITORS: Fox & Staniland (Plaintiff - Cross-Defendant)
Gillis Delaney Brown (First and Second Defendants - Cross-Claimants)CATCHWORDS: Mortgage - Construction - Held, mortgage had effect only to secure repayment of debts owed jointly by husband and wife of which there were none - Rectification - Held, the first and second defendants had not established that the mortgage ought to be rectified - Guarantee - Release of Guarantor - Held, release of guarantor operated to discharge mortgagors from liability under the mortgage - Mortgage - Held, deed of variation of principal debt operated to discharge mortgagors from liability under mortgage - Unconscionable Conduct - Held, the third defendant had been guilty of unconscionable conduct with the result that the mortgage was liable to be set aside as against the third defendant - Held, further, that the mortgage was also liable to be set aside as against the first and second defendants - Contracts Review Act 1980 - Held, that the mortgage was unjust in the circumstances in which it was made within the meaning of the Contracts Review Act 1980 - Held, further, that the mortgage should be set aside as against the first and second defendants - Conveyancing Act 1919 - Section 23C(1)(b) - Held, the husband's oral declaration of trust of his one-half interest as joint tenant in the subject land in favour of the wife was valid and enforceable - Limitation Act 1969 - Held, the wife's claim to enforce the oral declaration of trust by the husband in her favour was not barred by the Act LEGISLATION CITED: Bankruptcy Act 1966 (Cwlth)
Contracts Review Act 1980 (NSW)
Fair Trading Act 1987 (NSW)
Law Reform (Miscellaneous Provisions) Act 1965
Limitation Act 1969 (NSW)
Real Property Act 1960 (NSW)
Supreme Court Act 1970CASES CITED: Codelfa Construction Pty. Limited v State Rail Authority of New South Wales (1981-1982) 149 CLR 337
Commercial Bank of Australia Limited v Amadio (198201983) 151 CLR 447
Con-Stan Industries of Australia Pty. Limited v Norwich Winterthur Insurance (Australia) Limited (1985-1986) 160 CLR 226
Garcia v National Australia Bank Ltd. (1998) 194 CLR 395
Last v Rosenfeld (1972) 2 NSWLR 923
Louth v Diprose (1992) 175 CLR 621
Richards v Commercial Bank of Australia (1971) 18 FLR 95
The Commonwealth v Verwayen (1989-1990) 170 CLR 394
Waltons Stores (Interstate) Limited v Maher (1987-1988) 164 CLR 387
Wratten v Hunter (1978) 2 NSWLR 367
Yerkey v Jones (1939) 63 CLR 649DECISION: Mortgage held to secure repayment only of debts owned by husband and wife jointly of which there were none; mortgage set aside as against first and second defendants; see also paragraphs 186 and 187.
IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
SIMOS J
THURSDAY, 6 APRIL 2000
(NO, 1334/1997): KERRY JANE FRASER v KIRSTY POWER and DENKIRST INVESTMENTS PTY LIMITED and ORS.
JUDGMENT
Statement of Claim
The Proceedings
1 HIS HONOUR: By her statement of claim filed 19 May 1998, and later amended by leave of the Court, the plaintiff alleged that by transfer dated 1 August 1975 and registered on 17 October 1975 the plaintiff and her former husband ("the husband") became registered as joint tenants of the property comprised in certificate of title volume 12919 folio 45 and known as 78 Stanhope Road, Killara ("the property"). The statement of claim further alleged that on or about 26 February 1987 the plaintiff and her husband executed a mortgage of the property to the third defendant, National Westminster Finance Australia Limited, which was registered in 1987 numbered W88417.
2 The plaintiff further alleged in the statement of claim that prior to the execution of the mortgage her husband had declared himself to be a trustee of his interest in the property for the plaintiff having on numerous occasions stated to the plaintiff that the property was hers entirely. The plaintiff further alleged in the alternative that, as a consequence of the representations made to her by her husband that the property was hers entirely, she acted to her detriment and that her husband was estopped from denying her entitlement to the whole of the property. The statement of claim particularised the detriment as being that the plaintiff refrained from taking any steps in the Family Court to pursue any entitlement in relation to the property of her former husband.
3 It was further alleged that the plaintiff and her husband separated on 29 November 1977 and that the decree nisi of the dissolution of their marriage was pronounced on 29 May 1979. It was further alleged that the plaintiff’s husband became bankrupt on 27 February 1992 and that, as a consequence of his bankruptcy, his assets, including any interest he might have had in the property (the existence of which was denied) became vested in the fourth defendant, the Official Trustee in Bankruptcy.
4 It was further alleged that at the time of execution and registration of the mortgage the third defendant was aware that the husband held his interest in the property upon trust for the plaintiff, and, further, or in the alternative, that at the time of execution and registration of the mortgage the third defendant had or was deemed in law to have had, notice of the fact that the husband held his interest in the property upon trust for the plaintiff. This allegation was particularised by alleging that the third defendant made the husband its agent for or, in the alternative, entrusted the husband with the task of procuring the plaintiff’s execution of the mortgage such that in the circumstances the third defendant was deemed to know those matters of which the husband was aware.
5 The plaintiff further alleged that the third defendant made the husband its agent for the purpose of procuring the signature of the plaintiff to the mortgage and that the husband made certain representations ("the representations") for the purpose of inducing the plaintiff to execute the mortgage. The representations were particularised as follows:-
"(a) The property was 'at the end of a long list of properties’.
(b) The third defendant would never need to sell the property.
(c) The mortgage was required purely to satisfy the requirements of the third defendant.
(d) There was no danger to the plaintiff in executing the mortgage.
(e) The plaintiff’s execution of the mortgage was just a matter of formality.”6 The statement of claim alleged that these representations induced the plaintiff to execute the mortgage and further, that the representations were untrue in that, inter alia, as a matter of law, the third defendant was entitled to have recourse to all or any of the properties over which it held mortgages to secure advances secured by the mortgage in any order which the third defendant chose, that the mortgage was not required purely to satisfy the formal requirements of the third defendant but was required to give the third defendant additional security in respect of past and future advances, and that there was in fact danger to the plaintiff in executing the mortgage and that the plaintiff’s execution of the mortgage was not just a matter of formality. It was alleged that the representations were known to the husband to be untrue and that the third defendant was, in the circumstances of the case, deemed to be aware that the representations were untrue. By reason of those matters the plaintiff alleged that she was entitled to and did thereby terminate the mortgage.
7 Further or in the alternative the plaintiff alleged that her execution of the mortgage was obtained in circumstances where it would be unconscientious of the third defendant to assert its purported rights under the mortgage. This allegation was particularised as follows:-
"14. Further, or in the alternative, the plaintiff says that her execution of the mortgage was obtained in circumstances where it would be unconscientious of the third defendant to assert its purported rights under the mortgage.
Particulars
(a) The third defendant did not explain to the plaintiff the nature and effect of the liabilities imposed upon her by her execution of the mortgage .
(b) The third defendant did not explain to the plaintiff the extent of the indebtedness secured by the mortgage.
(c) The plaintiff’s execution of the mortgage was procured by the making of representations which were untrue.
(d) The transaction was improvident so far as the plaintiff was concerned.
(e) The business venture or ventures for which the funds secured by the mortgage had been or were to be advanced had a high risk of failure .
(f) The plaintiff was not aware of the risks of the said business venture or ventures.
(g) The plaintiff was a person of no commercial expertise or experience.
(h) The plaintiff had no independent advice.
(i) The plaintiff was not advised by the third defendant to seek independent advice.
(j) The plaintiff was dependent financially upon the husband for her own maintenance and support, and for the maintenance and support of the two children of their marriage.
(k) The plaintiff was not represented by a solicitor or independent financial adviser.
(l) There was a material inequality in bargaining power between the plaintiff and the third defendant.
(m) The plaintiff was not reasonably able to protect her interests.
(n) The husband exercised undue influence, unfair pressure and unfair tactics to procure the execution of the mortgage by the plaintiff.”8 Further, or in the alternative the plaintiff alleged that the mortgage was unjust within the meaning of the Contracts Review Act 1980 relying upon the same particulars as quoted above.
9 Finally, it was alleged by the plaintiff that by deed dated 22 August 1996 the third defendant purported to have assigned to the first and second defendants its rights in respect of the mortgage of the property in respect of which the plaintiff alleged that she was entitled to assert as against the first and second defendants any rights, entitlements, defences and claims that she might have had against the third defendant prior to the assignment.
10 The plaintiff claimed, inter alia, a declaration that she was the beneficial owner of the whole of the property known as 78 Stanhope Road, Killara, and a declaration that the mortgage was void as well as being unjust within the meaning of the Contracts Review Act 1980.
11 In the course of the hearing the plaintiff was granted leave to amend the statement of claim by inserting an additional paragraph numbered 15A in which further or in the alternative the plaintiff alleged that her obligations under the mortgage were discharged, or failed to come into existence when the third defendant (a) released a guarantor, Mr. Power, from his obligations under the collateral securities referred to in the mortgage; or (b) had released Mr. Power from his obligations under the collateral securities referred to in the mortgage; or (c) varied the deed of loan on or about 26 November 1987.
Defence
12 By their amended defence filed 10 March 1999 Kirsty Power, the first defendant, and Denkirst Investments Pty. Limited, the second defendant, alleged that if the statements and/or declarations alleged to have been made by Sean Fraser ("the husband") were in fact made, such statements or declarations were not in writing and did not pass to or vest in the plaintiff any legal or equitable interest in the property. The first and second defendants further alleged that upon his becoming a bankrupt the assets of the husband including his interest in the property became vested in the Official Receiver subject to the rights of a secured creditor which included the third defendant "and now the first and second defendants" as the registered mortgagee of the property pursuant to section 58(5) of the Bankruptcy Act 1966.
13 The first and second defendant's further alleged that by reason of sections 42 and 43 of the Real Property Act 1960, the registration of the third defendant as a registered proprietor as mortgagee conferred on it indefeasible title, so that it had priority to any unregistered interest the plaintiff might have in the property, and that the first and second defendants took an interest as assignees of the mortgagee pursuant to a deed of assignment. The first and second defendants further alleged that they acquired the interest referred to for value and without notice of any trust, equitable estate or interest in property of the husband and any right or equity asserted by the plaintiff to set aside the mortgage. The first and second defendants further alleged that any trust, equitable estate or interest in the property of the husband arose on or before 11 February 1995, that is, more than 12 years before the commencement of the proceedings which commenced on 11 February 1997, with the result that the plaintiff’s cause of action to enforce any trust, equitable estate or interest in the property was time barred by reason of sections 36(1) and 27(2) of the Limitation Act 1969 or section 47(1) of the Limitation Act 1969 by reason of which any unregistered interest which the plaintiff might have in the property was extinguished pursuant to section 65 of the Limitation Act 1969.
14 The first and second defendants also denied or did not admit the material allegations contained in the statement of claim and denied that the plaintiff was entitled to the relief sought.
15 In answer to the whole of the statement of claim the first and second defendants alleged that they were now the registered proprietors of an interest as mortgagee in the property pursuant to a transfer of mortgage from the third defendant registered number 548861 and that, by reason of sections 42 and 43 of the Real Property Act 1900, such registration conferred on the first and second defendants indefeasible title, such that their interest as registered proprietors was held free from any and all estates and interests in the property claimed by the plaintiff.
16 In relation to paragraph 15A of the statement of claim, the first and second defendants were given leave to amend their defence by alleging further and alternatively in relation to paragraph 15A of the statement of claim, that if the allegations in that paragraph were established, then it was alleged that the plaintiff was engaged in misleading or deceptive conduct in trade or commerce in contravention of section 42 of the Fair Trading Act 1987 (NSW) and thereby under section 72 of that Act ought to be precluded from alleging or relying on the matters in paragraph 15A, or was entitled under that provision or under section 68 of that Act to damages or compensation equal to the amount secured by the mortgage if it had not been so discharged or so entitled to be discharged.
17 In the alternative answer to paragraph 15A of the amended statement of claim, if it was made out that the plaintiff was entitled to relief in respect of the mortgage, the first and second defendants alleged that such relief should be limited in the manner specified in the amendment.
18 Further and in the alternative in answer to paragraph 15A of the statement of claim, the first and second defendants alleged that the plaintiff was estopped from alleging or relying on the matters in paragraph 15A of the statement of claim by reason of various matters particularised.19 By their cross-claim the first and second defendants, after alleging the relevant facts, claimed judgment against the husband in the sum of $1,134,132.77, a declaration that the first and second defendants were entitled to be subrogated to the rights of the third defendant with respect to the rights conferred on it under the mortgage (and the guarantee), a declaration that the defendants were entitled to contribution from the husband and the plaintiff for the moneys paid by the first and second defendants to the third defendant, and an order that the husband and the plaintiff pay to the first and second defendants contribution to the cross-claim in the amount of $450,000, or such other amount as the Court deemed fit, as well as an order that the plaintiff and the fourth defendant give possession of the property to the first and second defendants, and certain other consequential relief.
Cross-Claim
Defence to Cross-Claim
20 By her defence to the cross-claim the plaintiff denied or did not admit the material allegations contained in the cross-claim.
21 During the course of the hearing leave was granted to the plaintiff to amend her defence to the cross-claim to allege that the subject mortgage on its true construction secured only the repayment of moneys owed by the plaintiff and her former husband jointly to the third defendant, as to which there were none, with the result that the mortgage had no relevant operative effect. The amendment was pleaded in paragraph 14 of the defence to the cross-claim in the following terms:-22 In addition to putting these matters relevantly in issue the first and second defendants alleged that the plaintiff was by reason of various matters which were pleaded, estopped from denying her liability under the subject mortgage and further that the plaintiff had engaged in misleading conduct in relation to the execution of the subject mortgage. The first and second defendants also alleged that if the subject mortgage was held to secure only moneys owing by the plaintiff and her former husband jointly, that it ought to be rectified by reason of the fact that at the time of execution of the mortgage by the plaintiff, the plaintiff and the third defendant had a continuing common intention that the subject mortgage should secure the payment of moneys owed by each of the plaintiff and her former husband severally.
"14. In further answer to the whole of the amended cross-claim, the second cross-defendant says that:
(a) Upon its proper construction, the mortgage operates to secure obligations owed to Natwest by both the first and second cross-defendants, but not obligations owed by only one of them and that
(b) There are no obligations owed by both the first and second cross-defendant to Natwest and accordingly, there are no obligations upon which the mortgage operates or has operated.”23 The first and second defendants (cross-claimants) also cross-claimed against the fourth defendant (fourth cross-defendant) and Mr. Fraser (first cross-defendant).
Further Cross-Claims
The Mortgage Secures Repayment Only of Moneys Owed Jointly by the Plaintiff and Her Former Husband - There Being No Such Moneys Owed Jointly
24 It was submitted on behalf of the plaintiff that the subject mortgage, on its true construction, secured only moneys owed to National Westminster Finance Australia Limited, the mortgagee, jointly by the plaintiff and her husband, and further, that since there were no such moneys alleged to be owing by the plaintiff and her husband jointly, there should be a declaration accordingly in favour of the plaintiff. In my opinion, this submission is correct and should be upheld for reasons which will appear hereafter.
25 It was submitted on behalf of the plaintiff that this result followed from a consideration of, inter alia, the following parts of the subject mortgage:-26 The mortgage then continues as follows:-
“1. THE MORTGAGOR is described as SEAN BARRIE FRASER formerly of Killara, now 840 Elizabeth Street, Waterloo, Chartered Accountant and KERRIE JANE FRASER of 78 Stanhope Road, Killara.”
"(The above-named MORTGAGOR) for the consideration referred to in the Schedule hereto covenants with the under mentioned Mortgagee that the provision set forth in the Schedule hereto shall be deemed to be incorporated herein and, for the purpose of securing to the Mortgagee the payment of the Moneys Hereby Secured (as defined in the Memorandum referred to in the Schedule hereto) mortgages to the Mortgagee (National Westminster Finance Australia Limited) or the Mortgagor's estate and interest in the land above described (which land is referred to in the Memorandum hereinafter mentioned) and in the Schedule hereto as the mortgaged land subject to the following PRIOR ENCUMBRANCES …”
27 It was submitted on behalf of the plaintiff that, having regard to the description of the "MORTGAGOR” as set out above, the relevant part of this clause "Sixthly" should be read as follows:-
"3. Sixthly - The Mortgagor hereby covenants with the Mortgagee that the Mortgagor will duly and punctually pay to the Mortgagee all moneys which are or which may hereafter become owing or payable by the Mortgagor to the Mortgagee under any present or future Collateral Security (as defined in the said Memorandum) and will duly and punctually observe and perform every other obligation on the part of the Mortgagor contained or implied in any such Collateral Security.”
" SEAN BARRIE FRASER and KERRIE JANE FRASER hereby covenant with the Mortgagee that SEAN BARRIE FRASER and KERRIE JANE FRASER will duly and punctually pay to the Mortgagee all the moneys which are or which may hereafter become owing or payable by SEAN BARRIE FRASER and KERRIE
JANE FRASER jointly to the Mortgagee ...”.
28 It was further submitted on behalf of the plaintiff that since there were, admittedly, no moneys owed or owing by Mr. and Mrs. Fraser jointly to the third defendant, the subject mortgage had no relevant effect since, on its true construction, it was a mortgage to secure debts (owed by Mr. and Mrs. Fraser jointly to the third defendant) which did not exist.
29 In my opinion, as stated above, these submissions on behalf of the plaintiff are correct and should be upheld.
30 It was submitted on behalf of the defendants that the provisions of clause 1.(2) of the Memorandum incorporated in the subject mortgage produced the result, contrary to my opinion as stated above, that the description of the "MORTGAGOR” as contained in the subject mortgage, namely, relevantly, "SEAN BARRIE FRASER and KERRIE JANE FRASER”, should be construed as if that description read "SEAN BARRIE FRASER and KERRIE JANE FRASER jointly and each of them severally", with the result that the mortgage should be construed as securing all moneys which were or might thereafter become owing or payable to the third defendant by Mr. and Mrs. Fraser jointly or by either of them severally.
31 In my opinion, clause 1.(2) of the Memorandum does not produce this result. That clause so far as was relied upon on behalf of the first and second defendants is in the following terms:-32 In my opinion, this clause 1.(2) on its true construction operates to require every covenant in the subject mortgage by the “MORTGAGOR”, (namely, Mr. and Mrs. Fraser) to be construed as "the MORTGAGOR jointly and each of them severally", but, in my opinion, the effect of doing this in relation to the clause "Sixthly” produces the result that that clause is to be construed as if it read as follows:-
"Every covenant, agreement, condition and acknowledgment expressed or implied herein on the part of more persons than one shall bind such persons jointly and each of them severally ... AND
words importing the singular number where used shall include the
plural number and vice versa ...”.
"Mr. and Mrs. Fraser jointly and each of them severally hereby covenant with the Mortgagee that Mr. and Mrs. Fraser jointly and each of them severally will duly and punctually pay to the Mortgagee all moneys which are or which may hereafter become owing or 12avable by Mr. and Mrs. Fraser jointly to the Mortgagee under any present or future Collateral Security as defined in the said Memorandum and will duly and punctually observe and perform every other obligation on the part of the Mortgagor contained or implied in any such Collateral Security.”
33 In my opinion, this construction gives full effect to the requirements of clause 1.(2) of the Memorandum by construing the covenant by Mr. and Mrs. Fraser as being a covenant by them jointly and each of them severally, but the subject matter of the covenant remains, nevertheless, a covenant to pay to the "Mortgagee" all moneys which are or which might hereafter owing or payable by Mr. and Mrs. Fraser jointly to the "Mortgagee" under any present or future "Collateral Security".
34 It follows that I also reject those submissions made on behalf of the first and second defendants to the effect that the reference in clause "Sixthly" of the subject mortgage to "any present or future Collateral Security" somehow produces the result that the subject mortgage secures the repayment to the mortgagee of moneys owed by Mr. and Mrs. Fraser jointly and also by each of them severally. In my opinion, as stated above, the relevant clause "Sixthly", on its true construction, provides, inter alia, that the subject mortgage secures all moneys which are or which may become owing or payable by Mr. and Mrs. Fraser jointly to the mortgagee under any present or future collateral security, it being the case that there were and are no moneys owing by Mr. and Mrs. Fraser jointly under any collateral security.
35 I also reject the submissions made on behalf of the first and second defendants in this connection based upon the definition of the words "moneys hereby secured" contained in clause 1.(1)(a) of the Memorandum, those words appearing relevantly on page 1 of the subject mortgage in the following paragraph:-36 Clause 1.(1)(a) of the Memorandum is in the following terms:-
"The above named MORTGAGOR for the consideration referred to in the Schedule hereto covenants with the undermentioned Mortgagee that the provisions set forth in the Schedule hereto shall be deemed to be incorporated herein, and, for the purpose of securing to the Mortgagee the payment of the Moneys Hereby Secured (as defined in the Memorandum referred to in the Schedule hereto) Mortgages to the Mortgagee ...”
“1. INTERPRETATION
The under mentioned expressions wherever occurring in this Mortgage shall, unless the context otherwise requires, have the following respective meanings ...
37 In my opinion, the application of this provision in the Memorandum requires the relevant words "MONEYS HEREBY SECURED” to be construed as meaning:-
MONEYS HEREBY SECURED means -
(a) All moneys which are or which may become owing (whether actually or contingently) or payable to the Mortgagee by
(i) the Mortgagor either alone or with any other person under or pursuant to this Mortgage or any other document; or
(ii) the Mortgagor and/or any other person under or pursuant to any Collateral Security of a kind referred to in paragraph (a) of the definition of "Collateral Security” herein contained ...”.
"All moneys which are or which may become owing (whether actually or contingently) or payable to the Mortgagee by -
(i) Mr. and Mrs. Fraser jointly either alone or with any other person under or pursuant to this Mortgage or any other document; or
(ii) Mr. and Mrs. Fraser jointly and/or any other person under or pursuant to any Collateral Security of a kind referred to in paragraph (a) of the definition of 'Collateral Security’ herein contained ...”.38 So read, as the relevant words should be, in my opinion, the words "MONEYS HEREBY SECURED” include only moneys payable by Mr. and Mrs. Fraser jointly, and the words in subparagraph (i) "either alone or with any other person" and in subparagraph (ii) "and/or any other person", produce no different result.
39 Counsel for the plaintiff relied in this connection also upon the decision of Fox J. in Richards v The Commercial Bank of Australia (1971) 18 FLR 95. That decision was, of course, a decision based upon its own facts and in particular, upon the true construction of a particular bank mortgage. As such, it cannot, of course, be regarded as a precedent for the construction of the mortgage in the present case, but it is probably fair to say that the approach to construction of the bank mortgage in that case taken by Fox J is not inconsistent with the approach taken in relation to the construction of the mortgage in the present case. The relevant part of the headnote in that case reads as follows:-
"A bank mortgage given by husband and wife as 'the mortgagor' to secure overdraft accommodation was also expressed to be given to secure, inter alia, the liability of 'the mortgagor' under certain guarantees and contracts and contained provisions that when more persons than one were included in the term "the mortgagor" their liability should be joint as well as several and that any word importing the singular should include the plural and vice-versa.
Held, that the words 'the mortgagor’ in referring to liability under guarantees and contracts, did not mean 'the mortgagors or either of them’.
Held, accordingly, that the mortgage did not operate to secure the husband’s contingent liability under a guarantee by the husband alone ...”.40 I also reject the submissions made on behalf of the first and second defendants to the effect that, even in the absence of a relevant personal covenant by Mr. and Mrs. Fraser jointly and/or severally to pay the "moneys secured" by the subject mortgage, the mortgage has effect in some way as a charge on the land pursuant to the provisions of the Real Property Act 1900 and otherwise, presumably with the result that the land could be sold to recover the moneys sought to be recovered by the first and second defendants.
41 In my opinion, however, this approach is plainly incorrect. The subject mortgage, on its true construction, in my opinion, is a mortgage which is expressed to secure all moneys which are or which may thereafter be owing or become payable to the mortgagee by Mr. and Mrs. Fraser jointly under any present or future collateral security, but since there are no such moneys owed by Mr. and Mrs. Fraser jointly, the mortgage is, for practical purposes, ineffective and even if, in accordance with the submission on behalf of the first and second defendants, the property could be sold, a submission which I have rejected, the proceeds could only be used by way of repaying moneys owing to the mortgagee by Mr. and Mrs. Fraser jointly, of which there are none. The consequences of acceptance of this submission on behalf of the first and second defendants needs only to be stated to make it clear that the submission must be rejected.
42 Finally, I also reject the submission made on behalf of the first and second defendants to the effect that, since the relevant provisions of the subject mortgage are ambiguous, recourse may be had to the relevant surrounding circumstances in accordance with the following statement of the relevant principle:-43 In my opinion, the subject mortgage is not "ambiguous or susceptible of more than one meaning" on its true construction within the meaning of this principle and accordingly, evidence of surrounding circumstances is not admissible to assist in its interpretation. In any event, even if such evidence were admissible it could not, in my opinion, result in the mortgage being construed as submitted on behalf of the first and second defendants.
"The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract when it has a plain meaning. Generally speaking facts existing when the contract was made will not be receivable as part of the surrounding circumstances as an aid to construction, unless they were known to both parties, although, as we have seen, if the facts are notorious knowledge of them will be presumed”: per Mason J (as he then was) in Codelfa Construction Pty. Limited v State Rail Authority of New South Wales (1981-1982) 149CLR 337 at 352.
44 It was also submitted on behalf of the first and second defendants that the subject mortgage should be rectified so that it does secure moneys owed by only one of Sean Fraser and the plaintiff alone in addition to moneys owed by them jointly with other persons including each other by reason that such was the continuing common intention of the third defendant and the plaintiff and Sean Fraser at the time the mortgage was executed. In my opinion, there is simply no evidence to support this submission, there being no relevant evidence to establish what, in fact, the plaintiff's actual intention was at relevant times, it being clearly insufficient to suggest that the relevant continuing common intention on the part of the plaintiff is manifested by the mere fact of her executing the mortgage. In this connection the truth of the matter is, probably, that the plaintiff had no intention one way or the other as to whether the mortgage secured only moneys owed by the plaintiff and her former husband jointly, or whether it also secured moneys owed to the third defendant by each of them severally, and this notwithstanding that the plaintiff may be presumed to have known that the subject mortgage needed to be signed in connection with some business of her former husband's.
Rectification
Release of Guarantor and Deed of Variation of 26 November 1987
45 It was also submitted and pleaded on behalf of the plaintiff in paragraph 15A of the statement of claim that the plaintiffs obligations under the subject mortgage were discharged or failed to come into existence, by reason of the fact that the third defendant had, as at the date of execution of the subject mortgage by the plaintiff, already released a guarantor, namely, Mr. Power, from his obligations under the collateral securities referred to in the subject mortgage or alternatively, did so subsequently to the execution of the subject mortgage or further, and further and/or in the alternative, when the third defendant varied the original deed of loan of 7 January 1985, by the deed of variation dated 26 November 1987.
46 In support of this submission counsel for the plaintiff relied upon the following principles as set out, inter alia, in Halsbury's Laws of England (4 ed. - 1990) at pages 127 and following:-47 Counsel for the plaintiff also relied upon the following statement in Rowlatt On the Law of Principal and Surety (4 ed. - 1982) at page 162-3 as follows:-
" 196 . Conditions precedent to guarantor's liability. Any express or implied conditions precedent to the guarantor's liability must be fulfilled before recourse can be had to him …
Where a guarantor agrees to give a guarantee on condition that other named persons also sign the guarantee as co-guarantors, the guarantor will not be liable if any of those persons do not sign, or if the signature of any of those persons is forged
The mere fact that the taking of other security is intended or contemplated by the creditor will not make the taking of that security a condition precedent to the guarantor's liability, unless the guarantor makes the fact that his guarantee is so conditional clear to the creditor before he gives it, or there are other exceptional circumstances. The guarantor will not be relieved from liability simply because persons he merely thought or assumed would also sign the guarantee have not done so or further security that he merely thought or assumed would be taken has not been taken.”
"A surety is discharged by the creditor, without his consent, either releasing the principal debtor or entering into a binding arrangement with him to give him time. The ground upon which the surety is discharged being in both cases that his right at any time to pay the debt, and sue the principal in the name of the creditor, is interfered with. In practice, guarantees often contain provisions attempting to exclude this rule …
A surety is also discharged if the creditor agrees with the principal not to receive the money from the surety since this is inconsistent with the right of the surety to pay the debt and sue the principal.”
48 In my opinion, within the meaning of these principles, however, the plaintiff did not make the fact that her guarantee was conditional upon the taking of "other security" (by way of guarantee) before she gave that guarantee by way of executing the subject mortgage. In those circumstances, in my opinion, in the event that it was the fact Mr. Power had been released as a guarantor prior to the execution by the plaintiff of the subject mortgage the plaintiffs liability under the subject mortgage, if otherwise valid, would be unaffected.
49 On the other hand, in my opinion, if Mr. Power had been released as guarantor after the execution by the plaintiff of the subject mortgage, the plaintiff would have been discharged from any liability under that mortgage by reason of the following principle relied upon on behalf of the plaintiff as stated in Halsbury, op.cit. supra, at page 216:-
“ 336. Release of Co-Guarantor. In accordance with the general rule of law, a release of one of two joint or joint and several guarantors without the consent of the other and without reserving remedies against him, will bar the creditor's right of action against the other on the guarantee. Moreover, where one co-guarantor is released, the security given by the other will also, apparently, be discharged.”
50 In response to the submissions to this effect made on behalf of the plaintiff, counsel for the first and second defendants referred to provisions in the subject mortgage and the incorporated memorandum thereto which he submitted were to the effect that the mortgagors under the subject mortgage, being the plaintiff and her former husband, were obliged to "observe" the provisions of collateral securities.
51 In my opinion, these submissions should be rejected. In the first place, the clause "Sixthly " of the mortgage provides relevantly only that the "mortgagor" "will duly and punctually pay to the Mortgagee all moneys which are or which may hereafter become owing or payable by the Mortgagor to the Mortgagee under any present or future Collateral Security", and for the reasons referred to earlier, on the true construction of the subject mortgage, it secures only the repayment of moneys owing or payable by the Mortgagors, namely, the plaintiff and her former husband jointly , under any collateral security of which there are none. In the second place, even if, contrary to my view, there were moneys payable by the plaintiff and/or her former husband individually under a collateral security, that fact would not, in my opinion, operate to avoid the result that the liability of the plaintiff and her former husband under the subject mortgage (and under any collateral security) would be discharged by reason of the release of Mr. Power as a guarantor, since the relevant principle operates to discharge both the plaintiff and her former husband from all liability under the subject mortgage including any liability, if any, under any collateral security.
52 I would only add, that in my opinion, the probability is that Mr. Power was released from his guarantee subsequent to the execution by the plaintiff of the subject mortgage on 26 February 1987 having regard to the fact that in clause 3.3 of the deed of variation dated 26 February 1987 it was acknowledged that Mr. Power was negotiating with the mortgagee for release as a guarantor.
53 Clause 3.3 of the deed of variation of 26 February 1987 is in the following terms:-
"33 The Guarantors further hereby acknowledge and confirm that the Guarantor ( DENIS MICHAEL POWER ) is at the date of execution of this Variation Agreement negotiating with the Mortgagee for release as a Guarantor pursuant to the terms of the Securities and the Guarantors hereby further consent to the omission of the said Guarantor DENIS MICHAEL POWER from the provisions of this Variation Agreement without in any way altering, varying, modifying, effecting or impairing the liabilities and obligations of the Guarantors named herein pursuant to this Variation Agreement or the Securities.”
54 Having regard to these provisions, it is unlikely, in my opinion, that Mr. Power would have been released as a guarantor prior to the execution of the subject mortgage by the plaintiff notwithstanding that he was not a party to the deed of variation of 26 February 1987.
55 It follows, in my opinion, that the plaintiff was discharged from liability under the subject mortgage by reason of the subsequent release of Mr. Power as guarantor.56 It was further submitted and pleaded on behalf of the plaintiff that the plaintiff was discharged from any liability under the subject mortgage by reason of the execution by the third defendant and other parties of a further deed of variation dated 26 November 1987 by virtue of which the amount advanced by the third defendant was increased by $650,000, having regard to the following principle as stated in HaLsbury op. cit. supra. at page 206 and following:-
Deed of Variation of 26 November 1987.
“325 . The Principle. When considering the effect upon the liability of a guarantor of an agreement between the creditor and the principal debtor to vary the principal contract, the construction of the contract of guarantee is of critical importance, because it is vital to identify the precise nature of the obligation or obligations guaranteed.
Where the obligations are those arising under a specific contract between the debtor and creditor, the terms of the contract giving rise to the obligations guaranteed may sometimes be embodied or incorporated expressly or impliedly in the contract of guarantee. If in such a case the creditor, without the guarantor's consent, enters into a binding agreement which varies the principal contract in a way which is not manifestly unsubstantial or incapable of prejudicing the guarantor, the guarantor will be discharged from his obligations under the contract of guarantee ...
57 The subject mortgage contained the following clause, inter alia:-
326 . Basis of the Principle. The basis of the principle that a guarantor is discharged by an agreement between the creditor and the principal debtor which has the effect of varying the guarantee, is that it is the clearest and most evident equity not to carry on any transaction without the privity of the guarantor, who must necessarily have a concern in every transaction with the principal debtor, and who cannot as guarantor be made liable for default in the performance of a contract which is not the one the fulfilment of which he has guaranteed.”
"Seventhly - this Mortgage is collateral with the following document, or each of the following documents and such document, or each of such documents is accordingly a Collateral Security:- (For continuation of Schedule, see Annexure hereto)”.
58 There followed a list of fourteen collateral securities including the original Deed of Loan dated 7th day of January, 1985 between VIMILAR PTY. LIMITED and the Mortgagee.
59 In my opinion, the effect of these provisions is that, within the meaning of the above stated principles, "the terms of the contract giving rise to the obligations guaranteed (were) embodied or incorporated expressly ... in the contract of guarantee" being the subject mortgage. I am further of the opinion that, in entering into the deed of variation dated 26 November 1987, the third defendant, without the plaintiff’s consent, entered into a binding agreement which varied the principal contract in a way which was not manifestly unsubstantial or incapable of prejudicing the guarantor, namely, by increasing the amount of the advance by $650,000, with the result, in my opinion, that the plaintiff was thereby discharged from any liability under the subject mortgage.60 The relevant principles as to unconscionability have been stated, inter alia, as follows:-
Unconscionability
“… relief on the ground of 'unconscionable conduct' is usually taken to refer to the class of case in which a party makes unconscientious use of his superior position or bargaining power to the detriment of a party who suffers from some special disability or is placed in some special situation of disadvantage, e.g., ... an unfair contract made by taking advantage of a person who is seriously affected by intoxicating drink. Although unconscionable conduct in this narrow sense bears some resemblance to the doctrine of undue influence, there is a difference between the two. In the latter the will of the innocent party is not independent and voluntary because it is overborne. In the former, the will of the innocent party, even if independent and voluntary, is the result of the disadvantageous position in which he is placed and of the other party unconscientiously taking advantage of that position.
There is no reason for thinking that the two remedies are mutually exclusive in the sense that only one of them is available in a particular situation to the exclusion of the other. Relief on the ground of unconscionable conduct will be granted when unconscientious advantage is taken of an innocent party whose will is overborne so that it is not independent and voluntary, just as it will be granted when such advantage is taken of an innocent party who, though not deprived of an independent and voluntary will, is unable to make a worthwhile judgment as to what is in his best interest ...
... Kitto J spoke of (unconscionable conduct) as 'a well-known head of equity’ which -
‘applies whenever one party to a transaction is at a special disadvantage in dealing with the other party because illness, ignorance, inexperience, impaired faculties, financial need or other circumstances affect his ability to conserve his own interests, and the other party unconscientiously takes advantage of the opportunity thus placed in his hands’ ...
... an underlying general principle which may be invoked whenever one party by reason of some condition of circumstance is placed at a special disadvantage vis-a-vis another and unfair or unconscientious advantage is then taken of the opportunity thereby created. I qualify the word 'disadvantage' by the adjective 'special' in order to disavow any suggestion that the principle applies whenever there is some difference in the bargaining power of the parties and in order to emphasize that the disabling condition or circumstance is one which seriously affects the ability of the innocent party to make a judgment as to his own best interests, when the other party knows or ought to know of the existence of that condition or circumstance and of its effect on the innocent party ...” : per Mason J. (as he then was) in Commercial Bank of Australia Limited v Amadio (1982-1983) 151 CLR 447 at 461-462.
"The jurisdiction of courts of equity to relieve against unconscionable dealing developed from the jurisdiction which the Court of Chancery assumed, at a very early period, to set aside transactions in which expectant heirs had dealt with their expectations without being adequately protected against the pressure put upon them by their poverty ... The jurisdiction is long established as extending generally to circumstances in which (i) a party to a transaction was under a special disability in dealing with the other party with the consequence that there was an absence of any reasonable degree of equality between them and (ii) that disability was sufficiently evident to the stronger party to make it prima facie unfair or 'unconscientious’ that he procure, or accept, the weaker party’s assent to the impugned transaction in the circumstances in which he procured or accepted it. Where such circumstances are shown to have existed, an onus is cast upon the stronger party to show that the transaction was fair, just and reasonable”: per Deane J. (as he then was) in Commercial Bank of Australia Limited v Amadio, supra., at 474.
"The jurisdiction of equity to set aside gifts procured by unconscionable conduct ordinarily arises from the concatenation of three factors: a relationship between the parties which, to the knowledge of the donee, places the donor at a special disadvantage vis-a-vis the donee; the donee’s unconscientious exploitation of the donor’s disadvantage; and the consequent overbearing of the will of the donor whereby the donor is unable to make a worthwhile judgment as to what is in his or her best interest”: per Brennan J. (as he then was) in Louth v Diprose (1992) 175CLR 621 at 626.
Summary
61 It is plain, in my opinion, in accordance with these principles, that the plaintiff is a person who "though not deprived of an independent and voluntary will, (was) unable to make a worthwhile judgment as to what (was) in (her) best interest "or, put another way, that the plaintiff, in relation to the signing of the subject mortgage, was at a special disadvantage in that "the disabling condition or circumstance (to which she was subject) (was) one which seriously (affected) (her) ability ... to make a judgment as to (her) own best interests when the other party (the third defendant) (knew) or ought to (have known) of the existence of that condition or circumstance and of its effect on the innocent party.”
62 It is plain, in my opinion, that the plaintiff, if properly advised, as to the circumstances giving rise to the third defendant's requirement for the subject mortgage would certainly have refused to execute the subject mortgage, and that because she was not so advised, and because of the other matters particularised in paragraph 14 of the statement of claim as set out above, she was at a special disadvantage vis-a-vis the third defendant.
63 In this connection it is plain, in my opinion, that the relevant officers of the plaintiff must have known that the mortgage was so improvident from the plaintiff’s point of view that if the plaintiff was properly advised, she would never have agreed to execute the mortgage, and that if she did execute the subject mortgage, it must have been firstly, because she had not been properly advised and secondly, also because of some pressure applied upon her by her former husband. The officers of the third defendant also knew that, in the context of the family law proceedings between the plaintiff and her former husband, it had been agreed that her former husband was to transfer to the plaintiff any interest that he might have in the subject property to the intent that for all practical purposes the plaintiff, who had no direct interest in the business of her former husband, was to be the sole beneficial owner thereof.
64 In these circumstances I find that the plaintiff was relevantly subject to a special disadvantage vis-a-vis the third defendant in relation to the execution of the subject mortgage, that the third defendant was relevantly aware of that special disadvantage and took unconscientious advantage of that position of disadvantage when, in all the circumstances, it requested and indeed put pressure upon the plaintiff’s former husband to obtain the plaintiff’s signature to the subject mortgage and took no steps to ensure that the plaintiff received proper advice before signing the subject mortgage.
65 It follows, in my opinion, that the third defendant was guilty of unconscionable conduct in relation to the execution by the plaintiff of the subject mortgage and that the subject mortgage is liable to be set aside as against the third defendant.
66 The facts in the present case are to a large extent similar to the facts in Amadio's case, supra, where Mason J., as he then was, (at 464-467) held, inter alia, as follows:-
"There are a number of factors which go to establish that there was a gross inequality of bargaining power between the bank and the respondents, so much so that the respondents stood in a position of special disadvantage vis-a-vis the bank in relation to the proposed mortgage guarantee. By way of contrast to the bank, the respondents' ability to judge whether entry into the transaction was in their own best interests, having regard to their desire to assist their son, was sadly lacking . The situation of special disadvantage in which the respondents were placed was the outcome of their reliance on and their confidence in their son who, in order to serve his own interests, urged them to provide the mortgage guarantee which the bank required as a condition of increasing the improved overdraft limit of his company ... They believed that the company's business was a flourishing and prosperous enterprise, though temporarily in need of funds. In reality, as the bank well knew, the company was in a perilous financial position ...
No doubt the respondents' age and lack of business experience played apart in their reliance on their son's judgment and in their failure to make any inquiries as to the financial position of the company and their failure to seek advice as to the probable or possible consequences of the transaction into which they entered ...
The primary judge found that if Vincenzo 'had disabused his parents' minds of their confidence in him, his parents would not have helped him'. The correctness of this finding has not been challenged. Nor could it be for the simple reason that any rational person knowing the circumstances of the company at the time would not have executed the instrument which they signed.
In deciding whether the bank took unconscientious advantage of the position of disadvantage in which the respondents were placed, we must ask, first, what knowledge did the bank have of the respondents' situation?
67 The following paragraphs contain a more detailed analysis of the relevant facts and the reasons why I have reached the conclusions set out above.
Mr. Virgo (of the bank) was aware that the respondents were Italians, that they were of advanced years and that they did not have a good command of English. He knew that Vincenzo had procured their agreement to sign the mortgage guarantee. He had no reason to think that they had received advice and guidance from anyone but their son ... It must have been obvious to Mr. Virgo, as to anyone else having knowledge of the facts, that the transaction was improvident from the viewpoint of the respondents. In these circumstances it is inconceivable that the possibility did not occur to Mr. Virgo that the respondents' entry into the transaction was due to their inability to make a judgment as to what was in their best interests, owing to their reliance on their son, whose interests would inevitably incline him to urge them to sign the instrument put forward by the bank .” (underlining supplied).
Facts
68 As stated above, it was submitted on behalf of the plaintiff that the circumstances in which the subject mortgage was signed by the plaintiff was such as to justify a conclusion that the third defendant had been guilty of unconscionable conduct in relation thereto, with the result that the subject mortgage should be set aside as against the third defendant. In my opinion, as also stated above, this submission should be upheld.
69 In this connection, and generally, I accept the substance of the evidence of the plaintiff as set out in her affidavits and as given orally both in examination in chief and in cross-examination. In my opinion Mrs. Fraser was a truthful witness who answered all the questions put to her truthfully and without hesitation or prevarication, doing the best she could to remember the relevant facts, and without any effort to avoid or qualify answers that she thought might be harmful to her case. Indeed, she gave me the impression during the course of her evidence that she simply did not have that consideration in mind at all, and was simply doing her best to remember and answer truthfully the questions asked of her. The relevant facts are as set out in the following paragraphs.
70 It is noted at the outset that, as submitted on behalf of the plaintiff, as there was no significant challenge to the plaintiff’s version of the circumstances surrounding the signing of the subject mortgage and indeed, as to earlier and later events, the fact that the plaintiff’s former husband was not called to corroborate her evidence is, in my opinion, of no consequence.
71 The plaintiff, who was born on 26 February 1944, is employed as an infant's school teacher and lives, and for many years has lived, at 78 Stanhope Road, Killara, the security under the mortgage, which is the subject of these proceedings. She was formerly married to her husband, Sean Fraser, on 13 January 1973 from which marriage there were two children, Courteney Jane, born on 11 February 1975 and Timothy Simon, born on 30 August 1977. Her husband left the matrimonial home permanently on 29 November 1977 and a decree nisi of dissolution of the marriage was pronounced in June 1979. At the time of separation the two children were aged 2 years 9 months and 3 months respectively. Mrs. Fraser's former husband remarried in August 1979 but apparently, that marriage was short lived.
72 The plaintiff was educated to Leaving Certificate at PLC Pyrnble following which she completed a tertiary education course of three years at the Sydney Kindergarten Training College at Waverley. Thereafter she worked fairly continuously as an early childhood teacher until she left on maternity leave awaiting the birth of her first child. Thereafter, relevantly, she devoted herself to the full time care of her children.
73 In 1975 the plaintiff and her former husband purchased the subject property, 78 Stanhope Road, Killara, which was vacant land at the time but with the benefit of a contract for a house to be erected on that land. The plaintiff and her former husband moved into the property on 17 March 1976 after completion of the house. The property was purchased and title was taken by the plaintiff and her husband as joint tenants.
74 The plaintiff’s former husband was an accountant originally employed in the Taxation Department in Canberra and later employed by a large accounting firm in Sydney. After the plaintiff and her former husband separated the plaintiff was completely dependent upon her former husband financially. It was impracticable for her to work at that time as she had two young children to care for and, in addition, had spent five years working in Canberra before returning to Sydney with the result that she had lost contact with people in the Education Department in Sydney. The plaintiff said that in order to update her qualifications to make herself employable in Sydney she would have had to go back to Macquarie University for a year full time or two years part-time which she was plainly not in a position to do.
75 The plaintiff apparently had no financial resources in her own right and at the end of 1978 lost about $9,000 which she had received under her grandmother's will in an investment in unsecured notes with Associated Securities Limited. That company went into liquidation or receivership and it was not until some twelve years later that some part of that money was repaid to her.
76 The plaintiff was therefore, as stated above, financially dependent upon her former husband. He paid the plaintiff very little by way of maintenance during the first year of their separation but subsequently, according to the plaintiff, the amounts increased to an appropriate level and were paid fairly regularly.
77 At the time of the original purchase of the Killara property it was mortgaged to the Commonwealth Savings Bank which mortgage has remained on foot since the plaintiff and her former husband separated. The plaintiff has made payments due under that mortgage up to the present time either from the moneys paid to her by her former husband or from her own salary.
78 The plaintiff said that her relationship with her former husband after the separation and divorce remained "amicable although not close", because she formed the view that it was in the best interests of the children to maintain a good relationship with their father.
79 The plaintiff understood from what her former husband told her in the early 1980s that he was moving into the area of property development but she was never given to understand the details of that involvement or the extent of it. Nor did the plaintiff have any actual involvement in the conduct of any of her former husband's businesses.
80 The circumstances surrounding the signing by the plaintiff of the subject mortgage dated 26 February 1987 were described by the plaintiff in paragraphs 22-23 of her affidavit of 4 February 1997 as follows:
“22. I can recall a conversation which I had with Sean at the time that I signed (the mortgage). My recollection is that it was a face to face conversation. It could possibly have been a telephone conversation, but I do not believe so. In any event Sean said either 'I am sending you something to sign' or 'Would you sign this document? I need it to help the business. 'I said 'What does it mean?’ I recall him saying 'The Bank needs another property.’ I said 'Can't the Bank do without it?’ I can recall him saying 'Look, it's at the end of a long list of properties.' He mentioned a number of properties. I cannot recall in what order or what they all were, although I recall that he referred to Kirsty’s house’. He said.. 'The Bank will never need to touch it (meaning the Killara house)'. He went on to say: 'It's just a matter of satisfying the Bank's requirements' and 'there is absolutely no danger in this. It is just a matter of formality.’ At the time that the mortgage was signed, there was no mention made of the amount of money (if any) then being borrowed or the amount of his business or business total indebtedness to the Bank.
23. The mortgage shows my signature as having been witnessed by John James Findley. He was a business associate of Sean's. I have no recollection of signing the document in Mr. Findley's presence. I did not obtain any legal or financial advice when the mortgage was signed.
25. At the time I signed the mortgage, I understood what a mortgage was. I understood that a lender could sell a mortgaged property if the borrower did not pay the instalments under the mortgage. I would have been aware when I signed the mortgage that it was in fact a mortgage. However, I accepted Sean's assurance that there was no danger of the Bank requiring the Killara house.
26. Except to the extent that I was dependent upon Sean for maintenance, I had no financial stake in any business of his. I was never knowingly a shareholder in any company or business which he operated. I can recall him asking me to sign company documents from time to time and I believe that I may have been appointed a director of a company which he ran, although I do not know which one. However, I did not ever attend any directors' meeting of any company of his and I did not ever play any part in the conduct of any business of his, except for some paid work for him or his business. ...
31. At the time that I signed the mortgage I did so because I had been assured that there was no risk and that the Bank required it merely as a matter of formality. I now understand that the obligations of my husband to Natwest amounted to some millions of dollars. I was completely unaware of that when I signed the mortgages. If I had been advised that there was any risk to the property I would not have signed the mortgage ...
33. At the time the mortgage was signed, or in the ensuing years, I had no communication of any kind with anyone from Natwest. I did not ever speak to any Natwest bank officer until after my husband's bankruptcy (in 1992). No correspondence of any kind came to me from Natwest.”
81 The plaintiff said that she first became aware of the magnitude of her former husband's borrowings when in about March 1993 she received from the Commonwealth Bank letters to the Commonwealth Bank from National Westminster Finance Australia Limited, one of which letters mentioned that the subject mortgage was collateral security for an advance to Quaba Property Holdings Pty. Limited of $4.6 million.
82 The 1985 Tax Return of the plaintiff discloses a salary of $3,000 paid by her former husband and her 1987 Tax Return shows earnings of $730 from a company associated with one of her former husband's companies. The plaintiff said that the work that she did involved filing loose leaf services at her former husband's premises at Waterloo, collecting mail at the post office and on a few occasions going to the bank to get some change.
83 In addition to relying upon the evidence of the plaintiff as set out above, counsel for the plaintiff also relied upon certain statements made in internal documents of the third defendant obtained on subpoena. The first of these internal documents was a memorandum dated 9 January 1985 to the "Director and General Manager, Corporate Finance" from "Legal Officer” (Mr. P.M. Emery) with the heading as follows:-84 This memorandum included, inter alia, the following material:-
"ADVANCE TO VIMILAR PTY LIMITED - GUNNEDAH PROJECT"
85 The second internal document of the third defendant is dated 27 May 1986 and addressed to "Manager, Corporate New Business, A.C.T." from "Solicitor" (P.M. EMERY) with a heading as follows:-
"I confirm our discussions of Friday last in respect of certain items which were outstanding prior to settlement of the above matter. I now set out the matters that we discussed:-
…
6. Mr. Fraser has requested that we waive our requirements as to a third mortgage over property at Killara jointly owned by he and his former wife. The home is the residence of the former Mrs. Fraser and was part of the relevant divorce proceedings.
Kindly confirm in writing your verbal consent given on Friday to proceeding to settlement in spite of the above deficiencies.”
86 This memorandum contained the following material, inter alia:-
"VIMALAR, DENKIRST INVESTMENTS, SEAN FRASER PROPERTY".
“I have had lengthy discussions with both Denis Power and Sean Fraser in respect of the above matters.
Sean has executed documents in both Vimalar and Fraser. We have required, however, that his former wife execute a second and third mortgage over the Killara property. This Sean is reluctant about and maintains that Kerry should not really be involved. Moreover, the Killara property is to be transferred into her name solely in the near future ” (underlining supplied).
87 It was submitted, on behalf of the plaintiff, correctly, in my opinion, that the passage quoted above from the memorandum dated 27 May 1986 stating, inter alia, that "the Killara property is to be transferred into her (Mrs. Fraser's) name solely in the near future" made it plain that the third defendant was aware at that date that, in relevant substance, Mrs. Fraser was the sole owner of the subject property so that the proposed mortgage, if executed by her, would be, in effect, of a residential property wholly owned by her by way of collateral security for debts owed to the third defendant by Mr. Fraser and others, not including the plaintiff. The third defendant was also aware, of course, and the plaintiff was not so aware, of the magnitude of the debts in respect of which the subject mortgage was proposed to be collateral security, as well as other facts relating to the business of Mr. Fraser and his companies, including defaults in payment of interest (see below).
88 The third defendant also knew, as stated in the memorandum dated 9 January 1985, that "The home is the residence of the former Mrs. Fraser and was part of the relevant divorce proceedings."
89 In addition to these matters, however, and as was submitted by counsel on behalf of the plaintiff, the third defendant was also aware that the original advance pursuant to the deed of loan was very substantial, namely, $4,300,000, that the original advance had been increased by a further $100,000, that the original advance was being further increased by a sum of $200,000, that another guarantor (Mr. Power) was being released or had been released from his obligations as guarantor, and that there had been default in the payment of interest for some months prior to the date of the mortgage, with penalty interest being charged for the first time by the third defendant.
90 In my opinion, in these circumstances, it would have been plain to the third defendant, through it's officers, that the plaintiff should receive independent advice, having regard, inter alia, to these matters before she could sign the proposed mortgage with a proper understanding of what that involved. Indeed it is plain, in my opinion, that the officers of the third defendant knew that if the plaintiff had been properly advised as to the true facts she would certainly have refused to sign the subject mortgage, so that when the subject mortgage came back to them signed by the plaintiff they must have known that she had not been properly advised. The third defendant, however, took no steps to ensure that this was done. On the contrary, it left it entirely to Mr. Fraser to obtain the plaintiff’s execution of the proposed mortgage as appears inter alia from the letter dated 15 July 1986 from Mr. Emery, the solicitor for the third defendant to "the Manager, Quaba Property Holdings Pty. Limited", being one of Mr. Fraser's companies in which the following passages appear:-
'I have been instructed to prepare a Deed of Variation to formalise the arrangements made with our Company in respect of interest rates, termination dates and securities.
91 On the same date, namely, 15 July 1986, Mr. Emery, the solicitor for the third defendant, sent an inter-office memo to "The Manager, Corporate Operations - A.C.T." in relation to "Quaba Property, Denkirst and Fraser" which contained, inter alia, the following paragraph:-
Accordingly, I enclose herewith Deed of Variation in duplicate for execution by all parties and return. Also enclosed, please find Mortgage in duplicate in respect of Stanhope Road, Killara. Please arrange execution by your former wife and similarly return the documents to me. There are ancillary requirements in connection with the Killara security and I have included these in my letter to you concerning the Fraser Property Trust. Such letter has been forwarded separately.” (underlining supplied).
“I will keep you advised of all progress in the matter. I note that this is the third attempt to redocument the various loans. In order to bring about a final conclusion, it may be that Messrs. Mitchell and/or Whiley have to bring pressure to bear on Mr. Fraser's office ” (underlining supplied).
92 Having left it entirely to Mr. Fraser to obtain the plaintiff’s signature to the subject mortgage the third defendant could not, in my opinion, be heard to say that it should not be required to accept any responsibility for what Mr. Fraser told his wife to secure her signature to the subject mortgage. This is not to say that Mr. Fraser was, relevantly, the agent of the third defendant in relation to what he said to the plaintiff. Much less is it to say that the third defendant must nevertheless be regarded as directly responsible for what Mr. Fraser said and did in the course of securing the plaintiff’s signature to the subject mortgage. Rather, the position is that, in my opinion, not only did the third defendant itself take no steps to ensure that Mrs. Fraser was properly advised or otherwise properly understood the implications of signing the subject mortgage, but, in addition, the third defendant must be regarded as having taken the risk, indeed must have known that it was likely, (because it is plain that the plaintiff would not have signed if she was aware of the true position) that Mr. Fraser would not do so, and, further, that he might misrepresent the true position and himself put pressure on the plaintiff, having regard to the pressure that he must have been under from the third defendant to procure the plaintiff’s signature to the mortgage having regard to all the circumstances of his financial position which were known to him and to the third defendant but which were not known to the plaintiff.
93 If the relevant officers had thought about it or, indeed, if they had made inquiries of Mr. Fraser, they would have known that the plaintiff was financially dependent upon Mr. Fraser and that this financial dependence would or could or might well operate as an inducement to or pressure upon the plaintiff to sign the subject mortgage without having the whole of the relevant circumstances explained to her.
94 In my opinion, contrary to the submissions made on behalf of the first and second defendants, the fact that the plaintiff believed that the source of the maintenance payments to her from her former husband was her former husband's business constitutes, a further item of disadvantage for the plaintiff in the sense that she would have been under that additional pressure to sign the mortgage guaranteeing debts (of in excess of $4 million) out of all proportion to any benefit she might obtain by way of maintenance payments from Mr. Fraser.
95 In all the circumstances, in my opinion, the bank officers should have realised that the plaintiff was in a position of special disadvantage vis-a-vis the third defendant, and vis-a-vis Mr. Fraser, in that she was unaware of the true financial circumstances relevant to and existing as at the date of execution of the subject mortgage, and was likely not to have independent advice, whereas both the third defendant and Mr. Fraser were aware of those circumstances (see also the matters particularised in paragraph 14 of the statement of claim quoted above).
96 In that context, instead of the third defendant taking any steps to ensure that the plaintiff had a full understanding of the relevant circumstances prior to her executing the mortgage, the third defendant, unconscientiously took no steps to achieve that result, but left it entirely to Mr. Fraser to obtain the plaintiff’s signature in circumstances in which, as stated above, they knew or ought to have known, or, at the very least, could reasonably have suspected, that Mr. Fraser might not only not ensure that the plaintiff was properly advised prior to signing the subject mortgage, but might also have exerted pressure upon Mrs. Fraser to execute the mortgage and in that connection (Mr. Fraser) might even have concealed or misrepresented material circumstances to her as in fact occurred.
97 At the very least, in my opinion, as stated above the third defendant, through its officers, must be regarded as having known that it was likely, indeed, certain, that Mrs. Fraser would not be properly advised, and, further, that she would be subject to pressure including pressure in the form of concealment of the true facts or positive misrepresentation in relation to the true facts, since they knew that if Mrs. Fraser had been told of the true facts, she certainly would have refused to execute the mortgage.
98 Put quite simply, as stated above, the officers of the third defendant would have been aware that, properly advised, Mrs. Fraser would certainly not have signed the subject mortgage, so that if she did so they would necessarily have known that she did so without proper advice and without a proper understanding of the relevant circumstances.
99 In all the circumstances it is, in my opinion, not realistic to suggest that the plaintiff should have insisted on getting her own advice, more particularly having regard to the pressure she was under from her former husband, as appears from the following passages in her cross-examination:-
"Q. You knew at that time that this Natwest mortgage was presented for you to sign that you could have taken it away or obtained either legal or financial advice?
A. Yes.
Q. And you chose not to do so, didn't you?
A. The circumstances were such that it would have been very, very difficult. There were enormous pressures brought to bear.” ...
"Q. When you agreed with the proposition that you chose not to get advice about the mortgage, what did you mean by that?
A. Well, first of all, a choice as such was not put to me. I myself was under pressure, certainly under pressure to sign and I didn't do it, it didn't occur to me to do it.”
100 In my opinion, in the relevant circumstances, it was for the third defendant, to take steps to ensure or otherwise satisfy itself that the plaintiff was properly advised before executing the subject mortgage. Nor, in my opinion, is it material to have regard, as was submitted on behalf of the first and second defendants, to the fact that although she received certain demands under the mortgage she did not take steps in relation thereto nor indeed move to set aside the subject mortgage until the commencement of the current proceedings. Those matters do not, in my opinion, operate to alter the fact that as stated above, in my opinion, in all the circumstances the third defendant should have ensured or otherwise satisfied itself that the plaintiff had been properly advised of all the relevant circumstances prior to the signing of the subject mortgage.
101 So far as concerns the relationship between the plaintiff and her former husband, the third defendant knew that the plaintiff and her former husband were divorced. Further, as submitted, on behalf of the plaintiff, the third defendant knew that the plaintiff’s former husband was getting a bank guarantee and mortgage from his divorced wife (the plaintiff) and therefore must have or should have assumed that there persisted between the plaintiff and her former husband a relationship either of confidence or of dominance and subservience or at least a relationship of dependence. The third defendant also knew that the plaintiff was not getting any direct benefit from the subject transaction. If the third defendant was aware that the plaintiff was financially dependent upon her former husband this would only be an additional consideration which the bank or its officers should have realised could have been used to put pressure upon the plaintiff to sign the relevant documents. The third defendant and its officers could not have had any doubt that if the plaintiff was aware of the true facts she would not have signed the subject mortgage.
102 In those circumstances it was incumbent, relevantly, in my opinion, upon the bank to take steps to satisfy itself that before the plaintiff signed the subject mortgage she had received the appropriate advice sufficient to apprise her of the significance and consequences of what was being proposed. As stated above, it is plain, in my opinion, that if she had received this advice the plaintiff would have refused to sign the subject mortgage. Moreover, as stated above, the third defendant through its officers knew that the subject property was in any event effectively the plaintiff’s alone so that it was not even as if the plaintiff’s former husband was mortgaging half the value of the property in support of debts owing by him or his companies.
103 In all the circumstances I am, accordingly, of the opinion that the third defendant was guilty of unconscionable conduct in relation to the signing by the plaintiff of the subject mortgage in accordance with the relevant principles and that the mortgage is liable to be set aside as against the third defendant.
Conclusion
Submissions on Behalf of First and Second Defendants
104 In my further opinion, none of the matters relied upon on behalf of the defendants are sufficient to displace the substance of the analysis and conclusion set out above.
105 Counsel for the first and second defendants drew attention to the fact that the plaintiff had signed without complaint four mortgages over the family home for commercial purposes prior to, or at about the same time as, the subject mortgage, after the plaintiff’s separation from her husband in November 1977, and also after the plaintiff’s divorce in 1979. Counsel for the first and second defendants also drew attention to the fact that it appears that in one such mortgage, the plaintiff’s signature was witnessed by a solicitor being the same solicitor who wrote letters as acting for the plaintiff and Mr. Fraser in respect of some of the commercial facilities secured by the mortgages. These facts only establish that the plaintiff was prepared to trust her former husband to the extent that she was prepared to sign any documents he asked her to sign without requiring or having volunteered to her any meaningful or detailed explanation.
106 In my opinion, however, these considerations, do not, displace the analysis and conclusion set out above. It is plain that the plaintiff was not informed of the relevant circumstances prior to her signing the subject mortgage and, in any event, there is no relevant evidence as to what Mrs. Fraser knew or did not know concerning the relevant circumstances at the time of her signing the other mortgages, even if it is accepted that she knew that they were to assist her former husband's business from which she believed he obtained the moneys he paid to her by way of maintenance for herself and the children. Nor, in my opinion, does it make any difference even if it be accepted that this was the plaintiff's understanding also in relation to the subject mortgage, since it is still the position that the plaintiff had no independent advice and was not informed of the relevant circumstances prior to signing the subject mortgage and that, if she had been so informed or had had such advice, she would certainly have refused to sign.
107 Nor in my opinion is this consideration displaced by the fact that she agreed that she knew what a mortgage was, and that she had some dealings with the Bank in relation to the initial Commonwealth Bank mortgage on the subject property concerning progress payments and the like. The plaintiff did know what a mortgage was but she did not have independent advice and did not know, as I have said more than once, what the true circumstances were at the relevant time. The plaintiff’s limited knowledge of business matters is revealed in the following question and answer in her cross-examination:-
"Q. You understood in 1987, at the time you signed the mortgage in dispute in these proceedings, that there was always a risk that a borrower would not pay instalments under a mortgage and that therefore the mortgage property might be sold? In any case, there was always a risk wasn't there?
A. Mr. Fraser had said to me that there were different types of mortgages, and either a collaborative or collective or something mortgage, that I knew was not like the mortgage that I paid on the house requiring payments from me. How the payments were paid, I didn't know any of the business side of it nor how that I mean obviously the bank, yes there was some tie to the bank when I signed that mortgage but how it quite worked in that way I didn't know.”
108 Counsel for the first and second defendants also pointed to the fact that during certain periods the plaintiff was a director of her former husband's companies many years after her separation and divorce from him. Counsel also drew attention to the contents of the various income tax returns which had been signed by the plaintiff.
109 It is plain, however, that the plaintiff did not have any real knowledge or understanding of any of these matters and was simply prepared to trust her former husband in relation to these matters also.
110 It was submitted, on behalf of the first and second defendants that in some way the decision of the High Court in Garcia v National Australia Bank Ltd (1998) 194 CLR 395 in so far as it dealt with Yerkey v Jones (1939) 63 CLR 649 was authority for the proposition that in the present case the third defendant could not be held to have taken unconscientious advantage of the position of special disadvantage in which the plaintiff was placed because of the fact that at the time of the execution of the subject mortgage the plaintiff and her former husband had been divorced for some time.
111 In my opinion, that case is not authority for the proposition for which it was relied upon on behalf of the first and second defendants.
112 The true import and significance of that case for present purposes appears in the following passages in the joint judgment of Gaudron, McHugh, Gummow and Hayne JJ at 403-404:-
"... we do not base our decision upon some confined analysis of the case intended to identify its ratio decidendi. Rather, we consider that the principles spoken of by Dixon J in Yerkey v Jones are simply particular applications of acceptable equitable principles which have as much application today as they did then.
Yerkey v Jones was said, in argument, to reflect outdated views of society generally and the role of women in society in particular. It was submitted that changes in Australian society since 1939, when Yerkey v Jones was decided, require that equitable rules move on to meet these changed circumstances.
That Australian society, and particularly the role of women in that society, has changed in the last six decades is undoubted. But some things are unchanged. There is still a significant number of women in Australia in relationships which are, for many and varied reasons, marked by disparities of economic and other power between the parties. However, the rationale of Yerkey v Jones is not to be found in notions based on the subservience or inferior economic position of women. Nor is it based on their vulnerability to exploitation because of their emotional involvement, save to the extent that the case was concerned with actual undue influence.
So far as Yerkey v Jones proceeded on the basis of the earlier decision of Cussen J in Bank of Victoria Ltd. v Muller, it is based on trust and confidence, in the ordinary sense of those words, between marriage partners ...
113 It is plain, in my opinion, as stated above, that in all the circumstances, and because the third defendant was guilty of unconscionable conduct, the subject mortgage is liable to be set aside as against the third defendant.
It may be that the principles applied in Yerkey v Jones will find application to other relationships more common now than was the case in 1939 - to long term and publicly declared relationships short of marriage between members of the same or of opposite sex - but that is not a question that falls for decision in this case. It may be that those principles will find application where the husband acts as surety for the wife but again that is not a problem that falls for decision here. This case concerns a husband and wife and it is to that relationship that the present decision relates, just as it is concerned only with the circumstance of the wife acting as surety for her husband. The resolution of questions arising in the context of other relationships may well require consideration of other issues. Thus to take one example, if cohabitation is taken as a criterion, what should a lender know or seek to find out about the nature of the relationship between the parties? But those issues did not arise and were not debated on the hearing of this appeal .” (underlining supplied).
Decision
Mortgage Also Liable To Be Set Aside As Against First and Second Defendants
114 It remains to consider, nevertheless, whether or not it is just and equitable in the present case, in the context of the relevant principles as to unconscionability, to make an order setting aside the subject mortgage as against the first and second defendants and ordering them to execute a discharge of the subject mortgage. The answer to this question involves a consideration of the position of the first and second defendants, not ignoring their position as transferees of the subject mortgage under the Real Property Act 1900 pursuant to the doctrine of subrogation.
115 In this connection it is necessary to consider, inter alia, the circumstances in which the first and second defendants became transferees of the subject mortgage. This occurred in circumstances in which the first and second defendants had been sued as guarantors by the third defendant, the mortgagee under the subject mortgage, which was also the creditor who had originally advanced $4,300,000 (this amount was later increased) on 7 January 1985 to Vimalar Pty. Limited (later Quaba Property Holdings Pty. Limited), a company controlled by Sean Fraser, the plaintiff's former husband, by way of deed of loan dated 7 January 1985, to enable the company to build and develop a shopping centre at Gunnedah.
116 Also on 7 January 1985 a deed of guarantee was executed between Sean Barrie Fraser, Lester Tyler Alexander, Denis Michael Power, Kirsty Power, Quaba Pty. Limited, Denkirst Investments Pty. Limited as guarantors, and the third defendant, National Westminster Finance Australia Limited.
117 On 21 August 1985 a deed of variation was executed between Vimalar Pty. Limited and Sean Barrie Fraser, Denis Michael Power, Quaba Pty. Limited, Kirsty Power and Denkirst Pty. Limited and the third defendant pursuant to which a further sum of $100,000 was advanced to Vimilar Pty. Limited. It appears that the plaintiff was appointed a director of Vimilar Pty. Limited on or about 7 November 1986 and was also appointed a director of Quaba Pty. Limited.
118 On 26 February 1987 the deed of loan and the guarantees were varied by deed of variation of that date executed by the borrower, the lender and the guarantors and increasing the amount advanced by a further $200,000.00. On the same day Sean Barrie Fraser and the plaintiff executed the subject mortgage in favour of the third defendant.
119 On 26 November 1987 a further deed of variation was executed by the relevant parties, increasing the loan by $650,000 to $5,250,000.
120 In or about December 1981 Kirsty Power and Denkirst Investments Pty. Limited, the first and second defendants, executed a security deposit agreement securing the sum of $152,455.78 to be placed on deposit with the third defendant.
121 On 29 June 1989 the third defendant appropriated the balance of this account in part payment of the moneys owing to it pursuant to the deed of loan.
122 In 1990 the third defendant commenced proceedings against the borrower and guarantors to recover moneys outstanding under the deed of loan. Mr. Justice Brownie delivered judgment on 6 February 1992 and made certain orders on 13 May 1992 which orders embodied a compromise between the first and second defendants and the third defendant by way of reducing the amount payable by the first and second defendants to the third defendant pursuant to Mr. Justice Brownie's judgment from $1,134, 932.77 to $900,000 payable by two instalments. On 26 June 1992 the first and second defendants paid to the third defendant the sum of $900,000 pursuant to the said orders.
123 On 12 December 1994 Mr. Justice Brownie granted leave to the first and second defendants to proceed against Sean Barrie Fraser, the plaintiff’s former husband, under section 60 of the Bankruptcy Act 1966. Mr. Justice Brownie also ordered judgment to be entered in favour of the first and second defendants against Quaba Property Holdings Pty. Limited and Sean Barrie Fraser in the sum of $900,000 plus interest pursuant to section 94 of the Supreme Court Act 1970 from 26 June 1992 and made an order as to costs.
124 On 22 August 1996 the third defendant assigned its rights under the security documents including the subject mortgage to the first and second defendants. As at 21 May 1997 the first and second defendants had paid to the third defendant pursuant to the guarantee the sum of $1,052,454.78.”
125 The liability of the first and second defendants to the third defendant arose originally on 7 January 1985 pursuant to a deed of guarantee of that date guaranteeing the moneys advanced by the third defendant to Vimilar Pty. Limited (later Quaba Property Holdings Pty. Limited) pursuant to a deed of loan of 7 January 1985. It was not suggested on behalf of the first and second defendants, nor could it have been, that either of the first and second defendants undertook that liability as guarantors by reason of anything said or done by the plaintiff. In particular, it could not have been said that either the first or second defendant undertook that original liability to the third defendant in reliance upon the existence of the subject mortgage (which was, of course, not in existence at that time). The same is true of the deeds of variation of 21 August 1985, 26 February 1987 and 26 November 1987. Only this last mentioned deed of variation was executed by the first and second defendants after the execution of the subject mortgage but the evidence does not support a conclusion that that deed of variation was executed by either of the first and second defendants in reliance upon the existence of the subject mortgage, or upon anything said or done by the plaintiff.
126 It follows, in my opinion, that the relevantly "accidental" circumstance that the first and second defendants became entitled, in the events which happened, to be subrogated to the rights of the third defendant under the subject mortgage, and to have the subject mortgage assigned to them, did not occur because of anything that the plaintiff said or did.
127 Put more simply, in my opinion, the evidence does not support a conclusion that the first and second defendants relied, relevantly, prior to their undertaking their original or any subsequent liability as guarantors to the third defendant, upon the existence of the subject mortgage.
128 That being so, in my opinion, there is nothing affecting the conscience of the plaintiff, nor, relevantly, any meritorious conduct on the part of either of the first and second defendants, which would support an argument that the subject mortgage should not be set aside as against the first and second defendants in the same way as in my opinion it should be set aside, relevantly, as against the third defendant.
129 It was submitted on behalf of the first and second defendants that the defendants had relevantly given value for the assignment to them of the subject mortgage, having regard to the moneys which they paid to the third defendant and which entitled them to that assignment and that accordingly, if any order was to be made in favour of the plaintiff, it should be on terms that the first and second defendants should receive some amount by way of compensation in respect of the consideration which they paid.
130 In my opinion, however, the circumstance that the first and second defendants became entitled to an assignment of the subject mortgage arising out of their payment to the third defendant is relevantly, so far as the plaintiff was concerned, properly described as an "accidental" circumstance, since what occurred in that regard occurred quite independently of any conduct on the part of the plaintiff. The first and second defendants became entitled to be subrogated to the rights of the third defendant simply because they were sued by the third defendant and ordered to pay certain money to the third defendant.
Contracts Review Act 1980
131 For the same reasons as I have stated in respect of the claim of unconscionability, it is also my opinion that the subject mortgage was, a fortiori, unjust in the circumstances in which it was made within the meaning of the Contracts Review Act 1980.
132 In relation to the Contracts Review Act 1980 one has only to relate the considerations listed in section 9(2) of the Act to the circumstances of the present case to be confirmed in the view that, having regard to the various considerations mentioned above in relation to unconscionability, the contract was also unjust in the circumstances in which it was made within the meaning of section 7 of that Act.
133 Thus, for example, it is plain in my opinion that there was material inequality and bargaining power between the powers to the mortgage; that neither prior to nor at the time of the execution of the mortgage were any of its provisions the subject of negotiation; that it was not reasonably practicable for the plaintiff to negotiate for the alteration of or to reject any of the provisions of the mortgage and, in particular, that the plaintiff was not reasonably able to protect her interests although not because of any problem with her age or the state of her physical or mental capacity, but because of her ignorance of the relevant circumstances in which the mortgage was required by the third defendant and which, if she had known, would have resulted in her refusal to execute the subject mortgage. Related to this last mentioned consideration in the present case is the circumstance that the plaintiff did not receive independent legal advice and further, not only were the provisions of the contract and their legal and practical effect not accurately explained to her, but to the contrary, her former husband misrepresented various matters to her with the result that she did not understand the provisions of the mortgage and their effect. Nor did the plaintiff relevantly receive any benefit in return for her executing the mortgage, it being common ground that she had no interest in any business of her former husband. And finally, there is the consideration that it is plain that in all the circumstances her former husband exerted unfair pressure on the plaintiff to execute the subject mortgage just as, in my opinion, on the evidence, the third defendant exerted unfair pressure on her former husband to obtain the plaintiffs signature to the mortgage.
134 So far as concerns the position of the plaintiff vis-a-vis the first and second defendants in relation to the subject mortgage of which the first and second defendants are transferees I am of the opinion that there is nothing in the relevant circumstances of the case and in particular no conduct of the plaintiff which would so affect her conscience as to produce the result that although the contract (mortgage) was unjust as between the plaintiff and the third defendant within the meaning of the Contracts Review Act 1980, it was not unjust as between the plaintiff and the first and second defendants, or, alternatively, should not also be set aside under that Act as against the first and second defendants.
135 In particular, inter alia, I do not consider that the failure of the plaintiff to take steps to have the subject mortgage set aside until the commencement of the present proceedings, not withstanding the receipt by her of certain notices under section 57(2)(b) of the Real Property Act 1900, operates to produce any different result since, in my opinion, that circumstance could not be reasonably relied upon by any person as constituting some kind of representation that the mortgage was valid and not liable to be set aside when appropriate advice was received.
136 Nor, in my opinion, is there anything in the circumstances otherwise which would lead to the conclusion that the first and second defendants had any reason referable to the plaintiff for expecting that there would be no application by the plaintiff to have the mortgage set aside. In particular, I am of the opinion that no such expectation could have legitimately arisen from the fact that the first and second defendants became entitled to and did obtain registration as transferees of subject mortgage under the Real Property Act 1900, it being the case that such registration does not offer any protection to the registered proprietors against “personal equities", or against the general principles relating to unconscionable conduct, or against the Contracts Review Act1980, more especially since the entitlement to registration of the first and second defendants was but an accidental consequence of them having been successfully sued by the third defendant. Nor, in those circumstances, can it be said, relevantly, that the plaintiffs gave consideration for the transfer to them of the subject mortgage, since the moneys paid by them to the third defendant were paid wholly and solely to satisfy the liability of the first and second defendants to the third defendant, and not in whole or in part by way of consideration for the transfer to them of the subject mortgage to which they became entitled, automatically, as it were, by reason of the doctrine of subrogation.
137 In my opinion, once a plaintiff has made out the necessary case under the general law relating to unconscionability and/or under the Contracts Review Act 1980, entitling him or her to have the relevant transaction set aside, the Court is entitled to mould its relief so as to achieve a just result, even if the effect of its order is to deprive the wrongdoer of the benefit of the indefeasibility provisions of the Real Property Act 1900. The Court is, in my opinion, entitled to do this, not by way of overriding the statute, but by making the appropriate order against the wrongdoer personally, for example, by ordering the wrongdoer, in a case such as the present case, to execute a discharge of the subject mortgage. And, in my opinion, as stated above, such an order may be made regardless of whether or not the relevant facts bring the case within the personal equities exception to indefeasibility of title under the Real Property Act 1900.
Subrogation
138 It remains to consider, however, whether the subject mortgage should be set aside as against the first and second defendants who are now the registered proprietors of the mortgage by way of transfer from the third defendant, also pursuant to the doctrine of subrogation. As such transferees by virtue of such subrogation, the first and second defendants are entitled "to stand in the place of the creditor" by virtue of the provisions of section 3 of the Law Reform (Miscellaneous Provisions) Act 1965 as well as pursuant to the general law.
139 Section 3 of that Act is in the following terms:-
"3. (1) A person who, being surety for the debt or duty of another, or being liable with another for a debt or duty, pays that debt, or performs that duty, is entitled:
(2) The payment of the debt or the performance of the duty by a surety is not a defence to any such proceedings referred to in subsection (1).
(a) to have assigned to that person, or to a trustee for that person, every judgment, specialty or other security held by the creditor in respect of that debt or duty, whether or not that judgment, specialty or other security is taken at law to have been satisfied by the payment of the debt or the performance of the duty; and
(b) to stand in the place of the creditor and to use all the remedies, and, if necessary, and on a proper indemnity, to use the name of the creditor in any proceedings to obtain from the principal debtor or any co-surety, co-contractor or co-debtor (as the case requires) indemnity for the advances made and loss sustained by the person who paid the debt or performed the duty.
(3) A co-surety, co-contractor or co-debtor is not entitled under this section to recover from another co-surety, co-contractor or co-debtor more than the proportion to which, as between those parties themselves, that person is justly liable.”140 Implicit in the statutory provision that a person who, being in the position of the defendants, is entitled "to stand in the place of the creditor", and also pursuant to the general law relating to subrogation, is the principle that in a subrogation action the third party may raise any defence which would have been available if the assignor had himself or herself been a party to the action: cf. Haisbury's Laws of England (4ed. - 1994) para. 510, page 293.
141 The application of this principle in the present case leads, in my opinion, to the result that the subject mortgage should also be set aside as against the first and second defendants, being the transferees of the subject mortgage.
142 It was submitted, however, on behalf of the first and second defendants that they were entitled to the benefit of the indefeasibility provisions of the Real Property Act 1900, with the result that the plaintiff was unable to raise against the first and second defendants her "equity" to have the subject mortgage set aside as against the third defendant pursuant to the general law as to subrogation and unconscionability, or under the Contracts Review Act 1980.
143 It may well be that even on this analysis, the plaintiff would be entitled and able to bring herself within the "personal equities" exception to the indefeasibility of the title of the registered proprietor under the Real Property Act 1900, but, in my opinion, even if this were not so, the plaintiff would still be entitled, in the context of the present proceedings, to relief by way of having the subject mortgage set aside as against the first and second defendants pursuant to the principles of the general law relating to subrogation which, as stated above, entitle the third party to raise any defence which would have been available against the assignor if he or she had been a party to the proceedings.
Alleged Misleading Conduct
144 It was then submitted on behalf of the first and second defendants, in effect, that the plaintiff had been guilty of misleading conduct in that by her execution of the subject mortgage in the relevant circumstances she had, in effect, represented, contrary to the facts, to the first and second defendants, that the subject mortgage was valid and not liable to be set aside.
145 In my opinion, however, the relevant circumstances do not justify a conclusion that any such representation was impliedly made by the plaintiff as a result of her executing the subject mortgage, either to the first and second defendants or indeed to the third defendant. So far as the third defendant is concerned, it is plain from the circumstances referred to above that it was not relying upon any such representation by the plaintiff at all, but was rather seeking only to advance its own interests by requiring the plaintiff to execute a document (the subject mortgage) which had been prepared by it, or by legal advisers on its behalf, for the sole purpose of protecting and advancing its own interests. All that the third defendant wanted was for the plaintiff to sign the document that they had prepared, and that desire was not conditioned or conditional in any way upon Mrs. Fraser expressly or impliedly representing that the mortgage would be valid regardless of the circumstances in which it was signed. It follows, in my opinion, that the plaintiff was not guilty of engaging in misleading conduct.
146 Further, in my opinion, if it were the case, contrary to my view, that the signing by the plaintiff of the subject mortgage did give rise to an implied representation by the plaintiff that the subject mortgage was valid, it would have been quite unreasonable for the third defendant to rely upon such representation in circumstances where Mrs. Fraser had signed the document without legal advice, so far as the third defendant knew or cared, and where the third defendant had plainly taken its own advice in relation to the document which the plaintiff was to sign.
147 The same is true, in my opinion, in respect of the first and second defendants. In their case also, in my opinion, in the relevant circumstances just referred to, it would have been unreasonable for them to have relied upon any such implied representation by the plaintiff said to have arisen from the fact of her signing the subject mortgage in the relevant circumstances. In any event, however, I am of the opinion that no such express or implied representation was made by the plaintiff in the circumstances by reason of her having executed the mortgage or for any other reason.
148 The foregoing submissions in relation to the alleged misleading conduct of the plaintiff were made on behalf of the first and second defendants in relation to the allegations and submissions by the plaintiff that the subject mortgage secured only the joint debts of the plaintiff and her former husband, of which there were none, with the result that the mortgage had no operative effect, and also in relation to the allegations and submissions on behalf of the plaintiff to the effect that the mortgage had no operative effect by reason of the fact that, as at the date of execution of the mortgage, one of the guarantors of the principal debt, namely, Mr. Power, had been released or, further and/or alternatively, was later released, and/or because of the execution of the deed of variation dated 26 November 1987.
149 It was submitted on behalf of the first and second defendants that, in relation to these alleged grounds of invalidity, in effect, of the subject mortgage, the plaintiff had engaged in misleading conduct by reason of her having executed the subject mortgage, it being said, in effect, that in doing so the plaintiff had represented that the subject mortgage was valid, that is, was not invalid, by reason of the matters just referred to.
150 In my opinion, for the reasons expressed above in the general analysis relating to misleading conduct, the submissions in this connection on behalf of the first and second defendants should be dismissed.
Alleged Estoppel
151 In relation to these two last mentioned matters, namely, firstly, the allegations and submissions on behalf of the plaintiff, that, on its true construction, the mortgage secured only joint debts of Mr. and Mrs. Fraser, of which there were none, and secondly, that Mrs. Fraser as, in any event, discharged from liability under the mortgage by reason of the release of Mr. Power as guarantor and/or the execution of the deed of variation of 26 November 1987, it was also submitted on behalf of the first and second defendants that the plaintiff was estopped from denying the validity of the subject mortgage, either by reason of her having, in the manner dealt with above, allegedly represented that the subject mortgage was valid, or by way of conventional estoppel, by reason of the alleged fact that both parties had proceeded in relation to the execution of the subject document upon the common basis that the mortgage when executed would be valid.
152 For the reasons already mentioned I am of the opinion that no such representation was made by the plaintiff. I am also of the opinion that the plaintiff and the third defendant did not execute the subject mortgage in circumstances in which they both assumed that the mortgage when executed would be valid. Even if that was an assumption made by or on behalf of the third defendant at the relevant time it was not, in my opinion, an assumption to which the plaintiff contributed in any way so far as concerns the third defendant as is required by the relevant legal principles (see later). As stated earlier the third defendant was, in my opinion, relying entirely upon its own advice in relation to any assumption by it that the subject mortgage would be valid, and did not rely in any way upon the plaintiff in that connection. So far as the plaintiff is concerned it does not appear whether the plaintiff did or did not assume that upon execution the subject mortgage was valid, but in any event, whatever her assumption was in that regard, it was not a common assumption contributed to by the plaintiff and shared with third defendant, even if each of their non-shared assumptions was the same.
153 It follows that, in my opinion, the submissions made on behalf of the first and second defendants to the effect that the plaintiff is estopped, in accordance with the principles relating to estoppel including conventional estoppel from, in effect, denying the validity of the subject mortgage to bind the plaintiff by reason that, on its true construction, it operated only to secure debts owed by Mr. and Mrs. Fraser jointly, or by reason of the circumstances relating to the release of Mr. Power as a guarantor or the execution of the deed of variation of 26 November 1987, must be rejected.
154 The relevant principles in relation to estoppel were dealt with by Mason C.J. in The Commonwealth v Verwayen (1989-1990) 170 CLR 394 at 409 ff in the following passage:-155 In the same case, Brennan J. (as he then was) held (at 422) as follows:-
"At common law the principle of estoppel by conduct or representation ("estoppel in pais') provided that protection by preventing the party estopped from unjustly departing from an assumption of fact which his conduct had caused another party to adopt or accept for the purpose of their legal relations ... It follows that, as a matter of principle and authority, equitable estoppel will permit a court to do what is required in order to avoid detriment to the party who has relied on the assumption induced by the party estoppe but no more.” (underlining supplied).
156 The relevant principles were also expounded by the High Court in Waltons Stores (Interstate) Limited v Maher and Another (1987-1988) 164 CLR 387 in the following passages, inter alia:-
"Estoppel by representation of a fact (estoppel in pais) precludes a party who, by his representation, has induced another party to adopt or accept the fact and thereby to act to the other party's detriment from asserting a right inconsistent with the fact on which the other party acted...” (underlining supplied).
"One may therefore discern in the cases a common thread which links them together, namely, the principle that equity will come to the relief of a plaintiff who has acted to his detriment on the basis of a basic assumption in relation to which the other party to the transaction has ‘played such a part in the adoption of the assumption that it would be unfair or unjust if he were left free to ignore it'...”: per Mason C.J. and Wilson J. at 404.
The foregoing review of the doctrine of promissory estoppel indicates that the doctrine extends to the enforcement of voluntary promises on the footing that a departure from the basic assumptions underlying the transaction between the parties must be unconscionable. As failure to fulfil a promise does not of itself amount to unconscionable conduct mere reliance on an executory promise to do something, resulting in the promisee changing his position or suffering detriment, does not bring promissory estoppel into play. Something more would be required. Humphreys Estate suggests that this may be found, if at all, in the creation or encouragement by the party estopped in the other party of an assumption that a contract will come into existence or a promise will be performed and that the other party relied on that assumption to his detriment to the knowledge of the first party”: per Mason CJ. and Wilson J. at 406.
"In my opinion, to establish an equitable estoppel, it is necessary for a plaintiff to prove that (1) the plaintiff assumed that a particular legal relationship then existed between the plaintiff and the defendant or expected that a particular legal relationship would exist between them and, in the latter case, that the defendant would not be free to withdraw from the expected legal relationship; (2) the defendant has induced the plaintiff to adopt that assumption or expectation (3) the plaintiff acts or abstains from acting in reliance on the assumption or expectation; (4) the defendant knew or intended him to do so; (5) the plaintiff’s action or inaction will occasion detriment if the assumption or expectation is not fulfilled and (6) the defendant has failed to avoid that detriment whether by fulfilling the assumption or expectation or otherwise”: per Brennan J. (as he then was) at 428-429. (underlining supplied).
157 These statements of principle make it plain that the party said to be estopped must have induced the other party to adopt or accept a fact by reason of the first party's representation. In the present case, as stated above, it was submitted on behalf of the first and second defendants that the relevant representation alleged to have been made by the plaintiff was to the effect that the subject mortgage was valid and not liable to be set aside, such representation being alleged to have been made when, in the relevant circumstances, the plaintiff executed the subject mortgage. In my opinion, as stated above, the mere executing by the plaintiff of the subject mortgage in the relevant circumstances did not constitute any such representation. It would, in my opinion, as also stated above, in any event, have been unreasonable for the third defendant, or the first and second defendants, to have relied in such circumstances upon any such representation.
158 In other words, in my opinion, the plaintiff did not, by executing the subject mortgage, induce either the third defendant or the first and second defendants to adopt or accept the "fact" that the said mortgage was valid and not liable to be set aside.
159 So far as concerns estoppel by convention the relevant principle has been described as follows:-
“Estoppel by convention is a form of estoppel founded not on a representation of fact made by a representor and acted on by a representee to his detriment, but on the conduct of relations between the parties on the basis of an agreed or assumed state o facts which both will be estopped from denying. The existence of an estoppel based on a convention between the parties has often been recognized ... But in our opinion the doctrine has no application to the present case for two reasons. First, there is no estoppel unless it can be shown that the alleged assumption has in fact been adopted by the parties as the conventional basis of their relationship ...”: per Gibbs C.J., Mason, Wilson, Brennan and Dawson JJ. in Con-Stan Industries of Australia Pty. Limited v Norwich Winterthur Insurance (Australia) Limited (1985-1986) 160 CLR 226 at 244. (underlining supplied).
160 In my opinion there is no evidence, at least so far as concerns the plaintiff, to the effect that she executed the subject mortgage on the basis that it had been agreed between her and the third defendant, or had been assumed as between her and the third defendant, that, when executed, the mortgage would be valid and not liable to be set aside. In my opinion, for the reasons stated earlier, the mere fact that the plaintiff executed the subject mortgage in the relevant circumstances is not evidence of those matters. Nor, in my opinion, as also stated above, did the plaintiff relevantly do anything by way of inducing the third defendant to adopt any such assumption. To the extent that the third defendant may have made such an assumption it was based on its own legal and other advice.
161 It follows that the submission made on behalf of the first and second defendants to the effect that the third defendant (and/or the first and second defendants) conducted relations between them on the basis of an agreed or assumed state of facts should be rejected, it being plain that the plaintiff neither agreed nor assumed any such thing.
162 As stated above, it was also submitted on behalf of the first and second defendants that, having regard to subsection 57(2) notices served upon the plaintiff in respect of which the plaintiff took no action to have the mortgage set aside, the first and second defendants were in some way entitled to rely upon this failure of the plaintiff to act as some kind of representation b the plaintiff that the subject mortgage was not invalid. In my opinion no such representation can be implied on the part of the plaintiff in the relevant circumstances and further if, contrary to that view, such a representation could be implied it would, in my opinion, have been unreasonable for the first and second defendants to have relied upon it in relation to any course of conduct which they followed. In any event, the evidence does not support a conclusion that the first and second defendants did in fact rely upon any such failure by the plaintiff to act after receipt of the relevant notices.163 As stated earlier, when the subject land was purchased in 1975 title was taken in the name of the plaintiff and her former husband, Sean Barrie Fraser, as joint tenants. As also stated earlier, the plaintiff gave evidence by affidavit that:-
Former Interest in Subject Land of Plaintiff’s Former Husband
“From about the late 1970s or the early 1980s Sean said on many occasions 'You can have the house’ or 'The house is yours’ or words to the same effect. I considered in about the early 1980s having the house transferred into my name but simply did not have the financial resources to do so.”
164 It was submitted on behalf of the plaintiff that these statements by the plaintiff’s former husband constituted a declaration of trust by him of his one half interest as joint tenant in the land, in favour of the plaintiff.
165 In cross-examination counsel for the first and second defendants tried, in my opinion, unsuccessfully, to establish firstly, that the plaintiff was mistaken at least as to the period of time over which the plaintiff’s former husband made these statements, secondly, that those statements did not constitute a declaration of trust, and thirdly, that because the plaintiff was of the view that something further had to be done (finalised) in order to transfer her former husband's interest to her that, whatever her former husband said to her, should not be construed as a declaration of trust but rather as something in the nature of a statement of intention to transfer his interest in the property to her in the future.
166 In my opinion, none of these matters were established in cross-examination of the plaintiff. In the first place, the plaintiff did not, in cross-examination, relevantly resile from her statement that the statements by her former husband had been made in the late 1970s or the early 1980s as appears, in my opinion, from the following passages in the cross-examination of the plaintiff, inter alia:-167 In my opinion, these passages make it plain that the plaintiff did not resile in cross-examination from her evidence to the effect that:-
"Q. What I would like to suggest to you is you are mistaken in the paragraphs of your affidavit I have asked you to read, the two affidavits ... that in fact there was no finalised agreement or statement by Mr. Fraser in the late 1970s or early 80s, or indeed at any time, to make himself a trustee of his half of the house at Stanhope Road for you?
A. Not finalised at that stage, no.
Q. And what I want to suggest to you is that you are mistaken that he even promised to make himself trustee?
A. No, I am not mistaken there at all.
Q. What I would like to suggest to you is this, that there were various proposals about how to split up the property including the family home after the dissolution of the marriage ... and those proposals included one alternative, him paying the mortgage and another one him paying you maintenance and you paying the mortgage and that it went no further than that proposals - late 70s early 80s - do you agree with that?
A. He paid me maintenance. I paid the mortgage. He mentioned the house and I left it up to him and I didn't do anything about that because I didn't have the money that I felt it needed. I didn't have any money at all.
HIS HONOUR: Q.: When (did) you say he mentioned the house?
A. He said, he mentioned that before he married Janice McIlree and certainly after he married Janice McIlree.
(The plaintiff gave evidence that this marriage took place in August 1979).
Q. What?
A. That the house was mine, that he relinquished any interest in the house but it was not finalised.
BURTON..Q: You don't recall him ever using the language 'I am trustee of my half of the house for you’ do you?
A. No.
Q. I suggest to you that he never said in the late 70s or the early 80s that the house was yours?
A. No, you're wrong. He said that.
Q. Irrespective of what you remember or claim about that, you agree, don't you, that he never did anything in the late 70s or early 80s to finalise it?
A. That’s correct, yes.”
168 In the second place, in my opinion, the words used by the plaintiff’s former husband, namely, inter alia, "The house is yours", or words to the same effect, including words to the effect that "he relinquished any interest in the house" did, on their true construction, in the relevant circumstances at the time, constitute a declaration of trust. This is made clear, in my opinion, inter alia, by the answer given by the plaintiff in cross-examination and referred to above that her former husband said:-
"From about the late 1970s or the early 1980s Sean said on many occasions 'You can have the house' or 'The house is yours' or words to the same effect.”
" That the house was mine, that he relinquished any interest in the house but it was not finalised.”
169 In the third place, in my opinion, it is perfectly consistent with this evidence that when the plaintiff, and others, referred to the necessity to have this matter "finalised", they were contemplating the necessity that, in order to give full effect to this declaration or trust, it would be necessary for Mrs. Fraser's former husband to transfer his legal interest as joint tenant to the plaintiff so that it would thereafter be plain on the title that the subject property was wholly owned by the plaintiff.
170 In my opinion, all subsequent negotiations and discussions in relation to the transfer by the plaintiff’s former husband to the plaintiff of his interest in the subject property, including negotiations and discussions by the plaintiff’s solicitor in relation to the family law proceedings between the plaintiff and her former husband, must be understood in this context, whether or not the plaintiff or her solicitor and/or others had any proper appreciation of the true position.
171 It also follows, in my opinion, that this was the position, in all the circumstances as at the date of execution by the plaintiff of the subject mortgage, namely, 27 February 1987. In other words, in my opinion, in all the circumstances, as at that date, and previously, the plaintiff was the sole beneficial owner of the whole of the subject property whilst her former husband was a bare trustee for the plaintiff of his legal interest as joint tenant of the subject property.172 So far as concerns the necessity for writing pursuant to section 23C(1)(b) of the Conveyancing Act 1919, I am of the opinion that the letter signed by the plaintiff's former husband addressed to her and dated 15 February 1997 does constitute a sufficient writing for the purposes of that subsection. That letter was in the following terms:-
Alleged Absence of Writing
"Ms. KJ Fraser,
78 Stanhope Road
KILLARA. NSW 2071.
Dear Kerry,
RE 78 Stanhope Road, Killara .
I acknowledge that as at today's date I am a registered proprietor of the above property together with yourself as joint tenant.
I hereby confirm that I have disclaimed any interest in the property.
I will upon request sign a Real Property Act Transfer and whatever other documents as are necessary to have you registered as the sole proprietor of the above property.
Yours sincerely,
sgd.
Sean Barrie Fraser
DATED: 15 Feb 1997”
173 It is true that this letter does not expressly state in terms that the plaintiff’s former husband is a trustee of his interests in the subject property for the plaintiff but it is, nevertheless, in my opinion, a sufficient note or memorandum of that position to satisfy the statute having regard to the fact that the second paragraph states, in effect, that at some earlier point of time the plaintiff s husband had "disclaimed any interest in the property" with the result that, in my opinion, he must, as at the date of the letter, have been holding his legal title as joint tenant of the subject property in trust for some other person. Moreover it is plain that such other person must be the plaintiff since firstly, the letter is addressed to her and secondly, because the last paragraph of the letter indicates that he will upon request sign a Real Property Act 1900 transfer and whatever other documents are necessary to have the plaintiff registered as the sole proprietor of the subject property. Having regard to these considerations the letter is, in my opinion, a sufficient note or memorandum of the plaintiff’s former husband's declaration of trust to satisfy the statute, it being plain that it is not necessary that the required note or memorandum should come into existence at the time of the making of the declaration of trust.
174 The relevant principle in this connection has been expressed as follows:-
“(3) The writing need not be made at the time the trust is declared, but may be made subsequently. The trust nevertheless takes effect from the time when it was declared orally, not from the date when the written record was made. The statute requires not that the trust should be created by writing, but that the trust should be manifested and proved by writing. The date of the writing is immaterial. Thus an oral trust of a lease has been upheld where the only written evidence was that made after the trustee had become bankrupt": Jacobs’ Law of Trusts in Australia (6 ed. -1997) par. 707 at page 115.
"Why, one might ask, is s23C(1)(b) needed at all? Is not a declaration of trust of land a disposition of that land or, at least, a transaction which creates an interest in it? (The statutory definitions of 'disposition' include declaration of trust, but that (see[703] does not conclude the matter.) The point is not entirely without importance because whereas a transaction which is within para (a), or for that matter, para (c), of s23C(I) is entirely ineffective unless in writing, a transaction which is within para (b) need only be 'manifested and proved' by some writing: the transaction may be oral provided that it is evidenced by a writing, which need not be contemporaneous with the transaction but may be brought into existence later: Forster v Hale (1798) 3 Ves Jr 696; Rochefoucauld v Boustead [1897] 1 Ch 196; Permanent Trustee Co v Scales (1930) 30 SR(NSW) 391. The Federal Court has held - correctly it is suggested - that para (a) does not extend to declarations of trust of land, so that para (b) is to be seen neither as otiose nor as imposing requirements additional to those of para (a): Secretary, Department of Social Security v James (1990) 95 ALR 615, Lee J, relying particularly on the review by Kennedy J of the history of the provisions in Abjornson v Urban Newspapers Pty Lid [1989] WAR 191 at 198-9. This view of the law has now been adopted by Kearney J in Hagan v Waterhouse (28 November 1991, unreported).”: Equity Doctrines and Remedies (3 ed. - 1992) par. 706 at page 211.
175 The memorandum of transfer of the plaintiff’s former husband's interest signed by the plaintiff’s former husband and dated 15 February 1997 is not relied upon by the plaintiff as a note or memorandum in writing sufficient to satisfy the statute, but is relied upon on behalf of the plaintiff as corroborative of the declaration of trust earlier made by the plaintiff’s former husband, and as being appropriate to give full effect to that declaration of trust by transferring the relevant interest to the plaintiff so that after registration the plaintiff would appear on the title as sole registered proprietor. I note that the date of the memorandum of transfer is 15 February 1987 being the same date as the date of the letter referred to above. The plaintiff gave evidence, which I accept, that these documents were obtained by her solicitor on or about 15 February 1997, and that the plaintiff had no direct involvement in obtaining those documents.
176 In this connection I am further of the opinion that, to the extent that the first and second defendants are in these proceedings attempting to rely upon the absence of writing, to defeat the claim of the plaintiff to her former husband's former interest in the subject property, in circumstances, whether originally known to them or not, in which the plaintiff’s former husband has declared himself to be a trustee for the plaintiff of his interest in the property as joint tenant and does not seek to resile from that position, relevantly constitutes the attempted use by the first and second defendants of the statute as an "instrument of fraud" within the meaning of the relevant principles. Those principles do not, of course, involve any notion of common law fraud but only the notion of "equitable fraud", in the sense of acting unconscientiously. If this approach involves some extension of the existing law in relation to the use of the statute as an instrument of fraud then I am of the opinion that it is nevertheless in accordance with the spirit and intendment of the existing principles relating to that doctrine in the particular circumstances of the present case.
177 To the extent to which it may be true to say that, the first and second defendants originally had no knowledge of the plaintiff’s former husband's declaration of trust, so that, in that sense, it may be said that their conscience is relevantly unaffected, that argument is, in my opinion, untenable, because the fact remains that the first and second defendants are, nevertheless, seeking to rely on the absence of writing in these proceedings. It may also be observed that, in any event, in my opinion, an additional relevant consideration is that, for present purposes, the first and second defendants stand in the shoes of the third defendant pursuant to the doctrine of subrogation, which was sufficiently aware of the relationship between the plaintiff and her former husband, and including the fact the plaintiff’s former husband was about to transfer his legal title as joint tenant to the plaintiff, to justify the conclusion that any attempt on the part of the third defendant to defeat the plaintiff’s equitable (beneficial) interest in the subject property derived from her former husband by reason of the lack of writing would also constitute equitable fraud (unconscientious conduct) within the meaning of the principles to the effect that equity will not permit the statute requiring writing to be used as an instrument of equitable fraud. In this derivative sense the conscience of the first and second defendants is, in my opinion, also relevantly affected for present purposes.
178 I acknowledge, of course, that existing authority is to the effect that the declarant of an oral trust of real estate, originally acquired by the declarant beneficially, is not prevented by the principle from relying on the absence of writing to defeat the interest of the beneficiary: Wratten v Hunter (1978) 2 NSWLR 367 (and cf. Last v Rosenfeld (1972) 2 NSWLR 923). However, in my opinion, the circumstances of the present case are distinguishable in that, in the present case, it is not the declarant who is seeking to rely upon the absence of writing to defeat the beneficiary's interest, but the first and second defendants, who are strangers to the oral declaration of trust and who, relevantly, have given no consideration in respect of their claim under the subject mortgage to have recourse to the interests of the plaintiff in the said property acquired pursuant to the declaration of trust.
179 The plaintiff’s former husband became bankrupt on or about 27 February 1992 and was discharged from bankruptcy on or about 19 May 1995. However, in my opinion, prior to the date upon which the husband became bankrupt he had, in my opinion, effectively divested himself of any beneficial interest in the subject property with the result that no beneficial interest in the subject property passed to his trustee in bankruptcy who, in any event, made and still makes no claim to any beneficial interest in the subject property. For relevant purposes therefore, in my opinion, the circumstances of the bankruptcy of the plaintiff’s former husband are irrelevant, except to the extent that the absence of any claim in respect of the property by the trustee is at the very least, consistent with the plaintiff’s case on this issue, and, indeed, with the position of the plaintiff’s husband on this issue, which has at all times been consistent, namely, that he was at all material times a trustee for the plaintiff of his one half interest as joint tenant in the subject property.
Equitable (Beneficial) Interest of Plaintiff in Her Former Husband's Interest As Joint Tenant Pursuant to His Declaration of Trust
180 It was also submitted and pleaded on behalf of the first and second defendants that by reason of the absence of writing as required by section 23C(1)(b) of the Conveyancing Act 1919 the plaintiff did not become the owner of any equitable (beneficial) interest in the interest of the plaintiff’s former husband as joint tenant of the subject property. In my opinion, however, the plaintiff did acquire such an interest by way of declaration of trust by her former husband arising from his various statements to her to that effect as referred to earlier. In my opinion, it is plain on the authorities that the plaintiff did acquire such an interest even before any note or memorandum of the declaration of trust came into existence. In this connection the relevant principles have been set out above in paragraph 1714.
181 It follows, in my opinion, as stated earlier that the plaintiff did, in the late 1970s or early 1980s, become the owner of an equitable (beneficial) interest in her former husband's interest as joint tenant in the subject property, following and pursuant to his declaration of trust in her favour.
Limitation Act 1969
182 It was also submitted and pleaded on behalf of the first and second defendants, in effect, that the equitable estate or interest in the property alleged to have been acquired by the plaintiff from her former husband "arose on or before 11 February 1985 (i.e. more than 12 years before the commencement of the proceedings which was on 11 February 1997)" and that any cause of action which the plaintiff may have had to enforce any such equitable estate or interest in the subject property was time barred by sections 36(1) and 27(2) of the Limitation Act 1969 or section 47(1) of that Act by reason of which any such interest which the plaintiff may have had in the subject property was extinguished pursuant to section 65 of that Act.
183 The sections of the Limitation Act 1969 relied upon by the plaintiff are in the following terms:-
“36.(1) Subject to section 23, this Act applies to an action on a cause of action to enforce an equitable estate or interest in land in like manner as it applies to an action on a cause of action to recover land by virtue of a legal estate or interest in land.”
"2 7.(2) Subject to subsection (3) an action on a cause of action to recover land is not maintainable by a person other than the Crown if brought after the expiration of a limitation period of twelve years running from the date on which the cause of action first accrues to the plaintiff or to a person through whom the plaintiff claims.”
"47.(1) An action on a cause of action:
(a) in respect of fraud or a fraudulent breach of trust, against a person who is, while a trustee, a party or privy to the fraud or the breach of trust or against the person's successor;
(b) for a remedy of the conversion to a person's own use of trust property received by the person while a trustee, against that person or against the person's successor;
(c) to recover trust property, or property into which trust property can be traced, against a trustee or against any other person; or
(d) to recover money on account of a wrongful distribution of trust property, against the person to whom the property is distributed or against the person's successor;
is not maintainable by a trustee of the trust or by a beneficiary under the trust or by a person claiming through a beneficiary under the trust if brought after the expiration of the only or later to expire of such of the following limitation periods as are applicable:
(e) a limitation period of twelve years running from the date on which the plaintiff or a person through whom the plaintiff claims first discovers or may with reasonable diligence discover the facts giving rise to the cause of action and that the cause of action has accrued; and
(f) the limitation period for the cause of action fixed by or under any provision of this Act other than this section.”
"65.(1) Subject to subsection (2), on the expiration of a limitation period fixed by or under this Act for a cause of action specified in column 1 of Schedule 4, the title of a person formerly having the cause of action to the property specified opposite the cause of action in column 2 of that Schedule is, as against the person against whom the cause of action formerly lay and as against the person’s successors, extinguished.
(2) Where, before the expiration of a limitation period fixed by or under this Act for a cause of action specified in column 1 of that Schedule, an action is brought on the cause of action, the expiration of the limitation period does not affect the right or title of the plaintiff to property specified in column 2 of that Schedule in respect of which the action is brought:(3) This section does not apply where the cause of action is for conversion or detention of goods and, before the expiration of the limitation period fixed by or under this Act for the cause of action, the person having the cause of action recovers possession of the goods.”
(a) for the purposes of the action; or
(b) so far as the right or title is established in the action.
184 In my opinion, however, as submitted, in effect, on behalf of the plaintiff, by virtue of the operation of section 23C(1)(b) of the Conveyancing Act 1919 referred to earlier, the relevant cause of action of the plaintiff did not "first accrue" until a note or memorandum of the declaration of trust within the meaning of that section came into existence which, as referred to above, was on 15 February 1997. Prior to that date, in my opinion, there being no relevant note or memorandum in writing, the plaintiff had no cause of action in respect of the relevant equitable interest in the subject property upon which he could have successfully sued. In other words, in my opinion, it was necessary for the relevant note or memorandum to be in existence before the plaintiff’s cause of action was complete ("first accrued"), and before which she would have been unable to sue.
185 Accordingly, in my opinion, the submissions on behalf of the first and second defendants in relation to the Limitation Act 1969 must be rejected.186 The Court makes the following declarations;-
Declarations and Orders
187 The Court also makes the following orders:-
(1) That the plaintiff has no liability under or pursuant to the mortgage dated 26 February 1987, registered number W884117 in respect of the whole of the land comprised in certificate of title volume 12919 folio 45 and known as 78 Stanhope Road, Killara, ("the land") between the plaintiff and the third defendant and later assigned by the third defendant to the first and second defendants ("the mortgage").(2) That the third defendant was guilty of unconscionable conduct in relation to the execution by the plaintiff of the mortgage and that the mortgage is liable to be set aside as against both the third defendant and the first and second defendants.
(3) That the mortgage was unjust in the circumstances in which it was made within the meaning of section 7 of the Contracts Review Act 1980 and as such is liable to be set aside as against the third defendant, and also as against the first and second defendants.
(4) That the plaintiff is the sole beneficial owner of the whole of the land comprised in certificate of title volume 12919 folio 45 and known as 78 Stanhope Road, Killara.
(1) That the mortgage be set aside.(2) That the fourth cross-defendant transfer to the plaintiff forthwith his legal interest as joint tenant in the land .
(3) That the cross-claims of the first and second defendants against the plaintiff be dismissed.
(4) That the cross-claims of the first and second defendants against each of the first and fourth cross-defendants be dismissed.
(5) That the first and second defendants pay the costs of the plaintiff of the proceedings including the cross-claim.
(6) That the first and second defendants pay the costs of each of the first and fourth cross-defendants of the claims made against them by the first and second defendants.
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