Para Factors Pty Limited v Sabah Saman

[2001] NSWSC 1175

CITATION:	Para Factors Pty Limited v Sabah Saman & Ors [2001] NSWSC 1175
CURRENT JURISDICTION:	Equity Division
FILE NUMBER(S):	SC 1155/2000
HEARING DATE(S):	17/08/2001, 31/08/2001, 12/11/2001, 13/11/2001, 14/11/2001
JUDGMENT DATE:	20 December 2001
PARTIES :	Para Factors Pty Limited v Sabah Saman & Ors
JUDGMENT OF:	Foster AJ at 1

COUNSEL :	Dr D.T. Kell - Plaintiff Mr F. Santisi - Defendants
SOLICITORS:	Sorensen & Brown - Plaintiff Nicopoulos & Associates - Defendants
DECISION:	Refer paragraph 66.

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

CORAM: FOSTER AJ

1155/2000 – PARA FACTORS PTY LIMITED v SABAH SAMAN & ORS
JUDGMENT

1 HIS HONOUR: The plaintiff in these proceedings, Para Factors Pty Limited is a finance company, the managing director of which is Leonard Roy Walker (“Mr Walker”), his wife being the other director. Mr Walker manages the day to day affairs of the plaintiff.

2 The evidence satisfies me that the plaintiff’s main business, at all relevant times, was the provision of finance to what has been described as the “Smash Repair Industry”, through the advancing of monies to persons and companies involved in the repair and reinstatement of damaged motor vehicles, for working capital and also by the factoring of their book debts.

3 In 1996, in the course of this business, Mr Walker, on behalf of the plaintiff, entered into commercial arrangements with two men, Wissam Saman (“Sam”) and Nabill Ghattas (“Bill”) who conducted a smash repair business, under the name of Exact Smash Repairs, in a repair shop at Sefton. Mr Walker understood that the men operated this business in partnership. He visited the premises with some regularity and arranged the factoring of their debts. In his affidavit he stated that “Sam was the front man for the business and handled all negotiations.” I am satisfied that this description of Sam’s role was an apt one.

4 During 1996 Sam and Bill changed their business relationship. The smash repair business ceased to be conducted as a partnership and, instead, was conducted through a company Paleena Holdings Pty Limited (“Paleena”). Although, I am satisfied, Mr Walker was unaware of it at the time, neither Sam nor Bill were shareholders or directors of this company. The shareholder and director of it was Mr Tony Barakat (“Barakat”), to whom I shall make reference later and who did not give evidence in these proceedings. I am satisfied that, despite this change, Mr Walker continued to deal with Sam in relation to the provision of financial assistance to the business. Documentary evidence satisfies me that the day to day management of the business was in the hands of Sam and Bill. One or the other provided the necessary written authorities and assignments for the factoring of debts owed to Paleena for work done on behalf of insurance companies interested in the repair of the damaged vehicles in the workshop.

5 I am also satisfied that the amount owing by Paleena to the plaintiff increased considerably throughout 1996. Mr Walker made substantial advances from time to time in order that Paleena might have working capital. It appears that his returns from the factoring of the company’s debts did not enable these advances to be repaid to any significant extent. He took certain steps to protect the plaintiff’s position. He required that a lease of equipment used by the partnership be transferred to Paleena so that this business asset would be owned by Paleena and not by Sam and Bill personally.

6 Towards the end of 1966 Mr Walker was sufficiently concerned at the state of indebtedness between the plaintiff and Paleena to require that Paleena provide the plaintiff with a floating charge over its assets. This was done by the execution of an appropriate Deed of Charge on 17 December 1996 which was registered with the Australian Securities Commission. It was executed by Barakat.

7 Mr Walker came to believe that the plaintiff’s position, qua Paleena’s indebtedness, was still insufficiently protected. The dispute in this case involves a mortgage document entered into on 31 January 1997. It is contended by Mr Walker that this document was intended to provide further security for the plaintiff in respect of Paleena’s level of indebtedness. On behalf of the defendants it is asserted that the document had a completely different purpose, to which I shall make reference later in these reasons. The contentious portions of the mortgage will also be set out later.

8 The first and second defendants were the signatories to this document. Sabah Saman (“Sabah”) is Sam’s brother. Kathy Saman (“Kathy”) is Sam’s wife, although the evidence indicates that they may have been estranged since late 1996, early 1997.

9 The competing contentions of the plaintiff and defendants may be stated, in summary form, as follows.

10 Mr Walker alleges that, as a result of arrangements made with Sam, he instructed a firm of solicitors, Carters Law Firm, Auburn to prepare a mortgage over premises 8 Highland Road, Guildford (“the property”), to secure the repayment of $90,000, part of the indebtedness of Paleena to the plaintiff. The solicitor handling the matter was named Kathy Clonis (“Ms Clonis”) who acted for both parties in the preparation of the mortgage. The property was in the name of Kathy who was, accordingly, to be the mortgagor rather than Sam who, I am satisfied, had at first, represented to Mr Walker that he was the owner of the property. Indeed, it is quite possible that he was a beneficial co-owner. Sabah was not an owner. It appears that he had entered into some form of guarantee, when the property was purchased by Kathy. There is no apparent reason why he was included in the mortgage document. However, he appears as a mortgagor and has, accordingly, been joined as a defendant in these proceedings.

11 It is the contention of the defendants that the mortgage document was not entered into for any purpose relating to the indebtedness of Paleena. Indeed both aver that they had no knowledge of Paleena or of any alleged indebtedness by it to the plaintiff. According to their version, the mortgage was entered into for the purpose of an advance of $90,000 to be made by the plaintiff to Kathy, to enable her to undertake renovations to a restaurant of which she was to become the owner. In the event, no advance was made and the mortgage never became operative.

12 Moreover, the form and contents of the document are productive of considerable difficulty in the case. In these circumstances, the plaintiff seeks rectification of the document so that it may accord with what Mr Walker alleges was the agreement between the parties. He seeks enforcement of it in its rectified form and claims the payment to the plaintiff of the amount of $90,000 plus interest from a date, which I shall discuss later.

13 These claims are resisted by Kathy and Sabah. Moreover, Kathy has brought a cross-claim against the plaintiff, alleging that a caveat was wrongly placed upon the property in purported protection of the mortgage, which caveat has occasioned damage. In the upshot, this cross-claim has not been persisted in, apparently for want of evidence of any damage.

14 I note, at this point, that two witnesses who, undoubtedly could have cast light upon this dispute have not been called. One is Sam, who became bankrupt in 1988. The other is the solicitor, Ms Clonis. Both sides have made submissions, on a Jones v Dunkel basis, relating to the absence of these witnesses.

15 The credit of Mr Walker and Kathy and Sabah has been the subject of considerable submissions. I shall give my views as to the worth of these persons as witnesses, later in these reasons. However, it is convenient at this point to relate in more detail the way in which the respective cases have been developed in the evidence.

16 Mr Walker states that during 1996 he continued, at Sam’s request, to advance more and more money to Paleena. By the end of that year the debt had grown to $150,000. This led to his seeking and obtaining the floating charge already referred to. However, he believed that Paleena’s assets would not be sufficient to cover the outstanding debt accruing from time to time. As a result he had a conversation with Sam in late 1996, in which he said that he was not prepared to advance any more funds to Paleena unless additional security could be provided. In response to this Sam told him “I can give you a mortgage over my house at 8 Highland Road, Guildford. I will show you the house and introduce you to my wife Kath.”

17 Mr Walker says that shortly afterwards he went to the property with Sam and made an inspection of it for the purpose of appraising its value, this being an activity in which he had some experience. He says that, having made such an appraisal, he considered the house and land to be worth about $250,000. He had previously been told by Sam that there was an existing first mortgage, under which about $100,000 was owing. He says that he met Kathy at the house on this occasion. She denies this. I consider the likelihood is that he did in fact meet her but she was not a party to any discussions that took place on that occasion.

18 After making this inspection, Mr Walker told Sam that he was prepared to take a second mortgage over the house and considered that $90,000 would be the appropriate amount to be secured by the mortgage. He gives his reasons for arriving at this figure. He formed the view, based on experience, that, having regard to the fact that there would be approximately $150,000 equity in the house available for security by way of second mortgage, that the first mortgagee would raise no objection to the registration of a second mortgage, if it was only for the amount of $90,000.

19 A discussion ensued as to solicitors preparing the necessary mortgage document. Mr Walker says that he agreed to let Sam’s solicitor act for both parties on the mortgage, in order that Sam could save money by not incurring the higher legal fees that would be charged by Mr Walker’s city solicitor.

20 Accordingly, a meeting was arranged with Ms Clonis, who, I am satisfied, was Sam’s and Kathy’s regular solicitor, having acted in relation to the purchase of the property and in other matters. The meeting with Ms Clonis took place in late December 1996 or early January 1997, according to Mr Walker. He was originally of the view, as expressed in his affidavit, that Kathy and Sabah were present at this meeting and that conversations took place involving Kathy. In his oral evidence, he later acknowledged that his recollection as to the presence of Kathy and Sabah was incorrect and that conversations he recalls involving Kathy did not take place on that occasion. He asserts that they took place at the subsequent meeting on 31 January 1997 when the mortgage document was duly signed by her and Sabah. He avers, however, that at the first meeting Sam introduced him to Ms Clonis as the solicitor “who acts for us and does all our legal work.”

21 Mr Walker states in his affidavit that Sam explained to Ms Clonis that “Len has been lending us more and more money for the panel beating business and we have agreed to give him a mortgage over the Guildford house.” It was indicated that the plaintiff was prepared for Ms Clonis to act for both parties on the mortgage in order to save legal fees. Mr Walker agreed to this course and indicated to Ms Clonis that he would rely on her to protect the plaintiff’s interests. Ms Clonis indicated that she would “draw something up” but would need to talk to Kathy and explain it all to her before this was done, as Kathy was the registered owner of the property.

22 In addition, at this conversation, Sam made it known that “we own a restaurant at Fairfield which we are selling. We only need this money for a few weeks. No more than two months.” The amount of Paleena’s debt to the plaintiff was well in excess of $90,000 at this time. Mr Walker knew the restaurant in question and had visited it in the company of Sam and Bill on some occasions. These two men had given him to understand that they were in fact the owners of the restaurant. Obviously if the restaurant could be sold within two months and Paleena’s debt paid this would be a satisfactory solution to the problem created by the excess of indebtedness.

23 There was a further meeting at Ms Clonis’s office on Friday, 31 January 1997, at 12.30 p.m. On this occasion, according to Mr Walker, Kathy and Sabah were present together with Sam. Mr Walker presumed that Ms Clonis had had a prior meeting with Kathy, in which the circumstances of Paleena’s indebtedness to the plaintiff and the provision of a second mortgage to secure $90,000 of this indebtedness, had been discussed and agreed to. In any event, his evidence was that these matters were run over again at the meeting and that, indeed, conversations, which he had mistakenly ascribed to the first meeting in fact took place at the second.

24 These conversations were to the effect that Ms Clonis said to Kathy that the house was registered in her name and in Sabah’s, that it was proposed that “Len’s company” take a mortgage over the house to secure the money that he lends to Paleena. If there was default under the mortgage Len would be able to take possession of the house and sell it in order to get his money back. The subject of the sale of the restaurant was mentioned again, it being indicated that Ms Clonis understood that the sale “should be completed within two months”. In these circumstances there was no immediate need to stamp or register the mortgage and, thereby, incur further cost. The suggestion was made and assented to by all, that the mortgage should be signed but would be held by Ms Clonis on the basis that Mr Walker could at any time require that it be stamped for registration and a caveat placed on the relevant title, in order to protect the interests of the plaintiff as second mortgagee. Mr Walker accepted this suggestion by Ms Clonis as reasonable and arranged for the plaintiff to execute the mortgage on this basis. The execution by the company could not take place that day as he had not brought the company seal with him. He took the mortgage document away at the end of the meeting, had it sealed with the company seal and returned it promptly to Ms Clonis by prepaid mail, having photocopied the executed mortgage for his own records.

25 The original mortgage document has, apparently, been lost. Efforts by Carters Law Firm to find it have been unsuccessful. Ms Clonis left the firm in 1997 and, according to the evidence, was, at that time, unable to assist in establishing its whereabouts. Indeed, the whole file relating to this transaction appears to have been irretrievably lost, it being accepted in the litigation that efforts to locate it have been unsuccessful.

26 Mr Walker’s evidence as to the meeting of 31 January 1997 refers to his becoming aware, from conversation at the meeting, relating to the business of Paleena, that there was a further equipment lease between Sam, Bill and Esanda. Mr Walker had not previously been advised of this lease. He required that it and the equipment covered by it should also be transferred to Paleena. Sam said that this would be done. Ms Clonis said that she would take the necessary action to accomplish this transfer. She also stated that she had suggested that “Sam’s interest in the restaurant be transferred to Kath”. This was because Kath was concerned at giving a second mortgage over the house and, if she became the sole owner of the restaurant, she would be entitled to receive the proceeds of sale, in the amount of about $300,000, and would then be able to “ensure that Len receives his money.” Sam had previously told Mr Walker that the proceeds of sale would be about $300,000. At the time of the conversation Paleena owed the plaintiff about $200,000.

27 After he had returned the mortgage document to Ms Clonis, Mr Walker, on behalf of the plaintiff, continued to do business with Paleena, visiting the premises at Sefton on a regular basis. He continued the factoring of Paleena’s book debts and, from time to time would raise the question of Paleena’s financial position. He would enquire as to when the debt to the plaintiff would be reduced and would be told by Sam that there was no cause for concern and that the combined incomes of Paleena and the restaurant would enable commitments to be met; the restaurant was going well and they were holding out for their price, there being plenty of buyers interested.

28 Mr Walker was, nevertheless, somewhat concerned. On 25 March 1997 he had a telephone conversation with Ms Clonis of which he made a brief note. A copy of the note is annexed to his affidavit. The conversation is, in my view, an important one. It is convenient to state now that I regard the note as a genuine contemporaneous record of the conversation and corroborates that it took the following form:

“Len: “Have you dated the mortgage yet? I am concerned because I haven’t got my money and I haven’t heard any more about the sale of the restaurant. Do you know what is going on?’
Klonis: “I haven’t dated or stamped the mortgage yet. I haven’t transferred the equipment under the ESANDA lease to Paleena either. The lease on the restaurant has been transferred into Kath’s name.”

29 The reference to the transfer of the equipment under the ESANDA lease and the transfer of the lease of the restaurant into Kath’s name are important, in my view, as they tend strongly to corroborate that these matters were mentioned in the conversation of 31 January 1997. It is convenient, also, to state, at this point, that I am satisfied that Mr Walker had become concerned at a provision in the mortgage document, to which I shall make reference later. This was to the effect that the mortgage would only remain valid for two months from the date of its execution. He was concerned that Ms Clonis might be “conning” him and had dated the mortgage with the result that his security might be treated as having expired. I am satisfied that it had never been his intention to enter into a mortgage which would simply expire according to its terms, two months from its date of execution. He had been prepared to allow two months for the sale of the restaurant and payment to the plaintiff in full of the outstanding debt, during which time the mortgage could be held in escrow. I shall return to this matter later in these reasons.

30 A few weeks later, Mr Walker ascertained that Ms Clonis had left her employment with Carters Law Firm. He spoke to her at her new place of employment and ascertained that the file was still with Carters. Further enquiries indicated that the file was apparently missing and the original document could not then be found. Mr Walker had, of course, his photostat copy.

31 Mr Walker continued to deal with Sam and Bill and the debt to the plaintiff increased. He was advised that the business was to be moved to new premises at Peakhurst. He was, at first, concerned about the move but when he inspected the new premises he was satisfied that they were much more suitable for a car repair business than the premises at Sefton had been. He anticipated that the business would grow in the new premises and that his factoring of Paleena’s debts, with a higher interest rate allowance, together with the plaintiff’s floating charge over Paleena’s assets and the mortgage over the Guildford property, which could be activated by its being dated and registered, provided him with sufficient financial protection. However, the business was not, in fact, doing well, and, in March 1998, Mr Walker was informed by letter that a liquidator had been appointed to Paleena on 6 January, 1998. This led to Mr Walker instructing his solicitors to lodge a caveat over the title to the property and ultimately to take these proceedings.

32 I now turn to the version of events given by the defendants.

33 Kathy, who at all relevant times has been employed as a pharmacy assistant, stated that in late 1996 she became interested in purchasing the restaurant business in question, which was known as the El Roche Reception Lounge. This was the same business conducted in the same premises as had been visited by Mr Walker in circumstances already referred to, where he was given to understand that it was owned by Sam and Bill, although later conversations would have suggested that Kathy also had a part interest. As things turned out, the legal owner of this restaurant was the same Tony Barakat, who was the legal owner of Paleena.

34 According to a document tendered in her case Kathy purchased the business by an agreement dated 25 March 1997 for $20,000, the completion date being six weeks from that date. The agreement indicates that Carters Law Firm acted for her on this purchase.

35 She says in her affidavit that she discussed her business plan with Sam and needed about $90,000 to fund renovations of the business premises. Sam suggested that she speak to Mr Walker about these financial needs. This discussion, apparently, took place in late 1996. Thereafter Sam told her that he had organised a conference with Ms Clonis and that he and Mr Walker would meet her there. Kathy gave evidence, which was vague and imprecise, that round about this period her relationship with Sam was under strain. It is not clear whether they were then co-habiting. She says, however, that she accepted his suggestion and that “we went to Ms Clonis because she had previously acted on the purchase of the house… and was also acting…on the purchase of the reception lounge.”

36 She says that on 31 January 1997, by arrangement, she went to the office of Carters Lawyers and that, on arrival, she saw Sam and Mr Walker standing outside the building. She had not met Mr Walker previously. She walked inside the building and, whilst so doing had a conversation with Mr Walker in the following terms:-

“Kath: “I hope you can get the $90,000, because I will be taking over the reception soon.”
Len: “It should be fine, I don’t think there will be any problems”.
Kath: “I hope not, the reception needs a lot of work”.
Len: “It should be fine, I just need a little time”.

37 Kathy says that Sam did not accompany them into the building and was not present at the conversation with Ms Clonis. Mr Walker denies the conversation with Kathy, denies any antecedent conversation with Sam relating to the proposed renovation loan, and asserts that Sam was present at the conversation with Ms Clonis. Sam has not been called to corroborate Kathy’s version. It was indicated during the course of the case that he would be called. This did not occur. No explanation was given as to his absence, except suggestions made by Kathy and Sabah, that they did not know where he was, explanations which I am not prepared to accept. Kathy continued, in her affidavit, by stating that whilst they were waiting to see Ms Clonis she said to Mr Walker that he would be the first to be invited to the restaurant once the renovations were finished and that Mr Walker responded that that was very good of her. He denies this conversation.

38 Kathy continues that when she and Mr Walker entered Ms Clonis’s office, Ms Clonis said to Mr Walker “You must be Mr Walker” to which he replied “Yes I am”. This conversation is denied by him. Ms Clonis has not been called. The conversation is only consistent with Ms Clonis not having met Mr Walker previously. I am satisfied that she did so in late December or early January, on the occasion which I have already referred to.

39 After they were seated in Ms Clonis’s office, according to Kathy, her brother-in-law Sabah came into the office, was introduced all round, and sat down next to her. She says that Ms Clonis advised Mr Walker that she shouldn’t really act for him and that he should have his own solicitor, to which, it is said, Mr Walker replied that he would worry about his own solicitor “when the money is ready”. Kathy then states that Ms Clonis said to her words to the effect: “This is the mortgage document, you will need to sign it, but it won’t be dated and registered until you receive the money, if you don’t receive the money within two months, the mortgage will have no effect”.

40 Kathy said, as I apprehend her evidence, that her understanding was that if the $90,000 was not made available to her by Mr Walker within two months that the mortgage would not be proceeded with.

41 The document was signed by herself and Sabah and was taken away by Mr Walker for the purpose of the company seal being imprinted on it. Kathy says that, after she bought the business in late March 1997 and settled in early April 1997, because of marital problems, she and Sam separated in about the middle of April. She did not receive the $90,000 from the plaintiff and she did not pursue the matter. As I understand her evidence, she was of the view that the mortgage only became operative if and when she received the advance. The money never came through; consequently there was no mortgage and no obligation in respect of the $90,000, referred to in it.

42 Although she exhibited some confusion in relation to the reason for the inclusion in the document of a two month period, she gave the following evidence in re-examination, in response to questions from her own counsel:

“Q. Right, so if the money didn’t come through in two months what was gong to happen to the document?
A. Just going to get rid of it. I don’t know what they do with documents they don’t use.
Q. Is that your understanding of why the two months was there?

A. That’s right.”

43 She denied having any discussion with Ms Clonis before the meeting of 31 January 1997. As far as she was concerned her husband Sam had made all the arrangements. When she arrived at the meeting the document constituting the mortgage of her home was on the solicitor’s table awaiting her signature. The figure of $90,000, included in it, being the amount required for renovation of the restaurant, was simply an estimate of the amount that was needed. No quotation had been obtained. She herself, had had no experience in interior design or the costing of such work.

44 There are, thus, two totally conflicting versions of the purpose for which the mortgage document was brought into existence and signed on 31 January 1997. The plaintiff, of course, bears the onus of establishing its case, namely that the true agreement between the parties was one for securing, as to $90,000, the indebtedness of Paleena to the plaintiff. The plaintiff’s case was based, to a large extent, upon Mr Walker’s evidence as to the conversations he had with Sam in late 1996 and the discussion with Sam and Ms Clonis which, on his case, resulted in Ms Clonis preparing the mortgage document. It is plain that if the true purpose of Ms Clonis’s preparation of the document was as alleged by the defendants, then that purpose would have been discussed between Mr Walker and Sam and also with Ms Clonis in the first discussion. As already indicated, neither was called.

45 In my view, although Sam and Kathy were alleged to have become estranged, I, nevertheless, consider that he should have been a significant witness for the defendant. It was clearly proposed that he be called on their behalf. So much appears from the transcript of what the defendant’s counsel said during the hearing. However, this was not done and, in my view, no acceptable explanation has been proffered for his absence from the case. I consider that I should draw the inference that his evidence would not have assisted the defendants. I have come to the same view in relation to the absence of Ms Clonis. She was the solicitor for Sam and Kathy. I am satisfied that Mr Walker sought her assistance only because he was requested to do so by Sam, for the purpose of saving expense in relation to their costs for the preparation of the mortgage. She acted in relation to the purchase of the home by Kathy and also in relation to the purchase of the restaurant business and the necessary leasing arrangements. In my opinion she was far more identified with the defendant’s interest in this litigation than with the plaintiff’s. If the instructions she had received were to draw up a mortgage document to provide a security for an actual advance of $90,000 for the purpose of meeting renovation expenses for the business that Kathy was contemplating purchasing in March, then she could readily have given evidence to this effect. Such evidence from an officer of the Court would have been most significant. Her unexplained absence from the witness box compels an inference, in my view, that her evidence would not have assisted the defendants.

46 Quite apart from these considerations, I have had the opportunity to consider both Mr Walker and Kathy as witnesses. I have had the same opportunity in relation to Sabah. All three gave oral, as well as affidavit evidence, and were cross-examined. I formed the view that Mr Walker was a generally reliable witness. He was, at times, hazy and imprecise in his recollection. He was undoubtedly confused about the presence of the defendants at the first conversation in Ms Clonis’s office. However, his acknowledgement of the incorrectness of his affidavit in this regard and his immediate correction of this mistake in his sworn oral testimony was, in my opinion, indicative of the general honesty of his evidence. Having regard to the two diametrically opposed versions in this case, nothing really turns upon minor areas of imprecision in his recollection. The mortgage was either entered into for the purpose that he claims or for the purpose asserted by the defendants. Mr Walker was vigorously cross-examined on the thesis that the mortgage had come into existence for the defendants’ purpose, that it had simply not been proceeded with, and, after the liquidation of Paleena, it was seized upon by Mr Walker for the purpose of promoting, in effect, a fraudulent claim. Mr Walker maintained his position throughout this cross-examination. I consider that he was a truthful witness, upon the general effect of whose evidence reliance could be placed.

47 The evidence of Kathy and Sabah did not divert me from this view. I was not impressed by their evidence. So far as Sabah is concerned, his very appearance at and involvement in the proceedings relating to the mortgage is mysterious. There was no apparent basis upon which he should have executed the document as mortgagor. He had no interest in the title to the property. I was unimpressed by his assertion that he did not know where his brother lived, although he saw him with some regularity. Nor was I impressed with his statement that he was unaware that his brother had been declared bankrupt. Although his evidence lends some support to the version that the purpose of the mortgage was to provide security for a loan of $90,000 to Kathy in order to renovate a restaurant, I must take into account that he was Sam’s brother and Kathy’s brother-in-law. I was not particularly impressed with his demeanour in the witness box. I have decided that the weight of his evidence is not such as to prevent me from accepting the evidence of Mr Walker.

48 I found the evidence of Kathy particularly unimpressive. Whilst making, I trust, all due allowances, I was not satisfied that she appeared to be a truthful witness. Moreover, there were aspects of her evidence which were quite unconvincing. She claimed that her husband, Sam, was, by reason of marriage problems, not living with her in January 1997. Nevertheless, it was he who made all the arrangements for her to borrow from the plaintiff, through Mr Walker, the amount of $90,000 for the renovation of a restaurant which was not to be acquired by her until mid April. It was he who arranged the meeting with Ms Clonis at which she was to attend and sign a document, which had not even been discussed with her. All this was to take place in circumstances where her estranged husband had no interest in the property she was mortgaging, nor in the restaurant that she was intending to purchase. She had never met Mr Walker nor heard of his finance company. Indeed, Sabah, according to his evidence, understood from her that she was borrowing money from a bank. She could advance no reason why a finance company would lend her $90,000 without interest, as appeared from the mortgage document she signed.

49 She had never heard of Barakat, the man who fortuitously owned both Paleena and also the restaurant she was purchasing. She did not know that he was a business associate of her husband. She did not know that her husband worked in the smash repair business or that he had a partner, Bill Ghattis. She had never heard of Bill or known of his existence. It is not clear why she, a pharmacy assistant, wanted to purchase a reception lounge restaurant, even though it operated only on week-ends. The purchase price would appear to be at a significant under-value. It was paid to Barakat in circumstances which suggest that, although he had the legal title to the restaurant, he might not, in truth, have been the beneficial owner. During the period of four years that Kathy allegedly owned the restaurant business, no books of account were kept and all operations, including payment of wages, were conducted, she says, for cash. Her evidence as to her purchase and operation of the business in her own name does not carry conviction.

50 I accept the evidence of Mr Walker that he was told both by Sam and Bill at an earlier stage that they owned the restaurant and that, later in 1997, they were intending to sell it for a good price, that they would have no difficulty in achieving. Barakat could have cast light upon the question of the interest, if any, of Sam, Bill or Kathy in the restaurant, its operations, and whether there was a genuine sale to Kathy. He was not, however, called by the defendants, although the affidavit evidence of Mr Walker would have indicated that issues of this kind might well arise.

51 In addition, to these considerations there is, of course, the inherent unlikelihood that, having regard to the state of indebtedness existing between Paleena and the plaintiff in January 1997, Mr Walker would have contemplated advancing a further $90,000 to the Samans.

52 I am quite satisfied, on the balance of probabilities, that the plaintiff’s version of the financial arrangements to be entered via the projected mortgage is correct. I am also satisfied that the defendants’ version should not be accepted and that at all relevant times the defendants were aware of the real purpose of the proposed transactions, namely to provide further security to the plaintiff in respect of Paleena’s indebtedness.

53 In reaching this conclusion I have not failed to take into account that there were many amendments to the plaintiff’s statement of claim throughout the currency of these proceedings. It was submitted on behalf of the defendants, that these amendments indicated such uncertainty on the part of the plaintiff as to its claim, as to render Mr Walker’s evidence incredible. I am not prepared to accept this submission. I formed the view that Mr Walker was a credible witness and that the difficulties in relation to the various statements of claim reflect problems on the part of his legal advisers in properly formulating it. I am satisfied that Mr Walker placed faith in his advisers in this regard, as he did in Ms Clonis, in relation to the preparation of the mortgage. Difficulties created by them in the process of attempting to carry out their tasks do not, in my opinion, in the circumstances of this case, reflect upon the credit of Mr Walker, nor upon his case as it has been presented to me. That claim is set forth in the Third Further Amended Statement of Claim, which was filed in Court during the hearing. The cause of action relied upon is to be found in the following paragraphs of this document:-

“2A. By oral agreement made on 31st January 1997 between the plaintiff and the first and second defendants, the plaintiff agreed to continue to support the indebtedness of a company called Paleena Holdings Pty Ltd and to advance further funds to Paleena in return for the first and second defendants covenanting to pay the sum of $90,000 secured by a mortgage over the property referred to in paragraph 2 above.
2B. It was a further term and condition of the agreement referred to in paragraph 2A that the covenant to pay the sum of $90,000 in the mortgage would be enforceable from the date on which the plaintiff gave notice to the mortgagors’ solicitor that the mortgage be dated, stamped and registered.
2C. It was not a term or condition of the oral agreement referred to in paragraph 2A that the mortgage would be only valid for two months from the date of execution.
3. On or about 31st January 1997 the first and second defendants and the plaintiff executed a mortgage, incorporating registered memorandum number Q8600000, which was intended to embody the agreement made between them as set out in paragraphs 2A to 2C above.
9A. The plaintiff gave notice to the mortgagor’s solicitor that the mortgage be dated, stamped and registered:
(a) on or about 25 March 1997;
(b) alternatively, on 16 August 2001;
(c) alternatively, on 13 November 2001.
9B. In breach of the agreement set out in paragraphs 2A to 2C above, the first and second defendants have failed to pay the sum of $90,000 payable to the plaintiff.”

54 The matter referred to in paragraph 2C is the subject of a claim for rectification of the mortgage, in so far as the plaintiff contends that it did not form any part of the agreement between the parties. I shall refer to this question shortly.

55 I am satisfied that the matters pleaded by the plaintiff in paragraphs 2A and 2B set out above have been established. I consider that these matters were explained by Ms Clonis to the defendants at the meeting of 31 January 1997 and, on the probabilities, had been explained to Kathy by Ms Clonis on a previous occasion. The fact that the mortgage was to be held in escrow and not stamped, dated and registered was to give effect to the desire of the parties that the defendants be spared the expense involved, in circumstances where the whole mortgage might prove to be unnecessary because Paleen’s indebtedness would be paid in full from the proceeds of sale of the restaurant, it being anticipated that payment would take place within a reasonable time from 31 January 1997.

56 The claim for rectification of the mortgage document is set out in paragraph 11A of the statement of claim. It reads as follows:-

“11A. Further and in the alternative, the mortgage referred to in paragraph 3 above was executed by the plaintiff and the first and second defendants in the belief that it embodies the agreement set out in paragraphs 2A to 2C above, but it does or may in fact not embody the said agreement.

Particulars

Whereas the parties had orally agreed that the mortgage would be enforceable from the date on which the plaintiff gave instructions that the mortgage be dated, stamped and registered the mortgage document provided that “the mortgage is only valid for two (2) months from the date of execution thereof”.
11B. The said mortgage was drawn up and signed under a mistake of fact.”

57 The mistake of fact referred to is claimed to be a mutual mistake of the parties. In dealing with this aspect of the plaintiff’s claim it is necessary, now, to refer to the mortgage document.

58 The contentious portions of the mortgage document are to be found in its annexure “A”. The relevant portions read as follows:-

“FOR THE CONSIDERATION AFORESAID the Mortgagor hereby:-
(a) …..;
(b) covenants with the Mortgagee as follows:
(i) the Mortgagor will pay to the Mortgagee the principal sum of NINETY THOUSAND DOLLARS ($90,000), or so much thereof as shall remain unpaid on the day of 1997;

(c) The parties hereto agree that there is no interest payable on the abovementioned principal sum;
(d) The parties agree that the mortgage is only valid for two (2) months from the date of execution thereof.”

59 It is plain that these paragraphs do not reflect Mr Walker’s intentions as to the arrangements he had in contemplation. I am quite satisfied that he never intended that the mortgage would, by its own terms, expire either two months from 31 January 1997, the date on which it was signed, or two months from the date upon which he gave instructions for its dating and registration. It is inconceivable that a person administering a finance company would deliberately enter into a document which provided for the automatic extinction of a security after a passage of two months. It is apparent, of course, that Mr Walker came to think that he might have so committed the plaintiff. Hence his concern that he might be “conned” by unauthorised dating of the instrument. As indicated, however, I am satisfied that this concern did not reflect any initial agreement on his part that the mortgage contain such a “sunset” provision.

60 The plaintiff, of course, must discharge the onus of establishing that rectification should take place. The onus is a high one but requires no more than the ordinary civil standard of proof. Obviously, the onus can be more readily discharged where the defendant, although not conceding the accuracy of the plaintiff’s contention as to the true agreement between the parties, nevertheless, does not assert that the written document truly reflects his or her own assertion as to the correct position. In the present case Kathy, in her evidence, does not support paragraph (d) as being a true reflection of her intentions. Although, as I have already indicated, there is some confusion in her evidence, it is apparent that the arrangement she basically asserted was that, if no advance of $90,000 was made to her within two months of the date of signing of the mortgage document, then the mortgage was to be of no effect, in the sense that it would never come into operation at all. It is, however, apparent that the parties accepted a period of two months as having some significance in their agreement. Having regard to the blanks left in paragraph (b), it is both logical and reasonable to accept that the two month period should have been contemplated by the parties as relating to the period allowed for payment of the $90,000 in the event that the mortgage should become operative by the plaintiff’s requiring that it be dated, stamped and registered. As I have accepted the version of the relevant conversations advanced by Mr Walker, I am satisfied that the parties had a mutual understanding that these instructions would be given only if Paleena’s indebtedness were not discharged within a reasonable time, through the sale of the restaurant.

61 I am also satisfied that the requirement as to non-payment of interest on the principal sum, as a matter of construction, was to apply only in so far as the sum was paid before the expiration of two months from the giving of those instructions.

62 I therefore consider that it is appropriate that the document be rectified. I also accept that it should be rectified in the manner sought by the plaintiff in its final statement of claim, to give effect to the true agreement between the parties.

63 I shall order that the document be so rectified.

64 There remains for consideration the question whether and, if so, when the appropriate instructions for dating, stamping and registration have been given. If they have and the relevant period of two months has elapsed, then a breach of the covenant, as rectified, such rectification, of course, dating back to the time of signing of the mortgage, has occurred. As set out above, three possible dates have been postulated in the final statement of claim. The evidence does not satisfy me that Mr Walker gave positive instructions to this effect in his conversation with Ms Clonis on or about 25 March 1997. However, I am satisfied that the letter from his solicitors to the defendants’ solicitors of 16 August 2001 sufficiently satisfies this requirement. The covenant was, accordingly activated on that date. The principal sum of $90,000 was not repaid at the expiration of two months from that date, with the result that the plaintiff is entitled to a verdict for the sum of $90,000 together with interest in accordance with the Supreme Court Rules from the 16 October 2001, which amounts, in round figures, to $1,500.00.

65 The cross-claim was not persisted in. In any event, the plaintiff was justified in placing the caveat on the title to the property. The cross-claim must be dismissed.

66 Accordingly, I make the following orders:-

1. The mortgage executed by the parties on 31 January 1997 be rectified as follows:-

(i) Paragraph (b) of Annexure “A” be deleted and there be substituted:

“(b) The Mortgagor will pay to the Mortgagee the principal sum of Ninety Thousand Dollars ($90,000), or so much thereof as shall remain unpaid, on the day being two (2) months from the date in which the Mortgagee gives instructions that the mortgage be dated, stamped and registered.”

(ii) Paragraph (d) of Annexure “A” be deleted and there be substituted:

“(d) The parties agree that the mortgage will be enforceable from the date on which the Mortgagee gives instructions that the mortgage be dated, stamped and registered.”


2. There be a verdict for the plaintiff against both defendants in the sum of $91,500.00.

3. The cross-claim be dismissed.

4. The defendants pay the plaintiff’s costs of the claim and cross-claim.

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Last Modified: 12/21/2001