La Trobe Financial Asset Management Limited v Nikolyn Pty Ltd ACN 078 833 977 in its own right and as trustee for Nikolyn Unit Trust

[2022] WASC 264

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CIVIL

CITATION:   LA TROBE FINANCIAL ASSET MANAGEMENT LIMITED -v- NIKOLYN PTY LTD ACN 078 833 977 in its own right and as trustee for NIKOLYN UNIT TRUST [2022] WASC 264

CORAM:   SMITH J

HEARD:   17 AUGUST 2021 TO 25 AUGUST 2021

AND BY WRITTEN SUBMISSIONS FILED ON

16 MAY 2022 AND 27 MAY 2022

DELIVERED          :   24 AUGUST 2022

FILE NO/S:   CIV 2938 of 2016

BETWEEN:   LA TROBE FINANCIAL ASSET MANAGEMENT LIMITED

THE ENTERPRISE FUND II LTD SINGAPORE CO. REG 200715352M

THE ENTERPRISE FUNDS III LTD SINGAPORE CO. REG 201104642M

Plaintiffs

AND

NIKOLYN PTY LTD ACN 078 833 977 in its own right and as trustee for NIKOLYN UNIT TRUST

First Defendant

MOANA NOMINEES PTY LTD ACN 008 835 685 in its own right and as trustee for the Moana Family Trust

Second Defendant

DONATO COLASANTE

Third Defendant

ROBERT COLASANTE

Fourth Defendant

ANGELA COLASANTE

Fifth Defendant

ROBERTO POTENTE also known as ROBERT POTENTE

Sixth Defendant

LILIANA LUPINI

First Named Seventh Defendant

DOMENIC LUPINI

Second Named Seventh Defendant

SYMBOL NOMINEES PTY LTD

Eighth Defendant

Catchwords:

Banking and Finance – Commercial lending for a replacement finance loan to the first and second defendants for a plumbing business

Equity and guarantees –What constitutes independent legal advice – Whether legal advice can only be given by a legal advisor to a guarantor who is independent of the borrowers – Whether the circumstances of the lending required that the fifth defendant and the first named seventh defendant receive independent financial advice – Asset based lending not unconscionable in itself – Asset based lending distinguished from cash flow lending

Equity and guarantees – Fifth defendant provided a guarantee and mortgaged her home and adjoining property as security for the loan in January 2015 – Amadio defence and counterclaim of unconscionability – Fifth defendant a volunteer – Fifth defendant under a special disadvantage – Whether plaintiffs wilfully blind to fifth defendant's special disadvantage – If the plaintiffs had knowledge of the fifth defendant's special disadvantage could they rely upon the legal advice certificates to discharge their onus? – Whether the plaintiffs had reasonable grounds for believing that the guarantee and the mortgages were properly explained to the fifth defendant by an independent advisor – Not reasonable in the circumstances for the plaintiffs to require that before the fifth defendant provided the guarantee and mortgages that she be provided with independent financial advice about the financial circumstances of the plumbing business – At the time the lenders agreed to offer the loan to the borrowers, the fifth defendant's properties were already encumbered – The legal advice certificates were not pro forma or defective – The plaintiffs were entitled to rely upon the legal advice certificates to be reasonably satisfied that an adequate explanation of the transaction had been given to the fifth defendant by a competent, disinterested, independent lawyer and that the fifth defendant understood that explanation – Plaintiffs' onus to show that the transaction was fair discharged

Equity and guarantees – First named seventh defendant provided a guarantee and mortgage over the equity in her home as security for the loan in May 2016 – By May 2016 financial circumstances of the plumbing business had deteriorated – Yerkey v Jones special equity defence and counterclaim of unconscionability – First and second categories of Yerkey v Jones principle considered – First named seventh defendant a volunteer – First named seventh defendant signed a deed binding her to provide a guarantee and a mortgage without legal advice but received independent legal advice prior to executing a guarantee and mortgage – First named seventh defendant's defence based upon the first category of Yerkey v Jones equity principle fails on grounds of no undue influence – Second category of Yerkey v Jones principle of unconscionability made out – Legal advice without financial advice about the then current financial circumstances of the plumbing business was insufficient to establish that the plaintiffs could be satisfied that the first named seventh defendant had received competent, independent and disinterested advice about the effect of purport of the guarantee and mortgage – Plaintiffs not entitled to rely upon the declaration made by the first named seventh defendant that she understood the terms and effect of the documents – First named seventh defendant satisfied onus to prove it was not reasonable for the plaintiffs to suppose that the first named seventh defendant had an adequate comprehension of the obligations she was undertaking and an understanding of the purport and effect of the loan and the terms of the guarantee and mortgage

Corporations – Financial services and markets – Statutory unconscionable conduct – Asset based lending – Australian Securities and Investments Commission Act 2001 (Cth) s12CB – Not satisfied the plaintiffs engaged in unconscionable conduct towards the fifth defendant

Corporations – Financial services and markets – Statutory unconscionable conduct – Australian Securities and Investments Commission Act 2001 (Cth) s12CB – First named seventh defendant under a special disadvantage – Plaintiffs conduct towards first named seventh defendant unconscionable and exploited her disadvantage by departing from system of lending when it required the first named seventh defendant to agree to become a guarantor for the loan by executing the deed which was executed prior to her providing the guarantee and mortgage without first obtaining any advice of any kind – System of lending was also deficient in that it would have been obvious to the plaintiffs in May 2016 that the first named seventh defendant required competent, independent and disinterested advice about the financial circumstances of the plumbing business – The plaintiffs engaged in unconscionable conduct towards the first named seventh defendant

Legislation:

Australian Securities and Investments Act 2001 (Cth)
Consumer Transactions Act 1972 (SA)

Result:

Judgment for the plaintiffs against the fifth defendant
Fifth defendant's counterclaim dismissed
Plaintiffs to have possession of fifth defendant's Shelley properties
Fifth defendant is to pay the plaintiffs the amount outstanding under the guarantee and the mortgages
Plaintiffs' claim against first named seventh defendant dismissed
Declaration made that the guarantee and security provided by the first named seventh defendant is void ab initio and of no effect
Plaintiffs to pay the first named seventh defendant damages for the sale of her interest in the Kewdale property to be assessed

Category:    B

Representation:

Counsel:

Plaintiffs	:	JE Scovell & CM Guy
First Defendant	:	No appearance
Second Defendant	:	No appearance
Third Defendant	:	No appearance
Fourth Defendant	:	No appearance
Fifth Defendant	:	SK Shepherd
Sixth Defendant	:	No appearance
First Named Seventh Defendant	:	S K Shepherd
Second Named Seventh Defendant	:	No appearance
Eighth Defendant	:	No appearance

Solicitors:

Plaintiffs	:	HWL Ebsworth Lawyers
First Defendant	:	No appearance
Second Defendant	:	No appearance
Third Defendant	:	Forbes Kirby
Fourth Defendant	:	Forbes Kirby
Fifth Defendant	:	Forbes Kirby
Sixth Defendant	:	No appearance
First Named Seventh Defendant	:	Forbes Kirby
Second Named Seventh Defendant	:	No appearance
Eighth Defendant	:	No appearance

Cases referred to in decision:

Agripay Pty Ltd v Byrne [2011] QCA 85; (2011) 2 Qd R 501

Agripay Pty Ltd v Byrne [2011] QCA 85; (2011) 2 QdR 501

Amtel Pty Ltd v Ah Chee [2015] WASC 341

Australia and New Zealand Banking Group Ltd v Dzienciol [2001] WASC 305

Australian Competition and Consumer Commission v Quantum Housing Group Pty Ltd (2021) 285 FCR 133

Australian Securities and Investments Commission v Kobelt [2019] HCA 18; (2019) 267 CLR 1

Bakhsh v Singh 30 TLR 138

Bank of New South Wales v Rogers (1941) 65 CLR 42

Bester v Perpetual Trustee Co Ltd [1970] 3 NSWR 30

Bridgewater v Leahy (1998) 194 CLR 457

Bromley v Ryan (1956) 99 CLR 362

Brusewitz v Brown [1923] NZLR 1106

Bylander International Consortium (Aust) Pty Ltd v Multilink Investments Pty Ltd [2001] NSWCA 53

Choice Constructions Pty Ltd v Janceski [2011] WASC 358

Citibank Savings Ltd v Nicholson (1997) 70 SASR 206

Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447

Commercial Bank of Australia v Ridout Nominees Pty Ltd [2000] WASC 37

Commonwealth Bank of Australia v Khouri (Supreme Court of Victoria, Harper J, 4 November 1998, (unreported)

Crane Distribution Limited v Yang [2016] NSWSC 620

Credit Lyonnais Bank Nederland NV v Burch [1997] 1 All ER 144

Elkofairi v Permanent Trustee Co Ltd (2002) 11 BPR 20, 841

Elkofairi v Permanent Trustee Co Ltd [2002] NSWCA 413

Garcia v National Australia Bank Ltd [1998] HCA 48; (1998) 194 CLR 395

Girgis v Poliwka [No 6] [2019] WASC 230

Gunn v Meiners [2022] WASCA 95

Jenyns v Public Curator (Qld) (1953) 90 CLR 113

Johnson v Buttress (1936) 56 CLR 113

Karavas v Crown Melbourne Ltd [2013] HCA 25; (2013) 250 CLR 392

Kowalczuk v Accom Finance Pty Ltd (2008) 77 NSWLR 205

Linderstam v Barnett (1915) 19 CLR 528

Louth v Diprose (1992) 175 CLR 621

Mann v Carnell (1999) 201 CLR 1

Mavaddat v HSBC Bank Australia Ltd [No 2] [2016] WASCA 94

McNamara v Commonwealth Trading Bank of Australia (1984) 37 SASR 232

Narain v Euroasia (Pacific) Pty Ltd [2008] VSCA 524

Narain v Euroasia (Pacific) Pty Ltd [2009] VSCA 290; (2009) 26 VR 387

Nolan v Westpac Banking Corp (1989) 51 SASR 496

Permanent Mortgages Pty Ltd v Vandenbergh [2010] WASC 10; (2010) 41 WAR 353

Perpetual Trustee v Khoshaba [2006] NSWCA 41

Perpetual Trustees Australia Ltd v Schmidt and Violet Home Loans Pty Ltd [2010] VSC 67

Plasterboard Central Pty Ltd v Blain [2009] NSWDC 44

Platinum Mortgage Securities Ltd v Nikolyn Pty Ltd [2018] WASC 117

Powell v Powell (1900) 1 Ch 243

Prendergast v Joyce [2009] 3 IR 519

Provident Capital Ltd v Papa [2013] NSWCA 36

R v Crabbe (1985) 156 CLR 464

Ryan v Aboody [2012] NSWSC 136

Serventy v Commonwealth Bank of Australia [2016] WASCA 223

Shannon v Permanent Custodians Ltd [2020] WASCA 198

State Bank of New South Wales Ltd v Chia (2000) 50 NSWLR 587

State Bank of New South Wales v Chia [2000] NSWSC 552; (2000) NSWLR 587

Stubbings v Jams 2 Pty Ltd [2022] HCA 6; (2022) 96 ALJR 271

Thorne v Kennedy [2017] HCA 49; (2017) 263 CLR 85

Warburton v Whiteley (1989) 5 BPR 11, 628

Yerkey v Jones (1939) 63 CLR 649

Table of Contents

1.0 The proceedings and the result

1.1 Introduction

1.1.1 The parties to the loan

1.1.2 The corporate structure of the borrowers and associated companies and trusts

1.1.3 The borrowers defaulted on the loan

1.2 Procedural history of the action

1.3 The plaintiffs' action against the fifth defendant, Angela Colasante, and the First-named seventh defendant, Liliana Lupini

1.4 A summary of defences of Angela Colasante and Liliana Lupini

1.5 The result

2.0 The witnesses

2.1 Legal principles - lay witnesses

2.2 The plaintiffs' witnesses

2.3 The defendants' witnesses

2.3.1 General observations about the evidence of Angela Colasante and Liliana Lupini

2.3.2 General observations about the evidence of Donato Colasante and Domenic Lupini

3.0 The relevant circumstances relating to Angela Colasante becoming a guarantor for the loan agreement entered into by Nikolyn and Moana Nominees in January 2015

3.1 Information provided to Platinum about the financial circumstances of the business of Nikolyn and each of the defendants

3.2 The circumstances surrounding Angela Colasante signing the application for the loan

3.3 Angela Colasante signs an offer that indicates the terms of the loan

3.4 Angela Colasante signs the guarantee documents in January 2015

4.0 The relevant circumstances relating to Liliana Lupini becoming a guarantor of the loan in 2016 and Angela Colasante executing the First and Second Variations to the loan and executing a guarantee document for Stramit for the provision of commercial credit

4.1 The material events that occurred in the period from 3 August 2015 to late 2016

4.2 The evidence about Liliana Lupini signing of Second Variation deed and the guarantor documents

4.2.1 Liliana Lupini's knowledge of the structure of Nikolyn and the Lupini Family Trust

4.2.2 The circumstances of Liliana Lupini signing the Second Variation Deed

4.2.3 Liliana Lupini and Angela Colasante execute the mortgage and security documents on 31 May 2016

5.0 Unconscionability - Amadio principles

6.0 'Yerkey v Jones unconscionability'

7.0 Should a finding be made that Angela Colasante and Liliana Lupini were volunteers?

8.0 Should the court find the mortgages, and guarantee's executed by Angela Colasante and Liliana Lupini to be void, and of no effect?

8.1 Angela Colasante's defence and counterclaim of unconscionability

8.2 Liliana Lupini's defence and counterclaim

8.3 Is it open to find that the lenders were engaged in asset lending, and if so, whether circumstances of asset lending were relevant to whether the guarantees given by Angela Colasante and Liliana Lupini were unconscionable?

8.4 Onus - Angela Colasante's defence of unconscionability based on a special disadvantage

8.5 Was Angela Colasante under a special disadvantage on 15 January 2015 when she executed the guarantee and the mortgages to secure the loan for $2,898,000?

8.6 What constitutes independent legal advice, and does a solicitor's retainer to give independent legal advice concerning security transactions extend to a recommendation to obtain independent financial advice?

8.7 Was it sufficiently evident to the lenders that Angela Colasante was under a special disadvantage when executing the guarantee and mortgages?

8.7.1 Is the fact that Angela Colasante had previously executed other security documents for other lenders, which securities included guarantee and mortgage documents material to finding whether the lenders had knowledge that she was under a special disadvantage?

8.7.2 Did the lenders have knowledge of Angela Colasante's disavantage, and if so can they rely upon the legal advice certificates to discharge their onus?

8.6.2.1 Principles - Imputation of knowledge

8.7.2.2 The lenders had knowledge of Angela Colasante's disadvantage, and was the conduct of the lenders in taking the guarantee and mortgages from Angela Colasante unconscionable?

8.8 Did Liliana Lupini execute the Second Variation deed and the guarantee and mortgage under the influence of Domenic Lupini - Is the first category of Yerkey v Jones unconscionability defence and counterclaim made out?

8.9 Second category of Yerkey v Jones - Were the lenders entitled to rely upon the declaration made by Liliana Lupini that she had received independent legal advice?

8.9.1 Did the lenders have reasonable grounds to suppose that Liliana Lupini had an adequate comprehension of the obligation she was undertaking and an understanding of the effect of the transaction?

9.0 The statutory claims of unconscionability made by Angela Colasante and Liliana Lupini

9.1 Statutory unconscionability - s 12CB of the Australian Securities and Investment Commission Act

9.2 Angela Colasante and Liliana Lupini each claim that the plaintiffs breached s 12CB

9.2.1 Angela Colasante's defence and counterclaim of statutory unconscionability

9.2.2 Liliana Lupini's defence and counterclaim of statutory unconscionability

10.      Disposition

SMITH J:

1.0 The proceedings and the result

1. The trial of the action and counterclaims concerns the liability of two guarantors of a loan, the fifth defendant, Angela Colasante, and one of the seventh defendants, Liliana Lupini.

1.1 Introduction

1.1.1 The parties to the loan

1. The plaintiffs can be described as second-tier lenders, and were engaged in short‑term lending. 

2. The first defendant, Nikolyn Pty Ltd as trustee for the Nikolyn Unit Trust (Nikolyn), and second defendant, Moana Nominees Pty Ltd (Moana Nominees) (together referred to as the borrowers) entered into a loan agreement on or about 21 January 2015 with the former First-named plaintiff, Platinum Mortgage Securities Ltd (Platinum) as manager for the Platinum First Mortgage Income Fund, and the second and third named plaintiffs, The Enterprise Fund II Ltd Singapore Co. and The Enterprise Funds III Ltd Singapore Co.[1]

   [1] Exhibit A, Tab 33.

3. Although the loan was entered into by both Nikolyn and Moana Nominees, it is common ground that the loan was for Nikolyn's business, which traded as CPL Plumbing.

4. The purpose of the loan was to payout several Bankwest facilities which had been taken out to secure business finance for Nikolyn's business.[2] 

   [2] Exhibit A, Tab 20, 273.

5. Initially, the loan was for a period of 12 months.  It was intended to be a short-term loan while alternative finance was sought from a bank.  The loan was extended for a period of two months and varied for a second time for a period of six months from 2 May 2016 until 1 November 2016.

6. Platinum and the second and third named plaintiffs initially advanced $2,898,000 to the borrowers by two loan facilities.[3]  This amount was secured by first registered mortgages over two residential properties owned by Angela Colasante in Shelley, and two adjoining properties used by Nikolyn to run its plumbing business, CPL Plumbing, in Willetton (the Willetton properties).  Another lender, Quantum Asset Management Pty Ltd (Quantum) advanced an additional amount of $310,000, which was secured by second registered mortgages over the same properties.  Quantum is not a party to the proceedings.

   [3] The initial advance was comprised of $1,608,000 and $1,290,000.  When varied on 10 February 2016 a security fee of $14,750 was added to the principal sum of the loan; Exhibit A, Tab 68, 513, par 2.2(b).

7. In an affidavit sworn by Rhode Truter, the operations and credit manager for Platinum and Quantum, he described the nature of the business of Platinum and Quantum and other plaintiffs as follows:[4]

   [4] Exhibit 2, pars 3(a) to 4.

   3.I am also the Operations and Credit Executive officer for Quantum Asset Management Limited (Quantum) which is a lending institution associated with Platinum. The 2 lenders are described as follows:

   (a)Platinum is a retail fund manager which provides commercial lending facilities. Due to the structure of Platinum and its Constitution, Platinum has strict lending parameters which include the requirement for all lending to be secured by real property to a maximum of 70% of the real property value; and

   (b)Quantum is a private company which provides commercial lending from its own balance sheet and has greater flexibility with lending arrangements including higher loan to value ratios and can place reliance on second mortgage security.

   4.The second named Plaintiff and third named Plaintiff (Singapore Lenders) are syndicated lenders who co-lend directly to borrowers in conjunction with Platinum and not through the Platinum First Mortgage Income Fund. The Singapore Lenders co-lend with Platinum when the loan amount is of a significant size and Plaintiff is unable to provide all of the loan amount itself. Platinum is the manager of a retail mortgage fund, Platinum First Mortgage Income Fund, investing on behalf of retail investors and self-managed super funds. On occasion, Platinum seeks to limit its exposure of smaller and less sophisticated retail investors in a particular transaction by co-lending with third parties such as the Singapore Lenders.

1.1.2 The corporate structure of the borrowers and associated companies and trusts

1. Nikolyn was incorporated on 9 June 1997 with shareholders Donato Colasante, Robert Colasante,[5] Roberto Potente, and Domenic Lupini.  Each of these men were plumbers. 

   [5] Robert Colasante is also referred to as Roberto Colasante.

1. Until at least late 2016, the directors of Nikolyn were Donato Colasante, Robert Colasante, Domenic Lupini and Roberto Potente.  Donato Colasante was also its secretary.

2. The Nikolyn Unit Trust settled on 16 July 1997 and Nikolyn was appointed as trustee.  The units of the Nikolyn Unit Trust were allocated as follows: 70 units held by Moana Nominees as trustee for the Moana Family Trust; 20 units held by Domenic Lupini and Liliana Lupini as trustees for the Lupini Trust; and 10 units held by Roberto Potente.[6] 

   [6] Exhibit A, Tab 2, 48.

3. Donato Colasante was the managing director of Nikolyn.  From the time the Nikolyn Unit Trust was established in July 1997 until the borrowers defaulted under the loan, Donato Colasante, Robert Colasante, Domenic Lupini and Roberto Potente each worked in the plumbing business of Nikolyn trading as CPL Plumbing.

4. At the time of the loan, the directors of Moana Nominees were Donato Colasante, Robert Colasante and their mother Angela Colasante.  Donato Colasante was also its secretary.  Moana Nominees is a trustee of the Moana Family Trust.  The Moana Family Trust is a discretionary trust.  Donato Colasante and Robert Colasante are primary beneficiaries of the trust, and Angela Colasante is a general beneficiary.[7]

   [7] Exhibit A, Tab 1, 25.

5. One of the Willetton properties used by Nikolyn to run the plumbing business over which the plaintiffs secured first mortgages in January 2015 was owned by Moana Nominees.  It was Unit 4, 29 Gympie Way Willetton (more particularly described as Lot 4 on Strata Plan 25105 being the whole of the land in Certificate of Title Volume 2125, Folio 788).  The other adjoining property was owned by Symbol Nominees Pty Ltd (Symbol Nominees).  It was Unit 5, 29 Gympie Way Willetton (more particularly described as Lot 5 on Strata Plan 25105 being the whole of the land in Certificate of Title Volume 1983 Folio 877). 

6. The directors of Symbol Nominees were Donato Colasante, Robert Colasante, Domenic Lupini and Roberto Potente.  Donato Colasante was also the secretary of Symbol Nominees.  The share capital of Symbol Nominees was comprised of 49 A class shares and 51 ordinary shares.  The A class shares were allocated as follows:  Roberto Potente held 5 A class shares; Moana Nominees held 34 A class shares; and Domenic Lupini and Liliana Lupini jointly held 10 A class shares.  The ordinary shares were allocated as follows: 

   (a)Donato Colasante held 35 ordinary shares;

   (b)Domenic Lupini held 10 ordinary shares;

   (c)Roberto Potente held 5 ordinary shares; and

   (d)Moana Nominees held 1 ordinary share.[8]

1.1.3 The borrowers defaulted on the loan

[8] Exhibit 1, 23 - 30.

1. By 19 October 2016, Nikolyn and Moana Nominees were in default under the terms of the loan.  On 21 October 2016, default notices were issued to each of the defendants.[9] 

   [9] Exhibit A, Tab 90; the default notice specified the deeds of guarantee made between the guarantors on 21 January 2015 (Angela Colasante) and 2 May 2016 (Liliana Lupini).

2. The plaintiffs plead at the time the borrowers defaulted under the loan, the loan was secured by:

   (a)guarantees (provided by Donato Colasante, Robert Colasante, Angela Colasante, Roberto Potente, Domenic Lupini and Symbol Nominees) on 14 January 2015 (and Liliana Lupini on 31 May 2016[10]);

   (b)mortgages (provided by Moana Nominees, Angela Colasante, Robert Colasante and Symbol Nominees in January 2015 and June 2016) (and provided by Roberto Potente, Liliana Lupini and Domenic Lupini on 31 May 2016); and

   (c)a general security deed executed by Liliana Lupini on 31 May 2016.[11] 

1.2 Procedural history of the action

[10] Liliana Lupini agreed to be bound by the terms of a guarantee by executing a deed of variation (of the loan) on 4 May 2016.  (This deed is pleaded by the plaintiffs as the second variation).

[11] Exhibit A, Tab 80.

1. The plaintiffs commenced proceedings by filing a writ of summons with an endorsed statement of claim on 9 November 2016, and filed an application for summary judgment against all defendants on 15 December 2016.

2. Nikolyn was sued in its own right and as trustee for the Nikolyn Unit Trust.  Moana Nominees was also sued in its own right and as trustee for the Moana Family Trust. 

3. After the application for summary judgment was filed, but before it was determined, the First-named plaintiff, Platinum, entered into an agreement by which it assigned to La Trobe Financial Asset Management Limited (La Trobe) all of its rights, title and interest in the loan and the supporting securities.

4. When the defendants' representative failed to appear at the hearing of the summary judgment application on 12 January 2017, judgment was entered against each defendant. 

5. An application to set aside the judgment was filed on behalf of all of defendants on 15 February 2017.  On the same day, a defence was filed on behalf of the second to eighth defendants.

6. Prior to the hearing of the application to set aside judgment, Nikolyn was placed into liquidation, and receivers and managers were appointed to Nikolyn, Moana Nominees and Symbol Nominees.

7. On the hearing of the application to set aside judgment, following delivery of reasons of decision, on 13 April 2018, Acting Master Strk:[12]

   (a)dismissed the application to set aside judgment against Nikolyn, Moana Nominees and Symbol Nominees;

   (b)set aside judgment against each of the individuals, being Donato Colasante, Robert Colasante, Angela Colasante, Roberto Potente, Liliana Lupini and Domenic Lupini; and

   (c)ordered that La Trobe be joined as a party to the proceedings (because the interest of Platinum had been assigned to it) and substituted La Trobe as the First-named plaintiff.

   [12] Platinum Mortgage Securities Ltd v Nikolyn Pty Ltd [2018] WASC 117 [156].

8. Judgment against Nikolyn, Moana Nominees and Symbol Nominees still stands and remains valid and enforceable. 

9. In the trial of the action, the plaintiffs only pursued judgment against Angela Colasante and Liliana Lupini as guarantors. 

10. The plaintiffs have not pursued the action against Donato Colasante, Robert Colasante, Roberto Potente, and Domenic Lupini, as they have each been declared bankrupt.

1.3 The plaintiffs' action against the fifth defendant, Angela Colasante, and the First-named seventh defendant, Liliana Lupini

1. The plaintiffs plead that the loan was comprised of: [13]

   (a)a credit facility deed dated 21 January 2015;

   (b)a deed of variation dated 10 February 2016 (First Variation);

   (c)a deed of variation dated 2 May 2016 (Second Variation); and

   (c)a memorandum of provisions L164935 (Memorandum of Provisions);

   (the Loan Agreement).

   [13] Further Re-Amended Statement of Claim par 11.

2. The plaintiffs seek the following orders in the action:

   (a)payment of the total amount outstanding under the Loan Agreement (plus interest) against Angela Colasante and Liliana Lupini, pursuant to the terms of the guarantees of Angela Colasante[14] and Liliana Lupini;[15]

   (b)possession of two residential properties owned by Angela Colasante, being 3 Throsby Street Shelley (more particularly described as Lot 1 on Strata Plan 63453 being the whole of the land in Certificate of Title Volume 2785, Folio 68) and 3A Throsby Street Shelley (more particularly described as Lot 2 on Strata Plan 63453 being the whole of the land in Certificate of Title Volume 2785, Folio 69) (together referred to as the Shelley properties); and

   (c)for the plaintiffs' costs of the action to be payable by Angela Colasante and Liliana Lupini on an indemnity basis, pursuant to the terms of the guarantees.

   [14] Further Re-Amended Statement of Claim par 13; the plaintiff particularises this guarantee as the deed of guarantee entered into by Angela Colasante on 14 January 2015.

   [15] Further Re-Amended Statement of Claim par 13; the plaintiff particularises this guarantee as the deed of guarantee entered into by Liliana Lupini on 31 May 2016.

3. One of the other properties over which the plaintiffs secured the monies owing under the Loan Agreement (by the Second Variation (dated 2 May 2016 and executed on 4 May 2016) was jointly owned by Domenic Lupini and Liliana Lupini.  This property was a residential property and is situated at 448 Knutsford Avenue, Kewdale (more particularly described as Lot 23 on Plan 3701 being the whole of the land in Certificate of Title Volume 1944, Folio 772) (Kewdale property).  The plaintiffs are not seeking possession of this property because it has been sold.

4. Domenic Lupini and Liliana Lupini agreed that a second mortgage would be registered over the Kewdale property by executing the Second Variation on 4 May 2016, and Liliana Lupini executing a deed of guarantee and a mortgage (lodged as a caveat) over the Kewdale property on 31 May 2016.  The Kewdale property was sold in March 2018.

1.4 A summary of defences of Angela Colasante and Liliana Lupini

1. In their defences, Angela Colasante and Liliana Lupini claim they are not liable for any of the relief sought by the plaintiffs pursuant to the guarantees and securities given by each of them over real property interests in support of the Loan Agreement.  They each claim that the circumstances in which they each signed the relevant documents relied upon by the plaintiffs render the transactions embodied in the documents unenforceable against them by the plaintiffs or their assignees on grounds that the enforcement of each guarantee and mortgage would be unconscionable and would offend against:

   (a)equity, on the basis that Angela Colasante was a guarantor under a special disadvantage (commonly known as an Amadio defence)[16] and Liliana Lupini was protected by a wives special equity (commonly known as a Yerkey v Jones or a Garciadefence[17]); and

   (b)s 20 and s 21 of the Australian Consumer Law, or alternatively in breach of s 12CA of the Australian Securities and Investment Commission Act 2001 (Cth).

   [16] Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447.

   [17] Yerkey v Jones (1939) 63 CLR 649; Garcia v National Australia Bank Ltd[1998] HCA 48; (1998) 194 CLR 395.

2. In par 18.3 of the Angela Colasante's amended defence and in par 21 of Liliana Lupini's amended defence, the breach of the Australian Securities and Investment Commission Act 2001 (Cth) is pleaded as a breach of s 12CA.  Angela Colasante and Liliana Lupini each submit this is an error and the provision relied upon is s 12CB.  For the reasons in 9.0, I am of the opinion that leave should be granted to make the amendments to their defences and counterclaims as sought by Angela Colasante and Liliana Lupini.

3. Both Angela Colasante and Liliana Lupini seek, by their counterclaims, declarations that the guarantees and securities provided by them are void ab initio and of no effect. 

4. Angela Colasante also seeks an order that the certificates of title for the two Shelley properties be amended so as to cancel the entry of mortgages registered by the plaintiffs on the titles. 

5. Liliana Lupini makes a claim for damages against the plaintiffs arising out of the sale of her interest in the Kewdale property.

1.5 The result

1. For the reasons I give below, after considering the totality of all relevant and connected circumstances, it is clear the plaintiffs have proved that the taking of a guarantee and mortgages from Angela Colasante was fair, just and reasonable.  However, I am satisfied that Liliana Lupini has proven that the taking of the guarantee and mortgage from her was unconscionable.  In particular, I have found that Liliana Lupini has made out a case of the second category of Yerkey v Jones unconscionability, and a breach of statutory conscionability pursuant to s 12CB of the Australian Securities and Investments Commission Act. 

2.0 The witnesses

2.1 Legal principles - lay witnesses

1. The most reliable indication of a person's knowledge of transactions and events is not their recollection of what was said by them and others several years ago, it is what they did and how they conducted themselves at the relevant time.

2. Contemporaneous, or near contemporaneous, documents provide more valuable and revealing information than what may be flawed attempts at recollection of those facts by witnesses, in particular, those with an interest in the outcome of the litigation.  Contemporaneous statements in the form of email communications and other records of contemporaneous communications, in light of the contemporaneous documentary record more generally, are likely to be a more accurate reflection of the underlying events than the later witness statements prepared for the purpose of the litigation at a time when false memories can intrude.[18]

   [18] Girgis v Poliwka [No 6] [2019] WASC 230 [123].

3. Consequently, in assessing evidence which relies upon the recollection of events which occurred several years ago, I have placed significant weight upon contemporaneous documents and upon inferences that can be properly drawn from that evidence.  Where it is possible to establish objective facts from their evidence, I have assessed the written and oral testimony of each witness in light of the inherent probabilities of particular versions of events, in the context of established facts.

2.2 The plaintiffs' witnesses

1. The plaintiffs called seven witnesses and tendered into evidence two affidavits[19] made by witnesses who attached to their affidavits documents relevant to the proceedings, including the notice of default and the documents filed in the proceedings in opposition to the application to set aside summary judgment.

   [19] Exhibit 13 and Exhibit 14.

2. The plaintiffs called a number of witnesses to give oral evidence, and tendered into evidence documents in support of its claims that:

   (a)Angela Colasante was in the habit of providing guarantees and security for Nikolyn and Moana Nominees, and she had provided and continued to provide security for them on numerous occasions;

   (b)Angela Colasante was provided with independent legal advice from a lawyer, Sigi Hallis Cohen, on 14 January 2015, and after receiving that advice freely and voluntarily signed the deed of guarantee and two mortgages over the Shelley properties in  her personal capacity;

   (c)Liliana Lupini was provided with independent legal advice from  a lawyer, Gavin Wayne Jahn, on 31 May 2016, and after receiving that advice freely and voluntarily signed the deed of guarantee in her personal capacity; and

   (d)both Angela Colasante and Liliana Lupini obtained a material benefit from providing personal guarantees and security for the loan.

3. The seven witnesses called by the plaintiffs who gave oral evidence were:

   (a)the operations and credit executive officer for Platinum and Quantum, Rhode Truter,[20] who made the necessary arrangements to approve the Loan Agreement by the lenders and each of the variations on behalf of the lenders including the terms of the loan and variations the subject of the action (and the Quantum loan that is not sought to be enforced in these proceedings);

   [20] Exhibit 2, pars 1 and 3.

   (b)a finance broker, Nigel Wood, who acted for CPL Plumbing and assisted Nikolyn through Donato Colasante to obtain the loan from the lenders;

   (c)a lawyer, Camillo Ernesto D'Angelo, whose signature as witness appears on a mortgage document for a mortgage between Westpac Banking Corporation and Angela Colasante said to have been executed by her on 11 March 1998;

   (d)a lawyer, Gavin George Wells, whose evidence is that:

   (i)his signature appears as a witness to the execution of guarantee, indemnity and charge documents between Cash Resources Australia, Moana Nominees and Symbol Nominees by Angela Colasante in October 2010 (which documents include a second mortgage over one of her Shelley properties);[21]

   (ii)in June 2011, he provided advice to Angela Colasante in English about a guarantee given by her to Bankwest to secure a loan for the Moana Family Trust and the Nikolyn Unit Trust and witnessed her signature on two statutory declarations by guarantor, and a mortgage document that was subsequently registered as a first registered mortgage to Bankwest;[22] and

   (iii)in July 2011, he provided advice and witnessed Angela Colasante sign two mortgage documents in favour of Cash Resources Australia which were subsequently registered as second mortgages on each of her Shelley properties.[23]

   (e)the West Australian Area Manager of Stramit Corporation Pty Ltd (Stramit), Bruno Pomponio.  Stramit is a commercial credit provider which obtained director's guarantees from two of the directors of Moana Nominees (Donato Colasante and Roberto Potente) and Angela Colasante (stated on the form to be a director of Symbol Nominees)[24] for an increase in credit limit for Nikolyn on 11 April 2016 for the business of CPL Plumbing;[25]

   (f)Mr Sigi Hallis Cohen, who met with Donato Colasante, Robert Colasante, Angela Colasante, Domenic Lupini and Roberto Potente at CPL Plumbing's office in Willetton on 14 January 2015 and witnessed the signatures on the loan and security documents for the credit facility.  Mr Cohen gave evidence that he provided legal advice to Angela Colasante in English before she executed any of the documents; and

   (g)Mr Gavin Wayne Jahn, who met with Donato Colasante, Roberto Potente, Robert Colasante, Angela Colasante, Liliana Lupini and Domenic Lupini at CPL Plumbing's office in Willetton on 31 May 2016 and witnessed the signatures of each of them on the Second Variation documents, including a mortgage, a mortgage memorandum cover sheet, a deed of guarantee, a declaration of guarantor, and a general security deed executed by Liliana Lupini.  Mr Jahn gave evidence that he provided legal advice to Liliana Lupini before she signed any of the documents.

   [21] Exhibit A, Tab 7, 131.

   [22] Exhibit A, Tabs 8E and 10; Exhibit 8, par 35(c).

   [23] Exhibit A, Tabs 9 and 11.

   [24] At no material time did Angela Colasante appear to be a director of Symbol Nominees; Exhibit 1, 24 ‑ 25.  However, Moana Nominees was an owner of one of the Willetton properties and Angela Colasante was a director of Moana Nominees.

   [25] Exhibit A, Tab 71.

4. I accept that each of the plaintiff's witnesses gave truthful evidence.  It is not disputed by the defendants that this finding should be made.  The plaintiffs' witnesses who were cross examined recognised the limits of their respective recollections and without contest, conceded the matters that they could not recall, or were not within their knowledge.

2.3 The defendants' witnesses

1. Angela Colasante and Liliana Lupini both gave evidence.  Angela Colasante gave her evidence through an accredited Italian translator.  Donato Colasante and Domenic Lupini also gave evidence in support of the defences and counterclaims made by Angela Colasante and Liliana Lupini.

2. It is common ground that, at all material times, Donato Colasante ran the plumbing business of CPL Plumbing as its managing director.  It is not in dispute that Domenic Lupini was not involved in the running of the business.  He did not have an office at the premises in Willetton.  He worked 'on the tools' as a plumber and as a supervisor and visited the office usually about once a week to collect invoices for the following week's work.

2.3.1 General observations about the evidence of Angela Colasante and Liliana Lupini

1. On the first day of trial, the amount outstanding under the Loan Agreement, which is also the amount outstanding under each of the guarantees given by Angela Colasante and Liliana Lupini, was $5,900,035.81 and interest was accruing at $1,591.09 a day.[26]

   [26] ts 143.

2. The plaintiffs claim that Angela Colasante had a history of providing guarantees and security for Nikolyn and Moana Nominees, and that from March 1998, she provided and continued to provide security for the plumbing business over her Shelley properties on numerous occasions.  The surrounding events of the signing of many of those documents occurred some time ago, and much of the evidence given in the trial related to a relatively large number of documents claimed to be executed by Angela Colasante to secure business finance for Nikolyn's business of CPL Plumbing.

1. It is relevant to note that when Angela Colasante and Liliana Lupini gave oral evidence, they were clearly each distressed about the fact that the plaintiffs are seeking judgment against them, which if successful:

   (a)Angela Colasante, a now 83 year old pensioner, will incur the loss of all of her assets, being her own home in Shelley, and the house and land on the adjoining lot to her home that is occupied by one of her sons and his family, and will have judgment against her for the amount outstanding under the Loan Agreement, pursuant to her guarantee and mortgages following the sale of her properties;

   (b)Liliana Lupini, a now 58 year old clerk, will also be liable to the amount outstanding under the Loan Agreement, pursuant to her guarantee.

2. Angela Colasante and Liliana Lupini also each understandably appeared to be aggrieved by the fact that neither of them had any knowledge at the time they signed the relevant documents comprising the loan and other associated documents the subject of the action, including the guarantees and mortgages, of the extent of the then current liabilities of Nikolyn.

3. When regard is had to these matters, it was clear to me when each of them gave oral evidence that their sense of distress and grievance about these issues affected their recollection of events, and the reliability of their evidence.  For this reason, I approached each of their evidence with caution.

4. I have also approached the evidence of Angela Colasante with caution because Angela Colasante was obviously irritated by many of the questions that were asked of her, and gave non-responsive answers to many questions put to her in cross-examination.  Given that she gave her evidence through an interpreter, together with her non‑responsive answers, it was very difficult to assess the reliability of her evidence, and to assess whether she was truthful in her evidence regarding her lack of ability to comprehend explanations of the effect of the documents signed by her when those explanations were provided to her in English. 

5. In particular, it was difficult to properly assess Angela Colasante's ability to understand conversational English.

6. However, Angela Colasante has never claimed that she has no ability to speak English but says she can only speak in broken English.  As set out in 5.0 of these reasons, special disadvantage can involve illiteracy, lack of education and lack of, or limited comprehension of either written or spoken English language.

7. I accept the evidence of the lawyers, Mr Wells, Mr Cohen and Mr Jahn, that Angela Colasante is able to hold a conversation in the English language. 

8. Angela Colasante gave her evidence in chief in writing in Italian, which was translated into English by an accredited translator.[27]  She was present in court throughout the trial, and sat with an accredited translator who translated the submissions of counsel and the witness evidence.  When she gave evidence it was evident that she could understand some questions put to her because on a few occasions she answered some questions in English before the translator was able to translate the questions.[28]  It is to be noted, however, that of the questions she answered directly in English, none of the questions were complex, and the answers she gave were simply yes, no, or other singular words. 

   [27] Exhibit 16, affidavit of Rosanna Perino affirmed 3 March 2020.

   [28] ts 480, 481, 499, 516, 518, 525, 529 (witness stated the name of her son Robert), 530 and 535 (witness stated okay).

9. Importantly, when her answers were translated, it was evident that Angela Colasante is a person who has little education, is unsophisticated in matters of business, did not understand some of the questions put to her, and her style of speech in English (even when translated is 'broken').

10. For example, this is evident in the following exchange between her and counsel for the plaintiffs:

    SCOVELL, MR:   Can you please go to volume 2B, please?  And tab 115.  This is a company search for Moana Nominees.  Do you see that?

    INTERPRETER:   Yes, Moana.

    SCOVELL, MR:   Now, can I ask you to turn to page 773.  And you will see a heading about a quarter of the way down says Current Company Offices.  Do you see that?

    INTERPRETER:   What does it mean?

    SCOVELL, MR:   Well, I'm just asking for identification on the page at the moment.  I will just come to - do you see the first name underneath that is Angela Colasante?  Do you see that?

    THE WITNESS:   Yes.  Yes.

    SCOVELL, MR:   And - - -

    INTERPRETER:   My - my address.

    SCOVELL, MR:   Yes.  And just above your name, do you see it says "role" and "director"?

    INTERPRETER:   Mmm.

    SCOVELL, MR:   And the second-last entry in relation to Mrs Colasante is the appointment date.  Do you see that?  20 April 1988.

    INTERPRETER:   I don't remember this at all.

    SCOVELL, MR:   So you don't recall being a director of Moana Nominees?

    INTERPRETER:   Yes.  Well, they did put my name in, because I was together with my husband, but I didn't understand that.  I don't know.  I don't understand it.  I was doing nothing.

    SCOVELL, MR:   Did you understand that there were very serious duties and obligations that came along with being a director of a company?

    INTERPRETER:   No.  I never did anything.

    SCOVELL, MR:   So you never did anything as a director of Moana Nominees?

    THE WITNESS:   No.  No.

    SCOVELL, MR:   Moana Nominees is the trustee of the Moana Family Trust, isn't it?

    INTERPRETER:   Yes.  I knew - I knew this.  Roberto told me that.  When they started, I believe.  I don't remember.

    SCOVELL, MR:   Sorry, sir, could you repeat that for me?

    INTERPRETER:   When they started, I believe.  I don't remember.

    SCOVELL, MR:   And are you a beneficiary of the Moana Family Trust?

    INTERPRETER:   What does it mean?

    SCOVELL, MR:   Well, are you a - the question is whether you are a beneficiary of the Moana Family Trust.

    INTERPRETER:   What does it mean - benefit - beneficiary - - -

    SCOVELL, MR:   Well, I might ask a different question.  Did you ever receive payments as a beneficiary of - or as a - from the Moana Family Trust?

    INTERPRETER:   No.  After the - my husband died, they paid the bills.  When my husband was alive, I don't know.  Because - because my husband - I don't know.  They did everything.  I don't - I didn't have anything to do with it.  I didn't understand.

    SCOVELL, MR:   Can I ask you to turn to page 775 - - -

    SMITH J:   Well - - -

    SCOVELL, MR:   Sorry - - -

    SMITH J:   - - - I think it might be helpful to ask who "they" are.

    SCOVELL, MR:   Sorry.  Could you tell us who they are?

    INTERPRETER:   My husband - my husband - my husband knew a bit more, I think, because he knew how to read a bit.  I didn't know much about writing.  But he died in 1997.

    SCOVELL, MR:   And were you referring to anyone else after his death?

    INTERPRETER:   No.

    SMITH J:   Perhaps, if I can just ask this question.

    INTERPRETER:   Sorry

    SMITH J:   You said - if you can repeat this:  you said, "after my husband died, they paid the bills."

    THE WITNESS:   Yes.

    SMITH J:   Who is "they"?

    INTERPRETER:   Donato and Roberto, because they work together.

    SCOVELL, MR:   And Donato is your son  And - - -

    INTERPRETER:   Yes.

    SCOVELL, MR:   And was the other name Roberto

    THE WITNESS:   Yes.

11. There were a number of important aspects to Angela Colasante's evidence that were not contradicted by any witness or challenged in cross‑examination. 

12. The first is her evidence about her ability to read documents written in English. 

13. Braig Legal sent a letter dated 9 January 2015, to Angela Colasante addressed to her home address stating that they acted for Platinum and enclosed copies of; unsigned deeds of guarantee, the credit facility agreement, deeds of charge, mortgages of land and the registered mortgage memorandum L164935.  When Angela Colasante was asked about this document in evidence in chief, she said she did not recall having seen this document before, did not remember it, and then made an ambiguous statement, 'I can read word but I cannot understand the meaning'.[29]  Unfortunately, despite the fact that Angela Colasante's fluency in the English language and her ability to read and comprehend documents written in English were in issue in this trial, no questions were asked of Angela Colasante in cross‑examination or in re-examination which could elucidate any information to clarify what word or words she could read in this letter.  Consequently, in the absence of clarification of exactly what she can read and understand and what she cannot read and understand in English, it has been difficult to properly assess Angela Colasante's ability to read and understand the effect of words written in English. 

    [29] ts 490.

14. The plaintiffs were on notice that it was Angela Colasante's case that she could not read English.  This issue was pleaded in pars 16.10.3, 16.10.4 and 16.10.5 of her amended defence and counterclaim that she is able to converse in broken English but is unable to read English and unable to understand the true import and effect of the securities she executed without the assistance of a qualified interpreter, and in 16.11 it is pleaded that the lenders were aware or ought to have been aware of these matters.[30]  Further, when Angela Colasante said that she could not read English but she could read a word like mortgage,[31] having earlier said that she only knew a couple of words of English,[32] it was not put to her whether she understood what the word 'mortgage' meant.

    [30] Amended Defence and Counterclaim of the fifth defendant.

    [31] ts 510.

    [32] ts 487.

15. Mr Wells, Mr Cohen and Mr Jahn all gave evidence that Angela Colasante spoke English.  However, none of these witnesses stated or otherwise indicated in their evidence that Angela Colasante was able to read and understand, without explanation, any documents written in English. 

16. Although I do not accept Angela Colasante's evidence that she could not understand any explanations at all that were given in English about the documents she signed because of her limited education, I accept that her understanding of the transactions, and the many conditions of the Loan Agreement (particularly those set out in the Memorandum of Provisions relating to what would constitute default) would have been very limited. 

17. It is her uncontradicted evidence that she was educated in Italy, left school in Italy after completing the equivalent of Grade 5 (primary school) came to live in Australia in 1961 with her husband, and after her arrival in Western Australia, was unemployed for a period of time and then worked in factories until 1991 where she worked with other Italian speaking employees.[33]  She then worked with her husband and sons as a kitchen hand in a pasta shop until 1995.  Since 1995, she has not worked, has stayed at home looking after her grandchildren, and attended to house duties.[34] 

    [33] Exhibit 16.

    [34] Exhibit 16.

18. Consequently, having regard to her limited education, I accept Angela Colasante's evidence that she is unable to read and understand legal documents written in English.  The effect of this finding is that for her to comprehend the effect and consequences of executing a legal document, it would have to be adequately explained to her.

19. Angela Colasante's evidence that, although she had been informed by her sons that she was a director of Moana Nominees, she was not involved in making any decisions for that company or involved in the management of Moana Nominees, was not challenged in cross-examination.[35]

    [35] Exhibit 16.

20. The plaintiffs contend that Angela Colasante's evidence was inconsistent and unreliable.  In making this submission, they partly rely upon her vague evidence about whether she had signed particular financial documents.

21. A substantial part of the time spent in the cross examination of Angela Colasante related to whether signatures on many documents creating prior securities and guarantees secured on her Shelley properties over many years were in fact signed by her.

22. The plaintiffs contend that she gave conflicting and inconsistent evidence as to the identification of signatures on various documents.  They refer specifically to her evidence about signatures that appear upon a mortgage dated 22 July 2011 that was witnessed by Mr Wells,[36] a Bankwest facility terms document signed on 16 May 2013 and witnessed by Ms Clarke,[37] and the declaration by guarantor signed on 14 January 2015 and witnessed by Mr Cohen.[38] 

    [36] Exhibit A, Tab 11, 165.

    [37] Exhibit A, Tab 13A, 182.12.

    [38] Exhibit A, Tab 40.

23. In respect of the mortgage dated 22 July 2011, her evidence in examination in chief about this document was that she could not read the document and had no recollection (of signing it).  When asked about whether a second signature appearing on that page was hers she said, 'Looks like it because many are not mine.' In answer to further questions about whether it was hers she said, 'It looks a bit strange.' She then said, 'Maybe yes because I signed many things. Maybe. Maybe yes. Let's put yes then.'  She was then asked about whether she knew who Mr Wells was and she indicated she had seen him give evidence in court but she did not know him.[39]  When cross-examined about this document, she was asked whether the first signature (in the second box) was hers, she said, 'Seems to be.'  She was then asked whether the third signature was hers (being her second signature on that page of the document), and she said, 'I cannot - I cannot say for sure. I cannot say yes.  I cannot say no.'[40]

    [39] ts 483 - 484.

    [40] ts 515.

24. In her supplementary witness statement, Angela Colasante stated that the signature on the Bankwest facility terms document looked like her signature but she did not remember signing the document.[41]  In respect of this document, she also repeated what she had said in paragraphs 2, 3 and 6.4 to 6.8, which is as follows:[42]

    [41] Exhibit 17, Attachment RP - 1, par 12 (translated into English).

    [42] Exhibit 17, Attachment RP -1.

    2.On each occasion when I have signed documents and to the best of my recollection:

    2.1No one explained the documents to me or read the documents to me in Italian so that I could understand what I was signing.

    2.2I could not read the documents that I signed because they were in English.

    2.3There was never an interpreter present when I signed the documents.

    3.To the best of my recollection, almost always, I am shown only the signing page of the document, and I sign the document whilst rushed or whilst I am in the middle of doing some other tasks.

    …

    6.4I have never banked with Bankwest.

    6.5I have never met anyone from Bankwest as far as I know.

    6.6No one has explained this document to me or has read this document to me in the Italian language.

    6.7I cannot read this document because it is in English.

    6.8I cannot read English except for simple words.

25. When cross-examined about whether the particular signature on the Bankwest facility terms document was hers, Angela Colasante said, 'No. It doesn't look like my signature'.  When questioned further about what she had said in her supplementary witness statement, she said, 'I can say that it was mine but I cannot say for sure because I found many that didn't look like my signatures.'  When asked again whether it was her signature or not she said, 'I say yes, because I did many, but so many of them don't look like mine.  When asked for the third time whether the signature was hers, she said, 'Yes.'[43]

    [43] ts 517 - 518.

26. When asked in examination in chief about whether she could read and understand the declaration by guarantor executed by her on 14 January 2015,[44] she said, 'No.  Absolutely not'.[45]  When asked about the signature on the right-hand side of the document, she said it, 'Looks as if it was mine.  But it's always a bit strange.  Maybe, but I still don't say no.'  She was then asked whether she recalled the circumstances in which she signed that document and she said, 'No'.[46]  When asked in cross-examination whether this signature on the declaration by guarantor was her's she said 'Looks like it.'[47]

    [44] Exhibit A, Tab 40.

    [45] ts 492.

    [46] ts 492.

    [47] ts 531.

27. In reply to the plaintiffs' submission that Angela Colasante's evidence about these documents is unreliable and inconsistent, a submission is made on behalf of Angela Colasante that her evidence about her signatures on all of the finance related documents should be considered in context.  In particular, it is submitted on her behalf that:[48]

    (a)she was asked to give evidence about a large number of documents that had been executed over a 15 year period;

    (b)when she gave evidence, she attempted to be helpful about whether or not particular signatures were hers;

    (c)it is not suggested by the plaintiffs that she was trying to pick and choose which documents that she agreed that she executed, and those that she did not; and

    (d)she has a limited recollection of when and in what circumstances she signed documents for the business of CPL Plumbing.  It is evident from the statements made by her in her witness statements that she was often asked to sign documents from time to time either by Donato Colasante, Roberto Colasante or Ms Roberts, which documents she could not read, and simply understood they were just general business documents for Donato and Robert's business.[49]

    [48] ts 629 - 630.

    [49] Exhibits 16 and 17.

28. Having observed Angela Colasante carefully when she gave her evidence, I do not accept that she intentionally feigned her poor recollection of the execution and surrounding circumstances of various guarantee and security documents executed over a period of 15 years (including the security documents she executed on 14 January 2015, 4 May 2016 and 31 May 2016). 

29. Angela Colasante was not involved in the running of the plumbing business, had no knowledge of its financial circumstances at any material time, and her evidence that she was often asked to execute financial documents is uncontradicted.  The financial documents were all written in a language that was foreign to her.  When regard is had to these circumstances, it is not surprising that she does not recall the execution of specific documents.  Thus, I do not find that she sought to tailor her evidence to assist her own case, insofar as her evidence goes to her recollection of the contents of the finance documents that she executed over many years and the circumstances surrounding the execution by her of those documents.

30. However, I do not find her evidence to be reliable about whether she received any legal advice from Mr Cohen on 14 January 2015.  It is clear that she did.  Whether she understood that advice is a different issue because of the lengthy, and complex clauses in the Memorandum of Provisions.  In light of the fact that Angela Colasante is unable to read English together with her lack of education I accept that she did not truly understand the effect of the conditions of the Loan Agreement as set out in the Memorandum of Provisions.

31. In any event, in the absence of any advice to her about the financial circumstances of the business of CPL Plumbing at the time she signed the security documents, I accept her evidence that she did not truly comprehend that her entire assets were at risk by executing the security documents.  In particular, I accept that she was not truly aware that she would be liable for the entire amount of the loan in the event of default by the borrowers, and the extent of the likelihood of default. 

32. I accept Mr Wells' evidence that he had spoken to Angela Colasante on more than one occasion, had visited her at her home, and provided her with legal advice on two separate occasions in June and July 2011 about guarantees given by her to Bankwest and Cash Resources.  However, I accept that given the passage of time and the relatively large number of documents associated with the business of CPL Plumbing that Angela Colasante was asked to sign from time to time, and the time that had elapsed since she executed documents in the presence of Mr Wells, she may have forgotten about meeting Mr Wells and the circumstances surrounding the execution of those documents. 

1. I do not find it necessary to deal with the point whether it should have been put in cross-examination to Mr Wells or Mr Cohen that it was Angela Colasante's evidence that she had never received legal advice from either of them, because both Mr Wells and Mr Cohen gave evidence that they had no recollection of the advice they gave to Angela Colasante. 

2. Of importance, Angela Colasante's evidence to the effect that at no material time was she ever told by her sons that the plumbing business was in trouble, and that if she had been told that she would not have signed anything, was not challenged.[50]

   [50] ts 508 - 509.

3. The plaintiffs contend that Liliana Lupini's evidence about financial matters should not be accepted because her evidence about tax returns prepared by an accountant for the Lupini Trust was vague and dismissive.  They also contend that she displayed a poor recollection of recent matters including failing to recall service of the writ of summons, engaging lawyers to file her appearance to defend this action or providing instructions to her lawyers to defend the summary judgment application brought against her. 

4. They also argue that she has shown herself not to be a credible witness because on her own evidence she signed a statutory declaration that contained incorrect declarations that she had received independent legal advice regarding the loan and security documents, knowing that such declarations are to contain the truth and knowing that her statutory declarations were false.

5. In respect of the first matter, given that Liliana Lupini did not have any involvement in the preparation of the tax returns or the financial statements for the Lupini Trust, or provide any instructions to the accountant for the preparation of these returns, I do not accept that her lack of knowledge of the content of the documents comprising Exhibit 4 is a matter that reflects adversely on her credibility as a witness.

6. I deal with the second matter below in 4.2 of these reasons.  For the reasons I have given in 4.2, although I did find some aspects of Liliana Lupini's evidence unsatisfactory, I did not find her to be an unreliable witness lacking in credibility.

2.3.2 General observations about the evidence of Donato Colasante and Domenic Lupini

1. Although the plaintiffs made a submission that Donato Colasante's evidence should be regarded as limited, vague and imprecise, I found him to be a credible witness, who did not shy away from giving evidence that was inconsistent with the evidence of his mother.

2. The credibility of Domenic Lupini was not substantially challenged.  For the reasons I give in 4.2.1 and 4.2.2, I found him to be a credible and reliable witness.

3.0 The relevant circumstances relating to Angela Colasante becoming a guarantor for the loan agreement entered into by Nikolyn and Moana Nominees in January 2015

1. At least by 2013, if not before, the plumbing business used the services of the finance broker, Mr Wood, to obtain finance for the business.

2. Towards the end of 2014, the Bankwest financing arrangements for the CPL Plumbing business were coming to an end. 

3. Bankwest informed Mr Wood some time in 2013 that it would not further extend finance to the plumbing business (beyond the current term of the end of 2014). 

4. An application was made to the ANZ Bank for re-finance to discharge the loan with Bankwest but by mid‑October 2014, the ANZ Bank Relationship Manager Mr Wood had been dealing with moved, which resulted in the refinancing application having to be resubmitted to ANZ. 

5. Consequently, by mid‑October 2014, Mr Wood was looking to other lending sources to secure replacement finance for the plumbing business. As a result, Mr Wood approached Mr Truter to obtain a 12 month refinancing facility to enable sufficient time to obtain refinancing with the ANZ Bank or another mainstream lender for the plumbing business. 

6. When Mr Wood was cross-examined, it was put to him and he agreed that only short‑term finance was sought from Platinum because they charged significant upfront fees and a high rate of interest, being a rate of 12% per annum, and a higher rate if in default.[51]

   [51] ts 363 - 364.

7. It is clear from the material email correspondence between Mr Wood and Mr Truter and other colleagues of Mr Truter, that prior to Platinum and the Enterprise Funds agreeing to provide a short-term loan to the borrowers, although CPL Plumbing had a large volume of incoming work, it had significant cash flow issues because it had a large amount of outstanding debtors which had an effect on the cash flow of the business.

3.1 Information provided to Platinum about the financial circumstances of the business of Nikolyn and each of the defendants

1. On 17 October 2014, following a conversation with Mr Truter, Mr Wood sent an email to Mr Truter in which he made it clear that there was some urgency in obtaining replacement finance to replace the whole of the Bankwest debt which at that time totalled $2.8 million.  In the email Mr Wood made the following statements about the assets and the then current liabilities of the plumbing business:[52]

   [52] Exhibit A, Tab 18.

   These clients have been long established within Perth and their main source of business is the provision of Total Plumbing Solutions - from initial water/sewage lines all the way through to Roof-plumbing, for property development companies in and around Perth.

   Historically, they had focused on the prestige market and were heavily weighted with clients such as Webb & Brown Neves and Beaumonde Homes - where two-storey developments were their main projects.

   Since the start of 2013 and through to now - they have expanded their client base and now have over 20 regular property companies (and of course the single storey constructions) - which has added to their workloads and inevitable cash-flow issues.

   As it stands at present - Bankwest have become uncomfortable with their exposure to this company and had indicated that back in 2013 at which point we were beginning to engineer a solution to move away from them to the ANZ Bank - and because of this fact and the information that we were, at the time, being provided by ANZ it seemed that a solution was being achieved.

   It has subsequently arisen that the Relationship Manager that was originally handling this deal - and had indicated his willingness to do the deal - was moved within the bank and with a limited time-frame available to understand the situation and client's needs the bank have had to go back to square one to reassess the application - and given the pending deadline with Bankwest, I have proposed that we take out the whole Bankwest debt with yourselves in order to address some outstanding procedural issues in order to present a better overall package to the bank without the pressure of the impending deadlines.

   This is why I have proposed a 12 month facility with the exit strategy being the refinance of the debt to ANZ/Main-stream lender at the end (or very possibly) during that period - although I would envisage that this will take at least 6 months to meet the requirements for doing so, which include a lessening of debtor days, a reduction in the reliance on Invoice Finance and a clearer and simplified reporting system to the lenders.

   All of these actions are being undertaken - and with a significant increase in the Work-contracts over the next 5-6 months - these are truly achievable. 

   As it stands at present the current debt profile is as follows:

   DEBTS

BSB	Account	Balance	Facility type	Lender
306-004	101889-2	$1,550,000	Commercial bill	Bankwest	Nikolyn
306-004	1018884	$1,000,000	Commercial bill	Bankwest	Moana
306-004	1018923 101699-7	$85,585	Business loan	Bankwest	Nikolyn
306-004	$200,000	Business overdraft	Bankwest	Nikolyn
$45,000	Credit card	Bankwest	Nikolyn
$2,880,585	Totals

ASSETS

$1,700,000	80%	$1,360,000	3 Throsby Street, Shelley
$1,800,000	80%	$1,440,000	3A Throsby Street, Shelley
$320,000	65%	$208,000	4/33 Gympie Way, Willetton
$320,000	65%	$208,000	5/33 Gympie Way, Willetton
$4,140,000.00	$3,216,000.00

The business also currently has circa $1.9m of advances from Cash Resources Australia (CRA) - against Debtors of $2.4m - and CRA stands 2^nd Mortgage over the residential and commercial properties in Perth - and 1^st Charge over the property in Kalgan (Albany).  They also have a charge over the company debtors ledger.

CRA have indicated that they have no issues in releasing their 2^nd charge in order for Quantum to take the priority charge over the Properties in Shelley and Willetton - and will then lodge the 2^nd charge again. 

1. Attached to the email Mr Wood sent to Mr Truter on 17 October 2014 was a company profile for Nikolyn, which was prepared by Mr Wood from information provided to him by Robert Colasante and a finance broker who had earlier assisted Nikolyn to obtain finance, Scott Marston. 

2. The company profile described the work of the plumbing business, its then current financials and its property assets as follows:[53]

   [53] Exhibit A, Tab 18, 244 - 248.

   Don Colasante received his certificate of Trade Studies in Plumbing in March 1983, and in 1984 started Cola Plumbing.  Then in 1985 started M & D Plumbing which ran for 7 years and thereafter in 1992 formed New Era Plumbing that operated for 5 years until the formation of Nikolyn in 1997.

   All these Companies have been successful and been bigger and better than the previous company and Don is now the Managing Director of CPL Plumbing which opened its doors on 8^th July 1997.

   Robert Potente and Domenic Lupini are also Qualified Tradesman who oversee North and South projects.  Robert Colasante oversees the renovation/specialist projects.

   The Tradesman are qualified in all areas of Roof Plumbing and Plumbing including the installation and fitting of LPG and natural gas and gas appliances and CPL does operate a successful apprenticeship system which the sons of Don and the other directors have worked their way through - as well as many other now qualified plumbers, some of whom are still working for the company.. 

   CPL Plumbing currently employs seventeen Apprentice Plumbers, twenty-three Contract Plumbers, fourteen Plumbers on wages, two Supervisors, three Office Staff, three Estimators and two Schedulers.

   The office itself consists of a Front Office for Administration and a stock room holding approximately $650,000.00 - $700,000.00 in stock ranging from PVC pipes to Hot Water Services and Sanitary supplies, (they have our own lines of tap-ware, sanitary-ware and stainless steel sinks etc that are able to be retailed at a very competitive price to those current available in the market place and all items are of superior quality (which is why the like of Beaumonde use them specifically for their new developments, and also by holding stock it allows for any emergency to be catered for at any time without having to wait for stock to be ordered.

   They also have premises in Cannington which again is holding stock.

   …

   As will be seen from the Financials and accounts another weakness has been their exposure to terms under their agreements with their clients.  This has created some problems with regard to cash-flow historically - however, over the last 8 months these balances have been reducing and although there will always be a slightly longer terms outstanding, due to the business that they undertake, they are reducing these terms and it has been agreed that a new Credit Controller will be appointed (when a suitable candidate is found) to ensure an improvement on the flows.

   In addition - the company has taken on a review of Debtor Insurance and it is anticipated that this will be purchased going forward in order to mitigate the level of potential bad debt.

   Property Assets

   Moana Family Trust Property Assets:

   -Unit 4, 33 Gympie Way, Willetton, WA 6155: $320,000 value

   This is the main CPL Office along with unit 5

   3 and 3A Throsby St, Shelley, WA 6148: $3.5M value. (2 houses on separate title, in sole name of Angela Colasante, who is a director and 50% shareholder of Moana Nominees, which is 70% unit holder of main trading company)

   NOTE:

   3A: Owner occupied residence of Donato Colasante and his wife/kids

   3: Owner occupied residence of Roberto Colasante and Angela Colasante (Don & Rob's Mother)

   -44493 South Coast Hwy, Kalgan (Albany) 6330: $400k (This is about 80 Ha of Land with 25ha of Bluegum trees)

   Symbol Nominees Pty Ltd Property Assets:

   -Unit 5, 33 Gympie Way, Willetton, WA 6155: $320,000k value

   -7/3 The Palladio, Mandurah, WA: $650k ($416k Macquarie Debt)

3. Although the Shelley properties were listed under the heading 'Moana Family Trust Property Assets' in the company profile provided to Mr Truter, Mr Wood knew that was not correct.  He knew the true position was that both of those properties were owned personally by Angela Colasante.[54]

   [54] ts 366.

4. Mr Wood also attached to the email a completed Quantum credit application form.  In the application, Mr Wood wrote that the loan amount sought was $2,950,000 for a term of 12 months.  He also made notes on the application form to the effect that:

   (a)Donato Colasante had assets of $30,000 in a savings account and $180,000 of furniture and personal effects, with no liabilities;

   (b)Robert Colasante had $15,000 in a savings account and $80,000 of furniture and personal effects, with no liabilities;

   (c)Domenic Lupini owned a home in Kewdale[55] to the value of $800,000 with a mortgage of $370,000, an investment property to the value of $470,000 and an investment loan of $376,000, $2,000 in a savings account and $80,000 of furniture and personal effects, being total assets of $1,352,000 with total liabilities of $746,000, and a net asset position of $606,000;

   (d)Roberto Potente owned a home to the value of $450,000 in Forrestfield with a mortgage of $120,000, $2,000 in a savings account and $50,000 of furniture and personal effects, being total assets of $502,000, and a net asset position of $382,000; and

   (e)Angela Colasante owned a home to the value of $1,500,000 and an investment property to the value of $1,600,000 together with $10,000 in a savings account and $100,000 of furniture and personal effects, being total assets of $3,210,000, and no liabilities other than an existing guarantee on all Nikolyn loans, with an (available) net asset position of $3,210,000 (following refinance).

   [55] Although it was not stated in the application, this property was jointly owned with Liliana Lupini.

5. Shortly after Mr Wood had sent Mr Truter the email attaching the company profile and application for finance, on the same day, Mr Wood sent Mr Truter two additional emails.  The first email attached copies of the trust deeds and financials for the Nikolyn Trust and the Moana Family Trust for the 2013 and 2014 financial years.[56]  The second email attached the tax returns for 2012 and 2013 for Angela Colasante, Donato Colasante, Robert Colasante, Domenic Lupini and Roberto Potente.[57]

   [56] Exhibit 3.

   [57] Exhibit 4.

6. The reason why Bankwest had informed Mr Wood that it did not intend to extend finance beyond the current term was because it was concerned with the extent by which the Cash Resources factoring facility had been growing.  When Mr Wood gave evidence he explained factoring finance agreements assist the cash flow of a business.  Instead of waiting 60 to 90 days for payment of an invoice, a factoring finance company will initially advance 80% upfront of the amount of the issued invoice, and subsequently collect and pay the balance to the business, minus a fee, once the invoice is paid by the debtor after 60 or 90 days.[58]

   [58] ts 378 - 379.

7. The financial statements provided to Mr Truter on 17 October 2014 for the year ending 30 June 2013 for the Nikolyn Unit Trust reflect that the factoring facility with Cash Resources had increased by about 48% from June 2012 to June 2013.  The financial statements record that the Cash Resources factoring account had grown from $820,658 as at 30 June 2012 to $1,217,376 as at 30 June 2013, and trade debtors had grown from $1,290,332 as at 30 June 2012 and $1,915,608 as at 30 June 2013.[59]  It also appears from the balance sheet for CPL Plumbing provided to Mr Truter that as at 3 October 2014, the total amount outstanding to Cash Resources had increased to $1,593,319.90, and trade debtors had grown to $3,441,139.43.[60]

   [59] Exhibit 3.

   [60] Exhibit 3.

8. The copy of the Moana Family Trust deed provided to Mr Truter gave notice to the plaintiffs that:  the Moana Family Trust was a discretionary trust; Moana Nominees was the trustee; Angela Colasante was a general beneficiary; and Donato Colasante and Robert Colasante were primary beneficiaries, and jointly the guardian and appointor of the trust.

9. The financial statements for the year ending 30 June 2012 for the Moana Family Trust indicated the trust had received a distribution from CPL Plumbing in 2012 of an amount of $336,308, and in 2011 an amount of $295,874.[61] 

   [61] Exhibit 3.

10. The first email also attached a balance sheet for the financial years ending June 2013 and 2014 for CPL Plumbing as at 31 October 2014.  The balance sheet contained figures indicating that:

    (a)of drawings made by the Moana Family Trust in 2014 of $184,828.01, other than 'A Colasante' who had been credited an amount of $31,124.79 and P Colasante had been credited an amount of $212,389.31 in both the 2013 and 2014 financial years; and

    (b)there were no drawings of any amount in 2013 or 2014 to other beneficiaries of the Moana Family Trust.[62] 

    [62] Exhibit 3.

11. Leaving aside the fact that the Moana Family Trust deed made it clear to Mr Truter that Angela Colasante was a general beneficiary of the trust, the amounts stated in the Moana Family Trust tax return for 2013 could not be found to conclusively lead a person reading the information in the Moana Family 2013 trust tax return to conclude the drawings paid to Angela Colasante were from CPL Plumbing.  This is because the 2013 trust tax return for the Moana Family Trust cannot be reconciled with the CPL Plumbing balance sheet. 

12. The 2013 trust tax return for the Moana Family Trust states that the description of the main business activity of the trust was share trading on commission, and amongst other income it had $322,796 net income from the trust, less capital gains, foreign income and franked distributions, and other business income of $16,252, giving it a net income of $189,302.  The 2013 trust tax return for the Moana Family Trust are inconsistent with the CPL Plumbing balance sheet, which showed only drawings to two beneficiaries of the Moana Trust from the business in 2013, but the tax returns for the Moana Family Trust showed these were drawings to Donato Colasante, Paula Colasante, Angela Colasante, Robert Colasante and Luke Colasante.

13. The capital financial statements for the financial year ending 2013 for the Nikolyn Unit Trust are also inconsistent with the CPL Plumbing balance sheet because the Nikolyn Unit Trust balance sheet shows there was an amount of $318,124 of distributions from the Nikolyn Unit Trust to the Moana Family Trust in 2013.

14. However, notwithstanding these inconsistencies, the Moana Family Trust tax return for 2013 indicated that Angela Colasante received $47,612 of 'share income of the trust estate', an amount of $44,486 for non-primary production,[63] and the latter figure was shown as her total income for the financial year of 2013 in her individual tax return.[64] 

    [63] Exhibit 3.

    [64] Exhibit 4.

15. When Angela Colasante was cross-examined about the income figures stated in this tax return, she was asked if she checked whether the information was correct before she signed the tax return, to which she said she did not because she could not read it. When it was put to her that the tax return recorded that her share of income from the Moana Family Trust was $44,876 for the 2013 financial year, her response was not helpful or enlightening.  She simply said, 'maybe, yes, maybe, yes.  Yes, because there were no problems.'[65] 

    [65] ts 507.

1. Where an unsuccessful party submits that the rejection of the Calderbank offer was not unreasonable, the unsuccessful party is to point to a reason for not accepting the offer beyond the usual prospects of being successful in litigation.[459]

   [459] Stewart v Atco Controls Pty Ltd (In liq) [No 2] [2014] HCA 31; (2014) 252 CLR 331 [4].

2. The Court of Appeal recently reiterated in Strzelecki Holdings Pty Ltd v Jorgensen[460] that Calderbank offers must be assessed without the benefit of hindsight, and having regard to the strength of the parties' cases as they then stood.[461] Their Honours also relevantly pointed out that it is well‑established that a party's erroneous prediction about the prospects of litigation, on the basis of which he, she, or it rejects a Calderbank offer, may not be regarded as unreasonable if that party was not, at the time, and for good reason, in possession of sufficient information to make a proper assessment of its prospects, or if the circumstances upon which the assessment was based later changed.[462]

   [460] Strzelecki Holdings Pty Ltd v Jorgensen [2019] WASCA 96; (2019) 54 WAR 388.

   [461] Strzelecki Holdings Pty Ltd v Jorgensen [2019] WASCA 96; (2019) 54 WAR 388 [87].

   [462] Strzelecki Holdings Pty Ltd v Jorgensen [2019] WASCA 96; (2019) 54 WAR 388 [88].

3. It is also established that the terms of a Calderbank offer must be unambiguous, that is the terms must be certain. Consequently, it will not be unreasonable to reject a Calderbank offer if there is some reasonable doubt about the nature and extent of what was being offered, that is, its value.[463]

   [463] Mount Lawley Pty Ltd v Western Australian Planning Commission [2006] WASC 82 (S) [92] (Templeman J); applying Duncan & Weller Pty Ltd v Mendelson [1989] VR 386, 401; Grbavac v Hart [1997] 1 VR 154, 155 (Winneke P); see also Rapuano (t/as RAPS Electrical) v Karydis-Frisan [2013] SASCFC 93 [57] ‑ [58] (Peek J, Vanstone & David JJ agreeing).

5.0 Disposition

5.1 Costs for Summary Judgment Application

1. On 12 January 2017, judgment was entered when the defendants' representative failed to appear at the hearing of the summary judgment application.

2. The orders made by the Acting Master on 12 January 2017 were orders for a summary judgment made after the defendant had entered an appearance, pursuant to O 14 r 3.[464] Such a judgment is not a default judgment under the rules as the defendants had entered an appearance within the time limited for appearing.[465] Accordingly, the first named seventh defendant's submissions indicating that the Acting Master entered a default judgment are incorrect.

   [464] Orders Acting Master Strk 12 January 2017; Memorandum of Appearance filed 6 December 2016 (for the defendants).

   [465] Order 13 r 1; see also Spira v Spira [1939] 3 All ER 924.

3. It is conceded by the first named seventh defendant that there was no reasonable basis not to appear at the hearing on 12 January 2017. However, the first named seventh defendant submits that, notwithstanding the plaintiffs unreasonably seeking to obtain judgment knowing that the summary judgment application was to be opposed, she is content to pay the plaintiffs' costs thrown away by reason of the hearing on 12 January 2017 on an ordinary basis.[466]

   [466] First Named Seventh Defendant's Outline Submissions in Support of Proposed Cost Orders filed 19 October 2023 par 15.

4. In light of the concession made by the first named seventh defendant, I am of the opinion that the first named seventh defendant should be ordered to pay the plaintiffs' costs thrown away by reason of the hearing on 12 January 2017. However, as to the costs thrown away, these costs should be confined to those costs incurred by the non‑appearance of the first named seventh defendant and not the other defendants. Such an order should not prejudice the plaintiffs' right to claim such costs against any other defendant. In addition, for the reasons that follow in 5.2, I am of the opinion that the failure of the plaintiffs' counsel at the hearing on 12 January 2017 to formally inform the court that the defendants' solicitors had sought conferral about programming the Summary Judgment Application for hearing after 29 January 2017 is a factor that can be taken into account in determining an appropriate order for costs of the Set Aside Application. This is because if the Acting Master had been apprised of such information, the Acting Master may not have proceeded to hear the application in the absence of the defendants.

5.2 Costs for Set Aside Application

1. Pursuant to O 14 r 12 summary judgment against an absent party may be set aside. After hearing the application to set aside judgment on 24 May 2017 and then delivering her reasons on 13 April 2018, the Acting Master ordered the summary judgment as against the third to seventh defendants be set aside.

2. Order 66 r 1(1) provides that the costs of, and incidental to all proceedings shall be in the discretion of the court, but the court will generally order that the successful party to an action or matter recover his costs.[467]

   [467] Smargiassi Nominees Pty Ltd v Shire of Collie [2020] WASC 94 (S) [11] (Acting Master Whitby).

3. At trial, the first named seventh defendant succeeded on her claim of statutory unconscionability. It was found at trial that the lenders Platinum and The Enterprise Funds were aware that the first named seventh defendant was under a special disadvantage in that they knew, or ought to have known, that she was a person who required assistance or explanation about the then current financial circumstances of the first defendant's CPL Plumbing Business, and had exploited her disadvantage which conduct was outside the societal norms of acceptable commercial behaviour as to warrant condemnation is conduct that was offensive to conscience.[468]

   [468] La Trobe Financial Asset Management Limited v Nikolyn Pty Ltd [2022] WASC 264 [521] – [525].

4. In these circumstances, as set out above in [1] of these reasons, the court set aside the deed of variation, the deed of guarantee and indemnity and in effect the mortgage over her property in Kewdale, insofar as she held an interest in that property as a joint tenant.

5. Taking into account the fact that:

   (a)the first named seventh defendant was successful in the Set Aside Application;

   (b)was only one of the third to seventh defendants who the plaintiffs had sought and successfully obtained summary judgment against, and was also successful at trial; and

   (c)the Summary Judgment Application may not have been granted if the court had been fully apprised of the fact that the first named seventh defendant intended to defend the Summary Judgment Application and her solicitors had sought to confer with the plaintiffs' solicitors about programming the hearing of the application;

   I am of the opinion that there should be a departure from the general rule.

6. Accordingly, the plaintiffs should pay the first named seventh defendant's costs of the Set Aside Application. As the plaintiffs have not been successful in the Set Aside Application, their application for special costs orders necessarily falls away.

5.3 Costs for Substitution Application

1. The application for substitution was heard together with the application to set aside judgment.

2. The third to seventh defendants point out that La Trobe was required to bring an application for substitution as the first plaintiff pursuant to O 18 r 7(2). Consequently, it was not a matter that could be dealt with by consent. To obtain an order for substitution, Or 18 r 7(2) requires the court to form the opinion in that an order for substitution of a party is necessary in order to ensure all matters in dispute in the cause or matter may be effectually and completely determined and adjudicated upon.

3. In light of this requirement and the fact that the first named seventh defendant, together with the other third to seventh defendants, did not entirely oppose the Substitution Application, I am of the opinion that the plaintiffs and first named seventh defendant should bear their own costs of the plaintiffs' summons for substitution filed 22 March 2017.[469] This should not prejudice the plaintiffs' right to claim such costs against any other defendant.

5.4 Costs for the settlement offers (Indemnity Costs Orders)

[469] An order that the parties 'each pay their own costs' is identical to an order that 'there be no order as to costs, with the intent that the parties bear their own costs'; see El-Wasfi v State of New South Wales; Kassas v State of New South Wales (No 2)[2018] NSWCA 27 [6] (Leeming, Simpson & Payne JJA).

1. The parties made settlement offers during the trial which were rejected. Both parties now seek indemnity costs orders against the other from the date of the rejection of their offer.

2. In the alternative, the plaintiffs seek costs from the date of rejection of the verbal offer by the first named seventh defendant, to be taxed if not agreed.[470]

5.5 Plaintiffs' verbal settlement offer

[470] Plaintiffs' Written Submissions for Costs Orders filed 3 November 2023 par 58.

1. Subsequent to the filing of submissions in respect of costs, the first named seventh defendant informed the court that she now does not seek to pursue an assessment of damages pursuant to order 7 of the orders made on 24 August 2022.

2. Whilst there is some dispute as to the words used it appears that the verbal offer made by the plaintiffs to the first named seventh defendant on 20 August 2021 included a term that the first named seventh defendant would settle the action on a 'walk away' basis, where, if accepted, both parties would bear their own costs. The first named seventh defendant rejected the plaintiffs' offer on 22 August 2021, which at that time was after the fourth day of a seven-day trial.

3. In seeking the discretion of the court for indemnity costs as the plaintiffs submit, the first named seventh defendant's rejection of the offer would need to have been unreasonable.[471]

   [471] Eccles v Koolan Iron Ore Pty Ltd [No 3] [2013] WASC 418 (S) [9] (Le Miere J); citing Ford Motor Company of Australia Ltd v Lo Presti [2009] WASCA 115; (2009) 41 WAR 1 [16] (Buss JA).

4. Ordinarily, in deciding whether the rejection of a settlement offer is unreasonable, regard should be had to the extent of the compromise offered.[472] For any reference to the sales proceeds funds to be omitted in the plaintiffs' offer demonstrated that the extent of the compromise by the plaintiffs was limited as these surplus funds had been held on trust in an interest-bearing account since 22 June 2018, to be paid out in accordance with any court order or signed settlement agreement between parties.[473] Notably, on 30 August 2022, the first named seventh defendant accepted a sum of $52,563.33 paid out of the plaintiffs' solicitors trust account for her share of the sale proceeds.[474]

   [472] Eccles v Koolan Iron Ore Pty Ltd [No 3] [2013] WASC 418 (S) [9] (Le Miere J); citing Ford Motor Company of Australia Ltd v Lo Presti [2009] WASCA 115; (2009) 41 WAR 1 [19] (Buss JA).

   [473] Affidavit of Mitchell Terry Tolcon sworn 18 October 2023 Annexure MTT-4.

   [474] Affidavit of Mitchell Terry Tolcon sworn 18 October 2023 Annexure MTT-7.

5. When the offer was rejected, the proceedings had been on foot since 3 November 2016 when the plaintiffs filed their writ of summons. Since the filing of the writ, there has been extensive litigation spanning approximately five years. This litigation comprised 18 hearings and two interlocutory decisions before the trial commenced on 17 August 2021. Accordingly, when the verbal offer was rejected on 22 August 2021, the first named seventh defendant would have been in possession of sufficient information to make an assessment that she had at least a prima facie prospect of success. For this reason, rejecting the offer should not be considered unreasonable.

6. In addition, although the first named seventh defendant sought no relief for damages arising out of the sale of the Queensland property, she did seek a declaration that the guarantee documents which secured her interest in the Queensland property in favour of the plaintiffs was void ab inito, and of no effect. Consequently, the first named seventh defendant's rejection of an offer which did not consider her share of the sale proceeds entitlement, of which she could reasonably assert a claim of approximately $48,000, should not be considered unreasonable at that stage of the proceedings.

5.6 First named seventh defendant's settlement offer

1. The first named seventh defendant submits that as a consequence of the rejection of her written Calderbank offer on 23 August 2021, the plaintiffs should be ordered to pay the first named seventh defendant's costs on an indemnity basis from that date.

2. A well-recognised basis for an award of indemnity costs is that the unsuccessful party unreasonably rejected the Calderbank offer.[475] The first named seventh defendant, as the party who made the Calderbank offer that was rejected, bears the onus of satisfying the court that it should make an award of indemnity costs in their favour.[476]

   [475] Strzelecki Holdings Pty Ltd v Jorgensen [2019] WASCA 96; (2019) 54 WAR 388 [82].

   [476] Strzelecki Holdings Pty Ltd v Jorgensen [2019] WASCA 96; (2019) 54 WAR 388 [82].

3. The first named seventh defendant submits that the plaintiffs' rejection of the offer was unreasonable as she was only likely to gain a net benefit of $49,000 should they have succeeded at trial, but as is the case now (after judgment), the plaintiffs will have to pay at least $150,000 in costs to be assessed.[477]

   [477] The Affidavit of Mitchell Terry Tolcon sworn 18 October 2023 Annexure MTT-8 (Draft Bill of Costs, Not Including Summary Judgment or Set Aside Application) estimates the first named seventh defendant's total costs and disbursements as $156,200.09.

4. The plaintiffs disagree and contend that, as the first named seventh defendant did not receive a result better than her offer, the court should not award the first named seventh defendant costs on an indemnity basis from 23 August 2023.

5. In her affidavit, the first named seventh defendant sets out purchasing and refinancing arrangements for the Queensland and Kewdale properties.[478] On 22 October 2013, both properties were refinanced by the Australia and New Zealand Banking Group (ANZ). In this refinancing arrangement, ANZ took first ranking mortgages over both properties. After the sale of the Kewdale property on or about 8 May 2018, the ANZ took all the surplus funds at settlement and applied these funds to the balance outstanding to the ANZ against the Queensland property. As a consequence, there were no proceeds from the sale of the Kewdale property available to the first named seventh defendant or the plaintiffs (if successful as against the seventh defendants).

   [478] Affidavit of Liliana Lupini sworn on 1 December 2023.

6. Subsequently, after the Queensland property was sold on about 22 June 2018, the ANZ Bank collected the final monies owing to discharge the mortgage on the Queensland property. The surplus funds from the sale of the Queensland property after the mortgage was discharged (of approximately $98,000) were collected by the plaintiff and placed in a trust account. It is apparent from the way in which the ANZ applied funds to the mortgages on the Kewdale and Queensland properties, that, in effect, these funds placed in the trust account were combined from the sale of both properties.

7. Irrespective of electing not to take her claim for damages any further after being awarded judgment, it is evident that in having her Calderbank offer rejected by the plaintiffs, the first named seventh defendant is better off than she would have been had the offer been accepted. This is because she is now entitled to her costs of the action which amount exceeds the amount of the Calderbank offer. However, in considering the parties submissions, any assessment of a Calderbank offer must be made without the benefit of hindsight, having regard to the strength of the parties' case as they stood at the time of the offer.[479]

   [479] Strzelecki Holdings Pty Ltd v Jorgensen [2019] WASCA 96; (2019) 54 WAR 388 [87].

8. Relevantly, the plaintiffs also assert that at the time of their rejection, they declined the offer on the basis that:

   (a)the first named seventh defendant's counterclaim and opening submissions at trial did not assert any claim for the sale proceeds and made no mention of the Queensland property; and

   (b)since Mr Lupini was bankrupt, the first named seventh defendant could only assert a claim, in a court of competent jurisdiction, for 50% of the sale proceeds of the Queensland property.

9. However, the proceeds of sale in trust were sale proceeds from the sale of both the Queensland and Kewdale properties. Yet, the Calderbank offer did not refer to proceeds of both properties only one.

10. Whilst it is acknowledged that on 30 August 2022 a half share of the sales proceeds (with interest) of $52,563.33 was transferred to the first named seventh defendant, this fact is not a relevant consideration. This is because the plaintiffs' conduct must be assessed as at the date the offer was made.

11. It was not unreasonable during the trial for the plaintiffs to reject the offer on the basis that the first named seventh defendant was asserting a claim over 100% of sales proceeds, which in referring to the 'proceeds of the Queensland property' was not the subject of her counterclaim but, in any event, she only had a prospective entitlement to 50% due to the bankruptcy of her husband. Consequently, it was not unreasonable for the plaintiffs to reject the first named seventh defendant's Calderbank offer on 23 August 2021.

12. Accordingly, I am of the opinion that the plaintiffs should not be ordered to pay the first named seventh defendant's costs on an indemnity basis from 23 August 2021. Rather, the plaintiffs should pay the first named seventh defendant's costs of the proceedings on a party‑party basis.

6.0 Orders

1. Pursuant to order 3 of the orders made on 12 October 2023, and having considered the written costs submissions filed on behalf of the first named seventh defendant and the plaintiffs, I am of the opinion that:

   (a)as to the plaintiffs' summary judgment application (filed 15 December 2016), the first named seventh defendant should pay the plaintiffs' costs thrown away that are only attributable to the non‑appearance of the first named seventh defendant, and not the other defendants, at the hearing on 12 January 2017, without prejudice to the plaintiffs' right to claim their costs against any other defendant;

   (b)the plaintiffs should pay the first named seventh defendant's costs of the first named seventh defendant's summons to set aside the judgment filed 15 February 2017 on a party‑party basis, without prejudice to the plaintiffs' right to claim their costs against any other defendant;

   (c)the plaintiffs and first named seventh defendant are to bear their own costs of the plaintiffs' summons for substitution filed 22 March 2017, without prejudice to the plaintiffs' right to claim their costs against any other defendant; and

   (d)except as provided for in subparagraphs (a), (b) and (c), the plaintiffs are to pay the first named seventh defendant's costs from the commencement of proceedings on a party-party basis.

1. As the first named seventh defendant has been successful in her arguments in respect of the majority of costs issues raised in [8] of these reasons, I am also of the opinion that the plaintiffs should pay the first named seventh defendant's costs for this application on a party‑party basis.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.

SO
Associate to the Judge

10 JANUARY 2024