Perpetual Trustees Victoria Ltd v Burns

[2015] WASC 234

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CIVIL

CITATION:   PERPETUAL TRUSTEES VICTORIA LTD -v- BURNS [2015] WASC 234

CORAM:   EM HEENAN J

HEARD:   15-19 DECEMBER 2014

DELIVERED          :   30 JUNE 2015

FILE NO/S:   CIV 2316 of 2011

BETWEEN:   PERPETUAL TRUSTEES VICTORIA LTD

Plaintiff

AND

FAITH BURNS
First Defendant

DALE FRANCIS BURNS
Second Defendant

Catchwords:

Mortgages - Action for recovery of possession - Counterclaim - Low documentary loans - Unconscionable conduct - Misleading and deceptive conduct - Unconscientious behaviour by intermediaries of lender - Agency - Rescission - Restitutio in integrum not fully possible - Ancillary adjusting relief - Accounts and enquiries - Set off

Legislation:

Consumer and Competition Act 2010 (Cth)
Rules of the Supreme Court (WA)
Trade Practices Act 1974 (Cth)

Result:

(a)     the plaintiff's claims be dismissed;

(b)     the mortgage by the defendants to the plaintiff dated 18 October 2007 and registered at Landgate Land Titles Division on 7 November 2007 (registration number K403751) to secure the sum of $228,368.54 declared invalid and unenforceable and set aside;

(c)     the plaintiff forthwith lodge a discharge of that mortgage at the Land Titles Office and deliver the duplicate Certificate of Title and any other security documents held in respect of that loan to the defendants;

(d)     the loan agreement between the plaintiff and the defendants dated on or about 17 October 2007 by which the plaintiff agreed to provide a credit facility to and at the request of the defendants with a limit of $228,368.54 be declared invalid and unenforceable and set aside;

(e)     the defendants do account to the plaintiff for the principal sum of $228,368.54 advanced to them under the mortgage now set aside plus interest thereon, calculated as simple interest on that principal from 7 November 2007 until the date of repayment at rates of interest coinciding with the cash rates set by the Reserve Bank of Australia from time to time which, if not agreed, be determined by a Registrar on inquiry to be held to determine the appropriate rate in accordance with this order and the aggregate interest payable after credit has been given for all interest payments made by the defendants for that mortgage;

(f)     the defendants' counterclaim for rescission of each of the five earlier loans and mortgages over Ilma Street, Barellan Court and Holland Street properties between the plaintiffs and the defendants, or one of them, be allowed and each of those loans and mortgages be set aside and declared unenforceable because of unconscionable conduct by the plaintiff.  Restitutio in integrum for those transactions will be made by the plaintiff retaining the repayments of principal and interest made under them by the defendants, subject, however, to paying to the defendants the amounts found due on a further enquiry before a Registrar to determine the difference between the interest and other expenses charged to the defendants under those loans and mortgages and simple interest on the principal outstanding from time to time calculated at the cash rate of interest fixed by the Reserve Bank of Australia for periods when that principal was owing.  The balance found due by the plaintiff to the defendants after this enquiry be set off by the defendants against the balance found due by them to the plaintiff on the completion of the enquiry and account ordered under subpar (e) above, and the final balance be paid by the defendants to the plaintiff;

(g)     the balance of the amount of principal and interest so ordered to be paid by the defendants to the plaintiff after the enquiries and accounts shall be a debt due and payable by the defendants to the plaintiff without security;

(h) the defendants' counterclaim for damages against the plaintiff under s 82 of the Trade Practices Act 1974 (the Competition and Consumer Act 2010 (Cth)) be adjourned for a directions hearing before a judge at a date to be fixed with a view to being set down for hearing after any further necessary interlocutory procedures but only in respect of any damages claimed to have been caused by alleged misleading or deceptive conduct arising from what has been referred to in reasons for decision in this case as the Railway Avenue loan and mortgage of October 2007;

1. otherwise the counterclaims of the first and second defendants be dismissed;

(j)     there be liberty to apply in relation to the conduct of the enquiries and the taking of accounts.

Category:    A

Representation:

Counsel:

Plaintiff:     Mr G D Cobby

First Defendant             :     Mr D R Williams QC & Mr A J Camp

Second Defendant         :     In person

Solicitors:

Plaintiff:     Jackson McDonald

First Defendant             :     Butcher Paull & Calder

Second Defendant         :     In person

Case(s) referred to in judgment(s):

Adam v Newbigging (1888) 13 AC 308

Alati v Kruger (1995) 94 CLR 216

Australia and New Zealand Banking Group Ltd v Dzienciol [2001] WASC 305

Australia and New Zealand Banking Group Ltd v Karam [2005] NSWCA 344; (2005) 64 NSWLR 149

Bahr v Nicholay (No 2) (1988) 164 CLR 604

Beneficial Finance Corporation Ltd v Karavas (1991) 23 NSWLR 256

Borelli v Ting [2010] UKPC 21

Commercial Bank of Australia v Amadio (1983) 151 CLR 447

Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd [1986] HCA 14; (1986) 160 CLR 226

Custom Credit Corporation Ltd v Lynch [1993] 2 VR 469

Earl Beauchamp v Winn (1873) LR 6 HL 223

Egan v Ross (1928) 29 SR (NSW) 382

Elkofairi v Permanent Trustee Co Ltd [2002] NSWCA 413; (2003) 11 BPR 20,841

Erlanger v New Sombrero Phosphate Co (1878) 3 App Cas 1218 HL

Ermogenous v Greek Orthodox Community of SA Inc [2002] HCA 8; (2002) 209 CLR 95

Esanda Finance Corporation Ltd v Spence Financial Group Pty Ltd [2006] WASC 177

Eurofinance Corporation Pty Ltd v Carrymoor Investments Pty Ltd [2000] NSWSC 415

Fast Fix Loans Pty Ltd v Samardzic [2011] NSWCA 260; (2011) 15 BPR 29,445

Forster v Outred [1982] 2 All ER 753

Garcia v National Australia Bank [1998] HCA 48; (1998) 194 CLR 395

In re Ellis; Ellis v Ellis [2015] WASC 77

Kakavas v Crown Melbourne Ltd [2013] HCA 25; (2013) 250 CLR 392

Karam v Australia and New Zealand Banking Group Ltd [2001] NSWSC 709

Kowalczuk v Accom Finance Pty Ltd [2008] NSWCA 343; (2008) 77 NSWLR 205

Lysaght Bros & Co Ltd v Falk [1905] HCA 7; (1905) 2 CLR 421

Maguire v Makaronis (1997) 188 CLR 449

Mayfair Trading Co Pty Ltd v Dreyer (1958) 101 CLR 428

Narain v Euroasia (Pacific) Pty Ltd [2009] VSCA 290; (2009) 26 VR 387

Newbigging v Adam (1886) 34 Ch D 528

NMFM Property Pty Ltd v Citibank Ltd (No 10) [2000] FCA 1558; (2000) 107 FCR 270

O'Keefe v London and Edinburgh Insurance Co Ltd [1927] NI 85

O'Sullivan v Management Agency and Music Ltd [1985] QB 428; [1985] 3 All ER 351

Overbrooke Estates Ltd v Glencombe Properties Ltd [1974] 3 All ER 511

Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451

Paroz v Paroz [2010] QSC 41; (2010) 5 ASTLR 452

Permanent Mortgages Pty Ltd v Vandenbergh [2010] WASC 10; (2010) 41 WAR 353

Permanent Trustee Co Ltd v O'Donnell [2009] NSWSC 902

Perpetual Trustees Australia Ltd v Schmidt [2010] VSC 67

Perpetual Trustees Company Ltd v Burniston [No 2] [2012] WASC 383

Petelin v Cullen (1975) 132 CLR 355

Rees v De Bernardy [1896] 2 Ch 437

Scales Trading Co Ltd v Far Eastern Shipping Co Public Ltd [1999] 3 NZLR 26

The Bell Group Ltd (In Liq) v Westpac Banking Corporation [No 9] [2008] WASC 239; (2008) 39 WAR 1

Tobin v Dodd [2004] WASCA 288

Vadasz v Pioneer Concrete (SA) Pty Ltd (1995) 184 CLR 102

Wardley v State of Western Australia (1992) 175 CLR 514

Wright v Carter [1903] 1 Ch 27

Yerkey v Jones (1939) 63 CLR 649

1. EM HEENAN J:  Who would lend more than $840,000 to a couple, each of whom was on a disability pension with no prospects of any form of employment, with the husband partially blind and the wife with a long-term disability, when each had nothing to offer but the desire to speculate in real estate?  The answer is that the plaintiff did lend that money in a series of six loans to the defendants through intermediaries in what are termed 'low doc (documentary) loans' when any semblance of precaution or independent advice for the vulnerable borrowers was absent and where the intermediaries were entities for which the plaintiff disavows any responsibility or relationship of agency.  Now that the defendants' investments have proved disastrous, four of the loans have resulted in distressed sales and a balance, insuperable for the defendants, remains outstanding, this action is brought by the plaintiff for recovery of possession of the last property acquired by the defendants which was offered as security.  It is their residence and only significant asset. 

2. This case concerns the question of how enforceable or inexorable are the obligations contained in the security documents granted to the plaintiff by this elaborate process of advances through intermediaries and whether the intermediaries are agents of the plaintiff.  That intermediary process is complicated and requires extensive explanation, but that will come later.

3. The pleadings, in their final form after many amendments, including amendments made at trial, present for decision claims by the plaintiff for:

   (a)an order for the defendants to give vacant possession of the property known as Unit 15, Sherwood Gardens, 405 Railway Avenue, Armadale, (the Railway Avenue property) the subject of a registered mortgage in favour of the plaintiff following default by the defendants under that mortgage;

   (b)alternatively, an order for the defendants to pay to the plaintiff an amount of $266,849.83 plus interest for money had and received and/or as restitution for unjust enrichment.

4. There are also counterclaims by both defendants.  The first defendant counterclaims for:

   (a)a declaration that the mortgage sued upon by the plaintiff and its associated loan are void and unenforceable;

   (b)a declaration that each or some of the five other loans by the plaintiff to the defendants is unconscionable;

   (c)an order for the plaintiff to discharge the mortgage over the Railway Avenue property;

   (d)an order for the plaintiff to pay damages in equity, alternatively to pay restitution to the first defendant in the amount of the current market value of certain other properties, namely the property formerly owned by the first plaintiff at Iluna Street, Armadale, and a property at Barellan Court, less certain deductions but plus $97,000; and

   (e)further or other relief, including damages pursuant to s 82 of the Trade Practices Act (now the Competition and ConsumerAct 2010 (Cth)) and other relief pursuant to s 87 of that Act.

5. The second defendant counterclaims for:

   (a)a declaration that he is not liable to pay any further amounts to the plaintiff, including the amount claimed by the plaintiff in this action;

   (b)an order requiring the plaintiff and Landgate to discharge the mortgage over Railway Avenue insofar as it affects the interest of the second defendant;

   (c)compensation of $200,000 for pain and suffering alleged to have been caused by the plaintiff to the second defendant;

   (d)such further or alternative relief as the court deems appropriate.

6. Under this last pleaded claim for relief the second defendant, at the end of the trial, effectively contended that he should be granted relief in similar terms to all the relief claimed by the first defendant.

7. The second defendant appeared and conducted his defence and the prosecution of his counterclaim alone, without any legal representation.  It was plainly obvious that he was disadvantaged by the lack of legal knowledge and experience, as well as by other disabilities which will be described later.  Some flexibility and allowance therefore needs to be made when considering the pleading and the claims for relief made by the second defendant in order to identify the true substance of the case which his oral and written submissions endeavoured to present:  Tobin v Dodd [2004] WASCA 288 [14] - [18].

8. From the manner in which the plaintiff's case and the counterclaims were conducted, the real contest emerging between the parties is whether the loans and mortgages relied upon by the plaintiff were enforceable or whether they should be declared void or unenforceable on the grounds that that mortgages and the associated loans were unconscionable having regard to the defendants' several disabilities.

9. In the first defendant's case that was also because one of the mortgages had been made by the plaintiff to the second defendant alone and guaranteed (constructively) by the first defendant, which she did not fully understand or comprehend, relying instead upon the wishes of her husband and where the plaintiff failed to ensure that she was provided with independent advice - so invoking the doctrine in Yerkey v Jones (1939) 63 CLR 649 and Garcia v National Australia Bank [1998] HCA 48; (1998) 194 CLR 395. As to this ground of the first defendant's counterclaim, the plaintiff responds by submitting that the principle in Garcia does not apply to instruments other than contracts of suretyship which operate to the advantage of the husband or confer a voluntary benefit upon him:  Elkofairi v Permanent Trustee Co Ltd [2002] NSWCA 413; (2003) 11 BPR 20,841 [96] and Narain v Euroasia (Pacific) Pty Ltd [2009] VSCA 290; (2009) 26 VR 387 [43] - [45].

10. In addition, the first defendant and the second defendant contend that the Railway Avenue loan, in the context of the then existing high debt level created by the earlier loans, was unconscionable lending and consequently unenforceable:  Elkofairi v Permanent Trustee Co Ltd and Permanent Mortgages Pty Ltd v Vandenbergh [2010] WASC 10; (2010) 41 WAR 353. This plea of unconscionability is advanced by them in respect of the earlier loans as well.

11. Consideration of the defendants' defences based on alleged unconscionability and associated doctrines requires an examination of the series of loan transactions (five in all) between the plaintiff and the defendants covering the period from 1997 to 2006.  It also requires a consideration of the role of several intermediaries with whom the defendants dealt when negotiating and completing the loans and associated mortgages in order to determine whether or not knowledge of the defendants' circumstances and disabilities, alleged to have been known or apparent to those intermediaries, can be attributed to the plaintiff and whether or not any, and if so which, of these intermediaries was an agent of the plaintiff.  The position of the plaintiff is that there was no such agency as alleged and that the plaintiff is not to be fixed with any knowledge or information known or apparent to any of those intermediaries except for certain limited written representations by the defendants conveyed in writing by those intermediaries to the plaintiff.

12. The structure of the arrangements between the plaintiff, these intermediaries and the defendants is complicated and for the moment can be left for later explanation.

13. Among the late amendments allowed in the course of the trial (ts 485 on 19 December 2014) were statutory claims for damages and other relief pursuant to s 82 and s 87 of the Competition and Consumer Act (Trade Practices Act 1974).  This resulted in the plaintiff seeking leave to re‑amend its defences to the counterclaims by introducing pleas that the statutory causes of action under the Competition and Consumer Act were each time barred - a limitation of action defence.  Attention will be given to that plea later in these reasons.

14. At an early stage of the trial counsel for the first defendant submitted that all questions of damages and/or compensation in equity or otherwise arising on the first defendant's counterclaim should be stood over and adjourned, to be heard later in a separate trial relating to damages or relief if, in the event, it became possible for the first defendant to pursue such claims.  The second defendant effectively joined in that same application.  I accepted this application and directed that any claim for damages or compensation in equity or otherwise by the defendants, should they arise, be heard at a subsequent hearing on a date to be fixed.  This was because the entitlement to any such claim would, to a significant extent, be dependent on the central question of whether or not the mortgage and loan sued upon by the plaintiff were valid and enforceable and whether the other loans and mortgages referred to in the counterclaims were rendered invalid or unenforceable by reason of the pleas of unconscionability and associated claims advanced by the defendants.

15. Furthermore, the statutory claims under the Trade Practices Act (Competition and Consumer Act) had only been raised very recently before trial and the plaintiff had very little and inadequate opportunity to prepare for and address them.  Counsel for the plaintiff submitted, and I accepted, that there may well be a need for further discovery or other interlocutory procedures to be taken in relation to these newly introduced claims.  Consequently, all issues relating to the quantification of any counterclaims for damages, equitable compensation by the defendants arising from their counterclaims were adjourned over for future consideration if and when necessary.

16. The nature of the defences raised by the first and second defendants and their counterclaims puts into context the second principal, but alternative, claim by the plaintiff, namely its money claim for $266,849.83 plus interest as money had and received and/or money paid at the request of the defendants and/or a claim for restitution for unjust enrichment.  The basis for this claim as advanced by the plaintiff is that, even if the loan and mortgage sued upon the plaintiff should be declared unenforceable or invalid, the fact was that the plaintiff had advanced to the use of the defendants the sum of $266,849.83, which had conferred upon them the benefit of purchasing the property the subject of the loan which they sought to retain.  The basis of the claim was that even if the loan and/or the mortgage were unenforceable the principles of restitution required that the defendants should repay that money with interest:  Maguire v Makaronis (1997) 188 CLR 449. Because this claim arises only if the loan and mortgage relied upon by the plaintiff is invalid or unenforceable, I shall defer dealing with it until after a determination of that crucial issue.

The plaintiff's claim for possession under its mortgage

1. This claim for possession of the mortgaged property is what I shall call the plaintiff's primary claim.  Subject to the defences and counterclaims challenging the validity or enforceability of the mortgage and associated loan, there is very little contest about the basic facts or the default relied upon by the plaintiff.  In effect, all the allegations of the plaintiff are effectively admitted by the defendants in their pleadings, save for denials by the second defendant, alone, that a requisite notice of default under the mortgage was ever served upon him, and whether or not the plaintiff was and is a company duly incorporated in Australia.  The incorporation was proved at trial by the tender of a certificate of the registration of a company - exhibit E.

2. Mr and Mrs Burns are the registered proprietors of the property known as Unit 15, Sherwood Gardens, 405 Railway Avenue, Armadale, more particularly described as Lot 14 on Strata Plan 49766 and being the whole of the land comprised in Certificate of Title vol 2672 folio 369.

3. They agreed to purchase it 'off the plan' for $259,000 by a contract contained in an offer and acceptance document dated 31 January 2006.  Under that agreement a deposit of $13,000 was payable by 13 February 2006 and the balance of the purchase price payable within 21 days of the title being available for issue.  The contract was conditional upon Mr and Mrs Burns obtaining finance in the amount of the entire purchase price by 13 February 2006. 

1. The defendants waived the benefit of that condition but obtained a preliminary loan approval from Interstar Wholesale Finance Pty Ltd (which had changed its name to Challenger Mortgage Management Pty Ltd on 20 November 2006) ('Challenger') on 17 February 2006 but only for $181,300 and conditional upon construction of the unit and the valuation of the unit as constructed.

2. Next, two applications to borrow the funds required by Mr and Mrs Burns to complete their purchase of the Railway Avenue property were submitted in September 2007.  The first, unsuccessful, application was submitted to Challenger by Equity Plus Home Loans (Aust) Pty Ltd, trading as Perpetual Funding Group (PFG).  That application was rejected on or before 16 September 2007.  The second was submitted to Challenger on 25 September 2007 by Beverley Wilson, a director of Finance & Equity Loans Pty Ltd trading as Mortgages For Money (Mortgages For Money).  Ms Beverley Wilson had formerly been on the staff of PFG and had had experience of Mr and Mrs Burns. 

3. The acceptance by Challenger of that second application for a loan by the defendants via Mortgages For Money resulted in an agreement in writing between the plaintiff and both the defendants dated on or about 17 October 2007 (the loan agreement referred to in par 4 of the statement of claim).  By that agreement:

   (a)the plaintiff agreed to provide a credit facility to and at the request of the defendant with a limit of $228,368.54 (facility limit);

   (b)the defendants agreed that if they exceeded the facility limit, they must immediately repay the excess (cl 16.10 of the loan terms and conditions booklet dated 20 November 2006);

   (c)the defendants agreed that they would be in default if they did not make a payment in time (cl 22.1) and that if they failed to remedy the default the plaintiff could require the payment of all the moneys owing (cl 22.2); and

   (d)the defendants acknowledged that a mortgage in respect of the property would secure the loan.

4. Mr and Mrs Burns then executed a mortgage of the Railway Avenue property to the plaintiff dated 18 October 2007.

5. The settlement of the purchase of Railway Avenue occurred on 6 November 2007.  The plaintiff paid $225,453.92 to the vendor in satisfaction of the balance of the purchase price for the property and a further $2,904.62 in fees and costs associated with the purchase.  Upon settlement Mr and Mrs Burns became registered as the proprietors of that land on 7 November 2007 and their mortgage of the property to the plaintiff was then registered over that land, becoming registered mortgage K190046.

6. The mortgage expressly incorporated the provisions of a Memorandum registered with Landgate (Land Titles Division) as number I965277 ('memorandum').

7. That memorandum provided that:

   (a)'Secured Money' means all amounts payable at any time or contingently owing or payable under a Secured Agreement and Enforcement Expenses;

   (b)'Secured Agreement' means any present or future agreement made between the parties and an agreement to vary such an agreement; and

   (c)'Enforcement Expenses' means all reasonable amounts that the plaintiff reasonably incurs in relation to, among other things, seeking possession of the Property or taking any other action to enforce the Mortgage after an Event of Default (cl 1.1).

8. The memorandum further provided that:

   (a)the defendants would pay the Secured Money as and when the Secured Money becomes due and payable in accordance with the provisions of the Secured Agreement or the Mortgage (cl 2.2);

   (b)the defendants must pay all Enforcement Expenses on demand (cl 2.4);

   (c)an Event of Default occurs if the defendants do not pay any of the Secured Money on time (cl 7.1);

   (d)if an Event of Default occurs and continues for one day or more and the Plaintiff chooses to exercise its rights under the Mortgage, then the Plaintiff will give the defendants a default notice requiring the defendants to remedy the Event of Default within a period of at least 30 days (calculated as provided by Credit Law (cl 7.2); and

   (e)if the defendants fail to rectify the Event of Default in compliance with the Default Notice, the plaintiff may exercise all powers vested in mortgagees by law and may enter on and take possession of the mortgaged property (cl 8.1).

9. An event of default under the loan agreement occurred and continued for more than one day.  The defendants defaulted in making the repayments under the mortgage in April 2011, and failed to remedy that default within 30 days specified in notices of demand dated 18 April 2011, sent to the defendants by post on 21 April 2011. 

10. Clause 10.1 of the memorandum authorises the plaintiff to give notice by sending it by post to the defendants' last recorded residential address or to the mortgaged property.  A notice of demand for payment can be signed by any principal of a firm of solicitors retained by the plaintiff (cl 10.4 of the memorandum read with the definition of 'authorised officer' in cl 1.1).  The effect of cl 10.5 of the memorandum is that where a notice is sent by post it is deemed to have been given on the date it would have been delivered in the ordinary course of the post.  Furthermore, under cl 10.1 of the memorandum a written statement by an employee of the plaintiff or a principal of a firm of solicitors engaged by the plaintiff is sufficient evidence of the amount due under the Railway Avenue mortgage.

11. Mrs Burns admitted in her defence that the default notice was duly served upon her on or about that date but Mr Burns denied this and maintained his denial when giving evidence.  Nevertheless, I am satisfied that the default notice was duly posted by a staff member of the plaintiff's solicitors, Mr J R E Sutton, to the second defendant on 21 April 2011 by registered post.  Two copies of the default notice were posted, one to the second defendant at 27 Ilma Street, Gosnells, and the second to the second defendant at Unit 15, Sherwood Gardens, 405 Railway Avenue, Armadale.  On the same date similar notices were sent to Mrs Burns at both those addresses (see exhibit D and the cross-examination of Mr Sutton).  It is clear that those default notices addressed to Mrs Burns reached her and I am satisfied on the balance of probabilities that one of the copies of the notice of default also reached Mr Burns on or about the same date.  In reaching this conclusion, I do not doubt the sincerity of Mr Burns' denial of receipt but the evidence satisfies me that his records and memory of events about that time are confused and unreliable.  Accordingly, I accept that the notice of default was served as required.

12. That default has continued unremedied.  That default notice (TB 1598 and TB 0713) specified that the arrears then due under the mortgage totalled $20,641.66 with the consequence that the total amount outstanding was then $266,849.83, increasing at a rate of 13.46% per annum.  That was the position as at 18 April 2011 recorded in this notice dated 21 April 2011.  The notice required that the arrears were to be paid by no later than 3 June 2011 but that did not occur.  No further payments were made by either of the defendants.  I am satisfied, therefore, that continuing default under the mortgage has been established by the plaintiff and that it has not been remedied by the defendants.

13. Accordingly, subject to the yet to be determined assumption that the mortgage and the loan agreement are valid and enforceable, I am satisfied that the defendants are in default and that the plaintiff is entitled under the provisions of the mortgage to the relief which it seeks, namely, an order for the defendants to give vacant possession of the Railway Avenue property.  Consequently, it is to the question raised by the defence of unconscionability and consequent ineffectiveness of the mortgage and loan agreements that attention must now turn.

The alleged intermediaries

1. Some of the intermediaries who were involved in the applications for, and negotiations over, and the grant and documentation of the several loans and mortgages from the plaintiff to the defendants have been identified in this introduction.  It will be necessary to explain in more detail their exact roles and circumstances but for now that may be deferred.  The questions of significance which arise in connection with these and other persons or entities are whether they are, as the defendants allege and the plaintiff denies, agents or sub-agents of the plaintiff or otherwise persons or entities whose knowledge of the defendants and their circumstances is to be attributed to the plaintiffs.  These intermediaries, using at this point that neutral term, are:

   •Interstar Securities (Australia) Pty Ltd (Interstar) which later changed its name to Challenger Mortgage Management Pty Ltd (Challenger), also known as Interstar Wholesale Finance Pty Ltd

   •Challenger Non-Conforming Finance Pty Ltd (formerly known as The Mortgage Alternative Pty Ltd)

   •Equity Plus Home Loans (Aust) trading as Perpetual Funding Group (PFG)

   •The Mortgage Alternative Pty Ltd

   •Justin Brown of PFG

   •Terry Charles Frankland of PFG

   •David Nore of PFG

   •Graeme Harlow of PFG

   •Ms Beverley Wilson of Mortgages For Money

Mr and Mrs Burns - Their disabilities and levels of comprehension

1. Both Mr and Mrs Burns have significant handicaps which raise questions about their abilities fully or adequately to comprehend the financial transactions into which they entered with the plaintiff and the role of the intermediaries who negotiated the various loans and mortgages.  Their respective limitations in this regard become fully obvious after short acquaintance and were clearly discernible when each was giving evidence.  I have no doubt that any persons dealing with them, including the representatives of the intermediaries through whose roles the various mortgages and loan agreements with the plaintiff were negotiated, would have been clearly aware of the limitations of the understanding and comprehension of each of the defendants of the transactions into which they entered. 

2. The limitations and restrictions of comprehension of the first defendant, Mrs Faith Burns, are even more obvious and apparent than those of her husband, the second defendant.  They are even more manifest when knowledge of their respective backgrounds, limited working history and physical disabilities is learned.  With every respect to Mr and Mrs Burns, I have no doubt that any person meeting or dealing with them, particularly in any form of business or commercial transaction, would immediately realise that each had significant handicaps and that there must be serious doubt whether or not he or she fully appreciated the nature of the transaction into which he or she was entering or its actual or potential consequences for them. 

3. It is not meant to be disparaging to say that in Mrs Burns' case her apparent appreciation of transactions, encounters with others, and the consequences of her transactions is almost childlike in its simplicity and trust.  She demonstrates an over-eager readiness to oblige and agree with any interlocutor out of a deep seated, and no doubt longstanding, human desire to represent herself as understanding and agreeing with propositions being put to her in the hope of dispelling a fear that she may be regarded as unable fully to comprehend a matter in hand. 

4. Mr Burns is less accommodating in his dialogue with others and is prone to aggressive assertions of knowledge, experience and comprehension in order to demonstrate his supposed competence and ability, again founded by deep seated resentment at often being treated as unable fully to cope. He exaggerates his ability to comprehend matters or fully to appreciate consequences. This was very obvious in the course of his oral evidence but also in the manner in which he 'conducted' his defence and counterclaim and even more remarkably so in the earlier interlocutory proceedings associated with questions which had been raised about his competence to conduct the proceedings on his own behalf without the appointment of a guardian, which would have been necessary had he been classified as a person under a disability: RSC O 70. The details of this earlier procedural controversy are set out later.

5. Mrs Faith Burns was born on 27 February 1949 in Bromley, Kent, in the United Kingdom.  At all material times she has been on a disability support pension and was not working.

6. About eight months before she was born, Mrs Burns' father died and her mother never remarried.  She was one of three children, having two sisters.  At the age of about nine or ten years she had some form of mental breakdown and was committed to the mental care wing of the local hospital.  It was a frightening experience in an adult ward.  Part of her problem was that she had little speaking ability and those treating her did not know whether she had mental retardation or was deaf.  She was released to her mother's care, but her mother struggled in looking after her and her two sisters.  For a period of four or five years from the ages of 10 to 14 she was sent to live in a small convent boarding school.  She claims that she was bullied almost every day at school and used to retreat to the school library to get away from others.  She made one female friend who tried to protect her and she has stayed in touch with this lady over the years.

7. Mrs Burns had difficulties at school.  She managed to complete the first year of her upper high school but left without completing her final year in the United Kingdom.  On leaving school she obtained a job as a probationary level junior typist and worked there for a while, but she had problems doing her job and it did not last.

8. In 1972 Mrs Burns and her mother migrated to Western Australia.  One of her older sisters had migrated to Australia about two years before but the other older sister remained in England.

9. On arrival in Australia Mrs Burns found employment at the Commonwealth Social Security Department in Perth.  Her job was terminated after about 18 months.  She explains that this was because she could not stop talking and thinking out loud and because she had to shuffle about to try to concentrate.  According to her, her employer's representative said that she was interfering with other workers.

10. Mrs Burns admits that she can read and write.  She effectively does all the writing for her husband because in her view he cannot really write at all.  He tells her what he would like to have written and she then puts that into sentences.

11. Annexure A to her written statement, exhibit F, is a letter from the Public Service inspector of 16 July 1974 noting problems which she had demonstrated in having difficulty in adjusting to personal relationships in the work situation.  It included a recommendation that she be counselled about the effect of her behaviour on fellow officers and that she may need professional assistance, particularly in relation to her speech.  After a short extension of her probationary period she was terminated within the Commonwealth Public Service and given a medical report for a sickness allowance.  After that Mrs Burns worked for a few years in a sheltered workshop.  All of her work was under the strict control of supervisors, but she left of her own volition in order to study further.

12. In about 1978 Mrs Burns went to TAFE to complete her secondary schooling and then finished a librarianship diploma.  She obtained some short‑term relief work cataloguing but could not find steady employment.  Again she reports that people complained that she was 'thinking out aloud', disrupting others and that her co-workers said that it was difficult to work with her.

13. Over the years from 1981 to 1994 Mrs Burns acted as full-time carer for her mother and received a small pension.  This lasted until November 1994 when her mother went into a nursing home.  She says that although she helped her mother physically and with meals and cleaning and similar activities, her mother directed most decisions in her life and was very possessive and controlling of her.

14. In describing her health, Mrs Burns says that although she can read and write she finds it difficult to relate to people.  She talks aloud all the time and cannot stop doing so despite the effect which it has on others.  She finds herself getting very tense and nervous when dealing with people.  This affects her speech and affects her ability to listen properly and to absorb what she may be told or asked.  She says that this problem continues at present and that she finds it difficult to talk with others without her husband's support.  She gives a history from a young age of having fits from nervousness every now and again and that this still occurs if she gets unduly nervous.

15. Mrs Burns suffers from a long history of poor eyesight dating back to her early youth.  She says that when she was young she wore heavy thick spectacles because of short-sightedness.  She no longer wears these but she does tend to squint.  During the period 1990 to 1995 she had problems in both eyes, including retinal detachment in her left eye, and received multiple medical treatments.  She now has only limited vision in her left eye and very blurred vision in her right eye.  As a result, she moves her head around a lot when talking, walking or engaged in activity.  She claims that she is effectively blind in the right eye and has only poor eyesight in the left.  She attends regularly at the glaucoma clinic at Royal Perth Hospital for periodic check-ups.

16. In addition to these problems, Mrs Burns suffers from a frequent facial twitch, feet problems and dental problems.

17. Mr and Mrs Burns met at a church function in 1993.  The church and its society was Mrs Burns' only contact with other people at that time.  They were married in November 1994.  It was after their marriage that Mrs Burns' mother went into a nursing home and she and her husband then lived in a HomesWest unit at 28/14 Coralie Court, Armadale.

18. Mrs Burns says that her husband has always been and is still quite controlling of her, giving her constant instructions like her mother did.  This is consistent with the behaviour of the two during the course of the trial.

19. Mrs Burns' mother died in 1996 and she was left her mother's home at 27 Ilma Street, Gosnells (free of encumbrances) and $76,000.  She has produced statements from the Public Trustee relating to the administration of her mother's estate which included a valuation report that the estimated value of her mother's home as at September 1996 was $69,500 and that her share of the distributions from her mother's estate was $28,989.72 plus $16,618.96 ($45,608.60).

20. Mrs Burns' understanding and appreciation of the various real estate transactions into which she and her husband entered from the year 2000 was extremely limited.  It is enough at this point to say that she claims, and I accept, that she was very heavily reliant on explanation from her husband to appreciate these various transactions and had only a limited understanding of them even then.  She effectively said, and I accept, that she thought her husband knew what he was doing in buying and renting units and that she did not know or think about the extent of the borrowings in October 2007 leaving it all to her husband. 

21. From my observations of Mrs Burns when she was giving evidence and from her demeanour, I concluded that she was trying very hard to be co‑operative, helpful and to give a truthful account of events as she understood them.  It was apparent that she was quite garrulous and had slow mentation.  She had an obvious tendency to affect knowledge, pretending to understand and accept what was being put to her when, in reality, her comprehension was poor and limited.

22. She had an obvious tendency to agree with her interlocutor on almost any subject, especially if she did not understand.  This appeared to be a tendency to ingratiate herself with whoever was speaking to her in order to avoid any appearance of lack of comprehension.  She usually agreed with a proposition when she did not understand it and seized on irrelevancies or details to maintain the semblance of following the conversation. 

1. I came to the conclusion that this behaviour was indicative of a long-standing practice of trying desperately to appear to be normal, competent and intelligent, a measure of demonstrating that she could cope, and was an intelligent, competent person.  In reality she presented a sad case of inability truly to follow trains of thought or lines of reasoning.  She displayed very limited knowledge of the transactions which were the subject of this litigation but, nevertheless, tried very hard to please by asserting agreement with what was put to her.  I conclude that it is most improbable that she had a full or adequate comprehension of events and that she relied trustingly on others, especially her husband, and would accept what they put to her out of a desire to please or because she was not able fully to analyse matters for herself. 

2. I have no doubt at all that in relation to any business or commercial transaction she is a person who needs independent, competent and impartial advice from a person able to give it upon the subject matter in hand and from a person for whom there are, objectively, sufficient good reasons to trust.  Similarly, I conclude that any person dealing with Mrs Burns on any business or commercial matter would appreciate within a very short time that her comprehension and understanding of any commercial or other complicated matters was most limited and inadequate, and that she was in need of competent and impartial advice. 

3. Sadly, despite the best of intentions and a protective sympathy which he has had towards her, Mr Burns, is not a person able to provide that impartial, independent or competent advice.  However, out of his own misplaced sense of competence and some grandiosity, he was constantly prepared to do so.  His role and influence in this regard is also very obvious to an onlooker and would almost certainly have been obvious to any person dealing with him or them both in any business or commercial transaction.

Mr Dale Burns - Background and disabilities

1. Dale Francis Burns, was born on 5 December 1952 in Launceston in Tasmania.  Only four days after his birth he was diagnosed as having suffered a brain haemorrhage at birth and then required lengthy hospitalisation as a baby, including at the Royal Children's Hospital in Melbourne.  He lost 90% of the vision in his right eye, a shortening of his right leg, and some spasm in the right hand.  He suffered behavioural disturbance as a child but says that he has grown out of this.

2. Dale Burns attended kindergarten until the age of six and was then sent to a school for children with emotional and mental disturbance.  He is functionally illiterate with writing.  He continued at school until the age of 14 years.

3. From about the age of 15‑1/2 until 20 he worked at a textile mill in Launceston cleaning excess yarn off machines.  He left this employment in 1973 and was unemployed for some years, later working as a cleaner until about 1982.  He then did a number of jobs for short periods until 1991.

4. In 1993 Dale Burns moved to Perth.  He did not obtain permanent employment, but did a number of unpaid work trials.  He met his wife, the first defendant, then Ms Faith Dixon, at the Uniting Church in Gosnells in August 1993 and they were married in 1994.  From 1995 to 1997 Dale Burns worked part-time doing odd jobs at the Gypsy Baron Function Centre.  Over those two or three years he earned a total of about $7,000 and at intervals also received unemployment benefits.

5. At all times material to this litigation, he has been in receipt of a disability support pension and has had no employment.  All the appearances are that, apart from simple part-time or voluntary jobs, he is unemployable.

6. After their marriage, Mr and Mrs Burns were living in a Department of Housing unit at 28/14 Coralie Court in Armadale, paying $59 a week rent.

7. From about September 1996 Mrs Faith Burns, was receiving Centrelink payments.  Before that she had received a special pension and later she received disability benefits.  Dale Burns continued to receive unemployment benefits until 1998 when he became entitled to a partner's allowance.  The practical difference was that he did not have to present himself for further employment trials in order to maintain eligibility for unemployment benefits.

8. Following Mrs Burns' mother's death in September 1996, the first defendant was left her mother's house at 27 Ilma Street, Gosnells.  She says that was worth about $90,000 at that time ($69,500 according to the Public Trustee statement).  Mrs Burns also inherited a one-third share of her mother's estate which, according to Mr Burns, amounted to approximately $80,000, although the detailed records of distribution to her from that estate accompanying Mrs Burns' evidence, already mentioned, suggest a somewhat lower figure of $45,608.

9. In August 1997 Mr and Mrs Burns jointly purchased 25 Barellen Court, Armadale for $65,000, including all associated costs.  This purchase was financed by a loan of $39,000 from BankWest and the balance (some $26,000) from Mrs Burns' inheritance.  Her late mother's house at 27 Ilma Street was then let to tenants and so was the newly purchased Barellen Court.  According to Mr Burns, the nett rental income from both Ilma Street and Barellen Court, after all ongoing costs, covered their mortgage payments on the Barellen Court loan.

10. This arrangement continued until January 2000 when both Mr and Mrs Burns moved out of Coralie Court and took up residence in the property at Barellen Court.  This meant that they no longer had the rental income from Barellen Court until then paid by their tenants.  According to Mr Burns, they were forced to move from Coralie Court because of the attitude of other tenants in units there.  According to him, the other tenants abused them, complained about sharing accommodation 'with people with mental problems' and called him a spastic and a cripple.

11. In about January 2005 the defendants discharged the BankWest loan which had been obtained for the purchase of Barellen Court.  Another mortgage remained over that property in favour of GE Money for $15,000.  At about that time they mortgaged Ilma Street for $60,000 to NAB Homeside.  The result was that at this time, January 2005, the two had mortgage liabilities in the aggregate amount of $75,000 (to NAB Homeside and GE Money) secured by mortgages respectively over Barellen Court and Ilma Street.  Ilma Street continued to be let to tenants and they were still residing at Barellen Court.  Their combined incomes came from the rents from Barellen Court and from Ilma Street and the disability partner support and unemployment pensions from the Department of Social Security.

Mr Dale Burns' capacity

1. Long before the commencement of this trial doubts arose over the ability of the first defendant to conduct his defence of this claim personally or for him to instruct solicitors to do so.  It is unnecessary to relate the history of how these concerns arose but they led to an order which I made on 21 July 2014, on the application of the plaintiff, that Mr Dale Francis Burns should submit himself for medical examination by a nominated psychiatrist who was to be retained to provide an opinion about the ability of Mr Burns to conduct these proceedings on his own behalf or to instruct solicitors. 

2. After some vicissitudes Mr Burns submitted to an examination by Dr Peter McCarthy FRACP FRANZ, a consultant forensic psychiatrist who, in turn, reported to the plaintiff's solicitors with his opinion on 25 July 2014.  In short, Dr McCarthy was of the opinion that Mr Burns did have the capacity to conduct these proceedings on his own behalf or to retain solicitors to do so and set out his reasons for that conclusion. 

3. As a consequence, the trial has proceeded with Mr Burns appearing in person as already mentioned.  However, during the course of the trial, and in response to the raising of this question with him, Mr Burns put into evidence an affidavit of Mr J R Shepherd, with annexures, sworn 5 August 2014 dealing with events associated with Dr McCarthy's engagement and his report.  There were no objections to this tender by counsel for the plaintiff or for the first defendant and there was no request made for the cross-examination of the deponent or for Dr McCarthy to be called or cross-examined.  The evidence was received as relevant to Mr Burns' background disability and comprehension.

4. In his report Dr McCarthy sets out a full extensive history of Mr Burns' background and upbringing as narrated to him.  This includes reports that

   •Mr Burns attended a special school in Tasmania between the ages of eight and 14 years and he was aged 12 or 13 before he could read.

   •He continued to have difficulty with writing but not for intellectual impairment reasons.

   •He married for the first time in Tasmania in 1988 when aged 36 years.  The couple were together for 18 months and the marriage lasted five years without children but they separated because of his wife's family problems.

   •After moving to Western Australia in 1993 he worked as a casual kitchen hand for two years but otherwise has not worked in the State, his last employment being 1997.  He attributed that to his poor education.

   •He suffered a subdural haematoma in the course of a difficult birth and during infancy suffered from fits, but has not had a fit since 1960 and has not been on anti-convulsant medication since 1972. 

   •Mr Burns denied being intellectually impaired, claiming that he was excellent at mathematics and reading but that he cannot write. 

5. After recounting this history and the details of the examinations which he conducted, Dr McCarthy concluded by expressing the following opinion:

   This man is not suffering from any diagnosable psychiatric disorder.  He has a history of a subdural haematoma at birth with the result of visual, and to a lesser extent, physical problems, but there is no convincing history of mental retardation or cognitive abnormalities such as frontal lobe impairment.  He gives a history of epilepsy but he has not had a fit for 53 years.

   I believe this man is psychiatrically and medically able to personally conduct his defence of the claim against him and is capable of instructing solicitors to do so.  Irrespective of the wisdom or otherwise of this man representing himself, I believe he is as cognitively capable of doing that as any other defendant may be under the circumstances.

   In coming to these conclusions I have psychiatrically determined that Mr Burns:

   1.understands the facts relating to the claim against him and those relating to the claim he makes against PTVL;

   2.is capable of understanding what facts are relevant to those claims, that that was explained to him;

   3.is able to assess the impact of particular evidence;

   4.is capable of articulating the basis on which he defends PTVL's claim and makes a claim against PTVL;

   5.is capable of understanding the court's processes, and the rulings of the court, if they were to be explained to him;

   6.has an[y] insight as to whether his conduct in court has any consequences for the court, the other parties, and himself, including the potential for a delay and resolution of the claims made in the proceedings, the court's resources being devoted to his case to the exclusion of other cases before the court, and PTVL potentially incurring unnecessary legal costs, if those matters were explained to him;

   7.understands the role of counsel for PTVL, counsel for Mrs Burns, the witnesses and the judge in any trial of the proceedings, and whether he is capable of respecting those roles;

   8.understands what he will be required to do in presenting his case to the court at trial, including calling witnesses (if he wishes to do so), and presenting arguments to the court;

   9.understands that he could possibly lose all or part of  the case if that is properly explained to him;

   10.is capable of assessing any settlement proposal on its merits;

   11.is capable of forming a view that a claim is likely to fail, that a person of reasonable intelligence and common sense would form that view upon the available evidence;

   12.is capable of enduring the stresses of a trial lasting 4 days or more without detrimental impact to his health.

   This man, on his history and presentation, is emotionally stable and cognitively able to understand his situation.  He may have traits such as a lack of wisdom or prudence and there may be personality issues such as stubbornness or unreasonableness but I don't think he is psychiatrically or intellectually impaired in attending to his case.  There is no evidence of a Personality Disorder or any psychotic process nor is there any evidence of a dementing process.  I do not believe there is any reason to believe that he has an organic impairment of his judgment.  I have no reason to believe his frontal lobe or any other neurological brain function is significantly impaired.

6. At all times Mr Burns has been absolutely insistent upon his capacity to conduct these proceedings by himself and of the sufficiency of his knowledge and understanding to do so.  There is no reason to doubt any of Dr McCarthy's conclusions but, nevertheless, in the course of giving evidence it became apparent that Mr Burns had very great difficulty in reading any written material and attempted to overcome this by devising what he imagined were clever responses to questions which challenged his versions of events.  While obviously making every effort to give a comprehensive account of the history of events and being careful and accurate, within his capacity, to answer questions it was obvious that Mr Burns had a degree of confidence in his own knowledge and abilities, particularly commercial matters, which had little in the way of justification from experience or otherwise. 

7. Mr Burns tended to take an optimistic view of his abilities as an investor and accepted at face value an article or articles which he had read in the financial press during his time in investing in real estate that property had increased at the rate of 30% per annum, which he expected would continue unabated.  His optimism and confidence in relation to investment and commercial transactions was not tempered by any degree of prudence or reserve which one would expect in a reasonable person contemplating major investments or financial outlays.  The successes which he and his wife achieved in their initial property investments obviously emboldened him to enter into further investments and on an increasing scale. 

8. It was obviously Mr Burns who made the decisions in the family about these matters and that Mrs Burns had little, if any, contribution to the decisions to purchase property, borrow or otherwise invest.  Mr Burns exhibited all the signs that he knew best about these matters and seemed to have paid very little regard to the separate interests of his wife or any opinion which she might have.  In fact, it is unlikely that Mrs Burns did have any opinion on any of these matters, for I am satisfied that she was, because of her particular circumstances, and her own disabilities, unable to make any real assessment of her own financial interests and accepted blindly and without question what her husband did. 

9. There is no doubt, in retrospect, that in relation to the transactions she would have been better served had she received independent, competent, professional or financial advice.  Had this been forthcoming, it is likely that there would have developed a difference of opinion between her advisor and her husband's wishes and decisions about investment prospects and that these would have probably led to dissention.  That does not mean that she would, in the end, have yielded to her husband's opinions, or that her husband's opinion would have continued unaltered in the face of competent, independent advice coming from the respected source.  Having regard to the degree of imprudence involved in the extent of the later borrowings embarked upon by Mr Burns, I consider that it is probable that independent advice would have been so adverse to the wisdom of entering into those transactions that both would have desisted even if after some recriminations.

10. Perhaps of even greater importance, Mr Burns was not a 'private investor' or an 'experienced investor' nor a person conducting a business on his own behalf in the real sense of any of those expressions.  He was a person in receipt of a disability pension, of little education, negligible employment experience, unable to read, and with very little capital, independent income or capacity to earn.  On any objective assessment his ability, and the combined ability of himself and his wife, to service loans or the borrowings which he undertook depended to a great degree on continuing significant appreciation in capital value of the properties which he was purchasing and on the continuation of rents at commercial rates from each of those properties.  Reverses on any of these fronts rendered him and his wife extremely vulnerable to severe economic reverses.  Only too obviously, that is what happened with the reduction in property values and reduced rent following the general financial difficulties occurring from 2008 onwards.

Various property acquisitions

1. This narrative so far has identified the property at Railway Avenue which was purchased in 2007 and which is the subject of the plaintiff's claim for possession.  It has also identified the acquisition by Mrs Burns of her late mother's property at Ilma Street by inheritance following the mother's death in 1996 and the acquisition by both defendants of the unit at Barellen Court in 1997.

2. There was a further acquisition in June of 2006 when Mr Dale Burns purchased Unit 5, 12 Holland Street, Gosnells for $330,000.

3. At the same time as the purchase by Mr Burns of Unit 5, Holland Street, there was a similar contract to purchase Unit 3, Holland Street in the name of Mrs Faith Burns.  These two contracts to purchase properties at Holland Street explain why one was purchased in the name of Mr Burns and the other in the name of his wife.  As events proceeded, however, finance could not be obtained for the purchase of Unit 3 by Mrs Burns and that did not proceed. 

4. Therefore, rearranging the above purchases in chronological order they are:

   1.acquisition of 27 Ilma Street, Gosnells by Mrs Faith Burns by inheritance from her mother in 1996

   2.joint purchase of 25 Barellen Court, Armadale, in 1997

   3.purchase by both defendants of Unit 15, Sherwood Gardens, 405 Railway Avenue, Armadale, on 24 January 2006

   4.on 20 June 2006 Mr Dale Burns alone agreed to purchase Unit 5, 12 Holland Street, Gosnells, for $330,000

   5.on 6 June 2006 Faith Burns agrees to purchase Unit 3, 12 Holland Street, Gosnells, for $330,000 (however this transaction never proceeded as it was subject to finance which could not be raised because of her inability to service the projected loan).

Various mortgage loans from the plaintiff

1. When Mr and Mrs Burns first decided to buy property, Barellan Court, they did so with the use of borrowed funds for which both Barellan Court and Mrs Burns' inherited property at Ilma Street were put up as security.  Those funds were secured by mortgage in favour of Bankwest registered over Ilma Street in August 1997.  There were three subsequent loan contracts between Mrs Burns and Bankwest for $6,000, $6,500 and $6,000 respectively.  Then in June 2004 Mr and Mrs Burns were granted a mortgage to Bankwest for $60,000.  That mortgage was discharged in February 2005 and replaced by a mortgage over Ilma Street in favour of the National Australia Bank for $60,000 in respect of a loan of that amount to both Mr and Mrs Burns.

2. The next major property transaction was the purchase of 15/405 Railway Avenue, Armadale.  This was to be supported by:

   (a)two loans totalling $150,500 to be secured over Ilma Street; and

   (b)two loans totalling $129,500 to be secured over Barellan Court.

1. All those applications were made by the Burns through Perpetual Finance Group (PFG) and supported by, among other things, an 'Easydoc declaration of financial position' arranged by Mr Frankland of PFG.

2. In February of 2006 Interstar/Challenger gave preliminary approval for a loan of $129,500 in respect of Barellan Court and additional preliminary approval for a loan of $181,300 in respect of Railway Avenue.  As the next step in this transaction Mr and Mrs Burns signed a loan agreement with the plaintiff on 23 February 2006 for:

   (a)a loan of $60,000 (first Ilma Street facility); and

   (b)a loan of $90,500 (second Ilma Street facility)

   (in aggregate $150,500 which they sought in January 2006 to be secured over Ilma Street.

3. That then resulted in a mortgage in favour of the plaintiff being registered over Ilma Street on 23 February 2006.

4. The second half of this transaction involved Mr and Mrs Burns entering into a loan agreement with the plaintiff on 24 April 2006 for:

   (a)a loan of $109,500 (first Barellan Court facility); and

   (b)a loan of $20,000 (second Barellan Court facility)

   both of which were to be secured over Barellan Court.  Both the loan applications of 23 February 2006 and 24 April 2006 for the loans to be secured over Ilma Street and Barellan Court were arranged and witnessed by Mr Frankland.

5. This resulted in the mortgage from the defendants in favour of the plaintiff being registered over Barellan Court on 26 April 2006.  Those two loans and that mortgage for the aggregate amount of $129,500 were the product of the second of the loan applications made by Mr and Mrs Burns in January 2006 to be secured over Barellan Court.

6. The next series of purchases and transactions occurred in June of 2006.  Mrs Burns entered into a contract of sale for the purchase of Unit 3/12 Holland Street, Gosnells, for $330,000 dated 19 June 2006.  On the same date Mr Burns entered into a contract of sale for the purchase of Unit 5/12 Holland Street, Gosnells, for $330,000.  Each was subject to finance.

7. In late June or early July 2006 Mr and Mrs Burns each applied through PFG for loans to provide the finance needed for their separate purchases of the two units at Holland Street.  In mid-July Interstar/Challenger gave preliminary approval for a loan of $231,000 each in respect of the Holland Street units conditional upon completion of construction and a valuation on completion of construction.  However, PFG advised them that it was not prepared to act for them to apply for further or additional finance for those transactions.

8. On completion of the units at Holland Street both Mr and Mrs Burns signed applications for finance for $227,500 to be secured over the Holland Street units through PFG and gave an Easydoc declaration of their financial positions.  That application of 26 March 2007 was only in respect of Unit 5, Holland Street.

9. Then on 27 April 2007 both Mr and Mrs Burns entered into a loan agreement with the plaintiff for a loan of $228,368.54 to be secured over Unit 5, Holland Street.  The next day they signed a letter to PFG advising that they could not raise funds to purchase the other unit, Unit 3, 12 Holland Street, Gosnells.

10. Then in late April 2007 they each signed loan applications, via PFG, for three loans totalling $203,000 to be secured over Ilma Street and a further two loans totalling $182,000 to be secured over Barellan Court.  Over the next few days they were advised by PFG that:

    (a)a loan of $227,500 was approved for Holland Street;

    (b)Challenger gave preliminary approval for loans of $203,200.44 in respect of Ilma Street.

11. That was quickly followed by a loan agreement between the plaintiff and the defendants dated 7 May 2007 for the plaintiff to:

    (a)lend the defendants $60,000 in substitution for the first Ilma Street facility;

    (b)lend the defendants $90,500 in substitution for the second Ilma Street facility; and

    (c)lend the defendants a further $52,700.44 (the third Ilma Street loan facility)

    all to be secured over Ilma Street.

12. Next, on 8 May 2007, Challenger gave preliminary approval for loans of $182,200.44 in respect of Barellan Court and this led to a loan agreement between the plaintiff and both defendants dated 9 May 2007 for:

    (d)a loan of $109,500 in substitution for the first Barellan Court facility;

    (e)a loan of $20,000 in substitution for the second Barellan Court facility;

    (f)a further loan of $52,700.44 (the third Barellan Court loan facility)

    all to be secured over Barellan Court.

13. Drawdowns under those loans then occurred in May of 2007.

14. The next transaction was the Railway Avenue purchase.  On behalf of the plaintiffs, PFG submitted loan applications in respect of Railway Avenue on or about 10 September 2007.  The mortgage insurer asked PFG for details of the Burns' employment and were informed by PFG that Mr and Mrs Burns are 'property investors'.  This application was made through PFG to Challenger but the loan application was declined in mid-September 2007.

15. Undeterred, Mr and Mrs Burns then applied to another lending representative, 'Mortgages For Money', to whom they had been referred by PFG.  It was operated and staffed by former personnel from PFG.  Then, via Mortgages For Money, Mr and Mrs Burns applied to Challenger for three loans totalling $227,500 to be secured over 15/405 Railway Avenue, Armadale. 

16. This was done again by an Easydoc declaration of financial position via Mortgages For Money to Challenger.  On 26 September 2007 Challenger gave preliminary approval for loans totalling $228,368.54 in respect of Railway Avenue, and on 17 October 2007 the defendants signed a loan agreement with the plaintiff for a loan of $228,368.54 to be secured over Railway Avenue.  This is the Railway Avenue loan agreement which, together with the subsequent mortgage, is relied upon by the plaintiff in support of its present claim. 

17. In October of 2007 Mr and Mrs Burns drew on the first Ilma Street facility, completed the purchase of Railway Avenue with loan funds supplied by the plaintiff, became registered as co-proprietors of Railway Avenue, and registered a mortgage over that property in favour of the plaintiff.

18. In December 2007 both defendants defaulted in payment under the Holland Street loan - their first default.  Various proposals and transfers of funds were pursued in an attempt to deal with the difficulties which had by then emerged and in January 2008 they agree to sell Barellan Court.  That sale settled on 28 February 2008, resulting in the discharge of the mortgage over Barellan Court.  The Barellan Court loan facilities were repaid and nett proceeds of some $58,446.44 paid to the defendants.

19. In January 2009 the defendants make their first default in the payment of moneys due under the Railway Avenue loan and mortgage and were contacted by the plaintiff.  Mr Burns explained that he had no funds to make any further payments but was taking steps to sell Ilma Street.

20. On 17 March 2009 Mr and Mrs Burns entered into a contract of sale to sell Ilma Street for $270,000.  That transaction settled on 12 June 2009, with the result that:

    (a)the Ilma Street loan facilities were repaid;

    (b)the mortgage in favour of the plaintiff over Ilma Street was discharged; and

    (c)Mr and Mrs Burns received nett proceeds of $45,083.09.

21. Then in early 2010 Mr Burns sold Holland Street and received, at settlement on 1 February 2010, funds to discharge the mortgage over Holland Street, following the repayment of the Holland Street loans, and nett proceeds of $72,151.74.

22. Then in April 2011 both defendants defaulted again in making payments under the Railway Avenue loan.  This resulted in the default notices issued by the plaintiff relied upon in this action.  The default has continued unremedied and no further payments have been made to the plaintiff.

23. While the amounts of the mortgages and the sources of the security varied from transaction to transaction, a common element was that the payments of interest and other moneys due under the mortgages were to be met by rents obtained by the Burns from the letting of the properties and/or by further loans or refinanced loans resulting from anticipated, and in some cases actual, increases in the capital values of the properties already mortgaged. 

24. All that came to a halt in or about December 2007 due to a combination of the impact of the so-called global financial crisis (GFC) which in turn led to a fall in value of the properties and real estate in general; an increase in the interest rate charged by the plaintiff on the various loans; difficulties in letting the properties purchased, some of which became vacant and deprived the defendants of the income relied upon to meet the payments due under the mortgages.  They had no other significant source of income to rely upon to meet those obligations save for the modest amounts of the pensions which they received and which, from all the appearances, were only sufficient for their own small needs and sustenance. 

25. All but one of the loan applications, the consequent loan agreements and mortgages were entered into by the plaintiffs as a result of their dealings with Mr Frankland and PFG (Perpetual Finance Group) and were approved by Interstar/Challenger in its role as trustee/originator for the plaintiff under the arrangements which are yet to be explained.  The single exception is the last financial facility, namely, the loan agreement and mortgage in respect of Railway Avenue which initially had been sought via PFG, which then advised that Challenger had declined that loan.  However, a substitute application made to Challenger via Mortgages For Money was approved and a loan and mortgage from the plaintiff for that facility as desired was subsequently arranged and implemented.

26. In relation to each of these transactions, Mr Frankland at Perpetual Finance Group (PFG) had dealt with the Burns personally and was aware of their circumstances.  He knew that neither was employed, that each was a pensioner, and that each had disabilities.  He realised that Mr Burns was determined to show his prowess by successful investment in the property market but he knew that apart from Ilma Street and the properties which had been purchased on the loans arranged the Burns had no or no significant other assets.  Expressly, he knew that neither Mr nor Mrs Burns conducted any business and did not have an Australian Business Number (ABN) and that they were not persons for whom the Easydoc system of a loan application was designed.

27. Mrs Wilson at Mortgages For Money had previously been at Perpetual Finance Group (PFG) and had some knowledge or familiarity with the Burns from that office but less experience of them than Mr Frankland.  Nevertheless, she was aware that neither had any business of his or her own, did not have an ABN, and that both were in receipt of pensions and were seeking to repay the moneys due under the various mortgages from rent coming from the properties which had been acquired and/or by further loans based on an assumed progressive capital appreciation in the values of the underlying properties.

28. Mr Frankland of PFG first dealt with the Burns in early 2006.  His evidence is that at this meeting it was Mr Burns who did all the talking with him.  He said that Mr and Mrs Burns spoke loudly to each other because Mr Burns had to explain things to his wife.  To the observation of Frankland, Mrs Burns seemed to be nervous and unsettled and occasionally would say something to her husband like, 'I don't understand what you're saying'.  At this first meeting their income was not discussed in any detail but one of the Burns did disclose to Mr Frankland that they were in receipt of a pension and that Mrs Burns had an inheritance.  Mr Frankland did not press these matters because he believed that in the case of Easydoc loans there was no income requirement to qualify and he never sought any income details from the defendants.

29. Mr Frankland reported to his superior at PFG, Mr Justin Brown, and said that he had doubts as to whether any loan funds should be provided to the Burns and he recalls that Brown seemed to agree with him.

30. The Burns frequently contacted Mr Frankland thereafter, usually on a weekly basis.  Mr Frankland regarded it as his role not to give any financial advice and not to seek any information or details of the incomes of the Burns because the facility under discussion was an 'Easydoc' or an 'asset lend' loan which meant that if the borrowers had sufficient equity in the properties being offered their income was not required to be disclosed.

31. Specifically, Frankland was aware that the Burns did not have any business of their own and were not and had not in prior years been full‑time investors.

32. In his oral evidence Mr Frankland explained that he never arranged any loans for a property except from the plaintiff.  He was aware that his employer, PFG, received financial incentives in the way of advertising funds and administration costs from the lender or its representative.  He regarded Mr Burns as a person with a disability who was anxious to prove himself.  When cross‑examined by counsel for Mrs Burns, Mr Frankland observed that in the course of the meeting which he had with Mr and Mrs Burns in relation to the first transaction in which a loan was to be raised on the security, among others, of Ilma Street, that it was Mr Burns who was calling the shots and that he was a very dominant character.  Despite Mr Frankland's own suspicions about the wisdom of the transaction, the application was pursued because he was trying to help the Burns as it was obvious that they had social difficulties.  Mr Frankland also said that the interest rates payable under an 'Easydoc loan' were several percentage points higher than for a 'FullDoc loan'.

Aggregate financial exposures

1. In their final written submissions the parties have put forward what each refers to as an 'aide-memoire' which amounts to a tabulation of the aggregate amounts borrowed by the defendants from time to time over the period when the various mortgages were current, showing the interest rates and the monthly interest rates and the amount owing on the various loans.  The information contained in these tabulations comes substantially, but not entirely, from the mortgage documents, the loan applications and statements which are in evidence except for the gross rentals available from the various properties at different dates.  Consequently, the plaintiff objects to reliance on these tabulations, at least insofar as they seek to include details of rental income or potential rental income.  This objection is on the basis that in some instances there was no direct evidence of the rental to be expected from the properties and, in other instances, that where evidence to this effect was sourced from Mr Dale Burns, his evidence was unreliable in the absence of documentary confirmation or bank accounts which have not been produced or discovered.  To the latter extent, I consider that the objection is well founded but they are, nevertheless, estimates of the rent likely to be derived from the several properties in valuations which were prepared in relation to loans on properties where there is a condition that the market value of the property on completion of construction should be provided before unconditional approval for the loan was given.

2. For that reason, therefore, I consider that I can accept the tabulation put forward by Mr Burns (reproduced below) which shows the total amount borrowed at various stages of this course of conduct, the interest rates payable on the loans and the total monthly interest payments and how this was broken down by the several composite loans over, respectively, Ilma Street, Barellan Court and Railway Avenue.  The tabulation also includes the gross maximum rent income capacity at various times and it is in relation to these figures that I have reservations and do not accept them as anything more than a guide or approximation. 

3. As the purpose of the tabulation, in this latter respect, is to show a significant disproportion between the aggregate monthly interest and the likely income for the Burns from rents to be derived by the properties, I am satisfied that in that respect there was significant disproportion (but not in quantitative amounts) which emerged from the evidence as a whole, not least from the evidence that the continued borrowings and their servicing required subsequent loans in higher amounts on the same properties as those appreciated in value during the salad days for investors before the GFC. 

4. Furthermore, the exact or quantitative comparison of the revenue likely to be available from rentals with the aggregate of interest instalments payable under the mortgages was never a factor addressed or examined by Mr Frankland, Ms Wilson from Mortgages For Money or by any of the other intermediaries when considering or approving the loans and mortgages ultimately entered into by the plaintiff.  Their rationale, and sole consideration, was whether or not sufficient value existed in the asset being put up for security to justify a loan regardless of repayment abilities of the borrowers.  That approach was, in their view, justified by the overall criteria for 'Easydoc loans' in that they were intended for borrowers who were in business, who were not pensioners, and did not, therefore, need to state or otherwise disclose their income or repayment capacities.  That tacit assumption, combined with the known false approach that the Burns were within the category or class of persons for whom Easydoc loans were designed was never questioned despite the strong implications to the contrary emerging from the Burns' circumstances and appearances as known to Frankland and Wilson.

5. This tabulation is set out in full in the appendix to these reasons, but for the present I only reproduce those parts dealing with the total amount borrowed, the interest rate, the monthly interest, and the estimated gross maximum rent capacity.

Total Borrowed	Interest Rate	Monthly Interest	Gross Max Rent Capacity
Prior to Settlement on Holland Street (22/4/07)	175,000	8.17	1191.45	771.42
After Settlement on Holland Street (14/5/07)	456,700	8.02	3052.27	771.42
After settlement on Railway Ave (6/11/07)	830,700	8.82	6105.54	3128.57
Prior to sale of Barellan Court (17/1/08)	844,200	9.07	6380.74	2357.14
Post sale of Barellan Court (9/3/08)	666,700	9.42	5233.59	2357.14
Prior to sale of Ilma Street (5/06/09)	683,000	7.80	4439.50	1285.71
Post sale of Ilma Street (19/06/09)	460,000	7.80	2990.00	1285.71
Post sale of Holland Street (7/02/2010)	230,000	8.55	1638.75	0.00

1. Essentially, the complaints of the defendants are that, in the case of the first defendant, she did not understand the purpose or effect of the six loans and related mortgages and, being the wife of the defendant, reposed trust and confidence in him and acted at his direction in entering into all the loans and related mortgages.  Her case is that it was or should have been obvious to the plaintiff's intermediaries who dealt with her that she lacked this understanding and did not have sufficient capacity to understand the risks and consequences involved by entering into the loans and the jeopardy in which they placed her for the potential loss of her inherited property at Ilma Street.  She claimed that it was her belief that the loans would be repaid out of rental income earned from the properties purchased and that only those properties could be sold if the loan repayments were not met.  She asserts, and it is the fact, that she did not receive any independent advice prior to entering into any of the loans and related mortgages and, further, that the plaintiff did not take any steps to ensure that she had independent advice and dealt, effectively, only with Mr Burns.

1. A breach of fiduciary duty may give rise to a liability by a defendant to account for profits improperly derived from a breach of fiduciary duty, especially in the case of a breach of trust, either on a common account or, alternatively, a wilful default basis:  see In re Ellis; Ellis v Ellis [2015] WASC 77. Damages in equity under Lord Cairns' Act are of an entirely different kind, being damages which can be ordered in lieu of a decree of specific performance. Breaches of trust involving losses to the trust fund, whether actual losses or losses of opportunity, can give rise to an entitlement to an account, the usual remedy for breach of trust, although when monetary relief is granted it is often termed 'compensation' for breach of trust.

2. There are, however, many instances in which equitable relief will be available because of the breach of a duty which equity recognises without there being any corresponding entitlement to damages or compensation or, for that matter, to an account.  The common examples of rescission because of some vitiating element in a contract will not usually involve the payment of any damages, although the payment of certain amounts may be necessary in order to achieve the accompanying restitutio in integrum.  The orthodox view remains that damages are a remedy available at common law and, in the absence of special statutory powers, not in equity. 

3. Cases dealing with the consequences of breach of duty by delinquent fiduciaries can often involve a hybrid case because, in many instances, for example, the role of a solicitor, there will be concurrent duties arising from contract at law and in equity, so that a breach by such a fiduciary of an obligation can give rise to a liability to damages, but that is because the breach simultaneously involves a breach of contract or a tort such as negligence.  The plaintiff refers to the observations of Young J in Eurofinance Corporation Pty Ltd v Carrymoor Investments Pty Ltd [2000] NSWSC 415 [48] for the proposition that it is startling to consider that damages are available because of unconscionable conduct. For similar expostulations about the importation of the thought that damages may be available for breach of fiduciary duty simpliciter see Meagher, Gummow & Lehane's Equity Doctrine and Remedies (5th ed, 2015) [2.140], [2.310], [2.205, [2.210] and [23-010]. 

4. Furthermore, the availability of damages in respect of a claim for unconscionable conduct was doubted by McLure J, as her Honour then was, in Australia and New Zealand Banking Group Ltdv Dzienciol [2001] WASC 305 [413]. The possibility was recognised in Paroz v Paroz [2010] QSC 41; (2010) 5 ASTLR 452 [133] - [138] and such an award was made in Karam v Australia and New Zealand Banking Group Ltd [2001] NSWSC 709, which was overturned on appeal on the basis that the claimed unconscionable conduct had not occurred: Australia and New Zealand Banking Group Ltd v Karam [2005] NSWCA 344; (2005) 64 NSWLR 149. Despite these indications, I am not prepared to accept that damages for unconscionable conduct of the kind established in this present case are available. However, even if they were available, the plaintiff submits that if the transaction were to be set aside on that ground, compensation or damages could not be awarded without requiring restitution of the amounts advanced to Mrs Burns in respect of Ilma Street, Barellen Court and (although not included in the written submissions, by necessary implication from the oral submissions) the advances made in relation to Railway Avenue.

5. In circumstances such as the present, I consider that the remedy available to the defendants on establishing claims for unconscionable conduct are to set aside the impugned transaction or transactions as far as practicable and to order such other relief as may be necessary to return the parties to the position in which they would have been had the impugned transaction not occurred by requiring payments or restitution so far as may be necessary to do equity:  Mayfair Trading Co Pty Ltd v Dreyer (1958) 101 CLR 428, 452 and Vadasz v Pioneer Concrete (SA) Pty Ltd (1995) 184 CLR 102, 113 - 115.

6. When granting such relief, a court of equity will impose such terms upon the party obtaining relief as it deems the real justice of the case requires, consistent with the maxim that 'he who seeks equity must do equity'.  This may involve relieving against some or all of the transaction challenged or limiting the effectiveness of the transaction to part only of the subject matter as occurred in Vadaszitself.  In the present case, I see no basis upon which the defendants could be awarded damages for the unconscionable conduct found as distinct from obtaining relief setting aside or modifying the terms of the various transactions affected by that unconscionable conduct with or without terms.

Trade Practices Act

1. As already mentioned, counsel for the first defendant maintains that her existing defence and counterclaim gave rise to and asserted an entitlement to damages under s 82 of the Trade Practices Act and/or to other relief under s 87 of that Act. This has given rise to the objections by the defendant as to the sufficiency of pleading to recover relief for those asserted causes of action and an application, should they be available, to amend the defence to the counterclaim to plead limitation defences to each of them.

2. The exact basis for the alleged misleading and deceptive conduct by the plaintiff was not clearly advanced by the defendants, nor were the particular occasions and details of the misleading or deceptive conduct precisely identified.  At its highest, it seems that the defendants contend that by accepting the loan applications by the defendants in circumstances where neither was entitled to an Easydoc loan according to the provisions of the documents regulating lending between the plaintiff and its intermediaries; and in describing the defendants as investors; and in failing to ensure that each had independent advice which would have exposed the improvidence of the proposed borrowing and the high risk of default and its consequences, the plaintiff and its intermediaries were guilty of misleading or deceptive conduct. 

3. In fact, however, what the plaintiff did was receive, process and grant applications for loans followed by loan agreements and mortgages before advancing the moneys sought.  By doing this, they acceded to the applications and wishes of the defendants.  Having regard to the special vulnerability of the defendants and the improvidence of their proposed borrowings, I have concluded that this amounted to unconscionable conduct in taking advantage of vulnerable applicants, but that is not in itself misleading or deceptive conduct. 

4. Mr Burns has claimed that the plaintiff's agents, in particular Ms Wilson, had misled him by representing that the liabilities under the Railway Avenue mortgage could be met by the rent on the properties acquired and from further borrowings and refinancing based on progressive appreciation of capital value of those properties over time. It is possible that this could amount to misleading or deceptive conduct if the defendants prove that those were material, that is not insignificant, factors in inducing them to enter into the transactions and that quantifiable losses or consequences were thereby caused to them. Several times now I have explained that any question of the quantification of damages has at the defendants' request been stood over for future hearing if necessary. Questions of inducement and causation for a s 82 claim have similarly not been addressed at this trial.

5. An action for damages pursuant to s 82 of the Competition and Consumer Act 2010 (formerly the Trade Practices Act 1974) can be commenced within six years after the day on which the cause of action that relates to the conduct accrued.  That is the day upon which the damage was first suffered by a claimant.  In a case where the alleged misleading and deceptive conduct led to a claimant entering into a mortgage with the defendant involving consequences or terms more onerous than would have occurred, if at all, had the misleading or deceptive conduct not eventuated, then the date on which the cause of action accrued will be the date of entering into the mortgage:  Wardley v State of Western Australia (1992) 175 CLR 514 and Forster v Outred [1982] 2 All ER 753 discussed by the High Court without disapproval in Wardley despite submissions to the effect that Forsterv Outred should not be followed - 175 CLR 518 (submission). In the event it was unnecessary for the High Court to determine whether or not Forster v Outred should be followed and it therefore remains persuasive authority which had stood for a substantial time and which has been followed on several occasions.

6. The transactions leading to the Railway Avenue loan occurred in October 2007 so any claim for damages under s 82 of the Trade Practices Act commenced before October 2013 would be in time. It is acknowledged by the plaintiff that if the defendants' pleadings raise a claim for damages under s 82 in respect of the Railway Avenue loan, that claim would be within time. I accept that to be the case.

7. Again, insofar as the defendants seek to raise statutory claims under s 87 of the Trade Practices Act, that claim must be made within six years after the day on which the cause of an action that relates to that conduct accrued (s 87(1CA)). Accordingly, a claim under s 87 would be open in respect of the Railway Avenue transaction but there is no reference to any of the other properties or any claim in respect of them in the defendants' pleadings before 25 September 2013, being the date of the first defendant's amended defence and counterclaim. Claims for relief under s 87 in respect of the earlier transactions, the latest of which were the third Ilma Street and Barellan Court facilities of May 2007, were more than six years before the introduction of any pleas in respect of any of those properties and hence time barred. Accordingly, any claims for relief under s 87 in respect of properties other than Railway Avenue must fail.

8. A claim for relief under s 87 in relation to the Railway Avenue transaction is, in these particular circumstances, virtually indistinguishable from the claim for relief for the unconscionable conduct which has been upheld. The powers of the court and the scope of relief under s 87 are extensive but the principles applicable to the nature and type of relief to be granted are similar to the principles relating to relief in equity in so far that restitutio in integrum should, to the extent possible, be ordered.

Should terms be imposed on the relief to be granted to the defendants?

1. In view of the conclusions reached that the loan agreement and mortgage between the plaintiff and the defendants in relation to Railway Avenue were the product of unconscionable conduct for which the plaintiff is responsible, I consider that the defendants are entitled to remedies which include an order that the mortgage should be set aside and that the plaintiff be required to discharge it and that the loan agreement be declared to be invalid and unenforceable.  This leaves the question of what terms, if any, should be imposed on the grant of such relief and what should become of the plaintiff's alternative claim for restitution or for money had and received and/or money paid at the request of the defendants for the principal of $266,849.83 paid by the plaintiff in respect of the Railway Avenue loan.

The plaintiff's claim for restitution

1. This is the alternative claim pleaded by the plaintiff for restitution, recovery of money had and received, recovery of money paid at the defendants' request for the principal of $266,849.33 of the Railway Avenue loan and with or without interest.  I will resist any examination of the question of whether those claims are separate and distinct causes of action of just part of an overall principle of unjust enrichment.  Nothing turns on that here.

2. These claims, however, are all predicated upon the contract of loan and mortgage for Railway Avenue being set aside for unconscionable conduct or some other mitigating factor.  Yet the plaintiff never conceded that either of those loans was invalid, unenforceable or should be set aside.  By pursuing the principal contractual claim the plaintiff has denied, and so excluded, any right to sue on the restitutionary claim.  They are inconsistent claims and the plaintiff's case did not allege or prove facts essential for the restitutionary claim.  Those facts have, of course, emerged from the defendants' counterclaims but were never accepted or acknowledged by the plaintiff in its pleading, in evidence or, otherwise, at trial.

3. This means that the plaintiff's alternative claims in restitution must fail and be dismissed.  However, the question of what if any return of the principal advanced by the plaintiff still arises in the action because the extent of relief recovered by the defendants raises it.  Significantly, however, that issue is the product of the defendants' counterclaims and not, having regard to the plaintiff's chosen stance, from the plaintiff's case.

The remedy of rescission

1. The rescission of the loans and mortgages sought by the defendants is that species of rescission which is a remedy granted by a court with equitable jurisdiction, and not rescission at common law which occurs by an act of the parties or because of an inherent aspect of the contract depriving it of any effect.  Even then the scope of the remedy in equity is broader in cases involving unconscionable dealings, and even broader in cases of fraud, than in less reprehensible cases such as innocent misrepresentation.  One difference from legal rescission is that a transaction rescinded in equity because of unconscionable conduct will be undone by the order of the court and not by any act of the parties.  As well, the transaction will, until then, be treated as effective but voidable.  Once rescinded by order of the court it will, except as may otherwise be dissected - Vadasz v Pioneer Concrete (SA) Pty Ltd - become void ab initio.

2. The availability of rescission for unconscionable conduct and catching bargains is very old and versatile.

3. Generally, equity will not award rescission of a transaction resulting from unconscionable conduct where it is not possible to restore the parties substantially to their original positions - Erlanger v New Sombrero Phosphate Co (1878) 3 App Cas 1218 HL - but relief will not be denied in a proper case where it is merely difficult to do so - Earl Beauchamp v Winn (1873) LR 6 HL 223 (Lord Chelmsford). (See generally Halsbury's Laws of England vol 77 [43], [52] where the authors observe:

   The court may order rescission on the basis of restoring the parties so far as practically possible to do so.  For this purpose ancillary relief may be granted, such as an account of profits, or an allowance for work done, or a sum paid for benefits enjoyed …

4. The extent to which rescission may be ordered but with appropriate ancillary relief where restitutio in integrum is not fully possible does not appear to be fully settled.  It has resulted in a series of cases in England which the authors of Meagher, Gummow & Lehane, Equity, Doctrine and Remedies (5th ed, 2015) [25-065] - [25-075], and Goff & Jones, The Law of Unjust Enrichment (8th ed, 2011) [40-12] - [40-14] regard as confusing, conflicting and in need of resolution.  See also Snells Equity (33rd ed, 2015) [15.014].

5. Emerging from those cases where rescission was ordered (but with adjusting relief) where restitio in integrum was not fully possible are observations to the effect that such a defendant should not be permitted to retain an advantageous position obtained through illegitimate means - Borelli v Ting [2010] UKPC 21 [38] - [39]; that a defendant cannot rely on his own misconduct to prevent rescission - Rees v De Bernardy [1896] 2 Ch 437, 446 (Romer J) - and that practical justice will require a defendant to return the 'benefit derived' from the unconscionable transaction - O'Sullivan v Management Agency and Music Ltd [1985] QB 428; [1985] 3 All ER 351. This flexibility in search of practical justice is demonstrated in Vadasz; Newbigging v Adam (1886) 34 Ch D 528; Adam v Newbigging (1888) 13 AC 308; and Alati v Kruger (1995) 94 CLR 216.

6. What does seem to be clear and generally acknowledged is that the remedy in this respect is more flexible and adaptable in Australia and perhaps more so in New Zealand:  Alati v Kruger; Verdasz; and Scales Trading Co Ltd v Far Eastern Shipping Co Public Ltd [1999] 3 NZLR 26 - see on appeal [2001] 1 All ER (Com) 319.

Restitution to the plaintiff as part of the defendants' relief

1. This involves a consideration of the obligation of the defendants to do equity as a proper consequence of being granted the equitable relief which they sought in having the Railway Avenue loan and mortgage set aside.  Counsel for the plaintiff relies on the result in Maguire v Makaronis (1997) 188 CLR 449, a case involving rescission of a mortgage granted by clients of a firm of solicitors to that firm without being advised to obtain independent legal advice. The mortgage was set aside but upon condition that the clients repaid the principal and interest due under the mortgage. Brennan CJ, Gaudron, McHugh and Gummow JJ said at 475:

   To set aside the Mortgage purely in its operation as a security, without conditioning that upon repayment, would be to reform the transaction in an impermissible fashion.  It would be to strike down the security interest without ensuring repayment of that which was paid in return for it.  The respondents would be left with the fruits of the transaction of which they complain, whereas their equity was to have the whole transaction rescinded and, so far as possible, the parties remitted to their original position.

2. Their Honours referred to that as the manner in which the court addressed the principles applying in fixing terms upon rescission ordered of a commercial transaction.  At [111] there is the further passage:

   Where, as in this case, the court has granted equitable relief in the shape of rescission of a contract, the result is to set aside the contract ab initio.  While equity followed the law in requiring restitution as a condition of rescission when a contract had been wholly or partly executed, it allowed greater flexibility in the basis upon which restitution and accounting between the parties may be ordered.  Thus equity did not require complete restitution of the position which existed before the contract but allowed its remedies, particularly an order for monetary accounts, to be utilised to achieve practical restitution and justice.

3. Their Honours then referred to a judgment in Alati v Kruger at 223 ‑ 224 which included the passage:

   But it is necessary here to apply the doctrines of equity, and equity has always regarded as valid the disaffirmance of a contract induced by fraud even though precise restitutio in integrum is not possible, if the situation is such that, by the exercise of its powers, including the power to take accounts of profits and to direct enquiries as to the allowances proper to be made for deterioration, it can do what is practically just between the parties, and by so doing restore them substantially to the status quo.

4. In considering what terms, if any, should be imposed on the defendants to satisfy this longstanding principle, it is essential to appreciate that had the unconscionable conduct not produced this loan, neither of the defendants would have granted security over Railway Avenue or have been exposed to claims for possession, foreclosure or sale of the security by a registered mortgagee.  Of course, without that mortgage, they may not have obtained the funds to purchase Railway Avenue.  The possibility that they may have raised funds on a full documentary mortgage from another source, or by selling one of their other properties, was not investigated or explored but it cannot be assumed that they would not have, by some different and satisfactory means, acquired Railway Avenue without being exposed to mortgagee's remedies in favour of the plaintiff. 

1. The first thing, therefore, is that I consider that the mortgage should be set aside and the plaintiff ordered to discharge it and, for similar reasons, that the loan agreement should be set aside.  Doing only this would leave the defendants with the benefit of the principal of $266,849.83 advanced by the plaintiff. 

2. This leads to the question of whether or not any restitution of the principal should be accompanied by an order to pay interest as it has accrued under the terms of the mortgage and the loan agreement both before and since the default which, as already recounted, led to interest being calculated and claimed at higher rates to which have been added substantial legal fees.  By setting aside the mortgage which takes effect ab initio there is no contractual right for the plaintiff to receive interest at the rates prescribed in that security either before or after the default.  Similarly, there is no contractual basis for the plaintiff to recover legal fees or other expenses under the terms of the mortgage once it is set aside.  The unconscionable conduct proved disentitles the plaintiff to derive any benefits from the defendants by that transaction.

3. I consider that the restitution payable by the defendants in return for the relief granted in respect of the Railway Avenue 2007 loan and mortgage should be the original principal plus simple interest thereon from the date of the advance of the principal, namely 7 November 2007 (date of registration) at a modest rate, such rate being the cash rate as fixed by the Reserve Bank of Australia prevailing from time to time from 21 October 2007 until the date of payment.  This rate should reflect the effects of inflation over the period the defendants had the benefit of the money advanced and a small commercial return acceptable to the market rather than an elevated rate charged by the plaintiff for Easydoc loans.  In default of agreement between the parties on the amount of interest so payable I will direct that there should be an enquiry and an account before a Registrar to determine the rates of interest applicable during that period and the aggregate balance of interest due to the date of completion of that enquiry and the rate of any interest still accruing.  When doing so the defendants should be given credit for all amounts of interest paid by them at higher or other rates under the mortgage.

4. Rather than make the repayment of the principal with such interest a condition of the dismissal of the plaintiff's claim for possession and the defendants' relief on their counterclaim, I consider that there should be an order that the defendants do pay to the plaintiff the sum of $266,849.83 plus interest to be calculated in accordance with the terms of this judgment, such obligation to make payment of principal and interest by the defendants to be, once ascertained, a debt due and payable by them to the plaintiff but unsecured.  The obtaining of security by the plaintiff under the mortgage was part of the imposition and exploitation of the defendants by the unconscionable conduct proved.

The other earlier loans

1. The other five earlier loans and mortgages by the plaintiff to the defendants, or in the Holland Street case, the loan to both defendants and mortgage by Mr Burns alone, have been repaid and the mortgages discharged.  Nevertheless, they were each the result of unconscionable conduct by the plaintiff.  They too should be declared to be unenforceable and void and to have been set aside.  Restitutio in integrum can, in a real sense, be recognised by the current position if the plaintiff is now required to pay to the defendants the benefits it derived from these unconscionable transactions to complete that restitution.

2. Those benefits are the extra interest received by the plaintiff under each of those loans and other charges debited to the defendants' account pursuant to the terms of the loan contracts or mortgages.  There should, accordingly, be an enquiry and an account before a Registrar to ascertain the applicable Reserve Bank of Australia cash interest rates applicable from time to time over the period when those earlier loans were outstanding and an account of the simple interest on the outstanding balances by the defendants of those mortgages at the Reserve Bank cash rates from time to time over their duration.  The account should also determine the total interest paid by the defendants to the plaintiff under those mortgages at the rates of interest prescribed by the loans or mortgages, both before and after any default, plus other charges to the defendants' account under them.

3. The balance, found due, on those accounts between the moneys actually received by the plaintiff as interest and other expenses under the loans and mortgages, less the aggregate of simple interest at the Reserve Bank of Australia cash rates, should be paid by the plaintiff to the defendants in order to complete practical restitution.  That amount, once ascertained, may be set off by the defendants against the amounts found due on the other accounts for principal and interest at Reserve Bank of Australia cash rates in respect of the Railway Avenue loan and mortgage.

4. Accordingly, I consider that the orders which ought be made to give effect to these reasons should be as follows:

   (a)the plaintiff's claims be dismissed;

   (b)the mortgage by the defendants to the plaintiff dated 18 October 2007 and registered at Landgate Land Titles Division on 7 November 2007 (registration number K403751) to secure the sum of $228,368.54 declared invalid and unenforceable and set aside;

   (c)the plaintiff forthwith lodge a discharge of that mortgage at the Land Titles Office and deliver the duplicate Certificate of Title and any other security documents held in respect of that loan to the defendants;

   (d)the loan agreement between the plaintiff and the defendants dated on or about 17 October 2007 by which the plaintiff agreed to provide a credit facility to and at the request of the defendants with a limit of $228,368.54 be declared invalid and unenforceable and set aside;

   (e)the defendants do account to the plaintiff for the principal sum of $228,368.54 advanced to them under the mortgage now set aside plus interest thereon, calculated as simple interest on that principal from 7 November 2007 until the date of repayment at rates of interest coinciding with the cash rates set by the Reserve Bank of Australia from time to time which, if not agreed, be determined by a Registrar on enquiry to be held to determine the appropriate rate in accordance with this order and the aggregate interest payable after credit has been given for all interest payments made by the defendants for that mortgage;

   (f)the defendants' counterclaim for rescission of each of the five earlier loans and mortgages over Ilma Street, Barellan Court and Holland Street properties between the plaintiffs and the defendants, or one of them, be allowed and each of those loans and mortgages be set aside and declared unenforceable because of unconscionable conduct by the plaintiff.  Restitutio in integrum for those transactions will be made by the plaintiff retaining the repayments of principal and interest made under them by the defendants, subject, however, to paying to the defendants the amounts found due on a further enquiry before a Registrar to determine the difference between the interest and other expenses charged to the defendants under those loans and mortgages and simple interest on the principal outstanding from time to time calculated at the cash rate of interest fixed by the Reserve Bank of Australia for periods when that principal was owing.  The balance found due by the plaintiff to the defendants after this enquiry be set off by the defendants against the balance found due by them to the plaintiff on the completion of the enquiry and account ordered under subpar (e) above, and the final balance be paid by the defendants to the plaintiff;

   (g)the balance of the amount of principal and interest so ordered to be paid by the defendants to the plaintiff after the enquiries and accounts shall be a debt due and payable by the defendants to the plaintiff without security;

   (h)the defendants' counterclaim for damages against the plaintiff under s 82 of the Trade Practices Act 1974 (the Competition and Consumer Act 2010 (Cth)) be adjourned for a directions hearing before a judge at a date to be fixed with a view to being set down for hearing after any further necessary interlocutory procedures but only in respect of any damages claimed to have been caused by alleged misleading or deceptive conduct arising from what has been referred to in reasons for decision in this case as the Railway Avenue loan and mortgage of October 2007;

   (i)otherwise the counterclaims of the first and second defendants be dismissed;

   (j)there be liberty to apply in relation to the conduct of the enquiries and the taking of accounts.

5. So far as the costs of the litigation are concerned it is the case that the issues arising on the plaintiff's claim and the defendants' counterclaims were essentially inextricable and amounted, in substance, to the one contest in respect of which the defendants have been substantially successful. Costs are always in the discretion of the court but subject to a discretion which must be exercised judicially having regard to the principles set out in RSC O 66 r 1. Assessing as best I can the balance of the degrees of success or failure of the parties I propose that subject to submissions on all issues of costs it may be an appropriate order for costs if the plaintiff were to pay 80% of the defendants' costs of the action and counterclaim to be taxed as one combined set of costs but that such costs should not include any allowance for work done when either defendant was not legally represented. On this basis, the second defendant, might recover 80% of his disbursements incurred in connection with this claim and his counterclaim and that the plaintiff would recover no costs of its claim.