Perpetual Trustee Company Ltd v Alexander Kotevski - [2009] NSWSC 1228

No judgment structure available for this case.

CITATION: Perpetual Trustee Company Ltd v Alexander Kotevski [2009] NSWSC 1228

HEARING DATE(S): 14,15,16,17,18,21,22,23,24,25,28,29,30 September 09;
1,27,28,29 October 09

JUDGMENT DATE :
16 November 2009

JUDGMENT OF: Patten AJ at 1

DECISION: See paragraph 305

LEGISLATION CITED: Consumer Credit (NSW) Code;
Contracts Review Act 1980;
Trade Practices Act 1974;
The Australian Securities and Investments Commission Act 2001;
Civil Liability Act 2002;
Consumer Credit Administration Act 1995;
Fair Trading Act 1987;

CASES CITED: Yorke v Lucas (1985) 59 ALJR 776;
Elkofairi v Permanent Trustee Co Ltd [2002] NSWCA 413
Tambree v Travel Compensation Fund & Ors [2004] NSWCA 24;
AGC Advances v West (1984) 5 NSWLR 590;
Perpetual Trustee Co Ltd v Khoshaba [2006] NSWCA 4;
Elders Trustee and Executor Co Ltd v E G Reeves Pty Ltd & Ors 78 ALR 195;
Lam v Ausintel Investments (1989) 97 FLR 458;
Gould v Vaggelas (1985) 157 CLR 215 at 236;
Ricochet Pty Ltd & Ors v Equity Trustees Executor and Agency Company Ltd (1993) 41 FCR 229
Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592;
Dalton v Lawson Hill Estate Pty Ltd (2005) ATPR 42-079

PARTIES:
Perpetual Trustee Company Limited - Plaintiff
Alexander Kotevski - Defendant
Milanex Pty Ltd and Milan Vlasic - Cross Defendants

FILE NUMBER(S): SC 15851 of 2007; 13889 of 2008

COUNSEL: Mr S Docker - Plaintiff
Mr K Connor SC with Ms M Avenell - Defendant
Mr D Weinberger - Cross Defendants

SOLICITORS: Kemp Strang - Plaintiff
SBA Lawyers - Defendant
McCabe Terrill - Cross Defendants

IN THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISION

Patten AJ

16 November 2009

No:13889 of 2008
No: 15851 of 2007

Perpetual Trustee Company Limited

v

Alexander Kotevski

JUDGMENT

INTRODUCTION

1 The Plaintiff (Perpetual), for whom Mr S Docker appeared, purported to lend $224,000 to the Defendant (Mr Kotevski) on 18 January 2006 pursuant to a loan agreement (the loan agreement) made between Perpetual and Mr Kotevski constituted by the acceptance on 20 December 2005 of a loan offer made by Perpetual on 14 December 2005 secured by a first mortgage (the mortgage) registered AC67270Q over the home unit in which Mr Kotevski lived, known as 3/3 Baxter Street Kogarah (the premises). The mortgage obliged Mr Kotevski to repay the loan and interest (at the initial rate of 7.67%) by monthly instalments of $1,581.61

2 The transaction had unusual features not the least of which was that Mr Kotevski was 74 years old in January 2006 and his only apparent source of income was an aged persons pension of about $ 500 per fortnight.

3 A number of entities and individuals played roles in the matter, which in due course I will need to consider. Certain of them are, or were, parties to the proceedings. In some cases their roles and procedures were regulated by written documents, which often were honoured more in the breach than the observance. There was, I regret to say, in my view, a fundamental failure by a number of individuals to apply themselves, if not honestly, at least sensibly and competently to the task in hand.

THE PLEADINGS.

4 The somewhat complicated pleadings were amended many times. In this section I will outline those upon which the trial was conducted.

5 There are two actions before the court. The first No.15851 of 2007 commenced on 20 November 2007 was met by a defence based on asserted non compliance with the provisions of the Consumer Credit Code (the Code). This led to the filing of a further Statement of Claim on 29 July 2008, No.138890/2008. Perpetual has not abandoned the earlier action and both actions were heard concurrently. For the purposes of the hearing, Perpetual relied on a Second Further Amended Statement of Claim in respect of the earlier action and a Second Amended Statement of Claim in respect of the later action.

6 For convenience, I will hereafter refer to the Second Amended Statement of Claim filed in court on 23 September 2009 as the Statement of Claim. It will not be necessary to refer further to the Second further Statement of Claim.

7 The Statement of Claim sought possession of the premises and declarations as to Perpetual’s entitlements under the loan agreement and the mortgage and judgment for monetary sums, which appear to total about $400,000.

8 The facts pleaded alleged:

The loan agreement provided inter alia for an advance to Mr Kotevski of $224,000 secured by the mortgage, for the payment of interest on the advance, for the payment of various fees, charges, and expenses and for the making of regular repayments over a term of 30 years. Registration of the mortgage. Defaults by Mr Kotevski under the mortgage. Service of Notice of Default. Failure to comply with notice of default causing all amounts advanced, interest, and all other amounts payable to fall due. An entitlement to possession of the premises and judgment for a monetary sum.

9 The defences current at the hearing filed on behalf of Mr Kotevski, for whom Mr K Connor SC and Ms M Avenell appeared, were comprised within the Defence to Further Amended Statement of Claim (in the earlier action) and Defence to Amended Statement of Claim (later action). These documents, inter alia:

Code

Contracts Review Act (

10 It was not disputed that there had been default and that if the loan agreement and mortgage were valid Perpetual was entitled to the relief it claimed.

CROSS CLAIMS

11 The Amended First Cross Claim by Mr Kotevski against Perpetual sought declarations under the Review Act and the Code that the mortgage and loan agreement be set aside and consequential relief. It also sought relief based upon alleged breaches of various agreements involving Perpetual and upon the conduct of persons asserted to be the agents of Perpetual.

12 The Defence to the Amended First Cross Claim for the most part simply denied or put in issue most of the matters alleged.

13 The Further Amended Second Cross Claim was brought by Perpetual against a company Milanex Pty Ltd (Milanex). It sought damages and or compensation under the Trade Practices Act (TPA) and/or the Fair Trading Act (FTA) and/or The Australian Securities and Investments Commission Act (ASAICA). In effect, it was alleged:

1. That Milanex represented to Perpetual:

that it acted for and represented Mr Kotevski;

that Mr Kotevski wanted to mortgage his home for an advance of up to 80% of its value;

that he had signed a loan application;

that he had signed a declaration that the loan was to be applied predominantly or wholly for business and/or investment purposes;

that Mr Kotevski had an ABN number;

that his occupation was builder;

that his annual income was $75,000;

that Mr Kotevski had been identified by the sighting of his citizenship certificate, his drivers licence and a rate notice for the premises;

that Mr Kotevski could be reached on telephone number 95882986 and that he had been self-employed for 6 years.

2. That the conduct of Milanex was in trade or commerce.

3. That in reliance on the representation, a company Good Home Loans Pty Ltd (GHL)made a “loan purchase request” to Perpetual for a loan to Mr Kotevski.

4. That in reliance upon the “loan purchase request” Perpetual made a loan to Mr Kotevski.
5. That in the event the Court finds the above representations to be misleading or deceptive Perpetual is entitled to damages and indemnity from Milanex.

14 By its Amended Defence to the Second Cross Claim, Milanex put in issue or denied the representations alleged; denied any reliance by Good Home Loans or Perpetual on the representations and relied on s35 of the Civil Liability Act, claiming that a Mr Kevin Lo (Mr Lo), a solicitor, and Perpetual were concurrent wrongdoers.

THE THIRD CROSS CLAIM.

15 The Third Cross Claim was by Mr Kotevski against Mr Lo. It is unnecessary to consider that cross claim further as, on the first day of the hearing, Mr Lo consented, without admissions, to a verdict against himself for $105,000 and an order for costs. Although he made some relevant admissions in his defence to the cross claim, he also gave evidence in Perpetual’s case at trial and any admissions were subsumed in his testimony.

THE FOURTH CROSS CLAIM

16 The Fourth Cross Claim was by Mr Kotevski against Milanex and its director, Mr Milan Vlasic (Mr Vlasic). In it, Mr Kotevski sought damages and equitable compensation against Milanex and Mr Vlasic, arising out of the parts they respectively played in the transaction. It was asserted that they falsely represented an authority to represent Mr Kotevski; that they breached their duties to him in a number of respects; and that they engaged in misleading and deceptive conduct contrary to the TPA and the ASAICA.

17 By their defence to the Fourth Cross Claim, Milanex and Mr Vlasic put in issue most of the matters alleged against them and also raised a defence based upon s35 of the Civil Liability Act and s12GR of the ASAICA, naming as concurrent wrongdoers Perpetual, Mr Lo, and a Mr Marko Micic (Mr Micic).

PERPETUAL’S CASE.

EVIDENCE OF Ms JANE POGSON

18 Ms Jane Pogson was the first witness called in Perpetual’s case and Mr Docker read her affidavit, which stated that it was sworn in April 2009. Somewhat carelessly, the actual date of swearing was omitted, both in the affidavit itself and on the note identifying the documents exhibited to it.

19 Ms Pogson said that she has been employed by Good Home Loans (GHL) since 2005. She was employed to establish its business and make contact with brokers. She had previously been employed in the mortgage industry for over twenty years, including with National Australia Bank.

20 She described the business of GHL in these terms:

“GHL accepts applications from brokers on behalf of borrowers and directly from borrowers and refers those borrowers to various lenders for funding. After a loan is advanced, GHL also carries out certain responsibilities in relation to the ongoing management of the loan in accordance with the requirements of the lenders.”

21 Perpetual was one of the lenders to whom GHL referred borrowers via Calibre as an intermediary. A written agreement dated 22 November 2005 and comprising some 34 pages regulated the relationship between Calibre and GHL (the MOMA agreement). (GHL was called the Mortgage Manager). Relevant provisions included:

Loan application means an application by a prospective borrower for a Loan.

Repurchase Price means in relation to a Non-Complying Mortgage and a completion date, the sum of:

Trailing Servicing Fees means all fees payable to the Mortgage Manager under clause 15.1 in respect of Mortgages which are payable on a periodic basis following settlement of that Mortgage.

4. Origination Procedures

4.1 Making of Loan Purchase Requests

4.2 Mortgage Manager to provide information

The Mortgage Manger must give Calibre all information requested by Calibre in relation to a particular Loan Purchase Request which is reasonably required by Calibre to give consideration to and process the Loan Purchase Request in accordance with its usual practices and procedures.

4.3 Acceptance of Loan Purchase Request

Calibre may accept a Loan Purchase Request but has no obligation to do so. Any such acceptance must be in the form, contain the information, be accompanied by the documents specified in, and otherwise be made in accordance with the Operations Manual.

4.4 Adverse Information

(a) If after accepting a Loan Purchase Request in accordance with clause 4.3 but prior to settlement of the relevant Mortgage, Calibre becomes aware of information which, acting in good faith, it considers material to its decision to accept that Loan Purchase Request, or likely to be material to the decision of an insurer to accept the relevant mortgage for cover under the relevant Mortgage Insurance Policy, Calibre may reject that Loan Purchase Request notwithstanding its earlier acceptance of that Loan Purchase Request.

(b) If the Mortgage Manager becomes aware of information prior to settlement of a Mortgage which might reasonably be considered as material to Calibre’s decision to accept or reject the relevant Loan Purchase Request, or to the decision of an insurer to accept or reject the relevant Mortgage for cover under a Mortgage Insurance Policy, the Mortgage Manager must notify Calibre of that information promptly after becoming aware of it.

4.5 Implementation of Accepted Loan Purchase Request

If Calibre accepts a Loan Purchase Request in accordance with clause 4.3, the Mortgage Manager must take all action which it is required to take under the Operations Manual in order to implement that Loan Purchase Request. In doing so, the Mortgage Manager must:

(a) comply with all applicable laws, the Operations Manual and any reasonable requests and direction which Calibre may make or give regarding that implementation; and

(b) use the same degree of skill and care as would be used by a responsible and prudent mortgagee.

4.6 Mortgage documents

The Mortgage Manager must, subject to clause 6.4

(a) comply with all of the provisions of the Operations Manual as to the form of all Mortgage Documents and their preparation, completion and execution; and

(b) instruct an Approved solicitor to prepare and complete the Mortgage Documents relating to each Loan in a manner consistent with the relevant Loan Application, Loan Purchase Request and the Operations Manual; and

(c) take reasonable steps to monitor compliance by the Approved solicitor with its instructions.

7.1 Undertakings

The Mortgage Manager must promptly give notice to Calibre upon becoming aware of the occurrence of any event of Default under a Mortgage.

9.2 Procedures on Default

(a) the Mortgage Manager reasonably considers necessary to:

(i) remedy the Event of Default;

Regarding Mortgages

(iii) protect and preserve the rights of the relevant Mortgagee; and

(b) is required under a Mortgage Insurance Policy to ensure that any losses suffered in relation to that Mortgage which are or are required to be insured under that Mortgage Insurance Policy, are able to be claimed under that Mortgage Insurance Policy.

9.3 Mortgage Manager to comply with direction

Calibre may (but shall not be obliged to) give direction and instructions to the Mortgage Manager as to the action to be taken pursuant to clause 9.2. The Mortgage Manger must comply with any such direction and instructions, provided they are not inconsistent with any proper instructions given by an insurer under the relevant mortgage Insurance Policy.

12. Representations and Warranties

12.1 Regarding Mortgages

The Mortgage Manager represents and warrants to Calibre and the Mortgagee of each Mortgage that except as disclosed to Calibre in writing and approved or waived by Calibre on or prior to the settlement or acquisition of a Loan and the relevant mortgage, the following matters will be true and correct in all material respects in relation to that Loan and Mortgage.

………………………………..

(e) (Loan Application) the relevant Loan Purchase Request has been fully investigated by the Mortgage manager in accordance with the Operations manual, and the Mortgage Manger is satisfied that all statements and information contained init are correct in all respects;

(f) (Origination) the Loan has been assessed and originated in accordance with the Operations Manual;

(g) (Consumer Credit Code) in the case of any Loan which is regulated by the Consumer Credit Code, all of the requirements of the Consumer Credit Code with respect to the entering into of the relevant Mortgage Documents were complied with except to the extent that such non-compliance was caused by the act or omission of Calibre, any adviser or consultant to Calibre or any person referred to in clause 6.4;

(h) (Adverse circumstances) the Mortgage Manager is not aware of any circumstances relating to the Mortgage, the property, the borrower or any guarantor which could reasonably be expected to cause Calibre or an insurer under a Mortgage insurance policy to:

(i) (Operations Manual) the Operations Manual has been fully complied with in relation to that Mortgage; and

(j) (Representations and Warranties) to the best of the Mortgage Manager’s knowledge, all representations and warranties made by each Obligor in the Mortgage Documents relating to that Loan are true.

12.2 Repurchase of Non-Complying Mortgages

(a) The Mortgage Manager must purchase or cause to be purchased each Mortgage in respect of which any of the representations and warranties contained in clause 12.1 are untrue (each a Non-complying mortgage) on the date (the completion Date) specified in the written notice from Calibre, which must be not less than 30 days after the date of the notice.

………………………………………

13. Acknowledgement and Indemnity

13.1 Acknowledgement
The Mortgage Manger acknowledges that:

13.2 Indemnity

The Mortgage Manager must indemnify Calibre and each Mortgagee on demand for all Costs and Expenses which Calibre or that Mortgagee may suffer or incur as a result of, or in connection with:

(a) any negligence, fraud or breach of duty by the mortgage Manager or any Delegate

(b) any breach by the Mortgage Manager of this Agreement;

(e) The Mortgage Manager or any of its Representatives being, or being held to be, the agent, partner or employee of Calibre or that Mortgagee.

22 The Operations Manual contained 94 printed pages. Some relevant provisions are:

1.1.4 The Trustee (Trustee)

The Trustee, Perpetual Trustee Company Limited, is the legal owner of, and registered mortgagee, on all mortgages settled into the Calibre Programme.

The Trustee will act as Trustee of a number of Trusts which will be set up to facilitate the funding of pools of mortgage.

2. The Mortgage Manager

To act prudently in the sourcing and ongoing servicing of high quality assets for the Calibre Programme and in doing so act in accordance with the Operations Manual, Mortgage Origination and Management Agreement and any relevant legislation applicable at the time.

To advise Calibre and the relevant lenders Mortgage Insurer as soon as possible if any information provided about the loan changes, is incorrect, or the Mortgage Manager becomes aware of:

Any non-disclosure of information by or on behalf of the borrower, or any guarantor, or any circumstance which is relevant to Calibre’s approval of the Loan; or

That any statement or information provided by the borrower, or any guarantor, is false, incomplete or cannot be prudently relied upon;

…………………………………..

Strongly recommend to borrowers and guarantors that they obtain independent legal and financial advice regarding the contents and effect of the credit contract and any security granted by them.

Not to accept an application if it knows, or has reason to believe, or suspect, that the information contained in the application form is incorrect or incomplete.

Not to accept an application if there is an obvious misstatement in the application form and to seek further information from the applicant if the application is incomplete.

2.4 Components of the Borrower Rate

The calculation of the borrower/s interest rate can be broken down as follows:

3. Relevant Legislation

All loans originated for and submitted under the Calibre Programme are required to comply with any relevant legislation in force from time to time including:

Consumer Credit Code

The Mortgage Manager must, in no circumstances alter or accept any declaration which has been altered from, the form in Appendix 9.

The Mortgage Manager is not to encourage applicants to sign the declaration where the purpose is, or maybe, a personal, domestic or household purpose.

The Mortgage manager is not to accept a declaration if it knows, or has reason to believe or suspect that the declaration is incorrect.

LoDoc 65 – Max LVR 65%

Min. Loan Term 10 years

Max. Loan Acc Term Up to 30 years

Fixed Rate period 1-5 years, or as otherwise advised by Calibre

5.2 Loan Purpose

5.5 Net Surplus Ration (NSR)

The NSR is a calculation method used to assist in assessing the borrowers ability to repay the proposed loan taking into account current commitments and living expenses.

The minimum NSR requirement is 1.00.1, or as otherwise agreed by the relevant lender Mortgage Insurer and Calibre.

The NSR calculation must be based on income that is regular and reoccurring in nature.

With the exception of LoDoc65 and LoDoc70 the Calibre NSR Calculator is to be used and submitted with the Loan Purchase Request in each and every instance.

5.7.1 Acceptable Forms of Income

Acceptable forms of Income Acceptable Criteria

PAYG Income Not subject to a probationary period

Commission and Overtime Average of the last 2 years if paid consistently for the past 2 years.

Half of the income earned if paid for less than 2 years but more than 12 months.

Nil if paid for less than 12 months.

Superannuation Payments are reoccurring and regular in nature

Investment Income Payments are reoccurring and regular in nature, eg interest and dividends.

Pension Lifelong

80% of Rental Income Rent to reflect market expectation

Net profit Audited financials, or if unavailable, financials prepared by an independent accountant.

5.7.2 Acceptable Evidence of Income

LoDoc70 – Declaration of Affordability – Refer Appendix 8

LoDoc65 – Declaration of Affordability – Refer Appendix 8

……………………………

5.9 Credit Evaluation

Fully completed and dated Loan Application Form executed by all relevant parties including a current Asset and Liability Statement.

The Mortgage Manager must hold a copy of the Loan Application Form on their loan file.

A credit check with no material adverse findings for all parties to the loan, including guarantors.

6. Documentation Description/Application

Outlined below is a brief description of the documentation used as a loan progresses from initial application through to settlement.

6.1 Origination Stage

6.1.1 Borrower/Guarantor Identification From

6.1.2 Confirmation of Conversation Form

Separate from to be completed for each borrower/guarantor.

Confirms that an authorised officer of the Mortgage manager has discussed the loan details with the borrower/guarantor.

6.1.4 Income & Affordability Declarations

Required for LoDoc loans only.

Allows PAYG (LoDoc70 only) and self employed borrowers to make a declaration confirming their ability to service the loan in lieu of producing financials.

6.1.8 Loan Application Form

Required in every instance.

Outlines the borrower/guarantors personal details including contact and income details, net asset position and loan requirements.

6.1.10 Loan Purchase Request

To be completed by the Mortgage manager in every instance.

Used as the base document for loading information onto the Calibre system, it outlines the borrowing structure, contact, security and loan details and importantly warrants that the loan qualifies for the Calibre programme.

6.1.11 Loan Purpose Declaration Form

Required for all loans not regulated by the consumer Credit Code, that is where more than 50% of the loan funds are to be used for business or investment purposes.

The form of this declaration is mandatory under the Code and must not be amended as any alterations to the standard form will not be accepted.

The Mortgage Manager is not to accept a declaration if they know, or have reason to believe or suspect that the declaration is incorrect.

6.2.4 Direct Debit Request form and Service Agreement

Required in every instance, regardless of the payment method selected by the borrower, and sent with the Loan Contract by the Panel solicitor.

Completed by the borrower, it outlines the bank account details from which payments may be collected and redraws credited. Please refer to Appendix 39 for a copy of the direct Debit Request form and Service Agreement.

7.1.2 Origination Process and Procedures

On receipt of the loan package from the Borrowers or Introducer, the Mortgage manager is to:

Conduct an initial assessment of the loan proposal to ensure that it meets the programmed parameters.

Identify all borrowers/guarantors who are a party to the loan

In every instance this function is to be conducted in person and maybe performed by the introducer of the loan. The person confirming the identification must be authorised to do so and is to complete the relevant section of the Borrower/Guarantor identification Form, refer Appendix 3.

The sighted forms of identification must be originals and certified copy/s are to be held on the Mortgage Mangers loan file.

Acceptable forms of identification are:

Both a drivers license and a passport, or either one, and a Birth Certificate, Citizenship Certificate, Medicare Card, Credit Card, Tertiary Student identification, Identification issued to a public sector employee.

Interview all borrowers/guarantors who are a party to the loan.

Individual – Commercial and Individual Consumer Report.

Submit the Loan Purchase Request to Calibre for compliance review and issuance of solicitor Instructions. The Loan Purchase Request is comprised of the following document:

* LPR Statement signed by an authorised signatory, refer Appendix 33

7.2.2 Settlement Process and Procedures

7.2.3 Settlement

On receipt of the Solicitor Instructions, via the Mortgage manager, the Panel Solicitor conducts the relevant searches and enquiries, prepares the loan documentation in accordance with the Solicitors instructions, programme requirements and any relevant legislation, eg Consumer Credit Code.

An authorised signatory of the Panel Solicitor is to sign the Mortgage and Loan Contract on behalf of the Trustee and then forward the loan documents to the borrowers solicitor, at the same time forwarding a letter to the borrower, (in a predetermined format), advising them of same. In those instances where the borrower has not engaged a solicitor to act on their behalf the documents will be sent directly to each borrower.

On receipt, the Panel Solicitor reviews the executed documents to ensure that they have been properly executed by all relevant parties and are not subject to any alterations, other than customer specific details which have been completed incorrectly. Any permissible alterations must be signed and initialled by all relevant parties.

Once satisfied that the loan is in order to proceed to settlement the Mortgage Manager completes the Request for Settlement Form and forwards it along with the settlement documentation to Calibre.

The settlement funds will be transferred to the Panel Solicitors trust account on the proposed settlement date.

It is the Panel Solicitors responsibility to ensure that the loan is settled in accordance with the documented loan purpose.

To ensure that the loan is settled in accordance with the documented loan purpose and that the loan funds are disbursed accordingly.

Once the loan or security document has been executed any changes will not be accepted unless the borrower/s sign or initial the change in the margin.

In those instances where the borrower has not engaged a solicitor to act on their behalf the Panel Solicitor will send the documents directly to each borrower.

23 According to Ms Pogson’s affidavit, one of her duties as an employee of GHL was to send information kits to brokers. The kits referred to what were termed “LoDoc Loans”, a product not available in respect of loans regulated by the Code. One broker to whom she sent a kit was Milanex as she had previously dealt with Mr Vlasic in respect of 40 or 50 loans when she worked for NAB.

24 On or about 29 November 2005, Mr Vlasic telephoned her and said he had a proposition to refer to her and at 12.35pm that day, she received an email which comprised a short formal note from him and a number of attached documents, some of which require further attention. They included:

A letter from Milanex to GHL regarding a new “Low Doc Loan” indicating that the client wanted to borrow up to 80% of the value of his mortgage free property. It mentioned an interest rate of 7.60%.

A form on the letterhead of GHL (“Applicant’s Personal Details”) which contained Mr Kotevski’s first name and surname; his home address, 3/3 Baxter Street, Kogarah for 10 years; his telephone number 958 82986; his date of birth 24.08.31; his driver’s licence number 8736WZ; his marital status - single; and an indication that he had no dependants. The document bore no signature.

A document headed “Loan Security Details”. The form indicated that the security was owner occupied; that a loan of $240,000 was sought; and that the proposed term of loan was 30 years. Under the heading “Purpose” a box labelled “Refinance” was ticked. Alongside in a space against “please provide details’, somewhat incongruously, the words “mortgage free property” had been written. Below this material appeared the address of the property 3/3 Baxter Street Kogarah; an indication that this was a metropolitan property; a second indication that it was owner occupied – title references 3/SP3893 and 17/SP3893; the estimated current value of the property viz $300,000; and against “contact for Valuer access”, the words Marko Micic 0402963368.

A document headed “Monthly Income/Statement of Assets and Liabilities” in which there were various boxes and headings. Nothing appeared in the section “Wages and Salaries per Month”. Under the heading “Assets” appeared “Kogarah property, $300,000”, car/s $25,000; furniture etc $70,000 and superannuation $30,000. Nothing was completed under the heading “Liabilities” and total living expenses were shown as $0. There was a tick in a box at the foot of the page against which was printed “Tick box if loans are to be repaid by this advance. The document purported to be signed A. Kotevski.”

A document headed “Applicant’s Declaration”. By this document, which purported to be signed by Mr Kotevski and dated 28 November 2005, he, inter alia, agreed to the lender engaging a valuer and indicated that he was not bankrupt or insolvent etc. and agreed that GHL could negotiate a loan on his behalf with a lender subject to its terms and conditions.

A document purporting to be signed by Mr Kotevski, which seems to be irrelevant as it was headed “Joint Borrowers Nomination Form Address for Notices”. In the document, Mr Kotevski nominated himself as the person to receive notices and other documents under the Consumer Credit Code.

A document purporting to be signed by Mr Kotevski and dated 28 November 2005 whereby he stated that the loan was to “be applied wholly or predominantly for business or investment purposes”.

A two page document purporting to be signed by Mr Kotevski on the second page, “Acknowledgment and Authority to Give and Receive Credit Information”.

A four page document called “Privacy Consent” purporting to be signed by Mr Kotevski on the fourth page.

A document headed “Verification of Borrower – 100 Point Check List” dated 28 November 2005 purporting to be signed by Mr Vlasic. It listed as the documents used to verify identification Citizenship Certificate and Drivers Licence.

A document headed “LoDoc declaration “ in these terms:

Proposed Loan Details

Borrower Information:

Declaration of Financial Position

I am/we are aware of our financial obligations under the proposed loan with you.

I/we have carefully considered our ability to afford the loan repayments as well as our ability to meet all our other financial obligation (including living expenses) as and when they fall due and can do so without incurring financial hardship.

Where the borrower is a Trust or company, that I/we (the Trustee/Directors) have been properly appointed and are entitled to act on behalf of the Trust/company to submit this declaration.

I/we acknowledge that you will be relying on this declaration in considering whether or not to approve my/our loan application.

Complete only where declaration is required

75,000

25 Under this appears a signature purporting to be the signature of Mr Kotevski. Suspiciously, immediately below the purported signature the words “Alexander Kotvski” (sic) are hand written under which appears the date, 24 November 2005.

26 Ms Pogson’s affidavit continued with these two paragraphs:

Also on the GHL file are copies of Mr Kotevski‘s Certificate of Australian Citizenship, his drivers licence and a Rate Notice dated 21 July 2005 in relation to the Property referred to in the Verification of Borrower document copies of which are at [151-153]. Because these documents are on the GHL file, GHL only received documents from Milanex in relation to the Application and because these documents are documents of the kind which normally come with loan applications and I would not have proceeded with processing the application until I had received them, I say that these documents were sent by facsimile or email to GHL by Milanex on 29 November 2005.

Milanex never sent GHL original documents. GHL only ever received copies of the original documents.”

27 Ms Pogson said that she checked the documents and the signatures which appeared on them against the signature on the drivers licence and did not observe any discrepancies. She did, however, observe that the ABN number had been omitted from the LoDoc Declaration (even though the form only seems to require companies to provide an ABN number). She telephoned Mr Vlasic and asked for it. He telephoned her back and told her the number 59811955289 which she wrote on a copy of the LoDoc Declaration.

28 There was evidence that this ABN number related to a Mr Alexander Kotevski, the Proprietor of ACG Carpenters, which carried on business in Victoria and seemingly had no connection with the Mr Kotevski in this case. She telephoned 95882986, the telephone number on the applicant’s personal details form, and the male person who answered told her he was not Alexander Kotevski.

29 She reported this to Mr Vlasic who told her to try 95889786. He also told her, according to her affidavit, that Mr Kotevski intended to use the loan proceeds “to purchase a business (or a building) for his grand daughter who is a hairdresser”. I interpolate that according to the evidence, Mr Kotevski was billed by Telstra in November 2005 in respect of the number 95889786.

30 Ms Pogson telephoned 95889786 and conducted a conversation with a man who told her he was Alexander Kotevski. According to her affidavit, this man confirmed, by saying “yes”, “no” or “ok”, to everything on the documents which she had received, including that he had lived at 3/3 Baxter Street Kogarah for ten years; that he had a car worth $25,000; that the contents of his home were worth $70,000; that he had a superannuation policy worth approximately $30,000; that he was a self employed builder with an income of $75,000 per annum; and that the funds were to be used for investment purposes.

31 Ms Pogson made a note about the telephone conversation on a form headed “Confirmation of Conversation Form”. She ticked 3 boxes on the form against “Borrower”, “Loan Account” and “Property”. She left blank the space beside the box “Purpose for which Loan Funds are to be Used” and had written N/A against the boxes “Employer”, “Type of Employment”, “Length of Service” and “Remuneration”

32 In relation to this conversation, Ms Pogson said:

“Mr Kotevski spoke with a strong European accent. I did not think about what kind of accent he had but I now know he is Macedonian. My only concern at the time was whether he understood the questions I was asking him. At no stage did he say he didn’t understand any questions I asked him nor did he ask me to repeat any questions I asked him. Mr Kotevski never hesitated to respond to any of my questions and although his answers were short they seemed to me to be responsive to the questions.”

33 Earlier in her affidavit Ms Pogson had explained that it was the responsibility of Milanex to conduct a full interview with Mr Kotevski and it was not the purpose of her telephone call to interview him as she would have interviewed a customer who came to her direct.

34 She then ordered a credit search against Mr Kotevski with Baycorp Advantage Business Information Services Ltd. The search dated 29 November 2005 revealed two matters, which may have given her pause for reflection. Under “consumer employment” appeared “4/12/1998 DSS Rockdale”. Under “Consumer Defaults” was a reference to a default in a payment due to AGC QLD Credit Line, although it appeared that the default involving $1,232 had been settled.

35 She proceeded to calculate what she termed the Net Surplus Ratio (NSR) from the documents and determined that it exceeded the minimum requirement for an approved loan. She described this as a method used to assist in assessing a borrower’s ability to repay the proposed loan, taking into account current commitments and living expenses. She then applied to Gemworth Financial Mortgage Insurance Pty Ltd (Gemworth) for mortgage insurance which by facsimile of 30 November asked her to provide “term in current employment”. She referred the question to Mr Vlasic who told her “six years” which she conveyed to Gemworth. – “self employed 6 years”.

36 The application to Gemworth was conditionally approved subject to valuation. She commissioned one from a valuer, nominating Mr Micic as the person to contact. When received, the valuation was $280,000 against which she could negotiate a maximum loan of $224,000. She referred this problem to Mr Vlasic who telephoned her back and told her to reduce the loan application to $224,000. Mortgage insurance was approved by Gemworth on that basis.

37 Having received the mortgage insurance approval, Ms Pogson sent a Loan Purchase Request to Calibre. It was in this form:

“Good Home Loans Pty Ltd requests that the Trustee, document, settle and purchase the loan as outlined in the following schedule.

To assist Calibre in processing the Loan Purchase Request please find attached the following documents.

Borrower:

I hereby certify that:

In originating the loan the obligations and requirements outlined in the Mortgage Origination and Management Agreement, the Operations manual and any applicable relevant legislation have been complied with.

I am not aware of any event or circumstance which may detrimentally alter the status or financial condition of the borrower, or any guarantor, or which may reduce the value of the mortgaged property.

I am not aware of any non-disclosure of information on behalf of the borrower, or any guarantor, or a change in any circumstance which may be relevant to Calibre’s and the relevant Lenders Mortgage Insurer’s approval and the Trustees purchase of the loan.

I am not aware of any event or circumstance which would cause the borrower/s difficulty in meeting their obligations under the Loan Contract upon settlement of the loan.

The Lender Mortgage Insurer’s disclosure requirements have been satisfied in obtaining the Lenders Mortgage Insurance.

I am not aware of any incident, event or circumstance which may negatively affect the ability of Good Home Loans Pty Ltd to carry out the ongoing management and administration of its portfolio, or a loan, or meet its obligations under the Mortgage Origination and Management Agreement, the Operations Manual or any applicable relevant legislation.

Good Home Loans Pty Ltd is not in default under the Mortgage Origination and Management Agreement.

38 On the same date viz 13 December, she received a letter of instructions by Calibre addressed to Paul Fabian & Co Solicitors (Fabian) to act for Perpetual on the transaction. She forwarded the letter to Fabian.

39 On 13 January 2006, Ms Pogson received from Fabian by facsimile a letter which purported to enclose:

“Solicitor’s Certificate together with Loan Offer document, Mortgage, Direct Debit form and certificate of currency for strata insurance for settlement on Wednesday 18 January 2006.”

40 The certificate which was signed by Sharmila Ratnasiva as “authorised signatory for, and on behalf of, Paul C Fabian & Co” certified among other things:

“…………………………

12 (a) We have served each Secured Agreement, Mortgage and Guarantee separately on each Borrower, Mortgagor and Guarantor respectively or their solicitors (as applicable) in accordance with the requirements of the Consumer Credit Code (where they are regulated by the Consumer Credit Code) and the procedures in the Solicitor’s Pack.

(b) Where we have sent any of the above documents to the Mortgagor’s, the borrower’s or the Guarantor’s solicitor, we have also at the same time, sent a letter to the Mortgagor, Borrower or the Guarantor (as applicable) advising them we have sent that document to their solicitor.

41 Among the copy documents sent by Fabian to Ms Pogson was a Statutory Declaration signed by Mr Kotevski before Mr Lo, in which he said he was the borrower named in the loan security documents in favour of Perpetual; that he had received legal advice; and that he freely and voluntarily signed the documents.

42 The copy mortgage sent by Fabian to Ms Pogson appeared to be signed by Mr Kotevski before Mr Lo. It mortgaged Torrens Title 3/SP3893 and incorporated by reference as a collateral document “Loan Offer number 8553480 dated 14 December 2005”.

43 The copy “Loan Offer” indicated that it was signed by Mr Kotevski before Mr Lo on 20 December 2005. It provided for a loan of $224,000 by Perpetual to Mr Kotevski for a term of 30 years. Repayments were to be made by monthly instalments covering principal and interest of $1,581.61 each, apart from the last which was to be $2,727.38. That would have been payable in December 2035 (when Mr Kotevski would have been 104). The “Loan Offer” document comprised 12 printed pages. Rather significantly, as perhaps indicating where the minds of all those involved in the transaction were concentrated, 7½ pages were devoted to the interest, fees, and charges payable, or potentially payable, by Mr Kotevski. The “Loan Offer” provided that the security would be “a registered first mortgage” over “the property at 3/3 Baxter Street Kogarah, title Reference: 3/SP3893”.

44 In a box labelled “Purpose” was printed:

You must only use your Loan for the purpose or purposes specified in your Loan application.

You have told us that you expect the proceeds of the Loan to be paid as follows:

$1,926.75 to the Lender on account of the total ascertainable credit fees and charges itemized in the Initial Fees and Charges section above, which are to be paid out of your loan.

$222,073.25 being the balance of Loan Account 1 to you or as you or your solicitor or conveyancer directs. If you need to change this information you will need to do so in your direction to pay.

See clause 1.5 of the Booklet for details of which Loan Account any amounts listed above as payable to the Lender will be paid from.

The Lender is treating this offer as not regulated by the Consumer Credit Code.”

45 After checking the documents, Ms Pogson on 13 January sent a “Request for Settlement” to Calibre confirming everything was in order for settlement on 18 January. She certified, inter alia, that GHL had complied with the MOMA and the Operations Manual.

46 On 16 January GHL received an email from Calibre which read:

“As discussed prior to booking funds for the above settlement, could you please let me have the Loan Purpose Declaration showing Perpetual Trustee Company Limited as the Lender.

Also could you please ask Fabian and Co for an amended Loan Offer document showing the additional reference to title 17/3893 on page 9 of 12. (In the schedule to the Solicitors Certification they are showing two references to title for the property, yet in the Loan Offer there is only one.)

Once these two issues are resolved I will book funds.”

47 In Ms Pogson’s absence the request was dealt with by Mr Jason Gomes. He sent to Mr Vlasic a blank form of the document “Declaration of Purposes for which Credit is Provided” and requested “please get the client to sign the attached form and fax it back to me”. The same day GHL received by facsimile from Milanex a copy of the declaration addressed to Perpetual, purporting to be signed by Mr Kotevski that day. As appears, hereafter, in my opinion, the probability is that the signature purporting to be that of Mr Kotevski is forged.

48 Later, on 16 January GHL received an email from Fabian “attaching a copy of an amended page 9 of the Loan Offer, which included a title reference of 17/SP3893 and a copy of an amended page 4 of the Solicitors Certificate dated 16 January 2006, which also contained such reference. On the former document, the additional title reference was written in ink alongside the initials (according to the evidence of Mr Fabian referred to hereafter) of his employee Ms Rachel Ralston. GHL sent the new Declaration and the two amended pages to Calibre by facsimile.

49 On 18 January GHL was informed by Fabian that the loan had been settled.

50 On 22 February, Ms Pogson was notified that the direct debit arrangement put in place for payment of the instalments payable under the loan agreement, had been dishonoured. She spoke to Mr Vlasic about this and subsequently, according to her affidavit, had a number of conversations, extending into 2007, with Mr Kotevski about the default. Her affidavit does not indicate the telephone number she called or the means by which she identified Mr Kotevski. Following one of the conversations a payment of $1,650 was made to Mr Kotevski’s account. In another conversation, according to her affidavit, Mr Kotevski said “Ring Marko Micic, my son. He will sort it out. His mobile number is 0402963368.

51 Ms Pogson’s affidavit continued:

“I then telephoned Mr Micic and we had a conversation in words to the following effect:

Mr Micic said : Yes.

I said: This is Jane from Good Home Loans. Alex Kotevski has asked me to give you a call. His direct debit in the amount of $1,669.62 for his loan has dishonoured.

^th

I said: Thank you.

I then made a note of the above conversation on the email I received from Mark Darby at Calibre dated 21 June 2006.

I recall Mr Micic had a European accent but it was not as strong as Mr Kotevski‘s and his English was much clearer than Mr Kotevski’s. I recall Mr Micic’s voice was deeper than Mr Kotevski‘s and he sounded younger than Mr Kotevski. I also recall he dropped less words that Mr Kotevski.

From this point onwards, my first point of contact was still Mr Kotevski but if he was unavailable, I would telephone Mr Micic. In the event that I spoke with Mr Micic, it was my practice to make a note of this as he was not the borrower.

The Account statements show on 29 June 2006 a payment was made to the Account in the sum of $1,669.62 which was dishonoured the same day.”

52 Thereafter Ms Pogson relates other telephone conversations with Mr Kotevski and Mr Micic regarding the default. Her evidence was that she telephoned Mr Kotevski on 95889786 and Mr Micic on 0402963368 and 0433519930.

53 Ultimately, following many unfulfilled promises and continued defaults, which stretched to nearly the end of 2007, steps to enforce the mortgage were instituted. In the meantime in November 2007, Ms Pogson had a telephone conversation with Mr Kotevski’s daughter, Javorka Cirhovic, and a visit in December from three men, who introduced themselves as Mr Kotevski, Mr Micic, and Mr Kotevski’s nephew. The meeting was unproductive in that no proposal to pay the arrears was made.

54 In her oral evidence, Mr Pogson said that the number she used to telephone Mr Kotevski was always 95889786 and she always seemed to speak to the same male person with a distinctive middle eastern accent on that number.

55 In cross-examination, Ms Pogson told Mr Connor that she was aware that at the time of the loan Mr Kotevski was 74 and that the loan was to be for 30 years. She said that she did not consider raising that circumstance with Calibre or Perpetual as she did not regard it as relevant.

56 She told Mr Connor that she also did not regard it as relevant to inform Calibre of the default indicated on the Baycorp search. She said that she could not recall noticing that the search indicated that Mr Kotevski’s employer was stated as “DSS Rockdale”. She seemed to me reluctant to admit what I regard as rather obvious, namely that the initials “DSS” might well refer to the Department of Social Security. Nor did she consider that, having regard to his age, Mr Kotevski might have been a pensioner.

57 Asked about, so called LoDoc loans, Ms Pogson said they were used for clients who did not have financial documentation such as income tax returns. She did not ask Mr Kotevski whether he had such returns but assumed that Milanex had gone through the established procedures. She identified Mr Vlasic’s handwriting on the documents “LoDoc Declaration” (other that the figures 75,000); “Applicant’s Personal Details”; “Loan/Security details”; and “Monthly Income/Statement of Assets and Liabilities” received from Milanex on 29 November 2005.

58 She agreed with Mr Connor that the statement in the last mentioned form to the effect that Mr Kotevski’s monthly expenses were zero was obviously incorrect. However, she said that in the case of LoDoc loans a declaration by the borrower as to ability to service the loan was all that was required and that she would take it at face value.

59 She also agreed that if she had closely examined the signature on the LoDoc Declaration and compared it to Mr Kotevski’s signature on the driving licence, she would have noticed a discrepancy.

60 As to how she thought the loan would be serviced there was this exchange:

“Q. Did you look at serviceability of the loan at the start of the loan?
A. Yes, we do.

Q. Do you look at serviceability of the loan after six months?
A. No.

Q. Do you look at serviceability of the loan after 12 months?
A. No.

Q. Do you look at the serviceability of the loan at any time from one year to 30?
A. No.

Q. So, you are only concerned with from Good Home Loans' point of view with serviceability of the loan at the outset?
A. No. We do not check the servicing. But, I mean, we assume the client is going to service the loan.

Q. How do you make the assumption in Mr Kotevski's case that after 15 years the loan could be serviced?
A. He was acquiring an investment, it could have been from that. It would have been from any project he was working on. I do not, sort of, delve too far into that, that is not something we would normally do.

Q. What investment was Mr Kotevski making?
A. For the loan?

Q. Yes?
A. It was a purchase of a business, a hair-dressing business, for his grand-daughter.

Q. Now, where did you get that information from?
A. An early conversation with Milan.

Q. Where is the note of that in your notes?
A. Sorry?

.

61 She said that she did not tell Calibre that her information was to the effect that the investment by Mr Kotevski was to benefit a third party, namely his granddaughter.

62 I asked Ms Pogson about LoDoc loans:

“Q. Ms Pogson, I am puzzled about this low doc concept. Whose call is it, the borrower or the mortgagee, as to whether it is a low doc transaction?
A. It is, basically, the borrower. Either they have the documents or they do not, and they can choose to select a low doc loan. All financial institutions have them.

Q. So, in this case, Mr Kotevski, you say, chose to have a low doc loan?
A. Yes.

Q. And he made the low doc declaration?
A. Yes.

Q. What in that document constituted his suitability for a low doc loan?
A. It is something that would have been established through the interview with Milan, that it was a low doc loan. So, it would have probably been discussed prior, as to whether he had financials or did not.

Q. When you say "financials", that means?
A. Tax returns.

Q. Tax returns?
A. Yes.

Q. Did you think that a person who disclosed an income of $75,000, presumably per annum, would not have a tax return?
A. There are lots of people that have low doc loans that do not have their financials up to date. We require the two most recent years. Yes.

Q. So, they might have a huge tax liability, for instance?
A. They may.

63 Later she agreed with Mr Connor that in several respects the documents received by her on 29 November 2005 were incomplete and that the agreement with Calibre required that such documents not be accepted. She maintained, however, that LoDoc loans required neither details of income, nor sources of income to be particularised.

64 Ms Pogson conceded to Mr Connor that she made no enquiries and, in truth, knew nothing about the hairdressing business or even the proposed ownership of it, which she mentioned in her affidavit “it was just in conversation that is what the funds were going to be used “. Although she said that an investment loan required no more than that the word ”investment” appear, she agreed that nowhere in the manual was that stated.

65 Cross-examined about the telephone conversation, she claimed to have had with Mr Kotevski soon after receiving documents from Milanex on 29 November 2005, Ms Pogson agreed that she had no independent recollection of what was said but could independently recollect the conversation. She said that she reconstructed the conversation from her usual procedures.

66 As to the risk of her relying on false LoDoc declarations, there was this exchange:

“Q. You knew that the risk of false Low Doc declarations was significant?
A. No.

Q. Is it the position, that you gave no consideration as to whether it was false, or not?
A. No.

67 Mr D Weinberger, counsel for Milanex and Mr Vlasic, in his cross-examination of Ms Pogson touched on the subject of the LoDoc Declaration:

“Q. Well, applicants for Low Doc/subprime loans simply put forward security, don't they? In order to procure the loan?
A. And the declaration.

Q. And the declaration, but the only matter that is verified is the value of assets by which the loan is to be secured, correct?
A. Yes.

Q. And that verification has taken place by a valuation, correct?
A. Of the property.

Q. Of the property, yes?
A. Yes.

Q. Nothing else advanced, or I am sorry, nothing else asserted to be the applicants financial predicament, if you like, is verified, correct?
A. Their debts would be if they had debts.

68 Ms Pogson agreed with Mr Weinberger that unlike all of the other conversations referred to in her affidavit, she did not make a note of the conversation with Mr Vlasic referred to in her affidavit regarding the purpose of the loan. However, she denied Mr Weinberger’s proposition that she did not have the conversation until after the loan was made. He asked her about the conversation:

“Q. Alright, and you understood from that conversation that Mr Kotevski wanted to give his granddaughter some money to purchase a hairdressing salon?
A. No, not worded like that.

HIS HONOUR: Sorry, I couldn't?

WITNESS: No, not how you worded it.

WEINBERGER

Q. Right, what do you say you understood?
A. That, that he was - I am not certain if it was a building where his grand daughter's hairdressers was, or the business, yes, but it wasn't that he was just giving her money.

Q. Well, if you are not sure whether it was the building or the business, does that mean you are unsure about the content of the conversation you had with Mr Vlasic?
A. In general it was that sort of content, but as I say I don't recall it was that exact business or the building that the business was in. I am not sure.

MR WEINBERGER GRANTED ACCESS TO GOOD HOME LOANS ORIGINAL FILE

WEINBERGER

Q. Ms Pogson, before the luncheon adjournment I think I was asking you questions about the purpose of the loan. Can we take it you were not aware of what was the arrangement between Mr Kotevski and his granddaughter and indeed if one existed?
A. Yes.

Q. So it would follow therefore would it not that if - and when you say you were not aware of the arrangement, that is, you were not aware as to whether Mr Kotevski was for example, receiving or going to receive an income from the hairdressing salon?
A. Yes.

Q. If that is the case then it follows does it not that you were not aware or could not have concluded that the loan was for an investment purpose. If you were not aware Mr Kotevski was going to receive an income or otherwise, would you accept that it follows that you were not able to conclude that the loan was for an investment purpose?
A. No.

Q. Let's assume it to be the fact Mr Kotevski intended to lend or give the money to his granddaughter, lend the money interest free or give the money to his granddaughter. In those circumstances would you still maintain that the loan was for an investment purpose?
A. Meaning if he was just giving her money, no.

Q. What if he was lending her the money without any interest at all?
A. It is all hypothetical.

Q. I understand it is hypothetical. If Mr Kotevski was lending his granddaughter $200,000 odd interest free, would you agree that is not for an investment purpose?
A. Yes.

Q. So it follows therefore given your earlier evidence that you were not aware of what arrangement existed between Mr Kotevski and his granddaughter, if any, that you were not able to conclude that the loan was for an investment purpose. It must follow?
A. But I don't determine that.

Q. I didn't ask you whether you determine it. It must follow that you were not able to conclude that the loan was for an investment purpose?

OBJECTION (DOCKER)

HIS HONOUR: It is very hypothetical. Ask the question again.

WEINBERGER

Q. You said you were not aware of what arrangement if any existed between Mr Kotevski and his granddaughter?
A. Yes.

Q. If it be the case that Mr Kotevski intended to give his granddaughter the monies or lend it to her interest free you have agreed that would not be for an investment purpose?
A. Yes.

Q. So, other than ringing Mr Kotevski and putting the words into his mouth, are the funds to be used for an investment purpose and he says yes?

OBJECTION (DOCKER)

Q. Other than putting the words in Mr Kotevski's mouth as you said at paragraph 24, are the loans to be used for an investment purpose and Mr Kotevski says yes, you were not able to conclude whether or not the funds were for an investment purpose, correct?
A. No that is established in the interview process.

Q. I am asking about yourself. You weren't able to--
A. No.

69 Later in the cross-examination, by Mr Weinberger, Ms Pogson conceded that if she had known Mr Kotevski was, or might have been, a pensioner, she would not have proceeded with the loan.

70 I do not question the honesty of Ms Pogson, or the reliability of her evidence, with the qualification that I do not accept that she had a conversation with Mr Kotevski on or about 29 November 2005 during which he allegedly verified the matters set forth in paragraph 24 of her affidavit of April 2009 and referred to in paragraph 30 above. The testimony seems to me to be inconsistent with her own note of the conversation and also inconsistent with the capacity of Mr Kotevski to understand spoken English. Moreover, in my opinion, it is improbable that Mr Kotevski would have made patently false statements, the truth of which could easily be checked as to his occupation, his income, his period of residence in Baxter Street and his assets. In the outcome, in my view, Ms Pogson does not, however, emerge from this particular transaction with a great deal of credit. It is all very well for her to say that she relied on Milanex and Mr Vlasic but the fact is her own conduct was regulated by a very detailed agreement, of which multiple breaches were plainly committed, not the least of which being the obligation to “act prudently in the sourcing and ongoing servicing of high quality assets for the Calibre program” as required by clause 2.1 of the MOMA agreement.

71 Spigelman CJ made some observations pertinent to this case as to the significance attributable to a lenders failure to adhere to its own guidelines and procedure in Perpetual Trustee Co Ltd v Khoshaba [2006] NSWCA 41 at paragraph 79 and following:

“79 The Appellant submitted that the failure to observe its own Guidelines was not entitled to substantial, let alone determinative, weight. The Appellant accepted that the failure was a relevant consideration. However, it submitted that the Guidelines were designed for the purpose of protecting the lender, not the borrower. Their purpose was to enable the Appellant to assess and minimise its own risk.

80 This proposition can be accepted, but it does not lead to the conclusion, urged on the Court by the Appellant, that the failure is entitled to minimum weight when determining what is just in all the circumstances. The benefit to the borrower from a proper risk assessment may be indirect, because unintended, but that does not mean that it cannot, in appropriate circumstances, be entitled to significant weight in the determination of unjustness. It is clear from the list of factors contained in s9(2) and (3) of the Act, that a substantial purpose of the legislative scheme is to protect persons who are not able to look after themselves.

81 Rolfe DCJ’s finding of fact, which is not challenged, that if the Guidelines had been observed the Appellant would never have advanced the loan to the Respondents was justified. The finding does not go only to causation. It is a factor entitled to be taken into account and given weight in the determination of unjustness.

82 I have set out above in the extract from his Honour’s findings on the Guidelines issue each of the respects in which the Appellant failed to observe its own Guidelines. Of these failures the most significant, in my opinion, is the fact that the section of the standard form application about the purpose of the loan was left blank. This indicates that, as in Elkofairi supra at [79], the Appellant “was content to lend on the value of the security”. In my opinion, that approach is entitled to significant weight in the determination of unjustness. (I note that nothing like this occurred in West where the purpose of the loan was known.)

72 As it seems to me, no sensible person would make, or participate in making, a loan of $224,000 to a 74 years old aged pensioner for a term of 30 years without at least a close consideration of the purpose of the loan. Ms Pogson knew, from more than one source, that Mr Kotevski was born on 24 August 1931.

73 If she had thought about it for a moment, she should have realized that the reference in the Baycorp credit search to DSS Kogarah may mean that Mr Kotevski was in receipt of a pension paid by the Department of Social Security. If she did not realize this then, in my view, she had an obligation to make a further inquiry, particularly as the bald statements in the LoDoc declaration that Mr Kotevski was a builder in receipt of $75,000 per annum, plainly begged a number of questions.

THE EVIDENCE OF Ms LENORE MCKINNIERY

74 Mr Docker read three affidavit of Lenore McKinniery, respectively sworn 23 December 2008, 8 September 2009 and 14 September 2009. Carelessly, as it seems, her surname is spelled McKinnery in the first of the affidavits and McKinniery in the other two. Her signature does not assist in resolving the discrepancy but I will employ the spelling McKinniery, which appears on documents emanating from her office.

75 In the first affidavit, Ms McKinniery said that she is a director of Calibre which has operated since its inception in 2005 in the “wholesale residential mortgage market”. She has worked in the mortgage industry for over 17 years. In her first affidavit, she described the business of Calibre and its relationship with Perpetual and GHL in these terms:

“The Calibre Programme is an arrangement under which a range of credit products are advanced on security of registered first mortgages over residential property. These products include conventional term loans, lines of credit (revolving), MasterCard and various fixed and interest only options.

Perpetual Trustee Company Limited (Perpetual) the plaintiff is the trustee of various trusts. As trustee it advances the loans and is the legal owner of and registered mortgagee on all mortgages taken under the Calibre Programme. Perpetual is also the custodian of the security documents which include, inter alia, the certificate of title and the mortgage.

Calibre is the trust manager of the trusts of which Perpetual is the trustee. Calibre is responsible for the management of the Calibre Programme. Calibre is responsible for deciding whether a loan and mortgage will be entered into by Perpetual. At[4] is a copy of the trust deed pursuant to which Perpetual becomes trustee of the trusts and Calibre is the trust manager.

Calibre accredits various companies as mortgage managers in the Calibre Programme. Good Home Loans Pty Ltd (GHL) is an accredited mortgage manager. Calibre’s relationship with GHL is governed by the Mortgage Origination and Management Agreement (MOMA). A copy of the MOMA is a [102].

76 Ms McKinniery exhibited to her affidavit a copy of the trust deed between Perpetual and Calibre, a copy of the MOMA with GHL and a copy of the Operations Manual. I have earlier made extensive reference to the latter two documents. It is unnecessary, I think for me to make further reference to the trust deed, except to comment that its provisions may well entitle Perpetual to recover any loss through Calibre by requiring GHL to purchase the mortgage.

77 She deposed to receiving a Loan Purchase Request from GHL on behalf of Mr Kotevski on 13 December 2005 and said that it was the practice of Calibre to check the documents sent to it, namely the insurance approval, the valuation, the net servicing ratio calculation, the LoDoc declaration and the loan purpose declaration form. Subject to this and other administrative tasks, such as the establishment of a file, instructions would be given to a solicitor which, in Mr Kotevski’s case, were given to Fabian. Those instructions, which according to the evidence in this case, were emailed at 7.30pm on 13 December 2005 were in a standard printed form and instructed Fabian to prepare and serve the Loan Contract and Mortgage. ‘Security Details” given to the solicitors stated “3/3 Baxter St Kogarah” but did not provide a title reference. There was, however, a reference to the purpose of the loan viz “for future investment”.

78 Subsequently, she said that Calibre received from GHL a request for settlement, accompanied by Fabian’s certificate and a copy of the Loan Offer, which they had prepared. She noticed that the solicitors certificate included reference to two certificates of title 3/SP3893 and 17/SP3893, yet the Loan Offer referred only to the former.

79 On 18 January 2006, Fabian notified Calibre that settlement had been effected. Thereafter, she became aware that numerous payments from a client debit account were dishonoured.

80 In cross-examination by Mr Connor, Ms McKinniery agreed that Calibre is the entity that decides whether or not Perpetual accepts a loan application and that Perpetual has no role in that connection. She also agreed, in effect, that Calibre relied upon GHL to perform its role and she did not review the tasks which it had contracted to perform. Moreover, only some of the documents collated by GHL were sent to Calibre.

81 Ms McKinniery told Mr Connor that she was not aware of Mr Kotevski’s age until well after settlement when he went into default. She conceded that she did not receive a copy of the LoDoc declaration until it was sent to her by Ms Pogson on 14 December 2005, the day after she had given instructions to Fabian. She said this was an oversight but an inconsequential one as it was only necessary for her to sight the LoDoc declaration before settlement.

251 Ms Radanovic told Mr Connor that although she worked for Mr Vlasic until November 2008 and remained working in the same industry, he had never, after settlement of the loan, asked her to look for documents connected to the case.

252 The effect of Ms Radanovic’s evidence was that all the documents purportedly signed by Mr Kotevski, which passed through the office of Milanex, may have been completed in the office and taken away to be returned, apparently signed, some time later. I asked her about this:

“Q. Why would any of these documents have left your office?
A. Because sometimes clients just want to see another broker and are shopping around for a better deal and they would take the application and some of them never returned.”

253 In relation to the retention of documents after loan settlements, she told Mr Connor, “they could be thrown away”, but said she was not involved in that process, which was looked after by Mr Vlasic.

254 Pressed by Mr Connor as to whether she had actually inspected Mr Kotevski’s original driving licence she maintained that she had, despite the fact that the copy annexed to Mr Vlasic’s affidavit appeared to have been faxed on 17 November 2005 by a company Huhao Trade Australia Pty Ltd. Her explanation that this document was faxed afterwards to replace a copy of the original licence, which had been mislaid, appears to be plainly wrong.

RELIABILITY OF MR VLASIC AND MS RADANOVIC

255 For a number of reasons, I do not regard either Mr Vlasic or Ms Radanovic as reliable witnesses. I formed the opinion that neither had an independent recollection of the events from November 2005 to January 2006 to which they deposed and instead were reconstructing what they thought occurred from documents.

256 When tested Mr Vlasic could not remember what in particular had occurred at either of the two meetings, which he said took place in his office in November 2005. He referred on more than one occasion to “clients” as encompassing both Mr Kotevski and Mr Micic and seemed to regard them as being in the same interest. He could offer no explanation for the fact that all the signatures on documents, purportedly signed by Mr Kotevski and exhibited to his affidavit, may have been forged. As to this, if, as seems probable, they were forged, I find it difficult to believe that if Mr Kotevski had, in truth, attended the office of Milanex twice in November 2005, some if not all of the documents would not have been signed by him while there.

257 Ms Radanovic purported to have quite a clear recollection of the conversation she recounted in her affidavit, yet when cross-examined could remember virtually nothing else about the meetings. In respect of the documents completed in her handwriting, it seems to me, inherently unlikely, that if Mr Kotevski were in her office she would not have had him sign them in her presence. Despite her firm denials, I am of the opinion that Ms Radanovic was mistaken in her evidence that she saw the original of Mr Kotevski’s driving licence. It seems to me probable that Milanex only had the copy, faxed on 17 November.

258 What may seem a small matter has also influenced my opinion that Ms Radanovic did not obtain the information in the documents exhibited to Mr Vlasic’s affidavit directly from Mr Kotevski. In the document headed “Applicants Personal Details”, she has incorrectly recorded Mr Kotevski’s telephone number and she has also incorrectly recorded as 10 years the period he lived at 3/3 Baxter Street, Kogarah. It is to me inconceivable that Mr Kotevski would have lied about these two matters, which would have been inconsequential to him, and almost as inconceivable that Ms Radanovic would have incorrectly recorded matters which she would have regarded as important. It is, I think more likely that she was relying on someone else for her information.

259 In assessing the reliability of Mr Vlasic in particular, it is also. I think, appropriate to take into account the manner in which he conducted the business of Milanex.

260 It would seem that in November 2005 it was obliged as a “finance broker” to comply with the Consumer Credit Administration Act by entering into a written contract with clients and preserving records for 7 years, neither of which it did. Moreover, Mr Vlasic seems to have made no record of his alleged meetings with Mr Kotevski and any notes taken by Ms Radanovic were, according to her evidence, destroyed.

261 Mr Vlasic’s evidence as to his record keeping was very unimpressive. He suggested that contrary to the statute he destroyed records after each loan was made. He purported not to be able to find any records in answer to the subpoena served in 2008 yet was able to find the documents exhibited to his affidavit in 2009. He gave no convincing explanation for his inability to produce the original documents, which would have been of greater forensic assistance to Ms Novotny.

262 To my mind, his conduct in sending Mr Kotevski’s two certificates of title to Fabian in an envelope unaccompanied by a covering letter and his failure to make any record of either receiving or sending those certificates of title reveals very lax business practice. Such laxity was of particular relevance in this case, where Milanex seems to have assumed a role which went somewhat beyond mortgage broker. Milanex seems to have collected the documents required by Fabian, for a reason unexplained, all the mortgage and loan documents for execution were sent to Milanex, and for a reason also unexplained, the cheque in favour of Mr Kotevski was sent to Milanex.

263 In assessing Mr Vlasic’s reliability as a witness, I also regard, adversely to him, the apparently cavalier way in which he approached the task of identifying Mr Kotevski. Despite his signature on the form as the identifier, he did not perform the task himself, nor, in my view, did he or anyone in his office sight the original documents relied on.

264 Despite the imperfections, discrepancies and contradictions in his evidence, I prefer the testimony of Mr Kotevski in relation to his dealings with Milanex to the testimony of Mr Vlasic and Ms Radanovic. I think the probability is that Mr Kotevski attended the Milanex office only once, as he testified, in January 2006. On small factor which supports this conclusion is Mr Kotevski‘s initially faulty description of Milanex’ office. He is, I think, more likely to have made a mistake that it comprised two rooms, having been there once for a short time only, than if he had been there three times, the first two for significant periods while important matters were discussed.

265 In my view, the probability is that the documents exhibited to Mr Vlasic’s affidavit were prepared in Milanex’ office, from information provided by Mr Micic; they were sent to or taken away by Mr Micic and subsequently returned apparently signed by Mr Kotevski. It is probable that each of those purported signatures was forged.

266 Although I have made adverse findings about the evidence of Mr Vlasic, I should add that, in my opinion, the evidence in the case stops short of establishing fraud on his part. There is no evidence that he sought to gain anything other than a commission from the transaction. It would not have been in his interests to promote a loan likely to go into immediate default.

THE CONTRACTS REVIEW ACT AND THE CONSUMER CREDIT CODE

267 Relief was sought by Mr Kotevski under both statutes.

268 It may well be that both the Review Act and the Code apply to the transaction between Mr Kotevski and Perpetual, having regard to the presumption provided for by s11 of the Code. However, that matter is not entirely free from doubt and I think it preferable to consider this case in the light of the Review Act. There is little difference in the relevant principles, although I note the Code by s 70(2) (j) and (l) introduces concepts relevant to this case for a court to take into account which are absent from s 9 of the Review Act. However, these matters are, in my opinion, available to be considered as part of “the circumstances of the case” within s 7(1) of the Review Act.

269 The Review Act provides by s4 that “unjust” includes “unconscionable, harsh or oppressive” and that “injustice” shall be construed in a corresponding manner. S6 provides that a person may not be granted relief under the Act where, in effect, the contract is entered into for the purposes of a trade, business or profession other than an agricultural one. It was not suggested that such exception applies in this case.

270 Sections 7 and 9 provide:

“7 Principal relief

(a) it may decide to refuse to enforce any or all of the provisions of the contract,

(b) it may make an order declaring the contract void, in whole or in part,

(c) it may make an order varying, in whole or in part, any provision of the contract,

(2) Where the Court makes an order under subsection (1) (b) or (c), the declaration or variation shall have effect as from the time when the contract was made or (as to the whole or any part or parts of the contract) from some other time or times as specified in the order.

…………………………………………

9 Matters to be considered by Court

(a) compliance with any or all of the provisions of the contract, or

(a) whether or not there was any material inequality in bargaining power between the parties to the contract,

(b) whether or not prior to or at the time the contract was made its provisions were the subject of negotiation,

(c) whether or not it was reasonably practicable for the party seeking relief under this Act to negotiate for the alteration of or to reject any of the provisions of the contract,

(g) where the contract is wholly or partly in writing, the physical form of the contract, and the intelligibility of the language in which it is expressed,

(h) whether or not and when independent legal or other expert advice was obtained by the party seeking relief under this Act,

(i) the extent (if any) to which the provisions of the contract and their legal and practical effect were accurately explained by any person to the party seeking relief under this Act, and whether or not that party understood the provisions and their effect,

(k) the conduct of the parties to the proceedings in relation to similar contracts or courses of dealing to which any of them has been a party, and

(3) For the purposes of subsection (2), a person shall be deemed to have represented a party to a contract if the person represented the party, or assisted the party to a significant degree, in negotiations prior to or at the time the contract was made.

(4) In determining whether a contract or a provision of a contract is unjust , the Court shall not have regard to any injustice arising from circumstances that were not reasonably foreseeable at the time the contract was made.

271 Although the decision of the Court upon an application under s7 of the Review Act must be informed by authority to some of which I will hereafter refer, I am able to dispose briefly with a number of the matters listed in s9(2) which I am bound to consider.

272 There is, in my opinion, no doubt that there was material inequality in bargaining power between Mr Kotevski and Perpetual, I am satisfied that the provisions of the loan agreement were not the subject of negotiation and I am satisfied that it was not reasonably practical for Mr Kotevski to negotiate for the alteration of, or to reject any of the provisions of, the Contract. However, in the particular circumstances of this case, I do not regard any of those matters as of significance.

273 The Contract imposed obligations upon Mr Kotevski which were not simply difficult but, in truth, impossible to comply with unless, perhaps, he was able to invest the loan at a high rate of interest. As to whether such an investment could be achieved or was going to be achieved Perpetual and those it relied on were supremely indifferent. As I indicated earlier, apart from anything derived from the loan, Mr Kotevski’s income was about $500 per fortnight, against a liability under the loan contract to pay $1,581.61 per month.

274 Of course, even if Mr Kotevski had been able to comply with the contract when it was entered into it was hardly likely that this state would continue until he was 104, a circumstance which the lender also chose to ignore.

275 It seems to me that Mr Kotevski’s age and unsophisticated mental state rendered him vulnerable to the importuning of Mr Micic and thus not reasonably able to protect his interests. He was also disadvantaged within s9 (2)(f) by his very limited formal education and literacy which, in my view, rendered him incapable of understanding the contract within s9 (2)(g).

276 Although it is true that legal advice was purportedly provided to Mr Kotevski, it was not done at his instigation and, in my opinion, the legal advice provided was, on the evidence, quite useless.

277 There was, in my opinion, undue influence or undue pressure on the balance of probabilities, exerted on Mr Kotevski by Mr Micic, but there was no evidence that this was by, or on behalf of, Perpetual or anyone for whose acts it was responsible.

278 However, I am not confined in my consideration of the matter to the circumstances specifically listed in s9 (2). I am bound to consider also the more general terms of s9 (1). Although there is a strong public interest in upholding contractual obligations, it seems to me that the blindness of Perpetual, Calibre and GHL to the reality of the transaction being entered into with Mr Kotevski reversed the public interest factor in this case to the extent that, far from being in the public interest for the contractual obligations to be upheld, it becomes in the public interest that they be set aside. It is difficult to understand how it could be in the public interest to uphold a contract providing for a loan of $224,000 repayable over 30 years to a 74 year old man whose only income was an aged persons pension and whose only significant asset was his home.

279 There are many cases where contracts foolishly entered into have been held to be unjust for the purposes of the Review Act. See for instance Elkofairi v Permanent Trustee Co Ltd [2002] NSWCA 413 and the cases referred to therein. At paragraph 79 of Elkofairi, Beazley JA with whom Santow JA in a separate judgment and Campbell AJA agreed, observed:

West

Smith

280 See also Perpetual Trustee Co Ltd v Khoshaba [2006] NSWCA 41 where Spigelman CJ observed at paragraph 128:

Esanda Finance Corp Ltd v Tong

Elkofairi

281 In my opinion, the loan contract in this case, was unjust at the time it was made within s7 of the Review Act. This leads to consideration of what relief, if any, is appropriate. Central to that question, as it seems to me, is whether any benefit was derived by Mr Kotevski from the loan. As I have found, he, in truth, received no benefit due to the persuasive powers of Mr Micic.

282 However, it was submitted on behalf of Perpetual that he received the full benefit of the loan when the cheque handed to him by Mr Vlasic was paid into his St George Bank account. I reject that submission, in so far as it suggests that the payment of the cheque into Mr Kotevski’s account forecloses the need for further investigation.

283 One of the dangers of Perpetual making a loan such as this one was that the borrower may be under the influence of a third party for his or her own purposes. This danger was plainly recognised by Perpetual as, for example, in the Solicitors Pack provided to Fabian, referred to above. Although Milanex may not have been Perpetual’s agent, GHL certainly was, and its acts and state of mind governed and represented the state of mind of Perpetual as if they were its own (Khoshaba per Handley JA) GHL, being aware of the involvement of Milanex, made no inquiry of it as to the purpose of the loan, or as to the circumstances in which Mr Kotevski came to be introduced as a borrower. The telephone call, which Ms Pogson said she made to Mr Kotevski, did not purport to overcome this problem even though, in any event, my view of the probabilities is that she did not actually speak to Mr Kotevski at that time.

284 In my opinion, the failure to make reasonable inquiry, the carelessness of GHL, both attributable to Perpetual, and the multiple failures of GHL and Fabian to comply with their contractual obligations, all facilitated the wrongdoing of Mr Micic and all contributed towards the making of a loan which, in my view, should never have been made. I disagree with Mr Docker’s submission that the only entity that could be described as assisting Mr Micic to exploit Mr Kotevski was Milanex. Both GHL and Fabian, in my view, made significant contributions.

285 So far as Perpetual is concerned, it received payment of some instalments during 2006 and Mr Connor has indicated that his client, if the loan contract is set aside, would hold the proceeds of his verdict against Mr Lo on trust for Perpetual.

286 In my opinion, in all the circumstances, the justice of this case requires an order declaring the loan contract void. It should never have been made. Perpetual should be held entitled to the benefit of all monies paid to it previously and there should be a declaration that Mr Kotevski holds on trust for Perpetual the net proceeds of his verdict against Mr Lo. Perpetual has not cross-claimed against either Calibre or GHL against whom, directly or indirectly, it has contractual rights. However, I need to consider its action against Milanex.

THE CROSS CLAIM BY PERPETUAL AGAINST MILANEX

287 The Cross Claim seeks damages pursuant to s82 of the TPA and/or s68 of the FTA and/or s12 GM of the ASAICA.

288 The relevant provisions of the TPA are s52 within Part V and s 82(1) (1B) and (2):

(1) A corporation shall not, in trade or commerce , engage in conduct that is misleading or deceptive or is likely to mislead or deceive.

……………………………………

claimant

(ii) damage to property; caused by conduct of another person (the defendant ) that was done in contravention of section 52 ; and

the damages that the claimant may recover in relation to the loss or damage are to be reduced to the extent to which the court thinks just and equitable having regard to the claimant's share in the responsibility for the loss or damage .

Note: Part VIA also applies proportionate liability to a claim for damages under this section for a contravention of section 52.

(2) An action under subsection (1) may be commenced at any time within 6 years after the day on which the cause of action that relates to the conduct accrued.

289 So far as the FTA is concerned, the provisions are s42 (within Part 5 and 68(1) and (2):

Misleading or deceptive conduct

Actions for damages
(TPA s 82)

(1) A person who suffers loss or damage by conduct of another person that is in contravention of a provision of Part 3, 4, 5 (section 43 excepted), 5A, 5B, 5C, 5D, 5E or 5F may recover the amount of the loss or damage from the other person or from any person involved in the contravention, in a court of competent jurisdiction.

(1A) A reference to loss or damage in subsection (1) does not, if the loss or damage arises from a contravention of Part 5 (section 43 excepted), include a reference to:

290 It is not apparent to me that the ASAICA confers rights upon Perpetual additional to those conferred by the TPA and the FTA and no submission to the contrary effect was addressed by Mr Docker. Accordingly, I intend to deal with Perpetual’s claim as though it was confined to rights arising under the TPA and the FTA

291 The essence of the pleading is set forth in paragraph 13 above. The Cross Claim raises four issues to be decided by the Court; did Milanex make the representations alleged; were they false and misleading; did Perpetual rely on them and, if so, did Perpetual as a consequence suffer loss and damage.

292 Some of the representations, as it seems to me, create no difficulty in particular those contained in subparagraphs (a), (b), (d) and (g) of paragraph 5 and the representations contained in paragraph 6. However, in my view, nothing would turn on the fact that any of these representations were false and misleading The remaining representations involve the question whether Milanex was representing that Mr Kotevski had himself signed the documents referred to or was merely passing on documents without knowing whether Mr Kotevski had signed them or not and possibly whether Milanex was representing the truth of the matters set out in the documents.

293 In part, the problem lies with, if I may say so, the very poor design of the documents constituting the loan application including the LoDoc declaration. Not only do these important documents make no requirement for the basic safeguard that the borrower’s signature be witnessed by an identified person, they do not even require an indication of the place of signature.

294 Mr Weinberger submitted that Milanex was doing no more than acting as a “conduit” or “post box”. However, in my opinion, none of the cases referred to by Mr Weinberger on this aspect, viz, Yorke v Lucas (1985) 59 ALJR 776; Tambree v Travel Compensation Fund & Ors [2004] NSWCA 24; Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592 and Dalton v Lawson Hill Estate Pty Ltd (2005) ATPR 42-079 support his contention in this case. They all, as it seems to me, concern cases where the defendant was purporting to do no more than pass on information emanating from someone else. The following passage from the joint judgment of Mason ACJ Wilson, Brennan, Deane and Dawson JJ in Yorke v Lucas at 777 is apposite:

295 In the circumstances of this case, I think it would be unreal to conclude that Milanex was merely acting as a “conduit” or “post box”. It purported to be much more involved than that. While I doubt that it represented the truth of the statements in the documents, of many of which it could have had no knowledge, in my opinion, it plainly represented that Mr Kotevski had signed those documents which purported to be signed by him and probably it also represented that the source of the information in the documents was Mr Kotevski himself.

296 As, in my opinion, none of the documents sent by Milanex to GHL on 29 November 2009 was actually signed by Mr Kotevski, in my view, Milanex should be held to have engaged in conduct that is misleading or deceptive or likely to mislead or deceive within s 52 of the Trade Practices Act and s42 of the Fair Trading Act.

297 For Perpetual to recover damages against Milanex, it must show that its misleading or deceptive conduct, in breach of the TPA and FTA, was causative of loss, a question of fact to be assessed in accordance with principles established by the High Court in March v Stramare Pty Ltd (1991) 171 CLR 506

298 In Elders Trustee and Executor Co Ltd v E G Reeves Pty Ltd & Ors 78 ALR 195 Gummow J distilled from a number of cases which he quoted principles applicable to an issue of reliance and causation under the TPA. They included (omitting references to authority):

(i) Where statements have been made either
before or in the course of complex negotiations for a significant transaction for sale and purchase of property those statements are not to be assessed in
isolation but in the overall context of the negotiations.

(ii) It is for the applicant to show reliance upon the conduct complained of as supplying a sufficient causal connection between the conduct and the loss or damage for which
recovery is sought under s.82 ; conduct in contravention of Part V
of the TP Act need not be the only cause of the "loss or damage" that may be recovered under s.82 .

299 In Lam v Ausintel Investments (1989) 97 FLR 458 Gleeson CJ (with whom Samuels AJA and Meagher JA agreed) quoted with approval the judgment of Wilson J in Gould v Vaggelas (1985) 157 CLR 215 at 236:

300 In Ricochet Pty Ltd & Ors v Equity Trustees Executor and Agency Company Ltd (1993) 41 FCR 229, the Full Court of the Federal Court (Lockhart, Gummow and French JJ) at page 234 after referring to Gould v Vaggelas observed:

The statement provides a practical guide to the way in which inferences can and should be drawn in such cases. It remains for the tribunal of fact, as his Honour pointed out, to determine, when all the evidence has concluded, whether the misrepresentation in question contributed to the decision to enter the contract. The unremarkable logic of these propositions is more likely to be obscured than illuminated by reference to notions of presumptions of fact or the incidence of the evidentiary onus.

301 In my opinion, the facts, which I have found in this case, do not establish reliance in any relevant sense upon the representations of Milanex. Ms Pogson conceded that if she had realized that the application was made on behalf of a 74 year old aged pensioner, she would not have approved it. Yet she knew he was seventy four years old and she knew, or should have known, from her own inquiries that he was an aged pensioner. Moreover, she telephoned a male whom she believed to be Mr Kotevski on a telephone number shown to her in his name. She relied on this conversation as confirming the matters contained in the documents sent by Milanex. She apparently chose not to ask any of the rather obvious questions the material exposed.

302 In light of my finding that Perpetual did not rely on any representation made by Milanex within the principles stated above, it follows that its cross-claim against Milanex, relying on the TPA and FTA and the ASAICA, must be dismissed. There is no other basis, in my view, which entitled it to relief against Milanex. Having regard to the conclusions earlier expressed, it is unnecessary for me to consider the cross claim by Mr Kotevski against Milanex.

303 Mr Docker submitted tha I should, in any event determine Mr Kotevski’s cross claim against Milanex and Mr Vlasic in order that its rights may be subrogated to those of Mr Kotevski in respect of any judgment found in Mr Kotevski’s favour. I do not consider it appropriate to pursue this hypothetical question in respect of a contract I propose to set aside. Mr Kotevski will in the result suffer no loss. However, in any event, in my opinion, the negligence of Milanex and Mr Vlasic did not cause Mr Kotevski’s loss, for the same reason that Perpetual’s cross claim against Milanex should fail. The intervening cause of loss was the conduct of GHL and to a lesser extent Fabian.

304 I propose to make final orders in this matter but being mindful that some aspects, including the costs orders, may require further argument and Mr Dockers specific request. I will give all parties liberty to apply. This should be done at least in the first instance by approaching the Associate to the Chief Judge at Common Law.

305 The orders I make are:

1. Pursuant to s7 of the Contracts Review Act I declare void in whole the loan contract and the mortgage.

2. Notwithstanding order 1, I declare that Perpetual shall be entitled to retain all monies purportedly paid to it under the loan agreement or mortgage prior to this date.

3. I declare that Mr Kotevski holds in trust for Perpetual the verdict payable to him by Mr Lo, less any costs as between solicitor and client properly payable by Mr Kotevski in respect of his cross claim against Mr Lo.

4. I order Perpetual to execute in registrable form a discharge of mortgage AC67270Q and deliver such discharge together with certificates of title 3/SP3893 and 17/SP3893 and the appropriate registration fee to Mr Kotevski within 30 days.

5. Verdict and judgment for the defendant in each of the actions by Perpetual against Mr Kotevski.

6. Amended First Cross Claim Dismissed with no order as to costs.

7. Further Amended Second Cross Claim by Perpetual against Milanex dismissed with costs.

8. Amended Fourth Cross Claim dismissed with no order as to costs.

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Citations

Perpetual Trustee Company Ltd v Alexander Kotevski [2009] NSWSC 1228

Cases Citing This Decision

0

Cases Cited

13

Statutory Material Cited

7

Perpetual Trustee Co Ltd v Khoshaba [2006] NSWCA 41

Elkofairi v Permanent Trustee Co Ltd [2002] NSWCA 413

Tambree v Travel Compensation Fund [2004] NSWCA 24

CITATION:	Perpetual Trustee Company Ltd v Alexander Kotevski [2009] NSWSC 1228
HEARING DATE(S):	14,15,16,17,18,21,22,23,24,25,28,29,30 September 09; 1,27,28,29 October 09
JUDGMENT DATE :	16 November 2009
JUDGMENT OF:	Patten AJ at 1
DECISION:	See paragraph 305
LEGISLATION CITED:	Consumer Credit (NSW) Code; Contracts Review Act 1980; Trade Practices Act 1974; The Australian Securities and Investments Commission Act 2001; Civil Liability Act 2002; Consumer Credit Administration Act 1995; Fair Trading Act 1987;
CASES CITED:	Yorke v Lucas (1985) 59 ALJR 776; Elkofairi v Permanent Trustee Co Ltd [2002] NSWCA 413 Tambree v Travel Compensation Fund & Ors [2004] NSWCA 24; AGC Advances v West (1984) 5 NSWLR 590; Perpetual Trustee Co Ltd v Khoshaba [2006] NSWCA 4; Elders Trustee and Executor Co Ltd v E G Reeves Pty Ltd & Ors 78 ALR 195; Lam v Ausintel Investments (1989) 97 FLR 458; Gould v Vaggelas (1985) 157 CLR 215 at 236; Ricochet Pty Ltd & Ors v Equity Trustees Executor and Agency Company Ltd (1993) 41 FCR 229 Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592; Dalton v Lawson Hill Estate Pty Ltd (2005) ATPR 42-079
PARTIES:	Perpetual Trustee Company Limited - Plaintiff Alexander Kotevski - Defendant Milanex Pty Ltd and Milan Vlasic - Cross Defendants
FILE NUMBER(S):	SC 15851 of 2007; 13889 of 2008
COUNSEL:	Mr S Docker - Plaintiff Mr K Connor SC with Ms M Avenell - Defendant Mr D Weinberger - Cross Defendants
SOLICITORS:	Kemp Strang - Plaintiff SBA Lawyers - Defendant McCabe Terrill - Cross Defendants