RHG Mortgage Corporation Ltd v Baira; RHG Mortgage Corporation Ltd v Ianni

[2014] NSWSC 849

Supreme Court

New South Wales

• Summary available

Medium Neutral Citation:	RHG Mortgage Corporation Ltd v Baira; RHG Mortgage Corporation Ltd v Ianni [2014] NSWSC 849
Hearing dates:	3 - 7 March 2014; 10 - 11 March 2014; 8 - 9 May 2014
Decision date:	01 July 2014
Jurisdiction:	Common Law
Before:	Davies J
Decision:	The parties should bring in Short Minutes to reflect these reasons.
Catchwords:	REAL PROPERTY - possession of land - mortgages - default - Contracts Review Act - parents of borrowers gave guarantees and mortgages - transfer of banks by borrowers - parents become borrowers and mortgagors - knowledge of parents - whether kept in the dark by children who benefited from loans - whether change of status explained by lawyers or other persons - improvidence of loan agreements - notice of lender of true position - failure of lender to follow guidelines - effect on lending - mortgage broker - whether agent of lender for purposes of Financial Transaction Act EVIDENCE - proof - inferences - failure of both sides to call some witnesses - whether Jones v Dunkel inference available - effect of such inference
Legislation Cited:	Contracts Review Act 1980 (NSW) Financial Transactions Report Act 1988 (Cth) Financial Transactions Reports Regulations 1990 (Cth)
Cases Cited:	Baira v RHG Mortgage Corporation Limited [2012] NSWCA 387 Beneficial Finance Corp Limited v Karavas (1991) 23 NSWLR 256 Blomley v Ryan (1956) 99 CLR 362 Briginshaw v Briginshaw (1938) 60 CLR 336 Collier v Moreland Finance Corp (1989) 6 BPR 13, 337; [1989] ANZ ConvR 515 Commercial Bank of Australia v Amadio (1983) 151 CLR 447 Davey v Challenger Managed Investments [2003] NSWCA 172 Fabre v Arenales (1992) 27 NSWLR 437 Ho v Powell [2001] NSWCA 168; (2001) 51 NSWLR 572 Jones v Dunkel (1959) 101 CLR 298 Nguyen v Taylor (1992) 27 NSWLR 48 O'Donnell v Reichard [1975] VR 916 Perpetual Trustee Company Limited v Khoshaba [2006] NSWCA 41 RHG Mortgage Corporation Ltd v Ianni [2011] NSWSC 520 Toll (FGCT) Pty Ltd v Alphapharm Pty Limited [2004] HCA 52; (2004) 219 CLR 165 Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389 Westpac Banking Corporation v Velingos [2011] NSWSC 607
Category:	Principal judgment
Parties:	BAIRA PROCEEDINGS RHG Mortgage Corporation Ltd (Plaintiff/First Cross-Defendant) Rosa Baira aka Rosa Fioravanti (Defendant/Cross-Claimant) Australian Mortgage & Business Finance Solutions Pty Ltd (Second Cross-Defendant) IANNI PROCEEDINGS: RHG Mortgage Corporation Ltd (Plaintiff/First Cross-Defendant) Rosario Ianni (First Defendant/Cross-Claimant) Domenica Ianni (Second Defendant/Cross-Claimant) Australian Mortgage & Business Finance Solutions Pty Ltd (Second Cross-Defendant)
Representation:	Counsel: M Ashhurst SC & M Newton (Plaintiff) J Kelly SC (Defendants Rosario and Domenica Ianni) P Bolster (Defendant Rosa Baira) Unrepresented (Australian Mortgage & Business Finance Solutions Pty Ltd) Solicitors: Kemp Strang (Plaintiff) Uther Webster & Evans (Rosario and Domenica Ianni) Frank Legal (Rosa Baira) Unrepresented (Australian Mortgage & Business Finance Solutions Pty Ltd)
File Number(s):	2008/285539 & 2008/284857

Table of Contents

Para No.
1. Introduction	[1]
2. The Defendants	[8]
(a) Rosario and Domenica Ianni	[8]
(b) Rosa Baira	[14]
3. Background to the loans	[18]
4. The RHG loans	[44]
(a) Rosario and Domenica Ianni	[44]
(b) Mrs Baira	[80]
5. The knowledge of the mortgagors prior to the RAMS loans	[97]
(a) Rosario Ianni	[98]
(1) The meeting with Mr Wennerbom	[137]
(b) Mrs Baira	[144]
(1) The meeting with Mr Egisto	[160]
6. The involvement of Mr Famularo and Joe	[181]
(a) Joe Ianni	[183]
(b) Mr Famularo	[199]
(1) The application to NAB	[202]
(2) The alleged meeting of 14 September 2005	[208]
(3) The sham contract	[221]
(4) The Snapshot of account	[239]
(5) The identification documents	[241]
(6) The alleged meeting of 2 December 2005	[244]
(7) Conversations with Mr LoSurdo	[254]
(8) The "With compliments" slip	[259]
(9) The shortfall	[265]
(10) Did the conferences occur?	[269]
7. The knowledge of the Defendants about the RAMS loans	[277]
(a) Rosario and Domenica	[277]
(b) Mrs Baira	[284]
8. What RAMS knew about the borrowers	[295]
(a) Rosario and Domenica	[295]
(b) Mrs Baira	[335]
9. Was Mr Famularo the Plaintiff's agent?	[344]
(a) Was RAMS required to carry out an identification check?	[349]
(b) Was Mr Famularo RAMS agent for the Act?	[356]
10. Were the contracts unjust?	[358]
11. Unconscionable conduct	[374]
12. What relief should be granted?	[382]
13. The cross-claim against AMBFS	[386]
14. Conclusion	[389]

Judgment

1. Introduction

1. In these proceedings the Plaintiff claims possession of properties belonging to Rosa Baira and Rosario Ianni. The Plaintiff also seeks judgment against them pursuant to loan agreements entered into by them. The loans were entered into for the benefit of Joe Ianni (the son of Rosario and Domenica Ianni (now deceased)) and his ex-wife Sandra (the daughter of Rosa Baira) and their companies Jencon Australia Pty Limited and Jencon Management Pty Limited.

1. The loan agreement entered into by Mr and Mrs Ianni is dated 11 October 2005 and was for an amount of $910,000. The loan agreement with Mrs Baira is dated 28 February 2006 and the amount lent by RHG to Mrs Baira was $650,000.

1. This case is a little unusual. The trial that I heard was the second trial of the proceedings. The matter was first heard by Grove AJ. That case involved not only the two claims by RHG against Rosario and Domenica Ianni and against Mrs Baira, but also involved cross-claims against the broker, Peter Famularo, and his company Australian Mortgage & Business Finance Solutions Pty Ltd (AMBFS), Fast Track Finance Group Pty Ltd, and Joe and Sandra Ianni. Grove AJ gave judgment on 3 June 2011: RHG Mortgage Corporation Ltd v Ianni [2011] NSWSC 520.

1. The mortgagors appealed. The Court of Appeal upheld the appeal and remitted the matters to the Common Law Division for re-trial: Baira v RHG Mortgage Corporation Limited [2012] NSWCA 387 (referred to as "Baira").

1. None of the cross-claims except those against Mr Famularo and AMBFS was pursued. However, shortly prior to the hearing before me commenced, Mr Famularo became bankrupt. AMBFS had no legal representation but Mr Famularo gave evidence on its behalf.

1. I was informed by consent that the evidence on which I was to decide the matter was to be the evidence in the statements and affidavits that were before Grove AJ and subject to his evidentiary rulings, the transcript before Grove AJ together with the further oral evidence given before me. I had expected that the evidence would largely be that given before Grove AJ. However, extensive cross-examination took place before me. Nevertheless, it was reiterated that I could and should have regard also to the oral evidence given before Grove AJ. The evidence in each of the proceedings was evidence in the other.

1. In this judgment I will refer to the Plaintiff variously as RHG, RAMS and the Plaintiff. At the time of the relevant events it was known as RAMS. It is now known as RHG. I shall refer to the Iannis by their first names for reasons of clarity and without intending any disrespect.

2. The Defendants

(a) Rosario and Domenica Ianni

1. Rosario Ianni was born on 16 January 1935 in Italy. He left school at the age of 14. He did not learn any English at school. He commenced work as a fisherman with his father. He immigrated to Australia in 1954 at the age of 19 years.

1. After arriving in Australia he worked for about 5 years as a factory hand at Cyclops at Leichhardt apart from a period of about 18 months when he worked as a fisherman. In about 1960 he commenced to work as a painter and docker employed by the Department of Defence (Navy) at Garden Island. He remained in that position until he retired in 1993. Since that time he and his wife have received a pension.

1. He married Domenica in 1960. They purchased the property at 159 Thompson St, Drummoyne in 1972. He said in an affidavit that he had very poor reading and writing skills in English although he can read a short letter and various bills for utilities.

1. Domenica was born on 20 December 1937 in Italy. She left school in Italy at the age of 8 years. Whilst at school she learnt no English. From the age of about 10 she was trained in hand craft in a convent. She emigrated to Australia in 1960 at the age of 23. She worked for about a year in a convent and then looked after her children. She said that she cannot read or write English although she can write her name in English and understand a little English.

1. She suffered from depression from about 1976. She was treated by Dr Quentin Cameron, a general practitioner since 1993. Since that time he had prescribed tablets for depression. Dr Cameron said that there had been a rapid deterioration of her health between 2002 and 2010. By the time of Dr Cameron's affidavit in September 2010 he considered that she was incapable of managing her affairs.

1. Domenica died after the Court of Appeal's judgment was handed down. I appointed Rosario to represent her estate in the proceedings. The evidence suggested that at all relevant times Domenica did whatever Rosario advised in relation to the signing of documents and in connection with financial matters.

(b) Rosa Baira

1. Mrs Baira was born on 23 April 1944. At the time of the entry into the agreement with RAMS she was aged almost 62. She was born in Italy. She left school at the age of 10 and began working to learn to be a dressmaker. Her father had already immigrated to Australia and her mother could not afford for her to be at school. She immigrated to Australia with her mother and two sisters in July 1959 at the age of 15 years. She immediately obtained work as a machinist in a dressmaking factory. In 1961 at the age of 17 years she married her first husband, Dante Fioravanti, and they lived with her parents until they had saved a deposit for a house. They purchased the house at 319 Livingstone Rd, Marrickville with a mortgage.

1. She continued to work as a dressmaker throughout her marriage. She worked from home when the children were born until 1973 and thereafter she worked for herself part time. In 1983 her husband died. She remarried in 1991. Her second husband was Dimitri Baira to whom she is still married. Since 1991 Mr Baira has owned in partnership a café in Bankstown called "Pancake Plus". From time to time Mrs Baira works at Pancake Plus.

1. At the time of the RAMS loan she was in receipt a part pension.

1. In order to understand how the Defendants came to be borrowing these amounts some background is necessary. What follows is a brief summary of various transactions involving Mrs Baira, Rosario and Domenica. At a later stage in the judgment I will consider in greater detail some circumstances concerning those transactions.

3. Background to the loans

1. In 1992 Joe and Sandra Ianni borrowed $155,000 from Advance Bank (later St George Bank) to purchase and fit out a coffee shop which they called "Café Galleria". Sandra's mother, Mrs Baira, provided a guarantee to the Bank in respect of the loan. In addition, on 1 May 1992, a deed was executed between Mrs Baira on the one hand and Joe and Sandra on the other giving Mrs Baira fairly extensive rights in relation to the café by reason of her having provided a guarantee. That deed was prepared by a solicitor, Graeme Ross.

1. As security for the guarantee Mrs Baira gave a mortgage over her property at Marrickville to the Advance Bank. Her signature on the mortgage was witnessed by Mr Ross. Mrs Baira agreed that Mr Ross explained that if Joe and Sandra did not pay their debt to Advance Bank the bank might use the mortgage she signed to sell her house and pay the debt out of the proceeds. She said, however, that she thought no-one would take her house for $155,000.

1. On 24 June 1994 Advance Bank issued a letter of approval to Joe and Sandra for a further loan of $112,000 to fit out Café Galleria. Mrs Baira again provided a guarantee for the further advance although she claims that she did not know that she was doing so. Rather, she asserted (as she did in respect of most of the documents she subsequently signed) that she understood she simply needed to sign the document because she had guaranteed the 1992 loan, and her daughter Sandra told her that the purpose of her signing was "knowledge of the guarantor".

1. On 3 August 1998 St George Bank sent a further letter of offer to Jencon Pty Ltd, a company that Joe and Sandra had formed to run the restaurant business, with an offer of an overdraft of $30,000 and a fixed rate loan of $400,000. The purpose appears to have been to fit out a new café at Darling Harbour. At some time that is unclear from the documents in evidence this café or restaurant was called Fiorannis.

1. On 12 August 1998 Mrs Baira signed a Guarantor's Acknowledgement in respect of the overdraft and the loan. She signed the Guarantee in front of Mr Ross who provided the solicitor's certificate. The Guarantee was limited to the proceeds of sale of the Marrickville property.

1. On 29 September 1999 St George made a further offer to Jencon but the details of the amount of the loan are not in evidence. On 5 October 1999 Mrs Baira signed a Guarantor's Acknowledgement for this further loan.

1. On 24 May 2000 St George forwarded a further letter of offer to Jencon to provide an overdraft facility of $100,000. This appears to have been because the $30,000 overdraft had "blown out" as the bank documents said. On 31 May 2000 the letter of offer was signed by Mrs Baira. On that day also she swore a statutory declaration, witnessed by Albert Naticchia JP, that she had voluntarily signed the letter of offer after receiving legal advice.

1. In early June 2000 St George Bank offered to lend Joe and Sandra $550,000 to buy an investment property in Pyrmont. This loan was to be partly guaranteed by Joe's parents, Rosario and Domenica. Rosario and Domenica signed the Guarantor Signing Page and an Authority to the bank on 2 June 2000 in front of Chris Gialamis who was the manager, Corporate and Business Banking at St George.

1. On 13 July 2000 Rosario had a meeting with Pompeo Egisto, a solicitor, to obtain advice in relation to the guarantee. Rosario signed an Acknowledgement by Guarantor, the Guarantee, a Mortgage over his and Domenica's property at 159 Thompson Street, Drummoyne, and a Declaration by Guarantor that he had received legal advice. Mr Egisto witnessed his signatures on the Guarantee, the Mortgage and the Declaration. On the same day Domenica met with another solicitor, Mr Previte, where she obtained advice in relation to her guarantee. She signed the same documents. Mr Previte witnessed her signature on the same documents.

1. The Guarantee was limited to the market value of the Drummoyne property.

1. On 4 June 2002 St George Bank made a loan offer for an Executive Housing Loan to Joe and Sandra for $1.3 million to enable them to purchase an apartment at Milsons Point. This loan was also to be guaranteed by Mrs Baira although her Marrickville property was not listed as security for this loan.

1. A statutory declaration purportedly by Mrs Baira that she was a third party mortgagor and guarantor contains the signature of Angelo Lo Surdo, an accountant and Justice of the Peace, as the witness to the statutory declaration. Mrs Baira denies that the signature is her signature and denies that she ever met Mr Lo Surdo. Her daughter Sandra asserts that she obtained her mother's signature on the statutory declaration and then gave it to her husband Joe who had Mr Lo Surdo affix his signature as a witness. Mr Lo Surdo denies that he did this. He said that he met Mrs Baira and she signed the statutory declaration in front of him.

1. On 16 December 2002, by a letter of offer, St George offered to increase Jencon's facility to $963,000. Mrs Baira signed a copy of the letter of offer and her signature was witnessed by her son Dante. On 2 July 2003 Joe, Sandra and Mrs Baira signed an Acknowledgment by Mortgagor/Guarantor that they had obtained legal advice in relation to their exposure as a result of the offer of further finance in December 2002. They also signed a further Acknowledgment by Guarantors. Mrs Baira's signature was witnessed by Sandra, Sandra's signature was witnessed by Cathy Macri and Joe's signature was witnessed by Angelo LoSurdo. Cathy Macri worked for Mr LoSurdo.

1. The schedule of security in this Acknowledgment listed the properties at Harris St, Pyrmont and Tuckwell St, Castle Hill, all owned by Joe and Sandra, in addition to Mrs Baira's property. The earlier Acknowledgment also listed a property at Dind St, Milsons Point belonging to either Jencon or to Joe and Sandra.

1. On 18 November 2003, St George offered to increase Jencon's overdraft facility to $270,000 until 31 December 2003. Although the increase was specified to expire on 31 December 2003, the acceptance of the facility by Jencon and the two separate Acknowledgements by Joe, Sandra and Mrs Baira were only signed on 16 March 2004. Mrs Baira's signature was witnessed by Sandra, Sandra's signature was witnessed by Cathy Macri and Joe's signature was witnessed by Ross Ianni.

1. By a letter of offer dated 2 September 2004 St George offered to increase Jencon's facilities to $1,059,000. On 3 September 2004 a letter of offer by St George offered four lease facilities to "The Directors Café Fiorannis" (the name of Jencon's café by this time) totalling $116,000.

1. On 30 October 2004 there was a meeting at Mr Lo Surdo's office. Those present were said to be Mr Lo Surdo, Joe and Sandra and Mrs Baira. Joe and Sandra signed the letter of offer from St George and their signatures were witnessed by Mr Lo Surdo. Mr Lo Surdo said that Mrs Baira needed to get legal advice, and she did not sign the document. Mrs Baira denies that she was at that meeting and says she has never met Mr Lo Surdo.

1. On 11 November 2004 there was a meeting at Mr Egisto's office between Mr Calvitto, Joe and Sandra, and Mrs Baira. Mrs Baira signed a Facility Agreement, an Acknowledgment that she had been given advice by Mr Calvitto, a Declaration by her as third party mortgagor/guarantor and a Consent by Borrower/Guarantor to legal advice. All of these documents were witnessed by Mr Calvitto.

1. By a letter of offer dated 17 May 2005 St George offered a bank guarantee to Jencon for $24,000 in addition to the existing facilities totalling $1,059,000. On 18 May 2005 Mrs Baira signed the letter of offer. The witness to her signature was Cathy Macri. Joe and Sandra also signed the letter of offer but their signatures were not witnessed by Cathy Macri. Mrs Baira denied ever meeting Cathy Macri. I prefer Cathy Macri's evidence that she had both met Mrs Baira on three or four occasions and that she witnessed her signature.

1. On 15 August 2005 by a letter of offer St George offered to increase Jencon's overdraft from $230,000 to $350,000. Mrs Baira signed an Acknowledgement of Guarantor on 15 September 2005. Her signature was witnessed by Anthony Ianni.

1. On 19 August 2005 Joe and Sandra entered into a contract to purchase 7 Wildthorn Avenue, Dural for $2,223,500. Finance was sought from the NAB through Mr Famularo and AMBFS for an amount of $3.5 million. $2.4 million of this was to be used to complete the purchase, $490,000 was to be used to repay St George and there was to be a line of credit for $610,000. The loan application to the NAB was dated 30 August 2005.

1. By a letter of offer dated 30 September 2005 St George offered to reduce the facilities to Jencon by a figure of $624,000 to $536,000. Joe and Sandra's property at Pyrmont was to be released on payment of $624,000. This was part of the refinancing from the purchase of Dural and the loan being made to Rosario and Domenica from RAMS. Mrs Baira signed an Acknowledgment of Guarantor on 13 October 2005. Her signature was again witnessed by Anthony Ianni.

1. There is a letter from Egisto Solicitors to St George Bank dated 12 October 2005 saying this:

We confirm that Ms Rosa Baira attended our office on 12 October 2005, when we explained to her the nature of her proposed guarantee and the increased liability which she will assume by her in relation to the release of the proposed securities mentioned in the facility offer.

Having had the nature of a guarantee explained to her and the possible consequences of a default by the bank's customers, she confirmed to the writer that she understood the nature of her guarantee.

She also confirmed that she was familiar with the business of the borrower, she had confidence in its success and that she was content to execute the guarantee.

The conference was conducted in the absence of the borrower or any other person.

1. The letter was written by a Mr Frederick Forster who gave evidence that he was the solicitor who saw Mrs Baira. Mrs Baira disputes that she ever saw Mr Forster and says that she did not go to the offices of Egisto Solicitors on or about 12 October 2005. It will be necessary in due course to consider where the truth lies in relation to that incident.

1. At the time that the application was made to RAMS the legal position with regard to the Defendants was as follows, putting aside for the moment what they say they understood the position to be:

(a)   Mrs Baira had given a mortgage over her Marrickville home as security for a Guarantee she had given for Jencon's facilities. The Guarantee, and accordingly the mortgage, was limited to the sale proceeds for the Marrickville property;

(b) Rosario and Domenica had given a mortgage over their Drummoyne property as security for a Guarantee they had given for the loan to Joe and Sandra to purchase Pyrmont for $550,000. This Guarantee, and accordingly the mortgage, was limited to the market value of the Drummoyne property.

1. What was then to take place is made clear in the judgment of Basten JA in Baira:

[209] In about July 2005 Mr and Mrs Ianni junior decided to purchase a house at Dural for a little over $2.2 million. In order to obtain the funds, they engaged in a major restructuring of the outstanding debts of Jencon and themselves, apparently to extract larger borrowings against the equity in their own properties and, particularly, the properties owned by their respective parents. The restructuring involved two stages, the first having three elements. The first element was to remove from the securities in favour of St George Bank both their property at Pyrmont and the property owned by Mr and Mrs Ianni senior at Drummoyne. The result was that the remaining securities held by St George Bank were the Castle Hill and Milsons Point properties owned by Mr and Mrs Ianni junior and the third party guarantee and mortgage secured over Mrs Baira's property at Marrickville. The Bank was willing to accept that arrangement on the basis of a reduction in the amount owing to it from a little over $3 million to a little over $2 million.

[210] The second element was a loan to Mr and Mrs Ianni junior to purchase the Dural property, with additional financial accommodation provided by the National Australia Bank Ltd ("NAB") involving a total of $3.5 million, secured by mortgages over both the Dural and the Pyrmont properties, the latter having been released by St George.

[211] The third element of the restructuring involved Mr and Mrs Ianni senior "borrowing" $910,000 from RHG Mortgage Corporation Ltd ("RHG"), formerly known as RAMS Home Loans Pty Ltd, in exchange for a mortgage over their Drummoyne property. The total indebtedness then amounted to $6.5 million, in round figures. However, Jencon and Mr and Mrs Ianni junior nominally had primary responsibility for only $5.6 million.

[212] Stage two occurred on 14 March 2006. It involved a further reduction of approximately $550,000 in the liability to the St George Bank, in exchange for which St George released the third party mortgage over the property of Mrs Baira. That arrangement was financed by a "loan" to Mrs Baira from RHG in an amount of $650,000. On the basis that the beneficiaries of all loans were Mr and Mrs Ianni junior, either directly or through Jencon, their total liabilities were then $6.56 million.

4. The RHG loans

(a) Rosario and Domenica Ianni

1. On 14 September 2005 at 7:18pm a loan application on behalf of Rosario and Domenica was submitted in a 20 page fax to RAMS by Mr Famularo as principal of AMBFS. The purpose of the loan was stated in the application to be the purchase of property for $500,000 and the refinancing of a loan or loans for $490,000. Costs for the financing of $10,000 were also sought making a total of $1,000,000. The loan was sought for 30 years.

1. The application said that Rosario was a self-employed investor at Fiorannis and that his taxable income was $85,000 per year. His date of birth was given as 16 January 1935 making him 70 years of age. The contact details given for him referred to Joe or Rosario at Shop 297 Harbourside in Darling Harbour. That was where the café/restaurant was conducted. The telephone numbers provided were telephone numbers of either Joe or the restaurant.

1. Domenica Ianni was similarly described as a self-employed investor in the food industry and she was said to have a taxable income of $90,000. Her date of birth was given as 20 December 1937 so that she was 68 years of age. The contact details for Domenica were the same as for Rosario. Their solicitor was said to be Deborah Brown of Phillips Fox and their accountant was said to be Angelo Lo Surdo.

1. In the Statement of Assets the property at Drummoyne was said to be worth $1,000,000, their house contents $50,000, a deposit paid on a purchase of $50,000 and they were said to have a share of business goodwill in Fiorannis of $1,000,000.

1. On a document headed "Borrower Self Certification - Income and Affordability" each of them was said to have been self-employed for 15 years and 3 months. Their earnings of $85,000 and $90,000 respectively were described as "net business income". Their names appeared in each case above the word "Applicant", and alongside the words "Company, Firm or Trading Name" the words "Jencon Australia Pty Ltd" appeared with an ABN.

1. Other documents sent in the fax included documents relating to identification of the borrowers. I shall discuss these documents in greater detail a little later in the judgment.

1. A tracking document from RAMS showed that the application was created by RAMS on 15 September 2005. On 16 September 2005 at 12:21pm an email was sent by Matthew Anderson of RAMS to Mr Famularo saying:

Hi Peter, my direct line is 8218 7183. As discussed, CRAA are not showing directorship. We will require either a consent from the company to perform a CRAA inquiry, or a driver's licence reference.

1. This was clearly a reference to Jencon's name appearing on the Borrower Self Certification form. It may be observed, however, that nowhere in the material sent by Mr Famularo was it asserted that Rosario and Domenica were directors of Jencon.

1. On 16 September 2005 at 4:01pm Mr Anderson made a file note saying:

Peter will be amending the A and L and self cert to reflect the true nature of the applicant's employment.

1. At 4:47pm on 16 September Mr Famularo sent an 11 page fax containing some fresh documents and also copies of documents that had already been sent in the first fax. One of the fresh documents was a Borrower's Self-Certification which omitted any reference to Jencon but was otherwise identical with what had earlier been sent.

1. Two other new documents that were sent were the 100 point check forms for each of Rosario and Domenica. What was sent in each case was the document originally sent in the 20 page fax with handwritten alterations. The original form of this document for Rosario contained details of what was said to be his Australian passport. It was said to have been issued on 6 July 2001 with expiry on 6 July 2011. The passport number was said to be L9724757. On the original of Domenica's 100 point check document her passport was said to be an Australian passport issued on 19 March 1998 to expire on 19 March 2008. Its number was said to be L6428797.

1. That information was entirely false. Rosario's passport was issued on 20 June 2005 and bore the number M2829871. His previous passport, which was issued on 10 March 1992 and expired on 10 March 2002, bore number K1205995.

1. In relation to Domenica she had never held an Australian passport. She had an Italian passport that was issued on 30 January 2004 with the number B853490.

1. On the amended 100 point check document for Rosario the tick for the passport (worth 70 points) was crossed out. A tick was placed alongside an Australian driver's licence which provided 40 points. The tick remained for 35 points alongside a reference to verification from a current employer, but it appears that what was intended was that the tick should be alongside the reference to a rating authority (e.g. land rates). There was then a new tick in the box alongside "the records of a public utility" (worth 25 points).

1. In the section dealing with document details the information about Rosario's passport was crossed out. The document was then described as "water rates" dated 1 September 2005 with the document number being 4028834. The water rates document disclosed that Mr and Mrs Ianni had a pensioner rebate on their rates.

1. In relation to Domenica the passport tick was removed, the tick for the rating authority remained as before and there was a tick for 25 points in relation to the verification of Domenica's telephone number. It was said that there had been telephone contact with her at phone number 9181 1607. That appeared to be her home telephone number although it did not appear as a contact number in the loan application.

1. It may be observed that without the passport the number of points for Domenica was only 60 although the total shown on the document remained as 105.

1. In the original fax sent on 14 September there were two significant documents. One of these was the front page of a Contract for Sale of Land. The land being purchased was 7 Wildthorn Avenue, Dural. The purchasers were said to be Rosario and Domenica and the purchase price was $500,000 with a deposit of $50,000 having been paid. The contract date was 19 August 2005. In handwriting on the bottom were the words "NOT SECURITY".

1. In fact, as mentioned earlier, on 19 August 2005 Joe and Sandra entered into a contract to purchase 7 Wildthorn Avenue for $2,223,500. Mr Famularo had a copy of that contract because it was the basis for the application he was making to the National Australia Bank on behalf of Joe and Sandra for a loan for $3,500,000.

1. What was altered on the front page of the contract forwarded by Mr Famularo on 14 September to RAMS was the box headed "Purchaser" and the box headed "Price". It is clear that the original contract of sale was fraudulently altered.

1. The other significant document, the "Snapshot of Account" forwarded to RAMS by Mr Famularo, was in the name of Rosario and Domenica in respect of an account for an Executive Housing Loan from St George numbered 55167631. It showed movement on the account between 21 October 2004 and 22 August 2005 with the balance outstanding on that last date at $486,035.16. At no time did Rosario and Domenica Ianni have an executive housing loan or any other loan with St George Bank. They were simply guarantors for Joe and Sandra's borrowing in that regard.

1. Mr Famularo had amongst his documents at that time other documents entitled "Snapshot of Account" for the same loan with Joe and Sandra being shown as the account holders. The evidence tended to suggest that St George issued documents entitled "Snapshot of Account" to guarantors as well as to borrowers. It does not seem likely that the "Snapshot of Account" in the name of Joe and Sandra was fraudulently altered to contain Rosario's and Domenica's names and address. Rather it was probably a genuine document. The issue is why Mr Famularo forwarded the "Snapshot of Account" in the name of Rosario and Domenica to RAMS. I shall return to this later.

1. The RAMS Application Status Tracking Document discloses an internal file note addressed to Mr Anderson asking him to hurry the application along with the statement concluding:

Please see what you can do to have a conditional if possible on this deal today. Broker says that if he doesn't get one today he may have to take it to another lender.

1. A file note of Mr Anderson of 11:58am on 20 September says that the file had been submitted to GE that morning for confirmation of conditional approval. There is then a note of Mr Anderson's at 4:49pm that day saying that the application had been given conditional approval.

1. The reference to GE was a reference to the mortgage insurer. Mr Anderson sent a fax on 20 September to the insurer, which on the cover page, relevantly said:

Low doc loan

Purchase an investment property (front page COS attached)

Refinance St George

...

Both applicants are investors - and own an income producing restaurant in Sydney which generates their income.

...

SRAA clean - no defaults or irregularities.

1. On the following page a standard form was completed by Mr Anderson. Relevantly, three questions were answered in the affirmative by him as follows:

Has (sic) genuine savings, income, employment details and security being verified as acceptable in accordance with the Genworth Financial LMI Underwriting Guidelines? (If "yes", provide details). [It does not appear that details were provided despite the affirmative answer.]

Has the repayment history on all facilities being refinanced been confirmed as satisfactory in accordance with the Genworth Financial LMI Underwriting Guidelines?

Is the credit bureau report clearer than the adverse credit history? (If "no", please provide a copy of the report).

1. On 27 September 2005 there is a file note of an email sent by Mr Anderson to Mr Famularo at 6.03pm saying:

Hi Peter. Please advise if max loan of $910,000 is acceptable, as val has come in at $1.3 million. Alternatively incoem (sic) and A&L can be provided to apply for $1 million. Comparable sales evidence must be provided to go back to the valuer about the val amount.

1. That email was sent at 6:03pm. At 10:02am the following day there is a note from another employee of RAMS saying that the broker advised that it was okay to proceed with $910,000.

1. On 29 September 2005 there is a file note from a Mr Conway at RAMS which says:

Name checked against title search. Address cross ref against rates notice. 100 points held on file.

1. The loan summary prepared by RAMS on 29 September 2005 has under the heading "Purpose Summary":

Loan purpose:

$490,000 for refinance

$420,000 for equity release

A borrower is likely to receive an income tax deduction in respect of at least 50% of the total interest payable on the amount proposed to be borrowed.

1. Rosario's evidence was that in about September 2005 Joe said to him that he had found another bank, RAMS, that would offer cheaper interest for the loan. Joe said that he wanted to take out a loan with RAMS and pay out St George. He asked his father to sign the documents for the loan as the guarantor. Rosario then says that Joe took them to a solicitor in Sydney whom he had never met before. That solicitor was in fact Mr Wennerbom of Lands Legal.

1. The Plaintiff says that a significant matter occurred between Joe speaking to his father and taking him to see Mr Wennerbom. The Plaintiff relies on a diary note made by Mr Famularo of a meeting with Rosario, Domenica and Joe. The meeting is said to have taken place on 14 September 2005 although the date on Mr Famularo's diary note is "14/9/09". There is a serious issue in the case about whether that diary note was later fabricated.

1. The diary note has been typed for the purposes of the proceedings and it is as follows:

14/9/09

9AM - IANNI ROSARIO 159 THOMPSON ST

-IANNI DOMENICA DRUMMOYNE

-Joe IANNI-Son

SBG Refinance 1300+/1500 = 87%

But needs only S486K ?? live with Son

Purchase S500K - Sell current ??/Surplus

- FAMILY BUSINESS-Investor only

- 4 Sons

- Deborah Brown P/Fox

- Y 85K each to 95K. Jencon Aust P/L

-Refinance -cross coll at SGB with Son Joe

Jencon Management/AustP/L ??

Source of Y.

1. Rosario said in evidence that he did not have any such meeting with Mr Famularo and that he had never met Mr Famularo until a mediation was held after the proceedings commenced.

1. On 11 October 2005 there was a meeting at Lands Legal between Mr Wennerbom (the principal of that firm) and Joe, Rosario and Domenica Ianni. At the meeting a number of documents were signed by Rosario and Domenica being a Loan Agreement for $910,000, two Statutory Declarations by Rosario, a Statutory Declaration by Domenica, a Borrower's Acknowledgment about Legal and Financial Advice, a Direction to Pay and a Discharge of Mortgage Authority.

1. The loan settled on 14 October 2005. Rosario and Domenica became the borrowers under the loan from RAMS which was secured by a mortgage to RAMS over the Drummoyne property.

(b) Mrs Baira

1. On 16 January 2006 Mr Famularo sent two loan applications to RAMS. The first of these was on behalf of Joe and Sandra Ianni seeking $650,000 for the purpose of a 50% refinance of a St George bank loan. A note made by Mr Famularo on the front page of the application said this:

Please see application for Rosa Baira - this loan is presently secured over two properties R Baira and Joe Ianni.

1. The second loan application was for Mrs Baira. She sought $650,000 for refinance. Mr Famularo's note on the front of the application said this:

This property is held as security by St George Bank for the attached loan - the loan is now being split. Please see application in the name of Joe and Sandra Ianni which will also be used to repay St George Bank at the same time.

1. Mrs Baira's loan application described her as self-employed in food/catering and made reference to Fiorannis. It said that her income for the last financial year was $145,000 and for the prior year $140,000.

1. The contact telephone numbers were Joe's mobile number and the café's telephone number.

1. Mrs Baira signed the Borrower's Self-Certification - Income Affordability Form which disclosed her net business income before tax at $145,000. She signed in the section of the form that contained the following immediately above her signature:

I confirm that I can meet the repayments in accordance with the terms of the loan and will not suffer any hardship in doing so.

I understand that you have advised me to seek independent legal and financial advice prior to entering into the agreement with you and that I may chose (sic) whether or not to accept that advice.

1. Mr Famularo sent copies of Jencon's tax returns for the 2004 and 2005 tax years with the applications. He did not send any documents relating to Mrs Baira's earnings.

1. In the RAMS Application Status Tracking document there is a file note from Mr Anderson at 3:49.38pm on 17 January 2006 which says:

This file is a little unusual, in the fact that we are paying out a loan that the applicant is not an account holder of. We have been advised that the loan being paid out is however secured by this property, and was written as a third party security by the broker himself while he was a business banking manager at St George. Therefore it is appropriate to treat this deal as a refinance.

1. The Application Status Tracking Document then contains a note some eight seconds later saying:

Application has been given conditional approval.

1. On 2 December 2005 Mr Famularo claims to have met with Mrs Baira regarding the application being made to RAMS to refinance the St George Bank facilities. There is a detailed file note in Mr Famularo's handwriting which he claims to have made during the course of the meeting. It is necessary to set out the full text of the diary note in its typed version:

Baira/lanni

2/12/05 Meeting Baira Re SGB Refinance.

LVR 1,250,000

900,000 & 850,000 =71%

MAR CH

But has other SGB Liabs to - Jencon Aust P/L

-IANNI-

-Does not know exact Amounts as GIA

over Several years - Approx - From 1995. For Purchase

of Business activities @ D. Harbour. - Galleria Cafe &

Fiorianni's water Front restaurant.

Fioravanti " - IANNI " Partnership

- SGB Loans $3m+

- wants to separate Business Affairs -Joe & Sandra expanding

Into childcare & overseas property investments & she is

not comfortable.

- Husband passed away many years ago & Remmaried (sic) "Baira.

Previously 'FIORAVANTI".

- Does not wish her new husband to be aware of this refinance as he has own children & not business minded.

Joe lanni to Provide Statements Re SGB Loan $1.350

- Max loan on Marrickville to be $650K. in N. OF 'ROSA BAIRA'

-Furn $50-$100 k

- MV $10-15k

A&L's - WBC $5

-D/L 53 685F EXP. 30/11/10. - 2009232398.

- DOB. 23/4/44.

(P). 9211 - 1777.

- 319 LIVINGSTONE ROAD MARRICKVILLE NSW. 2204. 20 yrs.

- Medicare 2187 857 8855.

- Passport (AUST) L843 6248. EXP. 6/5/10.

- EMP. BAIRA - FIORAVANTI Catering

Jointly with D. Harbour Business.

Worked for many years with Daughter

& Son in LAW. Joe. 1990.

Private Parties & Functions - consulting

On menu for Fiorianis Business

Enjoys work. But wants to cutback.

- income $140 - 150K per A. without much effort.

Joe & Sandra pay cash

-TAX Returns requested But not available

due to cash business

- I indicated concern that SGB might not release Marrickville due to high LVR

& Cross coll with other SGB loans

Group had taken. - She Said

to leave loans if RAMS could not refinance.

LOANS are GIA Joint & Severally & crossed at SGB.

- Baira said that she had been advised both Financially & legally with respect to her SGB liabilities.

Indeed the GROUP Accountant LOSURDO (Angelo) was aware of the nature of her liabilities. (over the Mar peroperty (sic)).

LoSurdo had on many occasions provided the Financial Statements For the Group to Support SGB Borrowings secured over various investment properties

& the Family houses Including lanni senior

- I recommended to Baira to obtain Further legal & Financial advice with regards to her proposed refinance in view of internal transaction. - She Said she would speak with either

Deborah Brown of Phillips Fox or Mr Lou Serio of Five Dock.

She Said this would add cost to the transaction.

- Baira said in her nature to assist children Financially & this was going to be left to them in her will anyway.

- Has another Son But has not achieved much in his life and is also employed By the Fioriani Businesses at D. Harbour.

-In her interest that business continues smoothly

as many families have an interest in the Business including 3 other lanni families.

-I indicated concern over possible delays

For the Refinance as Xmas was iminent and I did not have all the relevant Docs to lodge with RAMS

She indicated there was no urgency.

- Application to be Sent to Baira in

due course with all lender requirements

- Baira Agreed

1. Mr Famularo produced a letter that he claims was written by him on behalf of his company to Mrs Baira on 9 December 2005. The letter is addressed to her at her Marrickville property. The letter is addressed to "Dear Rosa" and relevantly says:

I refer to the above matter and our meeting of Friday, 2 December in which we discussed the refinance of your St George Bank loan (which you advise is in the names of Joe and Sandra Ianni) and is presently secured over your property in Marrickville to St George Bank.

We have now prepared the attached loan application in accordance with information provided by you. You should peruse the RAMS application and if correct, then sign where indicated and return same to us at the earliest possible in order that we may lodge the Rams (sic) application. Please advise us immediately if there are any changes to be made. The following documentation remains outstanding in respect of the Application and must be received by our Office prior to lodgement as delays may be expected if the Application is lodged incomplete:

- St George Bank loan statement covering the past six month period;

- Rates notice for the Marrickville property;

- Identification for Rosa Baira (I note sighting your driver's licence, passport and Medicare card but omitted to take copies in the Office). We will require clear colour copies of these documents.

...

1. Alongside the reference to the need for the St George Bank loan statement there is a handwritten note in Mr Famularo's handwriting which says:

Outstanding 16/1/06. Ianni said he would provide the latest statement.

1. There are handwritten ticks next to the words "rates notice", "driver's licence", "passport" and "Medicare card". At the bottom of the letter there appears in handwriting "mailed 9/12/05" and initials which are said to be those of Adriana Famularo, Mr Famularo's wife. She did not, however, give evidence.

1. Mrs Baira denies ever having received this letter or ever having met with Mr Famularo.

1. There was a "With Compliments" slip from AMBFS attached to the letter. On that slip was written in Mr Famularo's handwriting "Mother in law to sign plus copies of passport, licence/Medicare Thanks PF".

1. The loan agreement with RAMS was signed by Mrs Baira on 28 February 2006. Other documents signed by her on that day included a Direction to an insurance company to note RAMS on the policy, an Authority to Pay out and Discharge the St George mortgage, a Disbursement Authority, a document headed "Authority, Direction, Undertaking and Acknowledgement", an Acknowledgement that no legal or financial advice was obtained, a Warranty as to the correctness of her name (namely, that she was the same person as Rosa Fiorivanti) and a Warranty regarding the property. Mrs Baira also signed the mortgage to RAMS and her signature was witnessed by Sandra.

1. On 10 March 2006 a company called Mortgage Settlements Australia wrote to Mrs Baira at her Marrickville property confirming that the loan was scheduled to settle on 13 March 2006. The letter set out how the loan amount was to be disbursed and asked her to sign to confirm those instructions. The letter contains a signature purporting to be that of Mrs Baira. She says that it is not her signature.

1. The loan appears to have settled on 14 March 2006 with an amount of $640,870.50 being paid to St George Bank. RAMS took a mortgage over Mrs Baira's property.

5. The knowledge of the mortgagors prior to the RAMS loans

1. It is important to consider what Rosario and Mrs Baira knew about their legal responsibilities immediately before they entered into the loan agreements with RAMS. This involves an assessment of their evidence.

(a) Rosario Ianni

1. Rosario's evidence was very unsatisfactory in a number of respects. The first respect was his ability to speak and understand English. This was a very significant issue because of his claim that he could not understand either Mr Egisto nor Mr Wennerbom when they explained important matters about transactions into which he was entering.

1. After entering the witness box and being sworn, he was asked his name. Instead of answering he looked to the interpreter to interpret the question. I asked him a short time later:

Q. Mr Ianni do you not understand any English?

A. WITNESS: Little bit, not much.

A. INTERPRETER: Very little.

A. WITNESS: Very little.

INTERPRETER: If I may say, speaks a Calabrese dialect, and very little Italian, extremely little English.

ASHHURST: I object to that.

HIS HONOUR: I am not going to take any notice of that.

KELLY: I am happy to proceed in English and see how far we go, your Honour.

ASHHURST: I am in your Honour's hands.

HIS HONOUR

Q. Mr Kelly asked you what your name was and you looked at the interpreter to interpreter that question. Did you not understand that?

A. INTERPRETER: He said he couldn't understand at the moment.

(The evidence then proceeded through the interpreter.)

1. This is to be contrasted with the commencement of his evidence before Grove AJ. Not only was he able to understand when he was asked his name, address and that he was a pensioner, he was also able to have a conversation with Grove AJ about understanding the oath. There were also occasions both in the evidence given before me and before Grove AJ where Rosario answered questions before they were translated.

1. He claimed not to understand what the word "loan" meant in 2005. Yet he moved to Australia in 1954 and he worked for 39 years before retirement. During that time he worked for 30 years as a painter and docker at Garden Island. He borrowed money from the Commonwealth Bank to buy the property at Drummoyne. He gave a mortgage to the bank. Indeed, in his affidavit of February 2010, an affidavit sworn without any reference to its having been interpreted to him, paragraph 14 says:

In about 1977, I paid out the loan that was taken by me to purchase the house at Drummoyne.

1. He obtained his driving licence. He agreed that he had to undertake a written test to get his licence but said that he had someone to help him do it. That seems very unlikely.

1. He denied in cross-examination that he could read a short letter in English. Yet in his affidavit of 23 February 2010 he said:

30. I have very poor reading or writing skills in English although I am able to read for example a short letter and the various bills for utilities.

1. When confronted with the fact that one of the solicitors who advised him, Mr Egisto, spoke Italian he made false claims about the dialect that Mr Egisto spoke. He first said that he couldn't remember if Mr Egisto spoke Italian or Sicilian. Then he said that Mr Egisto spoke in Italian, but that the Italian spoken was a different dialect from Calabrese and that he could not understand Mr Egisto. He said that he told Mr Egisto he could not understand him. The next day he said that he did not know what dialect Mr Egisto was speaking but he could not understand him.

1. It was put to him that Mr Egisto had been his solicitor since the early 1990s. Rosario said that he had only seen him once about his hearing and a workers compensation claim, but they didn't really talk to one another very much. He claimed not to have understood what Mr Egisto said to him about his claim.

1. In his evidence before Grove AJ he said that he had never been to Mr Egisto before he saw him in July 2000. He did not assert before Grove AJ that Mr Egisto was speaking a different dialect. He said that Mr Egisto wasn't speaking clearly, that all Mr Egisto said was that Rosario must sign the documents and he, Rosario, did not understand anything Mr Egisto was saying.

1. It was put to him in evidence he gave before me that Mr Egisto said to him in the Calabrian dialect that if Joe and Sandra didn't pay St George Bank he, Rosario, may have to. His answer was:

He never said, he never said anything to that effect, not in Calabrian, not in English, never said anything to that effect.

He was then asked three times by Mr Ashurst SC for RHG how he knew Mr Egisto had not said that in English. On each occasion he gave a non-responsive answer in a manner that indicated to me that he did not want to answer that question.

1. Mr Egisto said that he had acted on five workers compensation matters for Rosario in the early 1990s. He said he spoke to him in a mixture of Italian, Calabrian and English. He said that Rosario had never said to him that he did not understand what Mr Egisto was saying to him. I accept Mr Egisto's evidence in that regard.

1. Mr Wennerbom met Rosario and Domenica when they came to sign the RHG documents. He says that he spoke to them in English. He exchanged pleasantries with them when they arrived. He then explained the documents to them, maintaining eye contact to make sure they were understanding him. He told them to ask him to slow down if he was going too fast. He said that they both said to him that they understood. He said at no time was any language other than English spoken even between Joe Ianni and his parents. He said that the meeting took about 40 minutes. This is borne out by his records of his fees.

1. Rosario agreed that he had attended such a meeting. He said that he did not understand what was being said during the meeting and he informed Mr Wennerbom of that but Mr Wennerbom just kept talking and required him and his wife to sign the documents. In his affidavit Rosario said that he was introduced to the solicitor, they exchanged pleasantries about Rosario's health and then the solicitor simply asked him and Domenica to sign the documents "as a guarantor" in places where the solicitor pointed. He said that at no time were the documents explained to him or his wife. He said that he did not read the documents. He said the meeting took about 10 minutes.

1. His description of what took place at the meeting bore a striking resemblance to his description of his meeting with Mr Egisto some five years earlier including where Joe sat at the meeting, the way solicitor behaved and spoke and how the documents were signed. The only significant difference was that Rosario said (although not consistently) that Mr Egisto spoke in Sicilian whereas Mr Wennerbom spoke in English. The result was the same, however, according to Rosario - Rosario didn't understand what was said, he told the solicitor he didn't understand but the solicitor effectively ignored him.

1. He gave evidence before Grove AJ also that he went to see the solicitor in 2000 (Mr Egisto). He gave this evidence (T 123):

A. INTERPRETER: I was there for a total of 10 minutes. I was given papers to sign. They were put in front of me, "sign here, sign here, sign here". I have had to go move my car because it was in a "no standing" place and I had to leave my wife there to sign her paperwork while I went downstairs and moved the car. I was there no longer than 8 to 10 minutes. No-one explained anything to me.

1. A little further on it was suggested to him that he knew he was executing a mortgage. He said (T 131):

No, no, I didn't know this. They only said, "Sign here, sign here." I didn't know what I was signing. They said, "Put your signature here." I was in a hurry and no-one explained anything and I didn't know I was signing for these things here.

1. I asked him about that evidence (T 84):

Q. Mr Ianni, when you went to see Mr Egisto in the year 2000 were you in a hurry to get away from him?

A. When I went to see Mr Egisto the first time he asked me for some documents. I brought him some documents and no, I was not in a hurry.

Q. You see, when you gave evidence in the last case before the other judge, you said in your evidence at transcript 131, "I was in a hurry and no one explained anything." Was that correct?

A. I wasn't really in a hurry. I just gave him the documents, he picked up the documents and then I went. There was no reason to stay.

1. I do not think Rosario has any clear recollection of either meeting. To the extent that he remembers the meetings he appears to have conflated two events. Both in evidence before me and before Grove AJ he said that the meeting with Mr Wennerbom was short because he was parked in a No Standing zone and he was in a hurry to move the car. It was put to him before Grove AJ that he spent almost an hour with Mr Wennerbom and he said (T 156):

INTERPRETER: No way that - no way he could have said that because I had to go down and move the car. And by the time I went around to find any parking spot in the city and went around and around, at least half an hour had passed. And then when I went upstairs, I stayed there no more than, in total, 10 minutes.

1. It was never put to Mr Wennerbom, either in the proceedings before me or before Grove AJ, that Rosario left the conference to move his car.

1. Mr Arul Niles was the former solicitor for Rosario and Domenica. Mr Niles swore three affidavits. In one of those affidavits he swears to having read two of Rosario's affidavits to him before they were sworn. He said that Rosario appeared to understand them. Mr Niles also deposed to discussions with Rosario about the matters the subject of these proceedings and particularly what Rosario did when served with the Statement of Claim. Mr Niles gave evidence before Grove AJ that he did not speak to Rosario in any language other than English. Mr Niles was not required for cross-examination at the hearing before me.

1. Rosario said that he could only have understood Mr Niles if an interpreter had been present. Yet in his affidavit of 5 September 2008 Rosario said:

15. On 4 September 2008, Arul Niles, solicitor attended our home as my wife is unable to travel. I explained to him the matters referred to in this affidavit. Mr Niles has advised me that RHG Mortgage Corporation Ltd the Plaintiff in these proceedings is claiming approximately $962,825.00 in relation to the guarantee.

...

17. This document was read to me by Mr Niles, my solicitor, and the contents accurately reflects (sic) the matters that I told Mr Niles.

1. Mr Niles said nothing about an interpreter being present. He said that he read the affidavits to Rosario and spoke to him. He was not cross-examined. His evidence is plausible because it accords with much other evidence.

1. That evidence suggests, and I find, that Rosario does have an understanding of at least basic English and that he can understand when things are said to him using fairly straightforward language. I accept that Rosario is an elderly man and that English is not his native language. I accept also that when people are under pressure (in the witness box, for example) their facility with a second language may diminish. However, Rosario was not honest in his evidence about how much English he could speak and understand from 2000 to the present time. His evidence about the dialect in which Mr Egisto spoke to him was not honest.

1. Other aspects of Rosario's evidence lead me to conclude, at the very least, that his evidence is unreliable.

1. Rosario said in his affidavits of 5 September 2008, 16 October 2008, and February 2010 that in about September 2005 Joe said that he had found another bank, RAMS, which would charge a lower interest rate. Joe wanted to borrow from RAMS to pay out St George. He asked Rosario if he would sign the documents as guarantor.

1. However, in the witness box Rosario said that he did not know what the RAMS documents were and that Joe did not tell him that he needed him to sign a guarantee. He gave this evidence:

Q. Do you claim that your son never said to you, Could you please sign the documents for the new loan with RAMS as guarantor? Your son never said that to you; is that what you say?

A. INTERPRETER: Well, no, he never said that because I don't know anything about what he has or what agreement he has with this bank or what he was doing.

Q. But you are quite clear about this, your son never asked you to sign any guarantee for the RAMS loan?

A. INTERPRETER: I went to the solicitor in town, but I don't know who sent these documents or--

Q. Please listen to my question, Mr Ianni. Is it your evidence that your son never asked you to sign a guarantee for the RAMS loan?

A. INTERPRETER: No.

Q. So your son never said to you, Dad, I want you to sign a guarantee for the RAMS loan; he never said that to you?

A. WITNESS: No INTERPRETER: No, because if he would have said something like that I would have cancelled, you know, just said no.

Q. And, again, you don't know any reason why your son can't come to this court and give that evidence himself, do you?

A. INTERPRETER: If they call, if you call him he will certainly come, but I don't know.

Q. But you are not going to--

HIS HONOUR

Q. Mr Ianni, why would you have said no if your son had asked you to sign a guarantee with RAMS?

A. INTERPRETER: Okay. I don't like to sign guarantee and I wouldn't do it for my son, I wouldn't do it for anybody and yet because the first time I did it because at that time it was to buy a house.

1. Yet at another point in his cross-examination it was suggested that the RAMS Home Loan Document had been shown to him by Mr Wennerbom and he said (T 69):

I don't remember that he was showing me this document because I went to the city just with the idea that it was always for the guarantee for a hundred thousand dollars. I didn't know about other things.

There were numerous other similar references. In fact, many of his answers, often non-responsive to the questions that he had been asked, were that he went to the solicitor only with the guarantee for $100,000 in mind. This repetitious, non-responsive answer led me to the view that Rosario was deliberately trying to avoid answering questions, particularly questions the answer to which would expose more knowledge on his part than he was prepared to admit.

1. It is difficult to know at other times if Rosario was being deliberately untruthful, whether his own honest beliefs about the events have been altered by time, or whether he was just confused. For whatever reason, his evidence is generally unreliable and it must be scrutinised with care.

1. Mr Egisto gave evidence about the conference on 13 July 2000 when Rosario first signed documents concerned with the loan from St George to Joe and Sandra. He said that it was hard to remember an event that took place 14 years ago but he had a usual practice that he would have followed. Mr Egisto was taken to various documents signed on that day including the Guarantee, Mortgage and a Declaration by Rosario that he had received independent legal advice.

1. Mr Egisto's evidence about the advice he would have given regarding the Guarantee was this:

I would have said "Do you understand what a guarantee and indemnity is? Do you understand that if your son and daughter-in-law don't pay or can't pay that you will be then be responsible to pay the full amount to the extent of the value of your house in Drummoyne".

Q. You referred to a circle that appears on that page 724?

A. Yes.

Q. Do you know who put that circle on that page?

A. That's my way of making sure that the client has clearly understood, in other words I would have emphasised to him, do you realise the extent of your liability.

The reference to the circle was a circle he had drawn over the special condition of the Guarantee that limited the liability of Rosario and Domenica to the value of their house.

1. He was then asked about the mortgage and the advice he would have given. He said:

A. I would have said "do you realise that you're signing a mortgage and that the bank is taking your property as security for what you have guaranteed".

Q. And would you tell him what the effect of that document would be if the loan was not repaid?

A. Yes.

Q. What would you, again using the best you can, the words you would have said?

A. Well, I would have said if your son and daughter-in-law don't pay the debt then you will have to pay it and if you can't pay it the bank will take your house and sell it. Not only does it cover the debt but also any penalties such as legal fees, interest rates and so forth.

Mr Egisto said that all of this would have been said in a mixture of Italian, Calabrian and English.

1. Mr Egisto said that he did not recall Mr Ianni saying that his son told him that there was a limit on his guarantee of $100,000.

1. In the proceedings before Grove AJ Rosario gave the following evidence:

Q. You know what a mortgage is, don't you, sir?

A. INTERPRETER: Mortgage? Mortgage? What's a mortgage? Mortgage.

Q. When you went to the Commonwealth Bank to borrow money to purchase xxxxxxxx xxxxxx, you needed a loan from the Commonwealth Bank and you signed a mortgage to give security to the Commonwealth Bank for that loan?

A. INTERPRETER: Oh yes, mortgage. "Mortgage" means the paperwork for the property?

Q. Yes?

A. INTERPRETER: I had it there at the Commonwealth Bank.

...

Q. And if the Commonwealth gave you money, they wanted something in return?

A. INTERPRETER: What do you mean? I paid the interest, yep.

Q. But to give you the loan, they wanted to take security and the form of security they took was a mortgage over your property?

A. INTERPRETER: Yes, of course, for the house. And until I paid the house, they kept the paperwork of the house. And then when I finished paying it, they gave me the paperwork.

HIS HONOUR

Q. What did you think, Mr lanni, would happen if you didn't pay the bank the money you owed? What do you think would have happened to the house?

A. INTERPRETER: It would be sold and they would take the money that was left. I don't know.

1. I am satisfied from the foregoing that, by the time Rosario was asked by Joe to agree to change from St George Bank to RAMS, Rosario knew that he had given a guarantee for Joe and Sandra's borrowing, that he and Domenica had given a mortgage over their property as security for what he had guaranteed and that if Joe and Sandra did not pay what St George asked them to pay Rosario and Domenica would be responsible to pay it up to the full value of the Drummoyne property.

1. Joe gave evidence before Grove AJ but not before me. He said that, at the time Rosario and Domenica provided their first guarantee in 2000, he told his father that the guarantee "was up to $100,000". He also said that when he spoke to his father in 2005 regarding changing banks he said,

I will be changing banks from St George to RAMS and that his guarantee for $100,000 was required for the change of banks.

1. This appears to provide some basis for Rosario's fixation on a guarantee for $100,000. Joe also said that he did not inform his father in 2005 that he (Rosario) was actually borrowing money nor that what Rosario was doing involved reducing the indebtedness of Joe, Sandra or Jencon.

1. It is hard to know what to make of this evidence of Joe's. It has a certain plausibility because he clearly did not want his father to know too much or he may have refused to help by undertaking the borrowing. Further, in one sense the evidence was against Joe's interest because at that time he was being sued by his father and mother in a cross-claim. It did not advance the defence of the claim for him to admit keeping his father in the dark. On the other hand, Joe was a bankrupt by that time with no real interest to protect. The evidence may have been designed to assist his parents in their defence of the Plaintiff's claim.

1. On balance, I consider that I should accept that evidence of Joe's. It is largely consistent with other matters (to be discussed presently) that cause me to think that Joe used his parents to obtain the loans he wanted, although at the time he may have had the belief that no problem was likely to arise to imperil their position. There was some basis for that belief from the success of the restaurant for some years.

1. In other circumstances I would have been prepared to infer that Rosario had simply misunderstood what was being asked of him in 2000 to provide a guarantee and a mortgage to secure it. However, in the circumstances of this case there is a reasonably strong likelihood that he and Dominica were actually misled by Joe into believing that the limit on the guarantee they were providing was $100,000. Nevertheless, I am satisfied from Mr Egisto's evidence that he informed Rosario and Dominica that they could be liable up to the value of their house in the event that Joe and Sandra did not pay.

The meeting with Mr Wennerbom

1. It is now necessary to consider further what transpired at the meeting with Mr Wennerbom on 11 October 2005. I have no doubt that Rosario and Domenica went along to that meeting believing, as Joe had told them, that he needed them to guarantee the new loan he was obtaining for RAMS which was at a lower interest rate than the loan from St George. There is no evidence to suggest that Rosario and Domenica had any idea that they were to become principal borrowers from RAMS rather than the existing position being maintained with the new borrower.

1. On the other hand, Mr Wennerbom had no information suggesting that he knew that that was Rosario's and Dominica's belief, nor any information that Joe had led Rosario and Dominica to believe that they were simply giving a guarantee. Indeed, it is not apparent from the documents provided to Mr Wennerbom that he would have been able to discern that there was to be a change in the status of Rosario and Dominica from being guarantors/mortgagors to borrowers/mortgagors. What the covering email to Mr Wennerbom certainly made clear was that there were more parties involved in the transaction than Rosario and Dominica. He knew that Joe was involved in the transaction and, that the mortgage being given by Rosario and Dominica was not the only mortgage in the transaction.

1. The significant matters that Mr Wennerbom said to Rosario and Domenica are these (T272 - T273):

Q. And are you able to tell his Honour what you said after you sat down, and Mr and Mrs Ianni sat down?

A. Yes, I said to them that:

"You are entering into a loan agreement which is going to be secured by a mortgagor over your property at Drummoyne, that I have reviewed the documents, and that I believe the documents are in order to be executed by you once we've explained them."

I have explained them. I said to them that, "As with any loan, if you do not make your repayments, then the bank will have the right to sell up your property, and pursue you for any money left over." I asked them to slow me down if I was talking too quickly. Mrs Ianni said, "No", and Mr Ianni said, "I understood". I made a point of eye contact with both of them to make sure they were understanding what I said. I said if they don't understand the documents or what I'm saying, to stop me, which they acknowledged.

Q. Can I stop you there. How did they acknowledge that?

A. I believe Mr Ianni said, "Yes, I will", and Mrs Ianni said, "I understand". I can't be exactly sure, that's it, but I think that's what they said, and I made a point of saying, when I - sorry.

1. In relation to the loan agreement he said:

A. I said, "You are borrowing $910,000", pointing at it, and I then said, "It is subject to the terms of this agreement and the others that follow. You have a term of 30 years. You will also be liable to pay some fees like stamp duty". And I pointed out the amount for stamp duty that would be deducted from the loan, and also the insurance fee. I said to them, "Approximately $11,000 will be deducted from the $910,000 you are borrowing, so you will not get $910,000 when the matter settles. There will be 11,000 less".

Q. I'll stop you there. What if anything did Mr and Mrs Ianni say to that, do you recall?

A. No, nothing.

Q. They didn't respond?

A. No. I then highlighted other fees such as a break fee that could be charged by the bank which was set out in this letter, and they should be sure they understood those costs.

Q. What if anything did they say to that?

A. Nothing.

1. Mr Wennerbom said that he did not ask any questions in relation to the discharge of the St George mortgage nor about where the $890,000 that was being borrowed was going. He said he did not do so because he was not giving commercial or financial advice to them. Although he was required to ask about their ability to repay he was not enquiring about the money that was being borrowed nor the value of their home at Drummoyne nor the discharge. He said he did not see it as his role in the transaction to do that. He knew that Phillips Fox were involved but he did not know what their involvement was, nor did he even assume that they were acting for Joe in the transaction. It was suggested to him that it was odd that Phillips Fox had the right to direct payment of the $890,000 but Mr Wennerbom said that he thought that that was because what he was advising on was part of a larger transaction or a larger series of transactions.

1. Mr Wennerbom denied that Mr Ianni said anything about a guarantee, nor was the sum of $100,000 mentioned at any stage.

1. I thought Mr Wennerbom was an honest witness who was doing his best to recall events that took place almost nine years earlier. I did, however, have the very distinct impression that, to a marked extent, his evidence was based a reconstruction of what he thought had taken place when he looked at the documents that were placed before him. In saying that, I do not suggest that he did not provide an explanation along the lines of what he said he did, nor that he was not endeavouring to be truthful.

(b) Mrs Baira

1. Consideration of Mrs Baira's position starts from a different foundation than Rosario & Domenica. First, I do not think her facility with English was nearly as limited as Rosario. Secondly, there had been multiple occasions of signing Guarantees and associated documents, and having them witnessed prior to the RAMS documents. Thirdly, the clear impression I had from her evidence was that she simply did not care what she was signing, not from any lack of understanding, but because she was prepared to do whatever Joe and Sandra asked of her, usually by means of Sandra's agency. Although she said that she did not know what she was signing and Sandra could not enlighten her, she was still prepared to do so without attempting to read the document or to seek advice from a solicitor even when she attended on him.

1. In that regard it is important to remember what the High Court said in Toll (FGCT) Pty Ltd v Alphapharm Pty Limited [2004] HCA 52; (2004) 219 CLR 165 at [47]:

The importance which, for a very long time, the common law has assigned to the act of signing is not limited to contractual documents. Wilton v Farnworth was not a contract case. The passage from the judgment of Latham CJ quoted above is preceded by a general statement that, where a man signs a document knowing that it is a legal document relating to an interest in property, he is in general bound by the act of signature. Legal instruments of various kinds take their efficacy from signature or execution. Such instruments are often signed by people who have not read and understood all their terms, but who are nevertheless committed to those terms by the act of signature or execution. It is that commitment which enables third parties to assume the legal efficacy of the instrument. To undermine that assumption would cause serious mischief.

1. I found Mrs Baira to be an unsatisfactory witness whose evidence, unless corroborated, was unreliable. On some occasions I do not think she told the truth. Generally, I think she has come to believe that events occurred in accordance with the evidence she gave, whereas the true position was otherwise. Sometimes she appeared to say the first thing that came into her head and then subsequently reconsider.

1. Some examples are these. Her evidence in relation to her knowledge of the new restaurant Joe and Sandra were buying in 1998 was this (T 111):

Q. You did know that Sandra and Joe's company was going to buy a new restaurant in Darling Harbour in 1998, didn't you?

A. No.

Q. You are saying that your daughter didn't tell you in 1998 that her and her husband's company was going to buy a new restaurant? They didn't tell you that?

A. Well, she may have, but again she didn't ask me for permission.

Q. I will get to that Mrs Baira. If you could please stop jumping forward?

A. I am trying to give you the answer the best of my knowledge.

Q. I am just asking you whether it is the case that in 1998 your daughter told you that her and Joe were planning to buy a new restaurant?

A. Okay. I will say yes.

1. She was asked questions about her knowledge of why she was signing various documents. She gave this evidence (T 119):

So you're recording there that Sandra told you that she didn't really know what the documents were for. That is what you are saying there, isn't it?

A. That's what always she kept telling me. She didn't know. I suppose that's knowledge of guarantor. She always claimed she did not know.

Q. If she did not know why didn't you ask Mr Ross when you were in front of him what these documents were for?

A. Because I suppose I was naive, trusting my kids.

Q. But your daughter told you she didn't know what the documents were for. You weren't trusting her about anything, were you?

A. I don't understand what you're trying to tell me.

HIS HONOUR

Q. She hadn't given you a reason for signing the documents so you weren't trusting her at all, were you?

A. I did trust her because otherwise I would not sign.

Q. You asked her why you had to sign. She said, "I don't know." How are you trusting her?

A. Well, I thought I did. That was my way. Like I said, I'm not someone that expert on these things. I just, I didn't make nothing of it.

Q. But you wanted to know why she wanted you to sign the documents. You asked her that, didn't you?

A. Yeah, I don't know why I didn't.

Q. But you didn't ask Mr Ross to tell you?

A. No.

Q. You didn't say to him, "Look Sandra doesn't know why I have to sign these. Can you help me?"

A. Well Sandra and Joe was always present with me. I mean, I thought they knew.

Q. But Sandra told you she didn't know?

A. I didn't know.

Q. Did you ask Joe why you had to sign them?

A. No.

Q. Why not?

A. I hardly used to see Joe. I always saw Sandra. If any document to sign was always Sandra.

Q. I thought you said Joe was always with you when you--

A. When we went to Mr Ross, yes.

Q. Why didn't you ask Joe then?

A. I don't know. I can't answer you, I just didn't.

ASHHURST

Q. Do you say that Joe was with you when you went to see Mr Ross?

A. When I went to Ross. I don't remember every time but the very first time was there, yes.

Q. What about September 1998 was he there?

A. I don't recall. It's a long time ago, I can't remember everything.

1. Her evidence disclosed that she had seen Mr Ross and had received advice from him. She agreed on other occasions that she could have sought, but did not seek, advice from him about documents she was signing or had signed. Her only explanation for not doing so was because she said she trusted Sandra. However, that answer made little sense because she said that Sandra could not explain to her why she was signing documents on each occasion she was asked. The only sense that can be made of the answer about trusting Sandra is that Mrs Baira assumed that if Sandra and Joe wanted her to sign something it must be appropriate to do so.

1. The passage set out at [148] provides another basis for concluding that what she said cannot be relied upon. She first said that Joe was always present when she went to see Mr Ross. Then she said that she hardly saw him - it was only Sandra who was present when she had to sign documents. Then she said that Joe was present the first time when she saw Mr Ross.

1. She gave inconsistent evidence regarding her understanding of her potential liability if Joe and Sandra did not pay what they owed. In her affidavit of 23 October 2008 she said that she remembered signing documents to be a guarantor for a loan of around $50,000 from St George Bank in about 1991 and she understood that if Joe and Sandra did not repay the loan then St George would take their property first and then she, Mrs Baira, would have to pay the rest.

1. By contrast, in her affidavit of 20 October 2010 she said that she understood she was a guarantor for $155,000 and if Joe and Sandra could not pay she would have to pay. She said that she understood that the Bank could ask her to sell her house to pay the money but she did not understand that the Bank could cause her home to be sold.

1. On the other hand, when she gave evidence before Grove AJ and she was asked of her understanding of the guarantee and the mortgage, she said this:

A guarantee is I help my children, which I did, for whatever amount, and you have to pay it off. If they fail to pay, I will have to pay. ... If I haven't got the money, of course they take the house and they going to sell the house for me to pay.

1. A little later on she was asked about signing the documents in 1992 and she gave this evidence:

Q. You knew this was an important document because, by executing this document, Joe and Sandra were going to be able to find a business?

A. WITNESS: Yes.

Q. You hoped that that business would provide for them in the future, didn't you?

A. WITNESS: Yes.

Q. And you were prepared to accept a risk and that risk was your home?

A. WITNESS: Yes.

Q. And you realised that if the loan wasn't repaid, the bank could come and take your home?

A. WITNESS: Yes.

Q. So you were signing this and you signed this document as a guarantor?

A. WITNESS: (Witness nods).

Q. And you then were prepared to execute a mortgage, weren't you?

A. WITNESS: Yes.

Q. As security for that guarantee?

A. WITNESS: Yes.

1. She gave evidence to similar effect before me, having agreed that Mr Ross explained to her in 1992 that if Joe and Sandra did not pay their debt to the Bank the Bank could rely on the documents to sell her house and pay the debt out of the proceeds.

1. In the light of her oral evidence both before Grove AJ and before me the only conclusion I can reach is that her explanation in her affidavit about what she understood the effect of the guarantee and the mortgage to be was deliberately untruthful. Dishonesty may not be the explanation for the discrepancy between her belief that the guarantee was for $50,000 on one occasion and $155,000 in a later affidavit, but it highlights the unreliability of her memory.

1. There is no evidence that RAMS asked him to obtain the identification even though RAMS did not undertake the task for itself. In this case, no inference can be drawn as a result of the Plaintiff not calling evidence, because this is an allegation of agency made on behalf of the Defendants against RAMS. It is for them to prove that Mr Famularo and his company were the agents of the Plaintiff. I do not consider that they have done so.

10. Were the contracts unjust?

1. The starting point must be that, objectively speaking, the contracts were improvident to a substantial degree because the Defendants who had been guarantors were transformed into principal borrowers without any right of recourse against Joe and Sandra who were obtaining all of the benefits of the borrowings.

1. In Nguyen v Taylor (1992) 27 NSWLR 48 Sheller JA said at 71:

The question of the unjustness of the contract is to be determined in the circumstances relating to the contract at the time it was made and, in this case, without regard to the ignorance or innocence of the appellants. However when coming to determine how the discretion should be exercised, the court, in my opinion, is entitled to have regard to additional circumstances and importantly for the purposes of the present case the ignorance and innocence of the appellants ... in the context that it was the respondent's agent who misled him.

1. The "appellants" there referred to are relevantly identical with the Plaintiff in the present case. That passage was approved by Spigelman CJ in Perpetual Trustee Company Limited v Khoshaba [2006] NSWCA 41 at [95].

1. In Khoshaba Basten JA, having quoted a portion of Meagher JA's judgment in Beneficial Finance Corp Limited v Karavas (1991) 23 NSWLR 256 at 277C, went on to say:

[118] In St Clair v Petricevic (1988) ASC 55-688 a vendor sought to set aside a contract of sale of land at a price which had been significantly lower than the asking price. The vendor's home encroached on a right-of-way which benefited the prospective purchasers. They made an offer for the land, combined with a threat to assert their rights over the right-of-way and demolish the encroaching property if it were not accepted. At the time the vendor agreed to the sale she was distressed and agitated, having learned that she suffered from a serious illness. Hope JA (with whom Clarke JA agreed) stated at p 58,207:

Her ability to be resolute in the face of the threat which [the purchasers' agent] made, and to continue with the negotiations, must, in my opinion, have been significantly affected. ... Furthermore, it is not relevant to the question whether the contract should be found to be unjust by reason of the defendant's health that the plaintiffs did not know of it and did not try to take advantage of it. In this regard it is the position of the defendant that is to be considered.

This Court set aside an order for specific performance made in favour of the purchaser and set aside the contract of sale.

[119] Reading St Clair and Karavas together, the true position may be that a claimant can establish the unjustness of a contract by reliance on factors of which the other party was ignorant when the contract was entered into, but that such ignorance may be relevant in determining whether to grant relief. The fact that the power may be engaged by circumstances which were not known to the other party at the time the contract was made is well-established: see, eg, St George Bank Ltd v Trimarchi [2004] NSWCA 120 at [36], Mason P, Sheller JA and Cripps AJA agreeing.

1. As far as Rosario and Domenica were concerned, immediately before they entered into the loan agreement with RAMS they were guarantors for an amount of approximately $486,000. There had been no default by the principal borrowers, Joe and Sandra, nor was there any suggestion that the new loan was being obtained because of an impending or anticipated default. Once the RAMS agreement was in place Rosario and Domenica had an immediate liability for $910,000 and an obligation to repay a monthly amount of $6,294.45. As mentioned, they had no longer had recourse to Joe and Sandra by virtue of a guarantee, nor recourse to the properties that Joe and Sandra had mortgaged for the St George loans. None of this money was paid to them which enabled Joe and Sandra to reduce their liability to St George and to have their property at 802/261 Harris Street, Pyrmont released from liability for the St George loans.

1. In the case of Mrs Baira, immediately before entry into the RAMS agreement she was a guarantor for loans from St George to the value of her Marrickville property. Again, there is no evidence that the principal debtors were in default to St George nor that there was any pending or anticipated default. Immediately after entry into the RAMS agreement she was the principal borrower for $650,000 and required to pay monthly repayments of $3,640. She also lost the rights of recourse she previously had. Mrs Baira received none of the funds borrowed with some of the money being repaid to St George but $320,000 being paid directly to Joe and Sandra contrary to the direction to pay which the Plaintiff believed had been signed by Mrs Baira.

1. The Plaintiff pointed to what was said in Davey v Challenger Managed Investments [2003] NSWCA 172 by Handley JA (with whom Hodgson JA and Grove J agreed) said:

[24] The Court has no way of knowing how many business ventures financed by parents in this way are successful for the benefit of the community and all concerned. Courts only ever see the cases where the business has failed and the mortgages are enforced. The Court might be doing a disservice to the community if it treated age and pensioner status as disabling parents from helping their children in this way. The law has not taken that step, and under ordinary principles the appellants have no proper claim for relief.

1. The Plaintiff laid emphasis on that passage to suggest that if Rosario and Domenica, and Mrs Baira, had voluntarily entered into the present loan arrangements it could not be said by reason of their age and status as pensioners that the contracts were unjust. So much can be accepted. In Davey the parents were found not to be illiterate. They had English as their first language, they were in full possession of their faculties and were in general good health. They knew perfectly well what a mortgage and a guarantee were as they had entered into a similar transaction for the benefit of a son only a few months earlier.

1. However, the Defendants do not simply rely on their age and pensioner status. In the present proceedings there were many other factors.

1. In Baira Basten JA noted what had been said by Handley JA in Davey v Challenger Managed Investments and went on to say:

[216] ...The implication of these statements is, presumably, that the courts should not be unduly ready to relieve parents of what turn out to be improvident agreements. It does not follow, however, that elderly parents are therefore without the protection of the law in respect of transactions believed, at least by the offspring, to be beneficial to their interests, regardless of the fact that they may thereby be putting at risk the sole family asset.

[217] The law provides protection with respect to family transactions where, for example, an offspring misrepresents his or her business circumstances or otherwise uses undue influence to obtain a benefit of a guarantee secured by way of mortgage from his or her parents, in circumstances where the credit provider is on notice: see, eg, Commercial Bank of Australia v Amadio [1983] HCA 14; 151 CLR 447 at 464 (Mason J). Credit providers anxious to avoid such risks will generally require that a party obtaining no apparent benefit from the financial accommodation (a "third party guarantor") should obtain independent financial and legal advice before entering into the transaction. In particular, both Mrs Baira and Mr and Mrs Ianni senior relied by way of defence and cross-claim on alleged unconscionability under the Australian Securities and Investments Commission Act 2001 (Cth), ss 12CA and 12CB, the Trade Practices Act 1974 (Cth), s 51AC and the Contracts Review Act 1980 (NSW). In each case, what was in fact merely a contingent liability under a guarantee was treated by RHG as an extant liability of the proposed borrowers which each sought to refinance, thereby acquiring, for the first time, a primary liability which they had no capacity to service.

1. Accepting that it is unhelpful to refer to the matters listed in s 9 of the Contracts Review Act1980 (NSW) as "the unjustness calculus" (Khoshaba at 101 and 112), the particular matters in s 9(2) that appear to me to be relevant in the present case, and which I have referred to in what has been discussed above, are the following:

(e) whether or not:

(i) any party to the contract (other than a corporation) was not reasonably able to protect his or her interests, or

(ii) any person who represented any of the parties to the contract was not reasonably able to protect the interests of any party whom he or she represented,

because of his or her age or the state of his or her physical or mental capacity,

(f) the relative economic circumstances, educational background and literacy of:

(i) the parties to the contract (other than a corporation), and

(ii) any person who represented any of the parties to the contract,

...

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

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

(j) whether any undue influence, unfair pressure or unfair tactics were exerted on or used against the party seeking relief under this Act:

(i) by any other party to the contract,

(ii) by any person acting or appearing or purporting to act for or on behalf of any other party to the contract, or

(iii) by any person to the knowledge (at the time the contract was made) of any other party to the contract or of any person acting or appearing or purporting to act for or on behalf of any other party to the contract,

(l) the commercial or other setting, purpose and effect of the contract.

1. Whilst it is true that the Defendants were all of somewhat advanced years and were pensioners, their background in language, education and business experience alone takes them out of the description of those who would fit within Handley JA's discussion in Davey. When there is added the fact that the Defendants were kept in the dark by Joe about what precisely they were entering into, and were not, through deliberate intent or misfortune, disabused of their preconceived notions by third parties, the unjustness is plain.

1. On one view, if none of that had been known to the Plaintiff, there may have been difficult questions in granting any, or moulding, the relief that should be accorded to them as a result of these unjust contracts. However, working on the assumption that Mr Famularo was at no time the agent of the Plaintiff, the Plaintiff had sufficient notice that the contracts were unjust or, if they had followed their guidelines and done other things that might in the circumstances have been expected of them, they would have ascertained quite how improvident the contracts were for the borrowers.

1. In Khoshaba Spigelman CJ said:

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

[80] This proposition can be accepted, but it does not lead to the conclusion, urged on the Court by the Appellant, that the failure is entitled to minimum weight when determining what is just in all the circumstances. The benefit to the borrower from a proper risk assessment may be indirect, because unintended, but that does not mean that it cannot, in appropriate circumstances, be entitled to significant weight in the determination of unjustness. It is clear from the list of factors contained in s 9(2) and (3) of the Act, that a substantial purpose of the legislative scheme is to protect persons who are not able to look after themselves.

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

1. Further, the Plaintiff, as I have mentioned, called no one to explain matters which, on the face of the Plaintiff's own documents, and on the face of other evidence the Plaintiff had in its possession, and in the light of evidence that was given in the proceedings, called for an explanation to avoid inferences that could be drawn against the Plaintiff by the prima facie nature of that evidence. Whilst in the ordinary case, a Jones v Dunkel inference cannot plug the gap of evidence that has not been adduced, it is open to a court to infer from the evidence that is otherwise led that that evidence can be accepted, and more confidently so (Jones v Dunkel at p 308) when it was within a party's power to meet the evidence and does not do so: Ho v Powell [2001] NSWCA 168; (2001) 51 NSWLR 572 at [14]-[16], and see [17]-[19] for how that position can operate.

1. The significant matter is that, in respect of both loan applications, if the Plaintiff had followed even some of its guidelines or had made the most cursory enquiries as a result of matter about which it was clearly on notice (see Section 8 above), the rue position would have been exposed and the loan agreements would never have been made.

11. Unconscionable conduct

1. It is not strictly necessary to make any determination about whether the Plaintiff engaged in unconscionable conduct towards the Defendants. However, since submissions were made on the point I will say something briefly about it.

1. It will not be the result, in every case where a contract has been found to be unjust, that the party against whom relief has been granted will be found to have engaged in unconscionable conduct. As has been noted earlier, a contract may be found to be unjust where matters that justified that finding have not been known to the other party. In a rare case, relief may be granted in those circumstances.

1. Further, for unconscionable conduct to be demonstrated, the claimant must show that they were under a special disability or special disadvantage. A contract may be unjust although one party is not under a special disability or special disadvantage.

1. In the present case, I consider that the Defendants were under a special disability by reason of their age, language, education and economic background. Further, by reason of their ignorance of the financial position of the persons for whom the loan agreements were designed to benefit, and the transactional arrangements being put in place to bring about the benefit to those persons, they were at a special disadvantage. Not to be ignored is the fact that no consideration effectively moved to the Defendants from the transaction: Commercial Bank of Australia v Amadio (1983) 151 CLR 447 per Deane J at p 475.

1. RAMS did not have actual knowledge of all of those matters, but it was on notice of some of them, particularly for whose benefit the loan agreements were entered into. More importantly, RAMS was aware of facts that ought to have put them on enquiry and notice of the possibility that it was or might be taking advantage of the Defendants' special disability and disadvantage.

1. In Amadio, Mason J, having made reference to the judgments in Blomley v Ryan (1956) 99 CLR 362, said (at p 462):

It is not to be thought that relief will be granted only in the particular situations mentioned by their Honours. It is made plain enough, especially by Fullagar J., that the situations mentioned are no more than particular exemplifications of an underlying general principle which may be invoked whenever one party by reason of some condition of circumstance is placed at a special disadvantage vis-a-vis another and unfair or unconscientious advantage is then taken of the opportunity thereby created. I qualify the word "disadvantage" by the adjective "special" in order to disavow any suggestion that the principle applies whenever there is some difference in the bargaining power of the parties and in order to emphasize that the disabling condition or circumstance is one which seriously affects the ability of the innocent party to make a judgment as to his own best interests, when the other party knows or ought to know of the existence of that condition or circumstance and of its effect on the innocent party. [Emphasis added.]

1. He said further (at p 471):

As we have seen, if A having actual knowledge that B occupies a situation of special disadvantage in relation to an intended transaction, so that B cannot make a judgment as to what is in his own interests, takes unfair advantage of his (A's) superior bargaining power or position by entering into that transaction, his conduct in so doing is unconscionable. And if, instead of having actual knowledge of that situation, A is aware of the possibility that that situation may exist or is aware of facts that would raise that possibility in the mind of any reasonable person, the result will be the same.

1. By reason of the matters that I have identified in Part 8 of this judgment (from [295] onwards), I consider that RAMS engaged in unconscionable conduct towards the Defendants.

12. What relief should be granted?

1. In relation to relief, this is also a slightly unusual case. At the time the Defendants entered into the loan agreements with the Plaintiff they were already subject to a guarantee, limited either to the value of, or the sale proceeds of, the property in respect of which a mortgage had been granted as security for the guarantee. In that way, the loan agreement and mortgage entered into with the Plaintiff in each case provided a benefit, in that the Defendants were released from the earlier guarantee and mortgage. The general rule articulated in Collier v Moreland Finance Corp (1989) 6 BPR 13, 337; [1989] ANZ ConvR 515 (and see Baira at [303]) would operate so that credit would need to be given to the incoming lender for the benefit received.

1. However, at the time the loan agreements and mortgages were entered into with the Plaintiff in the present case the principal borrowers (Joe, Sandra and Jencon) were not in default under the arrangements they had with St George Bank, nor was there any threat to the Defendants that the guarantees would be called upon and the mortgages enforced. The Defendants had only contingent liabilities that had not crystallised.

1. There is no basis, therefore, for the operation of the general principle. If it is otherwise appropriate to grant relief that sets aside the loan agreements and directs a discharge of the mortgages, it is true that the Defendants will receive a benefit in that they will be placed into a better position than they were at the time of entry into the agreements with the Plaintiff, albeit their liabilities were only contingent. It does not seem to me that that benefit ought to be a bar to such relief being granted if it is otherwise appropriate.

1. I made reference earlier to the fact that, in cases where the lender is unaware of matters that cause the contract to be an unjust one, is relevant to the issue of whether relief should be granted. In the present case, however, the Plaintiff was not without notice that there were matters that needed further enquiry on the face of the material with which the Plaintiff was supplied in each case. Moreover, if guidelines had been adhered to, or there had been a reasonable explanation for not doing so, there may have been some basis for refusing relief in the circumstances. When the position was, however, that if the guidelines had been followed and appropriate enquiries made, matters would have been ascertained at various times that would have prevented the loan agreements from going ahead, it seems to me that the only fair relief is that the Defendants should have the contracts set aside and the mortgages removed from their properties.

13. The cross-claim against AMBFS

1. Because I have determined that relief should be granted to the Defendants pursuant to the Contracts Review Act, it is not necessary to consider the cross-claim brought against AMBFS.

1. However, if I am wrong in determining the contracts with the Plaintiff were unjust and/or the relief that I have determined should be made, then I consider that AMBFS should be found liable to the Defendants to the extent of their current liability to the Plaintiff. The basis, in short, for that determination is that AMBFS purported to act as the broker for the Defendants in circumstances where it had no instructions to do so, and it made no effort to have contact with the Defendants to ascertain their knowledge of the true position. Moreover, AMBFS knowingly forwarded misleading and deceptive, and in some cases false, material to the Plaintiff in support of the applications that brought about the existing liability of the Defendants to the Plaintiff.

1. The measure of damages for which AMBFS would be liable would be the amount that would discharge, in each case, the indebtedness of the Defendants to the Plaintiff and would result in the discharge of the mortgages on their properties.

14. Conclusion

1. In proceedings 2008/284857 RHG Mortgage Corporation Limited v Rosario Ianni and Domenica Ianni, the loan agreement date 11 October 2005 should be set aside and the Plaintiff should discharge the mortgage over the Defendants' property. The cross-claim against Australian Mortgage & Business Finance Solutions Pty Ltd should be dismissed.

1. In proceedings 2008/285539 RHG Mortgage Corporation Limited v Rosa Baira the loan agreement date 28 February 2006 should be set aside and the Plaintiff should discharge the mortgage over the Defendant's property. The cross-claim against Australian Mortgage & Business Finance Solutions Pty Ltd should be dismissed.

1. The Plaintiff should pay the costs of the Defendants in both proceedings. Australian Mortgage & Business Finance Solutions Pty Ltd should pay the costs of the Cross-Claims brought by the Defendants.

1. The parties should bring in Short Minutes to reflect these reasons.

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Decision last updated: 01 July 2014