National Australia Bank Limited v Mitolo & Ors No. Scciv-00-167

NATIONAL AUSTRALIA BANK LIMITED v MITOLO & ORS
[2002] SASC 102
Civil

DOYLE CJ:National Australia Bank Limited (“NAB” or “Bank”) sued five people in this Court for monies lent by NAB to Mitand Pty Ltd, the repayment of which was guaranteed by the defendants. Default judgments were obtained against two of the defendants, Robert Mittiga and Gaetana Mittiga. They are husband and wife. The other defendants are Domenico Mitolo and Maria Mitolo, who are husband and wife, and Paul Mitolo who is their son. From time to time I will refer to them collectively as “the Mitolos.”
The Mitolos and Gaetana Mittiga, a daughter of Domenico and Maria Mitolo, entered into a guarantee by which they guaranteed repayment to NAB of an amount limited to $125 000 plus interest and costs. They mortgaged a property to secure that guarantee. They now deny their liability to NAB. They joined Mr Hynd, a solicitor, as a third party. Mr Hynd had been retained to advise the Mitolos and Gaetana Mittiga about the nature and effect of the guarantee and mortgage. The Mitolos allege that Mr Hynd did not advise them that, contrary to their belief, the guarantee was unlimited in time. The Mitolos say that they thought that the guarantee would expire after three months.
At the commencement of the trial I was told that NAB had settled with the Mitolos. I was told that the Mitolos had agreed to pay an amount of $180 000 inclusive of costs to NAB. The action between NAB and the defendants was to be discontinued. As the guarantee was for an amount of $125 000 plus interest and costs, the amount to be paid must be close to a full recovery. I proceeded to hear the claim by the Mitolos against Mr Hynd. The claim was that in breach of his duty as solicitor he failed to inform them that the guarantee was not limited in time.
The Statement of Claim against Mr Hynd includes an allegation of misleading and deceptive conduct contrary to s 56 of the Fair Trading Act. That claim was not pursued.
Background
The purpose of the guarantee and mortgage given by the Mitolos and Gaetana Mittiga to NAB was to assist Gaetana Mittiga and her husband Robert Mittiga, and a business associate, to borrow money to purchase a business. The borrower was to be Mitand Pty Ltd (“Mitand”). The security provided by the Mitolos by way of mortgage was a residential unit owned by Domenico and Maria Mitolo. Paul Mitolo was involved because he had a one twentieth share in the unit, as did Gaetana Mittiga. Hence she also was a party to the guarantee and to the mortgage. NAB advanced the money and the business was purchased. Later the business failed. There was a substantial loss. Robert Mittiga and Gaetana Mittiga are bankrupt, or at least insolvent. The marriage between Gaetana and Robert Mittiga has ended.
In brief, Robert Mittiga approached his father-in-law, Domenico Mitolo, to help him provide security for the borrowing by Mitand. There were some discussions within the family. Robert Mittiga assured Domenico Mitolo, and probably other family members, that security provided by the Mitolos would be needed only for a short time, and then he would ensure its release. Domenico and Maria Mitolo were willing to use the unit as security, on this basis. They were willing to provide security to the extent of the value of the unit, about $125 000. Robert Mittiga arranged for them to consult Mr Hynd for advice on the guarantee and mortgage that NAB wanted. At a meeting on 4 April 1996 Mr Hynd gave the Mitolos advice. The guarantee and mortgage were not limited to an amount of $125 000 as intended by the Mitolos. Nothing was signed. The documents were altered. The Mitolos returned to Mr Hynd on 15 April 1996, and the guarantee and mortgage were signed.
The Mitolos allege that they believed that the guarantee and mortgage were to be operative for a period of three months only. In fact, they were of indefinite duration. They allege that Mr Hynd failed to advise them of the true position. Mr Hynd says that he did advise that their obligations did not expire after three months.
The outcome of the case turns on my findings about what happened at the two meetings at Mr Hynd’s office on 4 April 1996 and 15 April 1996.
The Witnesses
Domenico and Maria Mitolo are husband and wife. They were born in Italy. They are both 69 years old. They received a limited education. Domenico Mitolo came to Australia in 1952, Maria Mitolo a few years later. Domenico Mitolo has worked as a market gardener and has built units for rental purposes. Maria has had some employment, but my impression is that most of her time has been spent on home duties. Domenico Mitolo has done reasonably well. He owns a number of residential units that are rented out, and one of these was the subject of the mortgage. Over the years he has borrowed money and has had some dealings with banks. I find that he has a basic understanding of what is involved in borrowing money from a bank and in giving security. However, I find that his understanding is limited.
Domenico Mitolo struck me as an intelligent man, although obviously with a limited education. He is able to communicate adequately in English, but I accept that his ability to read and write in English is limited. My impression is that he gave his evidence honestly. The issue for me is the reliability of his memory on crucial points.
Maria Mitolo was difficult to assess. Her command of spoken English is very limited. She began to give evidence through an interpreter. Her English was good enough for her to answer questions in broken English before the interpreter had completed interpreting the question into Italian. After a while it became simpler to proceed in English. Later she asked to use the interpreter again, but after a while once more reverted to English. I find that she has a very limited understanding of business matters. I find that in business and financial matters she defers to her husband by and large. On a number of matters she was very tentative in her evidence, and appeared to remember very little about the meetings with Mr Hynd. Her tentative approach may in part have been due to the experience of being in court, and the difficulty of coping with the formal environment. However, I formed a firm impression that she remembered little about the meetings with Mr Hynd. No doubt that would have been due in part to the fact that, the conversations with Mr Hynd being conducted in English, she would have had a limited understanding of what was going on. It would also have been contributed to by the fact, as she acknowledged, that she did not concern herself greatly with the advice given by Mr Hynd. She wanted to help her daughter, and as long as her husband signed the documents, she was prepared to sign. I cannot rely on her evidence on any important aspects of the meetings that are in dispute.
Paul Mitolo is 42 years of age. He was born in Australia. He appears to have been successful in business. He is fluent in English and he is articulate. There is no doubt about his ability to understand and to make himself understood. I find that he has a general familiarity with what is involved in borrowing money. He agreed that he understood what a guarantee involved. (T58) I accept his evidence that he was reluctant from the outset to be involved in the matter. His relationship with Robert Mittiga was not particularly good. He was involved because of his one-twentieth share in the unit that his father wished to provide as security for the borrowing, and for the sake of his parents.
Gaetana Mittiga gave evidence as well. She also was a party to the guarantee and mortgage, but as I have mentioned a default judgment has been obtained against her. She appeared to have little understanding of business matters, and to remember very little at all. I found it surprising that she remembered so little, but I accept that the experience of the failure of her husband’s business has probably been a very upsetting one for her. She is now separated from Robert Mittiga. Under the circumstances, I am not able to rely on her evidence on any of the important matters that are in dispute.
Evidence was also given by Mr Macolino, the solicitor for Mr Mittiga and for his business associate, Mr Anderson. His evidence related mainly to contact he had with Mr Hynd. I accept his evidence.
Finally, Mr Hynd gave evidence. I accept that he is an experienced solicitor, who understood the transaction upon which he was asked to advise. He gave his evidence clearly and carefully. I accept that he gave his evidence honestly. Once again, the issue is the reliability of his memory of events at the two relevant meetings. Mr Hynd made no notes of the advice that he gave to Mitolos, nor did he provide them with written confirmation of his advice. He acknowledged that in this respect he did not follow “best practice.” On the other hand, the evidence does not suggest, nor do I find, that his failure in this respect amounted to a breach of duty.
The Family Discussions
In March 1996 Mr Mittiga and his business associate Mr Anderson wanted to buy a business conducted at Stonyfell Winery Function Centre (“Stonyfell”). Mr Mittiga approached his father-in-law, Domenico Mitolo, to help them borrow the money.
There were one or two discussions between Mr Mittiga and Domenico Mitolo, and one or two between Paul Mitolo and Domenico Mitolo. Other family members probably discussed the matter as well.
I find that in the course of these discussions Domenico Mitolo offered to provide a unit owned by him and Maria Mitolo to support the borrowing of money from a bank by Mr Mittiga. Paul Mitolo and Gaetana Mittiga each had a one-twentieth share in the unit as well. I find that there was discussion about a similar unit owned by Gaetana Mittiga. It was in the same group of units as the unit offered by Domenico Mitolo. It was already subject to a mortgage for about $30 000, the mortgage having been given to secure a borrowing made by Mr Mittiga for another business venture. I find that in the course of the family discussions the proposal was that the unit owned by Domenico and Maria Mitolo be provided to the Bank as security. I find that all concerned thought that the unit would be committed in this way for a relatively short time. This was because, in the course of these discussions, Robert Mittiga assured other family members that the business at Stonyfell would be profitable. From the profits of the business Robert Mittiga would either reduce the borrowings from the Bank, so that the Mitolos’ unit could be released by the Bank, or would pay out the balance secured by Gaetana Mittiga’s unit, and substitute her unit for the Mitolos’ unit. I find that there was discussion to the effect that all of this would be done within about three months, and so the Mitolos had the idea that the unit in question was required for about three months. I find that there was also discussion to the effect that the unit was worth about $125 000, and that this was the limit of the security that the Mitolos were prepared to provide. Thus, within the family, the understanding was that they were providing a unit worth about $125 000 as security for a period of about three months, but the period of three months was linked to Robert Mittiga providing substitute security or reducing the borrowing so that the Mitolos’ security could be released.
An issue to which I will have to return is whether one or more of the Mitolos were under the impression that the unit would be released automatically after three months, or whether, perhaps in a somewhat confused fashion, they realised that the release of their unit would depend upon Robert Mittiga doing one of the two things referred to.
I find that Domenico and Maria Mitolo were quite willing to mortgage the unit on this basis. They wanted to help their daughter Gaetana Mittiga and her husband in their business venture. I find that Paul Mitolo was reluctant to be involved, but that he acquiesced. He did so for the sake of his parents.
The First Appointment
Robert Mittiga arranged for the Mitolos to see Mr Hynd, with whom he had had dealings before. The appointment was arranged for the purpose of the Mitolos signing the necessary documents. Whether the Mitolos knew it or not, NAB wanted a certificate from a legal practitioner who was independent of NAB, to the effect that the practitioner had explained the effect of the guarantee, and that the Mitolos were aware of and understood the nature and effect of their obligations. The proposed guarantee and the proposed mortgage for the unit were provided to Mr Hynd, pre-prepared, with a letter of 3 April 1996 from Mr Macolino, to whom the documents had been provided by NAB. Other documents that were relevant to the proposed loan to Mitand Pty Ltd were also sent to Mr Hynd.
An NAB credit memorandum, dated 27 March 1996, was tendered as Exhibit P1.8. This document records that the Mitolos and Gaetana Mittiga were to “provide a guarantee for $125 000 supported by a 1st Registered Mortgage over a unit at Newton.” It more or less reflects the discussions that took place within the family. It goes on to say:
“In August this unit will be substituted for another unit of the same value in the same Strata Plan in the name of Robert & his wife. Fresh Guarantee will be taken at that time to release in-laws from commitment.”
From this document it is clear that NAB understood that the Mitolos would be providing security for a limited period, but I infer that NAB would have required that the release of the Mitolos’ security be dependent upon the Mittigas providing substitute security.
The documents that Mr Hynd received were drawn up so as to amount to a guarantee for the full amount of the borrowing by Mitand, $545 000, with a supporting mortgage. I find that no-one had told Mr Hynd that the guarantee was to be for a limited amount, nor had anyone informed Mr Hynd of the Mitolos’ expectation that the guarantee would be for a short period of time only.
I accept the evidence of Mr Hynd that before the Mitolos arrived at his office on 4 April 1996 he read the documents that had been sent to him, and prepared himself to explain the guarantee and the mortgage to the Mitolos.
On 4 April 1996, Domenico Mitolo, Maria Mitolo and Paul Mitolo went to Mr Hynd’s office as arranged by Mr Mittiga. I find that they arrived with Gaetana Mittiga. Robert Mittiga and Mr and Mrs Anderson arrived there also.
There is some conflict in the evidence about just how things unfolded. There was conflicting evidence about whether Mr Hynd was correct in his evidence that he gave a copy of the guarantee to the Mitolos to read while in the waiting room. There was also some conflicting evidence about whether Robert Mittiga, Gaetana Mittiga and the Andersons went into Mr Hynd’s conference room, before Mr Hynd settled down to explain the documents to the Mitolos. I do not think that anything turns on this, and I do not propose to make any findings. In particular, if the guarantees were given to the Mitolos in the waiting room, I am satisfied that they would not have read them with any care at that stage. I am satisfied that they were relying on Mr Hynd.
I find that after a short time spent on greetings, and explaining the order in which he would see people, Mr Hynd sat down with the Mitolos in his conference room. His purpose was to explain their obligations to them as guarantors and mortgagors. Later he was going to explain to Mrs Anderson and to Mrs Mittiga the effect of guarantees to be provided by them. He had not met the Mitolos before, though he had met Gaetana Mittiga and Robert Mittiga. I find that Mr Hynd spent about an hour with the Mitolos, as he claimed, and as his cost entries would suggest. The witnesses agreed that Mr Hynd had written some explanatory information on a whiteboard in the room. There was conflicting evidence about the amount of information on the whiteboard. Once again, I do not propose to make any specific findings about this. It is not of any great significance. If there was some independent evidence to support one or other of the witnesses about this, that would tend to confirm the accuracy of the memory of that witness, but there is no such evidence. For what it is worth, I find that Mr Hynd’s memory of what he wrote on the whiteboard is more likely to be correct, but I am not able to find on the balance of probabilities that his reconstruction of what he wrote is accurate.
Relatively early in the meeting with the Mitolos it emerged that the guarantee was not limited to $125 000, and so did not reflect the arrangement that the Mitolos contemplated. The Mitolos did not sign any documents that day. There is no dispute about this aspect of events, but there is a dispute about other things that were said on this occasion, and it is necessary for me to resolve this dispute. I will return to these matters.
I consider that it does not matter who first noticed that the guarantee was for the full amount of the borrowing by Mitand. I do not accept Paul Mitolo’s evidence that Mr Hynd was embarrassed when he, Paul, pointed out the mistake, if Paul Mitolo was the first one to notice it. Mr Hynd might have been surprised, but the mistake had not been made by him, nor could he have been expected to be aware of it. Paul Mitolo’s evidence that Mr Hynd was embarrassed, as if he had made a mistake, and his evidence that Domenico Mitolo was angry with Mr Hynd for making the mistake, is not supported by Domenico Mitolo either. In this respect Paul Mitolo’s memory is incorrect. I am satisfied and find that Paul Mitolo’s memory of this meeting is dominated by the discovery of the mistake, and that his memory of the events has been influenced by an element of reconstruction and by his erroneous belief that Mr Hynd was at fault.
The long and short of it is that Mr Hynd became aware of the fact that the Mitolos were prepared to provide their unit, worth about $125 000, in support of a guarantee for a like amount. I find that all concerned realised fairly soon that the guarantee was not so limited.
I also accept the evidence of Mr Hynd that he pointed out to the Mitolos that the guarantee extended to interest and charges in addition to the $125 000. I make this finding on the basis that I am satisfied that Mr Hynd would have appreciated that the guarantee would probably have so provided, would have checked that matter when the issue of the monetary limit was raised, and would have pointed it out to the Mitolos. In part I am prepared to rely on what I would expect a competent solicitor to do. In part I rely upon Mr Hynd’s evidence to the effect that he did this.
I also find that reference was made, fairly early in the meeting, to the fact that the Mitolos expected to be providing security for a short period of time, about three months. Under the circumstances, it would be surprising if this had not been mentioned. It was an important factor in the minds of Domenico Mitolo and Paul Mitolo, although less so in the case of Paul. The point may have arisen in some general discussion before Mr Hynd got down to the business of explaining the documents to the Mitolos, or it may have arisen later. I find further that either or both of Domenico Mitolo and Paul Mitolo referred to their expectation that Robert Mittiga would provide Gaetana Mittiga’s unit as substitute security, or would reduce the borrowings from NAB with the result that the Mitolos’ unit could be released.
It is not disputed that this topic was raised.
Paul Mitolo said that at the very beginning of their discussion with Mr Hynd, perhaps before he began to explain the documents, family members were saying that the arrangement would be for a short time only. (T43, T123) Late in his cross-examination he agreed that there was “some sort of mention” about the substitution of other security for the Mitolos’ unit. (T98) But he firmly denied that Mr Hynd advised them that the guarantee had no provision for termination after three months. (T98, T99) He said he did not think much about what would happen if the business being purchased by Robert Mittiga and Mr Anderson did not prosper, and if Robert Mittiga was not able to provide substitute security. He said that if he had been told that there was nothing in the documents that would bring the guarantee to an end after three months, he would not have signed.

However, he agreed that he realised throughout that NAB would not release the guarantee and mortgage unless the debt was reduced or alternative security was provided. (T100) He was quite firm about this, and on the basis of this evidence there was no need for Mr Hynd to explain that to him. His cross-examination suggested quite strongly that he realised all along that the guarantee and mortgage would end after three months only if Robert Mittiga provided substitute security or reduced the borrowing from NAB and secured the release of the Mitolos’ unit. He said as much. He said he understood NAB would not release security unless the debt was reduced or there was substitute security. (T100.09) He regarded the former as more likely to occur. Near the end of his cross-examination, he agreed that when he finally signed the documents on 15 April 1996, he knew he would be released only if Robert Mittiga reduced Mitand’s indebtedness or provided substitute security. (T147) In particular, if neither of those things happened, he knew that he would not be released. When he signed the documents, it never occurred to him that neither of these things would happen as Robert Mittiga had promised they would happen. (T147) I have touched on his later cross-examination, because it is highly relevant to his evidence about the first meeting.
When I asked him, in the light of that evidence, how he expected Mr Hynd to ensure that the Mitolos would be released after three months, bearing in mind that he knew the release would depend on Robert Mittiga, Paul Mitolo said that Mr Hynd should have advised them to look more closely at Mitand’s accounts, and should have advised them how to “ensure that you have totally covered the bases.” This is a rather different complaint, and was not part of the Mitolos’ case as I understood it at the hearing.
The other matter which was disputed in evidence, and which is relevant to the outcome of the case, is the basis upon which the appointment finished. In his evidence-in-chief Paul Mitolo said that there was no discussion of any substance after the Mitolos realised that the guarantee was for the full amount of the borrowing. He did not agree that Mr Hynd canvassed with them the options that were available to them if they were to go ahead with the guarantee and mortgage, once they discovered that the documents prepared by the bank were not in accordance with their understanding. (T105, T119, T120-212)
In assessing Paul Mitolo’s evidence, it is material to bear in mind that, as he agreed, at times he paid little attention to what Mr Hynd was saying. He spent part of the appointment examining the proposed guarantee, looking for a reference to the limit of $125 000. He was not listening to Mr Hynd while he did this. (T88)
Domenico Mitolo’s evidence about these aspects of the first appointment differed in some respects.
Domenico said that right at the outset, at a stage when Robert Mittiga was still in the room, Domenico said that the guarantee “is only going to be a short time, two to three months.” (T172) He said that when he said this he was speaking to Mr Hynd and Robert Mittiga, and one of them said “Yes, it’s only going to be three months at the most.” (T173) He was not sure whether it was Mr Hynd or Robert Mittiga who said that, but the impression he formed was that either or both of them acquiesced in the statement that he made. (T197, T229) But in cross-examination he said that Mr Hynd must have heard him when he said that the arrangement was only going to be for a short time, and that Mr Hynd did not tell him that this was not so. (T197-200)
He denied firmly that Mr Hynd advised him at any stage that the guarantee was not limited to three months. (T98, T99) He would not have signed if he had been told that. (T181, T187)
In relation to the course of the appointment after the mistake was discovered, he also said he thought that the meeting was quite short. He did not recall a general discussion about the options open to the Mitolos if they wanted to proceed with the guarantee and mortgage. (T105, T119, T120-121)
In the course of his evidence Domenico Mitolo asserted that he was expecting to be released from the guarantee and mortgage three months after signing them. The effect of his evidence was that he was expecting this to occur automatically, or as a matter of course. Mr Morcombe QC, counsel for Mr Hynd, submitted that I should reject this evidence.
The evidence given by Domenico Mitolo on this topic was rather confusing. It is convenient to deal here with his evidence generally on the topic.
Domenico Mitolo acknowledged that he knew, when he signed the documents, that if the business at Stonyfell failed, he might have to pay NAB. But he emphasised that he considered he was not really at risk because the business would not fail in as short a time as three months. (T195-197)
Mr Morcombe cross-examined him on several occasions about this claim, and in particular the claim that the guarantee and mortgage would end “automatically.” I have considered this evidence carefully. I am satisfied that Domenico Mitolo had difficulty distinguishing between his belief when he signed the documents, and his belief or knowledge when he found, some months later, that he had not been released from the arrangements. His limited command of English contributed to the difficulty.
I can understand that Domenico Mitolo acquiesced in the situation when he later found out that he had not been released. His evidence was that Robert Mittiga assured him that “it is only a matter of time” before his unit would be released. (T207) I accept that Domenico Mitolo saw no reason at that stage to protest, because he accepted Robert Mittiga’s reassurances. Nevertheless, his attitude does invite close scrutiny of his claim.
Quite some time later Domenico Mitolo met with representatives of NAB to explore the possibility of some sort of compromise. Once again, I do not regard this as fatal to his claim. I accept that he was taking the realistic approach that things had gone wrong (from his point of view), that he knew NAB would not simply let him out of the arrangement, and that it was sensible to try to reach a negotiated settlement.
I have examined with particular care the passages of his evidence in which he was specifically cross-examined about his belief. On a number of occasions he did appear to agree that he knew, when he signed the documents, that the unit would be released only if Robert Mittiga reduced the debt to NAB or provided substitute security. However, I am satisfied that Domenico Mitolo was saying that in due course he realised this, not that he knew and appreciated this when he signed the documents. I refer in particular to his evidence at T197-200, T208 and T223-229. However, it is one thing to say that he has not contradicted himself in his evidence. It is another thing to determine whether or not there is an element of reconstruction in his evidence. By this I mean that he may have persuaded himself that he was expecting an automatic release, meaning a release as a matter of course, after three months. In due course I will return to the issue of whether, when Mr Mitolo signed the documents, he was confused, having a belief that he would be released after three months, but being confused about how that would come about.
Mr Hynd said in evidence that Domenico Mitolo raised the issue of the duration of the security, and that he appreciated that Domenico Mitolo had the impression that the Mitolos’ unit would be released as security automatically, even though the point was raised in the context of reference to Robert Mittiga providing substitute security. (T405) Mr Hynd said that he specifically explained that this was not so. It is necessary to bear in mind that this conversation took place in a discussion in which another major problem had emerged, the fact that the guarantee was not limited to $125 000. However, Mr Hynd’s evidence was that he said specifically that the guarantee was not limited to a period of three months, that there was nothing in the guarantee about substituting security, and that whatever Mr Mittiga may have told the Mitolos, the guarantee would operate until the loan was repaid or, by implication, until the Bank accepted some substitute security. His evidence was that he stated this quite clearly and firmly. (T357) In cross-examination Mr Kourakis put to Mr Hynd that when Domenico Mitolo raised the question of the guarantee and mortgage coming to an end, Mr Hynd assumed that he was referring to an arrangement for a substitution of securities which he hoped would be within three months, and that because Mr Hynd assumed this is what he meant, and assumed Domenico Mitolo had a general understanding of how banks operated, Mr Hynd did not explain in terms that there was no provision in the documents for an “automatic” termination of the arrangement after three months. (T406) Mr Hynd denied that that was so, and maintained that he did give a specific explanation to the Mitolos to the effect that the arrangement would not expire within three months. Mr Hynd says that he told the Mitolos that his expectation was that NAB would not agree to a fixed limit of three months, but that he would ring the Bank to clarify the point. (T406) Mr Hynd says that he telephoned a bank officer while the Mitolos were in the room, was told that there was no arrangement that the guarantee would end after three months, and repeated that response to the Mitolos so that they would understand that that was the response of the bank officer. (T409) Mr Hynd said that in the same conversation he asked the bank officer whether the Bank would accept an arrangement under which the Mitolos’ “exposure” would be limited to the value of the unit, and that the bank officer said that the Bank would consider this favourably. He said he told the Mitolos that.
In this latter respect, if Mr Mitolo is correct, the bank officer to whom he spoke was not fully informed. The bank officer was a Mr Tucker, not the person who had prepared the internal memorandum to which I referred earlier which included a reference to the limit on the amount of the guarantee and to the anticipated substitution of security. It is quite possible that Mr Tucker did not have all of the relevant information, and so it is quite possible that Mr Hynd’s memory of this aspect of the conversation is correct. I accept Mr Hynd’s evidence on this point.
Mr Hynd gave evidence that the first appointment ended with a discussion, lasting about 20 minutes, about what the Mitolos would do. In particular, Mr Hynd said he discussed with them whether they would proceed with the guarantee and mortgage on a basis acceptable to NAB – a guarantee limited to $125 000 plus interest and costs, but with no limitation in time. Mr Hynd said the possibility of the debt being reduced, and of substituted security being offered, each of these leading to the release of the Mitolos’ security, came up during this part of the discussion. (T360-361) In particular, there was discussion about approaching NAB to enquire whether it would agree to the guarantee being a security of last resort. (T361) Mr Hynd said in evidence that he pointed out to the Mitolos that if they relied on Robert Mittiga reducing the debt of Mitand to enable their security to be released, they should bear in mind that Mr Hynd could not ensure that Robert Mittiga did so. (T364)
In due course NAB did provide a letter addressed to the Mitolos (exhibit P1.20) which, while not binding NAB, indicated that NAB would resort to the mortgage first, were a call made for repayment by the Mitolos of Mitand’s indebtedness.
It is important for me in due course to determine whether or not Mr Hynd gave the advice which he said he gave. While his evidence on this point is not necessarily the end of the matter, if he explained the true position to the Mitolos, then subject to what was said at the second meeting, he appears to have discharged his duty.
The second appointment
Paul Mitolo said that the second appointment was very short, no more than 30 minutes. (T58) He remembered Mr Hynd assuring Domenico Mitolo that everything was fixed, that everything was as it should be, and then they signed the documents. (T59) Paul Mitolo said he was so reluctant to sign that he almost refused to sign, but gave in, saying loudly “I’m doing this only because it’s three months.” (T61) But he agreed that he knew the release of the security depended on Robert Mittiga ensuring a reduction of the debt to NAB, or the provision of substitute security. (T61-62) He would not have signed if he knew there was nothing in the documents which would end the arrangement within three months. (T64 and T125) I record here that I do not accept that answer. I am satisfied from his evidence as a whole that he knew the true position. That is, he knew that the release from the arrangement depended on Robert Mittiga doing what he said he would do. I am also satisfied that Paul Mitolo understood that there was nothing in the documents that would ensure that Robert Mittiga did what he said he would do, or released the Mitolos if he did not. Paul Mitolo also said that he did not recall the three-month time limit being discussed at the second appointment. (T125)
In cross-examination he agreed that at one of the appointments Mr Hynd explained that the Mitolos were liable under the guarantee for “additional charges” if called on the pay under the guarantee. (T129, T132) He could not recall discussion about the “letter of comfort” provided by NAB. (T130) In answer to a question from me he said that he was “distracted or affected” by his own “anger and resentment”, and he acknowledged that he may not have absorbed all that was said by Mr Hynd because of this. (T131)
Domenico Mitolo also said the second meeting was very short, lasting about ten minutes. (T184) He was not sure if the time limit was discussed on this occasion. He still believed that he would be automatically discharged after three months, because Robert Mittiga had told him this. (T186) Domenico Mitolo said that once the Mitolos were told that the mistake about the amount had been fixed, they signed the documents. (T244) Domenico Mitolo did not recall any discussion about the “letter of comfort”. (T246) He said he would never have signed if told that he was still at risk after three months. (T247)
Mr Hynd said he began the second appointment by getting the Mitolos to confirm that they had decided to proceed with the guarantee and mortgage, rather than paying off the moneys secured on Gaetana Mittiga’s unit, so that her unit could be used as security. He said this was one of the options that had been discussed at the end of the first meeting. (T370) He said he went through the provisions of the guarantee in some detail, and the provisions of the mortgage in less detail explaining the main clauses to the Mitolos. (T371, T424) He told the Mitolos that the guarantee was not limited to three months, reminding them of the telephone conversation that he had with the person from NAB during the first appointment. (T371)
In cross-examination he agreed that he had kept no notes of advice given to the Mitolos at either meeting, nor had he sent them a confirmatory letter. (T386)
He also confirmed in cross-examination that he told the Mitolos that the mortgage and guarantee were limited to $125 000, that he had received the “letter of comfort”, but that there was no legally binding arrangement that the guarantee would be a guarantee of last resort. He repeated that he discussed with the Mitolos the fact that they were going to give the guarantee and mortgage, rather than discharging the debt on Gaetana Mittiga’s unit and using that as security. (T424)
Mr Hynd said that there was particular discussion about the fact that NAB did not have to tell the Mitolos if there was a default by Mitand, and about the fact that interest on the moneys owing ran for twelve months from the date of a demand by NAB, not from the date of a default. (T425) The significance of these matters is that, if the discussion occurred, it should have further alerted the Mitolos to the fact that they were liable for moneys in addition to the $125 000 referred to, and to the fact that the arrangement might not be due to expire automatically in three months.
The issues
My outline of the evidence omits many of the details that were pursued by counsel in cross-examination. It is unnecessary to deal with them.
There are three issues to be addressed. The first is the Mitolos’ understanding of the transaction before they consulted Mr Hynd. The second is the extent of the duty undertaken by Mr Hynd in agreeing to advise them. The third is the advice that Mr Hynd gave.
The Mitolos’ understanding
I find that Paul Mitolo had a sound general understanding of the nature of the proposed transaction, and of its effect. He is an experienced businessman, and an intelligent man. I find that he knew from the outset that the release of the Mitolos after three months depended on Robert Mittiga reducing Mitand’s indebtedness to NAB, or providing substitute security. Paul Mitolo was reluctant to be involved, but became involved because that was what his parents wanted.
As I have already said, I do not accept his evidence to the effect that he would not have signed the documents if he knew that there was nothing in the documents to bring the arrangements to an end after three months. That evidence conflicts with other answers that demonstrate an understanding of the true position. His evidence about his approach to the monetary limits satisfies me that, had he expected to find a time limit built into the documents, he would have asked to see it for himself. He was that sort of man.
Nor do I accept the implication in his evidence that he was expecting Mr Hynd to provide advice about the prudence of the transaction, or about the desirability of relying on Robert Mittiga’s assurances about the prospects of the Stonyfell business. There was a hint of this in some of his answers. I consider it to be a hint based on hindsight. I find that Paul Mitolo, and the other Mitolos, had made their own decision, for their different reasons, to support Robert Mittiga and Gaetana Mittiga in their business venture. They were not expecting advice from Mr Hynd on the wisdom of that decision from a broader point of view, or on the prospects of the business succeeding.
I find that Domenico Mitolo was unclear about the difference between a mortgage and a guarantee. He knew, however, that he and his wife were committing the unit in question to NAB as security, to the extent of its value, for the borrowing by Mitand. I accept his evidence that he confidently expected the security to be released, and the obligation to NAB to end, after about three months. I find that he understood, in a general way, that if Mitand defaulted in its obligation to NAB, NAB could call on the Mitolos to pay up to the value of the unit.
I accept Domenico Mitolo’s evidence about the manner in which the Mitolos were to be released, to the extent of accepting that he did not think about what would happen at the expiry of the three-month period if Robert Mittiga did not do what was necessary for NAB to release the Mitolos. I accept that he believed, in a confused sort of way, that he was undertaking an obligation that could last for about three months only. But I do not accept that he had specifically adverted to the point that the release was to be automatic.
As to Maria Mitolo, I find that she understood that she and her husband were providing their unit as security for a borrowing by Robert Mittiga and Gaetana Mittiga, and that she was content to do so if her husband did. I find that she knew that NAB could sell the unit if the borrower defaulted. I find that she expected the arrangement to end after three months, but that her expectation was based on Robert Mittiga’s assurances, and went no further than that. I find that Maria Mitolo was not concerned about any advice that Mr Hynd might give. She was prepared to act on the decision of her husband, and to a lesser extent her son, after they had listened to Mr Hynd. Accordingly, she stands or falls with them.
Mr Hynd’s duty

In the submissions before me, little was said about the extent of the duty undertaken by Mr Hynd. I assume that this was because both counsel considered the position to be clear.
There is no suggestion of undue influence, of inappropriate pressure, or that the Mitolos were at a position of particular disadvantage which called for advice or action by Mr Hynd beyond what would be called for in what I might call the usual case. In saying that I do not overlook the fact that Domenico and Maria Mitolo were not fluent in English.
I proceed on the basis that Mr Hynd’s obligation was to explain the nature and effect of the guarantee and mortgage to the Mitolos, to take reasonable care to ensure that they understood in a practical way the effect of the guarantee and mortgage, and to satisfy himself that the Mitolos appeared to understand the effect and potential consequences (from a legal point of view) of the guarantee and mortgage.
I have followed the approach taken by the Full Court in Micarone v Perpetual Trustees Australia Limited [1999] SASC 265; (1999) 75 SASR 1. On this point there appears to be no difference between the majority and the dissenting member of the Court. I have also taken account of the terms of the certificate that Mr Hynd gave, but I do not treat his duty as precisely limited by the terms of the certificate.
The advice given
First of all, I accept Mr Hynd’s evidence that he assessed Paul Mitolo and Domenico Mitolo as understanding the fundamentals of the proposed transaction – the granting of security over land as part security for an advance by NAB to Mitand, the security to be available to NAB in the event of a default by Mitand. I accept that Domenico Mitolo, at the outset, may not have understood that under the guarantee his liability was for the amount of the guarantee, whatever the value of the unit might be. I accept that at the outset Mr Hynd may not have detected this.
Second, I accept Mr Hynd’s evidence that he began by enquiring about the Mitolos’ understanding of the nature of the proposed transaction, and that he outlined to them the nature of the transaction as evidenced by the documents. This led to the discovery of the error by NAB in failing to limit the amount of the guarantee and of the mortgage security.
Third, I accept Mr Hynd’s evidence that he went through the provisions of the guarantee and of the mortgage, explaining the main and more pertinent provisions in relatively simple language. I find that he adequately brought home to Domenico Mitolo in particular that the guarantee was separate from the mortgage, and under the guarantee the liability was for $125 000 plus interest and charges, and that the liability was not limited to the value of the unit on sale.
In particular, I accept Mr Hynd’s evidence that he pointed out that the guarantee was not limited to $125 000, but included twelve months’ interest on amounts outstanding and bank fees and costs. In view of the attention given to the limit, it is unlikely that he would have overlooked this. In any event, I accept his evidence. It receives some support from Paul Mitolo.
Fourth, I accept Mr Hynd’s evidence that when the mistake by NAB emerged, he telephoned NAB as he claimed, made enquiries about this and other aspects of the transaction, and satisfied himself in due course that the documents had been corrected. His attention to detail in this respect is reflected in the alterations that he made to the memorandum of the mortgage (exhibit P1.29) to ensure that it reflected the arrangement made.
Fifth, I accept Mr Hynd’s evidence that at the end of the first appointment there was a general discussion in which he canvassed several options with the Mitolos, now that the mistake had been uncovered, and it appeared that NAB would probably accept a guarantee and mortgage for a limited amount. I accept that Mr Hynd took stock as it were with the Mitolos. The options canvassed included not proceeding at all, and clearing the debt on Gaetana Mittiga’s unit, so that that unit could be substituted as security. I accept Mr Hynd’s evidence about this for several reasons. It would be an odd thing to make up or to get wrong. Other evidence supports Mr Hynd’s evidence, mainly evidence of contacts with NAB and with Mr Macolino after the first appointment.
That brings me to the crucial point, which is whether Mr Hynd pointed out that the guarantee and mortgage were not limited in time, and did so with sufficient force and clarity, bearing in mind my finding that Domenico Mitolo arrived at Mr Hynd’s office in a confused state of mind about this, and bearing in mind the limits on his command of English.
On this point, there is a direct conflict between the evidence of Domenico Mitolo and Mr Hynd. On the face of his evidence Paul Mitolo provides equivocal support for Domenico Mitolo. My finding has been that Paul Mitolo did appreciate the true position. I cannot put any weight on the evidence of Maria Mitolo or Gaetana Mittiga on this point. For reasons that I have already given, on this contentious issue, and on other contentious issues, I cannot be satisfied that their recollection is at all reliable.
I have thought carefully about Mr Kourakis’ submission to the effect that the likely explanation is that Mr Hynd assumed a greater understanding by Domenico Mitolo of what was usual, and so did not explain, at least with adequate force and clarity, that the guarantee and mortgage were unlimited in time.
It can be said that bearing in mind that it is common ground between Domenico Mitolo and Mr Hynd that Domenico Mitolo’s belief about a three-month time limit was raised, it would be surprising if Mr Hynd did not correct the misconception. Any solicitor would know that a bank would not be likely to agree to this. On the other hand, I have the claims by Domenico Mitolo that he would never have signed had he known that there was no time limit. The claim is a credible one for a man in his position, and I do not consider that he was lying when he made it in evidence.
But I am satisfied that in this respect events occurred as described by Mr Hynd.
In part I am satisfied because I find his recall of events is better than the Mitolos’ recall. None of the witnesses had a complete memory. All made mistakes. There are a number of conflicts between the evidence of the Mitolos about events at the appointments. As well, until relatively recently the Mitolos’ pleading denied even that there were two appointments, and asserted that there had been only one appointment. There were things that the Mitolos denied that I find were very likely to have happened. But on the other hand Mr Kourakis’ cross-examination of Mr Hynd exposed some notable gaps in his memory, particularly his memory about when Gaetana Mittiga signed the documents. The absence of any notes made by Mr Hynd is also of some significance. That puts him in the position of trying to recall what was, presumably, a relatively routine transaction, whereas the Mitolos can at least claim that for them it was an unusual and significant event. Nonetheless, I was impressed by the manner in which Mr Hynd gave evidence, even though I was conscious that his memory had been demonstrated to be faulty in some respects. It is not a case in which I can simply say that I prefer his memory, being confident that no gaps in it had been found. But the fact remains, I consider his memory to be better than that of the Mitolos. I should add that I formed the impression that the Mitolos’ evidence was somewhat coloured by their feelings about what had happened.
I am also influenced by the indications of Mr Hynd’s attention to detail, for example his checklist of matters to be dealt with and the correction that he made to the mortgage. His evidence about the way in which he canvassed the various options with the Mitolos at the end of the first appointment, which evidence I accept, is significant. That stage of the appointment provided a context for a consideration by the Mitolos of what they should do, bearing in mind that the Bank was likely to accept the monetary limit which had not appeared in the documents, but would not accept a three-month time limit. What I mean by this is that it makes sense, if events had unfolded as Mr Hynd said, that a conversation along these lines would occur. And, as I have already found, there is support for Mr Hynd’s evidence that there was such a conversation.
Another relevant matter is the fact that Domenico Mitolo himself asserts that he raised his belief about the time limit in clear terms. It is quite plain from the documents that he was under a misconception. It is most unlikely that Mr Hynd would not correct that misconception. But might he have failed to do so with sufficient force and clarity, bearing in mind in particular the limited command of English of Domenico and Maria Mitolo? First of all, Paul Mitolo was there. Admittedly, he was somewhat distracted. At the first appointment he was distracted by his focus on the monetary limit. At the second appointment he was distracted by his own reluctance to participate. But when the time limit was raised, as I accept it was, it is unlikely that a man like Paul Mitolo would have allowed it to pass by. He would have been alert to a failure to correct the misconception. Yet, as I have found, he knew the true position. Secondly, one would expect Mr Hynd to have pointed out the misconception as emphatically as he could, and more than once, and this is what Mr Hynd said he did. Third, I find that Domenico Mitolo was confident that Robert Mittiga would achieve a release of the security within three months, and I find that at the time of the appointments with Mr Hynd, Mr Mitolo was not insistent upon an absolute three-month limit in the way that he now is. Linked to this is my finding that Paul Mitolo knew the true position. That is consistent with Mr Hynd having made the position clear at the first or second appointment.
I do not accept Mr Kourakis’ submission that when Domenico Mitolo referred to the three-month time limit, Mr Hynd simply assumed he was referring to an expectation of the period within which Robert Mittiga would organise a release, because (on Mr Hynd’s incorrect assumption) Domenico Mitolo would have understood that was the only way it could come about. Nor do I accept that Mr Hynd failed to correct the misconception with adequate emphasis. In particular, Mr Hynd’s evidence about the telephone conversation with Mr Tucker, which he repeated to the Mitolos as it was happening, is convincing. So is his evidence generally on this point.
Nor do I accept the suggestion that the issue of the time limit was missed, or dealt with inadequately, because NAB’s mistake relating to the limit of $125 000 overshadowed everything else.
I consider that the later conduct by Domenico Mitolo is more consistent with my conclusion than with his evidence before me on this point. I do not regard the later lack of protest, and the negotiations with NAB, as fatal to his case, or as a direct contradiction of his evidence. But it is surprising that the claim he makes in evidence did not emerge earlier, and at the very least it invites a close scrutiny of his evidence.
Accordingly, on the central issue of the advice given about a limitation as to time, I prefer the evidence of Mr Hynd. I find that he gave appropriately clear and emphatic evidence to the Mitolos to the effect that the guarantee and mortgage were unlimited in time. I find that the Mitolos were content to proceed, because they were content to rely on Robert Mittiga’s assurances.
Conclusion
Accordingly, I consider that Mr Hynd discharged his duty or, to be more precise, I am not satisfied that he failed adequately to explain the nature and effect of the guarantee and mortgage, allowing for the personal circumstances of Domenico and Maria Mitolo in particular.
The case stands as yet another warning to solicitors about the desirability of keeping a written record, at least in outline, of advice given in such cases. It is also an illustration of the benefit of confirming in writing advice given on crucial points, or on points on which there might be a misunderstanding.
For the reasons that I have given, I would dismiss the claim made by the Mitolos in their Third Party Notice.

[2002] SASC 102

26 March 2002

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