Lauvan Pty Ltd v Bega

[2018] NSWSC 154

Supreme Court

New South Wales

Medium Neutral Citation:

Lauvan Pty Limited & Anor v Bega & Ors [2018] NSWSC 154

Hearing dates:

8-12 May, 1, 2 and 7 June 2017

Decision date:

22 February 2018

Before:

Gleeson JA

Decision:

(1)   Judgment for the plaintiffs against each of the first, second and third defendants in the sum of $1 million, together with interest thereon at the rate of 20 per cent per annum from 2 April 2015 until 22 July 2015 and thereafter at the rate of 30 per cent per annum until the date of judgment.

 

(2)   Direct the parties to bring in agreed short minutes in respect of the calculation of interest in accordance with order (1) above.

 

(3)   Judgment for possession of the land comprised in Lot 3 in deposited plan 791971 and known as 150 Fox Valley Road, Denham Court in the State of New South Wales (the land).

 

(4)   Grant leave to the plaintiffs to issue a writ of possession in respect of the land, not earlier than eight weeks after the date of judgment.

 

(5)   The first, second and third defendants to pay the plaintiffs’ costs of the proceedings.

 

(6)   Dismiss the first cross-claim of Aidan Bega and AB Veritas Pty Ltd with costs.

 

(7)   Dismiss the second cross-claim of Helen Bega with costs.

 

(8)   Dismiss the third cross-claim of Charles Ciappara.

 

(9)   Reserve the question of costs of the third cross-claim.

 

(10)   Direct Mr Ciappara to file and serve short written submissions (not exceeding three pages) with respect to the question of costs of the third cross-claim within 14 days. Mrs Bega and the cross-defendants to the third cross-claim to file and serve short written submissions in response (not exceeding three pages) within a further 14 days, and Mr Ciappara to file and serve any written submissions in reply (not exceeding two pages) within seven days thereafter.

 (11)   Direct that, subject to any application by the parties for an oral hearing, the question of costs of the third cross-claim be decided on the papers.

Catchwords:

BANKING AND FINANCE – instruments – loan facilities – construction of loan agreement – whether drawdown notice required – whether direction to pay necessary for advance – whether oral direction given – whether credit provider engaged in unlicensed credit activity contrary to National Consumer Credit Protection Act 2009 (Cth), s 29 – whether contract to which National Credit Code applied – National Credit Code, ss 5(1)(b)(i), (ii), 5(1)(d) – whether credit provided for personal, domestic or household purposes – whether credit provided to purchase residential property for investment purposes – whether credit provided in the course of a business of providing credit – whether relief should be granted under National Consumer Credit Protection Act 2009 (Cth), s 180

 

CONTRACTS – under statute – whether contract unjust – Contracts Review Act 1980 (NSW), s 7 – whether transaction should be reopened – National Credit Code, ss 76 and 77 – whether contract unconscionable – Australian Securities and Investments Act 2001 (Cth), ss 12CB and 12CC

 

CONTRACTS – formation – parties – principal and agent – creation of relationship of agency – authority of agents – implied or express authority – whether authority inferred from conduct of parties – construction and extent of agent’s authority – authority of sub-agent

 

EQUITY – equitable remedies – constructive trust – equitable charges and liens – contribution to acquisition of another’s property – where no claim for subrogation to vendor’s lien or security held by outgoing mortgagees – no trust created – minimum equity necessary in the circumstances

 

EQUITY – fiduciary duties – proscriptive only – no conflict rule – conflict of interest and interest – whether real and sensible possibility of conflict

 

GUARANTEE AND INDEMNITY – contract of guarantee – action to enforce guarantee – guarantor’s liability – factors affecting validity of guarantee – whether guarantee procured by misrepresentation –unconscionability – whether special disadvantage established

 

PROFESSIONS AND TRADES – lawyers – duties and liabilities – solicitor and client – scope of retainer to provide independent legal advice – duties of solicitor when advising on loan and mortgage transaction – duty of care – fiduciary duty – whether duty to disclose conflict of interest

 

RESTITUTION – claim for restitution – whether total failure of consideration – whether advance under loan agreement authorised – recovery of money had and received – whether unconscionable to retain benefit of money paid

WORDS AND PHRASES – “unjust” – Contracts Review Act 1980 (NSW), s 7 – National Credit Code, s 76 – “unconscionable” – Australian Securities and Investments Commission 2001 (Cth), s 12CB – “credit contract” – National Consumer Credit Protection Act 2009 (Cth), s 6 – “personal, domestic or household purposes” – “purchase, renovate or improve residential property for investment purposes” – “carrying on a business” – “incidentally to” – National Credit Code, ss 5(1)(b)(i) and (ii), 5(1)(d)

Legislation Cited:

Australian Securities and Investments Commission Act 2001 (Cth), ss 12CA-CC
Australian Consumer Law, ss 21, 22
Civil Liability Act 2002 (NSW), ss 5D(3), 34, Pt 4
Civil Procedure Act 2005 (NSW), s 100
Competition and Consumer Act 2010 (Cth), Sch 2
Consumer Credit (New South Wales) Code 1995, s 6(1)(b)
Contracts Review Act 1980 (NSW), ss 4, 7, 9
Law Reform (Miscellaneous Provisions) Act 1946 (NSW), s 5(1)(c)
National Credit Code, ss 4, 5, 13, 14, 76, 77, 198
National Consumer Credit Protection Act 2009 (Cth), ss 5, 6, 29, 180
New South Wales Professional Conduct and Practice Rules (2013), r 58
Real Property Act 1900 (NSW), s 57(2)(b)

Cases Cited:

Australian Broadcasting Commission v Australasian Performing Right Association Limited (1973) 129 CLR 99; [1973] HCA 36
Australian Competition and Consumer Commission v C G Berbatis Holdings Pty Ltd and Ors (2003) 214 CLR 51; [2003] HCA 18
Avery v Saree Holdings Ltd; Lava Ltd v Avery [2012] NSWSC 463
Badenach v Calvert (2016) 257 CLR 440; [2016] HCA 18
Bahadori v Permanent Mortgages Pty Ltd (2008) 72 NSWLR 44; [2008] NSWCA 150
Bank of Queensland Ltd v Dutta [2010] NSWSC 574
Baumgartner v Baumgartner (1987) 164 CLR 137; [1987] HCA 59
Beach Petroleum NL v Kennedy and Ors (1999) 48 NSWLR 1; [1999] NSWCA 408
Blackmagic Design Pty Ltd v Overliese and Ors (2011) 191 FCR 1; [2011] FCAFC 24
BLB Corporation of Australia Establishment v Jacobsen (1974) 48 ALJR 372
Boardman v Phipps [1967] 2 AC 46; [1966] UKHL 2
Boodle Hatfield & Co v British Films Ltd [1986] PCC 176
Breen v Williams (1996) 186 CLR 71; [1996] HCA 57
Brickenden v London Loan and Savings Co of Canada [1934] 3 DLR 465 at 469; [1934] UKPC 25
Bridgewater v Leahy (1998) 194 CLR 457; [1998] HCA 66
Chalmers v Pardoe [1963] 1 WLR 677; [1963] 3 All ER 552
Chappel v Hart (1998) 195 CLR 232; [1998] HCA 55
Cid v Cortes (1987) 4 BPR 97,276
Citicorp Australia Ltd v O’Brien (1996) 40 NSWLR 398
Commonwealth Bank of Australia v Kojic and Ors (2016) 249 FCR 421; [2016] FCAFC 186
Conley v Commonwealth Bank of Australia [2000] NSWCA 101
Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising and Addressing Co Pty Ltd (1975) 133 CLR 72; [1975] HCA 49
David v David [2009] NSWCA 8; (2009) Aust Torts Rep 91-993
Dominic v Riz [2009] NSWCA 216
Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd [2017] HCA 12; (2017) 91 ALJR 486
Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7
Elkofairi v Permanent Trustee Co Ltd [2002] NSWCA 413
Equiticorp Finance Ltd (in liq) v Bank of New Zealand (1993) 32 NSWLR 50
Esanda Finance Corporation Ltd v Tong (1997) 41 NSWLR 482
Evolution Lifestyles Pty Ltd v Clarke (No 3) [2016] NSWSC 1237
Federal Commissioner of Taxation v Whitfords Beach Pty Ltd (1982) 150 CLR 355; [1982] HCA 8
Feldman v GNM Australia Ltd [2017] NSWCA 107
Fox v Everingham and Anor (1983) 50 ALR 337; [1983] FCA 277
Freeman & Lockyer (a firm) v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480
Friend v Brooker (2009) 239 CLR 129; [2009] HCA 21
Garcia v National Australia Bank Ltd (1998) 194 CLR 395; [1998] HCA 48
Goodwin v National Bank of Australasia Ltd (1968) 117 CLR 173; [1968] HCA 30
Haira v Burbery Mortgage Finance & Savings Ltd (In Receivership) [1995] 3 NZLR 396
Hawkins v Clayton (1988) 164 CLR 539; [1988] HCA 15.
Henderson and Ors v Amadio Pty Ltd and Ors (No 1) (1995) 140 ALR 391; [1995] FCA 1029
Hewitt v Court (1983) 149 CLR 639; [1983] HCA 7
Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41; [1984] HCA 64
Howard v Commissioner of Taxation (2014) 253 CLR 83; [2014] HCA 21
Hyde v Sullivan (1956) SR (NSW) 113
John McCann & Co v Pow [1974] 1 WLR 1643
Kakavas v Crown Melbourne Ltd and Ors (2013) 250 CLR 392; [2013] HCA 25
Knowles v Victorian Mortgage Investments Ltd and Anor [2011] VSC 611
Kowalczuk v Accom Finance (2008) 77 NSWLR 205; [2008] NSWCA 343
Kuru v State of New South Wales (2008) 236 CLR 1; [2008] HCA 26
Linkenholt Pty Ltd v Quirk [2000] VSC 166
Louth v Diprose (1992) 175 CLR 621; [1992] HCA 61
McKenzie v Smith; Lenehan v Smith (1998) ASC 155-025
Mills v Commissioner of Taxation (2012) 250 CLR 171; [2012] HCA 51
Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37
Muschinski v Dodds (1985) 160 CLR 583; [1985] HCA 78
Nemeth v Australian Litigation Funders Pty Ltd [2014] NSWCA 198
Paciocco v Australia and New Zealand Banking Group Limited (2015) 236 FCR 199; [2015] FCAFC 50
Paciocco and Anor v Australia and New Zealand Banking Group Limited (2016) 258 CLR 525; [2016] HCA 28
Perpetual Trustee Co Ltd v Khoshaba [2006] NSWCA 41; 14 BPR 26,639
Pilmer v Duke Group Limited (in liq) (2001) 207 CLR 165; [2001] HCA 31
Plimmer v Mayor of Wellington (1884) 9 App Cas 699
Polkinghorne v Holland (1934) 51 CLR 143; [1934] HCA 28
Provident Capital Ltd v Papa (2013) 84 NSWLR 231; [2013] NSWCA 36
PT Ltd v Spuds Surf Chatswood Pty Ltd [2013] NSWCA 446
Queensland Mines Ltd v Hudson (1978) 52 ALJR 399
R v Holmes; Ex parte Public Service Association (NSW) (1977) 140 CLR 63; [1977] HCA 70
Roxborough v Rothmans of Pall Mall Australia Limited (2001) 208 CLR 516; [2001] HCA 68
Shakespeare Haney Securities Ltd v Crawford [2009] 2 Qd R 156; [2009] QCA 85
St George Commercial Credit Corporation Ltd v Collins Wallis Properties Pty Ltd (Supreme Court of NSW, 11 February 1994, unreported)
Target Holdings Ltd v Redferns [1996] 1 AC 421; [1995] UKHL 10
Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389
Trimis v Mina [1999] NSWCA 140
Vadasz v Pioneer Concrete (SA) Pty Ltd (1995) 184 CLR 102; [1995] HCA 14
Vella v Permanent Mortgages Pty Ltd [2008] NSWSC 505
Williams v ATM & CPA Projects Pty Ltd [2015] NSWSC 703
Wu v Ling [2016] NSWCA 322
Yerkey v Jones (1939) 63 CLR 649; [1939] HCA 3

Texts Cited:

A Beatty and A Smith, Annotated National Credit Code and Regulations, (LexisNexis Butterworths: Chatswood, 4th ed., 2011)
P Watts and FMB Reynolds (eds), Bowstead and Reynolds on Agency (London: Sweet & Maxwell, 21st ed., 2018)
S Stoljar, “The Doctrine of Failure of Consideration” (1959) 75 Law Quarterly Review 53

Category:

Principal judgment

Parties:

Lauvan Pty Limited (First Plaintiff)
Mittabell Pty Limited (Second Plaintiff)
Helen Bega (First Defendant)
Aidan Bega (Second Defendant)
AB Veritas Pty Limited (Third Defendant)
Charles Ciappara (Second Cross-Defendant)

Representation:

Counsel:
Mr G Sirtes SC / Ms A Avery-Williams (Plaintiffs)
Ms I King (First Defendant)
Mr A Ogborne (Second and Third Defendants)
Mr J Emmett (Second Cross-Defendant / Third Cross-Claimant)

  Solicitors:
Woolf Associates (Plaintiffs)
Coyne Legal (First Defendant)
Aubrey F Crawley & Co (Second and Third Defendants)
K&L Gates (Second Cross-Defendant / Third Cross-Claimant)

File Number(s):

2015/362975

Judgment

1. GLEESON JA: On 2 April 2015 the first and second plaintiffs, Lauvan Pty Limited (Lauvan) and Mittabell Pty Limited (Mittabell), entered into a facility agreement with the first defendant, Mrs Helen Bega as borrower, and the second and third defendants, Mr Aidan Bega and his company, AB Veritas Pty Limited (AB Veritas), and also South Townsville Developments Pty Ltd (STD) as guarantors. Mrs Bega also gave security over a property owned by her at Denham Court, near Campbelltown. It is not in dispute that Mrs Bega and the guarantors entered into the facility agreement, or that Mrs Bega gave a mortgage over the Denham Court property. STD is not a party to this proceeding; it was placed into creditors’ voluntary winding up on 20 November 2015.

2. Recital A to the facility agreement recorded that Mrs Bega had requested the plaintiffs to provide the facility to her for the purpose of “assisting with short-term on-lending to family members for proposed commercial investment opportunities in the sum of $1,000,000”. That purpose was also reflected in the terms of cl 2.2(a) of the facility agreement which provided that Mrs Bega must use the net proceeds of all advances provided under the facility for the “Purpose”, which was defined in cl 1.1 as “assisting with short-term on-lending to family members for proposed commercial investment opportunities”.

3. There is a substantial dispute as to whether Mrs Bega has any liability to the plaintiffs under the facility agreement. It is common ground that Mrs Bega did not execute a drawdown notice as contemplated by the facility agreement.

4. The plaintiffs’ case is that they waived the requirement for a drawdown notice. On the plaintiffs’ case, the advance of $1 million was provided to Mrs Bega on 2 April 2015 at the oral direction of Mr Dominic Mullins (a director of STD) and Mr Peter Bega (Mrs Bega’s husband), and that request was made with her authority. The plaintiffs contend that the advance of $1 million was used by Mrs Bega to assist her son, Aidan Bega, to complete the purchase by AB Veritas of seven units in the “Allure Apartments”, a residential development by STD in South Townsville. The plaintiffs contend that the effect of the transaction was that security over one Bega family asset was given by Mrs Bega to assist in the purchase of a further family asset by AB Veritas.

5. Anticipating the defendants’ foreshadowed challenges to the transaction, the plaintiffs claim, in the alternative, that if the facility agreement and/or mortgage are set aside, the plaintiffs will be entitled to recover the sum of $1 million from Mrs Bega or AB Veritas as money had and received on the ground that there has been a total failure of consideration. Alternatively, the plaintiffs assert that the Court ought to impose in their favour a constructive trust or equitable charge over the remaining five units in the Allure Apartments owned by AB Veritas. (Two units have already been sold by AB Veritas).

6. The defendants contend that there was no advance of funds to Mrs Bega consistent with a loan under the facility agreement. On their case, the facility agreement entered into by Mrs Bega was simply a line of credit which was never utilised by her. In June 2015, two months after the transaction, Mrs Bega alleged that the events which occurred on 2 April 2015 (namely, the round-robin of cheques funded by the plaintiffs at the settlement of the sale of seven units to AB Veritas) were not authorised by her, were unlawful and were a “fundamental breach of the facility agreement”. Peter Bega went so far to assert in his evidence that the funds had been “nicked” (T401, lines 19-24).

7. Alternatively, the defendants raise a number of defences, many in common, seeking to be relieved of liability to the plaintiffs under the facility agreement and the mortgage. First, the defendants respectively seek to be relieved of any liability under the facility agreement and the mortgage pursuant to s 180 of the National Consumer Credit Protection Act 2009 (Cth) (NCCP Act) on the ground that the plaintiffs were engaged in unlicensed credit activities contrary to s 29 of the NCCP Act, or to set aside those transactions as unjust under ss 76 – 77 of the National Credit Code (Code).

8. Second, the defendants contend that the facility agreement and mortgage should be set aside as unjust under s 7 of the Contracts Review Act 1980 (NSW) (Contracts Review Act), or unconscionable under either s 21 of the Australian Consumer Law (ACL) in Sch 2 of the Competition and Consumer Act 2010 (Cth), or ss 12CA or 12CB of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act).

9. Aidan Bega and AB Veritas have brought a first cross-claim against the plaintiffs seeking to be relieved of liability as guarantors on the grounds raised in their defence. Although Mrs Bega has not brought a cross-claim seeking similar relief, no pleading point is taken by the plaintiffs in this regard.

10. Mrs Bega has brought a second cross-claim against Mr Ciappara, the solicitor who advised her on the transaction, claiming damages for alleged negligent advice or compensation for breach of fiduciary duty. Mr Ciappara denies those allegations and raises defences of contributory negligence, failure to mitigate and proportionate liability pursuant to Pt 4 of the Civil Liability Act 2002 (NSW) (Civil Liability Act).

11. Against the possibility that not all of Mrs Bega’s claims against Mr Ciappara are an “apportionable claim” for the purposes of s 34(1) of the Civil Liability Act, Mr Ciappara has brought a third cross-claim against both plaintiffs, as well as Aidan Bega and AB Veritas, claiming indemnity or contribution either pursuant to s 5(1)(c) of the Law Reform (Miscellaneous Provisions) Act 1946 (NSW) or by way of equitable contribution.

12. Before setting out the detailed facts and my findings on matters in dispute, it is convenient first to identify the parties, the principal witnesses and their relationships.

The parties, principal witnesses and their relationships

13. Lauvan was incorporated in 1993. Its primary business is hotels, property development and property investment. Mittabell was incorporated in 1985. Its primary business is property investment and share investment. Mr Shadd Danesi is the sole director of both Lauvan and Mittabell. The solicitors acting for the plaintiffs were Independent Legal, principally Mr Alex Roth and Mr Phil Hustler.

14. STD was incorporated on 28 May 2012. The directors and shareholders of STD were Mr Dominic Mullins and Mr Ross Stathakis. Mr Stathakis ceased to be a director on 24 December 2014; and Mr Mullins ceased to be a director on 18 May 2015. Mr Napoleon Tsanis was appointed as the director of STD on 18 May 2015. There is a dispute as to whether Peter Bega or the Bega family was the beneficial owner of the Allure Apartments development through STD.

15. Peter Bega was declared bankrupt on 29 August 2012.

16. In October 2012, Mr Stathakis introduced Mr Danesi to Peter Bega for unrelated purposes. Mr Danesi and Mr Stathakis had known each other for decades. In about mid-March 2013, Mr Stathakis approached Mr Danesi, at the request of Peter Bega and Mr Mullins, in relation to possibly funding the construction of the Allure Apartments in South Townsville. Mr Danesi denied that he was aware of Peter Bega’s bankruptcy prior to May 2015.

17. In June 2013 the plaintiffs made a construction loan of $9.5 million to STD for the development of the Allure Apartments, comprising 42 residential units and some commercial units. Aidan Bega and Mr Mullins were guarantors of the construction loan. Mr Danesi retained Mr Paul Cook, a financial consultant, to manage the construction loan. The amount of the loan to STD was later increased.

18. Mrs Helen Bega is the wife of Peter Bega. Aidan Bega is the son of Peter and Helen Bega. Aidan Bega was appointed sole director of AB Veritas from its incorporation on 5 September 2014, and sole company secretary on 19 March 2015. He deposed in his affidavit that he ceased to be a director of AB Veritas on 19 March 2015, relying upon the Form 484 document subsequently lodged with the Australian Securities and Investments Commission (ASIC) on 15 October 2015 (apparently at the request of his brother Matthew Bega). That form recorded that Aidan Bega had ceased to be a director and company secretary of AB Veritas on 19 March 2015. However, the form is incorrect. Aidan Bega acknowledged so much in his oral evidence (T255, lines 39-45). He remained a director of AB Veritas until 15 October 2015.

13. On 20 February 2015, STD as vendor entered into a contract for sale with AB Veritas as purchaser (guaranteed by Aidan Bega) for the sale of seven units in the Allure Apartments for a total purchase price of $3,080,000. Settlement of that sale was due at the end of March 2015. Mr Tim Delaney of Delaneys Lawyers, at Broadbeach, Queensland acted for AB Veritas on that transaction on the instructions of Mr Mullins. Mr Delaney never dealt directly with Aidan Bega, who he understood was unwell at that time. Norton Rose Fulbright acted for STD on that sale.

14. Mr Charles Ciappara of Sarvaas Ciappara Lawyers acted for Mrs Bega on the facility agreement and the mortgage with the plaintiffs. Earlier in October 2014 and in February 2015, Causidicus Fessus Pty Ltd (Causidicus Fessus), an associated service company of Sarvaas Ciappara Lawyers, had purchased two units in the Allure Apartments following negotiations with Mr Mullins. Part of the purchase price was offset against legal fees owed to that firm by Peter Bega or Bega family companies including Gap Constructions. (Mr Sarvaas and Mr Ciappara were directors of Causidicus Fessus and their wives each owned 50% of the shares in that company).

Assessment of witnesses

21. The trial proceeded in two phases in view of the late joinder by Mrs Bega of Mr Ciappara as a cross-defendant to the second cross-claim. This meant that some of the defendants’ witnesses were recalled for cross-examination by counsel for Mr Ciappara in the second phase of the hearing.

22. The plaintiffs’ case relied upon affidavit evidence from Mr Danesi, Mr Cook, and Mr Stathakis, all of whom were cross-examined. The plaintiffs also adduced evidence from Mr Mullins who attended in response to a subpoena. He gave evidence in the form of a written statement, which was admitted without objection. Some additional evidence was adduced in his examination-in-chief and he was also cross-examined.

23. The first defendant, Mrs Bega, swore three affidavits and was cross-examined. The second and third defendants called Aidan Bega, Peter Bega and Mr Delaney, each of whom swore affidavits and were cross-examined. The second cross-defendant, Mr Ciappara, swore an affidavit and was cross-examined by counsel for the respective defendants. Mrs Bega, Peter Bega and Aidan Bega were each recalled for cross-examination by counsel for Mr Ciappara.

24. As will appear, there are significant conflicts in parts of the evidence given by some of the witnesses. The parties made submissions concerning the credit of the principal witnesses. Generally, I have approached the conflicting and competing witness testimony on the basis that the contemporaneous documents provide a more accurate indication of what occurred than the recollection of the witnesses of events occurring at least two years earlier.

25. I generally accept the evidence of Mr Danesi and Mr Cook. They both impressed me as honest witnesses relaying their best recollection of events. They both made some concessions in their evidence where appropriate. To the extent that, on occasion, their recollection was different to that in the documents, I preferred the documentary record.

26. I also generally accept the evidence of Mr Stathakis and Mr Mullins, including where it conflicts with Peter Bega’s evidence concerning their holding shares in STD on trust for the Bega family, that no amounts were secured by the mortgages over the Allure Apartments in favour of their companies, and that they acted in the affairs of STD on the instructions of Peter Bega. I also prefer the evidence of Mr Mullins where it conflicts with Peter Bega’s evidence concerning their dealings in relation to the sale of units to AB Veritas.

27. I have formed an unfavourable view of much of the evidence given by each of Peter Bega, Mrs Bega and Aidan Bega. Each was an unsatisfactory and unreliable witness on the major topics that were in dispute. I do not accept their evidence unless against interest or supported by other objective evidence.

28. I find that Peter Bega was not frank in giving his evidence, and instead was seeking to establish, falsely, his assertion that no monies would be drawn down under the facility agreement. The manner in which he gave oral evidence was combative, evasive and frequently prone to lengthy and unresponsive answers to direct questions. His assertion that someone had “nicked” the $1 million under the facility agreement was fanciful. The documentary evidence contradicts that assertion. He sought to deny the extent of his involvement in STD notwithstanding the large body of contrary documentary evidence, including emails, text messages and his own evidence in other proceedings before Syme DCJ as to how the Allure land came to be acquired in 2012. I do not accept his denial that he controlled STD.

29. He sought to deny giving instructions to Mr Tsanis in May 2015 to create letters to the plaintiffs’ solicitors out of emails which he had sent to Mr Tsanis. That evidence cannot be accepted in the face of Peter Bega’s contemporaneous text messages (Ex W). He gave Mr Mullins a direction in April 2015 to fake Aidan Bega’s signature on a document when he was unavailable to sign the document, as an alternative to delaying completion of a transaction that required Aidan Bega’s signature. He also requested Mr Mullins to send emails to Mrs Bega in June 2015 to deny the role that Mr Mullins had played in the loan to Mrs Bega and the advance of $1 million on 2 April 2015. His behaviour was unscrupulous. It also revealed a willingness to engage in deception to achieve what he thought was in the best interests of the Bega family.

30. I find Mrs Bega’s evidence that she thought there was no loan to her is so implausible that I cannot accept that she was genuinely mistaken in giving her evidence. First, she could not satisfactorily explain her lack of recollection of her conversations with Mr Ciappara on 31 March and 1 April 2015 when she told Mr Ciappara of the $1 million loan that Mr Mullins had organised for her to help Aidan purchase an investment unit. Second, her evidence is contradicted by Mr Ciappara’s evidence, which is supported by the objective evidence of his contemporaneous file notes. Third, even on Mrs Bega’s evidence, Mr Ciappara had told her that there was a loan document secured by the mortgage that needed to be signed.

31. I also find that Mrs Bega was not frank in giving her evidence on the topic of what advice Mr Ciappara had given to her at the time of signing the mortgage and facility agreement. Her assertion that nobody told her that she could lose her house is just one example of her attempt, falsely, to establish the absence of legal advice given by Mr Ciappara.

32. Although I have made allowance for Aidan Bega’s illness as at 2015, I cannot accept his evidence on the critical topic of his understanding of the transaction that he was guaranteeing. First, his asserted belief that an offset deed with STD provided the means by which AB Veritas could satisfy the shortfall in the purchase price for the seven units is implausible, given the concessions he made in cross-examination that undermined the existence of any genuine belief on his part that AB Veritas had any claim against STD for an amount of over $1.7 million, which it could rely upon by way of a set off against the purchase price owing to STD.

33. Second, I do not accept that it is likely that Peter Bega misrepresented the nature of the transaction to his son on 1 April 2015. Peter Bega had received emails on-forwarded by Mr Mullins which described the transaction as a loan from the plaintiffs, he understood that there was both a mortgage and facility agreement that needed to be signed, and the members of the Bega family saw their interests aligned with each other at that time. There is no reason why Peter Bega would have misrepresented the transaction to his son. In addition, the concessions made by Aidan Bega in cross-examination extended to his understanding of the nature and effect of the transaction. Those concessions were inconsistent with his affidavit evidence, which cannot be accepted.

34. Third, I find that Aidan Bega was not frank in giving evidence that he believed Mr Ciappara was giving him legal advice on 2 April 2015. When pressed to explain, Aidan Bega quickly retreated from this evidence. Ultimately he said that he didn’t need Mr Ciappara to give him legal advice. His evidence on this topic revealed a willingness to say whatever he thought might assist his case.

35. I now turn to the detailed narrative of the facts, including my findings on matters in dispute.

Background to the transaction

36. Prior to 2012, Peter Bega was involved in two developments at South Townsville by Solarus Projects Pty Ltd (Solarus Projects) on adjacent blocks of land. One development, known as Solarus, included the South Townsville Tavern. The other development was known as the Allure Apartments. Solarus Projects was placed into receivership in or around May 2012. Earlier on 19 April 2012, JHD Property Pty Ltd (JHD Property) as trustee for the Allure Settlement Trust acquired the Allure land from Solarus Projects, with the approval of the receivers and the first mortgagee Westpac Banking Corporation. JHD Property funded that purchase with $1,194,545 raised by the sale of other property owned by the Bega family at Vaucluse. Peter Bega accepted in cross-examination that the Bega family was the beneficial owner of the trust that held the Allure land of which JHD Property was trustee (T322, lines 21-39).

STD acquires the Allure Apartments land

37. In or around June 2012, STD acquired the Allure land from JHD Property for about $1.1 million. Mr Mullins and Mr Stathakis, the then-directors of STD, both gave evidence that they acquired this land on the instructions of Peter Bega (Affidavit of Ross Stathakis at [6] and [12]; Ex U par 3). That purchase was funded entirely by vendor finance. It seems that the loan owing by STD to JHD Property was never repaid.

38. On 12 September 2012, mortgages were registered on the title to the Allure land by R S Projects Pty Ltd and N Q Projects Pty Ltd. Mr Stathakis and Mr Mullins both gave evidence that they held their respective shares in RS Projects and NQ Projects for Peter Bega, and that they caused the mortgages to be registered on the title on his instructions (T129, 41-50; T130, 13-19; T131, 13-18; T298-299; T307, 7-15). I accept this evidence. The instructions which were later given by Mr Mullins to Mr Delaney, solicitor, on 23 July 2013 (Ex 5) to prepare agreements recording the terms on which those companies had purportedly provided services to STD were never executed. Both Mr Stathakis and Mr Mullins gave evidence that no amount was secured by those mortgages (T130, lines 13-19; T298-299). I accept that evidence.

39. Peter Bega denied that he controlled STD or that the shares in STD were held by Mr Mullins and Mr Stathakis in trust for him or the Bega family. I do not accept that evidence. I find that Peter Bega controlled STD, and that the directors of STD acted in accordance with his instructions. The evidence establishes that Peter Bega asked Mr Mullins and Mr Stathakis to register STD and be its directors, and to hold their shares for the Bega family. Mr Mullins said that Peter Bega told him that they held the shares in STD on trust for Peter Bega’s sons, Matthew and Aidan. Mr Mullins and Mr Stathakis acted at Peter Bega’s direction, including Mr Mullins’ resignation as a director of STD in May 2015. Peter Bega then installed Mr Napoleon Tsanis as a director of STD. Peter Bega requested that Mr Mullins and Mr Stathakis incorporate companies and register mortgages over the Allure land. Those mortgages were plainly a device to protect the equity in the Allure Apartments development for the benefit of the Bega family. Peter Bega arranged on behalf of STD the construction loan from the plaintiffs and negotiated each variation of that loan. He arranged for his son Aidan Bega to give a guarantee of the construction loan. That STD was, in reality, a Bega family company directed and controlled by Peter Bega is also confirmed by the content of the text messages sent by Peter Bega to Mr Danesi and Mr Mullins (Ex W).

Construction loans to STD

40. On 21 June 2013, the plaintiffs entered into a facility agreement with STD for $9,500,000 to fund construction of the Allure Apartments (the construction loan). The construction loan was guaranteed by Mr Mullins and Aidan Bega and secured by a mortgage over the Allure land and also over each of the apartments once the strata plan was registered. The parties entered into five variations of the facility agreement between October 2013 and August 2014.

41. Construction was completed in about August 2014. It is common ground that sales were slow and STD experienced difficulty in selling the apartments on the open market at prices that would enable the construction loan to be fully repaid. Peter Bega was frustrated with how long it was taking to pay out the construction loan.

42. On 19 September 2014, the plaintiffs issued a notice of default to STD for failing to repay the principal sum and capitalised interest totalling $10,700,000. Interest on the loan was being charged at 20 per cent per annum, and the plaintiffs reserved the right to charge a higher rate of 30 per cent per annum on default. STD sought to refinance the construction loan, but this was apparently refused by the plaintiffs in about October 2014.

43. STD adopted a number of strategies to generate sales and reduce the debt owed to the plaintiffs. One strategy was to sell some units to interests associated with Mr Danesi. Another strategy was to sell the units “off market” to friends and relatives. This resulted in a number of sales of individual units. Units were sold to Bega family members and associates at a discount on market-value, including by way of offsets and rebates. Those sales at a discount included the sale of two units (unit 602 in October 2014 and unit 702 in February 2015) to Causidicus Fessus, the service company associated with Sarvaas Ciappara. A third strategy involved the remaining units being “refinanced”. STD had proposed to the plaintiffs that the refinance of the balance of the units would occur at the very end of the sales process.

44. As part of the second strategy, STD entered into a contract of sale on 20 February 2015 with AB Veritas (guaranteed by Aidan Bega) for seven units in the Allure Apartments at a total purchase price of $3,080,000. Settlement of that sale was due to take place at the end of March 2015. AB Veritas obtained mortgage finance approval from Arch Finance Pty Ltd (Arch Finance) for $1,820,000 on 20 March 2015. This was substantially less than the purchase price.

45. Aidan Bega deposed that AB Veritas also entered into an offset deed with STD in relation to the purchase price. The offset deed in evidence was undated and executed only by Aidan Bega on behalf of AB Veritas (Ex B, tab 46). Recital C to the offset deed recorded an agreement that the buyer may offset on the settlement date against its obligation to pay the purchase price, the amount of the financial liabilities incurred by the developer (STD), or parties related to or associated with the developer, to the buyer (AB Veritas) an amount of $1,795,000.

46. On 10 March 2015, Mr Cook sent an email to Mr Danesi advising that, taking into account the estimated net proceeds available to the plaintiffs from the upcoming and recent settlements (as advised by Mr Mullins on 9 March 2015), the “current LVR excluding the Commercial Unit is $296k prior to today’s settlement”. The reference to the “current LVR” was a reference to a calculation of the balance of STD’s outstanding debt divided by the number of unsold units (excluding the Commercial Unit). Mr Cook advised Mr Danesi that, assuming the units settled as planned, the debt reduction would result in a loan balance of $4,353,000, excluding interest of about $20,000 per week. His email continued:

There are 15 Units remaining excluding the Commercial Unit (not sure of the current value on this asset) therefore Dominic would need to achieve around $295k per Unit on the refinance to clear the debt.

It will be interesting as to how this pans out and if they can achieve the funding sufficient to clear the debt, looks close to me.

The discussions leading to the facility agreement and mortgage

47. Mr Danesi deposed that he had a telephone conversation with Mr Mullins on 23 March 2015 concerning the sale to Aidan Bega. It is more likely however that this conversation occurred on or about 19 March 2015. The difference in dates is not significant. According to Mr Danesi, Mr Mullins informed him that STD was looking to transfer seven units to Aidan Bega for approximately $200,000 per unit “early next month” (that is, April 2015). Mr Danesi responded that he was not comfortable as those amounts were below his LVR (of $295,000). Mr Danesi told Mr Mullins that if Peter Bega wanted him to consent to those transfers, additional security would be required. Mr Mullins responded that he would talk to Peter Bega, and advised that STD may need the plaintiffs to make available further funds on the day of settlement to make up the shortfall in the purchase price so as to allow settlement to go through. He indicated that there would be no risk to Mr Danesi as he would simply need to draw a bank cheque payable to himself on settlement. Mr Mullins said:

You will then take that away from settlement with the $200k net sale proceeds for each unit.

48. Mr Danesi replied that he would discuss the matter with Mr Cook and think about it, and would depend on the position regarding the additional security.

49. Peter Bega deposed that Mr Mullins informed him of his conversation with Mr Danesi during a telephone call on about 23 March 2015. The conversation may have occurred earlier than this date. According to Peter Bega, Mr Mullins told him that Mr Danesi was not prepared to permit the sale to AB Veritas to settle without further security to support the construction loans to STD, and Mr Mullins suggested that he put up the (Bega) house as temporary short-term security, and also said: “It will only be a short period”. Peter Bega deposed that he responded to Mr Mullins that, on the basis that there was no risk as the sales would pay out the loan from Mr Danesi in full and the additional security was only required for a short period, he would ask Helen (Bega) to agree to provide the security on that basis.

50. On 24 March 2015, Peter Bega telephoned Mr Danesi concerning the proposed transfer of seven units to Aidan Bega. According to Mr Danesi, Peter Bega said that he would talk with his wife and that they would use the family home as additional security, that it was in the family’s interest to transfer the units to Aidan, and that they needed to act urgently as Aidan was running out of time to draw down on his loan approval, which he would not get back if allowed to expire. This was a reference to the loan approval from Arch Finance for $1,820,000, which expired on 31 March 2015.

51. Peter Bega accepted that he spoke to Mr Danesi on or about 24 March 2015 and told him that he would ask Helen (Bega) whether she would be agreeable to the family home being used as security until the settlements of other sales had completed. He deposed that he said to Mr Danesi:

It will only be security for a short time as those settlements are to take place I am told by Dominic in April and will provide sufficient capital reduction. I will ask Helen to provide the house as security until then

and that Mr Danesi responded that he was agreeable to that.

25 March 2015 meeting

52. On the following day, 25 March 2015, Mr Danesi met with Peter Bega and Mr Mullins at his office in Erskineville. Mr Danesi deposed that a conversation to the following effect took place:

PB: I’ve spoken to Helen. She has agreed to grant a mortgage over the family home. Will $1 million be sufficient security?

SD: Yes, I think so but I will confirm with you.

PB: Ok, I’ll leave it to you guys to sort it out.

53. Peter Bega agreed that he met with Mr Danesi and Mr Mullins on 25 March 2015, but denied having raised the $1 million security. He deposed that he told Mr Danesi:

Helen is agreeable to providing her home as additional security in the short-term on the basis as we agreed yesterday. The property is unencumbered. There is sufficient value in the property to provide the additional security to cover the temporary LV are shortfall. Is that acceptable?

and that Mr Danesi replied “yes”.

54. In her first affidavit, Mrs Bega deposed that, a few days before signing the facility agreement (on 2 April 2015), she had a conversation with her husband at their Alexandria home to the following effect:

Peter: Helen, I know we have always said we would never do this, but we need to put a mortgage over the house for $1 million, but it will be only for a couple of weeks. Nothing to worry about.

Helen: How does that work – just for a couple of weeks? It’s a bit odd. I had never heard of a mortgage which was to last for 2 or 3 weeks.

Peter: We’re in a tight spot. It’s just to get us over the line and it will only be for a couple of weeks. It’s fine, you don’t have to worry. Because they can’t get any money without your say so.

Helen: Ok.

I was a bit alarmed but trusted Peter to manage the matter so that our home was not put at risk.

Peter: You’re going to have to sign some documents with Charles. (Charles Ciappara who was at that stage our family solicitor.)

55. Mrs Bega also deposed that she understood that the documents were necessary to provide security for the Allure Apartments in Townsville (First affidavit, par 20).

26 March 2015 meeting

56. On 26 March 2015, Mr Danesi met with Mr Mullins, Mr Cook and Mr Roth at the offices of Independent Legal. There was a discussion of the three tranches of sales that were to occur including to AB Veritas. Mr Mullins confirmed that, following discussions with Peter Bega, the Bega family home would be offered as additional security. Mr Mullins indicated that the purchase price of the seven units to be transferred to AB Veritas was approximately $3,000,000, from which there would be net funds available for Mr Danesi of approximately $1,450,000. Mr Mullins explained the detail of the two other tranches of sales to related parties.

57. Tranche 2 involved the sale of five units (units 306, 406, 504, 506 and 605) to Matab Investments Pty Ltd (Matab), a company owned and controlled by Matthew Bega, another son of Peter and Helen Bega, with net funds of approximately $1,345,000 available to the plaintiffs. These transactions were to be financed by Arch Finance.

58. Tranche 3 involved the sale of three units (units 201, 402 and 502) to Balis Properties Pty Limited (Balis), a company owned and controlled by George Balis, the brother of Mrs Bega, with net proceeds of approximately $1,125,000. These transactions were to be financed by National Australia Bank Limited.

59. Mr Mullins also outlined the proposed sale prices and settlement dates for the remaining units: Lot 303, within seven days ($390,000); Lot 707, within two to three weeks ($455,000); Lot 504, within two to four weeks ($365,000); and Lot 305, within two to four weeks ($375,000).

60. The meeting then turned to the question of what form the security might take. Mr Mullins explained that Mrs Bega owned the Denham Court property solely in her name. Mr Roth asked how much money was to be secured by that property. Mr Danesi indicated that Peter Bega had requested a loan for $1,000,000. Mr Roth gave advice that asking Mrs Bega to guarantee the construction loan might be too complicated given the number of variations of that loan that had occurred, and suggested instead that the plaintiffs lend money to Mrs Bega secured by the Denham Court property, which money she could on lend to AB Veritas. According to Mr Danesi, the conversation between Mr Roth and Mr Mullins was in the following terms:

AR:   Is the mortgage from Helen to be used as security for the existing debt of South Townsville Developments? That would require a guarantee from Helen. Given all of the variations that have occurred to date in the South Townsville Developments loans, I’m not very keen on the idea of bringing Helen in at this late stage as a guarantor, it’s too complicated. Given that the mortgage is proposed to assist Aidan complete the purchase, it would make more sense to lend the money to Helen and she can on-lend to Aidan to complete the purchase. If we do it that way, the million dollar loan to Helen plus the monies from Arch will be paid out to South Townsville Developments as vendor who will need to pay to Shadd as mortgagee. What will then occur is Helen Bega’s loan will be drawn down and South Townsville’s debt will reduce by the corresponding amount. It would also make sense to have South Townsville, Aidan and his company guarantee the loan to Helen.

DM:   Yes that makes sense, can you please start preparing the loan and security documents as this needs to happen in a hurry.

Events of late March 2015

61. Mr Danesi gave evidence that on or about 28 March 2015, Mr Mullins telephoned him and said:

Shadd, Helen is okay to proceed and enter into the agreement to borrow $1M and grant a mortgage over Denham Court. Can you instruct your lawyer urgently to prepare the docs as we need to get this settled in the next few days or Aidan may lose his funding.

62. The defendants did not challenge this part of Mr Danesi’s evidence, nor did Mr Mullins dispute in his witness statement having such a conversation with Mr Danesi.

63. Mr Mullins gave evidence in his statement (Ex U, par 17) that Peter Bega said that he was willing to give security over the Denham Court property:

Because I am exchanging $1 million of equity in the house for $3 million of equity in the units.

64. Peter Bega deposed that he telephoned Mr Ciappara on 30 March 2015 and informed him of the proposed transaction in the following terms:

PB: The lender to STD requires additional security to allow the sale to Aidan’s company to go through. I have convinced Helen to provide the title deed and a mortgage over her home at Denham Court. The mortgage security will only be in place until the sales to MATAB Pty Ltd, Balis Properties Pty Ltd and possibly Andrew Hourigan go through. At worst, the mortgage will be in place for a month. I will need you to witness the mortgage documents. Is that ok?

CC: Yes.

PB: I shall call you to arrange

65. Mr Ciappara denied having a telephone conversation with Peter Bega concerning the matter before receiving Mr Mullins’ email at 12.42pm on 31 March 2015 (referred to at [68] below).

66. On 31 March 2015 at 10.57am, Mr Hustler, a solicitor from Independent Legal, sent a letter by email to Mr Mullins headed “Lauvan/Mittabell Loan to Helen Bega”, enclosing a covering letter from Mr Roth of Independent Legal dated 31 March 2015, the mortgage over the Denham Court property and a number of ancillary documents, including declarations and acknowledgment of legal advice for Mrs Bega and Aidan Bega. The facility agreement was not attached to this email.

67. The covering letter from Mr Roth dated 31 March 2015 noted his understanding that Mr Mullins represented the borrower, Mrs Bega, and that Mr Mullins would provide the enclosed documents to and discuss them with the borrower. The letter stated that a precondition to the plaintiffs advancing funds under the facility was that the borrower and the individual guarantor obtain legal advice and complete and make the declaration in accordance with the New South Wales Solicitors’ Rules 45.7. (It seems, however, that the applicable rule at the time was r 58: see NSW Professional Conduct and Practice Rules (2013).)

68. Mr Mullins gave evidence that upon receipt of the loan documents by email, he telephoned Peter Bega and told him that he had received the documents and asked what he should do with them. Peter Bega replied that he should send them to Mr Ciappara who would advise Mrs Bega and look after her interests. Mr Mullins did so and forwarded Mr Hustler’s email together with its attachments, by email to Mr Ciappara, copied to Peter Bega, at 12.42pm on 31 March 2015 also headed “Lauvan/Mittabell Loan to Helen Bega”, and requested that Mr Ciappara urgently review the documents, noting that “Peter will contact you with further details”.

69. Peter Bega sent an email to Mr Ciappara, copied to Mr Mullins, on 31 March 2015 at 1.28pm advising that Mrs Bega needed to execute the documents “so Aidan can settle his unit purchases on Thursday”. That email was also headed “Lauvan/Mittabell Loan to Helen Bega”. There were further emails between Peter Bega and Mr Ciappara on 31 March 2015 concerning arrangements for Mr Ciappara to meet Mrs Bega at Bitton café at Alexandria the following morning.

70. In her first affidavit, Mrs Bega explained the circumstances in which she signed the facility agreement on 2 April 2015, but did not refer to signing the mortgage on 1 April 2015. That was dealt with in her second affidavit dated 3 May 2017. Mrs Bega also swore a third affidavit on 1 June 2017 in response to Mr Ciappara’s affidavit of 22 May 2017.

71. Mrs Bega deposed in her first affidavit that, on the evening before signing the documents, her husband informed her that Mr Ciappara was coming the following morning for the signing of the documents and that she and their son, Aidan, needed to be at home and that Mr Mullins would also be there. Mrs Bega described Mr Ciappara as the Bega family’s solicitor who had acted for both her and Peter Bega on a number of matters, including conveyancing transactions and mortgages given by Mrs Bega over various properties owned by her and in relation to legal disputes involving Peter Bega. Mr Mullins was also known to Mrs Bega both socially and as a person who had done some work with her husband and she had met him on a number of occasions in Townsville.

72. Mr Ciappara deposed that he had a telephone conversation with Mrs Bega on the evening of 31 March 2015 to the following effect:

I said:   “Hi Helen. I’ve received some documents from Dominic. I haven’t had the chance to review them in detail but what is it about?”

Mrs Bega:   “Dominic has arranged a loan for me as I want to help Aidan purchase an investment unit.”

I said:   “Okay, how much is the loan for?”

Mrs Bega:   “$1 million.”

I said:   “I’ll have a look at the documents tonight. I can meet you at Bitton Café tomorrow morning at say 8.30am before I drive to work if you’re free. Does that work for you?”

Mrs Bega:   “That will be great that way I won’t have to come into the city, thanks Charles.”

73. In her reply affidavit, Mrs Bega did not deny the telephone conversation to which Mr Ciappara referred in his affidavit. Her evidence was that she did not recall that conversation. She proffered as a possible explanation that, at the time, her son, Aidan, was unwell and that both her parents were also very ill, and she was spending most of her time visiting the nursing home and medical clinics and caring for her mother. Mr Ciappara’s evidence of this conversation was not challenged in cross-examination by counsel for Mrs Bega.

1 April 2015

74. Mr Ciappara said he received an email sent by Peter Bega at 8.04am on 1 April 2015, on forwarding Mr Mullins’ email to him attaching a document entitled “100-Point Identification document”. Mr Ciappara arrived at the Bitton café in Alexandria at approximately 8.45am. Peter Bega and Mrs Bega were sitting at a table outside the café. After a short discussion regarding the health of their son, Aidan, Peter Bega left the table and went into the café. Mr Ciappara deposed that he then had a conversation with Mrs Bega to the following effect:

I said:   “I have read the documents that Dominic sent me, but there is only a mortgage and no loan facility. Do you have the loan document?”

Mrs Bega:   “No, I don’t have the loan.”

I said:   “What are those documents?”

Mrs Bega:   “Those are the proof of identification documents that the financier needs.”

75. According to Mr Ciappara, after reviewing the identification documents he had a further conversation with Mrs Bega to the following effect:

I said:   “So you’re getting a loan for $1 million to help Aidan purchase a unit and you’re prepared to give a mortgage over your house at Denham Court. Is that right?”

Mrs Bega:   “Yes, that’s correct.”

I pointed to the Mortgage that I had in front of me and I said words to the following effect to Mrs Bega:

“This is the mortgage that will secure payment of the $1 million that will be advanced to you. If you default under any finance agreement you enter into with the lender then the lender will be entitled to repossess and sell your house in order to repay the loan, interest, costs and expenses and anything else you owe under the finance agreement. Do you understand that?”

Mrs Bega:   “Yes, I understand.”

I said:   “Okay. I’ll need to get onto Dominic to see what’s happening with the finance agreement.”

Mr Ciappara said that he then witnessed Mrs Bega’s signature on the mortgage and the Declaration and he completed and signed the 100-Point Identification Confirmation.

76. Mr Ciappara’s handwritten file note dated 1 April 2015, recorded the following:

Advised Helen that I had only received mortgage and not finance document.

She said she was borrowing $1 million and was prepared to give security over Denham Court. She was borrowing $1 million to help Aidan with a unit investment.

I advised Helen that by giving the mortgage if she defaulted under finance agreement then the lender had security over Denham Court and could take her house to repay any amounts owed under finance agreement and costs and expenses.

Sighted Helen’s ID and witnessed her signature on mortgage and Declaration.

77. Mr Ciappara deposed that he did not recall whether he made his file note at the meeting with Mrs Bega on 1 April 2015 or within a day of that meeting. He gave evidence of his practice of making file notes of meetings. He said that his practice was to make the file note either during the meeting or back at the office within a day of the meeting. He also said that he did not recall departing from this practice.

78. In her second affidavit, Mrs Bega deposed that she had a very limited recollection of signing the mortgage, but that it might have occurred at a coffee shop. In her reply affidavit, Mrs Bega did not dispute the conversation with Mr Ciappara on 1 April 2015 except to say that her recollection was that she had provided the proof of identity documents to Mr Mullins on the afternoon of 1 April 2015, rather than to Mr Ciappara in the morning of 1 April 2015. That evidence is unreliable. It is contradicted by Mr Ciappara’s file note, which I regard as accurate. The file note records that Mr Ciappara sighted Mrs Bega’s proof of identity, including her birth certificate, passport and driver’s licence.

79. Following execution of the mortgage, Mr Ciappara received an email from Peter Bega at 1.26pm on 1 April 2015 requesting that he email and courier Mrs Bega’s documents to the lenders’ lawyer, Mr Alex Roth. Mr Ciappara did not do so. Shortly after receiving Peter Bega’s email, Mr Ciappara informed Mr Mullins in a telephone conversation that he had received the mortgage, but not the loan agreement. He told Mr Mullins that he had seen Mrs Bega that morning and she had signed the mortgage and enquired as to where the loan agreement was. Mr Mullins responded that he would “chase up the lender”. He also asked Mr Ciappara to email the documents that Mrs Bega had signed. Mr Ciappara replied that he would email Mr Mullins a copy of the signed documents, but would hold on to the original mortgage until Mrs Bega had signed the loan agreement.

80. Mr Ciappara sent an email to Mr Mullins at 3.09pm on 1 April 2015 attaching copies of the signed mortgage, Declaration, 100-Point Identification and various identification documents.

81. Later on 1 April 2015, Mr Ciappara received a copy of the email sent by Mr Mullins to Mr Bega (at 5.14pm) attaching the loan agreement, various declarations and an authority and undertaking. Mr Ciappara had a telephone conversation with Peter Bega that evening and agreed to visit the Bega family house at Alexandria the following morning at 9am so that the documents could be signed.

82. According to Peter Bega’s affidavit evidence, his next contact with Mr Ciappara (after 30 March 2015) was on 1 April 2015, when he asked him to come to the family home at Alexandria the following morning (2 April 2015) “because everyone is getting together to sign the documents”. Peter Bega’s affidavit elided reference to his email communications with Mr Ciappara on 31 March and 1 April 2015, and the signing of the mortgage by Mrs Bega on 1 April 2015 at the Bitton café in Alexandria.

83. Aidan Bega deposed to a conversation with his father Peter Bega on 1 April 2015 during which his father told him that Mr Danesi would not settle the sale to AB Veritas unless more security was provided and that Mr Danesi wanted to take Denham Court as additional security for the balance of the South Townsville loan until some further apartments settled in six weeks’ time. Aidan Bega deposed that his father explained:

The deal is that there will be a mortgage against Denham Court securing a facility but no monies will be drawn down under the facility. That way Shad gets his loan to value ratio up until other sales go through. My solicitor, Charles Ciappara, is coming around the documents tomorrow morning you will need to sign as guarantor.

84. Aidan Bega also deposed that he had a close relationship with his father and trusted that what he told him was truthful and accurate. He said that as a result of this conversation with his father, he understood that in order for the plaintiffs to discharge their mortgage over the Allure Apartments to enable AB Veritas to complete the purchase of seven units, the lenders required a mortgage to be given over the family home at Denham Court which would provide them with further security for the loan they had made to STD.

85. Mr Delaney deposed to a telephone call with Mr Mullins late in the afternoon of 1 April 2015. He said Mr Mullins advised him that there were was a change of plans and it had been agreed that the offset deed would no longer apply (to the sale to AB Veritas) and that he had arranged for STD’s financier (the plaintiffs) to attend settlement with a cheque for the sum of $1,395,000 instead. Mr Mullins told Mr Delaney that a representative of the plaintiffs would be flying up from Sydney with the cheque and that that person would attend settlement in Brisbane and would do a ‘round-robin’ at settlement whereby the person would also leave the settlement with the same cheque for $1,395,000. Mr Delaney said that he responded that this was not necessary and he would prefer for the offset deed to proceed, but Mr Mullins advised that it was something that they required on behalf of STD and that the financiers would prefer it to be done this way.

2 April 2015

86. On the morning of 2 April 2015, Mr Mullins arrived at the Bega family home in Alexandria before Mr Ciappara. Mr Mullins gave evidence that he attended at Peter Bega’s request. Mr Mullins said that when Mr Ciappara arrived, he (Mr Mullins) went into the courtyard through the glass doors as the mobile phone reception was poor in the house. Mr Mullins said that he knew that the documents needed to be executed that day in order for the settlement of the units to AB Veritas to proceed. He said that Peter Bega told him:

You have got to get it done, and get the documents back to Alex Roth’s office today.

87. Mr Mullins gave evidence that Peter Bega also said to him that Mr Danesi would not permit settlement to proceed until he had confirmation from Alex Roth’s office that the loan documents had been properly executed and returned to him with the certificate of title to the Denham Court property.

88. Mrs Bega deposed that her son, Aidan, was present when Mr Ciappara arrived at her Alexandria home at about 8.30am or 9am on 2 April 2015, at which time Mr Mullins also arrived. She said that her husband was also at home when Mr Ciappara and Mr Mullins arrived, but was not present when she had a conversation with Mr Ciappara. She said that she made coffee for Mr Ciappara, Mr Mullins and her son, Aidan. When she came into the dining room there were documents on the table. She deposed to the following conversation with Mr Ciappara:

Charles: You understand that this is a loan document over Fox Valley Road?

Helen: Yes I do.

89. Mrs Bega said that she then proceeded to sign the documents. She said that she did not recall Mr Ciappara reading through the documents to himself, that he did not read the documents to her nor did he provide her with any explanation as to its terms. She said that Mr Ciappara did not explain the risks associated with her signing the documents and entering into the agreement. She said that she felt a sense of urgency about signing the documents because of her conversation with her husband. She said that she had not seen the documents before signing them and had no opportunity to read them. She said that she signed the facility agreement in the presence of Mr Mullins and her son, Aidan, and she felt pressure from Mr Mullins to sign the documents. Mr Ciappara witnessed her signature. She said that the meeting with Mr Ciappara took about 10 to 15 minutes.

90. Mr Ciappara gave a very different account of this meeting. He deposed that he arrived at Mrs Bega’s house at approximately 9am. He said Mrs Bega walked him to the dining room at the rear of the house and he sat at her dining table. He said that Mr Mullins was also present and handed him copies of the documents that had been attached to Mr Mullins’ email at 5.14pm the previous day. Mr Ciappara cross-checked the documents to ensure that they were the same as those attached to Mr Mullins’ email; he observed that Mr Mullins was on his mobile phone wandering or pacing while speaking and came in and out of the room, though he was not close enough to hear his conversation with Mrs Bega. Mr Ciappara deposed that Mrs Bega sat across the dining table directly opposite him and they had a conversation to the following effect:

I said:   “We have now received the loan and some other documents.

Have you read the loan, it’s called a Facility Agreement?”

Mrs Bega:   “No, I haven’t. It’s to help Aidan buy an investment property.”

I said:   “I’ll take you through the Agreement but the interest rate is very high it’s 20% per annum.”

Mrs Bega:   “That’s fine, we’ll be repaying the loan shortly within a few weeks.”

I said:   “Okay, I’ll take you through the Agreement.”

91. Mr Ciappara deposed that he flicked through a copy of the facility agreement that was in front of him and advised Mrs Bega in words to the following effect:

I said:   “The facility is for $1 million and the money must be used to assist family members to purchase investment opportunities. The loan must be repaid within 6 months and interest is 20% per annum. If it’s not paid within 6 months then you will be in default under the facility and the lender can take action against you to recover the $1 million including taking possession of your house at Denham Court and selling your home. Also interest rises to 30% per annum if it is not repaid within 6 months. An interest amount of $104,000 is payable even if it is repaid in 6 months. If you default, the lenders can take your house and sell the house and also sue you for any outstanding amounts including any interest and charges payable under the agreement.

Mrs Bega:   “I understand.”

I said:   “The facility says that Consumer Credit Protection Act does not apply which means you won’t have certain protection under the Code like hardship notices and the lender having to issue you certain notices prior to enforcement if you default under the loan.”

Mrs Bega:   “I’m not worried about that because I’m going to repay it shortly.”

I said:   “Helen, I am not giving you any financial advice. You should see an accountant for that. Do you have any questions?”

Mrs Bega:   “I don’t have any questions.”

92. Mr Ciappara further deposed that he had a copy of the mortgage in front of him and he advised Mrs Bega in words to the following effect:

“This is the mortgage document you signed yesterday, for you giving a mortgage over Denham Court. Denham Court can be repossessed and sold if you default under the facility agreement to repay any money owing under the facility agreement.”

93. Mr Ciappara’s file note of 2 April 2015 recorded:

Went through facility agreement and discussed it with Helen in general terms.

Advised Helen:

• Loan was for $1 million. She said it was for an investment in unit for Aidan. I said the money must be used for the investment purpose.

• Facility states Consumer Credit Protection that does not apply. I said she doesn’t have certain protections of code like hardship notices and notices that must be issued prior to enforcement. General discussion of code. Helen said not concerned and okay because she will repay loan shortly.

• Loan is for 6 months at 20% per annum interest. Advised her that loan must be repaid in 6 months otherwise interest would jump to 30% per annum.

• An interest amount of $104,000 is payable even if it is repaid in 6 months.

• If she defaults the lenders can take her home and sell home and also sue her for any outstanding amounts including any interest and charges payable under agreement. She said she understood.

• I told Helen I was not giving her any financial advice and she should see an accountant.

• She said she did not have any questions.

• Went through mortgage again with Helen and reiterated that she is giving mortgage over Denham Court which can be repossessed and sold if default under facility.

• I witnessed Helen’s signatures on document.

94. According to Mr Ciappara, the meeting lasted about half an hour.

95. In her reply affidavit, Mrs Bega did not dispute Mr Ciappara’s affidavit evidence of their 2 April 2015 conversation, nor was there any serious challenge in cross-examination to the accuracy of Mr Ciappara’s file note of that meeting.

96. In addition to signing the facility agreement, Mrs Bega signed other documents on 2 April 2015, including an Authority and Undertaking. She also signed a Declaration stating that she had received independent legal advice regarding the loan and security documents before freely and voluntarily signing the facility offer “in relation to a facility of $1,000,000”. The Authority and Undertaking was addressed to the plaintiffs and directed and authorised them to complete and make fully effective any instrument or document relating in any way to the financial accommodation provided by the plaintiffs to Mrs Bega.

97. As indicated, there was conflicting evidence as to whether Mr Mullins was present during Mr Ciappara’s conversation with Mrs Bega. I prefer the evidence of Mr Ciappara, which was largely consistent with the evidence given by Mr Mullins, that Mr Mullins was on his mobile phone wandering in and out of the room.

98. Aidan Bega deposed that he was present when his mother signed the facility agreement (Affidavit 14/10/2016, par 12). He gave evidence of a conversation with Mr Ciappara as follows:

…

Mr Chippara [sic] said words to the effect of:

“I have only just picked these documents up and have not had time to familiarise myself with them to explain them in any detail but, in essence, there is a mortgage over this property and a facility agreement, which you, Aidan, need to sign as guarantor.”

I said words to the effect of:

“These are the documents my father wants us to sign, is that right?”

Mr Chippara [sic] said words to the effect of:

“Yes, that’s right.”.

99. Mr Ciappara disputed Aidan Bega’s evidence. He said that after Mrs Bega had signed the documents, Aidan Bega joined him and Mrs Bega. I accept Mr Ciappara’s evidence on this topic. Mr Ciappara deposed that he had a brief conversation with Aidan Bega to the following effect:

Aidan Bega   “This relates to the loan for my mother.”

I said:   “Yes. I can’t advise you because I advised your mother.”

Aidan:   “Okay. I understand.”

100. Aidan Bega also signed an Authority and Undertaking and a Declaration that he had received independent legal advice regarding the loan and security documents and had freely and voluntarily signed the facility agreement incorporating guarantee and indemnity “in relation to a facility of $1,000,000”.

101. Peter Bega arrived back at the Alexandria house after the documents had been signed. According to Mr Mullins, Peter Bega asked Mr Ciappara to take the executed documents to Mr Roth’s office, but Mr Ciappara declined on the basis that he did not have time. Peter Bega then asked Mr Mullins if he could take the documents to Mr Roth, to which Mr Mullins responded:

I can’t. I have to get to Erskineville to meet Shadd and Ross to get the settlement cheque.

Peter Bega then took the executed documents to the plaintiffs’ solicitors. Mr Mullins rang Mr Hustler and left a message confirming that the documents had been signed and were on the way to the offices of Independent Legal.

102. Mr Danesi met Mr Mullins and Mr Stathakis at a café in Erskineville at about 10am on 2 April 2015. Mr Mullins told Mr Danesi that the documents had been signed by Mrs Bega, Aidan Bega and the company that morning in the presence of her solicitor and that they should already have been dropped off at Mr Danesi’s lawyer’s office, or at least were on the way. He indicated that STD was still looking to settle that afternoon. Mr Mullins offered to drive Mr Danesi to his bank “to get the $1.395 million bank cheque and drive Ross [Stathakis] to the airport” (Danesi affidavit, 23 June 2016, par 50).

103. Mr Hustler sent an email to Mr Danesi and Mr Mullins at 11am on 2 April 2015 confirming that the documents were in order. Mr Mullins then drove Mr Danesi and Mr Stathakis to the NAB branch at Rosebery, where Mr Danesi purchased a bank cheque payable to Lauvan in the sum of $1,395,000. This comprised what Mr Danesi understood to be the advance of $1,000,000 to Mrs Bega and the funds of $395,000 required to complete the settlement. There was a shortfall between the net funds being advanced by the incoming mortgagee of $1,719,370.53 plus the $1 million advance (to Mrs Bega) and the purchase price under the contract for sale of $3,080,000 as adjusted on settlement. Mr Danesi provided the bank cheque to Mr Stathakis who travelled by plane to Brisbane to attend the settlement.

104. At about 3pm on 2 April 2015, Mr Cook telephoned Mr Danesi and informed him that he had received the settlement statement that had been provided by Norton Rose Fulbright (for STD) and Mr Hustler of Independent Legal (for the plaintiffs). That statement showed a total purchase price of $3,080,000 and the funds to go to Mr Danesi of $2,845,000. Mr Danesi indicated that so long as he received at least $2,845,000 at settlement he would be happy. Mr Cook conveyed that position to Mr Hustler by telephone at about 3.15pm.

Completion of sale to AB Veritas

105. Settlement of the sale of the units to AB Veritas took place in Brisbane later on the afternoon of Thursday 2 April 2015 at about 4.30pm. The bank cheque in favour of Lauvan in the sum of $1,395,000 was handed over by Mr Stathakis on settlement, although he could not recall the person to whom he gave the bank cheque. It may be inferred that he provided the bank cheque to Mr Delaney who was present as the solicitor for AB Veritas. As I have said, Mr Delaney had been told the previous day by Mr Mullins of the intended ‘round-robin’ of cheques to be provided by the plaintiffs, instead of reliance on an offset deed to make up the shortfall in the purchase price. Although Mr Delaney deposed that the passing of cheques was simply a matter between STD and the plaintiffs, he acknowledged that the settlement statements prepared by STD’s solicitors and Ms Pukallas of his firm were changed to reflect the request by Mr Mullins that the plaintiffs would attend settlement with a cheque for $1,395,000. Mr Delaney noted in his evidence that settlement proceeded even though there was a shortfall of $146,847.54 in the purchase price provided by AB Veritas.

106. At the conclusion of the settlement, Mr Stathakis received two bank cheques payable to Lauvan, one being the bank cheque for $1,395,000 (which he had provided on settlement) and the other being a bank cheque for $1,450,000 (provided by the incoming mortgagee). Mr Stathakis was unable to bank the cheques in Brisbane as the bank had already closed and the next day was a public holiday. Upon returning to Sydney, he gave the bank cheques to Mr Danesi. The two cheques were subsequently banked by Lauvan after the Easter long weekend.

Events after 2 April 2015

107. The mortgage over the Denham Court property was subsequently registered.

108. On 5 April 2015, Mr Cook sent an email to Mr Danesi, copied to Mr Roth, with an updated schedule of unit sales and the current debt and interest for STD as at 4 April 2015. In his email, Mr Cook stated that he had updated the schedule for the settlement of Lot 3 and what he described as the Arch tranche No 1 refinance, being a reference to the sale of seven units to AB Veritas (and a small penalty interest charge over the four-day Easter break for the cheques which had not been banked). Mr Cook set out a calculation of the current debt and interest figure as at 4 April 2015 of $3,139,177.72 to which he added the $700,000 interest monthly loans, amounting to a total debt of $3,839,177.22. After taking into account the remaining three on-market sales, the NAB refinance of three units and Arch tranche No 2 refinance (five units to Matab Investments Pty Ltd) and the deduction of an agreed interest rebate of $100,000, Mr Cook calculated a total anticipated debt of $129,177.72. Mr Cook enquired as to whether Mr Danesi agreed with these figures. He added:

Therefore the reliance on Helen Bega’s security and subject to any other requests from the borrower should be less than $200k.

109. Mr Danesi deposed that following the completion of the sales to AB Veritas, the construction loan to STD was reduced by $2,845,000. However, that did not happen immediately. Mr Cook was responsible for maintaining the ledger in relation to the construction loan. Mr Cook accepted in cross-examination that he did not immediately update his loan schedule to record a reduction in the construction loan of $1 million for the round-robin cheque advance by the plaintiffs to Mrs Bega. That did not occur until later in May 2015, after a dispute had arisen between Mrs Bega and the plaintiffs concerning the alleged advance to her of $1 million.

1 May 2015 meeting

110. On 1 May 2015, Peter Bega and Mr Danesi had a conversation, the content of which is disputed. Peter Bega deposed that Mr Danesi told him that he had organised a loan of $1.5 million for Helen (Bega) and that he would transfer the last two units in the Allure Apartments to her and provide the Bega family with $600,000 for cash flow so as to give Mr Danesi the $900,000 he needed. Peter Bega further deposed that he told Mr Danesi that he would not ask Helen (Bega) to borrow any monies against the house. Mr Danesi denied having a conversation in these terms with Peter Bega.

Events later in May 2015

111. Later in May 2015, Mr Tsanis, who had been recently appointed as a director of STD in place of Mr Mullins, sent letters to Mr Roth concerning the amount of the debt owed by STD to the plaintiffs. The letters were “created” out of emails Peter Bega had sent to Mr Tsanis (Ex W). Both letters attached a schedule of STD’s calculations of the advance outstanding. The schedule attached to the 23 May 2015 letter calculated the outstanding debt at $518,190.45, before certain “further adjustments”. A reduction on the discharge of the mortgage in respect of the seven units sold to AB Veritas on 2 April 2015 was shown as $1,831,220. The schedule attached to the letter of 24 May 2015 recorded a debt of $504,653.98, before the “further adjustments”. That schedule included the reductions on 2 April 2015 consequent upon the sale of the seven units to AB Veritas - $1,831,220 and $1,000,000. The covering letter of 24 May 2015 asserted:

Following further review of the company records and the loan documents we have become aware that an amount of $1 million was drawn by Mrs Helen Bega and applied to this loan as a principal reduction on 2 April 2015. As you will see from the attached amended loan calculation the loan to this company was fully repaid on 23 April 2015.

112. Mrs Bega deposed that, after signing the facility agreement, she started to wonder when it would be terminated because it was her understanding that it was a mortgage for a limited time only.

113. On or about 26 May 2015, Mr Ciappara met with Peter Bega at a coffee shop in the QVB in Sydney. Mr Ciappara said that they had a conversation to the following effect:

Peter Bega:   “There is a problem with Helen’s loan. We don’t know what’s happened to the $1 million as it wasn’t paid to her.”

I said:   “What do you mean? There must be a trail of the funds. The monies were either lent to Helen or they weren’t. Did Aidan buy a unit? I have to go.”

Peter Bega:   “It’s a lot more complicated than that. This is urgent, Helen needs your help.”

I said:   “I’m happy to help her, just send me an email explaining the problem”.”

114. Later on 26 May 2015, Mr Ciappara received two emails from Peter Bega, one at 9.55am and the other at 1.42pm. In response to those emails, Mr Ciappara prepared a draft letter to Independent Legal which he forwarded to Peter Bega that day, requesting that it be forwarded to Mrs Bega and that she confirm her instructions for the letter to be sent. Peter Bega sent an email to Mr Ciappara at 5pm on 26 May 2015, indicating Mrs Bega’s approval of the draft and providing her instructions to send the letter to Independent Legal.

115. Mrs Bega agreed that she gave instructions to Mr Ciappara to send the letter of 26 May 2015 on to Mr Roth. In that letter, Mr Ciappara sought certain information and documents, including the date upon which the facility was activated, a copy of any completed drawdown notice provided by Mrs Bega, and queried whether the plaintiffs had received any direction from any person or any entity to pay any loan monies to a third party and if so, who provided that direction, the name of the person or entity to whom the monies were paid and in what amounts.

Events in June and July 2015

116. On 2 June 2015, Mr Roth replied to Mr Ciappara stating, among other things, that a drawdown notice was not provided by Mrs Bega and that this requirement was dispensed with by the plaintiffs, along with the two-business day notice requirement, due to the urgent nature of the proposed settlement. Mr Roth’s letter also stated that a direction was received from Mr Mullins who purported to represent Mrs Bega and that the advance of $1 million was paid to STD on 2 April 2015 as part consideration of the purchase price for the seven units purchased by AB Veritas.

117. In her reply affidavit Mrs Bega deposed (par 9) that she had a conversation with Mr Ciappara around 2 June 2015, in which she said that she did not how this could happen, and Mr Ciappara responded:

We’ll sort it out, it was never a loan, they’ve made a mistake, the whole thing is ridiculous.

118. Mr Ciappara denied having a conversation with Mrs Bega in those terms. He accepted that he may have said it was “ridiculous” that the lender could not say where the funds had gone, but he denied saying to Mrs Bega that there was never a loan.

119. On 25 June 2015, Mr Ciappara sent a letter to Mr Roth (on behalf of Mrs Bega) asserting that the payment of the advance of $1 million to STD on 2 April 2015 was not authorised by Mrs Bega and was unlawful and constituted a fundamental breach of the facility agreement.

120. On 2 July 2015, the plaintiffs’ solicitors issued a default notice to Mrs Bega stating that the claims in Mr Ciappara’s letter of 25 June 2015 amounted to: a claim that a “Transaction Document” is void, voidable or otherwise unenforceable constituted an event of default under clause 8(d) of the mortgage; a “Material Adverse Effect” and an event of default under clause 8(j) of the mortgage; and created a “Material Adverse Effect” under the facility agreement which, in turn, triggered an event of default under clause 11.1(l) of that agreement.

121. The notice allowed 10 business days for Mrs Bega to confirm in writing that there was no such dispute as to the advance having been made or her liability, that there was no claim that a Transaction Document is void, voidable or otherwise unenforceable and sought an acknowledgement that the advance was made to assist Mrs Bega’s son or an entity controlled by Aidan Bega to purchase units in Allure Apartments at South Townsville, the intended purpose of the advance. Mrs Bega did not comply with that demand.

421. With respect to a retainer in relation to a mortgage transaction (whether certified or not), the provision of independent legal advice is not a mere formality and should involve proper and adequate advice about the consequences of entering into the contract. If, during the execution of a retainer, the solicitor is put on notice that the client’s interests are endangered unless further steps are carried out, a duty may arise to bring attention to that aspect of concern. The amount of emphasis that ought to be placed on any apparent risk will depend upon the circumstances (e.g. loyalty of blood or love), and may need to be expressed “with clarity and force” or “in strong terms”: Provident Capital Ltd v Papa at [2] (Allsop P) and [80] (Macfarlan JA); David v David [2009] NSWCA 8; (2009) Aust Torts Rep 91-993 at [76] (Allsop P)

Application of principles to the present case

427. It is plain from Peter Bega’s email to Mr Ciappara on 31 March 2015 and the subsequent telephone conversation between Mr Ciappara and Mrs Bega later that evening, that the retainer was to advise Mrs Bega in relation to the proposed transaction involving a loan and mortgage.

428. Turning to the particulars of negligence, it is asserted by Mrs Bega that Mr Ciappara:

1. failed to advise her of the terms of the mortgage.

2. failed to advise her not to sign the mortgage in the absence of the facility agreement.

3. failed to advise her that the mortgage gave rise to independent obligations that were enforceable against her in the absence of the facility agreement being executed.

4. failed to advise her that she would not benefit from signing the mortgage and that she should not sign it.

5. failed to advise her that he was not an independent legal advisor because of his interest in the Allure Apartments.

6. failed to advise her that if the Aidan Bega and AB Veritas failed to repay the funds that were to be advanced to them that she would be responsible for repaying any funds advanced pursuant to the mortgage.

7. failed to advise her that there was a conflict between her interests and interests of Aidan Bega and Peter Bega as a result of signing the mortgage.

429. Particular (a) is not established. I have found that Mr Ciappara did advise Mrs Bega of the terms of the mortgage. That advice was given on 1 April 2015. It was repeated on 2 April 2015 with an explanation of the facility agreement, which was secured by the mortgage. The giving of that advice is supported by the objective documentary evidence of Mr Ciappara’s file notes.

430. The premise of particular (b) is incorrect. Mrs Bega did not sign the mortgage on 1 April 2015 not understanding that she would also need to sign the facility agreement. Mr Ciappara explained to Mrs Bega on the morning of 1 April 2015 that he did not have a copy of the facility agreement that the plaintiffs had sent to Mr Mullins. Before Mrs Bega signed the mortgage, Mr Ciappara told her that he would contact Mr Mullins to see what was happening with the facility agreement. Mr Ciappara protected Mrs Bega’s interests by holding onto the original signed mortgage until he had advised her in relation to the facility agreement, which occurred the following day.

431. The premise of particular (c) is also incorrect. The mortgage was not binding on Mrs Bega at any time prior to her signing the facility agreement. The mortgage did not give rise to any binding obligations on Mrs Bega until it was provided to the plaintiffs together with the signed facility agreement on 2 April 2015.

432. Particular (d) assumes that the scope of the retainer extended to providing advice on the wisdom of the transaction. I do not agree. Mrs Bega’s intention as expressed to Mr Ciappara was to obtain a loan for $1 million to assist her son Aidan Bega with the purchase of an investment unit. That intention was consistent with the stated purpose of the loan in Recital A to the facility agreement. Mr Ciappara advised Mrs Bega of the risks (both personal and to her home) that she faced in the event of her default in repaying the loan and interest. Mrs Bega’s submissions did not identify any matter which put Mr Ciappara on notice that Mrs Bega’s interests were endangered unless further steps were carried out. In any event, Mr Ciappara made clear to Mrs Bega that he was not providing financial advice and that she should see an accountant. Mrs Bega did not pursue that course. In the circumstances, the discharge of Mr Ciappara’s retainer did not require him to advise Mrs Bega of the wisdom of the transaction.

433. The premise of particular (e) is that Mr Ciappara was not an independent legal adviser. The question of Mr Ciappara’s independence is subsumed within the allegation that he had a conflict between his own interests and Mrs Bega’s interests to whom he owed his duty, because his firm, through its service company, had an interest in two units in the Allure Apartments. For the reasons given below under Issue B.2, I have concluded that there was no relevant conflict of interest, nor did Mr Ciappara act in such a way that preferred his own interests to those of Mrs Bega as his client.

434. Particular (f) is not established. Mr Ciappara explained to Mrs Bega that she was personally responsible for repaying the loan of $1 million within six months with interest at 20% per annum, being $104,000, and that if the loan was not repaid within six months she would be in default under the facility agreement and the lender could take action against her to recover the $1 million, including taking possession of her home at Denham Court and selling her home. He also explained to her the default rate of interest at 30% per annum and that, in addition to taking possession and selling her home, the lender could sue her personally for any outstanding amounts, including interest and charges payable under the facility agreement.

435. The premise of particular (g) is that there was a conflict between the interests of Mrs Bega and those of her son and husband. That has not been established. The evidence is that Mrs Bega and Aidan Bega viewed the Allure Apartments as property held for the benefit of the Bega family. In addition, Mrs Bega knew the nature and purpose of the transaction was to assist her son to acquire an investment unit. She was willing to give security over property in her name to assist another family member obtain property which was for the benefit of the Bega family, including herself. Mrs Bega saw her interests aligned with those of her husband and the Bega family, including her son Aidan, who had guaranteed her obligations under the facility agreement. It was not suggested that her view at that time was mistaken.

436. Nor has it been established by expert evidence or otherwise that a reasonable solicitor in the position of Mr Ciappara would have considered that there was a conflict between Mrs Bega’s interests and the interests of her husband and son arising from her signing the mortgage and would have given that advice to her.

437. For these reasons, Mrs Bega’s claim for damages against Mr Ciappara based on a breach of duty to exercise reasonable care in providing legal advice to her in respect of the proposed transaction must fail.

ISSUE B.2: Whether Mr Ciappara breached his fiduciary duty to Mrs Bega?

438. Mrs Bega’s case, as particularised, is that Mr Ciappara had a material personal interest in the transaction on which he was advising because Causidicus Fessus owned two units in the Allure Apartments. As indicated, Mr Ciappara was a director of that company. His wife held 50% of the shares in the company and the other 50% was held by Mr Sarvaas’ wife.

Legal principles – fiduciary duties

439. As a general proposition, equity imposes on the fiduciary proscriptive obligations – not to obtain any unauthorised benefit from the relationship (the no profit rule) and not to be in a position of conflict (the no conflict rule). If either of these obligations are breached, the fiduciary must account for any profits and make good any losses arising from the breach: Breen v Williams (1996) 186 CLR 71 at 93-94 (Dawson and Toohey JJ) at 113 (Gaudron and McHugh JJ); [1996] HCA 57; Pilmer v Duke Group Limited (in liq) (2001) 207 CLR 165 at [74] and [78]; Friend v Brooker (2009) 239 CLR 129; [2009] HCA 21 at [74] (McHugh, Gummow, Hayne and Callinan JJ); Howard v Commissioner of Taxation (2014) 253 CLR 83; [2014] HCA 21 at [31]-[32] (French CJ and Keane J) and [56] (Hayne and Crennan JJ).

440. It is not in dispute that Mr Ciappara owed these two fiduciary duties to Mrs Bega. There is no suggestion that Mr Ciappara obtained any unauthorised benefit or profit; Mrs Bega’s claim is for losses arising from the alleged breach of the no conflict rule.

441. The no conflict rule is directed to “a real sensible possibility of a conflict”; it is not enough to identify “some conceivable possibility” in events not contemplated which might result in a conflict: Boardman v Phipps [1967] 2 AC 46 at 124 (Lord Upjohn), cited with approval by the Privy Council in Queensland Mines Ltd v Hudson (1978) 52 ALJR 399 at 400G and in Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 103; [1984] HCA 64 (Mason J). See also Beach Petroleum NL v Kennedy& Ors (1999) 48 NSWLR 1; [1999] NSWCA 408 at [425].

442. More recently, the High Court described the conflict rule as encompassing “a conflict or a real and substantial possibility of a conflict” between personal interests of the fiduciary and those to whom the duty is owed. The rule also applies where the alleged conflict is between conflicting duties: Pilmer v Duke Group Limited (in liq) at [78].

443. Assuming a conflict of interest and duty, the orthodox view, which I accept, is that “there is no duty to disclose a conflict and when judges refer to a duty to disclose in this context it is no more than a shorthand way of referring to the defence of fully informed consent by the principal”: Blackmagic Design Pty Ltd v Overliese and Ors (2011) 191 FCR 1; [2011] FCAFC 24 (Blackmagic Design) at [105]. On this view, disclosure of a conflict by the fiduciary is simply a means of avoiding a breach, not a duty: Blackmagic Design at [105].

444. The disclosure required is all material information of which the fiduciary “is aware or which he has deliberately refrained from acquiring”: BLB Corporation of Australia Establishment v Jacobsen (1974) 48 ALJR 372 at 378. In BLB Corporation v Jacobsen the High Court emphasised (at 378) that the (so-called) duty of disclosure “does not extend to matters of which the fiduciary was unaware notwithstanding that prudent inquiry would reveal their existence”.

Decision

445. In order to succeed in her claim for equitable compensation against the Mr Ciappara for losses suffered as a result of her entering into the facility agreement and mortgage, Mrs Bega must first establish that Mr Ciappara acted in a way that gave rise to a conflict of interest in the sense explained above: Blackmagic Design at [100].

446. Mr Ciappara submitted that the interest of Causidicus Fessus in two units in the Allure Apartments created no relevant conflict, nor did it indicate that he lacked independence. I accept that submission.

447. First, looking at the relevant facts and circumstances of this case it is apparent that, at the time of his retainer, Mr Ciappara was unaware that the proposed commercial investment opportunity to be undertaken relevantly by Aidan Bega concerned the purchase of units in the Allure Apartments. Indeed, counsel for Mrs Bega expressly put to Mr Ciappara the proposition, with which he agreed, that he did not discuss with Mrs Bega on 1 or 2 April 2015 where the units were to be purchased (by Aidan Bega) (T464, lines 16-18). Nor was there any evidence that Mr Ciappara refrained from acquiring information concerning the details of the proposed commercial investment by Aidan Bega, let alone that he deliberately refrained from doing so.

448. Second, that the proposed commercial investment by Aidan Bega involved the purchase of units in the Allure Apartments and that the investment would assist in reducing the debt owed by STD to the plaintiffs were events not contemplated by Mr Ciappara, let alone contemplated as real sensible possibilities by a reasonable person in his position with his knowledge. There cannot be the possibility of a conflict with respect to events not contemplated as “a real sensible possibility” or “a real and substantial possibility”. That is consistent with the requirement that the disclosure of the conflict required to obtain the fully informed consent of the principal, is all material information of which the fiduciary “is aware or which he has deliberately refrained from acquiring”: BLB Corporation v Jacobsen.

449. Third, even if (contrary to my findings) Mr Ciappara knew that Aidan Bega’s proposed investment was in the Allure Apartments, that would still be an insufficient basis upon which to conclude the existence of a conflict or possible conflict of interest. Mr Ciappara did not know that the proposed transaction in April 2015 would assist STD in paying down its debt in respect of the Allure Apartments development.

450. Nor did Mr Ciappara have any reason to suspect that the Allure Apartments were at any financial risk. The only evidence to the contrary is that of Peter Bega who said in cross-examination that Mr Ciappara knew about the threat to the viability of the Allure Apartments project (T403, lines 33-43). I reject that evidence of Peter Bega. It was self-serving and highly improbable. Peter Bega had no interest in informing Mr Ciappara of that matter. His interest was to propose the investment in Allure Apartments by Causidicus Fessus in a positive light not a negative one, particularly in circumstances where STD was attempting to dispose of units to friends and associates, including another unit to Causidicus Fessus in February 2015.

451. Mrs Bega’s submissions did not address why a reasonable person in Mr Ciappara’s position would have contemplated that there was a real or substantial possibility of conflict between Mr Ciappara’s personal interests as a director of a service company (owned by his wife, as to 50 per cent) which owned two units in the Allure Apartments and the interests of Mrs Bega to whom he owed his duty. This is not a case in which it was suggested that Mr Ciappara had preferred his personal interests to those of Mrs Bega by making or pursuing a gain, putting aside the question of having done so without Mrs Bega’s informed consent: Pilmer v Duke Group Limited (in liq) at [78].

452. I am not satisfied that there existed a real or substantial possibility of conflict between the personal interests of Mr Ciappara and the interests of Mrs Bega to whom the fiduciary duty was owed.

453. In her closing written submissions, Mrs Bega asserted a conflict of interest that went beyond Mr Ciappara having an interest in the Allure Apartments. That submission fell outside the original pleadings and particulars. Unsurprisingly, Mr Ciappara objected to Mrs Bega raising it as a new case against him.

454. The new conflict case sought to be advanced by Mrs Bega involved serious allegations against Mr Ciappara, including false recitals in the offset deeds between Causidicus Fessus and STD and knowledge by Mr Ciappara of an attempted fraud on the creditors of STD by reason of the rebates in the purchase price of the units purchased by Causidicus Fessus. Counsel for Mrs Bega had not put any such allegations to Mr Mullins or Peter Bega. Nor did Mr Ciappara have an opportunity to cross-examine those witnesses in relation to those matters, or to obtain documents for tender in response to such allegations. It would be unfair and an injustice to Mr Ciappara, if Mrs Bega were permitted to depart from her case as pleaded and particularised.

455. For these reasons, Mrs Bega’s claim for equitable compensation against Mr Ciappara based on an alleged breach of fiduciary duty to avoid a conflict of interest or possible conflict of interest must fail at the first step.

ISSUE B.3: Causation

456. In light of my findings above, the issue of causation does not arise. Nonetheless I will briefly indicate my views as to causation, assuming negligence by Mr Ciappara.

Negligence

457. Mrs Bega urged the Court to find that had she received “robust” advice not to sign the mortgage and the facility agreement, she would not have done so. Mrs Bega emphasised that counsel for Mr Ciappara did not cross-examine her on that basis. However, that submission raises a false issue. Any evidence given by Mrs Bega as to what she would have done but for Mr Ciappara’s purported negligence would have been inadmissible to the extent that it served her interests: s 5D(3) of the Civil Liability Act 2002 (NSW).

458. Furthermore, even if admissible, such evidence would have been of little weight: Chappel v Hart (1998) 195 CLR 232; [1998] HCA 55 at [32] and fn 64 (McHugh J). As Macfarlan JA said in Provident Capital Ltd v Papa at [83], the issue is to be determined by reference to the circumstances as proved by the evidence before the Court.

459. Turning to the objective facts and circumstances. First, it is significant that Mrs Bega trusted her husband to decide what should be done in the family’s best interests. She left it to him to decide whether it was in the family’s interests to execute the documents (T482, line 47-T483, line 5). She trusted her husband in respect of business matters. She was not inclined to question why she needed to sign the documents, and her evidence was that she “was simply not interested” in business affairs (first affidavit, [15] and [18]).

460. Second, Mrs Bega believed that she had to sign such documents to help her son Aidan Bega (T475, lines 24-36), and to “keep the apartment investment in Townsville afloat” (first affidavit, [44]). And she understood that there was a sense of urgency in signing the documents (first affidavit, [29]).

461. Third, although Mr Ciappara advised Mrs Bega that he could not give financial advice and that she should see her accountant, Mrs Bega saw no need to speak to her accountant. She was content to rely on her husband’s judgment as to what should be done in the family’s interests. Plainly, she determined to enter into the transaction on the basis that her husband had decided that it was in the family’s interests for her to execute the documents. The present case is distinguishable from Provident Capital Ltd v Papa. There, the solicitor did not give Mrs Papa advice, beyond explaining the legal effect of the documents she was to sign, such as that she should obtain independent financial advice. Here, Mrs Bega received advice that she should see her accountant, but she proceeded without taking the step which had been recommended by her solicitor.

462. Fourth, Mrs Bega has not demonstrated that the transaction was improvident. As indicated, Mrs Bega and her son Aidan regarded property owned by particular family members or associated entities such as the Allure Apartments as held for the Bega family (T387, lines 31-33; T483, lines 7-13). The transaction secured for the direct benefit of the Bega family, through AB Veritas, seven units in the Allure Apartments on terms that involved substantial discounts.

463. Fifth, there is no evidence that if Mrs Bega had gone to another solicitor she would have received advice of a different character to that given by Mr Ciappara. However, let it be assumed that advice not to enter the mortgage and facility agreement had been given to Mrs Bega by a solicitor, even in strong terms. In my view, the probabilities are that Mrs Bega would not have followed such advice, preferring to accept the wisdom of her husband’s judgment as to the best interests of the Bega family, and she would have still entered into the transaction.

464. For these reasons, if (contrary to my conclusion) Mr Ciappara was negligent in his provision of advice to Mrs Bega, causation has not been established.

Causation in equity

465. With respect to the claim for breach of fiduciary duty, Mrs Bega relied upon Brickenden v London Loan and Savings Co of Canada [1934] 3 DLR 465 at 469; [1934] UKPC 25 (Brickenden), in support of her submission that there is no need to enquire what course she would have taken if the (assumed) conflict of interest had been disclosed by Mr Ciappara. Mrs Bega further submitted that the enquiry should be whether the act for which Mr Ciappara was responsible is causal of her loss.

465. Mr Ciappara submitted that the principle in Brickenden was inapplicable to the present case and that the test of causation in equity is as stated in Target Holdings Ltd v Redferns [1996] 1 AC 421 at 439; [1995] UKHL 10, and confirmed in Beach Petroleum NL v Kennedy at [432]. Mr Ciappara also referred to Blackmagic Design at [109] and submitted that since Mrs Bega was always going to sign the loan documents whether she received independent legal advice or not, no loss was caused by any purported breach of fiduciary duty.

466. The issues raised by the Brickenden principle only arise if (contrary to my conclusion) there is a finding of breach of fiduciary duty. It may be accepted that it is generally desirable to deal with non-dispositive issues: Kuru v State of New South Wales (2008) 236 CLR 1; [2008] HCA 26 at [12]. However, it is somewhat artificial to attempt to do so in the present circumstances where I have found that there was no real or substantial possibility of a conflict between the personal interests of Mr Ciappara and the interests of Mrs Bega to whom the duty was owed.

ISSUE B.4: Quantum

468. It is not necessary to address the issues raised by Mr Ciappara’s submissions with respect to quantum of damages and equitable compensation, including his contentions that Mrs Bega failed to mitigate her loss and that her claims against him (specifically her claim for breach of fiduciary duty) is an “apportionable claim” under s 34(1) of the Civil Liability Act.

C: ISSUES BETWEEN MR CIAPPARA AND AIDAN BEGA AND AB VERITAS

469. Since Mrs Bega’s cross-claim against Mr Ciappara has failed, the issues raised by Mr Ciappara’s defensive cross-claim against the plaintiffs, Aidan Bega and AB Veritas do not arise.

D: CONCLUSION, COSTS AND ORDERS

470. The plaintiffs’ money claim against Mrs Bega under the facility agreement for $1 million plus interest has succeeded. The plaintiffs have also succeeded in their money claim against the guarantors, Aidan and AB Veritas. The plaintiffs are entitled to a judgment against Mrs Bega, Aidan Bega and AB Veritas in the amount of $1 million plus interest up to judgment under the facility agreement from 2 April 2015 at 20% per annum, increasing to 30% per annum as from 22 July 2015.

471. The plaintiffs are also entitled to judgment for possession of the Denham Court property.

472. The first cross-claim of Aidan Bega and AB Veritas against the plaintiffs has failed and should be dismissed. The second cross-claim of Mrs Bega against Mr Ciappara has also failed and should be dismissed. It follows that Mr Ciappara’s defensive cross-claim seeking indemnity against the plaintiffs, Aidan Bega and AB Veritas has failed and should be dismissed.

473. As to costs, subject to one qualification, there is no reason why costs should not follow the event. The qualification relates to the third cross-claim. The parties should be given an opportunity to make short written submissions having regard to the outcome. Subject to any further application by the parties for an oral hearing, it is proposed to deal with the costs of the third cross-claim on the papers.

474. For the assistance of the parties, my preliminary view, subject to consideration of further submissions, is that Mr Ciappara should pay the cross-defendants’ costs of the third cross-claim, and there should be an order that Mrs Bega pay those costs to Mr Ciappara and also pay Mr Ciappara’s costs of the third cross-claim.

475. Accordingly I make the following orders:

1. Judgment for the plaintiffs against each of the first, second and third defendants in the sum of $1 million, together with interest thereon at the rate of 20 per cent per annum from 2 April 2015 until 22 July 2015 and thereafter at the rate of 30 per cent per annum until the date of judgment.

2. Direct the parties to bring in agreed short minutes in respect of the calculation of interest in accordance with order (1) above.

3. Judgment for possession of the land comprised in Lot 3 in deposited plan 791971 and known as 150 Fox Valley Road, Denham Court in the State of New South Wales (the land).

4. Grant leave to the plaintiffs to issue a writ of possession in respect of the land, not earlier than eight weeks after the date of judgment.

5. The first, second and third defendants to pay the plaintiffs’ costs of the proceedings.

6. Dismiss the first cross-claim of Aidan Bega and AB Veritas Pty Ltd with costs.

7. Dismiss the second cross-claim of Helen Bega with costs.

8. Dismiss the third cross-claim of Charles Ciappara.

9. Reserve the question of costs of the third cross-claim.

10. Direct Mr Ciappara to file and serve short written submissions (not exceeding three pages) with respect to the question of costs of the third cross-claim within 14 days. Mrs Bega and the cross-defendants to the third cross-claim to file and serve short written submissions in response (not exceeding three pages) within a further 14 days, and Mr Ciappara to file and serve any written submissions in reply (not exceeding two pages) within seven days thereafter.

11. Direct that, subject to any application by the parties for an oral hearing, the question of costs of the third cross-claim be decided on the papers.

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Decision last updated: 01 March 2018