Newington, Jean Edelweiss Alaine v Beneficial Finance Corporation Ltd
[1997] FCA 24
•30 JANUARY 1997
CATCHWORDS
Trusts and Trustees - whether a trust arose from a conditional contractual obligation to lend money - whether a trust such as that found in Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567 arose
Equity - Unconscionable Conduct - whether unconscionable conduct - whether there was inequality of information between mortgagor and mortgagee such that the mortgage was in a position of special disadvantage
Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589
Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447
Louth v Diprose (1992) 175 CLR 621
Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567
Broad v Commissioner of Stamp Duties (NSW) [1980] 2 NSWLR 40
Re Charge Card Services Limited [1989] 1 Ch 497
Re Australian Elizabethan Theatre Trust (1991) 30 FCR 491 at 503
Blomley v Ryan (1956) 99 CLR 362
JEAN EDELWEISS ALAINE NEWINGTON, JACQUES BONNET, GENMAN PTY LIMITED v BENEFICIAL FINANCE CORPORATION LIMITED
No. NG 234 of 1993
CORAM:Lehane J
PLACE:Sydney
DATE:30 January 1997
IN THE FEDERAL COURT OF AUSTRALIA )
NEW SOUTH WALES DISTRICT REGISTRY )
GENERAL DIVISION ) No. NG 234 of 1993
BETWEEN:JEAN EDELWEISS ALAINE NEWINGTON
JACQUES BONNET
GENMAN PTY LIMITED
Applicants
AND:BENEFICIAL FINANCE CORPORATION LIMITED
Respondent
CORAM:Lehane J
PLACE:Sydney
DATE:30 January 1997
MINUTE OF ORDERS
THE COURT ORDERS:
The respondent, within two weeks from the delivery of this judgment, is to file and serve short minutes of the orders which it contends should be made consistently with these reasons for judgment.
NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA )
NEW SOUTH WALES DISTRICT REGISTRY )
GENERAL DIVISION ) No. NG 234 of 1993
BETWEEN:JEAN EDELWEISS ALAINE NEWINGTON
JACQUES BONNET
GENMAN PTY LIMITED
Applicants
AND:BENEFICIAL FINANCE CORPORATION LIMITED
Respondent
CORAM:Lehane J
PLACE:Sydney
DATE:30 January 1997
REASONS FOR JUDGMENT
LEHANE J: The applicants seek relief against the respondent on the ground of what the applicants claim to have been unconscionable conduct of the respondent. The applicants seek, principally, orders that a "verdict and judgment" in favour of the respondent, ordered by consent on 27 April 1984 in proceedings in this Court, be set aside and that the respondent execute a document in which it consents to the setting aside of a judgment in its favour in certain proceedings in the Supreme Court of New South Wales. The applicants also seek declarations that the agreement leading to the judgment in each of those proceedings has been rescinded and that the applicants are entitled to replead certain causes of action "unimpeded by" the earlier judgments of this Court and the Supreme Court. By a further amended application, which the applicants sought leave to file late in the course of the trial, the applicants seek to add claims that the agreement on which those earlier judgments were based be set aside and that a deed of 6 February 1983 between the applicants and the respondent, the effect of which was to authorise
the applicant as mortgagee to take possession of certain properties mortgaged to it by the applicants, be set aside also.
It will be necessary to consider in greater detail the claims made, and causes of action propounded, by the applicants in these proceedings. That can be done intelligibly, however, only against the factual background from which the proceedings have arisen. Although there are several particular aspects of the facts which are the subject of strenuous dispute, most of the essential background is not in contest and is clearly established by the evidence.
Facts
(a)The parties
The applicants during the late 1970's and early 1980's acquired, for renovation and leasing or resale, a number of properties in the Eastern suburbs of Sydney. Miss Newington and Monsieur Bonnet have, throughout the relevant period, lived together as husband and wife. The third applicant, Genman Pty Limited (Genman), is a company which, throughout the relevant period, they have owned and controlled. Although M Bonnet and Genman participated in the property development activities, in the sense that they owned certain of the properties and borrowed money for their acquisition and renovation, Miss Newington had the active conduct of the business. She made the necessary decisions, both major and minor, negotiated with other parties
(including builders and financiers) and conducted the day to day management and supervision of the projects.
The respondent (Beneficial) during the relevant period was a finance company. Its head office was in Adelaide (it was a subsidiary of the State Bank of South Australia, as it was then known); it carried on business in New South Wales through a branch office in Sydney. During most of the relevant period Mr Arthur Porter was the Sydney branch manager of Beneficial and his immediate superior was Mr Frank Kelly, the Regional Manager for Eastern Australia. Reporting to Mr Porter, and involved at various times in Beneficial's dealings with the applicants, were Mr William Moss and Mr Joseph Seddon.
(b)The properties
Between 1968 and 1982 the applicants acquired nine properties in the Eastern suburbs. The first property acquired (it was acquired by Miss Newington) was 22 Nelson Street, Woollahra, a terrace house on the corner of Nelson and Queen Streets. At the commencement of the events with which this case is principally concerned, it was substantially unrenovated. The second property, 159 Queen Street, Woollahra (opposite 22 Nelson Street), was purchased, also by Miss Newington, in 1975. Throughout most of the relevant period that property was occupied by Miss Newington and M Bonnet as their home. Next in order of acquisition were two adjoining cottages, numbers 3 and 5 Waimea Avenue, Woollahra. Both were acquired in 1976, the former by M Bonnet and the latter by Miss Newington. Those properties were purchased as investments, to be
renovated and then let. They had been renovated, and were let, by 1980. Then, in 1979, Miss Newington and M Bonnet jointly acquired 3 Kellett Street, Kings Cross: that property was renovated by way of conversion into three separate units, that on the ground floor being designed for use as a restaurant. The renovations appear to have been substantially complete at least by 3 March 1982, the date of a valuation by L J Hooker Limited which is in evidence.
Finally, the applicants acquired four large terrace houses in Rockwall Crescent, Potts Point. Each was to be renovated and sold (or possibly leased) as two separate residential units. Miss Newington acquired 12 Rockwall Crescent in June 1980 and 14 Rockwall Crescent in August of that year. In August 1980, M Bonnet acquired 16 Rockwall Crescent; and 10 Rockwall Crescent was purchased in June 1982 by Genman.
(c)Financing Arrangements
It is convenient to begin with the initial application for finance made by the applicants to Beneficial. A somewhat tentative application for finance, to assist with the renovations of 3 Kellett Street and 22 Nelson Street, was made on behalf of Miss Newington by R L Kremnizer & Co, a firm of solicitors, in September 1979, but nothing seems to have come of that. In mid 1980, however, the applicants sought finance from Beneficial first for the purchase by Miss Newington of 14 Rockwall Crescent and, a little later, for M Bonnet's purchase of 16 Rockwall Crescent. Those applications were approved. The amount of the loan approved for Miss Newington was $165,000; the amount to be lent to
M Bonnet was $210,000. In each case the term was expressed as a minimum of three months and a maximum of twelve months, and the rate of interest was 18% per annum reducible to 16% on prompt payment. In each case $15,000 of the amount advanced was to be lodged on deposit with Beneficial: in the case of the advance to Miss Newington, the deposit was described in the letter of approval as "for interest purposes" and, in the case of M Bonnet's loan, the deposit was to be "covered by a Deed giving Beneficial the right at its absolute discretion to apply the interest principal (sic) in the event of default". The loan to Miss Newington was to be secured by a registered first mortgage over 14 Rockwall Crescent and also a second mortgage over 3 Kellett Street (the first mortgagee being another financial institution); M Bonnet's indebtedness was to be secured by a first mortgage over 16 Rockwall Crescent, a second mortgage over 14 Rockwall Crescent, a third mortgage over 3 Kellett Street and a guarantee by Miss Newington. The loans were made in accordance with the approvals and the contemplated security documents were executed. It is convenient to defer discussion of the form of those documents beyond noting that Beneficial's securities were of conventional kinds and that the form of them remained substantially constant throughout the course of dealings between Beneficial and the applicants.
It will be recalled that Miss Newington bought 12 Rockwall Crescent shortly before she and M Bonnet respectively purchased 14 and 16 Rockwall Crescent. The purchase of 12 Rockwall Crescent was financed by a loan from Mercantile Pacific Finance Limited, later known as Mercantile Mutual Finance Corporation Limited (I shall refer to it simply as "Mercantile"), for a term of twelve months, secured by a first mortgage over
12 Rockwall Crescent and second mortgages - other lenders held first mortgages - over the two cottages in Waimea Avenue, Woollahra.
In August 1981 Beneficial agreed to increase the amount and extend the term of each of its two loans. The loan to Miss Newington was increased by $194,500, made up of $124,500 for renovation costs, $45,000 to "cover interest repayments" and $25,000 to discharge a third mortgage over 3 Kellett Street held by Australia New Zealand Banking Group Limited (ANZ). M Bonnet's advance was increased by $169,500, made up of $124,500 for renovations of 16 Rockwall Crescent and $45,000 "to be lodged on deposit to cover interest repayments". In each case the term was extended to 8 August 1982; interest was payable at the rate of 22% per annum reducible to 20% on prompt payment and the security was to comprise the mortgages (varied appropriately) of 14 and 16 Rockwall Crescent and 3 Kellett Street; each borrower was to guarantee the indebtedness of the other. One of the conditions of each additional advance was that progress payments, for renovation of the two Rockwall Crescent properties, were to be made only upon appropriate certification by a firm of quantity surveyors, Hugh B Gage Pty Ltd (Gage).
Then in November 1981 the maximum amount of each loan was increased by $20,000, for the purpose of enabling the applicants to pay certain fees and initial renovation costs. The interest rate was increased to 22.5% per annum reducible to 20.5% on prompt payment; other terms remained unchanged.
A number of significant developments occurred in 1982. First, a new lender appeared on the scene: it was a company then called P A K Nominees Pty Ltd (it later changed its name) which apparently acted as nominee for a Victorian institution, Statewide Building Society (I shall refer to it simply as Statewide; the interposition of the nominee is of no significance). In April 1982 Statewide agreed to lend Miss Newington $495,000 on the security of first mortgages of 3 Kellett Street and 3 and 5 Waimea Avenue. The term of the loan was three years and it bore interest at the rate of 17.75% per annum. Also in April 1982, Beneficial agreed to provide two additional facilities.
The principal purpose of the first of those facilities was to discharge Mercantile's mortgage over 12 Rockwall Crescent and to provide funds for the renovation of that property. $170,000 was required to discharge Mercantile's mortgage; $150,000 was to be advanced progressively for renovations; $65,000 was to be lodged on deposit for the payment of interest on the facility; and two separate sums of $45,000 were to be lodged on deposit by way of further provision for interest on the two existing facilities provided by Beneficial. The term of the new loan was to be a minimum of three months and a maximum of twelve months; the interest rate was to be 24% per annum reducible to 22% on prompt payment and there was provision for Beneficial to vary the rate. Advances for renovations were to be made upon certification by Gage, as under the other facilities. In addition to the securities already held, Beneficial was to have a registered first mortgage over 12 Rockwall Crescent and, additionally, a mortgage over 10 Rockwall Crescent (to be purchased by Genman) and second mortgages of 22 Nelson Street, 3 and 5 Waimea Avenue and 159 Queen Street.
Secondly, by a letter of approval dated 21 April 1982, Beneficial agreed to advance a maximum amount of $445,000 to Genman. The purpose of the advance was "to assist in purchase of 10 Rockwall Crescent, Potts Point, for extensive renovation and resale". The term and interest rate were to be the same as those of the loan to Miss Newington; certificates from Gage were required as a condition of advances for renovation; $180,000 was to be advanced on settlement of the purchase, $150,000 progressively for renovations; $65,000 was "to be lodged on deposit at settlement, for interest purposes"; and $50,000 was to be "lodged on deposit at settlement, to meet additional costs in part, as listed in condition 10".
Condition 10, in the light of subsequent events, is of some importance. I think it is desirable to set it out in full:
$50,000 to be lodged on deposit from settlement monies together with a minimum of $200,000 to be lodged by applicant for the payment of costs as listed below. Deposit monies to be covered by Deed and in the event of default Beneficial is to apply funds at its discretion as to principal or interest. Costs will be paid upon receipt of invoices, to the satisfaction of Beneficial:
Council rates 10,000
Water rates 4,000
Land tax2,000
Insurance4,000
Accountant10,000
Architect5,000
Bank Overdraft 20,000
Builder9,000
Solicitor5,000
Private loan 101,000
Loan establishment fees 7,500
Interest shortfall
Kellett Street, Waimea Ave 32,500
Renovations 22 Nelson St, 40,000
$250,000
These monies to be held on a separate account to that holding monies for the payment of interest.
The last two items in that list should particularly be noted. The "interest shortfall" relates, of course, to the loan by Statewide secured by mortgages of the properties mentioned; the last item speaks for itself, but it is to be observed that that item is included in a list of "costs" which (the introduction to the list says) "will be paid upon receipt of invoices, to the satisfaction of Beneficial".
Also in May 1982 Mercantile (whose mortgage over 12 Rockwall Crescent was to be discharged) agreed to "restructure" the facilities it had made available to Miss Newington on the basis that a principal amount of $330,000 was to remain outstanding for a term of twelve months, bearing interest at the rate of 24% per annum reducible to 20%, on the security of first mortgages of 22 Nelson and 159 Queen Street. The conditions imposed by Mercantile included what was described as a covenant that the renovation of 22 Nelson Street was to be completed to a good standard by 31 October 1982. It was also a condition that $40,000 was to be lodged with Mercantile for payment of interest. A suggestion was subsequently made that that sum of $40,000 should be lodged with Beneficial, but that suggestion was not carried into effect. Nor, apparently, was it lodged with Mercantile.
On 25 May 1982 Beneficial agreed to vary the loan agreed to be made to Genman by increasing the principal amount by $70,000. That was to provide for a "cost" additional to those already described in condition 10, "renovations and interest shortfall Queen Street". Matters remained, however, in a state of flux until settlement of the various transactions approved by the three financiers took place on 21 June 1982. As a result of the variation to which I have just referred, the terms of Beneficial's approval were that $120,000 out of the advances by Beneficial together with $200,000 to be provided by the applicants was to be deposited for application in payment of the various "costs". But as Mr Moss put it in a memorandum dated 21 June 1982 which carried (dated the following day) the recommendation of Mr Porter and the approval of Mr Kelly:
It was a condition of this loan approval that $120,000 be placed on deposit together with a minimum of $200,000 from clients own funds to meet payment of costs as specified in submission, however due to the timing of this settlement most of the costs contained in this list have in fact been paid on settlement and consequently the only items remaining to be paid are the following:
Interest shortfall on Kellett St
and Waimea Ave $32,000
Renovations to Nelson St, $40,000
$72,000
$50,000 has been lodged from settlement proceeds to cover these costs. Balance of $22,000 would need to be forthcoming from client.
Due to complexities of this settlement and the fact that it has taken ten weeks to settle this matter, during which time holding costs have increased significantly, plus due to minor variations in land tax, rates and solicitors costs, client will not have $22,000 to lodge on deposit at settlement.
Mr Moss went on to propose that of the $50,000 thus available on settlement $40,000 be allocated towards completion of renovations at 22 Nelson Street and the balance of $10,000 towards interest shortfalls on Kellett Street and Waimea Avenue (i.e., the Statewide loan). In addition to the matters mentioned in the memorandum, the $70,000 previously earmarked for renovations and interest in relation to Queen Street was at settlement simply added to the advance made on settlement of the 10 Rockwall Crescent transaction, the amount advanced on settlement being therefore $250,000.
The facilities made available by Beneficial for the acquisition and renovation of 14 and 16 Rockwall Crescent remained outstanding. Their terms were varied so that they bore interest at the same rates as the June 1982 facilities. There is no evidence that there was a formal extension of their term beyond 8 August 1982, but nothing seems to turn on that: the common assumption seems to have been that all advances would fall due at the same time, that is on 21 June 1983.
In the upshot, as at 21 June 1982 Beneficial had advanced or agreed to advance $379,500 under the 14 Rockwall Crescent facility, $399,500 under the 16 Rockwall Crescent facility, $475,000 under the 12 Rockwall Crescent facility and $515,000 under the 10 Rockwall Crescent facility. The securities for the various facilities were "cross‑collateralised": that is, each mortgage held by Beneficial was available to it as security for indebtedness arising under all the facilities. The mortgages held by Beneficial were a first mortgage over each of the Rockwall Crescent properties and puisne mortgages over each of the other properties, i.e. Nelson Street, Queen Street, Waimea
Avenue (both properties) and Kellett Street. A default in relation to any one security was to be regarded as a default in relation to each of them; a default under a prior mortgage of any of the properties was to be treated as default under the following mortgage held by Beneficial and thus as a default under all Beneficial's securities. As I have said, there is nothing unusual or surprising about the terms of Beneficial's mortgage documents; I do not think it is necessary to refer to them in greater detail. It is necessary to examine more closely the terms on which funds advanced for interest and "costs" were deposited with Beneficial. It should first be noted, however, that R L Kremnizer & Co, solicitors, acted for the applicants on the facilities, particularly on the settlement of the various transactions which took place on 21 June 1982, and in relation to the documentation of the transactions.
(d) The deposits
The terms on which moneys were deposited to cover interest payable to Beneficial itself are relatively straightforward. It will be recalled that on the June 1982 settlement $45,000 was lodged to cover interest on each of the facilities for 14 and 16 Rockwall Crescent and $65,000 for interest on each of the new facilities, for 10 and 12 Rockwall Crescent. The conditions attached to the approval letter of 20 April 1982 to Miss Newington for the 12 Rockwall Crescent facility included a condition that:
$155,000 [is] to be placed on deposit at (14%) with Beneficial at settlement for interest repayment purposes to be covered by Deed and in the event of default Beneficial is to apply funds at its discretion as to principal or interest.
A further condition divided the total deposit between the 12 Rockwall Crescent facility and the two earlier facilities in the way I have already mentioned. Miss Newington and M Bonnet executed a deed, dated the day of settlement, in relation to the total sum of $155,000 deposited (referred to in the deed as "the deposit"). The deed recited the mortgage of 12 Rockwall Crescent (which it defined as "the said Mortgage") and the mortgages of 14 and 16 Rockwall Crescent (which it called "the said collateral securities"). Its operative provisions are brief. They refer to Miss Newington as the Mortgagor, and provide:
1.THE Mortgagor hereby charges and encumbers the deposit and all interest accruing thereon in favour of Beneficial with the due payment by the Mortgagor to Beneficial of the principal sum and interest and all other moneys secured by the said Mortgage and/or the said collateral securities.
2.BENEFICIAL shall have the right to appropriate from the deposit and accrued interest thereon the amount of any interest payments due from the Mortgagor or the Guarantor to Beneficial from time to time under the terms of the said Mortgage and/or the said collateral securities and the amount of any other moneys which the Mortgagor shall default in paying to Beneficial under the terms of the said Mortgage and/or the collateral securities on the day or days therein prescribed for the payment thereof.
3.THE Mortgagor shall not be entitled to call for a release of this charge nor for the repayment by Beneficial of the said deposit until all moneys secured by the said Mortgage have been fully paid and satisfied PROVIDED ALWAYS that Beneficial may in its absolute discretion repay the deposit with any accrued interest thereon to the Mortgagor at any time whereupon Beneficial shall provide to the Mortgagor a release of this charge.
The terms of that deed are similar to provisions in the mortgages of 14 and 16 Rockwall Crescent charging the initial deposits for interest (of $15,000) and, by virtue of a deed of
variation dated 15 September 1981, the further deposit of $45,000 in each case. The mechanism by which the deposit was taken and evidenced was similar also, though it was not in terms provided for in the letters of approval or security documents. It was that each deposit for interest in relation to each facility was recorded in what was described as a "private savings plan passbook", a booklet similar to the common form of savings bank passbook. Credit entries were made in the passbook in relation to deposits to the account and in relation to interest at the agreed rate (in the case of the 1992 refinancing, 14%) accruing on it; amounts withdrawn from the account were recorded by debit entries. The passbooks appear to have been treated by Beneficial as an internal record. They were not given to the applicants, and Miss Newington claims (and I accept) that she had no knowledge of their existence. Mr Porter gave evidence that she knew of them: but I think he was referring to knowledge of the deposits, rather than knowledge of the way in which they were recorded. None of the passbooks relating to the three 1982 deposits making up the $155,000 survive, but records remain in existence which have permitted a "reconstruction" of the accounts and that reconstruction is in evidence.
The sum of $65,000 retained from the advance to Genman on 21 June 1982 was dealt with similarly. The deposit was "charged and encumbered" in favour of Beneficial securing the payment of moneys owing under the mortgage of 10 Rockwall Crescent on substantially the same terms as those which I have quoted above. Again, the deposit was recorded in a passbook: in this case the passbook survives, and is in evidence.
Somewhat greater complexity attends the deposit, ultimately in total only of $50,000, in relation to the "costs": i.e., applying what was described in evidence as the "scheme of Moss" (the proposal in Mr Moss' memorandum of 21 June 1982), $40,000 for renovations to 22 Nelson Street and $10,000 (only) for interest on the Statewide facility. Each of those sums was deposited in a passbook account. The passbook relating to the $40,000, for the Nelson Street renovations, is in evidence and certain entries in it were examined in some detail during the trial. I have already set out condition 10 of the letter of approval of 21 April 1982 which was to the effect that the (then proposed) combined sums of $50,000 and $200,000 were to be lodged on deposit "... to be covered by Deed and in the event of default Beneficial is to apply funds at its discretion as to principal or interest". It will be recalled that the $50,000 was later increased to $120,000, but that ultimately a total sum of $50,000 was all that was available for deposit, the whole of that sum being advanced by Beneficial. Genman, Miss Newington, and M Bonnet nevertheless on 21 June 1982 executed a deed with Beneficial in a form which contemplated deposits as required by Beneficial's conditions immediately before the variation recorded in Mr Moss' memorandum. Thus, recital B referred to a deposit of $120,000 and recital D referred to the further sum of $200,000 to be deposited by Genman, Miss Newington and M Bonnet, the two sums together being referred to as "the said deposit". Each recital referred to a deposit "with Beneficial". Clause 1 provided that Beneficial was to be at liberty to place "the said deposit or any part thereof" on twenty four (24) hour call deposit with "any financial corporation"; by clause 2 the deposit and interest accrued on it "by reason of the said twenty four (24) hour deposit" were charged in favour of Beneficial with the payment of the applicants' indebtedness to
it; clause 3 gave Beneficial the right to appropriate the deposit and interest towards interest due to Beneficial and any other moneys "which the Mortgagor shall default in paying to Beneficial". Clause 4 then provided for the payment out of the deposit of the "costs" amounting in total to $320,000 and clause 5 provided that the applicants were not to be entitled to call for a release of the charge until all their secured indebtedness to Beneficial was paid. Included in the "costs" referred to in clause 4 were the $40,000 for renovations to 22 Nelson Street, Woollahra and $32,500 (rather than $10,000) for interest payable to Statewide.
Miss Newington's evidence was that she was, at the time, unaware of the "scheme of Moss" and certainly there is no evidence of any communication of it to her. I cannot accept, however, that she - and thus the applicants - were not aware of the substance of what had happened. It is apparent from the material in evidence that what precisely was to happen on settlement was the subject of continuing discussion and negotiation, in which the applicants' solicitors, R L Kremnizer & Co, were involved throughout. Miss Newington knew, of course, that the applicants had not in fact from their own funds deposited $200,000 with Beneficial. The applicants also were told - and in any event, they must I think have already known - that the amount actually advanced on settlement was $250,000, not $180,000 (their solicitors' statement of account dated 5 July 1992 made that quite clear). It is also evident from the solicitors' statement of account that various costs, a number of them substantially corresponding to those listed in condition 10 of the April approval, were indeed paid on settlement. Those which could not be paid on settlement (apart from renovation costs and interest relating to Queen Street) were,
obviously, those items had not yet been incurred or become due - i.e., costs of renovation of Nelson Street (which had not substantially commenced) and future interest payable to Statewide. Simple arithmetic indicated that the amount of the agreed facility remaining available for deposit was the sum of $50,000.
The applicants had executed the deed relating to "said deposit"; the applicants' solicitors, by a letter of undertaking to Beneficial dated 21 June 1982 (the date of settlement and of the deed) indicated that they understood that the deed had been executed in a form which contemplated or required a deposit, from the applicants' funds and out of the advance to be made by Beneficial, of a total sum of $320,000; by that letter they undertook on behalf of the applicants to pay certain sums at or immediately following settlement "in consideration of Beneficial Finance Corporation Ltd not calling upon the Mortgagor and Guarantors to deposit the sum of $320,000 with Beneficial Finance Corporation Limited under the terms of a Deed of Deposit between the parties dated 21st June 1982". Of particular importance, however, is Miss Newington's own evidence. In the course of cross‑examination she said that she knew that $50,000 was to be lodged, $40,000 of which was for renovations to Nelson Street. Her evidence was that she did not know that the two sums of $40,000 and $10,000 were to go into savings accounts or into "separate pots"; but, for reasons which will appear, I do not think that that is significant. The proper conclusion, in my view, is that at settlement on 21 June 1982 the combined sum of $50,000 was deposited with Beneficial on the terms of the deed of charge.
(e)The period from July to December 1982
There are some conflicts in the evidence as to the events of this period. Particularly, the evidence of Miss Newington is that on several occasions, the first of which was early in the period, she asked Beneficial to "release" money to enable the renovation of 22 Nelson Street to proceed. Mr Porter denies that any such requests were made before December 1982. Miss Newington says that she was assured by both Mr Porter and Mr Moss on numerous occasions that Beneficial was "in touch with" Mercantile and Statewide and that if necessary Beneficial would pay moneys due to those two mortgagees. In that respect, her evidence conflicts with that of both Mr Porter and Mr Moss. I shall return to those conflicts later in these reasons.
Meantime, what is not in controversy is that building work on the Rockwall Crescent properties proceeded somewhat slowly and fell behind schedule. There is also no doubt that during this period the applicants fell into arrears in paying interest due to both Mercantile and Statewide. It is clear from correspondence which is in evidence that default in payment of interest due to Statewide occurred as early as 31 July 1982. On 13 December 1982 Mercantile threatened legal proceedings unless overdue interest for October and November was paid. By December Statewide was also threatening legal action. Additionally, the applicants fell into arrears in payment of insurance premiums. It is evident that by the end of 1992 the financial situation of the applicants was quite parlous. They sought to relieve the situation by applying to the ANZ for a substantially increased overdraft; there was correspondence between the ANZ and Beneficial in which
Beneficial indicated that it was prepared to consent to an increased, secured, overdraft. Ultimately, that proposal did not proceed; why it did not proceed is not entirely clear on the evidence, but the evidence (other than some assertions by Miss Newington) does not suggest that the reasons included anything that Beneficial did or failed to do. Particularly, the documentary evidence suggests that Beneficial indicated that it was prepared to consent to an increased overdraft, but that no documents were ever presented by the ANZ for its signature.
(f)"Accounts"
Before dealing with the events of January 1993, it is convenient to refer to a factual matter about which there is substantial controversy.
Up to and including December 1982 Beneficial sent to the applicants regular statements (apparently monthly, though not surprisingly given the lapse of time there are some gaps in the documents in evidence) a statement relating to each loan account. Each statement indicated the account (described by reference to the property in Rockwall Crescent to which it related), the maturity date of the loan on that account and the applicable interest rate. It then set out the transactions which had occurred on the account during the month: particulars of further advances, interest charges and stamp duty were shown as debit entries and payments received as credit entries. The opening and closing balances for the month were stated. Details of the way in which interest was calculated for various periods during the month were specified, as was the amount of interest payable. Where
interest was paid from an amount on deposit with Beneficial, that fact was recorded, with a stamped indication that the statement was "for record purposes only". Those statements "for record purposes only" were in fact addressed to the collection manager of Beneficial but copies were sent to the applicants: they were among the documents which the applicants discovered in these proceedings. The applicants did not receive statements in relation to the deposit accounts. They knew, of course, the initial amount of each deposit and the loan account statements told them what amounts had been debited for payment of interest and they would have been able, therefore, to make a rough calculation of what was likely to be left: they were not told, however, what interest had been credited to the deposit accounts.
The applicants had also, in relation to money advanced for building purposes, the claims by the builder, Hexton Pty Limited (Hexton).
Miss Newington's evidence is that on numerous occasions, commencing in the first half of 1981 and then throughout 1981 and 1982 and afterwards, she asked officers of Beneficial for "accounts", although she also said that there was no problem about interest or about accounts until about August 1982. She claimed that most of the requests were made to Mr Porter but that some were made to Mr Moss as well. Her evidence is not entirely clear as to precisely what she claims to have had in mind when she asked for "accounts": but what she claims to have sought can, accurately enough for present purposes, be described as a full accounting of the applicants' position with Beneficial on all their accounts. Her evidence is that on some occasions she was told by both Mr
Porter and Mr Moss that accounts could only be provided when Beneficial got its own accounts in order (in case of Mr Moss) or had "done" the accounts (in case of Mr Porter). Mr Porter in his statement read as his evidence in chief denied the relevant parts of the conversations recounted by Miss Newington. He was by no means severely tested in cross‑examination on the subject; he maintained his denial that Miss Newington frequently asked for accounts but conceded that she had made some requests. The relevant proportion of his evidence was as follows:
You see, she had asked you for what she described as accounts, often, did not she? - No
She asked you more than one [sic]? - Yes
It was firmly fixed in your mind, was not it, that there was a difference between the statements that she was getting and what she thought to be accounts? - Nothing was fixed in my mind at all. She very rarely asked the question and didn't raise in my mind what she was specifically talking about. As far as I was aware, she had accounts.
They being the statements that she got? - The statements, and any supporting documentation with the builder which is normally the responsibility of the developer who does the job.
Mr Moss does not deal, in his statement, with the portions of Miss Newington's statement in which she alleged the conversations about accounts, except that he denies a remark attributed to him that Beneficial's accounts were "in a mess". That denial was not challenged in Mr Moss' cross‑examination.
I shall defer, for the present, attempting to resolve the conflict of evidence about "accounts".
(g)Events of January and February 1983
At least two important meetings took place between Miss Newington and officers of Beneficial during January 1983. There may have been a further meeting in February. There is considerable dispute about the detail of what occurred, but a good deal is uncontroversial. Miss Newington says that the first meeting took place on 12 January and that she was invited to it by Mr Porter (she claimed in cross‑examination to have been invited by Mr Seddon as well, but that is a matter of no significance for present purposes). Neither of those two matters is substantially in contest. Nor is it in contest that the meeting was attended, on the Beneficial side, by Mr Porter and probably Mr Seddon, by Miss Newington and also by representatives of the builder, Hexton. There was discussion, apparently somewhat inconclusive, about disputes which had arisen between Miss Newington and Hexton, delay in the building works and a likely need for more "building money". Miss Newington's evidence was that Hexton complained about what they saw as Beneficial's tardiness in making payments. The detail of what was said while the Hexton representatives were present is not, in the end, significant. Miss Newington's account, which in this respect is not disputed and I think accords with the probabilities, is that after some time the Hexton representatives left the meeting.
There then ensued discussion about the financing. Miss Newington was told that she was in default, the default being failure to pay interest due to Mercantile and Statewide. Miss Newington suggested in evidence that the alleged default may have been broader than that but the evidence of Mr Porter is to the contrary as are, I think, the probabilities:
that default clearly existed, the other financiers had made it clear in vigorous terms that they proposed to take action if the default were not remedied and as a matter of fact no default had yet arisen in payment of any moneys due to Beneficial. Miss Newington's evidence is that there was then discussion about the execution of a deed. Mr Porter was not clear whether that discussion occurred at that or a later meeting; the probabilities are, I think, that on this matter Miss Newington is right, though in the end whether a particular part of the conversation took place on 12 January or somewhat later does not greatly matter. There is agreement that Mr Porter expressed a desire on the part of Beneficial, despite the default, to help; the way in which he suggested that be done was that the applicants sign a deed. Given what occurred later, I think the nature of the proposed deed must have been explained: what was proposed was a deed under which the applicants surrendered to Beneficial possession and control of the properties - i.e. the terrace houses in Rockwall Crescent - of which Beneficial was first mortgagee. Miss Newington's evidence, and again I think it is probably correct, is that she was actually handed the proposed deed at a further meeting later in January. It was agreed (at least) that she might, before signing it, seek advice from her solicitor, Mr Kremnizer. It is also clear that Mr Porter was anxious, subject at least to Miss Newington obtaining her solicitor's advice, that the deed be signed promptly, and no doubt he said so. It is not in dispute that Miss Newington later, but before signing the deed, obtained advice from Mr Kremnizer about it; nor is there any doubt that subsequently the deed was signed by each applicant and returned to Beneficial.
The document is dated 6 February 1983. It may not have been effective as Miss Newington's or M Bonnet's deed, neither of their signatures being witnessed (the common seal of Genman appears to have been regularly affixed), but neither party sought to rely on that and I think nothing turns on it. The provisions of the document are brief, clear and unambiguous: a solicitor called upon to review and advise on it could have been in no doubt about its effect. Clause 1 contains an acknowledgment that Beneficial is entitled to the use, possession and management of the mortgaged properties and may collect and receive rents and income and exercise its powers arising from the mortgagors' defaults; the mortgagors are required to execute attornments and directions to tenants; there is provision for the application of rents and income received in payment of costs and expenses reasonably incurred by Beneficial, interest and principal. Clause 2 requires the delivery to Beneficial of leases, tenancy agreements and licences. By clause 3 the mortgagors consent to entry of judgment for possession in favour of Beneficial. Clause 4 contains an acknowledgment by the applicants that the powers given to Beneficial under the deed are in addition to its other rights, powers and remedies as mortgagee. Finally, clause 5 provides for payment by the applicants of Beneficial's costs.
It is perhaps worth pointing out, because the matter received some attention during the trial, that the recitals contain a mistake: recital B says that the applicants have defaulted, among other things, by failing to pay interest to Beneficial. It should be pointed out also, however, that the position was accurately expressed (though perhaps somewhat elliptically: it is easy enough to see how the mistake in drafting may have arisen) in Beneficial's written instructions of 14 January 1982 to its solicitors:
Please note the clients are in arrears with the first mortgages on the collateral security but currently interest is up to date on our prime security because it was advanced at settlement.
Miss Newington's evidence was that she was threatened and intimidated by Messrs Porter and Seddon during the January meetings. Her statement records, interspersed with commentary, the substance of the conversations which she says took place at the two meetings. I shall set out in full the conversations as Miss Newington recounted them, omitting the commentary. Miss Newington records the conversation on 12 January, after the representatives of the builder left, as follows:
Porter said:"You are in default and you have heard the builders and you might need extra building money."
I said:"No way, I haven't used all my building money. I am not in default."
Seddon said:"We can hold up building money until you are in default and we will make you in default."
Porter said:"Just sign a Deed and it will save the expense of expensive variations and the necessity to go to head office for approval."
I said:"This is madness, I am not in default. I cannot possibly be in default. I haven't used all the money."
Porter said:"Just sign a Deed. We can force you into default."
I said:"You can't do that Arthur."
Seddon said:"Yes we can and we will by not paying the money to Mercantile and Statewide. We wont [sic] pay the other mortgagees. We wont [sic] pay the builder and it will be impossible for you. We wont [sic] release the money for Nelson Street either"
Both of them said:
"You'd better co‑operate otherwise we will make it difficult for you."
I said:"I better [sic] talk to Robert Kremnizer about this."
. . .
Porter then said:
"I think it's O.K to see Robert and get independent advice."
I said to Porter:
"What sort of a Deed, what are you going to do with a Deed?"
Porter said;"It's just to cover us. We'll just keep it in a draw [sic] in case we need it later."
I said to Porter:
"It does not mean B.F.C could take over our houses, does it? Or sell us up?"
Porter said:"Of course not."
I said:"But we are not in default Arthur and we'll be finished before June when I will sell and refinance. What about the accounts."
Porter said:"You might well be in default later. We can make you in default. It is better to sign a Deed and we will release the money for interest payments that are in arrears to Mercantile and Statewide and sign the second mortgage documents for the ANZ Bank, or we can make it very difficult for you. I think you must co‑operate."
I then said to them both:
"I would like a complete accounting because two of the properties are nearly finished and the others are not far behind. I will be selling 10 and 12 and keeping the other two so I will require a complete accounting."
Porter said:"It is O.K it will all be done we just got back from holidays Jean. We'll get back to you."
I then said to Seddon:
"Look the builders are wrong about the cost of this building the quote is only $100,000.00 for each house and I've got $150,000.00 set aside for each house."
Porter said:"Jean you are in default. There can be all sorts of delays if we want."
. . .
I said:"Oh well if you think that's the best way to co‑operate, otherwise I will be put into a lot of trouble. I trust you."
Her account of the later meeting, which she says occurred on 21 January, is as follows:
On this occasion I was handed a deed. Seddon handed me the Deed and:-
He said:"Here is the Deed. Sign it."
I said:"No, I want to read what this is all about."
I began to look at the Deed and I saw that it said that I was in default and the word possession was used.
I said:"Hang on this looks as though you are taking all my houses."
Porter said:"No, no, look trust us, we are only helping you. If you sign this Deed we'll just keep it in the draw [sic]."
I said:"Oh well, I'm not sure about signing the Deed because it says I'm in default and I am not. Anyway I think I better [sic] go and see Robert about this."
Seddon and Porter then said:
"O.k, but this is all you can do, this is what you have to do. You haven't any alternative. If we want we can stop all the building works."
I said:"But look, you wouldn't do that, I'm not in default."
Porter said:"Look Jean, we are only trying to help you, we just want you to sign this document so the work can be finished before the mortgages expire and in this way you will not have to get any variation."
Seddon said:"You better do [sic] what Arthur wants. You better sign [sic] that Deed or otherwise things can be made very, very difficult for you and you will be in default and we will sell the houses even if they are not finished."
I said:"But there is still money in our accounts. I would feel better if I talk to a lawyer about this. It doesn't mean that Beneficial would take our houses, does it, or change the standards of the building or sell us up?"
Porter said:"Of course not, Jean. We are pleased with the project. I showed it to Ken Williams before Christmas. I just don't want you to have any delays, that's why we are offering to help you. I think it's O.K to see Robert and get legal advice. I will organise to release the interest payments. We are in contact with Mercantile, don't worry about their notices, just sign the Deed. Of course Jean you both would retain control of the building site and finish the project to your standards. Nothing has changed."
Seddon said:"This is going to be your last chance. You better hurry up [sic] and sign the Deed."
Miss Newington was cross‑examined at length about her accounts of the meetings but maintained their accuracy. Mr Seddon's evidence can be dealt with briefly. It was to the effect that these meetings constituted his introduction to Miss Newington and the projects; he had had nothing to do with them previously. His recollection of the meetings was very limited. He denied the particular remarks attributed to him. Mr Porter's evidence as to the conversations differed in a number of significant respects from that of Miss Newington. He also was tested in cross‑examination, at some length, as to his account of the conversations. He denied, and maintained his denial, that the conversations took place as recorded by Miss Newington. Particularly, he maintained that Miss Newington did not deny that she was in default. He denied making any threats to the effect that Beneficial could force the applicants into default. He said that no question arose as to
payment of interest to Mercantile, because no money was held by Beneficial for the purpose of paying interest to Mercantile. He agreed that he had encouraged Miss Newington to sign a deed, but only, he said, on the basis that she first obtained independent legal advice: the suggestion that she obtain advice, Mr Porter maintained, was made by him; Miss Newington had responded to that suggestion, he said, by asking which solicitor she should use. He denied saying that Beneficial would keep the deed "in a draw" but agreed that he may well have said that Beneficial did not propose immediate sales. He denied that Miss Newington made any request for accounts but agreed that he may have mentioned that he had just returned from holiday. He denied that he had used the expression "trust us" or that Miss Newington had said "I trust you". He denied that he had said that the applicants would retain control of the building site but agreed that he may have said that within reason standards would be maintained.
Once again, I shall defer attempting to resolve the conflict of evidence.
Before leaving this episode, I should mention Miss Newington's account of her meeting with Mr Kremnizer (and record that, although there was no suggestion that he was unavailable, Mr Kremnizer did not give evidence). Miss Newington says that she told Mr Kremnizer that she was not in default, that Mr Porter had told her that Beneficial would not simply take and sell up the houses and that she did not have any accounts. She says that during their meeting Mr Kremnizer had a conversation by telephone with Mr Porter. At the conclusion of the meeting, according to Miss Newington, Mr Kremnizer reiterated advice which he had given before speaking to Mr Porter, that:
You must do what Arthur wants. You have no alternative but to sign it.
(h)February to December 1983
On 2 February 1983 Gage, apparently on the instructions of Beneficial, sent to Mr Seddon what was described as a revised construction valuation for each of the four Rockwall Crescent properties. In each case Gage reported an increase in construction costs, made up of a combination of additional work and price fluctuations. For 10 Rockwall Crescent the additional amount was $31,415.00 making a total revised construction valuation (as it was described) of $196,415.00; for 12 Rockwall Crescent the additional amount was $31,877.00 making a total revised amount of $196,877.00; for 14 Rockwall Crescent the additional amount was $46,429.00 making a revised total of $180,619.00; and for 16 Rockwall Crescent the additional amount was $45,834.00, the total revised amount being $178,834.00. A report dated 4 March 1983 from Hexton to Miss Newington indicates, as well, that Hexton's "total valuation of project" had increased substantially over its original budget.
Miss Newington's evidence was that, despite the execution of the deed, no change occurred in the way in which the construction projects were managed: she continued to manage the projects as before. Mr Porter's evidence in chief was that after the deed was signed Mr Seddon took over the management of the renovations of the Rockwall Crescent properties. That topic was not explored at length with Mr Porter in cross‑examination; he did, however, say that Miss Newington's attribution to him of the remark "of course
Jean, you would both retain control of the building site and finish the project to your standards" was partly correct and partly incorrect. In re‑examination he explained that answer as follows:
Well, they're both partly incorrect in the sense that it was certainly our intention to finish the job to the standards that Miss Newington was suggesting within commercial reasonableness. The first part was completely incorrect in the sense that she was aware at all times that while we were happy with her to be involved in the project, which I must admit is not a usual thing for a mortgagee to do, but we were happy to do that, but the ultimate decision making rested with ourselves and therefore it wasn't a shared arrangement on these decisions or whatever she is suggesting there.
Mr Seddon gave evidence that between 6 February 1983 and 11 May 1983:
"... Hexton remained the builder on each of the sites. In this period I did not instruct the builder as to what he should do. This was done by Newington."
Mr Seddon's evidence was, however, that he was in charge of monitoring the regular reports from Gage and authorised the making of payments to Hexton; those payments were, as Mr Seddon put it, made from Beneficial's own funds. Again, this was not a matter on which Mr Seddon was tested in cross‑examination.
Whatever precisely may have happened, it is clear that Miss Newington's displacement by Beneficial, as mortgagee in possession under the deed, was far from complete. That is evident from the fact that Hexton continued to direct reports and correspondence on the projects to her. It is particularly starkly demonstrated by the fact that, following a
serious deterioration in the relationship between Miss Newington and Hexton (Miss Newington's evidence was that Hexton was "robbing" her and that she told Mr Seddon so) she dismissed Hexton by a letter, couched in strong terms, dated 11 May 1983. The letter is worth quoting in full, because it strikingly illustrates the extent of the authority which Miss Newington still assumed:
I refer to our telephone discussion on Tuesday, 10th May 1983 and note your advice that your require a progress payment in the sum of One Hundred and Sixtytwo thousand fifteen dollars & thirtyeight¢ ($162,015.38). As you are aware the matter of aggregate progress payments made to date is in dispute; on my calculations the next progress payment cannot possibly be in excess of $30,000, which is owed to subcontractors. I trust that you are also aware that Mr Ted Douglas has conceded that there are numerous errors and duplication of accounts payable. Furthermore, I have evidence that accounts have been fabricated on admissions of Mr Terry Reeve.
I have this day inspected the site and note that the job has been closed down.
This will serve notice on you that I hereby terminate any agreement with Hexton Pty Ltd and advise that I have this day changed all locks on each property.
Any attempt to re‑enter the premises by your staff, employees, agents or servants will be deemed to be an act of trespass on your behalf. In the event that entry is made to the premises for the purpose of removal of any material, it will be my intention to commence legal proceedings forthwith for break and enter and stealing, as well as trespass.
Furthermore, it is my intention to commence legal proceedings seeking damages whilst the job remains closed. In this regard I advise that interest incurred on the site is estimated in excess of $1,000 per day.
It is clear that Beneficial at least acquiesced in what Miss Newington thus did. There is no evidence that anyone on its behalf made even the mildest protest.
There then occurred, however, a very substantial change. On 13 May 1983 Beneficial, by a document signed by Mr Seddon and headed "agreements to act as builder and foreman" appointed Mr Wayne Dunne "to act and generally supervise for Beneficial Finance Corporation Limited the works currently in progress at the properties 10‑16 Rockwall Crescent, Potts Point". It is quite clear that from that time, although Miss Newington continued to visit the site and to have conversations with Messrs Porter and Seddon, her influence over what happened at the site substantially ceased. Certainly she had no longer any semblance of control. Mr Dunne submitted accounts on a weekly basis to Beneficial. Mr Seddon was responsible, on behalf of Beneficial, for checking what was done and authorising payment. The practice of obtaining regular certificates from Gage ceased; on 23 June 1983, however, Gage wrote to Beneficial, as follows:
Following recent on site meetings with Mr. Wayne Dunn [sic] the present builder for this above project, and after examining a schedule of work to complete the said project prepared by Mr. Dunn we advise the following. The schedule of work appears reasonable both in cost and the time allowed in which to obtain from council a certificate of compliance (317A). In the schedule of works is a contingency sum of $8,000.00. It is expected that this allowance may be used to bring the project up to 317A standards should the local council require further works to be carried out not presently envisaged by Mr Dunn.
On 5 July 1983 Gage wrote again to Beneficial listing a series of claims of Mr Dunne for services and materials and stating that they appeared to Gage to be reasonable and in order. Work on the Rockwall Crescent properties was completed in August 1983 and Mr Seddon proceeded to attempt to market them.
Towards the end of July 1983 Beneficial also engaged Mr Dunne to renovate 22 Nelson Street. Mercantile, it will be recalled, was the first mortgagee of that property. On 28 July 1983 Mr Seddon recommended that "Mr. W. Dunne who has demonstrated his ability in the Rockwall Crescent buildout" be employed to renovate the Nelson Street property to a high standard and that, if necessary, Beneficial pay outstanding interest owed by the applicants to Mercantile in order to obtain their acquiescence in the "buildout" and their permission for Beneficial to control the marketing of that property. On 27 July Gage had already inspected the property with Mr Dunne. By a letter of 29 July 1983 Gage reported on the works necessary to renovate the property in a manner consistent with the Heritage Act 1977. Gage estimated the cost at $79,770.00. Mr Seddon's proposal was accepted and work on the project commenced. Gage was employed to certify Mr Dunne's progress claims. On 8 September 1983 Gage wrote to Beneficial expressing concern about the escalating cost of work. The letter referred to a number of items on which work had commenced but which had not been included in the original estimate and a number of respects in which items were being installed and finishes applied of a quality substantially greater than the "minimum quality finish" originally specified. Work, however, proceeded and Gage continued to provide reports of its regular progress inspections, several of them noting additional work done or items installed which had not been provided for, or of a quality substantially in excess of items provided for, originally. The work was completed towards the end of October at a total cost of $190,346.88.
There is no doubt that Miss Newington disapproved of the way in which Mr Dunne completed the work at Rockwall Crescent and that she complained to Mr Porter about some aspects of it. There is equally no doubt that she was vigorously opposed to Mr Dunne's employment to renovate 22 Nelson Street. It is not in dispute that Mr Porter made it clear to Miss Newington that Beneficial was satisfied with, and supported, what Mr Dunne was doing. There are some matters also, about which Miss Newington complains, as to which the dispute between the parties concerns the construction to be placed on the facts, rather than the facts themselves. Thus, there is no doubt on the evidence that at about the time when Hexton was dismissed considerable damage was done to the Rockwall Crescent properties, including to work already completed. Miss Newington blames Mr Dunne; Beneficial's witnesses say that the damage was of a kind which frequently happened upon the dismissal of a builder, particularly in circumstances where subcontractors had not been paid in full. Equally, there is no dispute that during Mr Dunne's regime at least a large proportion of the payments by Beneficial for the renovation works was made in cash, and some of it was paid to members of the Police Force. Miss Newington's evidence suggests that this practice facilitated the improper inflation of amounts paid (for example, payments to "phantom" employees under false names) and impropriety. On the other hand, the evidence of Beneficial's witnesses, particularly Mr Porter (though there is evidence of some concern expressed by Mr Seddon about lack of "control"), is that there was nothing unusual in what was done; Mr Dunne's accounts were properly checked and authorised; and the policemen concerned were off duty and employed (as it was said it was, surprising as it may be, not uncommon practice at the time) to assist in maintaining security at the site. Thirdly, Miss
Newington complained that Mr Dunne was not a licensed builder. Indeed, on the evidence, he was not. Mr Porter's evidence, however, was that, in effect, Mr Dunne's role was supervisory and that a licensed builder was engaged as well: it may be said in passing that who that licensed builder was is by no means clear; if a presence at all, he was at most a shadowy one.
Miss Newington made a number of other allegations, some of them very serious, about, or involving, Mr Dunne. She accused him, for example, of stealing property, particularly building materials, from the site; she said that he threatened her with a gun and boasted of carrying guns for the purpose of intimidating people working on the site; she said that, after she had been assaulted by two youths not far from Nelson Street, Mr Dunne told her that the assault was intended to teach her to keep away from the Nelson Street building site. Miss Newington alleged that, at about the time when work on Nelson Street was to begin, Mr Dunne made this suggestion to her (which she rejected):
If you let me sabotage the wiring and the plumbing, I can stay on site until Christmas. I will give you $10,000.00 if you will allow me to do this.
She claimed that Mr Seddon had confirmed her suggestion that Mr Dunne had been employed to renovate 22 Nelson Street because Mr Dunne had "got" Mr Seddon "off" a "drunk driving charge". She said that Mr Seddon had told her at the same time that Mr Dunne had a lot of influence with Beneficial and could do what he wanted. Miss Newington alleged also that Mr Dunne had boasted of police and underworld connections. She claimed to have informed Mr Porter and Mr Seddon of all these matters, and
recounted in detail conversations in which she claimed to have done so. Both Mr Porter and Mr Seddon denied those conversations. In particular, Mr Seddon denied in evidence in chief, and in cross‑examination firmly maintained his denial, the conversation in which a "drunk driving" charge was referred to and in his evidence in chief also denied in terms the allegation that Mr Dunne had "got" him "off" such a charge, a matter on which he was not challenged in cross‑examination (and it is fair to say that I have no hesitation in accepting Mr Seddon's account of the matter).
On 14 September 1983 Mr Seddon prepared a handwritten memorandum for Mr Ian Williams, who had some three months earlier been appointed the state manager of Beneficial for New South Wales. In that memorandum Mr Seddon claimed during the previous three weeks to have been harassed by threatening phone calls concerning the applicants' accounts, and to have had since then a number of calls from Miss Newington complaining of:
(a)Her treatment by our nominated builder Mr W Dunne. She claims he is rude & threatens her.
(b)The fact that Dunne has been given a relatively free hand in the choice of fixtures & fittings and other items which she believes should be consulted on [sic] and which A Porter agreed to do.
The memorandum continued:
In her latest call to me Miss Newington made the following comments:
(1)She is afraid of Dunne.
(2)He has threatened her.
(3)You are "afraid" of him.
4Beneficial should not employ a man who pays the police cash to act as security guards when "off duty".
(5)She has requested a full accounting on all moneys expended on her account including who has been paid and why labourers & painters are paid "cash" and why police were paid.
6.She claims she intends to go to Adelaide on Tuesday & speak to Ken Williams of these things. She says Dunne is a "gangster" and is ripping her off.
Once again, I shall defer further comments on these matters.
During this period a number of other significant events occurred. First, Statewide, as first mortgagee, sold 3 Kellett Street, following an auction, on 23 June 1983. Statewide had intended to sell the two cottages in Waimea Avenue as well: they were to be auctioned on 17 June. On the recommendation of Mr Seddon, however, Beneficial decided that it would be desirable in its interest as second mortgagee for it to control the Kellett Street auction (in the sense of setting the reserve price), and for the auction of the Waimea Avenue properties to be deferred. Statewide agreed to those proposals on condition that Beneficial pay outstanding interest owed to Statewide, the amount of which was $88,423.64; Beneficial did so. The Kellett Street property was sold for $385,000. Subsequently, on 23 September 1983, 5 Waimea Avenue was sold for $135,000. The net proceeds being insufficient to discharge the debt owed to Statewide, Beneficial did not receive any part of them.
Secondly, in mid 1983, Mr Ian Williams was (as I have mentioned) appointed state manager of Beneficial for New South Wales. From about June he took over the supervision of the applicants' accounts: Mr Seddon reported to him. From that time, accordingly, Mr Porter ceased to have responsibility for the accounts; he resigned from Beneficial in August. Miss Newington's relationship with Mr Williams was not a happy one. Her evidence was that she had a meeting early in July with Mr Williams at which Mr Seddon was present. She set out in her statement details of the conversation which, she said, took place. Her account is that Mr Williams, among other things, said that Miss Newington was in default; that he was going to give her two weeks to vacate Queen Street (where Miss Newington and M Bonnet still lived and over which Beneficial held a second mortgage only); that "a woman like you should not be owning houses. You should be in a back room in Newtown and I will put you there"; that Beneficial did not have to give Miss Newington accounts; that Miss Newington was "nothing except a little Hitler"; that Mr Williams had seen the gun which Mr Dunne was said to have; and that:
The accounts are in such a mess we can not give them to you at this stage anyway. We will take everything. You can not fight the big boys.
Miss Newington claims to have asked for accounts; to have accused Mr Dunne of threatening people, of stealing property and of boasting that he would keep the job going to at least Christmas "or till he spends a million"; and to have said that she would "have to go to the Head Office in Adelaide". She claims that in later conversations Mr Porter gave her some support to her suggestion that she go to Adelaide and offered to draft a
letter for her to take. Mr Williams was not called. Mr Seddon had no recollection of the alleged meeting, though he said that he might have introduced Miss Newington to Mr Williams; particularly he had no recollection of the particular matters said by Miss Newington to have been discussed and said that he was sure that, if the statements which she recounts were made, he would remember them. Mr Porter agrees that Miss Newington discussed with him the possibility of going to Adelaide; he says that he discouraged her from doing so, on the ground that it would be futile; and he denies that he drafted, or offered to draft, any letter.
Thirdly, Mercantile, as first mortgagee of 22 Nelson Street and 159 Queen Street, took proceedings to recover possession of those properties. The proceedings were commenced in the Common Law Division of the Supreme Court of New South Wales in March; service was not effected until about June. There followed various interlocutory skirmishes, the detail of which no longer matters. Default judgments were obtained; Miss Newington applied to set them aside; on 2 December 1983 Yeldham J ordered a concurrent hearing, on 13 December, of the applications to set aside the default judgments and Mercantile's substantive proceedings in ejectment. On 13 December 1983 Miss Newington, in circumstances to which it will be necessary to return, was without counsel; an application for an adjournment was refused and Yeldham J proceeded to hold that Miss Newington had no defence to Mercantile's proceedings and ordered the issue forthwith of writs for possession; the writ relating to 159 Queen Street was not to be executed for a period of 28 days. Miss Newington gave evidence of a number of conversations in which, she said, both Mr Porter and Mr Seddon had assured her that
Beneficial was in touch with Mercantile, that she was not to worry, that if necessary Beneficial would pay outstanding moneys owing to Mercantile and, on 4 July, that Mr Porter had "taken the Queen Street, and Nelson Street, properties off the market". Mr Porter and Mr Seddon denied those conversations. Miss Newington also recounts the following conversation with Mr Dunne:
On 21 September 1983, I received Writs of Possession for Nelson Street and my home at 159 Queen Street. I then went across to 22 Nelson Street, and spoke to Dunne about the notice I received and Mercantile's Judgment.
Dunne said: "Sure, Bennies got Mercantile to do their dirty work. Wait, I will ring Williams and let him know you are here. You can listen."
I then heard Dunne say: "Ian, Jean Newington is on the site. She is very upset at the trick we played on her".
I heard Williams say to Dunne: "Wayne, do whatever you have to do to get her off the site. You know what I mean."
Finally, in November 1983 Beneficial served on the applicants notices, under s 57(2)(b) of the Real Property Act 1900 (NSW), of Beneficial's intention to exercise its powers under its mortgages.
Litigation; settlement and consent orders; judgments
In mid 1993 Mr Kremnizer ceased to act for the applicants. Miss Newington says that this occurred when she sought his assistance in relation to the proceedings commenced by Mercantile and that Mr Kremnizer then told her that he was on Beneficial's panel of solicitors, that he had had received instructions from Beneficial to draw s 57 notices to be
given to the applicants and that he had refused to act for either party. Miss Newington then instructed a Mr Harold Baker. He, Miss Newington alleged, did not properly carry out her instructions and, a short time afterwards, ceased to practise. She then instructed Mr Richard Licardy.
On 7 December 1983 Mr Licardy, on behalf of the applicants, filed a statement of claim in the Common Law Division of the Supreme Court of New South Wales. I shall refer to the proceedings thus initiated as the applicants' Supreme Court proceedings. In the statement of claim the applicants claimed to have suffered damage because of an alleged breach of contract by Beneficial in failing to advance moneys to renovate 22 Nelson Street and to pay interest to Mercantile; and because of breach of warranty inducing the applicants to enter into the deed of 6 February 1983, the alleged warranties being that the purpose of the deed was to permit Beneficial to advance moneys to the applicants without the necessity of arranging variations of mortgages, that if the deed were signed Beneficial would advance sufficient funds to permit the completion of renovations at Rockwall Crescent and Nelson Street and that Beneficial would not exercise its power of sale. It was then pleaded that those representations were made fraudulently or recklessly and that they were misleading or deceptive; loss was claimed to have resulted from Beneficial taking possession of the Rockwall Crescent properties and from its alleged negligence in managing the renovations of those properties and of 22 Nelson Street.
I have mentioned the proceedings before Yeldham J, on 13 December 1983, in Mercantile's ejectment actions. Mr Licardy had briefed senior and junior counsel in
those actions. They were unavailable on 13 December. Largely because of difficulty in finding sufficient funds to ensure payment of counsels' fees, Mr Licardy was unable to engage other counsel to appear before Yeldham J. Mr Licardy informed Yeldham J that he had not obtained counsel and that his instructions were to seek an adjournment or, if an adjournment were not granted, to withdraw. An adjournment was refused, Mr Licardy was given leave to withdraw and Miss Newington was thus without representation during the rest of the proceedings.
Shortly thereafter, Miss Newington was introduced to Mr Charles Vandervord, an experienced litigation solicitor, who agreed to accept her instructions; he in turn briefed Mr B Mahoney QC and Mr Michael Cashion of counsel. Mr Mahoney advised against an appeal against the orders in the ejectment proceedings and suggested instead commencing proceedings in this Court seeking to restrain both Mercantile and Beneficial from taking steps to enforce their mortgages and, in the case of Mercantile, taking any further steps in the ejectment proceedings or to enforce the orders made in those proceedings. An application was filed on 16 December 1983; Miss Newington was the sole applicant and Mercantile and Beneficial were the respondents. I shall refer to those proceedings commenced by that application as the Federal Court injunctive proceedings. Miss Newington swore an affidavit on 16 December 1983, from which it was clear that the proceedings were founded on s 52 of the Trade Practices Act and that the misleading or deceptive conduct relied upon was the alleged making of substantially the same misrepresentations as those relied on in the applicants' Supreme Court proceedings, as to the application of money for renovations and interest and as to circumstances surrounding the location of the deed of 6 February 1983. The matter came before MacGregor J, initially on an ex parte basis, on the same day. It is not necessary to discuss the detail of what occurred before his Honour; ultimately, the proceedings were adjourned to 22 December.
Mr Mahoney QC had already informed Mr Vandervord and Miss Newington that he would not be available to appear on 22 December. Accordingly Mr Vandervord briefed Mr Preston Saywell to lead Mr Cashion and lengthy conferences took place on Wednesday, 21 December 1983 and Thursday 22 December. Mr Saywell, Mr Vandervord and Miss Newington were present throughout, or virtually so. Mr Cashion was present during part of the conferences; M Bonnet was present, probably, for a relatively brief period and did not substantially contribute to the discussion. By then affidavits had been filed and served sworn by Mr Porter and Mr Seddon in which the representations alleged by Miss Newington were put in issue and (in Mr Seddon's affidavit) the amount of the debt owed to Beneficial was stated and values were attributed to the properties. All the participants in the conferences gave evidence. The lawyers, counsel and solicitor, sought information, particularly documents, from Miss Newington; very little was provided. Miss Newington was advised that, on the material which she had been able to provide, she did not have a good chance of success in the Federal Court injunctive proceedings. The question then addressed was whether it might be possible to obtain a breathing space for Miss Newington to enable her to seek to sell the properties and discharge the applicants' secured debts. Ultimately a form of consent order was agreed upon and embodied in a document which was signed by Miss Newington and by
counsel for Beneficial and Mercantile. In accordance with that document, Sheppard J on 22 December ordered that the proceedings stand over for further directions on 23 March 1984, granted liberty to any party to restore the proceedings on two days notice and noted an undertaking to the Court by Miss Newington that she would perform all the obligations on her part contained in an agreement set out in the document. That agreement provided for the withdrawal of certain caveats; an acknowledgment that Beneficial was entitled to exercise its powers of sale; an agreement to yield up possession of all the properties except 159 Queen Street not later than 6.00 pm on 22 December; an agreement to yield up possession of 159 Queen Street on 22 March 1984 or (if earlier) seven days after the making of a final order; an acknowledgment that Beneficial might pay out Mercantile and tack the amount paid on to its secured debts; an agreement that Beneficial might pay out Statewide and similarly tack the amount paid; an agreement that the applicants would consent to judgment in favour of Beneficial in the applicants' Supreme Court proceedings; an agreement to withdraw an appeal which had been instituted in the ejectment proceedings; and various ancillary undertakings. In turn, Beneficial agreed that Miss Newington might introduce prospective purchasers, that it would not exchange contracts for the sale of any of the properties without giving at least 48 hours prior notice to Mr Vandervord and that it would not advertise any sale or proposed sale of 22 Nelson Street or 159 Queen Street as a mortgagee sale. Subsequently, Mr Vandervord became the solicitor on the record in the applicants' Supreme Court proceedings and judgment was by consent entered in favour of Beneficial in accordance with the agreement: that happened finally on 6 February 1984.
Miss Newington's evidence was that she entered into that agreement only with extreme reluctance and because she had been, as she put it, bullied and intimidated into doing so by her lawyers. The alleged intimidation took a number of forms: anger displayed to her by raised voices and "shouting"; threats that if she did not agree she and M Bonnet would became bankrupt and would be likely to be sent to "debtors' prison"; comments to the effect that if she did not agree to settle there and then, Mr Vandervord was going on holiday and because she had no funds to obtain other representation she would be without legal representation and would be evicted from her home. Miss Newington also said that during a considerable part of the conferences lawyers for Beneficial and Mercantile were outside Mr Saywell's chambers, in the corridor. She said that she expressed particular reluctance to agreeing to judgment against the applicants in the applicants' Supreme Court proceedings and wished to agree only to discontinue those proceedings; her version was that Beneficial, by its lawyers, on 21 December agreed to accept discontinuance but reneged on that agreement the following day.
All three of the lawyers, Messrs Saywell, Cashion and Vandervord denied in evidence that there had been any intimidation or bullying. They agreed that Miss Newington had been advised that her chances of success were slight. They said, however, and in this they were not challenged in cross‑examination, that they did nothing more than offer advice which was, undoubtedly, unpalatable to the recipient. Particularly, Messrs Saywell and Vandervord strongly denied that any of the lawyers suggested that there was a possibility of "debtors' prison": Mr Saywell gave evidence that that possibility arose in the conference as a suggestion made by Miss Newington and that he had specifically
advised her that there was no such thing as debtors' prison and that her fears on that account were unfounded. Mr Cashion had no recollection of the detail of the conference, and particular had no recollection of any mention of "debtors' prison"; but his evidence was that he knew at the time that there was no such thing and certainly would have so advised had the question arisen; Mr Vandervord's evidence was to similar effect. The lawyers - particularly Mr Saywell, who had the principal conduct of the negotiations - also gave evidence that Beneficial never agreed to accept a discontinuance, rather than insist on judgment in the applicants' Supreme Court proceedings.
That brief summary hardly does justice to many pages of evidence, but it will, I think, suffice for present purposes as senior counsel for the applicants did not seek to rely on any bullying or intimidation by the applicants' own lawyers and was content to proceed on the footing that the conduct of the lawyers, and their advice, were entirely proper in the circumstances; but that the circumstances, involving as they did a lack of information and documents, were to a significant extent the fault of Beneficial. Again, that is a matter to which I shall have to return.
All these matters lead inevitably, in my view, to the conclusion that Miss Newington's evidence must be treated with considerable reserve, particularly where her account differs from that of other witnesses on matters of significance to the outcome of the case.
The meetings of January 1983
There are a number of particular matters. Miss Newington says that Mr Porter told her, more than once, that he would keep the deed "in a drawer". Mr Porter denied that evidence. Apart from reservations about Miss Newington's evidence generally, I think probabilities favour Mr Porter's denial; at least, in my view, the probabilities are distinctly against Mr Porter having made the statement in the unqualified way in which Miss Newington describes it. Certainly the evidence shows that following the execution of the deed Beneficial by no means assumed full control, as mortgagee in possession, of the Rockwall Crescent project. I have no doubt that Mr Porter did at least make it clear that there was no immediate intention of selling any of the mortgaged properties and that Miss Newington would retain substantial influence over their renovation; and that indeed, is what happened.
Nevertheless, the deed was ultimately acted upon, fully, after Hexton was dismissed. But even before that, there were significant changes: particularly, regular statements were no longer sent to the applicants; and Mr Seddon took control of monitoring and approving payment, by Beneficial, of claims. In any case, Beneficial was faced with projects which had been substantially delayed, for which it was already apparent (and shortly afterwards confirmed) that additional "building money" would be needed, a deteriorating market and borrowers whose financial position was obviously parlous. In those circumstances, it would be extraordinary if the deed were not intended to have substantial effect; and the alleged combination of statements by Mr Porter that the execution of the deed would, in effect, change nothing and his evident anxiety to have it executed is very odd indeed. Certainly Mr Porter gave some reassurance that nothing excessively dramatic would follow the execution of the deed; I accept his denial, however, that he said that it would be kept in a drawer or, for that matter, in a file.
I accept Mr Porter's denial, and Mr Seddon's, that either of them said that Beneficial would or could take steps which would put the applicants into default. They were already in default, having failed to pay interest to the other financiers. Mr Seddon's letter of instructions to Beneficial's solicitors confirms that this was the basis on which Beneficial was proceeding. Evidence given by two accountants on behalf of the applicants that, if one were to combine together money set aside in the various passbook accounts, there would have been enough to pay interest to both Beneficial and Mercantile may be disregarded; it was given in ignorance of the position of Statewide and proceeds on the erroneous assumption that Beneficial had an obligation, out of money deposited for other purposes, to pay interest to Mercantile. It is not easy to see any good reason why either Mr Porter or Mr Seddon would have made the threats attributed to them; and, given Mr Seddon's relatively junior position and the fact that the meeting was his introduction to the transactions, it is difficult indeed to believe that he took the prominent and aggressive part attributed to him.
A related matter is the series of remarks attributed particularly to Mr Porter about the question of paying or "releasing" money to the other financiers. Miss Newington, as I have mentioned, gave evidence of a number of statements on other occasions, by the officers of Beneficial, that they were in touch with Mercantile (and Statewide) and would if necessary pay money due to them. It seems highly improbable that such statements were made. Beneficial probably was not obliged, though certainly it was authorised, to pay the deposit of $10,000 to Statewide on account of its interest; certainly it had no such obligation, in my view, after default, e.g. default in paying interest due to Mercantile. But in any event there was no "money" to release to Mercantile, no obligation to make payments to Mercantile and no apparent reason why officers of Beneficial might have thought it in the interests of Beneficial (or their own interests, for that matter) to make statements or promises of the kinds attributed to them. In those circumstances, there is nothing implausible about the denials that such statements or promises were made and I accept those denials.
Requests for accounts or a complete accounting
I have referred to the evidence. Miss Newington claims to have asked for "accounts" on numerous occasions throughout the relevant period. Mr Moss in evidence did not deal with the matter. Mr Porter denied that she asked for accounts often but agreed that she did so more than once; his evidence was that she was not specific as to what she meant by "accounts". Mr Seddon's memorandum of 14 September 1983 refers to a request for "a full accounting of all moneys expended on her account including who has been paid and why labourers & painters are paid "cash" and why police were paid". Mr Porter accepted that Miss Newington did not see the passbooks but he added "I can only say that they were welcome to be inspected and to be checked". It is evident that the question of
accounts came up in the course of the proceedings and negotiations leading to the agreement of 22 December 1983, at least in relation to the veracity of the debt owed by the applicants to Beneficial as deposed to by Mr Seddon. The unchallenged evidence of Mr Bruce, the then solicitor for Beneficial, was that he offered free access to Mr Vandervord and Miss Newington's accountants to the information on which Mr Seddon's figure was based; that offer was not taken up.
Once again, I find the suggestion that there was a series of somewhat non‑specific requests for accounts, each of which was either denied or fobbed off, very implausible. It would not be surprising if Miss Newington had asked for particular information for particular purposes: for example she might have needed to know, for the purpose of completing income tax returns, how much interest had been credited to the deposit accounts (she did in fact give evidence that some of her requests for accounts were made in the context of an investigation by the Taxation Department). Particularly given the delays in construction, she might have wanted to know what was left in the deposit accounts for the payment of interest. In other words, I would not have found it at all surprising had Miss Newington given evidence that from time to time she required particular information as to the state of her accounts with Beneficial, for particular purposes, and it would then have been surprising if requests of that nature had been denied. Indeed, if the information was required for particular purposes and was denied, one would have expected vigorous follow‑up, perhaps by Miss Newington herself, perhaps by her accountants, perhaps by the solicitors who were acting for her during the various periods: and certainly, ultimately, in writing. But there is no evidence that
anything of that sort happened. Miss Newington's evidence is only that she asked, orally and in a general sense, for "accounts" and was not given them; and there is no evidence of the sort of action which one might have expected if "accounts" were genuinely and seriously required and were either denied or at least not provided. For those reasons, the account given by Mr Porter seems to me much the more likely and I accept it.
Release of money of Nelson Street renovations
It will be recalled that Miss Newington's evidence was that she made several requests for "release" of the money set aside for renovating Nelson Street, commencing in about July 1982. Mr Porter's evidence, however, was that no such request was made until about December that year. Certainly the "scheme" propounded in the memorandum of Mr Moss was predicated upon reasonably prompt renovation of 22 Nelson Street so that it might be let and provide a source of income to service debt. It was suggested on behalf of Beneficial that Beneficial could not, in any event, be expected to release money until expense had actually been incurred; but I accept the applicants' retort that one would not commit to expenditure without first obtaining some assurance that, when it was incurred, the money would be available to meet it. Again, however, the terms of the requests and responses, suggested by Miss Newington's evidence, seem somewhat implausible. If there were a real proposal to proceed with 22 Nelson Street, one might have expected initial discussion not so much about "release" of funds but about whether the renovations should proceed, and how much it was likely to cost; one would have expected something similar to what had happened in relation to the Rockwall Crescent properties and what
was later to happen when 22 Nelson Street was in fact renovated: that is, in broad terms, an estimate of what was to be involved in renovation and of its cost, and verification by a quantity surveyor, no doubt Gage. There is no evidence that anything of this sort happened or was contemplated or discussed.
In that context, discussion of whether Miss Newington had in the circumstances a right to have the Nelson Street money "released" has also, in my view, an air of unreality about it. Looked at from the point of view of Beneficial, the documentation spoke in terms of authority not of obligation; and it could hardly be suggested that the obligation could arise in the absence of some assurance that the funds available were sufficient for the purpose. In other words, I cannot think that Beneficial was obliged, simply and without more, to release so much of the $40,000 as the applicants might choose to expend on renovating Nelson Street.
I say that with some hesitation, because the issue was not explored in those terms either in cross‑examination of the various witnesses or in argument. There was also the following evidence given by Mr Moss in cross‑examination:
Well, will you accept from me that not one cent was drawn out of that account for Nelson Street? - Well, I don't know that.
Well, I am asking you to accept it? - Okay.
Now, if you accept that, can you offer any explanation as to why Beneficial would have refused to release that money if, in fact, it was there? - Unless the work wasn't done. The money was there to be released for the work to be done. I assume if the work was done it would have been released.
Nevertheless, for the reasons that I have given, I do not think that, at any time during 1982, Beneficial was obliged to make the $40,000 available for renovations to Nelson Street. Miss Newington did not proceed on the basis that there was an obligation; her evidence was that she made requests and the requests were refused.
In the circumstances, I am not sure that it greatly matters whether, as Miss Newington said, she began making requests in about July or, as Mr Porter says, she first made a request in December. Once again, if it matters, what I regard as the great improbability of Miss Newington's account of some of her relevant conversations with Mr Porter leads me to prefer Mr Porter's version. Miss Newington gave the following evidence:
I wonder if you could have a look at your statement, paragraph 3.27 on page 11? - Yes.
According to that you say to Mr Porter "I can't go on without money to pay for Nelson Street"? - Yes.
And he says "look, it is like an ice cream, if you want a bigger one you have to go and get a bigger overdraft"? - Yes.
I regret to say that to me that just does not make any sense. You say you need the money for Nelson Street? - Yes, that's to finish the $40,000 worth of renovations on Nelson Street.
Money which you understood was set aside for that purpose that Beneficial was holding for you? - Yes, and which they then said that they would not give.
You do not have that there. What you have is Mr Porter saying go out and get a bigger overdraft? - Yes, because of Nelson Street.
But did you not say to Mr Porter, look, I do not have to go and get an overdraft because you are holding money for me? - He had said and Moss had said that they would not - that Moss had told me Arthur didn't want me to have the money till Rockwall Crescent was finished. Arthur said he did not want to release the money till Rockwall Crescent was finished, so I just said I can't go on without money to pay for Nelson Street.
And his reaction is: go out and get a bigger overdraft? - Yes, that was his reaction. He was very cavalier about it.
How did you respond to this cavalier attitude on the part of Mr Porter? - How did I respond?
Well Miss Newington, he was holding money which you believe you had a right to use for Nelson Street? - Yes.
And he as you say was very cavalier about it and says: "Oh life is like an ice cream, go out and get a higher overdraft"? - Yes.
You know, do not use the money that you are entitled to use. Go and borrow some more somewhere else? - Yes.
Double up your interest? - Yes.
Keep paying us interest and pay interest to a bank as well? - Yes.
In a very cavalier fashion? - Yes.
How did you react to that? - He was the boss. He held the money.
You trusted him? - Of course I trusted him.
You trusted this man who cavalierly says: go out and borrow money from your bank; we are not going to let you have the money you are entitled to? - No he did not say we are not going to let you have the money that you are entitled to.
That was the effect of it was it not? - No. He wanted me to wait and I was not keen on waiting. That was not ...
That was not what? - He did not say I am not giving you the money that you are entitled to. He held the money. There was nothing that I could do except just go with what he said and wait for the money.
Mr Porter denied that exchange. I agree with Beneficial's counsel that much of what is attributed to Mr Porter simply does not make sense. It is hard to imagine why a responsible officer of a lender to a borrower already in considerable difficulty, in a market already becoming less buoyant, whose stated preference (as attributed to him by Miss Newington) was for the completion of Rockwall Crescent before commencing Nelson Street, would suggest that the borrower might nevertheless incur further substantial interest‑bearing liabilities in order to complete Nelson Street while the Rockwall Crescent project was still incomplete.
Before turning to the submissions as to the unconscionable conduct claim, there is one other evidentiary matter to which I should refer. M Bonnet gave evidence. He played very little active part in the transactions with which this case is concerned; it appeared that his command of English was not particularly good; and he gave evidence that he was, and had been, ill and that his memory was very bad. He was able to recall very little of the relevant events even of those (particularly, the conference with the lawyers in December 1982) in which, to some extent at least, he had been involved. Counsel for Beneficial submitted that it was strange indeed that, given the relationship between M Bonnet and Miss Newington, he was unable in any significant respect to corroborate any of Miss Newington's evidence about the remarkable and distressing events which she described. It is indeed odd, and leaves Miss Newington without a source of corroboration which one might have expected to be available. But I do not think it appropriate to draw any other inference from the nature of M Bonnet's evidence: I thought it was reasonably evident from his brief cross‑examination that unfortunately his memory was, indeed, very bad.
Submissions as to comparative states of knowledge and belief
The written submissions on behalf of the applicants, as to the position immediately before 6 February 1983, omitting references to the evidence, were as follows:
(i)On the applicants side, the comparison shows in January 1983:
(a)A parlous financial position.
(b)A reliance upon the officers of the Respondent.
(c)Knowledge of default in the payment of interest to other mortgages.
(d)A belief that the "building money" was not exhausted.
(e)A belief that there was money available to pay interest to both BFC and the other mortgagees.
(f)A belief that money was available to pay for renovations on Nelson Street.
(g)A lack of information and advice about how the moneys had been expended.
(h)A subservience to officers of BFC.
(i)A belief that all interest money for BFC was "built into" the loans.
(j)A belief that there was money available for the renovations of 22 Nelson Street and that it should be released.
(ii)On the other side, BFC knew:
(a)Her parlous financial state.
(b)She had not paid her interest to Statewide or Mercantile.
(c)That the money in the passbooks was exhausted.
(d)That the "building money" was nearing its end.
(e)That she had never been given "accounts" in the real sense of the word.
(f)That it had been and was holding money on trust.
(g)That it owned her fiduciary obligations.
(h)That it was a powerful financial institution.
(i)That it had suggested the "voluntary surrender".
(j)That she had never seen the passbook and was unaware of their existence.
(k)That she relied upon its officers with whom she had a relationship of confidence.
(l)That there was unreleased money for 22 Nelson Street and that they would not release it.
(m)That the Scheme of Moss in his memo of 21 June 1983 was impossible if the Nelson Street building money was not released.
The submissions as to the comparative states of knowledge and belief immediately before 22 December 1983 and 27 April 1984 were as follows:
(i)On the applicants' side:
(a)They believed the Deed was "in the drawer".
(b)They believed, at least until May, that they were still in charge.
(c)They believed that the money for 22 Nelson Street should be "released".
(d)They believed that they were entitled "to accounts".
(e)They had never been supplied with any document relating to the Trust Funds.
(f)They had only been supplied with "Statements" about the building money.
(g)Their lawyers were in the same state of ignorance as the Applicants themselves.
(h)Neither the applicants or their lawyers were aware of the existence or contents of the passbooks.
(i)They had no idea how the trust funds had ben administered.
(j)The applicants had no knowledge of what had been spent on the properties since February 1983.
(k)The applicants wished to redeem.
(l)They were on the verge of being forced from possession by Mercantile.
(m)They were n danger of becoming unrepresented.
(ii)On the Respondents' side:
(a)Knew of the Passbooks and how the Trust Funds had been dealt with.
(b)Knew that there had been transfers of moneys between accounts.
(c)Knew Nelson Street moneys had been used for extraneous reasons.
(d)Knew they had withheld Nelson Street moneys.
(e)Knew that they had made it impossible to conform with the Scheme of Moss in his memo of 21 June 1983 (failure to release Nelson Street renovation money).
(f)Knew that applicants had asked for and had been denied "accounts".
(g)Knew she wanted to redeem.
(h)Knew her lawyers were no better informed than the Applicants.
Although the position at the time the deed was executed probably does not matter unless the applicants make good their claim to have the earlier judgments set aside by some means, I shall look first at the comparison immediately before 6 February 1983. Of the matters listed on the applicants' side: (a) does not represent a difference in the parties' states of knowledge; the evidence referred to in relation to (b) is mainly a series of statements by Miss Newington to the effect that she trusted officers of Beneficial, particularly Mr Porter, and believed Mr Porter when, at the January meeting, he told her she was in default although she knew "in her heart" that she was not. In fact, of course, she was in default; and she knew that the applicants had failed to pay interest due to the other mortgagees and that therefore they were in default. I cannot see that that or any other evidence establishes reliance on officers of Beneficial in any relevant sense. Similar comment may be made in relation to (h), for which similar material in the evidence is relied on. (c) is not a point of difference in the parties' states of belief, nor is (d), except to the extent that the amount of "building money" left may have been less than Miss Newington thought. As to (e), there was money on deposit from which Beneficial was authorised to pay interest due to itself and some from which Beneficial was authorised to pay interest due to Statewide. There was never money set aside for payment of interest to Mercantile; there is no evidence that officers of Beneficial suggested that money was in fact set aside for that purpose and I have found, contrary to the evidence of Miss Newington, that they did not say that Beneficial would pay moneys due to Mercantile.
As to (f) and (j), $40,000 had been deposited in a passbook account; I have already made findings in relation to that; certainly as at 6 February 1983, when the applicants were in default, Beneficial was entitled to apply the sum set aside in payment of moneys due to it and had no obligation, if one existed previously, to make it available to fund renovations of Nelson Street.
What is said in paragraph (g) is at least an exaggeration: Miss Newington had the information in the statements; that information included amounts paid to the builder and interest paid to Beneficial. The matter referred to in (i) was the subject of extensive cross‑examination, during which it became clear that the amounts set aside for interest in 1980 and 1981 had not been sufficient to pay the full amount of the interest. Nevertheless, Miss Newington insisted that interest had been fully "built in" to the 1982 refinancing. It may well be that both parties had an expectation that, had everything gone according to plan and on schedule, the amount set aside for interest would have been sufficient. In circumstances, however, where default had occurred before the money set aside had been exhausted I cannot see what significance the belief had for any issue in this case.
As for what BFC is said to have known, (a) and (b) are true but do not represent a difference between the parties. (c), in fact, is not true and the transcript references given do not support it. The money was running out, but it was not exhausted. (d) is true, but hardly represents a relevant difference: Miss Newington's own evidence is that at the January meeting she was told that more "building money" was likely to be required and
she had the means of knowing how much had already been expended. I have dealt at some length with the proposition in (e) which, in the light of my findings, is reduced to insignificance. I have held that that what is asserted in (f) and (g) is not correct. (h), at least in some sense, is no doubt true but hardly represents a difference in belief and, by itself, leads nowhere in relation to the character of Beneficial's conduct. With all respect, (i) borders on the absurd: of course Beneficial knew that, of course Miss Newington knew it also and it is hardly evidence of unconscionable conduct that a lender whose secured borrower is in default suggests a "voluntary surrender" as its preferred means of dealing with the situation. As I have held, (j) is true, at least literally: Miss Newington did know, however, that money had been deposited: I have already dealt sufficiently with this, as I have, I think, with (k), (l) and (m).
The applicable legal principle is clear enough. It is stated in the well known passage in the judgment of Mason J in Amadio at 461:
"... relief on the ground of "unconscionable conduct" is usually taken to refer to the class of case in which a party makes unconscientious use of his superior position or bargaining power to the detriment of a party who suffers from some special disability or is placed in some special situation of disadvantage e.g., a catching bargain with an expectant heir or an unfair contract made by taking advantage of a person who is seriously affected by intoxicating drink.
The applicants were, of course, in a very serious situation in January and February 1983; they had been in default to both Statewide and Mercantile for some months and each of those mortgagees had resorted to threats of vigorous action against them. Their building work was delayed; there were difficulties with the builders and it was becoming apparent that the estimated building cost would be exceeded. They had no source of income from which they could make good the deficiencies in interest payments; they had not succeeded in borrowing further money elsewhere (and, indeed, it seems obvious enough that further borrowing could, in the end, only have exacerbated the situation). Because of their default in paying moneys due to the other financiers, they faced the prospect that, the failure being a default under their arrangements with Beneficial as well, Beneficial would refuse to advance further money and would enforce its own securities. But to say all that is simply to describe the plight of a mortgagor who is in default, cannot remedy the default or service the debt and faces enforcement of the mortgage. I do not think that that, by itself, is a position of special disadvantage for the purposes of the Amadio principle. The effect of the factual findings I have made, as to the requests for "accounts" and the extent of the information which the applicants already had, in relation to the conversations about payment of money owing to the other financiers, particularly Mercantile, in relation to the question of the release of moneys for the Nelson Street renovations and in relation to what was said at the January meetings have the result, in my view, that there is nothing in the evidence which should lead me to conclude that the applicants were, in early February 1983, in a position of "special disadvantage" or that, in suggesting or requesting the execution of the deed, Beneficial acted in an unconscientious way. Particularly, it should be noted that Miss Newington had, and took, the opportunity of obtaining separate legal advice before the applicants signed the deed; as I have said, the terms of the deed are quite straightforward and I cannot think that she
could have been left in any doubt as to either Beneficial's rights following default or the effect of the deed.
More significantly for present purposes, if one turns to the circumstances immediately before 22 December 1983 and 27 April 1984 the same conclusion, in my view, clearly follows. As to the matters listed on the applicants' side: (a) was no longer true; (b) was no longer true; (c) if ever true, had ceased to have practical relevance as 22 Nelson Street had been renovated at Beneficial's expense at a cost substantially greater than $40,000; I think I have dealt sufficiently with (d), (e) and (f). (g) is true, except that the lawyers' state of ignorance was deeper: they were not given the documents which the applicants had. They were aware, however, of what the applicants claimed, and two further comments may be made: one (which applies also to (i) and (j)) is that an offer, made on 22 December 1983, to "open the books" and make Beneficial's officers available, was not taken up, then or later; the other is that, if the applicants' lawyers had had before them all the material which I now have before me, they would hardly have come to a different conclusion, for the only material to the contrary is Miss Newington's own evidence and that, in substance they had.
It is unnecessary to add to what I have already said about (h) and the passbooks; (k) on the evidence is clearly true, and indeed that was the purpose of the three months' "breathing space" which the agreement of 22 December 1983 gave the applicants; by 27 April 1984 it was apparent that the wish was one which could not be realised. (l) is true, but leads nowhere in relation to characterising Beneficial's conduct. Miss Newington
suggested that (m) was true, but in fact on Mr Vandervord's evidence (which I accept) that danger in fact did not exist.
It is unnecessary to say much about the matters listed "on the Respondents' side". There is no evidence that Nelson Street, or other, moneys had been used for "extraneous" purposes in the sense of purposes unrelated to the finance provided by Beneficial to the applicants. Additionally, it will be recalled that Beneficial had under its security documents a broad power to apply the deposits, in discharging the applicants' indebtedness to it, following default.
The other matters require no further comment, except to point out that the "scheme of Moss" was in fact formulated in June 1982 and could hardly have had relevance, in relation to the parties' comparative beliefs and states of knowledge, in December 1983, let alone in April 1984.
Little further need be said, I think, to demonstrate that the applicants' case based on unconscionable conduct is not made out in relation to the events of December 1983 and April 1984. The applicants had advice and assistance from experienced counsel and solicitors. They were seriously in default. As the event showed, they had in December no serious prospect of retrieving the situation even with the breathing space that they obtained; they certainly had no such prospect in April 1984. In those circumstances, and given the factual findings I have made, in my view it cannot be said that in obtaining (if that is the right word for it) the agreement of 22 December 1983, the judgment of
February 1984 or the consent orders of April 1984 Beneficial did anything that can properly be characterised as unconscionable.
I do not think any further citation of authority is necessary to support that conclusion beyond pointing out that, as the three leading High Court authorities (Amadio, Louth and Blomley v Ryan (1956) 99 CLR 362) strikingly illustrate, the sort of special disadvantage which typically leads to relief on the ground of unconscionable conduct is a disadvantage of a very serious, obvious and disabling kind; the transactions in which the relief is usually granted are transactions which could by no stretch of the imagination be described as provident, which arise out of no relevant antecedent dealing or obligation between the parties and are entered into by the party seeking the relief without appropriate independent advice.
That is not, of course, to say that each one of those elements will always be present where a transaction is set aside on the ground of unconscionable conduct; this case, however, is quite unlike the typical case where relief is given. The applicants' position of difficulty (or parlous position, as it was described) arose because they had entered into what, in retrospect, were a series of financing transactions too heavily reliant on cost and time projections which were not realised and on an overly optimistic view of future market conditions. The basis failed; the applicants fell into default and into what may, looked at with hindsight, be seen as a hopeless financial position. In those circumstances Beneficial was entitled to enforce its securities; the deed of 6 February 1983 was, I am sure, seen as a method of proceeding which might produce consequences more favourable
to each party than enforcement. In the circumstances, the transaction represented by the deed - particularly the way in which it was administered - could hardly be described as a harsh or unconscionable transaction. And, given the findings of fact that I have made, there was nothing unfair about what happened as the situation of the applicants became progressively more obviously hopeless, in December 1983 and April 1984.
For those reasons the applicants' claim based on unconscionable conduct, the only claim which they now press, must in my opinion fail.
Other claims
Although the other bases on which the applicants had put their claims "disappeared" after the close of evidence, I think it is desirable, given the nature of the claims and the evidence, to say something about them. The evidence of the three lawyers was not seriously challenged and I accept it; it follows that a claim of "coercion" or "intimidation", based on anything said or done by the lawyers during the events of 21 and 22 December 1983 or later, must in any event fail. If (as I think is not entirely clear) the amended statement of claim was intended to rely on s 52 of the Trade Practices Act, a claim so based must fail, if only for the reason that it is clearly statute‑barred under subs 82(2) and para 87(1CA)(b). If a cause of action arose based on s 52, clearly it did so no later than 27 April 1984.
As for the claims based upon fraud, it is unnecessary to say a great deal given that, ultimately, the claims were not pressed. Although the case was not opened by senior counsel for the applicants specifically as a case of fraud, the claims based on fraud remained part of the statement of claim and continued - indeed were added to - in the amended statement of claim which the applicants sought leave to file; and the claims were not formally dropped until the close of the trial. In those circumstances, I think it is appropriate that I say that my findings of fact lead to the conclusion that the case of fraud based on the representations alleged in paragraphs 4F, 4G, 4H, 4J, 4L and 4T of the amended statement of claim (including the additional representations sought to be pleaded in the proposed further amended statement of claim) was not made out. I have found that the applicants have not established that the representations as pleaded were made; I have preferred the evidence of officers of Beneficial in which the representations were denied. The statement of claim relied upon two other sets of representations. The first set were contained in an affidavit made by Mr Seddon in an affidavit sworn on 21 December 1983: they related to the amount of the applicants' debt to Beneficial and the value of the properties. Mr Seddon undoubtedly made the representations, but there is simply no evidence now relied on that they were false or that Mr Seddon knew them to be false or was reckless as to their truth. As to the amount of the debt, Mr McCarthy's evidence supports the figure given by Mr Seddon: indeed, on Mr McCarthy's evidence, the figure given by Mr Seddon was somewhat less than the true figure. Mr Seddon was not challenged on this matter in cross‑examination and, when senior counsel for Beneficial raised the matter immediately after the cross‑examination, senior counsel for the applicants explicitly withdrew the allegation of fraud on the part of Mr Seddon.
The second set of representations is based on the terms of the agreement of 22 December 1983 and is pleaded as representations that Beneficial had the intention of doing what it was obliged to do, and not doing what it was obliged not to do, under the agreement: in relation, for example, to advertising sales as mortgagee sales and to giving notice to the applicants of Beneficial's intention to enter into contracts for sale. Certainly, as I have mentioned, there were, after the event, arguments as to whether the agreement had in all respects been complied with, on both sides; clearly there was at least one sale advertised, for a brief period, as a mortgagee sale. There is simply no evidence, however, that, treated as representations of intention, the agreements by Beneficial amounted to representations which were false.
Other matters
The conclusions which I have reached make it unnecessary and, I think, in some respects at least undesirable for me to deal in detail or conclusively with other matters on which I heard argument. Particularly, as I have mentioned, Beneficial contended that all the claims made by the applicants should be treated as barred, or should fail, applying the Limitation Act by analogy, by reason of estoppel or by reason of laches or delay. No answer was made to those submissions. It is unnecessary in the circumstances to say more about them than that they obviously have considerable force. Nor is it necessary for me to consider the question, not entirely straightforward, whether generally or in particular circumstances consent orders may be set aside on any ground on which
a simple contract may be set aside; I think it is both unnecessary and inappropriate for me to express any view about that.
Conclusion
The result is that these proceedings must be dismissed. Clearly Beneficial is entitled to its costs. There remain, however, the informal applications further to amend the application and the statement of claim. My tentative view is that, given the conclusions I have reached, the right course is to grant leave to amend the application, and further to amend the statement of claim, as sought in the applicants' written submissions, and to dismiss the amended application. I am not inclined to grant the leave, which at the close of argument senior counsel for the applicants said he was prepared to seek, to amend the statement of claim additionally by omitting the claims based on fraud and coercion. Additionally, senior counsel for Beneficial indicated that his client sought, in relation to certain issues, indemnity costs. Senior counsel for the applicants did not, in his submissions, argue the question of costs. If Beneficial wishes to press for indemnity costs in relation to any issue, I think it is appropriate to give counsel for the applicants the opportunity to make submissions. Finally, there is the question of what now should be done with the renewed substantive proceedings.
In those circumstances, the order that I make is that the respondent, within two weeks from the delivery of this judgment, is to file and serve short minutes of the orders which it contends should be made consistently with these reasons for judgment. The matter may then be set down, by arrangement with my associate, for any argument as to the orders (including as to costs) and for the making of final orders; at the same time I shall also hear argument as to the disposal of the renewed substantive proceedings.
I certify that this and the preceding 106 pages are a true copy of the Reasons for Judgment of the Honourable Justice Lehane.
Associate:
Dated: 30 January 1997
Heard: 22-26, 29-31 July 1996, 1-2, 5-9, 19 and 21 August 1996
Place: Sydney
Decision: 30 January 1997
Appearances: Mr D B Milne QC and Mr J Waters of counsel instructed by Stojanovic & David appeared for the applicant.
Mr A JH Morris QC and Mr M G Skinner of counsel instructed by R B Monteith & Co appeared for the respondent.
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