Paratei Pty Ltd v ING Bank (Australia) Limited; Sparks v Battaglia - [2015] NSWSC 1368

Supreme Court

New South Wales

Medium Neutral Citation: Paratei Pty Ltd v ING Bank (Australia) Limited; Sparks v Battaglia [2015] NSWSC 1368
Hearing dates: 24 and 25 November 2014, 13, 14, 15 and 16 July 2015
Date of orders: 17 September 2015
Decision date: 17 September 2015
Jurisdiction: Equity
Before: Darke J
Decision:
Cross claims by guarantors and mortgagors dismissed. Orders to be made for possession of mortgaged properties. Judgments to be entered against guarantors and mortgagors.

Catchwords:
EQUITY – unconscionable conduct – guarantees and mortgages given by shareholders in support of debts of companies – whether special disability by reason of lack of involvement in management of companies and lack of knowledge or explanation of transactions – some of guarantees and mortgages executed under power of attorney – whether unconscionable of lender to enforce guarantees and mortgages

BANKING AND FINANCE – unconscionable conduct in connection with financial services – guarantees and mortgages given by shareholders in support of debts of companies – whether conduct of lender unconscionable in circumstances due to lack of knowledge or explanation of transactions – some of guarantees and mortgages executed under power of attorney – Australian Securities and Investments Commission Act 2001 (Cth), s 12CB
CONTRACTS – unjust contracts – guarantees and mortgages given by shareholders in support of debts of companies – whether contracts unjust in circumstances due to lack of knowledge or explanation of transactions – some of guarantees and mortgages executed under power of attorney – Contracts Review Act 1980 (NSW), ss 7,9
Legislation Cited: Contracts Review Act 1980 (NSW) ss 7, 9
Australian Securities and Investments Commission Act 2001 (Cth) s 12CB
Cases Cited: Bakarich v Commonwealth Bank of Australia [2007] NSWCA 169;
Blomley v Ryan (1956) 99CLR 362;
Canty v Paperlinx Australia Pty Limited [2014] NSWCA 309;
Commercial Bank of Australia v Amadio (1983) 151 CLR 447;
Kakavas v Crown Melbourne Ltd (2013) 250 CLR 392; [2013] HCA 25;
Provident Capital Limited v Papa (2013) 84 NSWLR 231; [2013] NSWCA 36;
Spina v Permanent Custodians Limited [2009] NSWCA 206;
Taheri v Vitek [2014] NSWCA 209;
Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389
West v AGC (Advances) Limited (1986) 5 NSWLR 610;
Category: Principal judgment
Parties:
2013/231527
ING Bank (Australia) Limited (first cross claimant/defendant to second cross claim)
Florentina and Stefano Battaglia (sixth and seventh cross defendants; second cross claimants)
2014/100650
Grant Sparks, Michael Owen and Stephen Parbery (plaintiffs/cross defendants)
Florentina and Stefano Battaglia (defendants/cross claimants)
Representation:
Counsel:
Mr D Savage QC, Mr J White (ING Bank and the receivers)
Mr D Murr SC, Mr R Freeman (Florentina and Stefano Battaglia)
Solicitors:
Gadens Lawyers (Brisbane) (ING Bank and the receivers)
Forbes Dowling Lawyers (Florentina and Stefano Battaglia)

File Number(s): 2013/231527; 2014/100650
Publication restriction: None

Judgment

Introduction

This matter involves two separate proceedings that were heard together.
The first proceeding (2013/231527) was commenced by Paratei Pty Limited and others against ING Bank (Australia) Limited (“the Bank”). The plaintiffs are four companies associated with the Battaglia family, together with Domenico Battaglia and his parents, Florentina and Stefano Battaglia. Numerous claims for relief were made, including claims that certain mortgages and guarantees taken by the Bank were liable to be set aside. The Bank filed a cross claim seeking monetary judgments against each of the plaintiffs (and a further family company Base Group Development Pty Limited). Florentina and Stefano Battaglia filed a second cross claim by which they sought orders setting aside certain guarantees and a mortgage over a property they own in Bulls Road, Burraneer. On 24 October 2014 the Statement of Claim was dismissed by Rein J, and judgment was given in favour of the Bank against each cross defendant other than Florentina and Stefano Battaglia. The balance of the proceedings, being the Bank’s cross claim against Florentina and Stefano Battaglia, and their cross claim against the Bank, remained to be determined.
The second proceeding (2014/100650) was commenced against Florentina and Stefano Battaglia by Messrs Sparks, Owen and Parbery. They are receivers and managers appointed by the Bank pursuant to a mortgage over a property in Broadbeach, Queensland, owned by Florentina and Stefano Battaglia. Possession of the Broadbeach property is sought. Florentina and Stefano Battaglia filed a cross claim seeking to set aside the mortgage over the Broadbeach property and the guarantees sought to be enforced against them.
The essential claim made by Florentina and Stefano Battaglia is that it would be unconscionable for the bank to enforce the mortgages over the Burraneer and Broadbeach properties and the guarantees that were entered into by Mr and Mrs Battaglia in December 2008, November 2009 and June 2011. Statutory claims to a similar effect are made pursuant to the Contracts Review Act 1980 (NSW) and s 12CB of the Australian Securities and Investments Commission Act 2001 (Cth). A promissory estoppel claim is also made in relation to the mortgage over the Burraneer property. It is alleged that Florentina Battaglia agreed to give the mortgage on the basis of an assurance given by an officer of the Bank that the mortgage would be released once certain units in a development at Surfers Paradise had been sold. It is contended that in circumstances where such units were in fact sold, the Bank is estopped from seeking to enforce its rights under the mortgage.
There is no dispute that the Bank is entitled to succeed on its claims, save to the extent that Florentina and Stefano Battaglia establish that they are entitled to be relieved against enforcement of the guarantees and mortgages.

Background

Stefano Battaglia was born in Calabria, Italy in 1936. He is now 79 years of age. He learnt English when he came to Australia in 1956, but he says that he cannot read English well. He deposed that he can recognise numbers and most names but cannot read long or complex sentences.
Florentina Battaglia was born in Lima, Peru in 1949. She is now 66 years of age. She came to Australia in 1971, and met Stefano Battaglia later in that year. Mr and Mrs Battaglia have a daughter, and twin sons Domenico and Bruno, born in December 1973.
Mr Battaglia began working with his brother doing concreting and plastering work in about 1963. Later, he bought blocks of land and developed them by building home units on them. For that purpose Base Constructions Pty Limited (initially known as Battaglia Investments Pty Ltd) was incorporated in 1973. Mr and Mrs Battaglia have been directors of the company throughout. They are also shareholders in the company, along with Base Group Development Pty Ltd (which holds its shares as trustee for a family trust known as the Paeroa Unit Trust). Florentina Battaglia worked in the company office, primarily dealing with correspondence and accounts, whilst Stefano Battaglia was involved in the construction side of the business.
In 1981, Paratei Pty Limited was incorporated to undertake property development. Since at least 1990, both Mr and Mrs Battaglia have been directors of Paratei Pty Limited. They hold all of the shares in the company. Also in 1981, Base Group Development Pty Ltd (initially known as Paeroa Pty Ltd) was incorporated. Mr and Mrs Battaglia have been directors of Base Group Development Pty Ltd throughout. They hold all of the shares in the company.
In August 1986 Stefano Battaglia suffered severe injuries in a car accident. He deposes that, as a result of the accident, he suffers from problems with both his short term and long term memory. It appears that after the accident, Stefano Battaglia was no longer able to undertake physical work. From about the late 1980s he began to spend more of his time in Argentina, where members of his family lived. In 1993 Florentina Battaglia and the children went to live in Argentina for a few years. Florentina Battaglia then returned to Australia to live, although she occasionally spent periods of time in Argentina. The sons, Domenico and Bruno, also returned to live in Australia.
Companies associated with the Battaglia family first obtained finance from Mercantile Mutual (a predecessor of the Bank) in 1993. From that time, numerous financial transactions were entered into between those companies and the Bank (or its predecessors). In many of those transactions, the relevant documents were executed by attorneys acting under powers of attorney. A brief summary of the financial dealings up to about mid-2008, as is apparent from the documents tendered in evidence, is set out below.
In July 1993 Base Constructions gave a mortgage over certain property in Abbotsford in favour of the trustee of the Mercantile Mutual Mortgage Fund in connection with a borrowing of $1.5 million. As part of the same transaction, Mr and Mrs Battaglia entered into a Deed of Guarantee and Indemnity. When the loan was due for repayment in 1996, the period of the loan was extended to September 1997.
In September 1997 Base Constructions refinanced the loan. The loan amount was increased to $2.5 million. It is apparent that the additional $1 million was to be used to assist in the purchase of the Burraneer property (described in the letter of offer as “a waterfront residence at Cronulla”). The loan was repayable in three years. Again, Mr and Mrs Battaglia entered into a Deed of Guarantee and Indemnity. At the same time, Mr Battaglia executed a General Power of Attorney in favour of Mrs Battaglia and Bruno Battaglia. In October 1997 Base Constructions gave a mortgage over the Abbotsford property, and Mr and Mrs Battaglia gave a mortgage over the Burraneer property, in favour of ING Mercantile Mutual Bank Limited.
In November 2000, the $2.5 million loan was renewed and extended for a further five year period. It appears that by this time the Burraneer property was no longer required as security for the loan. I assume that the mortgage over the property was discharged.
In about July 2002 Base Constructions accepted offers from the Bank for further loans of $200,000 (to provide for personal expenses) and $300,000 (to provide for a short term cash advance).
In about August 2002 Paratei accepted an offer from the Bank for a loan of $9,325,000 to finance construction of a residential unit development at Labrador in Queensland. In September 2002, Mr and Mrs Battaglia, amongst others, executed a Guarantee and Indemnity in respect of the obligations of Paratei to the Bank. Also in September 2002, Paratei accepted an offer from the Bank for a further loan of $4,500,000 to refinance an existing facility with the Commonwealth Bank. In November 2002 Mr and Mrs Battaglia, amongst others, executed a Deed of Affirmation by Guarantors in connection with the further loan of $4,500,000.
In June 2004 Base Constructions accepted an offer from the Bank for a $500,000 cash advance facility (to allow for future investment or acquisitions).
In October 2004 Paratei accepted an offer from the Bank for a $500,000 cash advance facility (to assist with upgrades to remaining units within the recently completed project at Labrador).
In March 2005 Base Constructions accepted an offer from the Bank for a new facility of $3 million to consolidate its existing facilities.
In November 2005 Paratei accepted an offer from the Bank for a $500,000 cash advance facility (to provide working capital).
In March 2006 Base Constructions accepted an offer from the Bank to increase the amount of its existing facilities to $3,300,000. In August 2006 Base Constructions accepted an offer from the Bank to restructure its existing facilities and increase their total amount to $4,300,000. In December 2006 Base Constructions accepted an offer from the Bank to further increase its facilities to $4,400,000. Also in December 2006, Paratei accepted an offer from the Bank to increase its existing facilities to a total amount of $6,800,000. That facility was to be repaid by 28 November 2008 or such later date as the Bank agreed.
In May 2007 Base Constructions accepted an offer from the Bank to increase its existing facility to an amount of $4,650,000. That facility was to be repaid by 1 December 2011 or such later date as the Bank agreed. In the following month, the facility was reduced to $4,400,000 following the sale of the mortgaged property at Abbotsford. The net proceeds of that sale exceeded $10.7 million. The Bank retained $4,400,000 out of the proceeds of that sale in a deposit account which henceforth formed part of the security for the facility.
By August 2008 Paratei had accepted offers from the Bank for further facilities totalling an additional $1.25 million. Of that amount, $750,000 was to be repaid by 28 November 2008 or such later date as the Bank agreed. These additional facilities were connected with a development site owned by Base Constructions in Vista Street, Surfers Paradise, known as the “Era” site.
Accordingly, by August 2008 Paratei had facilities with the Bank for a total amount of $8,050,000, and Base Constructions had a facility for a total amount of $4,400,000. The security for the Paratei facilities included a mortgage over 39 units owned by the company in a development at High Street, Southport known as “Signature on High”. The security for the Base Constructions facilities included the security deposit in the amount of $4,400,000.
It is clear that on dozens of occasions in the period from about August 2006 to about August 2008, Florentina Battaglia gave written authority to the Bank to transfer significant sums between accounts maintained by the companies associated with the family. The sums ranged from relatively small amounts of $5,000 up to amounts in excess of $300,000, and as high as $362,000.

The transactions in December 2008

The first of the impugned transactions occurred in December 2008 when Base Constructions entered into a new facility with the Bank for $4.4 million. The new facility entailed altered security arrangements. The security required for the new facility included a mortgage over the Burraneer property, and guarantees to be given by Mr and Mrs Battaglia. The mortgage and the guarantees are sought to be set aside.
It is apparent that in the months prior to these transactions, there were numerous communications between Domenico Battaglia, who described himself as the Managing Director of Base Group Developments Pty Limited, and Timothy McCabe, a Senior Manager of the Bank, concerning the business plans and funding requirements of “Base Group”.
Domenico Battaglia had been a Director of Base Constructions since March 1995, and a Director of Paratei and Base Group Development since August 2002. Bruno Battaglia had also been a Director of Base Constructions since March 1995, and a Director of Paratei and Base Group Development since October 1992. Neither of the sons held shares in any of those companies.
On 16 May 2008 Domenico Battaglia sent a letter to Mr McCabe which included the following:

Further to our recent discussions, this letter is to confirm that we will present a Portfolio Plan to ING relating to the properties Base Group holds on the Gold Coast. A central component of this Plan is the development of the “Era” project.
Currently, Base Group has loans of $13.15 million with ING with no land security but offset by a term deposit of $4.5 million. This letter is to confirm that plans for “Era” will be activated in June and Base Group is now prepared to offer security over the site……
It should be noted that negotiations are underway to sell a share of the “Era” site to a joint venture partner and this letter is to confirm that the current debt will be retired once this sale is finalised.
Base Group will then discuss other projects with ING as per the portfolio plan, and the future funding of the “Era” project will be negotiated by the joint venture partners.
We look forward to discussing the preparation of interim security documentation with you in the near future and also setting a date in early June for discussion about the total Portfolio Plan for the Gold Coast properties.

Domenico Battaglia sent a further letter to Mr McCabe on 3 June 2008 which stated:

Further to our letter of 15 May [sic] to Tim McCabe we request a reply from ING on the following proposal:
Base Group will be commencing marketing of the Era site in June 2008. The property will be offered for sale with existing Development Approvals and the vendors will consider all options from retaining an interest in the property or selling outright.
ING will take acceptable security over the property……
Cash flow from the High Street property will be retained by Base Group.
Base Group will draw down from the current deposit of $4.5 million to restructure to [sic] business in line with family objectives.
Your feedback on this proposal would be appreciated. If acceptable, it is proposed that the security documentation would be completed by the Directors as soon as it is available for signing.

Following a meeting between Domenico Battaglia and Mr McCabe, Domenico Battaglia sent a further letter to Mr McCabe on 10 June 2008 in the following terms:

Thanks for the meeting on Friday. We are now well on the way to achieving our planning timetable for our properties on the Gold Coast.
We have now briefed Colliers and will be receiving a marketing proposal this week for the Vista St site. Once we have agreed on the format, we will proceed with a target of reviewing offers and/or expressions of interest at the end of August. We will consult with ING regarding the decision on the site during this process.
We are prepared to review our security position with ING as per our previous correspondence. Please direct any enquiries direct to me regarding progress on our plans or ongoing finance arrangements. I will then communicate with the other family members. It is critical that we have one point of contact through the next 6 months as we manage our development plans.
With regard to our deposited funds with ING, we want to immediately draw $500K to finalise a number of family transactions prior to the end of the financial year. Our intention is to have all outstanding issues dealt with by 27 June so that this draw down needs to be processed this week. Your assistance with this would be appreciated.

On 13 June 2008 the Bank wrote to the Directors of Paratei offering to provide a $500,000 cash advance, repayable within a year, to assist with a marketing campaign for the Era development. One of the conditions of the offer was:

Borrower is to provide by no later than 30 June 2008 a full and satisfactory strategy paper in respect of the Base Group’s property interests and in particular the proposed Vista St “Era” asset.

The offer was accepted. Florentina Battaglia signed the acceptance as a Director of Paratei and also as Director of Base Group Development Pty Limited.
It is not clear whether a strategy paper was provided in accordance with the condition of the offer of finance. It appears, however, that an Overall Strategic Position document of Base Group Developments was presented to the Bank in about November 2008.
On 11 November 2008 Bruno Battaglia sent a letter to Mr McCabe. The letter included the following:

As already discussed this letter is to outline the next step regarding Base Strategy 2009 onwards.
The family and I have worked very hard in the last six months to map out the future of our development company and our existing property portfolio. We also wish to confirm with you and the ING team how happy and proud we are to be associated with ING over many many years and how excited we are to be working more closely with you in the coming year.

As you are aware from our many discussions over this year and especially the last few months, the family seeks to take advantage of the current economic climate and create lines of credit available using our other existing properties and their debt free status, to seek and acquire distressed sites at very low prices therefore building upon our very strong property portfolio.
We also wish to outline the three phases to commence our strategy negotiations.
1st Phase: 7-10 days Tina and Bruno fly to Sydney and have meeting with Tim McCabe to discuss $4.5 million cash deposits and Cronulla Property.
2ND Phase: 30 days Stefan arrives to Australia (delayed return) to finalise family meetings re 2009
3RD Phase: 30-90 days Final negotiations regarding 2009 strategy with ING and rest of the portfolio.

On 12 November 2008 Mr McCabe responded to Bruno Battaglia by email. The email included the following:

Thanks for your email of yesterday afternoon and txt message of this morning. As per our earlier conversation I summarise my proposed position as follows –
Paratei
Proposal – (1) Capitalise current month’s (October) interest so that payments are now technically monthly in arrears
This will require increasing limit by 1 months interest and issuing a new letter of offer. We will also take opportunity to extend and consolidate the loans for a further 12 months (these will of course be repayable should Era sell and settle within the term).
Base Constructions
Proposal
(1) release $3 million cash from deposit back to Base.
(2) execute mortgage over 46 Bulls Rd, Cronulla.
In the short term this will free up $3m cash flow to be used for your agreed working capital/investment purposes.
We recognise your desire to have all of the cash released and substitute the Cronulla security however we could not agree to accept the release of 100% cash cover for a transaction in place of 100% cover from property assets (this generally being between 60-70% depending on commercial markets). Property financiers do not work this way.
Subject to your agreement to the above, it is readily believed that this restructure could be agreed and formalised within 7-10 days. In the meantime could you please ensure your accountant has released to us the most up to date and current financials available for the group and recent correspondence in respect of Era is provided to us.

On 14 November 2008 Bruno Battaglia sent an email to Mr McCabe which included the following:

3. 1st Time Horizon 250k (asap)
If your boys need time to consider the docs that is fine, but as we have prior commitments to take care of we require urgently the release of $250k today. We then have time to negotiate the restructuring of all our loans next week which is consistent with my email on Monday.
4. 2nd Time Horizon
It may be we put Vista in the mix so we can release the full $4.5 million. As you are aware it has been very intense for Mick and I in the last two months working in synergy with each other and Tina. It has been very rewarding and with this release of the funds will go a long way to reassuring Stefan and Tina that through Tim McCabe, ING and the twins have a very strong relationship going forward and that we have a definite process in place that cannot be jeopardised or interfered with by other external parties for the next 90 days.
WHY? As it has taken considerable effort to get everyone on the same page and Mick and I are shielding Stefan from bogus advises from other parties to look elsewhere. As you can understand everyone is trying to get into his ear before his return and that is why Mick and I spent so much time with you guys over the last two months especially.
Tim now that we have provided you a raft of documents as promised I hope that you can see how organised and motivated we are to keep to our 3 time horizon agenda……
Tim I hope that I have made things crystal clear now and I apologise in advance if it was not made clear how critical it is for Mick and I to stick to the timeline we have made. This email is only to reassure not add pressure to our relationship and it is an opportunity to move things more efficiently and close any other parties out of the process.

The references in the email to “Mick” are to Domenico Battaglia.
On 19 November 2008 the Bank wrote to the Directors of Paratei offering to provide further funding of $250,000 for marketing costs. That, and an amount of $750,000 provided earlier in 2008 in relation to the Era development, would be repayable by 31 March 2009 or such later date as the Bank agreed. The offer included conditions that the Era development property in Vista St, Surfers Paradise remain unencumbered during the term of the loan, and that if the sale of the Era development did not occur before 31 March 2009 then a first registered mortgage over the property was to be provided.
Also on 19 November 2008 the Bank wrote to the Directors of Paratei offering to extend the term of the existing $6.8 million facility from 28 November 2008 to 31 March 2009, and offering to extend the term of a $500,000 Commercial Equity Loan from 28 November 2008 to 31 March 2009. These offers contained the same conditions concerning the Era development as the other offer made on the same day. The three offers also stipulated that Bruno Battaglia and Domenico Battaglia would provide personal guarantees. All three offers were accepted. The acceptances were signed on behalf of the companies by either Bruno Battaglia or Domenico Battaglia.
On 21 November 2008 Mr McCabe sent an email to Bruno Battaglia which included the following:

Going forward, we agree that we will sit down and finalise a restructure of the group facilities that will best suit both Base Group and ING. This will include introducing Vista St into the equation such that we can consider allocating loans to match assets, releasing the cash and potentially the personal guarantees of both Mick and yourself.
We will document this and agree it prior to seeking any formal credit approvals and hope that we can commence this process in the next couple of weeks.

On 27 November 2008 Bruno Battaglia sent an email to Mr McCabe which included the following:

2.   Restructure proposal dated 12 November (2nd Phase – Time Horizon)
(i)   release $3m cash from deposit back to Base.
(ii)   execute mortgage over 46 Bulls Rd, Cronulla.
Our family wishes to accept the proposal and as you have our financials and all relevant and recent correspondence in respect to ERA could you confirm that we will have all documentation ready in the 7 day time period as per your email.
Please understand that Mick and I are very appreciative of your support in locking in the 3 month process and as promised we have secured this Cronulla deal for you and behind the scenes we did everything possible to maintain our relationship with yourself and the rest of the team at ING Bank.

Mr McCabe deposed that he received a letter dated 1 December 2008 from Florentina Battaglia which concerned a request for the release of $3 million from the funds held as security. The letter contains some handwritten notes made by Mr McCabe. Florentina Battaglia denied that she sent the letter, and denied that she was its author. I will return to this issue later in these reasons.
The first sentence of the letter refers to a conversation with Mr McCabe earlier on the morning of 1 December 2008. There is no doubt that at some time in about early December 2008 Florentina Battaglia and Mr McCabe had a conversation in which the giving of a mortgage over the Burraneer property was discussed. There is, however, a dispute about what was said, and in particular, whether Mr McCabe said that the mortgage was “only temporary” and that the deeds would be returned once the sales of the units in Signature on High had finished. This issue will also be dealt with later in these reasons.
In any event, the letter dated 1 December 2008 purports to provide answers to the questions why a release of cash was requested and how the cash would be deployed, and further refers to a debt reduction strategy that was being developed. The letter included the following:

The purpose of this Cronulla option was due to the ongoing negotiations with the Korean developers and now potentially Sunland, we wish to keep the site clean which we thought you understood and accepted. If the deals do not go ahead by next March then Vista St would be considered as placing [sic] into the loan structure.

The site referred to is the Era site. Negotiations concerning the acquisition of an interest in the site had been continuing for some time with a Korean company.
Another letter, undated and apparently prepared by Bruno Battaglia, also provided answers to the questions why a release of cash was requested and how the cash would be deployed. It contains a statement to the effect that the Era development site was being kept “clean”. This letter also contains some handwritten notes made by Mr McCabe.
On 2 December 2008 Bruno Battaglia sent an email to Mr McCabe. It foreshadowed that further information would be provided later in the day. A quick response concerning the proposed release of cash security was sought.
It is not clear whether the further information was provided, but on 4 December 2008 Bruno Battaglia sent a further email to Mr McCabe in which he indicated that the family was seeking a quick response from the Bank. On 4 December 2008 Mr McCabe sent an email to Bruno Battaglia in which he suggested that a release of $3 million did not seem possible, but a release of between $2.5 million and $2.8 million might be achievable. He referred in this email to his conversation earlier in the week with Mrs Battaglia. Mr McCabe sent an email to Clint Woods of the Bank on 5 December 2008 in relation to the proposal. The email contained the following:

Basically what we are going to do is release something between $2.5 and $2.8m of Base Constructions cash balance and substitute the Bulls Rd residential property (valuation attached).
Not ideal, certainly not desirable but family now talking about moving out of ING due to negative perceptions regarding rates, security and our unwillingness to swap to the alternative security……
Era now subject to multiple interest – Koreans + Sunland + another – they wish to retain site unencumbered for “face value”.
I am not happy about this given agreements several weeks ago but this is another story of me agreeing something with the boys and them telling mum and dad something different to my mind. I have spoken with Tina – she is now the one pushing this for “security and comfort” reasons – we don’t want to lose connection.
Can you start and finish up the variation request ASAP.

The Bank had given its approval to the proposal by 11 December 2008. A letter of offer to Base Constructions dated 11 December 2008 stated that the security for the existing loan of $4,400,000 could be altered by adding the Burraneer property as security and releasing $2,800,000 from the cash security deposit. A guarantee from Stefano and Florentina Battaglia was required. The offer was accepted. Florentina Battaglia signed the acceptance as secretary of Base Construction, as well as for herself and as the attorney of Stefano Battaglia (pursuant to the Power of Attorney he had given in September 1997).
On 11 December 2008 Gadens Lawyers, acting for the Bank, sent mortgage and guarantee documents to SP&G Lawyers of the Gold Coast. The documents included certificates as to the giving of independent legal and financial advice to the guarantors.
On 12 December 2008 Ms Van der Veen of SP&G Lawyers informed Ms Burgess of Gadens Lawyers that documents would be signed by Stefano Battaglia under Power of Attorney. According to a note made by Ms Van der Veen, Ms Burgess said she would obtain instructions about whether that was acceptable. The note further indicates that Ms Van der Veen spoke to Florentina Battaglia on that day to defer the appointment for the signing of documents to Monday 15 December 2008. It appears that Florentina Battaglia told Ms Van der Veen that the Bank had previously accepted documents signed under Power of Attorney.
Another note of Ms Van der Veen’s shows that Gadens informed her later on 12 December 2008 that the Bank would accept Florentina Battaglia signing for her husband pursuant to a Power of Attorney. The note also suggests that it was contemplated that Stefano Battaglia would later sign the guarantee himself in Argentina after getting legal and financial advice over the telephone. It further appears that Gadens requested that a signed undertaking to that effect be provided prior to settlement. Ms Burgess sent an email to Ms Van der Veen in the early afternoon of 12 December 2008 setting out the Bank’s requirements in relation to execution of the security documents.
Later on 12 December 2008 Ms Van der Veen sent a facsimile to Florentina Battaglia enclosing a Form of Undertaking “required to be signed by Stefano and returned to our office, prior to settlement”, and requesting that she arrange for the undertaking to be so signed and returned.
It can be inferred that Florentina Battaglia attended the office of SP&G on 15 December 2008. She apparently executed numerous documents in the presence of Ms Van der Veen on that day including the mortgage over the Burraneer property (both personally and as attorney for Stefano Battaglia) and the Deed of Guarantee (both personally and as attorney for Stefano Battaglia). She also made a declaration before Ms Van der Veen that she had received independent legal advice about the loan and security documents and that she freely and voluntarily signed the mortgage and Deed of Guarantee.
It further appears from a certificate signed by Florentina Battaglia that on 15 December 2008 she received independent financial advice from Mark Buhmann of HBA Partners in Surfers Paradise.
After 4pm on 15 December 2008 Ms Van der Veen sent a facsimile to Ms Burgess consisting of a letter and numerous documents that had been executed. The letter concluded with a statement that “our client is anxious to settle this matter on or before Wednesday 17 December 2008 and accordingly we look forward to confirming settlement details with you as a matter of urgency”. Amongst the documents sent by facsimile was a certified copy of the General Power of Attorney given by Stefano Battaglia in September 1997, and a “Form of undertaking by Stefano Battaglia”.
The undertaking, which appears to bear the signature of Stefano Battaglia, had earlier been sent by facsimile from the address “Corralon Centrico” on 14 December 2008. The evidence discloses that “Corralon Centrico” was located in Buenos Aires, and is a name associated with a hardware business carried on there by Stefano Battaglia through a company Stefano Holdings SRL. The undertaking is addressed to the Bank and to Gadens. It is in the following terms:

RE: ING BANK (AUSTRALIA) LIMITED ADVANCE TO BASE CONSTRUCTIONS PTY LIMITED – 46 BULLS RD BURRANEER
GUARANTOR: STEFANO BRUNO BATTAGLIA AND FLORENTINA BATTAGLIA
I, Stefano Bruno Battaglia hereby undertake to provide to the Lender or the Lender’s Solicitors on or before the 30th January 2008 [sic] a duly signed counterpart of the Guarantee and Indemnity for the aforesaid matter, together with the Certificates of independent legal and financial advice.
Dated this 14 day of December 2008.

On 16 December 2008 Ms Burgess informed Ms Van der Veen that a required Deed of Set-off over deposits (to be entered into by Base Constructions) also had to be executed, and that the level of insurance cover should be increased to $3 million. Arrangements were then made by Ms Van der Veen for Florentina Battaglia to come in and execute the Deed of Set-off. Later on 16 December 2008, Ms Van der Veen sent a copy of the executed deed, and a certificate of currency of insurance, to Ms Burgess. Ms Van der Veen reiterated that settlement must occur on or before 17 December 2008.
There was then a discussion between Ms Van der Veen and Ms Burgess concerning the destination of the funds upon settlement. Ms Burgess said that the Bank would deal directly with Florentina Battaglia on that issue. On 16 December 2008 Florentina Battaglia signed an authority for the Bank to transfer $700,000 to a Commonwealth Bank account of Base Group Development, and the balance (apart from some amounts for legal fees) to an investment account of Base Constructions.
The transaction settled on 17 December 2008. The mortgage and the Deed of Guarantee (as signed by Florentina Battaglia) both bear that date. The mortgage had been registered by 5 January 2009.
A further version of the Deed of Guarantee (also bearing date 17 December 2008) apparently bears the signatures of both Florentina Battaglia and Stefano Battaglia. Florentina Battaglia gave evidence that Ms Van der Veen had provided a guarantee document to her which was to be signed by Stefano Battaglia. I infer that the date 17 December 2008 was placed on the document by someone at SP&G. It is likely that the same person placed the date on the Deed of Guarantee that was executed by Florentina Battaglia on 15 December 2008.
The signatures on the further version of the Deed of Guarantee were witnessed by Sean Wardrop. Sean Wardrop, as part of a business referred to as Rothesay CFO Services, had been retained by Base Group Development on 15 December 2008 to provide consultancy services. Florentina Battaglia gave evidence that she did not think that the purported signature of her husband on the Deed of Guarantee was his signature. Stefano Battaglia deposed that he did not think that it was his signature. Florentina Battaglia accepted that it was her signature on the document. She said she had no recollection of when she signed it or whether she did so in front of Sean Wardrop.
There was also a dispute about the genuiness of Stefano Battaglia’s signatures on the declaration that independent legal advice had been received, and on the certificate concerning independent financial advice. The declaration was apparently made before a solicitor, Anthony Delaney, on the Gold Coast on 14 January 2009. The certificate of independent financial advice was given by Sean Wardrop. It also bears the date 14 January 2009.
It seems that Stefano Battaglia had returned to Australia on about 19 December 2008. According to his evidence, he flew back to Argentina on 15 January 2009. He denies signing any documents on 14 January 2009. The question of the genuiness of the various signatures of Stefano Battaglia will be dealt with later in these reasons.
A file note of Ms Van der Veen dated 23 December 2008 indicates that by that date she had not received a Deed of Guarantee signed by Stefano Battaglia. It was noted as a matter she was to follow up in January 2009.
On 16 January 2009 Howard Ng of the Bank sent an email to Bruno and Domenico Battaglia asking whether they had the original signed guarantee for Stefano Battaglia. On 23 January 2009 Ms Burgess sent an email to Ms Van der Veen asking when the guarantee and legal and financial advice certificates would be received, noting that the undertaking called for this to be done by 30 January 2009.
On 27 January 2009 Ms Van der Veen spoke to Florentina Battaglia on the telephone. According to Ms Van der Veen’s note, Florentina Battaglia told her that she did not go overseas because her mother had died over Christmas, that Stefano Battaglia came to Australia and signed the guarantee, and that she would drop the document in to the SP&G office the next day. In cross examination, Florentina Battaglia did not accept that she told Ms Van der Veen that her husband had signed the guarantee, and denied that she told her that she would drop the document in the next day.
In any event, she did not do so. It appears from another of Ms Van der Veen’s notes that on 29 January 2009 Ms Van der Veen again took the matter up with Florentina Battaglia, who said she would drop in to the office. However, it seems that arrangements were instead made to send the document directly to the Bank. On 30 January 2009 Domenico Battaglia sent an email to the Bank attaching a scanned copy of the Deed of Guarantee, and stating that the document would be forwarded by express post.

The certificate concerning independent financial advice was not complete on the scanned copy. The description of the identity of the provider of the advice was not included. Later on 30 January 2009, Sean Wardrop sent “the completed document” to Domenico Battaglia by email. It is apparent that Sean Wardrop had inserted his personal details in the certificate concerning independent financial advice as the person who provided the advice. This completed document was sent to the Bank later on 30 January 2009.
I turn now to note various aspects of the evidence of the witnesses in so far as it is directed to the transactions of December 2008.
Florentina Battaglia deposed that in early December 2008 her son Domenico told her that Mr McCabe needed more security to release some of the Abbotsford money from a term deposit, and wanted to know what deeds she had to put up as security. She further deposed that at about that time she had a telephone conversation with Mr McCabe in terms to the following effect:

McCabe: Tina, we need to take Cronulla as security, otherwise the boys are going to be in trouble. What other deeds do you have too?
Mrs Battaglia: I don’t want to. I don’t know how the boys are going to meet the interest.
McCabe: The boys only have a short time to get this refinanced and they need the Cronulla security. They are beginning to prepare the Signature on High units for sale and converting to strata but that will take more time than they have. Give me the Cronulla deeds – we’ll use them to release the money on deposit – and you will get them back when they finish selling down Signature on High. It’s only temporary.
Mrs Battaglia: Ok.

Mrs Battaglia deposed that she would not have agreed to give the mortgage if Mr McCabe had not said that the deeds would be returned after Signature on High had been sold. She says that later, every time she saw Mr McCabe in person, she asked him whether she could have the deeds back.
Florentina Battaglia gave evidence that she was in a distressed state in December 2008 because her mother was dying. Her mother in fact died on 15 December 2008.
Florentina Battaglia further deposed that she had a conversation with Domenico Battaglia in which he told her, in effect, that if the mortgage over Cronulla was not given then “we are going to run in to trouble with interest with ING”.
She further deposed that she had a conversation with her husband in the second week of December 2008 in which she mentioned that there were a lot of important papers she had to sign, but did not specifically mention the possibility of a mortgage over the Burraneer property. She says, however, that she assisted in making arrangements for a document to be sent by facsimile to her husband in Argentina “to authorise the Bulls Road Mortgage”. Clearly, that document was the undertaking to provide a duly signed guarantee.
In her second affidavit, Florentina Battaglia deposed that she signed numerous documents at the offices of SP&G Lawyers. She says that a number of documents were signed in front of Matthew Brook (when her son Domenico was also present), before going into another office where she signed some further documents in front of Ms Van der Veen. Florentina Battaglia deposed that neither Ms Van der Veen nor Mr Brook explained to her what it was she was signing. She further says that she went to the office of HBA Partners later on the same day and saw Mark Buhmann. She deposed that Mr Buhmann did not give her an explanation of the documents she was signing. She also deposed that she did not write the letter dated 1 December 2008 which bore her name.
In her third affidavit, Florentina Battaglia responded in detail to an affidavit sworn by Sean Wardrop. She took issue with many aspects of his affidavit including his assertion that on 15 December 2008 Florentina Battaglia witnessed the signatures of Mr Wardrop and Domenico Battaglia on a Consultancy Agreement. Florentina Battaglia deposed that she could not have attended any meetings with Mr Wardrop on that day as it was the day of her mother’s death and she was at her beside the entire day. She did not deal in her affidavit with Mr Wardrop’s assertion that he witnessed the signatures of both Mr and Mrs Battaglia on a Deed of Guarantee.
In cross examination, Florentina Battaglia accepted that she knew that there was a proposal to exchange one security for another. That is, a mortgage over the Burraneer property in place of cash in the security deposit. She maintained, however, that Mr McCabe told her that the Burraneer property would only be a temporary security until the units in Signature on High were sold. She also maintained that she was not the author of the 1 December 2008 letter.
Florentina Battaglia did not recall anything that Ms Van der Veen said to her about the mortgage. She agreed that Ms Van der Veen gave her some documents which were to be taken to Argentina in order to have her husband sign them. However, she denied that on 27 January 2009 she told Ms Van der Veen that her husband had come to Australia and signed the guarantee.
Stefano Battaglia swore six affidavits. In his first affidavit, he deposed that prior to the commencement of the proceedings, he had no knowledge of the December 2008 mortgage of the Burraneer property. He said that he would not have mortgaged it under any circumstances. In his second affidavit he deposed that he had not previously seen the Deed of Guarantee dated 17 December 2008 that had been signed on his behalf by his wife.
In his third affidavit he deposed that it was not his signature that appeared on the undertaking to provide a duly signed guarantee. He further deposed that it was not his signature on the declaration concerning independent legal advice, and that he did not think it was he who signed the certificate concerning independent financial advice. In his fourth affidavit, Stefano Battaglia deposed that he did not think it was his signature on the execution page of the Deed of Guarantee.
His fifth affidavit contained a response to the affidavit sworn by Sean Wardrop. Stefano Battaglia deposed that he did not recall the actual dates upon which he arrived in Australia in December 2008 and subsequently flew back to Argentina. However, aided by certain documents which indicated that he flew from Sydney to the Gold Coast on 20 December 2008, and from the Gold Coast to Sydney on 29 December 2008, he deposed that he thereafter remained in Sydney until he departed for Argentina, which he thought was on the morning of 15 January 2009. He denied that he signed any documents in front of Sean Wardrop in Queensland on 14 January 2009. He also denied that he signed any document in front of Anthony Delaney, whether on 14 January 2009, or at any other time.
In his sixth affidavit, Stefano Battaglia gave evidence concerning his Argentinian company Stefano Holdings SRL and the business name “Corralon Centrico”. He deposed that he had local managers running the business. He further deposed that he had purchased various properties in Argentina, all of which had been sold in 2011, with the proceeds being sent to Australia.
In cross examination it was quite evident that Stefano Battaglia had very little, if any, recollection of the relevant events. When asked about the signature on the undertaking document he did not accept that it was his signature, although he did say that the signature was “almost similar” to his own. He maintained his denials that he placed his signature on the Deed of Guarantee.
Mr and Mrs Battaglia also called evidence from a forensic document examiner, Mr Christopher Anderson. In his report dated 8 March 2015 he expressed various opinions about whether seven “questioned signatures” of Stefano Battaglia were likely to have been written by the same person who wrote twenty five “specimen signatures” of Stefano Battaglia. Mr Anderson divided the questioned signatures into two groups, group A and group B.
Group A consisted of items one to three. Mr Anderson found no substantive evidence to suggest that these questioned signatures had been written by a writer different from the writer of the specimen signatures.
Group B consisted of items four to seven. This group included the signature on the undertaking dated 14 December 2008, and the three signatures on the Deed of Guarantee being the signature on the execution page (page 12), the signature on the declaration concerning independent legal advice (page 14), and the signature on the certificate concerning independent financial advice (page 16). Mr Anderson identified seven features present in the group B signatures that were different from the specimen signatures, and stated that this supported the hypothesis that these questioned signatures were written by a different writer. It was his opinion (subject to the various limitations and qualifications noted in the report) that there was very strong support for the proposition that the writer of the specimen signatures did not write the questioned signatures in group B.
In cross examination, Mr Anderson was initially confused about whether the questioned signature on the undertaking dated 14 December 2008 was in group A or group B. However, he clarified that all bar the first of the seven identified features was present in relation to that signature, and that all seven features were present to a greater or lesser extent on the other group B signatures. He further stated that, having regard to the presence of the identified features in all four group B signatures, it was more probable than not that they were written by the same person.
An affidavit sworn by Dr Mary Joseph was also read in Mr and Mrs Battaglia’s case. Dr Joseph deposed, by reference to records of the medical centre at Miranda where she works, that Mr Battaglia attended the medical centre and consulted with her on 3, 5 and 14 January 2009. The records indicate that the consultation on 14 January 2009 was taking place at 12:22pm.
The Bank adduced evidence from several witnesses. Only Messrs McCabe, Wardrop and Delaney gave evidence in the witness box. Several deponents of affidavits (Mark Ayala, Grant Sparks, Peter Stewart, Kimberley Arden, Demetrio Padilla and Avelino Rolon) were not required for cross examination.
Mr McCabe deposed that he commenced employment with the Bank in 1995, and since 1999 has been in the Commercial Property Finance Group. Since 2000 he has been the “relationship banker” for what he described as the Battaglia Group.
He deposed that in June 2008 the Battaglia Group wanted access to the money held on security deposit, but the Bank would not agree to release it unless alternative security was put in place. He says that he had discussions with both Domenico and Florentina Battaglia about the matter, in which they expressed reluctance to provide a mortgage over the Era development site. He had no recollection of the conversation which Florentina Battaglia deposed to about the deeds to Cronulla, and the security being only temporary until the sale of the units in Signature on High had occurred. However, he agreed that, commencing shortly after the mortgage had been given, Florentina Battaglia regularly made requests for the mortgage to be released.
In cross examination, Mr McCabe agreed that he developed a close relationship with Bruno and Domenico Battaglia, but denied that he consistently preferred their interests in transactions to those of their parents. He stated that in September and October 2008, as the global financial crisis emerged, the Battaglia family was looking to take advantage of opportunities within the market, and for that purpose wanted access to the cash that was held as security. Mr McCabe also stated that Domenico Battaglia wanted to keep the Era development site unencumbered as it was thought this would create a favourable impression with the Korean company which was negotiating to acquire an interest in the site.
In relation to the conversation with Florentina Battaglia concerning a mortgage over the Burraneer property, Mr McCabe did not accept that she exhibited a lot of reluctance to the giving of the mortgage. He did not believe that he would have said (and had no recollection of saying) that the mortgage would only be required until the Signature on High units were sold. He agreed that on about three or four occasions Florentina Battaglia asked him when the Burraneer mortgage was going to be discharged. He rejected the suggestion that he told her it was only required as a temporary measure.
Mr Wardrop deposed that as a consultant engaged by Base Group Development his primary role was as a financial officer for Supplycorp Australia Pty Limited, a company associated with Domenico Battaglia which had a tile supply business. He further deposed that he also worked on matters for companies including Core Element Pty Limited, Base Constructions and Paratei. (Core Element seems to have been associated in some way with Bruno Battaglia).
Mr Wardrop deposed that he met and spoke to Florentina Battaglia many times about the financial position of the companies in what he described as “the Battaglia Family Group”. He said that she was “the ultimate decision maker for the Battaglia Family Group” in matters in which he was concerned, was a signatory to bank accounts, and was responsible for the drawing of cheques.
Mr Wardrop deposed that when he started working he was told that Stefano Battaglia was in Argentina, and that he looked after the family’s business operations there. Mr Wardrop says that he first met Stefano Battaglia at Christmas time at the family property in Broadbeach, and that on that occasion, he discussed with Stefano Battaglia the financial position of the Battaglia Family Group companies. Mr Wardrop recalls meeting Stefano Battaglia on one or two other occasions around that time. He formed the impression that Mr Battaglia was a sophisticated business person who was fully aware of the Battaglia Family Group’s financial position.
As for the Deed of Guarantee apparently signed by Stefano and Florentina Battaglia, Mr Wardrop deposed that he signed as a witness to the signatures of Stefano and Florentina Battaglia on the execution page, and also signed and dated the certificate of independent financial advice. He said he recalled reading the certificate and deciding that he was qualified as a chartered accountant to give it, but said he had no separate recollection of the execution or witnessing of the document. He deposed that he certainly would not have certified as he did without first taking Stefano Battaglia through the guarantee and the documents referred to in the certificate to make sure he understood them.
In cross examination, Mr Wardrop was not sure when he “effectively started” his consultancy work after the agreement was signed on 15 December 2008. He did not recall whether he advised Stefano Battaglia that there was possibly a property other than the Burraneer property that could be used as security. He denied that the meeting with Stefano Battaglia did not occur, and that his certificate was false. He also denied that Stefano Battaglia did not sign the document in his presence. Mr Wardrop could not recall any detail of the meeting itself, or whether it took place on 14 January 2009.
Mr Delaney did not make an affidavit. When called to give evidence he said that the stamp and the signature on the declaration concerning independent legal advice looked to be his. He said that he had only the faintest of recollections of the occasion, although he recalled the line through Florentina Battaglia’s name on the document, and that the document was “somewhat completed” when he received it. He said that the handwriting on the document was not his, apart from his signature.
Mr Delaney said in cross examination that he could not recall whether it was 14 January 2009 when he signed the document. He said that if he had noticed that the date was wrong he would have corrected it. He conceded that he did not correct the erroneous address of where the declaration was made. He maintained that he certainly does not witness such declarations unless the person is “sitting before me”.
Mr and Mrs Battaglia seek to have the December 2008 contracts of guarantee, and the Burraneer mortgage, set aside on general equitable principles of unconscionability and alternatively pursuant to the Contracts Review Act.
Mr D Murr SC, who appeared with Mr R Freeman of counsel for Mr and Mrs Battaglia, submitted that Mr and Mrs Battaglia were each labouring under a special disability (in the sense identified in cases such as Blomley v Ryan (1956) 99 CLR 362 and Commercial Bank of Australia v Amadio (1983) 151 CLR 447) of which the Bank had notice. It was put that the special disability meant that Mr and Mrs Battaglia were not in a position to make worthwhile judgments about their interests.
In relation to Stefano Battaglia, it was submitted that since his accident in 1986, he had ceased to be actively involved in the business of the companies and spent most of his time living in Argentina. Further, he was an elderly man who suffered from memory problems and had very limited skills in the English language.
In relation to Florentina Battaglia, it was submitted that she was not involved in the making of financial or investment decisions for the companies, her role being limited to carrying out administrative tasks. It was submitted that the business of the companies was substantially conducted by the twin sons, who were trusted to make the important decisions. It was submitted that there was little or no direct contact between the Bank and Mr or Mrs Battaglia.
Mr Murr submitted that the Bank’s knowledge of those circumstances, gained through Mr McCabe, meant that it must have been apparent to it that Mr and Mrs Battaglia required advice and explanation about the guarantee and mortgage transactions and the implications of such. Yet, at least in relation to Stefano Battaglia, he had no knowledge that he was giving a guarantee and a mortgage over the Burraneer property, and Florentina Battaglia did not receive adequate explanations of the transaction documents or the financial implications of the transaction.
In final submissions Mr Murr made the point that there was very little advantage in the transaction for the Battaglia interests in circumstances where the unencumbered Era site (worth much more than the Burraneer property) was either to be sold, or mortgaged to the Bank, by 31 March 2009. The only advantage was therefore an acceleration of the release of cash from March 2009 to December 2008.
Mr Murr further submitted that Mr Wardrop’s evidence about the certificate of independent financial advice should be rejected, and that Mr Delaney’s evidence about the declaration concerning independent legal advice could not be relied upon to establish that he witnessed Mr Battaglia’s signature on 14 January 2009 or at all. As for the undertaking dated 14 December 2008, it was submitted that the fact that the document was returned by facsimile from “Corralon Centrico” was by no means conclusive evidence that it was returned by Stefano Battaglia.
Mr Murr did not submit that Mr McCabe was not a witness of credit. However, he submitted that Florentina Battaglia was also a witness who endeavoured to tell the truth. In particular, it was submitted that her evidence about not being the author of the 1 December 2008 letter should be accepted, having regard to its typeface, style and content and the fact that it was not signed by her. Mr Murr also submitted that Mr Battaglia was a witness who, despite obvious limitations, was endeavouring to tell the truth.
Mr Savage QC, who appeared with Mr J White of counsel for the Bank and the receivers, submitted that it was necessary to bear in mind that the companies that were parties to the transactions with the Bank were, with the exception of Yorkgrange Pty Limited (a company associated with Bruno Battaglia), companies whose shares were held by Mr and Mrs Battaglia. Moreover, both Mr and Mrs Battaglia remained directors of the companies throughout, and were beneficiaries of the various trusts of which one or other of the companies was trustee.

In relation to the December 2008 transactions, Mr Savage submitted that they followed upon a proposal advanced by the companies to obtain a release of cash to take advantage of opportunities in the Gold Coast property market. He submitted that the contemporaneous documents showed that Mr McCabe spoke to Florentina Battaglia, who was aware of the proposal to obtain the release of cash by giving a mortgage over the Burraneer property. He submitted that the 1 December 2008 letter apparently from Florentina Battaglia (which refers to a conversation held that morning between she and Mr McCabe) ought not be regarded as bogus. It was put that it should be inferred that the letter was at least written with Mrs Battaglia’s involvement.
Mr Savage emphasised that Mrs Battaglia obtained independent legal advice and independent financial advice about the guarantee and mortgage transactions. Further, it was she who executed the documents, not only for herself, but also for Stefano Battaglia, pursuant to a valid Power of Attorney.
Mr Savage further submitted that it was clear that Mrs Battaglia obtained the form of undertaking from SP&G Lawyers, and that Mr Battaglia signed the undertaking dated 14 December 2008 in Argentina and returned it to Australia by facsimile. As for the Deed of Guarantee apparently signed by Stefano Battaglia, Mr Savage submitted that it was most unlikely that Mr Wardrop and Mr Delaney would give false evidence about their involvement with the document, although there was some doubt about when the document was signed. Mr Savage referred also to Mr Anderson’s evidence that it was likely that the same person placed the signatures on the undertaking and the Deed of Guarantee.
The transactions of December 2008 concerned the $4.4 million finance facility of Base Constructions. That facility (which was not due to be repaid until December 2011) had remained in place following the sale of the Abbotsford property in 2007, supported by a cash security deposit. Base Constructions was the owner of the Era development site, which was unencumbered. Communications sent by Domenico Battaglia to the Bank in May and June 2008 indicated that steps were being taken to sell an interest in the Era site, and that the company would be prepared to offer security over the site. In November 2008, the Bank was informed by Bruno Battaglia that the family sought to take advantage of the current economic climate by acquiring “distressed sites at very low prices”. Evidently, this was to be aided by lines of credit using other properties that were “debt free”. In this context, a discussion with Mr McCabe about the cash deposits and the Burraneer property was mooted, and Mr McCabe then put forward a proposal involving the release of $3 million in cash and the execution of a mortgage over the Burraneer property. He was resistant to the idea of releasing all of the cash held.
On 14 November 2008, Bruno Battaglia indicated that it was possible that the Era site would be used so “we can release the full $4.5 million”. However, offers of finance made to Paratei on 19 November 2008, which were accepted, stipulated that the Era site was to remain unencumbered until 31 March 2009.
On 27 November 2008, Bruno Battaglia informed Mr McCabe that the family wished to accept the proposal involving the release of $3 million and execution of a mortgage over the Burraneer property. It may be inferred from the two letters received by Mr McCabe (one dated 1 December 2008 from Florentina Battaglia and one undated from Bruno Battaglia) that at about that time he was asking questions about why the release of cash was sought and what it would be used for. Those letters were clearly intended, at least in part, to provide answers to those questions.
Despite the fact that the letter bearing Florentina Battaglia’s name is typed, rather than in her handwriting as would be usual for her written communications with the Bank, I do not accept that the letter was neither written by nor approved by her. The likelihood is that even if she did not type it, she was involved to some extent in its composition. It is also likely that she was aware of its content and that it was to be sent to Mr McCabe, with whom she had recently spoken. At one stage in her cross examination she said that the letter “probably has been signed by me, but it’s not done by me”. I do not accept her evidence that the terms of the letter were “too technical” for her, and that she “cannot write English that well”. She did not specify what aspects of the letter were too technical or beyond her. I note that the numerous letters written by Florentina Battaglia to the Bank to authorise transfers of money show that she undoubtedly had a close involvement with at least the banking arrangements of the companies. I note further that those letters, while brief, do not suggest an inability to write reasonably clearly (see, for example, her letter of 27 September 2007).
I regard her evidence concerning the letter of 1 December 2008 as an example of a self-serving statement intended to bolster her case. Another example is her evidence that she received no explanation about the documents she signed at SP&G Lawyers. I cannot accept that evidence, having regard to the declaration concerning independent legal advice Mrs Battaglia made before Ms Van der Veen, and Ms Van der Veen’s notes which to my mind indicate that she was acting thoroughly and conscientiously in the matter. I also cannot accept her evidence that she could not have attended any meetings on 15 December 2008, the day of her mother’s death. The contemporaneous documents clearly show that she signed documents on that day at the office of SP&G.
It is clear that Mr McCabe had a conversation with Florentina Battaglia in early December 2008 in which the giving of a mortgage over the Burraneer property was discussed. I infer from the letter dated 1 December 2008 that the conversation probably took place on that day.
Despite Mr McCabe’s lack of recollection of the conversation, I am not prepared to accept Florentina Battaglia’s version of the conversation, including her evidence that he told her that the mortgage would be only temporary until the sales of units in Signature on High had finished. There is no support for the existence of such an assurance or condition in any of the contemporaneous documents, including the Bank’s letter of offer of 11 December 2008, the mortgage itself, and the records of SP&G Lawyers. Had there been such an assurance or condition, and had it been important to Florentina Battaglia’s decision to agree to the mortgage, it is likely that it would have been mentioned to the lawyers at SP&G and been the subject of discussion with Ms Van der Veen who, I find, gave an explanation to Florentina Battaglia of the mortgage and guarantee documents.
Moreover, the conversion to strata title and the sale of units in Signature on High does not appear to have been pursued until about August 2009. A file note of Mr McCabe’s dated 11 August 2009 indicates that strata title was then being registered for the units and that selling agents were being engaged. It is of course possible that such a course of action was in contemplation earlier than August 2009. I note that the 1 December 2008 letter from Florentina Battaglia refers to a 2009 debt reduction strategy involving Signature on High, and states that there was increased interest from investors for the property. This is likely to be a reference to the property as a whole as opposed to individual units.
The communications with the Bank in early December 2008 tend to suggest that Base Constructions was keen to quickly proceed with the proposed release of cash in return for a mortgage over the Burraneer property, whereas Mr McCabe was lukewarm. In his email of 4 December 2008 to Bruno Battaglia, for example, Mr McCabe stated (after referring to his earlier conversation with Florentina Battaglia) that whilst he did not want to lose the relationship “we are not going to be pressured into something we don’t want to do either”. I also note that in his email to Clint Woods on 5 December 2008, Mr McCabe again referred to his earlier conversation with Florentina Battaglia and stated that she was now “pushing this”. There is no suggestion of any reluctance on the part of Mrs Battaglia, or of any keenness on the part of the Bank. I accept Mr McCabe’s denial that he told Florentina Battaglia that the mortgage was only required as a temporary measure. I find that the assurance which Florentina Battaglia claims she received was not in fact given. I am also unable to accept her evidence that Mr McCabe said that the mortgage was needed “otherwise the boys are in trouble”, and that she expressed reluctance to the giving of the mortgage and concern about meeting interest payments.
I have not overlooked the evidence to the effect that, commencing shortly after the giving of the mortgage, Florentina Battaglia regularly made requests for the mortgage to be released. These requests seem to have been made verbally, although it appears that in September 2009 Florentina Battaglia wrote a letter to Mr McCabe about the “possible release of the Cronulla home”. That letter was not adduced in evidence. In any event, such requests, made on any view before the completion of the sales of units in Signature on High, are equivocal as to whether any assurance was given by Mr McCabe as claimed. I note further that on 19 May 2010 Domenico Battaglia sent an email to Mr McCabe (concerning cash flow issues that had apparently been discussed with Mr and Mrs Battaglia) which included the following words: “After the full sale of Signature on High, Stefan and Tina wish to have the Cronulla house taken out”. It was not suggested in the email that this was something that had already been promised by the Bank.
The evidence is clear that Florentina Battaglia signed the acceptance of the Bank’s letter of approval, and dealt with Ms Van der Veen in relation to the execution of the necessary documents, including on behalf of Stefano Battaglia by Power of Attorney. Florentina Battaglia was also involved in arranging for the form of undertaking to be sent to Stefano Battaglia in Argentina. The undertaking, as signed, was returned to Australia by facsimile. It was sent from a facsimile machine of “Corralon Centrico”, a hardware business associated with Stefano Battaglia. It is likely that Florentina Battaglia brought the signed undertaking with her when she attended upon SP&G on 15 December 2008. It appears that no suggestion was made to Ms Van der Veen that the undertaking was anything other than one signed by Stefano Battaglia. In her letter to Gadens later that day she described the document as “Form of undertaking by Stefano Battaglia”.
Notwithstanding his evidence to the contrary, in my view it should be concluded that Stefano Battaglia did in fact sign the form of undertaking. It was not suggested that any other family member was in Buenos Aires on 14 December 2008. There was no evidence to suggest that some other person in Buenos Aires at the time might have forged Mr Battaglia’s signature on the document.
The evidence was unclear about what, if anything, Mr Battaglia had been told about the proposed transaction before he signed the undertaking. Florentina Battaglia deposed that she spoke to her husband by telephone in the second week of December 2008. She said that she made no mention of a mortgage over the Burraneer property. The undertaking itself does not explicitly mention a mortgage, although the Burraneer property is referred to, in the context of an advance by the Bank to Base Constructions, in respect of which Mr and Mrs Battaglia were to give a guarantee. By signing the undertaking, Mr Battaglia at least signified his willingness (subject to obtaining independent and legal financial advice) to provide a personal guarantee in relation to an advance to Base Constructions.
For the reasons which follow, I have also concluded that it is likely that Stefano Battaglia signed the Deed of Guarantee on pages 12, 14 and 16. As noted earlier, it was Mr Anderson’s opinion that it was more probable than not that those signatures were written by the person who signed the undertaking dated 14 December 2008.
As for the signature on the execution page (page 12), Florentina Battaglia accepted in cross examination that she executed this version of the Deed of Guarantee on page 13, and at least initially she appeared to accept that she signed it in the presence of Mr Wardrop. Whilst she was uncertain as to when she signed it, she agreed that it was some time in the period December 2008 to January 2009. She was also uncertain as to whether her husband’s signature was on page 12 of the document when she signed. However, whether the signatures on pages 12 and 13 were made on the same occasion or separate occasions, I accept Mr Wardrop’s evidence that he would not have witnessed the signatures of Stefano Battaglia and Florentina Battaglia on the Deed of Guarantee unless they had each signed the document in front of him. Whilst Mr Wardrop accepted that his recollection concerning the Deed of Guarantee was poor, he seemed to me to be a witness endeavouring to give his honest recollection of what had taken place more than six years ago. It was not suggested that some reason existed that might cause Mr Wardrop to be prepared to falsely witness Mr Battaglia’s signature.
The conclusion that both Mr and Mrs Battaglia signed the document is further supported by Mr Van der Veen’s note of 27 January 2009, which records that Florentina Battaglia told her that Stefano Battaglia had come to Australia and signed the guarantee. I accept that Florentina Battaglia made such a statement to Ms Van der Veen.
That statement has to be considered together with the evidence that suggests that after Stefano Battaglia returned to Australia he was only on the Gold Coast in the period between 20 December 2008 and 29 December 2008. That evidence raises questions about whether the signatures appearing on page 14 (declaration concerning independent legal advice) and page 16 (certificate concerning independent financial advice) which bear the date 14 January 2009 and according to Mr Wardrop and Mr Delaney were made on the Gold Coast, are in fact signatures of Stefano Battaglia.
It is clear that Stefano Battaglia was in Sydney at about 12:20pm on 14 January 2009. That does not, of course, exclude the possibility that he was on the Gold Coast early that morning or later that afternoon. However, the evidence concerning the responses of Qantas Airways Limited and Virgin Australia Airlines to subpoenas indicates that Stefano Battaglia flew from Sydney to the Gold Coast on a Jetstar flight on 20 December 2008, and from the Gold Coast to Sydney on a Virgin flight on 29 December 2008. There is no evidence of any other flights taken by Stefano Battaglia in the period 18 December 2008 to 19 January 2009 (the period to which it appears the subpoenas were directed), although any bookings made on Qantas in that period, unless made using Stefano Battaglia’s Frequent Flyer membership, would have been deleted from the system. This evidence formed the basis of a direct challenge to the veracity of the accounts given by Mr Wardrop and Mr Delaney.
It was put to Mr Wardrop that he did not meet with Stefano Battaglia and give him any advice, that his certificate was false, and that Mr Battaglia did not sign the document in his presence. Mr Wardrop denied the matters so put. It was put to Mr Delaney that he did not witness Mr Battaglia’s signature on the declaration concerning independent legal advice on 14 January 2009. Mr Delaney reiterated that he had no recollection, although he said that it was his signature and it was his stamp on the declaration. He further stated that he would not sign such a document unless the declarant was before him.
It would of course be a very serious matter for Mr Wardrop, a chartered accountant, to falsely certify to a lender that he had given financial advice in relation to a transaction. Similarly, it would be a very serious matter for Mr Delaney, a solicitor, to witness a statutory declaration about giving legal advice on a transaction without seeing the declarant make and sign the declaration. Such conduct, particularly when the person concerned has no interest in the transaction, would not ordinarily occur unless the person was prevailed upon to participate in some form of conspiracy to mislead. No suggestion was made to either Mr Wardrop or Mr Delaney that they became involved in some such conspiracy. No other rationale as to why they might be prepared to engage in such conduct was put to them. That is not to level any criticism at the cross examiner, it is merely to point out that the attack rested solely upon the notion that Stefano Battaglia was not in fact on the Gold Coast on 14 January 2009.
If that is assumed to be the case, the dating of the declaration is incorrect (or false), and so is the dating of the certificate. The question then arises as to how such error (or falsity) arose. There are numerous possibilities.
In relation to the declaration, one possibility is that Stefano Battaglia signed it and Mr Delaney witnessed it on a day other than 14 January 2009, yet that date was at some time incorrectly inserted as the date of the declaration. This possibility assumes that Mr Delaney did not notice either the absence of a date, or the inclusion of an erroneous date. I regard that possibility as more likely than the possibility that Mr Delaney falsely purported to witness a declaration apparently made by Mr Battaglia.
I gained the impression that Mr Delaney was forthright in giving his evidence. He was well able to accept that he might not have picked up errors in the document (such as the address where the declaration was made), but he was firm in insisting that he would not sign such a document unless the declarant was before him. I am prepared to accept his evidence to that effect, particularly where no credible rationale was put forward as to why he might be prepared to engage in nefarious conduct. I therefore conclude that Stefano Battaglia signed the declaration concerning independent legal advice in the presence of Mr Delaney, even if that did not occur on 14 January 2009.
In relation to the certificate, one possibility is that it was signed by both Mr Wardrop and Mr Battaglia on a day other than 14 January 2009, yet that date was at some time incorrectly inserted as the date each signature was made. Another possibility is that Mr Wardrop and Mr Battaglia signed the document on different occasions and the date 14 January 2009 was at some time incorrectly inserted as the date for both signatures when one or both of them was made on some other date.
It should be noted that the certificate does not in its terms require that it be given at the same time the advice is given. Also, the confirmation by the guarantor is not required to be given at any particular time. Added to that, there is evidence that the certificate was not completed in an orderly way. As noted earlier, the identity of the provider of the certificate was not included in the document until 30 January 2009. (It is clear that Mr Wardrop’s signature was on the document by that day). The section of the certificate concerning the documents provided to the giver of the advice is likely to have been completed by someone at SP&G. It is in the same form as the equivalent section in the certificate that forms part of the Deed of Guarantee signed by Mrs Battaglia on 15 December 2008, and there was evidence that SP&G provided Mrs Battaglia with the documents for her husband to sign. However, the certificate seems to have otherwise been completed without any guidance from a solicitor. It is not altogether surprising that the document was completed in a disorderly fashion, particularly as Mr Wardrop had no previous experience of such certificates.

In the meantime, on 12 April 2012 the Bank issued Letters of Offer in respect of the existing facilities to provide for an extension to 30 April 2012. These offers were accepted on 25 April 2012. The acceptances were signed by Domenico Battaglia. No further extensions appear to have been granted, although discussions about further funding continued for some time, until at least September 2012.
On 17 April 2012 Mr McCabe sent an email to Domenico Battaglia seeking certain information, including as to when further money would come from Argentina. Domenico Battaglia responded by stating that Bruno Battaglia was working on the matter, but it “keeps getting harder over there”. On 7 May 2012 Domenico Battaglia sent an email to Mr McCabe in which he stated that he had spoken to Mrs Battaglia, who confirmed that $250,000 to $500,000 would come by the end of the first week of July. It seems that no such funds were sent.
On 30 April 2012 Mr McCabe sent an email to Domenico Battaglia in which he stated that the various facilities were in arrears in a total amount of almost $350,000. The negotiations concerning further funding were not successful. Notices of Default were issued in October 2012, and further enforcement action was taken thereafter.
Mrs Battaglia deposed that she did not understand that Domenico Battaglia might use the Power of Attorney given in September 2011 to make her or her husband personally liable. She further deposed that she did not know of or consent to the giving of the mortgage over the Broadbeach property, which was her home. She says that if she had been asked she would not have allowed it. She deposed that she later found out that Domenico Battaglia had taken the deeds to the property and used the 2011 Power of Attorney to execute a mortgage over it. In cross examination, she said she had no recollection of receiving documents in Argentina, such as a statutory declaration, in relation to the title deeds.
Mr Battaglia deposed that he did not know of or consent to the giving of the mortgage over the Broadbeach property. He says that had he been asked he would not have allowed it. Mr Battaglia deposed that when he came to Australia in November 2011 he looked for the deeds to the Broadbeach property but could not find them. He says that he was looking for the deeds because the neighbours offered to buy the property and he wanted to get a valuation. Mr Battaglia had no recollection of meeting with Mr McCabe in a coffee shop on the Gold Coast in December 2011, and no recollection of being shown a spreadsheet by Mr McCabe.
In cross examination, Mr Battaglia said that the offer by the neighbour for the Broadbeach property was for $4.5 million, and that he rejected it because he did not want to sell. He further said that he was not interested in obtaining a valuation of the property. Mr Battaglia then said that he and his wife tried to find the deeds at one stage, and could not do so. Mr Battaglia was unable to recall much about the meeting on the Gold Coast that Mr McCabe said took place. Mr Battaglia did say that Mr McCabe spoke to Domenico Battaglia but “they ask me nothing”.
Mr McCabe deposed that at about the time Domenico Battaglia suggested that funds of $650,000 to $750,000 could be obtained out of the Broadbeach property, he told him that the Bank required additional security due to a decline in the values of some of the securities. He deposed that he met with Stefano Battaglia and Domenico Battaglia on Sunday 11 December 2011 at a coffee lounge on the Gold Coast. He says that he brought with him the spreadsheet that had been sent to him by Domenico Battaglia on 1 December 2011, and that he tabled it. He deposed that he said that the current situation (being a loan to value ratio of almost 73%) was unacceptable, and that there needed to be “short term asset sales”. Mr McCabe deposed that Stefano Battaglia said he would work with the Bank to fix the problem and would look to sell the Era site; and further that he was looking to use Pacific Pines as the key development asset. Mr McCabe further deposed that Mr Battaglia did not raise any objection to the grant of security over the Broadbeach property, or to the sale of the Burraneer property.
In cross examination, Mr McCabe agreed that in November 2011 it was not Mr and Mrs Battaglia who were proposing that the Broadbeach property be used to cover the decreased values of Rowes Ct and the Burraneer property. As for the meeting with Mr Battaglia and Domenico Battaglia on the Gold Coast, Mr McCabe said that there was a line-by-line, item-by-item discussion of the spreadsheet and that the discussion included the taking of security over the Broadbeach property. Mr McCabe gave evidence that it was said at the meeting that the Broadbeach property was additional collateral required to make up the loan to value ratio. Mr McCabe also gave evidence that there was discussion about the sale of the Burraneer property, which had by that time been listed for sale. Mr McCabe said that he gained the impression that Mr Battaglia had a good understanding of the state of the group’s finances and the position it was in. He could not recall that any mention was made of the facts that the facilities were expiring at the end of December, and that there was no commitment by the Bank to renew them.
It was put to Mr McCabe that the cashflow spreadsheet was quite unrealistic, particularly in that there was no allowance for borrowings to finance the development of Pacific Pines. Mr McCabe did not agree. Mr McCabe also rejected the suggestion that he was fairly desperate to obtain the mortgage over the Broadbeach property. He agreed that when the mortgage was taken, the position of the companies was precarious, but not that it was extremely precarious. He stated that the family was comfortable with the strategy that involved the giving of a mortgage over the Broadbeach property.
Mr Murr submitted that the mortgage over the Broadbeach property was executed by Domenico Battaglia behind the backs of his parents, and in circumstances where they required a proper explanation of the mortgage and the financial implications of giving it. It was emphasised that the mortgage, over a residential property, was taken to support the family companies in circumstances where the financial position of those companies was parlous and there was no guarantee that the Bank would enter into new facilities to replace those that had expired. It was submitted that Mr and Mrs Battaglia were each under a special disability, of which the Bank had notice, such that enforcement of the mortgage against them would be unconscionable. Once again, reliance was placed upon equitable principles of unconscionable conduct, and s 12CB of the Australian Securities and Investments Commission Act.
Mr Savage submitted that the request for the mortgage had been foreshadowed on the cashflow spreadsheet that was discussed at the meeting with Mr Battaglia on 11 December 2011. Mr Savage noted that this cashflow spreadsheet was the version sent by Domenico Battaglia to Mr McCabe, and that it also included the sale of the Burraneer property and income of $1 million to come from “Battaglia family capital”. Mr Savage submitted that, for various reasons, the evidence given by both Mr and Mrs Battaglia concerning the Certificate of Title ought not be accepted. He submitted that it was most likely that Florentina Battaglia received documents in Argentina from SP&G concerning the need to obtain a new Certificate of Title, and that she would thus have been alerted, if she was not already aware, that the Certificate of Title was needed for the purpose of a mortgage.
I do not accept that the mortgage was entered into without the knowledge of Mr and Mrs Battaglia. In my view, the evidence establishes that Mr Battaglia was aware that a mortgage over the Broadbeach property formed part of a strategy put forward to the Bank, and was required by the Bank to assist in reducing the unacceptably high loan to value ratio. It is also likely in my view that Mrs Battaglia was aware that a mortgage over the property was required by the Bank.
The initial suggestion that the property be enlisted to assist the financial position undoubtedly came from Domenico Battaglia. He did not suggest a mortgage. Rather, he envisaged a sale of the property with some of the proceeds being applied towards future cashflow requirements. It seems that after this suggestion was advanced within the Bank by Mr McCabe, the response was that the Bank wanted to take security over the property. Mr McCabe informed Domenico Battaglia of this, and then included the property in the security described in his “first version” of the cashflow spreadsheet that he sent to Domenico Battaglia.
By this time, Stefano Battaglia was in Australia. Domenico Battaglia informed Mr McCabe that he was working “on all fronts” with his father. When Domenico Battaglia produced his own cashflow spreadsheet he informed Mr McCabe that he was not only speaking to his father about it, he was also seeking comments from his mother and brother who were in Argentina. The spreadsheet had evidently been sent to them.
The spreadsheet produced by Domenico Battaglia included the Broadbeach property as part of the security, just as Mr McCabe’s “first version” did. There were also some changes, notably the inclusion as income in March 2012 of an amount of $1 million described as Battaglia family capital. I infer that this is a reference to an amount to come in from Argentina.
An amount of more than $1 million had already been transferred from Argentina during 2011. These transfers had been effected by Mr and Mrs Battaglia. It is likely that the further $1 million was the subject of discussion with both of them. One of the other changes was the inclusion of the sale of the Burraneer property in April 2012. It is likely that this sale was also the subject of discussion with Mr and Mrs Battaglia. In my view, it should be concluded that the content of the spreadsheet was made known to and discussed with Mr and Mrs Battaglia, and that they were aware that what was being put forward to the Bank included the provision of a mortgage over the Broadbeach property.
This conclusion is further reinforced in relation to Mr Battaglia by what occurred at the meeting with Mr McCabe on 11 December 2011. I accept Mr McCabe’s evidence about what occurred and what was said at the meeting. Mr Murr did not suggest to the contrary. In particular, I accept that there was discussion about the items in the spreadsheet, including the Broadbeach property, and that such discussion included statements about the Bank requiring security over the property to help reduce the unacceptably high loan to value ratio. I further accept that Mr Battaglia raised no objection to that. I reject Mr Battaglia’s evidence to the effect that he did not know of or consent to the giving of a mortgage over the property, and that if asked, he would not have agreed to it.
I should note that I also accept Mr McCabe’s evidence that he gained the impression that Mr Battaglia, who he described as the patriarch, had a good understanding of the group’s finances and the position it was in. It is apparent from Mr McCabe’s internal memorandum of 6 January 2012 that Mr Battaglia expressed views at the meeting about various ways to improve the financial situation.
The matter is not entirely clear, but there is some evidence to suggest that Mrs Battaglia may have been in Australia for at least part of February 2012. On 7 February 2012 Domenico Battaglia informed Mr McCabe that Florentina Battaglia was coming to Australia and that there was to be a family discussion. In any event, the email communications between Domenico Battaglia and Mr McCabe on 24 February 2012 indicate that the question whether to agree to mortgage the Broadbeach property was the subject of discussion within the Battaglia family. There is no reason to think that Florentina Battaglia would be excluded from such discussions.
It is evident that there was reluctance to give the mortgage, at least until the new valuations of the security properties were received. However, Mr McCabe made it clear that the mortgage was required “to cover the short term issue” and that if it was not given then recovery action would commence. When Domenico Battaglia sought some comfort about continued support from the Bank, Mr McCabe did not give any such comfort, and was implacable about the need to sign the mortgage. It is likely that Domenico Battaglia made this position known to his parents and that they acquiesced, albeit reluctantly, in the giving of the mortgage.
I am unable to accept Mrs Battaglia’s evidence that she did not know of or consent to the giving of the mortgage, and that, if asked, she would not have agreed to it. In addition to the matters referred to above, the conclusion that Mrs Battaglia was aware that a mortgage was being given is supported by some of the evidence concerning the Certificate of Title to the property. It is clear that in about late March or early April 2012 Mr Brook of SP&G sent documents to Argentina including a statutory declaration in relation to the Certificate of Title which had not at that stage been located. It seems that Mrs Battaglia was in Argentina at that time. Even though she said she could not recall receiving such documents, it is very likely that she did. The precise content of the documents sent by SP&G is not known. However, it seems to me that Mrs Battaglia, having received documents from SP&G about an application to obtain a new Certificate of Title, would have at least realised that a transaction involving the property was proposed. If she had been unaware of the proposal she would surely have raised a query with SP&G, who would have appraised her of the situation. There is no evidence to suggest that any such queries, or any objections, were raised by Mrs Battaglia.
I note further that Mr Battaglia gave evidence that at some stage he and his wife tried to locate the deeds for the Broadbeach property but could not do so. This evidence must be treated with some caution given Mr Battaglia’s general lack of recollection of events, but it provides further, albeit slight, support for the conclusion that Mr and Mrs Battaglia were aware that a mortgage was being given over the property. I do not accept Mr Battaglia’s evidence about why he was looking for the deeds. This evidence was contradictory in so far as it related to the obtaining of a valuation, and implausible in so far as it related to an offer to buy the property for $4.5 million. That is three times the value given by a valuer in November 2011.
The mortgage was given in circumstances where neither Mr nor Mrs Battaglia obtained independent legal advice or independent financial advice. It was not suggested that they lacked an appreciation of the nature of a mortgage. The complaint made is that Mr and Mrs Battaglia required information, particularly about the parlous financial position of the companies, and whether the Bank was likely to continue its funding.
However, I am satisfied that both Mr and Mrs Battaglia had an understanding that the financial position of the companies was very poor. They had been involved in the sending of more than $1 million from Argentina during 2011 to support the companies. Mrs Battaglia said in cross examination that the transfers were made “because the boys were in very bad shape”, and the family had been threatened with bankruptcy. The financial position was the subject of discussion with Mr Battaglia at the Gold Coast meeting on 11 December 2011, where Mr McCabe gained the impression that Mr Battaglia had a good understanding of the position the group was in. Mr McCabe’s internal memorandum of 6 January 2012 records that Mr Battaglia “is extremely disappointed family is in position it is”.
I am also satisfied that Mr and Mrs Battaglia were aware that it was a requirement of the Bank that a mortgage over the Broadbeach property be provided. This was stated by Mr McCabe to Mr Battaglia at the meeting on 11 December 2011. Moreover, it was stated that it was required due to an unacceptably high loan to value ratio. It is likely that this requirement was the subject of discussion within the family, including with Mrs Battaglia, around 24 February 2012 when Domenico Battaglia asked for the mortgage to be deferred until the new valuations had been obtained. It is also likely that there was discussion within the family about Mr McCabe’s rejection of that request, as well as his stern rebuff of the request that some comfort be given about future support from the Bank. It cannot have been thought that provision of the mortgage guaranteed continued support from the Bank. Rather, it was to stave off imminent recovery action.
Mr and Mrs Battaglia no doubt faced a very difficult and stressing situation, and the Bank was taking a hard line in its own commercial interests. There was a degree of pressure applied. In reality, the stark choice presented was between giving the mortgage and thereby preserving for the time being the relationship with the Bank, or declining to give the mortgage and thereby face recovery action.
Nonetheless, Mr and Mrs Battaglia were in my opinion in a position to obtain further advice about their position if they felt they needed it. SP&G could have provided legal advice. The companies had in the past engaged accountants, and they could have provided financial advice. Mr and Mrs Battaglia were not unable to protect their own interests in this respect. The way in which Mr and Mrs Battaglia conducted their business and financial affairs over the years, utilising companies and trusts, and engaging professionals such as lawyers and accountants to assist in that regard, would not have suggested to the Bank that they suffered from any such inability.
In all the circumstances, and despite the fact that Mr and Mrs Battaglia did not receive independent legal advice or independent financial advice in relation to the mortgage over the Broadbeach property, I am unable to conclude that the Bank, in procuring the mortgage, sought to take advantage of any inability on the part of Mr and Mrs Battaglia to make worthwhile decisions in their own interest. Again I do not think that the fact that the mortgage was executed for each of them by Domenico Battaglia, utilising the Powers of Attorney recently given in his favour, gives rise to any unfairness.
Moreover, and notwithstanding the degree of pressure applied by the Bank, I do not think that the Bank has engaged in unconscionable conduct within the meaning of s 12CB of the Australian Securities and Investments Commission Act. The Bank was evidently concerned about the state of the facilities (which were due to be repaid), and there was an immediate concern about the high loan to value ratio. I do not think that requiring a mortgage over the Broadbeach property was an unreasonable response to that concern, particularly in circumstances where it was initially suggested to the Bank that the property could be used to assist the financial position. The giving of such mortgage would undoubtedly improve the Bank’s position, and cause Mr and Mrs Battaglia to encumber a residential property, but it should be noted that Mr and Mrs Battaglia were already personally exposed to the very significant debts of the family companies. It is not suggested that the Bank engaged in any trickery, or used unfair tactics in relation to the mortgage. In fact the Bank was very straightforward about its requirement, and Mr McCabe gave no assurances of continued support from the Bank. It seems that the Bank in fact continued to work with the Battaglia family for some months in an effort to reach agreement on further funding. I do not think that the Bank’s conduct in relation to the mortgage was morally or ethically deficient.

For the above reasons, the unconscionable conduct claims in relation to the mortgage over the Broadbeach property have not been made out.

Conclusion

It follows from the above that the cross claims filed in each proceeding by Mr and Mrs Battaglia must be dismissed. In that event it is agreed that the Bank and the receivers are entitled to orders for possession of the Burraneer and Broadbeach properties respectively, and the Bank is entitled to monetary judgments against Mr and Mrs Battaglia. Costs should follow the event.
I direct that the parties bring in Short Minutes within seven days to give effect to these reasons.

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Decision last updated: 17 September 2015

Medium Neutral Citation:	Paratei Pty Ltd v ING Bank (Australia) Limited; Sparks v Battaglia [2015] NSWSC 1368
Hearing dates:	24 and 25 November 2014, 13, 14, 15 and 16 July 2015
Date of orders:	17 September 2015
Decision date:	17 September 2015
Jurisdiction:	Equity
Before:	Darke J
Decision:	Cross claims by guarantors and mortgagors dismissed. Orders to be made for possession of mortgaged properties. Judgments to be entered against guarantors and mortgagors.
Catchwords:	EQUITY – unconscionable conduct – guarantees and mortgages given by shareholders in support of debts of companies – whether special disability by reason of lack of involvement in management of companies and lack of knowledge or explanation of transactions – some of guarantees and mortgages executed under power of attorney – whether unconscionable of lender to enforce guarantees and mortgages BANKING AND FINANCE – unconscionable conduct in connection with financial services – guarantees and mortgages given by shareholders in support of debts of companies – whether conduct of lender unconscionable in circumstances due to lack of knowledge or explanation of transactions – some of guarantees and mortgages executed under power of attorney – Australian Securities and Investments Commission Act 2001 (Cth), s 12CB CONTRACTS – unjust contracts – guarantees and mortgages given by shareholders in support of debts of companies – whether contracts unjust in circumstances due to lack of knowledge or explanation of transactions – some of guarantees and mortgages executed under power of attorney – Contracts Review Act 1980 (NSW), ss 7,9
Legislation Cited:	Contracts Review Act 1980 (NSW) ss 7, 9 Australian Securities and Investments Commission Act 2001 (Cth) s 12CB
Cases Cited:	Bakarich v Commonwealth Bank of Australia [2007] NSWCA 169; Blomley v Ryan (1956) 99CLR 362; Canty v Paperlinx Australia Pty Limited [2014] NSWCA 309; Commercial Bank of Australia v Amadio (1983) 151 CLR 447; Kakavas v Crown Melbourne Ltd (2013) 250 CLR 392; [2013] HCA 25; Provident Capital Limited v Papa (2013) 84 NSWLR 231; [2013] NSWCA 36; Spina v Permanent Custodians Limited [2009] NSWCA 206; Taheri v Vitek [2014] NSWCA 209; Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389 West v AGC (Advances) Limited (1986) 5 NSWLR 610;
Category:	Principal judgment
Parties:	2013/231527 ING Bank (Australia) Limited (first cross claimant/defendant to second cross claim) Florentina and Stefano Battaglia (sixth and seventh cross defendants; second cross claimants) 2014/100650 Grant Sparks, Michael Owen and Stephen Parbery (plaintiffs/cross defendants) Florentina and Stefano Battaglia (defendants/cross claimants)
Representation:	Counsel: Mr D Savage QC, Mr J White (ING Bank and the receivers) Mr D Murr SC, Mr R Freeman (Florentina and Stefano Battaglia) Solicitors: Gadens Lawyers (Brisbane) (ING Bank and the receivers) Forbes Dowling Lawyers (Florentina and Stefano Battaglia)
File Number(s):	2013/231527; 2014/100650
Publication restriction:	None